Memorandum of Agreement re: Foreign Theatrical Distribution - DreamWorks LLC and Universal City Studios Inc.
EXHIBIT "A"
MEMORANDUM OF AGREEMENT
BETWEEN DREAMWORKS L.L.C. AND UNIVERSAL CITY STUDIOS, INC.
FOREIGN THEATRICAL DISTRIBUTION
TABLE OF CONTENTS
PAGE
----
1. Definitions.................................................... 1
2. Distribution................................................... 4
3. Distribution Controls and Procedures........................... 6
4. Grant of Rights................................................ 17
5. Collections/Remittance/Accounting.............................. 20
6. Representations and Warranties................................. 30
7. Indemnity...................................................... 31
8. Copyright...................................................... 32
9. Delivery....................................................... 33
10. Termination.................................................... 33
11. Miscellaneous.................................................. 38
EXHIBIT "A-1".................................................. 41
EXHIBIT "A-2".................................................. 42
<PAGE>
EXHIBIT "A"
MEMORANDUM OF AGREEMENT
BETWEEN DREAMWORKS L.L.C. AND UNIVERSAL CITY STUDIOS, INC.
This agreement ("Exhibit A") is entered into as of June , 1995 by and
between DreamWorks L.L.C., a Delaware Limited Liability Company ("DW"), and
Universal City Studios, Inc. (herein, "Universal") relating to foreign
theatrical motion picture distribution.
In consideration of the covenants and conditions herein contained, and
for other good and valuable consideration, the parties hereto agree as follows:
1. DEFINITIONS:
a. "Pictures" (individually "Picture") means all live-action and
animated motion pictures (and combinations thereof) initially
distributed by DW in commercial motion picture theaters before
paying public audiences in the United States during the
"Term", as and to the extent DW has or acquires "Theatrical
Distribution Rights" in the "Territory". Universal
acknowledges that third parties may distribute a Picture in
such portion of the Territory (which may be the entire
Territory) where and when DW does not have Theatrical
Distribution Rights in such portion. The term "Picture" or
"Pictures" does not include any motion picture co-financed by
DW and MCA pursuant to Exhibit "C" to the Master Agreement.
b. "Term" means the period commencing on the date hereof and
continuing through December 31, 2001; provided that the Term
may be extended for an additional four-year period at DW's and
Universal's mutual agreement confirmed by both parties in
writing no later than 90 days prior to December 31, 2001.
Notwithstanding the foregoing and subject to the terms of this
Exhibit "A", Universal shall have the exclusive Theatrical
Distribution Rights for each Picture for the initial period
(as DW determines in its sole discretion) of theatrical
distribution of such Picture in each country of the Territory
in which such distribution commences within twelve months
following such Picture's initial general U.S. theatrical
release, provided that DW shall be entitled to re-release any
Picture theatrically but only after the Term without utilizing
Universal as the distributor. Notwithstanding the foregoing,
the Term is subject to earlier termination in accordance with
Paragraph 10 below.
c. "Territory" means the entire world, excluding only:
i. the United States and Canada and their territories
and possessions (including specifically, without
limitation, Guam, Midway Islands, U.S. Virgin
Islands, Canal Zone, Saipan, Marshall Islands and
Puerto Rico), the Bahamas and Bermuda; and
<PAGE>
ii. South Korea, North Korea and the remainder of Asia
(excluding Japan), but only if and to the extent that
DW assigns theatrical distribution rights in such
countries to or through Lee Entertainment L.L.C. or
any of its affiliated or related parties, or any of
their successors or designees (collectively, the
"Korean Shareholder") pursuant to an agreement
between DW and the Korean Shareholder (the "Investor
Agreement") (it being understood that the countries
so excluded may increase during the Term as such
Korean Shareholder distributes motion pictures
theatrically in more countries in Asia other than
Japan). DW will provide Universal with reasonable
notice, if and to the extent that DW receives same,
of such additional countries, although DW's failure
to do so shall not be deemed to be a breach of this
Exhibit "A"; provided, however, if and to the extent
that Universal and/or UIP has previously entered into
arrangements pre-approved by DW in such additional
countries, DW shall hold harmless Universal from any
third party claims and actual direct out-of-pocket
losses (i.e., excluding internal costs, profits
and/or other consequential damages) resulting from
DW's failure to provide timely notice. In any event,
any such change in countries shall be prospective
only (i.e, it will only affect Pictures which have
not then been distributed by UIP). Notwithstanding
the foregoing, it is agreed that the Korean
Shareholder may not distribute the Pictures through
another U.S. "major" motion picture distributor
(currently Twentieth Century Fox, Warner Bros., Sony,
and Disney), although it may co-venture with such
distributor(s) for distribution. Notwithstanding the
foregoing, if the Korean Shareholder's distribution
rights have terminated with respect to a particular
Picture(s) or in a specified country(ies), and/or if
the Investor Agreement terminates, then to the extent
the Korean Shareholder no longer has distribution
rights, the Territory shall then include any such
excluded country(ies) and/or Universal shall then
have Theatrical Distribution Rights with respect to
the particular Picture(s), as the case may be.
d. "Theatrical Distribution Rights" means only the exclusive
limited right and obligation, subject to the terms of this
Exhibit "A", to distribute the Pictures for the purpose of
exhibition in commercial motion picture theaters before paying
public audiences. Theatrical Distribution Rights do not
include, (i) any form of distribution or exploitation of the
Pictures outside the Territory, (ii) distribution or
exhibition of the Pictures in any other medium including,
without limitation, on free and pay television, video disc,
video tape, computer or other video or in-home distribution
now known or hereafter devised, radio, legitimate stage,
non-theatrical exhibition (including, without limitation,
airlines, ships, schools, hospitals, clubs, societies,
military and industrial installations, etc.) and/or (iii) any
2
<PAGE>
other form of distribution, exhibition or other method of
exploitation of the Pictures, now known or hereafter devised.
e. "Subdistributor" means any person or entity other than "UIP"
which distributes the Pictures hereunder within the Territory,
and which is not owned or controlled, in whole or in part, by
UIP.
f. "UIP" means United International Pictures, B.V., a company
incorporated in the Netherlands, and any entity which it owns
or controls in whole or in part.
g. Notwithstanding anything to the contrary in this Exhibit "A",
the parties agree that: (i) Universal shall not be required
hereunder to violate any contract existing as of the date
hereof or any law, provided Universal shall give DW written
notice promptly following (1) DW's submission of a proposed
marketing plan(s) or other request for "Services" (as defined
below), but in no event later than 30 days following such
submission or request, specifying in reasonable detail any
requirement hereunder which would cause Universal to violate
any such existing contract (and including a copy of the
relevant provision[s] of such contract) and/or any law or (2)
Universal's knowledge of any such violation or prospective
violation; (ii) if Universal receives a claim (which Universal
in its good faith business judgment believes poses a risk of a
result materially adverse to Universal) that any Services
requested by DW violate any third party rights and, as a
result thereof, Universal desires to discontinue rendering
such Services, Universal will be permitted to do so until such
time, if ever, as such claim has been resolved in Universal's
favor or in any other manner which does not prevent Universal
from rendering such Services and provided that, prior to
discontinuing such Services, Universal shall give DW written
notice specifying in reasonable detail the specifics of such
claim (as well as a copy of any relevant pleadings, demand
letters, correspondence, etc.) and shall nonetheless continue
rendering such Services for a reasonable period of time so as
to enable DW to arrange for a commercially acceptable
alternative; (iii) Universal shall not be required to cause
UIP to deliver greater services, information, data or reports
(collectively, "Services") than the comparable level of
Services which UIP then renders to Universal or to any of the
"UIP Owners" (as defined below) (provided, however, that
Universal will use its best efforts to cause UIP to comply
with any additional requirements or Services requested by DW,
it being acknowledged that Universal cannot guarantee that UIP
will agree to do so); and (iv) there will not be a material
reduction (on an overall basis) in the Services provided
hereunder, from that provided by UIP to Universal or any of
the UIP Owners in June 1995 although the parties acknowledge
that (1) any such material reduction shall not be deemed to be
a breach of this Exhibit "A", and (2) each of the UIP Owners
may themselves render or cause to be rendered specific
Services theretofore rendered by UIP and, in such event, to
the extent Universal renders or causes to be rendered
3
<PAGE>
such Services to its own pictures generally, it shall provide
such Services to DW at no additional cost.
2. DISTRIBUTION:
a. Universal is granted Theatrical Distribution Rights in the
Territory to the Pictures during the Term, provided that such
distribution shall be conducted by UIP in the ordinary course
of UIP's business. In distributing Pictures pursuant to this
Exhibit "A", Universal shall be subject to, and shall cause
UIP to follow, the direction and control of DW consistent with
this Exhibit "A". All decisions by DW under this Exhibit "A"
may be made from time-to-time on a Picture-by-Picture and
territory-by-territory basis, unless other-wise specifically
provided herein. DW shall have the right to designate the
period of distribution of any Picture and may require
Universal (which shall in turn require UIP) to withhold or
withdraw any Picture(s) from distribution overall or on a
territory-by-territory basis in the Territory, as DW in its
sole discretion instructs, in which event DW agrees to hold
Universal and UIP harmless from any third party claims
directly resulting from any withholding or withdrawal which
shortens the period of distribution previously designated by
DW. Neither Universal nor UIP shall have any rights in or to
the Pictures other than as distributor and as set forth in
this Exhibit "A". Universal shall, or shall cause UIP to,
advance on a timely basis all DW-approved "Distribution
Expenses" (as defined in Paragraph 5.d. below) in connection
with the Pictures and shall be entitled to recoup same as
herein provided.
b. Notwithstanding the foregoing, to the extent Universal is
precluded from distributing a Picture theatrically during the
Term as a result of DW's exercise of its rights in this
paragraph to withhold or withdraw a Picture from distribution
in any country (or overall) in the Territory, DW shall not
permit any third party to distribute such Picture in such
country (or overall) during the Term or for one year after the
Term without affording Universal the right to do so pursuant
to the terms hereof.
c. Unless expressly prohibited by applicable law, Universal shall
not have the right to refuse to distribute any Picture(s) for
theatrical distribution, except for a refusal to distribute
based on Universal's or UIP's good faith business judgment
exercised in a manner which does not discriminate against the
Pictures as compared to the pictures of the "UIP Owners" (as
defined below), provided that Universal will give timely prior
notice of its intention not to distribute a Picture(s) in
sufficient time to allow DW to distribute, or cause the
distribution of, such Picture(s) on or about the dates
contemplated for initial theatrical release. If Universal
refuses (or is deemed unable due to a force majeure event as
provided in Paragraph 10.b.ii.3(b) below) to distribute any
Picture(s) for theatrical distribution in any country(ies), DW
shall have the right in its sole discretion to withdraw any
such Picture(s) from Universal and distribute or cause the
distribution of such Picture(s) in such country(ies). In
addition, if Universal refuses other than for legal or
censorship reasons (or is deemed unable due to a force majeure
event as provided in Paragraph 10.b.ii.3(b) below and such
event does not affect distributors generally) to distribute
any Picture(s) in a portion of the Territory representing ***
or more of "Territory Receipts" (as defined in Exhibit "A-2")
for all UIP pictures in the preceding year, DW shall have the
right in its sole discretion to withdraw any such Picture(s)
from Universal and distribute or cause the distribution
4
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
of such Picture(s) in the entire Territory or any portion of
the Territory, as DW elects. Notwithstanding the foregoing, if
Universal refuses other than for legal or censorship reasons
(or is deemed unable due to a force majeure event as provided
in Paragraph 10.b.ii.3(b) below and such event does not effect
distributors generally) to distribute any Picture(s) in Japan,
Universal shall nonetheless have the right to distribute any
such Picture(s) in the remainder of the Territory; provided,
however, that DW may, in its sole discretion, withdraw any
such Picture(s) from Universal: (a) in the Far East and
distribute or cause distribution of such Picture(s) therein;
or (b) in the entire Territory on any portion of the Territory
if Universal does not distribute any such Picture(s) in any
country(ies) other than Japan representing *** or more of
Territory Receipts for all UIP Pictures distributed in the
preceding year and distribute or cause distribution of such
Picture(s) therein. If DW distributes or causes the
distribution of any Picture(s) pursuant to either of the two
preceding sentences, DW shall also have the right in its sole
discretion to withdraw from Universal, and render fulfillment
services or cause fulfillment services to be rendered for, any
"Videogram" (as defined in Exhibit "B") embodying such
Picture[s]), in the relevant country(ies) or, if DW elects, in
the entire Territory, as provided in Paragraph 2.C. of Exhibit
"B". Any distribution of Picture(s) and/or Videogram(s) by or
caused by DW under this subparagraph 2.c. shall be at DW's
risk (except as provided in Paragraph 7 of this Exhibit "A"
with respect to loss or destruction of any Pictures or related
physical elements in Universal's or UIP's or any of their
Subdistributors' or agents' possession or control and in
Paragraph 8.D.2 of Exhibit "B" with respect to loss or
destruction of any Videograms or related physical elements in
Universal's or CIC's or any of their Subdistributors' or
agents' possession or control) and without any obligation to
Universal, UIP and/or CIC with respect to such distribution
(including, without limitation, any obligation to pay any
Distribution Fees or Distribution Expenses incurred after DW
assumes distribution in such country(ies) under this Exhibit
"A" and/or any Service Fees incurred after DW assumes
distribution in such country(ies) or Service Expenses under
Exhibit "B").
d. DW shall not enter into any agreement during the Term with any
third party in which DW does not directly or indirectly have a
substantial financial interest or which does not directly or
indirectly have a substantial financial interest in DW, for
the distribution of Pictures during the Term in commercial
motion pictures theaters before paying public audiences in the
5
<PAGE>
United States or Canada covering all or substantially all of
its Pictures without discussing such matters with Universal,
but DW shall have no obligation to enter into an agreement
with Universal for such distribution of Pictures in the United
States or Canada. DW shall have no obligations under this
subparagraph in the event of a termination of this Exhibit "A"
per Paragraph 10.
3. DISTRIBUTION CONTROLS AND PROCEDURES: The parties acknowledge that
Universal shall cause distribution in the Territory to be handled by
UIP, whose services shall be supplied to DW by Universal, which hereby
guarantees and shall be fully responsible for the performance of UIP in
accordance with and subject to the terms and conditions set forth
herein. References to UIP therefore shall refer to those services of
UIP which Universal is supplying hereunder. Universal shall cause the
Pictures to be distributed by UIP in the same fashion as the pictures
of Universal, MGM/UA and/or Paramount Pictures or any other partner in
or owner of UIP (collectively, the "UIP Owners") and UIP shall timely
submit all recommendations for DW's approval as specified below. DW
shall have the right to exercise complete and final control in its
absolute discretion over all aspects of the distribution, marketing and
advertising for the Pictures in the Territory throughout the Term
consistent with the provisions of this Exhibit "A". Notwithstanding
anything to the contrary herein contained, DW shall have the same right
of direct contact with UIP as any of the UIP Owners in its agreement
with UIP. In this regard, Universal represents and warrants that it has
and shall retain during the Term identical rights of access to UIP (on
a "favored nations" basis) available to any other UIP Owner whether by
virtue of the UIP Agreement or as otherwise established from
time-to-time during the Term. With respect to the distribution of the
Pictures in the Territory, Universal shall delegate to DW whatever
powers and authorities Universal is entitled to under its agreement
with UIP; provided, however, that if Universal is contractually
prevented from delegating such powers and authorities under its
presently existing agreement with UIP, Universal will exercise such
powers and authorities on DW's behalf and at DW's direction or in
concert with DW. Without limiting the generality of the foregoing, the
following specific terms shall apply:
a. GENERAL: In accordance with UIP's practices with respect to
the UIP Owner's pictures, UIP shall prepare and recommend in
full consultation with DW continent-by-continent (broken down
territory-by-territory) marketing plans, budgets and
distribution plans and other items containing such
information, analysis and recommendations as DW may from
time-to-time request for DW's approval in sufficient time for
DW to review and discuss. UIP shall commence preparation of
such plans and other items immediately following receipt of
pertinent materials and information provided by DW, and in any
event, such plans and items will be delivered to DW no less
than *** days prior to the initial theatrical release date in
the Territory for each Picture hereunder (with such detail and
specifics as possible given the information previously
provided by DW, and updated by UIP from time-to-time as more
information is made available by DW
6
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
to UIP). DW shall timely approve or timely supply reasonable
revisions thereto so that UIP can take such actions as may be
necessary to distribute Pictures as contemplated hereby in a
fashion consistent with DW's approvals. In addition to any
specific approvals set forth in this Exhibit "A", DW shall
have the same right to approve actions to be taken by UIP in
connection with the Pictures as any UIP Owner has with respect
to actions to be taken by UIP in connection with such UIP
Owner's pictures (provided, DW shall not forfeit any approval
rights if it fails to act within a specified period of time
due to Universal and/or UIP's failure to timely advise DW in
writing of such time period). DW may exercise such approval
rights in its absolute discretion with respect to all matters,
including, without limitation, the dates and durations of the
releases of the Pictures, the dates and terms of initial
booking of the Pictures, the decision to create, and the final
version of, any altered versions of any Pictures (including,
without limitation, colorization of the Pictures), the amount
and nature of budgeted Distribution Expenses, distribution
patterns, dubbing, theaters, circuits, suppliers, vendors and
service providers, laboratories, the use of trailers from the
Pictures on other pictures distributed by UIP and the plans
for marketing, advertising, publicity and promotion,
including, without limitation, coop media plans and
advertising, creative campaigns, and the creation and content
of all advertising and promotional material. If UIP fails to
obtain the release dates, durations and/or exhibitor terms
approved by DW for any Picture(s) (unless such exhibitor terms
are the same as exhibitor terms for comparable pictures of the
UIP Owners), DW shall have the right in its sole discretion to
withdraw any such Picture(s) from Universal and distribute or
cause the distribution of such Picture(s) in the country(ies)
in which UIP fails to obtain such release dates, durations
and/or exhibitor terms (or, if UIP so fails in a portion of
the Territory representing *** or more of "Territory Receipts"
for all UIP pictures in the preceding year and DW elects, in
the entire Territory), at DW's risk (except as provided in
Paragraph 7 of this Exhibit "A" with respect to loss or
destruction of any Pictures or related physical elements in
Universal's or UIP's or any of their Subdistributors' or
agents' possession or control) and without any obligation to
Universal and/or UIP with respect to such distribution
(including, without limitation, any obligation to pay any
Distribution Fees hereunder). If DW distributes or causes the
distribution of any Picture(s) pursuant to the preceding
sentence, DW shall also have the right in its sole discretion
to withdraw from Universal, and render fulfillment services or
cause fulfillment services to be rendered for, any "Videogram"
(as defined in Exhibit "B") embodying such Picture[s]), in the
relevant country(ies) or, if DW elects, in the entire
Territory, as provided in Paragraph 2.C. of Exhibit "B". Any
distribution of Picture(s) and/or Videogram(s) by or caused by
DW under this subparagraph 3.a. shall be at DW's risk (except
as provided in Paragraph 8.C.(ii) of Exhibit "B" with respect
to loss or destruction of any Videograms or related physical
elements in Universal's
7
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
or CIC's or any of their Subdistributors' or agents'
possession or control) and without any obligation to
Universal, UIP and/or CIC with respect to such distribution
(including, without limitation, any obligation to pay any
Distribution Fees or Distribution Expenses incurred after DW
assumes distribution in such country(ies) under this Exhibit
"A" and/or any Service Fees or Service Expenses incurred after
DW assumes distribution in such country(ies) under Exhibit
"B"). There shall be no exclusivity or other distribution
restriction in any exhibition or distribution deal nor any
double bills or accompanying short subjects (unless required
by law) without DW's specific approval. If a short subject is
required by law or custom to accompany any Picture in any
portion of the Territory, DW shall have the first opportunity
to supply such short subject. The parties acknowledge that
Universal, UIP, the other UIP Owners and DW are each engaged
in the motion picture business and that nothing in this
Exhibit "A" shall be deemed to limit each party's rights to
fully, freely and completely engage in all aspects of the
motion picture and related businesses.
b. SUBDISTRIBUTION: UIP shall have the right to employ
Subdistributors, provided that:
i. DW shall have the right of prior approval (not to be
unreasonably withheld) of each Subdistributor and the
duration and terms of each Subdistributor's
agreement. DW hereby approves the list of
Subdistributors for the durations and on the terms
attached hereto as Exhibit "A-1" and incorporated
herein by this reference, and shall not, without
cause, withdraw such approval for the durations and
on the terms therein indicated.
ii. UIP may only distribute Pictures through a
Subdistributor in territories in which UIP does not
directly distribute any other motion pictures, which
territories shall be limited to the territories
specified in Exhibit "A-1" and such other minor
territories, consistent therewith, where UIP elects
not to directly distribute any motion pictures.
iii. If DW does not approve a Subdistributor selected by
UIP, DW shall have the right to engage directly a
subdistributor of its choice (a "DW Subdistributor"),
in which event DW shall be solely responsible for all
activities of and all obligations to the DW
Subdistributor and no Distribution Fees shall be
payable to Universal and/or UIP with respect to the
territory in which such subdistribution occurs.
Notwithstanding the foregoing, Universal shall, at
DWs request, service DWs agreement(s) with a DW
Subdistributor(s)), in which event the reduced
Schedule Percentages set forth in Paragraph 5.c.ii
shall apply (provided, as set forth in Paragraph
5.a., that UIP Gross and SD Gross shall be
8
<PAGE>
aggregated in any event for purposes of calculating
the Gross Receipts breakpoints for the Schedule
Percentages in subparagraphs 5.b.i.(1)-(3)).
iv. Notwithstanding the foregoing, the parties
acknowledge that, subject to DW's reasonable approval
and the provisions of Paragraph 1.c.ii., the Pictures
may be distributed by UIP through co-venture
distribution in some territories within the Territory
(e.g., Hong Kong, China), which co-ventures shall not
be considered subdistribution. In these instances,
reference to "UIP" shall include such co-ventures for
all purposes hereunder. Accordingly, all amounts
payable or credited to such co-ventures in connection
with the Pictures shall be included in deemed "Gross
Receipts", and DW shall be accorded audit rights with
respect to all such co-ventures.
c. SUPPLIERS: With respect to any Picture distributed by UIP
hereunder, DW shall have the right (but, except as provided
elsewhere, not the obligation) to contract directly with UIP's
third party suppliers and/or to "piggyback" on any or all of
UIP's arrangements with any third party (including, without
limitation, dubbing, manufacturing, advertising, marketing and
publicity suppliers/arrangements), except as and to the extent
precluded by law, regulation or written agreement between such
third party supplier on the one hand, and UIP and/or Universal
on the other hand, entered into, and containing a preclusive
provision effective, before July, 1996 and disclosed to DW in
writing before execution of this Agreement (provided, however,
that notwithstanding anything to the contrary in such written
agreements, in no event will DW be bound by such agreements
after January 1, 1999). In addition, Universal shall disclose
to DW relevant excerpts of any such written agreement (except
only its agreement with *** for laboratory services) to the
extent permissible under such agreement, and DW shall have the
right to contest the asserted preclusive contract provision
under the dispute resolution provisions of Paragraph 10 of the
Master Agreement; provided, however, that Universal shall
cause UIP to use its best efforts to cause such third party
supplier(s) to contract directly with DW and/or allow DW to
"piggyback" on UIP's arrangements with such third party
suppliers, as DW elects. UIP shall disclose to DW on an
ongoing basis all material information (including, without
limitation, advances, volume discounts, laboratory and other
vendor rebates and any other economic consideration or
financial advantages) regarding deals which could relate to
UIP's services hereunder and which are under negotiation
and/or concluded with third party suppliers as such
information develops, and UIP shall also disclose to DW upon
execution of this Exhibit "A" all such information regarding
deals concluded with third party suppliers prior to the date
of execution of this Exhibit "A". Notwithstanding the
foregoing, Universal shall not be required to disclose any
information respecting Universal's presently existing
laboratory
9
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
services agreement with ***. DW may use such information in
order to assist DW in deciding whether to "piggyback" on any
or all such existing and/or future arrangements with third
party suppliers and, in the event DW elects to "piggyback", to
determine whether Universal and/or UIP are allocating
advances, volume discounts, laboratory and other vendor
rebates and any other economic consideration or financial
advantages as provided below in this subparagraph 3.c. and in
subparagraph 5.e. Notwithstanding the foregoing, DW shall not
be entitled to confidential third party information regarding
arrangements existing as of the date of execution of this
Exhibit "A"; provided, however, that Universal and UIP shall
in any event disclose the existence of all such arrangements
(including, without limitation, any confidentiality agreements
contained therein), and provide to DW as much specificity as
possible consistent with such third party confidentiality
agreements, and provided further that if Universal and/or UIP
refuses to supply any such third party confidential
information, the parties will (on DW's request) submit to
dispute resolution pursuant to Paragraph 10 of the Master
Agreement and the "Judge" (as defined in the Master Agreement)
shall impose such reasonable procedures (including, without
limitation, redaction and in camera proceedings) as the Judge
deems necessary to accord information reasonably necessary for
the purposes indicated above while preserving the third
party's legal rights to confidentiality. In the event of any
"piggyback" arrangement: (i) DW-approved costs with respect
thereto shall be advanced by UIP and recouped or repaid as
Distribution Expenses; (ii) DW shall have the option to have
the Pictures aggregated with other UIP product for purposes of
obtaining advances, volume discounts, rebates and any other
economic consideration or financial advantages accorded to a
group of pictures and in such event, all such advances,
discounts, rebates, economic consideration and financial
advantages will be allocated to the Pictures according to the
terms of the arrangement in question, or if such arrangement
does not provide a means of allocation, on a fair and
reasonable basis (subject to later reconciliation if and to
the extent such allocation was in retrospect unfair or
unreasonable to either party); (iii) the terms and conditions
of such arrangement with respect to DW shall be no less
favorable than the terms and conditions which pertain to the
distribution of the UIP Owners' pictures; and (iv) provided
such arrangement has been previously timely disclosed to DW in
writing, then with respect to rights to Pictures granted
Universal hereunder, DW shall be bound by the terms and
conditions of such arrangement as if it were a party thereto
except to the extent the third party agrees otherwise.
Alternatively, DW shall have the right in its sole discretion
to itself obtain any or all such services through its own
third party arrangements; provided, however, subject to DW's
absolute control, DW shall be obligated to utilize UIP's
advertising agency or agencies to make any up-front media buys
(i.e. long-term, bulk media purchases made by UIP before how
such media will be used is determined) during any
10
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
period in which all UIP Owners are contractually required to
make all of their up-front media buys with respect to
advertising in the Territory exclusively through such agency
pursuant to an exclusivity arrangement existing as of the date
of this Exhibit "A" and on terms no less favorable than those
offered to UIP Owners (e.g., DW shall receive the same
discounts). If DW enters into its own third party
arrangements, DW will not be entitled to "piggyback" on UIP's
arrangements for the same services unless the "piggyback"
terms previously rejected by DW thereafter materially change.
If DW utilizes its own third party arrangements, DW will: (a)
coordinate (or instruct such third party suppliers to
coordinate) information and performance between each other as
required and with Universal and UIP; (b) pay such third party
suppliers directly; (c) agree to proceed directly against such
third party supplier for such third party supplier's breach;
and (d) if UIP incurs substantial actual excess administrative
costs as a direct result thereof, consider in good faith
contributing towards such excess costs, provided that DW shall
not be obligated to do so. Universal will not, and will cause
UIP not to, enter into any new obligations or agreements, or
extensions of any existing obligations or agreements, which
restrict the right of any supplier that is a party to such
obligations or agreements to contract directly with DW (e.g.,
exclusivity arrangements which prevent such party from
contracting with DW). Notwithstanding the foregoing, prior to
DW directly entering into any third party arrangement, DW
will, in appropriate circumstances, make a good faith effort
to give Universal advance notice and consult with Universal,
it being agreed that DW's failure to comply with this sentence
shall not be deemed a breach of this Exhibit "A". Subject to
the terms of the Master Agreement, to the extent either party
is provided any confidential information with respect to UIP
or DW arrangements with suppliers, vendors, or service
providers, such party shall keep such information absolutely
confidential.
d. OPERATING REQUIREMENTS:
i. DISTRIBUTION OUTSIDE THE TERRITORY: Universal is
expressly prohibited from distributing, or
authorizing the distribution of, the Pictures
anywhere outside the Territory.
ii. DIRECT COMMUNICATIONS AND DEALINGS: DW shall have the
right to communicate (regarding anything within the
scope of this Exhibit "A") directly with (a) all
Universal officers, appropriate management employees
and staff engaged in any aspect of distribution of
motion pictures by Universal anywhere in the
Territory, including officers, management employees
and staff stationed at Universal corporate and
territorial offices; and (b) to the same extent as
the UIP Owners, all UIP officers, appropriate
management employees and staff engaged in any aspect
of theatrical distribution of motion pictures by UIP,
including,
11
<PAGE>
without limitation, officers, appropriate management
employees and staff stationed at UIP corporate,
regional and territorial offices. DW shall receive in
a timely fashion, directly from UIP and from all
Subdistributors, all distribution information,
including, without limitation, release dates,
projections and so forth. DW shall also have the
right to receive copies of any report insofar as it
relates to the Pictures or such other information
received by or available to the UIP Owners (other
than internal financial information respecting the
UIP partnership or relating solely to the respective
UIP Owner's Pictures) respecting an audit of any
Subdistributor conducted by or on behalf of UIP, the
costs of which shall be borne solely by UIP if done
in the ordinary course of business by UIP. In
addition, Universal shall use its best efforts to
have UIP audit the accountings of any Subdistributor
upon the request of DW and if done, DW shall (to the
extent pre-approved by DW, which pre-approval will
not be unreasonably withheld) bear its proportionate
share of the costs thereof.
iii. UIP PERSONNEL: Universal shall cause the President
and Chief Executive Officer of UIP (subject to
reasonable absences for vacation and other business)
to personally supervise DW motion picture
distribution and be responsible to DW with respect to
all matters arising hereunder. In the event that the
President and/or Chief Executive Officer of UIP shall
be replaced during the Term hereof or there is any
other substantial change in the management or
operation of UIP, DW shall have a right of full
consultation with Universal with respect thereto.
e. OPERATING STRUCTURE:
i. MARKETING:
(a) PACKAGING/SHIPPING: UIP shall consolidate
shipment of all DW materials to the
Territories at UIP's London headquarters (or
such other location approved by DW),
provided that DW shall only disapprove any
other location if, in its absolute
discretion, it believes that such location
is not secure, or if it results in a
significant increase in cost to DW, unless
Universal pays such increase in cost. DW and
associated vendors will deliver packaged
material to UIP for shipment. UIP's actual,
direct, third party out-of-pocket shipping
costs shall be billed to DW, provided such
costs are not, in any event, charged at
rates greater than the shipment costs
charged to the UIP Owners for like
materials.
12
<PAGE>
(b) SHIPPING/STORAGE/INSPECTION OF PRINTS: Subject to DW's
approval rights, UIP will render all services in
connection with the shipping, storage and inspection of
the prints required by DW for the Pictures distributed
by UIP hereunder (for which services DW shall reimburse
Universal and/or UIP as the case may be for their actual
direct out-of-pocket costs paid to unaffiliated third
parties). DW may elect, in its sole discretion, to
discontinue using such services for all of the Pictures;
provided, however, that DW shall not have the right to
thereafter re-engage UIP to render any such services
which DW has previously discontinued hereunder.
(c) FAVORED NATIONS: UIP shall provide DW with UIP and third
party goods and services (including, without limitation,
publicity and promotional services) substantially
equivalent on an overall basis in quantity, level,
priority, quality and cost (including discounts,
rebates, allocations and charges) as such services are
provided to UIP Owners in connection with the
distribution of their motion pictures.
ii. DISTRIBUTION:
(a) KEY CONTRACTS: DW shall have the right to approve all
key contracts for the distribution of the Pictures
including, without limitation, all key country and key
city contracts, if and to the extent that any of the
other UIP Owners have such approval rights as to their
pictures.
(b) DISTRIBUTION PLANS: UIP shall timely prepare a
territory-by-territory distribution plan for each
Picture indicating exhibition dates and theaters in each
city (with such detail and specifics as possible given
the information previously provided by DW, and updated
by UIP from time-to-time as more information is made
available by DW to UIP). Each distribution plan shall be
prepared in consultation with DW for DW's approvals as
set forth under this Exhibit "A". Distribution of each
Picture shall be in accordance with the approved plan.
Each Picture may only be distributed in each country
within the Territory by means of one continuous release
in such country, except as otherwise approved by DW. No
reissues, re-releases or colorization of the Pictures
will be permitted unless specifically approved in
writing by DW, and DW shall have the same approval
rights with respect to any reissue or re-release as it
had with respect to the initial release. All material
changes from such plan shall require DW's approval;
provided,
13
<PAGE>
however, that pending such approval UIP's field
personnel may, in good faith and if required due to
distribution exigencies, make reasonable non-material
changes to such plan (which changes will be submitted to
DW for approval as soon as possible thereafter).
Notwithstanding anything to the contrary in this
Agreement, DW will provide UIP, on a
territory-by-territory, Picture-by-Picture basis, a
schedule for the release of the Pictures, which schedule
UIP may change as reasonably necessary with DW's prior
written approval (not to be unreasonably withheld). If
DW fails to approve such changes, UIP shall have no
liability to DW thereof except to implement such
corrections and changes as DW thereafter instructs.
f. INFORMATION AND DOCUMENTS: To the extent it exists, and
subject to the requirements of law, Universal shall furnish,
and shall cause UIP to furnish:
i. INFORMATION:
(a) All "Information" (as defined below) as to the
Pictures, to the extent similar Information as to
a UIP Owner's pictures is made available by UIP to
such UIP Owner;
(b) All Information as to the UIP Owners' pictures, to
the extent such Information is made available by
UIP to any UIP Owner other than the UIP Owner that
produced such picture; and all Information
(including, without limitation, Information about
the release of other motion pictures in the
Territory) that is made generally available to the
UIP Owners by UIP;
(c) All Information as to Universal pictures, to the
extent similar Information is available to
Universal with respect to the Pictures; provided
such Information: (1) shall only be furnished upon
written request from DW; (2) shall be restricted
to Information required by DW for a bona fide
business purpose under this Agreement (e.g.,
optimal release scheduling, verification of most
favorable terms as specified in the Agreement,
including terms related to services, pricing,
costs, comparable accounts and collection of
revenues therefrom, etc.); and (3) shall not be
furnished to DW if in Universal's good faith
business judgment, such disclosure would
constitute a violation of any applicable law,
decree, government regulation, or constitute a
violation of any third party right;
14
<PAGE>
(d) All Information as to the Pictures that is
available to Universal (excluding Information as
to the Pictures that is not available to
Universal, and not based upon Information as to
the Pictures available to Universal, directly or
indirectly by virtue of Universal's and/or UIP's
services hereunder); and
(e) All other Information as may be required by DW,
including, without limitation, MPAA, MPA and other
trade association publications and reports (except
to the extent distribution to DW is prohibited by
such trade association), subject to pertinent
confidentiality agreements of which DW is given
prior written notice, irrespective of whether such
Information is customarily provided by UIP to the
UIP Owners and/or any other party; provided,
however, that if Universal and/or UIP are required
to incur any new additional costs (of which
Universal and/or UIP notifies DW in advance) for
outside personnel Universal and/or UIP are
required to engage solely in order to furnish any
such additional Information which is not included
within the scope of services to be rendered by
Universal and/or UIP under this Exhibit "A",
Universal and/or UIP shall not be required to
furnish such additional Information unless DW
pre-approves such costs and agrees to reimburse
Universal and/or UIP, as applicable, for same
(subject to appropriate reduction, to be mutually
agreed, if and to the extent that such additional
Information is supplied [subject to DW's prior
approval] to any party other than DW). Any dispute
as to whether such additional Information is
within the scope of services to be rendered by
Universal and/or UIP hereunder will be subject to
dispute resolution pursuant to Paragraph 10 of the
Master Agreement.
(f) As used herein, "Information" shall mean all
tangible (i.e., excluding only staff meetings,
phone conversations and similar conversations
which are not reduced to written or other tangible
form) information, data, reports, agreements and
other documents including, without limitation, all
outright sales proposals for the outright sales of
a Picture, direct access to the theatrical
database for each Picture on a
territory-by-territory basis, daily box office
reports, competitive release dates, advertising
expenses, copies of all outside sourced market
surveys, updates and analysis, etc., whether
distributed on paper, electronically and/or
through any other means (e.g., DW shall be put on
the distribution lists for such information). The
Information shall be provided consistent with the
frequency and
15
<PAGE>
timeliness with which the Information (or similar
material) is created by, or supplied to,
Universal, UIP and/or the UIP Owners, or otherwise
as DW shall reasonably request; provided, however,
that if Universal and/or UIP are required to incur
any new additional costs (of which Universal
and/or UIP notifies DW in advance) for outside
personnel Universal and/or UIP are required to
engage solely in order to furnish Information more
frequently or quickly (if possible) than the
Information (or similar material) is supplied to
the UIP Owners and such increased frequency or
quickness is not included within the scope of
services to be rendered by Universal and/or UIP
under this Exhibit "A", Universal and/or UIP shall
not be required to furnish such Information with
such increased frequency or quickness as requested
unless DW pre-approves such costs and agrees to
reimburse Universal and/or UIP, as applicable, for
same (subject to appropriate reduction, to be
mutually agreed, if and to the extent that such
increased frequency or quickness is also accorded
[subject to DW's approval] to any party other than
DW). Any dispute as to whether such increased
frequency or quickness is within the scope of
services to be rendered by Universal and/or UIP
hereunder will be subject to dispute resolution
pursuant to Paragraph 10 of the Master Agreement.
DW shall, on request, be supplied Information by
tape data transmission, without any fee if so
supplied to the UIP Owners, or otherwise at
Universal and/or UIP's direct actual out-of-pocket
cost.
(g) Notwithstanding anything in this section (f) to
the contrary, in no instance shall Information
include (and Universal and UIP shall not be
required to provide) (i) internal financial
information of Universal, UIP and/or the UIP
Owners, or (ii) Information which is not related
to the exploitation and performance of motion
pictures or the costs of distribution.
ii. OPERATIONS:
(a) As to the Pictures: Print inventories (features
and trailers) together with an analysis of print
storage costs by title and quantity, not less than
on a quarterly basis.
(b) Print orders for the Territory, for the initial
release date and for the date 30 days thereafter.
(c) For the top ten markets only, trailer release
dates, on a monthly basis for the period
commencing with the first
16
<PAGE>
release of the trailer through 30 days after
initial theatrical release.
(d) Unless the "Payment Reports" (as defined below)
include an itemization of dubbing expenses,
dubbing budgets on a territory-by-territory,
Picture-by-Picture basis and in local currency
where applicable, not less than on a monthly
basis.
4. GRANT OF RIGHTS:
a. DW grants to Universal Theatrical Distribution Rights in the
Pictures in the Territory during the Term, which Theatrical
Distribution Rights include the right (but only in connection
with the exercise of the Theatrical Distribution Rights):
i. To distribute the Pictures through UIP and its
Subdistributors, as specified herein, and to exhibit,
advertise, publicize and exploit the Pictures pursuant
to the terms hereof;
ii. To use the name and likeness of any person who rendered
services on the Pictures for advertising and promoting
the Pictures, subject to contractual and/or union/guild
restrictions on such uses of which Universal is timely
notified in writing and with which Universal shall have
the affirmative obligation to comply;
iii. Subject to any limitations upon DW's rights timely
communicated to Universal or UIP, to publicize,
advertise and exploit the Pictures and the titles (as
designated by DW) thereof throughout the Territory
during the Term and to permit others to do so;
iv. Subject to any limitations upon DW's rights timely
communicated to Universal or UIP, to cause trailers of
the Pictures and prints thereof to be manufactured,
exhibited and distributed; and
v. To order and procure from DW, and subject to the terms
hereof directly from any laboratory in any part of the
world holding pre-print or other material (which
material shall, at DW's election, be held in DW's name)
such number of release prints and related materials as
DW requires.
vi. Subject to any limitations upon DW's rights timely
communicated to Universal or UIP, any contractual and/or
union/guild restrictions of which Universal/UIP is
notified in writing, and DW's prior written approval in
each instance pursuant to its approval rights hereunder,
to utilize the different titles of the Pictures
designated by DW for each country of distribution, to
dub and subtitle the Pictures and trailers and to edit
same as may be required by the
17
<PAGE>
distribution/exhibition requirements in the particular
countries in the Territory; to publish and authorize
others to publish synopses of and excerpts from the
Pictures and any literary material included in the
Pictures upon which they were based for use in
newspapers, magazines, press books and other
publicity-related periodicals and in television and
radio advertising. Without limiting the generality of
the foregoing, with respect to subtitling and dubbing,
DW shall determine, in its sole discretion, which
Pictures, if any, shall be subtitled and/or dubbed and
in what languages. DW shall have the right in its
absolute discretion to approve any edited version of the
Pictures and all language tracks and subtitles.
b. Universal and UIP shall maintain security and anti-piracy
measures consistent with the highest level of security and
anti-piracy measures maintained for the UIP Owners' pictures
to prevent unauthorized distribution, copying and the
infringement of any of DW's rights. If DW desires security and
anti-piracy measures beyond those provided by Universal and
UIP per the preceding sentence, it may require Universal and
UIP to provide same (or DW may make its own third party
arrangements for such services) at DW's sole cost and expense.
Each party shall immediately notify the other of any
unauthorized copying, distribution, exhibition or other
exploitation of the Pictures and of any other infringements or
violations of DW's copyrights, trademarks and other rights in
the Pictures of which such party has knowledge. DW shall take
such actions as it deems appropriate with respect thereto. To
the extent appropriate, Universal and/or UIP shall join in any
actions and cooperate fully in any litigation or other
proceedings to protect the Pictures and DW's rights. If DW
elects to proceed alone directly through its own counsel, DW
shall bear the costs thereof and DW shall be entitled to
retain any recovery. If DW does not elect to proceed as
provided in the prior sentence, Universal or UIP shall have
the right to proceed either in DW's name or in Universal's or
UIP's name, in which event all recovery reasonably allocated
to the Pictures shall be included in Gross Receipts and all
reasonable, actual direct third party expenses reasonably
allocated to protecting the Pictures shall be a Distribution
Expense. DW shall cooperate fully therewith, and if recovery
is through MPAA or MPA actions, any financial recovery shall
be applied consistent with MPAA or MPA practices. To the
extent Universal and/or UIP pays direct additional costs
related to piracy, copyright or trademark infringement or
other violations of DWs rights in the Pictures, such costs (to
the extent pre-approved by DW), including but not limited to
anti-piracy print coding, MPAA or MPA anti-piracy programs,
and other anti-infringement activities, shall be payable by
DW. Notwithstanding the foregoing, DW may, in its sole
discretion, elect not to have the Pictures included in such
MPAA, MPA, piracy, copyright or trademark infringement or
other actions.
18
<PAGE>
c. In the exercise of Theatrical Distribution Rights hereunder:
i. Neither Universal nor UIP shall re-cut, dub, sub-title,
edit or alter the Pictures, without DW's prior written
approval;
ii. Neither Universal nor UIP shall add trailer, commercial
or other material to the Pictures without DW's prior
written approval, and neither Universal nor UIP shall
use any elements from the Pictures as part of a
commercial, advertisement or trailer in other motion
pictures distributed by Universal or UIP, without DW's
prior written approval. Notwithstanding the foregoing,
neither Universal nor UIP shall be in breach if a local
theater owner violates the terms of the preceding
sentence, provided that neither Universal nor UIP has
consented to or approved same;
iii. Without DW's prior written approval, neither Universal
nor UIP shall distribute the Pictures through "tying"
arrangements or package deals (e.g., where the Pictures
are marketed and sold in a group with other motion
pictures); and
iv. Subject to Paragraph 11.b., without DW's prior written
approval, neither Universal nor UIP will alter the
credits on the Pictures, and Universal and UIP will
otherwise comply with all credit obligations on the
Pictures.
d. In no event shall the rights granted hereunder to Universal be
construed to include rights to use any DW characters or other
element of intellectual property owned or controlled by DW in
any way other than in connection with the advertising and
distribution of the Pictures in which they appear, pursuant to
the terms set forth in this Exhibit "A".
e. All rights not expressly granted to UIP under this Exhibit "A"
are hereby expressly reserved to DW. Specifically, and without
limitation, DW reserves all tangible and intangible right to
every Picture (except only the right specifically set forth to
distribute Pictures in the Territory). All materials and other
physical elements created hereunder shall be the property of
DW upon creation.
5. COLLECTIONS/REMITTANCE/ACCOUNTING:
a. GROSS RECEIPTS: Gross Receipts consists of (i) all amounts
paid or credited by theaters to UIP (or deemed "received" by
UIP as set forth below in this subparagraph 5.a.) for the
right to exhibit the Pictures (including, without limitation,
returnable and non-returnable advances) or as subsidies,
prizes, or aid, and all receipts directly from the
distribution of the Pictures in the case of so called "four
wall engagements and/or road shows" ("UIP Gross") and (ii) all
amounts payable or credited by Subdistributors to UIP, as DWs
collection agent, for the right to distribute
19
<PAGE>
the Pictures or as subsidies, prizes, or aid, and all receipts
directly from the distribution of the Pictures in the case of
so called "four wall engagements and/or road shows" ("SD
Gross") (UIP Gross and SD Gross shall collectively be referred
to as "Gross Receipts"). Gross Receipts shall be considered
"received" when booked as a receivable, subject to later
adjustment for amounts not received. Payment of such amounts
shall be made directly for the account of DW, or at DW's
election, of a DW-related entity, on a monthly basis. Gross
Receipts shall not include amounts payable or credited to DW
as a result of agreements and arrangements made directly
between DW and any DW Subdistributor or any promotional or
commercial "tie-in" agreements entered into by DW.
b. AMOUNT PAYABLE TO DW: Subject to Paragraph 5.b.i.(6) below,
Universal shall pay or cause to be paid to DW or, at DW's
election, to a DW-related entity, an amount equal to 100% of
the aggregate of the Gross Receipts, less the following in the
order listed:
i. Distribution Fees ("Distribution Fees") to be retained
by Universal of an amount equal to:
(1) *** of 100% of Gross Receipts paid to, or credited
against uncontested outstanding sums owed to
Universal by, DW until Gross Receipts equal ***;
(2) *** of 100% of Gross Receipts paid to, or credited
against uncontested outstanding sums owed to
Universal by, DW for to DW from the point that
Gross Receipts exceed *** until Gross Receipts
equal ***;
(3) *** of 100% of Gross Receipts paid to, or credited
against uncontested outstanding sums owed to
Universal by, DW for to DW from the point that
Gross Receipts exceed ***;
ii. All "Distribution Expenses" (as defined below) accrued
by Universal on behalf of DW calculated in accordance
with Paragraph 5.d. below, subject to adjustment for
Distribution Expenses accrued but not paid, in the same
fashion as for UIP Owners.
c. CALCULATION OF DISTRIBUTION FEES:
i. For purposes of the calculation of the Distribution Fees
pursuant to subparagraph 5.b.i, Gross Receipts shall be
aggregated and calculated for each "contract year" (with
the first "contract year" being the one year period
commencing the first day of the month in which the first
release of a Picture hereunder occurs and each
subsequent "contract year" being the one year period
commencing on the next anniversary of the first day of
the month in which the
20
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
first release of a Picture hereunder occurs), such that
at the beginning of each contract year the fee payable
to Universal pursuant to the schedule in Paragraph
5.b.i. above ("Schedule Percentages") shall be
calculated by again commencing with Paragraph 5.b.i.(1).
Notwithstanding the foregoing, (i) all post-Term
services (regardless of when rendered) shall be deemed
to occur in the last contract year that begins during
the Term, and (ii) if the last contract year is a
partial year, the fee payable to Universal for Gross
Receipts from such partial year as well as Gross
Receipts from the distribution of any of the Pictures
beyond the Term per Paragraph 1.b. above shall be the
lesser of *** of Gross Receipts paid to DW or the
otherwise applicable Schedule Percentages. As used in
subparagraph 5.b.i., Gross Receipts shall be based on
actual receipt by DW for purposes of measuring when the
Gross Receipts have been derived.
ii. Notwithstanding anything to the contrary in
subparagraphs 5.b.i.(1)-(3) above, where UIP utilizes a
Subdistributor (or services a DW Subdistributor engaged
by DW pursuant to Paragraph 3.b.iii. above), Universal
shall be entitled to a fee based on SD Gross in the
amount of *** of the applicable Schedule Percentages;
provided, however, as provided in subparagraph 5.a.,
that UIP Gross and SD Gross shall be aggregated in any
event for purposes of calculating the Gross Receipts
breakpoints for the Schedule Percentages in
subparagraphs 5.b.i.(1)-(3).
iii. No Distribution Fee shall be payable to Universal until
concurrent payment to DW of the Gross Receipts, if any,
upon which such fee is charged, it being recognized that
Universal is entitled to recoup Distribution Expenses
out of amounts otherwise payable to DW which recoupment
shall not affect Universal's right to its Distribution
Fee hereunder. In the event of any adjustment as
provided in Paragraph 5.a. above, the Distribution Fee
shall be similarly recalculated and adjusted.
Notwithstanding the foregoing, if Universal and/or UIP
changes its accounting methodology (it being agreed that
the re-allocation of an in-house expense to an outside
source shall not be deemed to be a change in accounting
methodology), its new accounting methodology shall
govern this Exhibit "A"; provided, however, that if the
current accounting methodology used by Universal in
connection with the UIP Owners is more favorable to DW
than Universal's new accounting methodology, Universal's
current accounting methodology shall govern this Exhibit
"A".
iv. In no event shall the Distribution Fees be less
favorable to DW than the distribution fees paid to or
retained by Universal and/or
21
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
UIP in connection with Universal's (or UIP's) overall
distribution in the Territory of motion pictures
produced by any party other than a UIP Owner, it being
agreed that for the purpose of determining whether
Universal and UIP have complied with this "favored
nations" assurance, Universal's or UIP's receipt of a
distribution fee plus any other consideration (in any
form, e.g. non-monetary consideration such as other
rights granted to Universal at the time) shall be taken
into account, so that the determination is an
"apples-to-apples" comparison, as much as possible, and,
in any event, one picture deals and output deals for any
country which represents less than *** of the rental
receipts from theatrical distribution in the Territory
for the prior year shall be excluded.
d. DISTRIBUTION EXPENSES: "Distribution Expenses" shall mean all
actual direct out-of-pocket costs and expenses accrued (i.e.,
*** after being accrued, provided such costs and expenses are
paid no more than *** thereafter), or otherwise when paid, by
Universal and/or UIP in connection with the distribution of
the Pictures in accordance with, and subject to, all of the
terms and conditions of this Exhibit "A". Distribution
Expenses paid in connection with both Pictures and other
pictures will be allocated in a manner agreed by the parties.
Included in Distribution Expenses are the following costs:
i. Manufacturing of prints, and subtitling, dubbing and
editing;
ii. Advertising, promoting, and publicizing the Pictures in
publications, radio and television, previews, P.O.P.
materials, displays and all other media;
iii. Freight, insurance (provided, however, that if DW would
be required hereunder to reimburse Universal and/or UIP
for such insurance costs and Universal and/or UIP can
exclude DW under the terms of the policy, then DW may in
its sole discretion decline such insurance), and
storage;
iv. Applicable payments to performing right societies (e.g.,
SESAC) which Universal and/or UIP is required to pay;
v. Prosecution, settlement and/or defense of copyright
infringement, trademark infringement, unfair competition
and related claims and litigation, provided that all
amounts recovered pursuant to any of the aforementioned
shall be included in Gross Receipts as provided in
Paragraph 4.b.; and
vi. Permit fees and sales, use, remittance, transfer and
other taxes on goods, however denominated.
22
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
vii. Notwithstanding anything in subparagraphs i - vi above,
in computing Distribution Expenses, any allocation among
the Pictures and UIP Owner's pictures shall be
reasonably and fairly made, in a manner no less
favorable to DW than to the UIP Owners and none of the
following shall constitute Distribution Expenses or
otherwise be paid by DW to Universal and/or UIP: (a)
except to the extent caused by DW's actions or inaction,
expenses associated with delinquent payments by
Universal and/or UIP to suppliers, vendors or other
service providers (e.g., interest or finance charges);
(b) so-called "overhead" expenses or other indirect
costs (including, without limitation, salaries and
travel expenses) of Universal and/or UIP; (c) expenses
associated with tradeshows, film festivals, conventions
and similar events, except that incremental increases in
such costs over those paid in prior years (to the extent
pre-approved by DW and solely attributable to the
Pictures) shall be Distribution Expenses hereunder; (d)
any other expenses (other than actual direct
out-of-pocket costs and expenses otherwise reimbursable
under this subparagraph 5.d. as set forth above) of any
kind, including, without limitation, collection costs
and Universal's and UIP's share of trade association
dues and assessments (subject to an appropriate
reduction, to be mutually agreed, if and to the extent
publications or reports from such trade associations are
not supplied to DW hereunder per subparagraph
3.f.(i)(f), and provided further that DW may elect in
any event to become a member of any such trade
association(s) and pay such dues and assessments
directly to the appropriate association(s), in which
event DW shall not be responsible for any share of
Universal's and VIP's dues and assessments to such
association(s)), except that incremental increases in
such costs over those paid in prior years (to the extent
pre-approved by DW and solely attributable to the
Pictures) shall be Distribution Expenses hereunder.
e. FINANCE/AUDITS:
i. ADVANCES/REBATES: UIP shall promptly disclose in writing
and credit to DW all advances, volume discounts,
laboratory and other vendor rebates and any other
economic consideration or financial advantages accorded
UIP by a third party as a direct or indirect result of
UIP's distribution of the Pictures whether or not
specifically allocated to the Pictures, including any
amounts received for or in connection with the
distribution of motion pictures including the Pictures
which are not specifically allocated or credited to the
distribution of specific Pictures consistent with
Section 3.c. All such advances, volume discounts,
laboratory and other vendor rebates and other economic
consideration or financial advantages will be allocated
to the Pictures according to the terms
23
<PAGE>
of the agreements in question, or, if such agreements do
not provide a means of allocation, on a fair and
reasonable basis (subject to later reconciliation if and
to the extent such allocation was in retrospect unfair
or unreasonable to either party). DW shall have access
to any agreement which provides for any such advance,
volume discount, laboratory or other vendor rebate or
other economic consideration or financial advantages,
subject to the conditions set forth in subparagraph 3.c
above with respect to third party suppliers. No rebates
which relate, in whole or in part, to the Pictures shall
be granted to UIP's Subdistributors without DW's
specific written consent.
ii. LOCAL CURRENCY: Other than amounts which cannot legally
be remitted from the country in which they are earned
("Blocked Currency"), all amounts payable hereunder
shall, as DW elects, be paid in either U.S. currency or
the currency of the country where such Gross Receipts
are received. In the event that DW elects to be paid
such amounts in U.S. currency, the amounts shall be
converted, using the same exchange rate for Distribution
Expenses and Gross Receipts, on specified dates of which
Universal and/or UIP shall notify DW on an ongoing basis
and which shall be the same dates and rates used for the
UIP Owners' pictures; provided, if amounts are not
converted directly from the foreign currency in which
they were received to U.S. currency (i.e., if
intermediary conversion to other currency(ies) is
utilized), then Universal shall bear all risk from
fluctuation of such intermediary currencies.
Notwithstanding the above, DW shall have absolute
approval over any currency hedging contracts applicable
to the Pictures entered into by UIP, and DW shall have
the right to enter into foreign currency hedging
contracts with respect to amounts due hereunder. In the
case of Blocked Currency, DW shall have the right to
elect whether to receive some or all of the payment
which may be due in such Blocked Currency, in the
country where it is located. DW may use such amounts to
pay Universal for any Distribution Expenses,
Distribution Fee or other amounts due hereunder on the
Pictures in the country of such Blocked Currency or make
any other arrangements with respect thereto as are
available to the UIP Owners. To facilitate this,
Universal shall cause UIP, on each statement hereunder,
to advise DW in writing as to Gross Receipts which are
in Blocked Currency and Universal shall, at the written
request of DW (subject to any and all limitations,
restrictions, laws, rules and regulations affecting such
transaction), deposit into a bank designated by DW in
the country involved, or pay to any other party
designated by DW in such country, any Blocked Currency
which would have been payable to DW hereunder. Such
deposits or payments to or for DW shall constitute due
remittance to DW, and Universal shall have no further
interest therein or
24
<PAGE>
responsibility therefor. At DW's election, Universal
will convert such deposits or payments into U.S. dollars
to the same extent and in the same manner and proportion
that UIP is able to convert such funds for UIP Owner's
pictures.
iii. BONUSES: To the extent that UIP pays bonuses or
compensation or consideration of any type (including,
without limitation, discretionary bonuses) to its sales
staff or other employees or to any person or entity
which renders services on or in connection with UIP's
distribution of the Pictures, that are tied or relate in
any fashion, in whole or in part, directly or
indirectly, to UIP staff's revenue generation in
connection with UIP pictures, UIP shall include the
Pictures on a pro-rata basis in all such calculations
and with respect to all such bonuses, compensation or
consideration such that any person or entity which
receive a bonus shall have equal incentive with respect
to the Pictures as compared to other UIP pictures. DW
may not pay bonuses or consideration of any type
directly to UIP's personnel.
iv. COMPUTER SYSTEM/ELECTRONIC MAIL: DW shall be "on line"
on UIP's computer systems as to information DW is
entitled to hereunder and shall have direct access to
UIP's electronic mail system, if any, and any other
system of communication between UIP and the UIP Owners
and will reimburse UIP or Universal, as the case may be,
for the allocable portion of UIP's or Universal's
actual, direct, third party out-of-pocket additional
installation and hardware costs, if any, paid by UIP or
Universal as a direct result thereof, within a
reasonable period following receipt of appropriate
supporting documentation; provided, however, that at the
expiration or earlier termination of the Term, UIP shall
(at DW's election) either: (a) give DW any hardware for
which DW has reimbursed Universal or UIP; or (b) UIP
shall retain such hardware and refund to DW the amount
equal to the depreciated value of such hardware.
v. TAX REBATES: Universal shall be entitled to charge
remittance taxes, but shall be obligated to rebate to DW
*** of such taxes at the end of the year in which they
are withheld, and the remaining *** at the end of the
following year.
vi. UIP OWNED BUSINESSES: With respect to the distribution
of Pictures hereunder, any agreement with any theater or
theater chain, or any supplier or other business or
entity owned in whole or in part, directly or
indirectly, by UIP or any UIP Partner ("UIP Business")
shall be fair and reasonable in the marketplace and on
an arms-length basis. If Universal has UIP audit and
monitor any agreement with a UIP Business to ensure that
DW is not
25
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
prejudiced in any fashion as a result of such business
being owned by UIP or a UIP Partner, it shall supply to
DW all information with respect thereto supplied to the
UIP Owners, including the results of any such audit or
procedure.
f. ACCOUNTINGS:
i. Universal shall cause UIP to furnish to DW, on a monthly
basis, within *** from the end of each calendar month,
revenue and payment detail reports (the "Payment
Reports") in a format approved by DW, which format may
change from time-to-time in DW's good faith discretion.
The Payment Reports shall, among other things, indicate
with specificity on a territory-by-territory basis, all
Gross Receipts earned by each Picture and all
Distribution Expenses for each Picture and any
Distribution Fees (as set forth in Paragraph 5.b) with
respect thereto, and (since Gross Receipts are on a
billings basis and Distribution Expenses on an accrual
basis) shall reconcile prior Payment Reports to reflect
Gross Receipts actually received and Distribution
Expenses actually paid, in a manner consistent with the
way such items are reconciled for the UIP Owners. All
Distribution Expenses and Gross Receipts shall be fully
crossed among all Pictures hereunder for purposes of
recoupment by Universal of its advances of Distribution
Expenses hereunder; in no event will Distribution
Expenses and Gross Receipts be crossed between this
Exhibit "A" and Exhibit "B" (except only if and to the
extent that DW fails to timely make any payments
required hereunder). Payment Reports may be corrected,
adjusted or supplemented by Universal from time-to-time
to reflect adjustments, uncollectible amounts, errors,
etc. No Payment Reports need be rendered for any
accounting period during which there are no Gross
Receipts or Distribution Expenses to be reported. If
Universal and/or UIP are required to incur any new
additional costs (of which Universal and/or UIP notifies
DW in advance) for outside personnel Universal and/or
UIP are required to engage solely in order to furnish
any Payment Reports which are re-formatted to DW's
specifications and which are not included within the
scope of services to be rendered by Universal and/or UIP
under this Exhibit "A", Universal and/or UIP shall not
be required to furnish such re-formatted Payment Reports
unless DW pre-approves such costs and agrees to
reimburse Universal and/or UIP, as applicable, for same
(subject to appropriate reduction, to be mutually
agreed, if and to the extent that the format of such
re-formatted Payment Reports is used for similar reports
[subject to DW's prior approval] to any party other than
DW). Any dispute as to whether such re-formatted Payment
Reports are within the scope of services to be rendered
by
26
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
Universal and/or UIP hereunder will be subject to
dispute resolution pursuant to Paragraph 10 of the
Master Agreement.
ii. Concurrently with its receipt of each Payment Report,
Universal will pay to DW amounts indicated thereon to be
due to DW. All payments to DW or Universal, as the case
may be, hereunder shall be made by wire transfer or such
other method as DW or Universal, as the case may be,
shall approve. Payments to DW shall be to DW or any
entity designated from time-to-time by DW.
Alternatively, at DW's election, such payment shall be
made directly by MCA International, B.V. in the
Netherlands to a DW subsidiary in the United Kingdom or
such other country as DW may designate, provided that
any additional remittance or other taxes paid by MCA and
resulting from payment being so made shall be a
Distribution Expense, in which event MCA will rebate to
DW *** of such tax credits at the end of such year and
the remaining *** at the end of the following year.
iii. If a Payment Report indicates that the Distribution
Expenses of Pictures exceed the Gross Receipts, DW shall
pay Universal the difference within 5 business days
following DW's receipt of the Payment Report. In the
event that it is later determined that such Payment
Report overstated the amount payable by DW to Universal,
DW shall be entitled to an immediate refund of such
overpayment (plus interest thereon at the rate set forth
in sub-paragraph iv).
Interest shall be charged on the amount due a party as
computed from the date of the Payment Report but shall
be waived if payment of the amount owing is made within
5 business days after the receipt of the Payment Report.
iv. Interest shall be charged on any amount which is not
paid when due (from the date due until the date of
payment) hereunder by either party at the *** rate from
time-to-time in effect. Such interest shall be paid at
the same time as the associated principal payment shall
be made.
v. DW shall be entitled to all audit results respecting the
Pictures on the same basis and frequency as UIP Owners
are provided with audit results as to their pictures. In
that regard, DW acknowledges that currently such UIP
audits are performed annually on an alternating basis
using internal and external auditors.
27
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
g. ACCESS AND AUDIT RIGHTS:
i. Universal shall keep, and shall cause UIP to keep, full,
true and complete records and books of accounts together
with all supporting vouchers and documents relating to
the distribution of the Pictures hereunder
(collectively, "Records"), and maintain, and cause UIP
to maintain, for a period of seven years following DW's
receipt of a Payment Report all Records relevant
thereto. Notwithstanding the foregoing, Universal shall
in any event, and shall cause UIP in any event to, keep
and maintain (or deliver to DW) all of the above
mentioned materials for any longer period required to
complete an open audit of which DW gives notice or in
the event of an unresolved dispute with any participant
or third party related to a Picture of which DW gives
notice.
ii. Universal grants DW and its agents, employees and
representatives the rights, from time-to-time at all
times during the Term and for a period of *** after the
latter of the expiration of the Term and the delivery of
the last Payment Report hereunder, with reasonable prior
notice to Universal and at all reasonable hours and with
reasonable frequency, to examine, audit and take
excerpts from and make copies of any such records,
invoices, book of account, computer or data base
information, and all other documents or correspondence
related to the distribution of the Pictures or to the
calculation of amounts due to or from DW hereunder;
provided, however, transactions will not be subject to
audit more than *** years after delivery to DW of the
Payment Report in which such transactions are initially
reported. Notwithstanding the foregoing, DW shall only
be entitled to confidential third party information to
the extent the same is reasonably necessary to resolve
an issue(s) under audit; if Universal and/or UIP refuses
to supply any such information, the parties will (on
DW's request) submit to dispute resolution pursuant to
Paragraph 10 of the Master Agreement and the "Judge" (as
defined in the Master Agreement) shall impose such
reasonable procedures (including, without limitation,
limiting disclosure to auditors, redaction and in camera
proceedings) as the Judge deems necessary to accord
information reasonably necessary to conduct the audit
while preserving the third party's legal rights to
confidentiality. DW's audit rights hereunder shall
include the right to examine and inspect all inventory
of the Pictures in the possession or control of
Universal, UIP and any Subdistributors and/or the
duplication, printing and storage facilities used by
Universal. All such audits shall, except as otherwise
provided in subparagraph 5.g.iii. below, be at DW's sole
cost and expense.
iii. If an audit discloses any inaccuracies or discrepancies
in Universal's and/or UIP's books and records with
respect to the
28
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
distribution of the Pictures hereunder or the amounts
payable to or from DW, Universal and/or UIP, as
applicable, shall cure such inaccuracies and
discrepancies within thirty (30) days following notice
thereof. In the event an audit shall uncover a
deficiency as of the end of the period audited, or for
any period of at least six months during the period
audited, in each case equal to or greater than *** in
any account owed at any time by Universal and/or UIP, as
applicable, to DW hereunder, Universal and/or UIP, as
applicable, shall immediately pay DW (i) said deficiency
in full, and (ii) all costs and expenses in connection
with such audit including, without limitation, hotel and
airfare expenses.
iv. In the event of an audit, Universal and/or UIP, as
applicable, shall provide DW and its agents, employees
and representatives with reasonable and suitable
physical conditions in which to conduct such audit,
including, without limitation, a desk and chair,
adequate lighting and suitable ventilation, as well as a
copying machine with which to make copies. UIP shall
cause each Subdistributor to comply with the foregoing.
v. Each of Universal, UIP and DW shall use reasonable
efforts to conduct any audit in an expeditious manner.
h. OPERATIONS:
i. PRINTS: UIP shall catalog and track (in a manner
reasonably acceptable to DW) all prints and trailer and
other advertising material and for the destruction of
prints and for issuance of a certificate of destruction
evidencing same, to the extent done for other UIP Owners
(or to a greater extent as required by DW, provided,
however, that if Universal and/or UIP are required to
incur any new additional costs (of which Universal
and/or UIP notifies DW in advance) for outside personnel
Universal and/or UIP are required to engage solely in
order to render such more extensive cataloging and
tracking services which are not included within the
scope of services to be rendered by Universal and/or UIP
under this Exhibit "A", Universal/UIP shall not be
required to furnish such more extensive cataloging and
tracking services unless DW pre-approves such costs and
agrees to reimburse Universal and/or UIP, as applicable,
for same (subject to appropriate reduction, to be
mutually agreed, if and to the extent such more
extensive cataloging and tracking services are utilized
[subject to DW's prior approval] by any party other than
DW). Any dispute as to whether such more extensive
cataloging and tracking services are within the scope of
services to be rendered by Universal and/or UIP
hereunder will be subject to dispute resolution pursuant
to Paragraph 10 of the Master Agreement.
29
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
ii. LABORATORIES: DW shall have the right, at DW's option,
to negotiate laboratory deals independently of UIP
(provided that DW will in appropriate circumstances use
its good faith efforts to provide UIP notice thereof; it
being agreed that DW's failure to do same shall not be
deemed to be a breach of this Exhibit "A"); otherwise DW
shall be entitled to piggyback on the economics terms of
Universal's laboratory deal.
6. REPRESENTATIONS AND WARRANTIES:
a. DW represents and warrants that:
i. As of the date UIP commences to advertise and/or
distribute a Picture hereunder there shall be no claims,
liens, encumbrances or licenses in or to the Picture
which would limit or interfere with the rights hereby
granted.
ii. All negatives and other materials to be delivered or
made available to Universal will be of a quality
suitable for the manufacturing of technically acceptable
positive release prints of the Pictures and trailers
thereof.
iii. Unless DW notifies Universal or UIP in writing to the
contrary, there will be no restrictions which would
prevent Universal from distributing the Pictures
consistent with the provisions of this Exhibit "A".
There will not be any payments which must be made by
Universal to any actors, musicians, directors, writers
or other persons who participated in the Pictures, or to
any union, guild or other labor organization for any
right to exhibit the Pictures or as compensation in
connection with such exhibition or for any other use of
the Pictures or any of the rights therein and thereto,
provided that DW shall not be obligated to supply any
performing rights license (e.g., SESAC) which may be
required in connection with exhibition of any Picture
except only to the extent obtained by the UIP Owners or
otherwise as customary in the motion picture business
for so-called "major" studios.
b. Universal represents and warrants that:
i. Neither Universal (nor UIP) will suffer or permit any
lien, claim, encumbrance, pledge or mortgage to attach
to any Picture or to any materials furnished by DW
relating to the Pictures.
ii. No material (including, without limitation, advertising,
publicity, promotional, trailers, etc.) added to the
Pictures or used in connection therewith by Universal or
on its behalf by UIP violates or will violate, or
infringes or will infringe, any trademark, trade name,
contract, agreement, copyright (whether common law or
30
<PAGE>
statutory), patent, literary, artistic, dramatic,
personnel, private, civil, property, or privacy right or
"moral rights of authors" or any other right or slander
or libel, any person or entity, provided that the
foregoing shall not apply to any material which is
created by or supplied by DW.
iii. UIP has or will have written agreements with each
Subdistributor hereunder to comply with the terms and
conditions of this Exhibit "A". Such agreements will be
made available to DW promptly upon its request.
7. INDEMNITY: In addition to, and without limiting, each party's
indemnity pursuant to Paragraph VIII.5. of the Master Agreement,
each party ("Indemnitor") shall also at its own cost and expense
indemnify, defend and hold the other party, its and their parents
and affiliates, and their respective employees, agents, managers,
subdistributors, directors and shareholders (collectively,
"Indemnitee") harmless from and against any and all loss (exclusive
of profits), liability or expense resulting from any claim, demand
or suit which may be made or brought against Indemnitee by reason of
any claim by any third party that a Picture, or any element thereof,
including, without limitation, the sound and music synchronized
therewith, or any material (including, without limitation,
advertising, publicity, promotional trailers, etc.) added to the
Picture or used in connection therewith, to the extent any of the
above are supplied by or at the request or direction of or on behalf
of Indemnitor and utilized by Indemnitee as instructed by
Indemnitor, or added by the Indemnitor without Indemnitee's
knowledge, violates or infringes upon the trademark, trade name,
patent, copyright, literary, dramatic, musical, artistic, personal,
private, publicity, civil, property or contract right, right of
privacy, the moral rights of authors or any other right of any
person, firm, corporation or entity. Universal will not be entitled
to any indemnity hereunder to the extent that losses arise or result
because Universal fails to withdraw any Picture which is the basis
of any such claim from distribution immediately as, when and to the
extent so instructed by DW (in which event DW will indemnify
Universal and UIP against third party breach of contract claims in
connection with contracts entered into by Universal and/or UIP in
accordance with the terms of this Exhibit "A" and based on such
withdrawal). DW shall maintain and cause Universal and UIP to be
added as additional insureds (without responsibility for premiums or
deductibles) with respect to the Pictures under DW's customary
Errors and Omissions policy pertinent to exhibition of the Pictures
in the Territory (and each country therein). All such insurance
coverage shall be primary to any other coverage maintained by
Universal and UIP. DW will supply Universal with customary
certificates of insurance and copies of the pertinent policies
evidencing DW's coverage, if any. Notwithstanding the foregoing, DW
may elect in its sole discretion to self-insure. Universal shall be
fully responsible for the loss or destruction of any Pictures or
related physical elements in Universal's or VIP's or any of their
Subdistributors' or agents' possession or control, unless and to the
extent that the negligent or wrongful conduct of DW and/or a third
party with whom DW contracts directly pursuant to Paragraph 3.c of
this Exhibit "A" results
31
<PAGE>
in such loss or destruction (and further provided that such
negligent or wrongful conduct is not of the type for which the
distributor would be responsible under industry custom). To the
extent UIP does so for UIP Owner's pictures, the Pictures shall be
covered, and DW shall be added as an additional insured (without
responsibility for premiums or deductibles), under UIP's property,
casualty, and liability insurance and the proportionate cost thereof
shall be a Distribution Expense hereunder (provided, however, that
if DW would be required hereunder to reimburse Universal and/or UIP
for such insurance costs and Universal and/or UIP can exclude DW
under the terms of the policy, then DW may in its sole discretion
decline such insurance). All such insurance coverage shall be
primary to any other coverage maintained by DW. UIP shall
immediately forward to DW Certificates of Insurance evidencing UIP's
coverage, if any. Notwithstanding the foregoing, Universal may elect
in its sole discretion to self-insure.
8. COPYRIGHT: DW at its sole expense shall cause the Pictures to be
protected by copyright in any part of the Territory where motion
pictures may be protected by copyright. Universal will cooperate as
reasonably required by DW in connection with actions undertaken by
DW (in its sole discretion) to protect copyrights, trademarks, etc.
9. DELIVERY: DW shall timely deliver to Universal at DW's expense all
pertinent physical materials which DW reasonably deems necessary to
facilitate Universal's exercise of its Theatrical Distribution
Rights hereunder provided that Universal and UIP shall have no
liability whatsoever for any loss, cost or damages caused by DW's
failure to provide customary advertising and release materials in a
complete and timely manner, except and to the extent that such
failure is the fault of a Universal-provided service provider with
whom DW has not directly contracted for the service provided. DW
will provide Universal with any then-available print, trailer and
advertising materials within sufficient time to enable UIP to meet
DW's advertising and release requirements hereunder. DW will deliver
to Universal a fully-executed laboratory access letter for each
Picture in which DW has granted Universal Theatrical Distribution
Rights hereunder.
10. TERMINATION:
a. TERMINATION WITHOUT CAUSE:
i. DW and/or Universal shall be entitled to terminate this
Exhibit "A" and/or Exhibit "B" (but not Exhibit "C"
and/or Exhibit "D"), as DW or Universal, as applicable,
determines in its sole discretion, at any time, without
cause, upon twelve-months written notice as to the
Exhibit(s) being terminated. Termination without cause
must be in good faith and after written notice to the
non-terminating party specifying in good faith the
terminating party's problems, suggested solutions and
following the opportunity for both parties to meet and
work together to cure such problems. Termination
32
<PAGE>
under this subparagraph 10.a. will not be subject to
arbitration and/or litigation except solely for claims
of bad faith or alleged violation of the next sentence.
Termination without cause would not be appropriate if
the reason for the termination was: (a) solely for the
economic advantage of the terminating party (e.g., for
DW to make a better deal or if Universal determined that
this is not a good deal); and/or (b) solely because DW
has started (or wants to start) its own distribution
company and/or network for the Territory (although if DW
otherwise terminates without cause, DW may thereafter
commence its own distribution company and/or network).
b. TERMINATION WITH CAUSE:
i. This Exhibit "A" (and Exhibit "B", if DW determines in
its sole discretion) may be terminated by either party,
either (a) entirely; (b) in any country(ies) or
"Region(s)" (as defined below) where the applicable
event or non-performance has occurred (and either
entirely in such country[ies] or Region[s]), or only
with respect to any Picture(s) affected by such event or
non-performance in such country[ies] or Region[s]);
and/or (c) in the entire Territory with respect to a
Picture(s) affected by such event or non-performance,
all as the terminating party determines in its sole
discretion without prejudice to any other rights or
remedies available to it, upon the happening of any of
the following circumstances:
1. If the other party shall materially breach this
Exhibit "A" (provided that the non-terminating
party shall have a period of 30 days, or such
other shorter period as may be reasonably required
with respect to each alleged breach, following
written notice thereof (specifying in reasonable
detail the alleged breach and the action(s)
necessary to cure same and indicating the
Picture(s) and territory(ies) being terminated) to
cure an inadvertent breach; provided that no such
cure shall be allowed for a second breach of the
same type as to which the breaching party has
previously been notified and given a cure period;
or
2. If the non-terminating party shall make any
assignment for the benefit of creditors, file a
petition for bankruptcy, be judged bankrupt or
become insolvent, or if the other party
restructures or dissolves or changes pursuant to
government order affecting a significant portion
of the market.
ii. This Exhibit "A" (and Exhibit "B", if DW determines in
its sole discretion) may be terminated by DW, either (a)
entirely; (b) in any country(ies) or Region(s) where the
applicable event or non-performance has occurred (and
either entirely in such country[ies] or Region[s]), or
only with respect to any Picture(s) affected by such
event or non-
33
<PAGE>
performance in such country[ies] or Region[s]); and/or
(c) in the entire Territory with respect to a Picture(s)
affected by such event or non-performance, all as the
terminating party determines in its sole discretion
without prejudice to any other rights or remedies
available to it, upon the happening of any of the
following circumstances:
1. If UIP's exemption from certain trade laws and
regulations in the European Economic Community is
not extended or renewed by the EEC Commission or
other governing body ("EEC"), with the result that
UIP cannot conduct business in the EEC in the
manner and with the organizational structure that
exists as of the date of this Exhibit "A",
provided that if DW does not exercise its
termination right under this subparagraph 1 and
Universal is permitted to continue to render
services hereunder, so long as UIP (or if it
cannot legally, then Universal) continues the
services required hereunder to the maximum extent
legally possible given such event and at the level
of services then required of UIP and Universal
hereunder, such performance shall be deemed
consistent with Universal's obligations hereunder,
it being acknowledged that DW may nonetheless
thereafter choose to exercise its termination
right under this subparagraph; or
2. If UIP "restructures" (i.e., if UIP ceases to be
the foreign distribution entity for any or all of
UIP Owners or if the relative ownership interests
among the UIP Owners change); provided, however,
that DW shall not be entitled to terminate
pursuant to this provision if UIP (or a successor
entity) continues to be the distribution entity
for Paramount and Universal and no other U.S.
major theatrical studio or motion picture
financier or distributor. If DW does not exercise
its termination right under this subparagraph 2
and Universal is permitted to continue to render
services hereunder, so long as UIP (or if it
cannot legally, then Universal) continues the
services required hereunder to the maximum extent
legally possible given such event and at the level
of services then required of UIP and Universal
hereunder, such performance shall be deemed
consistent with Universal's obligations hereunder,
it being acknowledged that DW may nonetheless
thereafter choose to exercise its termination
right under this subparagraph; or
34
<PAGE>
3. If more than 3 times during any 12-month period
during the Term or an aggregate of 7 times during
the Term (provided that DW shall have given
Universal reasonably prompt notice of each such
alleged event and/or non-performance and that UIP
shall have failed to cure the same within 5 days,
or such shorter period as reasonably required by
DW, following DW's written notice thereof to cure
an inadvertent breach) UIP fails to:
(a) Timely provide any distribution and/or
marketing plans and budgets and/or other
information or documentation required under
this Exhibit "A"; or
(b) Release the Pictures pursuant to plan on
dates and for durations for the release of
the Pictures and in the theaters approved by
DW, subject to customary force majeure
events (provided, in the event of a delay
caused by a force majeure event, DW shall be
permitted to distribute, or cause the
distribution of, such Picture(s) as provided
in Paragraph 2.c. above if DW reasonably
determines that UIP will not be available to
release the Pictures as and when required by
DW); or
(c) Obtain distribution terms from exhibitors
for the Pictures equivalent to those UIP has
obtained for comparable pictures of a UIP
Owner.
4. (a) If DW determines that Universal (and UIP)
has failed or will fail to achieve "Minimum
Results" (as defined below) in the Territory
as a whole, in any "Region" as a whole
(i.e., South America, Western Europe,
Australia, New Zealand, Japan, Far East [to
the extent included in the Territory] and/or
Africa) and/or in any of UIP's six top box
office grossing countries (provided, Japan
shall not be considered a "country" for this
purpose) for the preceding calendar year
(each, a "Top 6 Country", and currently
Germany, France, England, Spain, Australia
and Brazil) with respect to: (i) five or
more Pictures in the Territory, any Region
or any Top 6 Country during the Term; and/or
(ii) any three out of five (on a rolling
basis) consecutively released Pictures
(i.e., consecutively initially released in
commercial motion picture theaters before
paying public audiences in the United
States) in the Territory, any Region or any
Top 6 Country.
35
<PAGE>
(UIP will provide DW with a list of the Top
6 Countries annually.) Minimum Results in
the Territory, any Region or any Top 6
Country, as the case may be, shall be
defined pursuant to Exhibit "A-2" attached
hereto and incorporated herein by this
reference.
(b) If DW believes that Universal (and UIP) has
failed or will fail as provided in Exhibit
"A-2" to achieve Minimum Results with
respect to any Picture or Pictures, DW will
so notify Universal in writing, and unless
Universal notifies DW in writing within ten
business days thereafter stating in detail
its objection to DW's determination, such
determination shall thereafter be deemed
conclusive for all purposes and not subject
to later challenge. If Universal so objects
to DW's determination, DW may submit such
dispute to dispute resolution pursuant to
Paragraph 10 of the Master Agreement. DW's
right to submit such controversy to dispute
resolution shall be without prejudice to its
other rights under the Agreement and shall
not be deemed to be a challenge to the
validity and/or enforceability of the
Agreement.
(c) Notwithstanding the foregoing, a Picture(s)
will not be required to achieve "Minimum
Results" if DW materially changes UIP's
distribution plan therefor and if the plan
submitted by UIP was consistent with the
distribution plans proposed or implemented
by UIP in connection with VIP's distribution
of comparable motion pictures.
5. If at any time during the Term any country(ies)
comprising the Territory shall be or become
subject to a United States Government embargo or
trade restriction, and Universal fails to
immediately comply (and cause UIP to comply) with
such embargo or trade restriction as to the
Pictures; or
6. If DW exercises its termination right with respect
to this Exhibit "A" under the first sentence of
Paragraph 7.B.(i) of Exhibit "B".
c. Upon termination of this Exhibit "A", DW shall have the right
(but not obligation) to order the immediate cessation of any
or all distribution of the Pictures and the immediate return
of any or all prints and related materials, or, at DW's
election, to require Universal to continue
36
<PAGE>
distribution (subject to continuation of Distribution Fees on
such Picture[s]) of some or all Pictures previously delivered
and either in release or ready for release as and for the
duration of the initial period (as determined by DW in its
absolute discretion) of theatrical distribution, and in those
parts of the Territory designated by DW in its absolute
discretion (though DW shall not be obligated to deliver any
additional Pictures subsequent to termination of this
agreement); provided that Universal and UIP shall have the
right to honor all then-existing DW-approved contractual
commitments in connection with the exercise of rights granted
hereunder. Universal will remain obligated to make all
accountings and payments set forth herein with respect to
motion pictures distributed by it (or UIP). On expiration or
other termination of the Term, Universal will (subject to
Section VIII.2 of the Master Agreement and the reasonable
approval of Universal's counsel) immediately execute such
quitclaims and other documents as DW's counsel deems necessary
or advisable to evidence the termination of all Universal's
rights with respect to some or all of the Pictures. Any
disputes with respect to such quitclaim and other documents
shall be resolved as set forth in Section VIII.2 of the Master
Agreement. In the event no timely objection is made or such
objection is resolved, and Universal fails to execute
immediately any document useful or necessary to effectuate the
confirmation or implementation of the provisions hereof, DW
shall be irrevocably appointed as Universal's attorney-in-fact
for such purpose. It is acknowledged said appointment power is
coupled with an interest.
d. The parties acknowledge that if and to the extent DW
terminates for cause Universal's services hereunder, subject
to the first and second sentences of subparagraph c. above,
Universal shall not be entitled to any Distribution Fees
thereafter with respect to any terminated territory(ies)
and/or Pictures (i.e., if DW terminates Universal's services
hereunder with respect to a particular territory(ies) and/or
Picture(s), Universal's Distribution Fee will be calculated on
Receipts attributable to other than such terminated
territory(ies) and/or Picture(s)).
e. At the expiration or termination of the Term, DW shall advise
UIP to either return or destroy all materials in its
possession in connection with the Pictures, as DW shall
instruct. Such action shall be at DW's expense in the event of
expiration, termination without cause by DW or termination for
cause by Universal, and at Universal's expense in the event of
termination without cause by Universal or termination for
cause by DW.
11. MISCELLANEOUS:
a. STANDARD OF CARE: Except as otherwise specifically directed or
approved in writing by DW, in all actions under this Exhibit
"A", Universal shall cause UIP to act in accordance with at
least that standard of care that it
37
<PAGE>
exercises on behalf of each of the UIP Owners. Both parties
shall operate under this agreement in good faith. Without
limiting the generality of the foregoing, Universal will
ensure that services Universal provides to DW hereunder will
be substantially equivalent in quantity, level and priorities
to the services accorded by Universal with respect to
theatrical distribution of Universal motion pictures; and
services provided by UIP (and any Subdistributor) will be
substantially equivalent in quantity, level and priorities
(including, without limitation, priorities in booking
theaters, circuits and booking dates) to the services accorded
by UIP (and any Subdistributor) to the UIP Owners' pictures of
similar domestic theatrical grosses for same genre of picture.
b. UIP DISTRIBUTION CREDIT: Universal shall have the right to
accord UIP (or any successor entity, if permitted hereunder)
its distribution credit (with its logo) on screen for each
Picture in reasonable and customary position on a separate
card, but such credit shall be no larger or more prominent and
shall remain on screen no longer than UIP's present customary
credit or UIP's credit on the motion pictures of the UIP
Owners. Universal shall also have the right to accord UIP (or
any successor entity, if permitted hereunder) its distribution
credit (with its logo) in advertising in the Territory
approved hereunder, in reasonable and customary position and
size. DW shall have the right to designate all other credits
on the Pictures and each agreement with a Subdistributor shall
provide that such Subdistributor is contractually bound to
abide by all such credit obligations.
c. ASSIGNMENT:
i. Universal may not assign this Exhibit "A" except in
accordance with the terms of the Master Agreement.
Notwithstanding the foregoing, it is agreed that UIP, or
a successor entity which is owned and controlled solely
by the UIP Owners (or by Paramount Pictures and
Universal and no other party) and distributes all their
motion pictures in the Territory for which they have the
distribution rights, must be the foreign distributor for
the Pictures.
ii. DW may not assign this Exhibit "A" except in accordance
with the terms of the Master Agreement.
iii. Any attempted assignment in contravention of the
foregoing shall be deemed a material breach of this
Exhibit "A". In the event of a permitted assignment by
Universal or DW to a subsidiary, Universal or DW, as
applicable, shall nonetheless remain primarily liable
hereunder.
d. OTHER ACTIVITIES: Subject to the provisions hereof, nothing
herein shall limit in any way the right of DW, Universal, or
UIP or any subsidiary or
38
<PAGE>
affiliate thereof to engage in business activities or
endeavors of any kind or nature, including but not limited to:
i. All manner of television, home video and merchandising
(including, without limitation, video and computer
games) exploitation of the Pictures;
ii. Advertising;
iii. Publishing;
iv. Interactive Media;
v. The sale of designs, stories, characters, trademarks,
trade names or other rights or properties;
vi. Ancillary market activities;
vii. The co-financing or co-production or any other interest
of any nature in any motion picture or other property
(as to which, in the case of DW, DW does not own or
control [and hence can not accord UIP hereunder] any or
all of the theatrical distribution rights to such
Picture in the Territory.)
viii. The exercise of any right not expressly granted
hereunder.
39
<PAGE>
EXHIBIT "A-1"
SUBDISTRIBUTORS AND TERMS
40
<PAGE>
EXHIBIT "A-2"
1. General: Minimum Results for a Picture in the Territory as a whole, in
each Region of the Territory (i.e., South America, Western Europe,
Australia/New Zealand, Japan, Far East [to the extent included in the
Territory] and/or Africa) and in each Top 6 Country, as the case may be,
shall be determined by comparing, in the manner set forth below, either
(a) the "Territory Billings" for a Picture to the "Domestic Billings" for
such Picture, or (b) the "Regional Billings" or "Country Billings" (in
each Top 6 Country) for a Picture, as the case may be, to the "Territory
Billings" for such Picture. "Domestic Billings", "Territory Billings",
"Regional Billings" and "Country Billings" shall mean rental receipts from
theatrical distribution in the relevant territory. Notwithstanding
anything in this Exhibit "A-2" or in Exhibit "A" to the contrary, the Far
East [to the extent included in the Territory] shall not be considered a
Region for Minimum Results purposes if the portion of the Far East
initially included in the Territory decreases, as a result of the
exclusion (pursuant to Paragraph 1.c.ii of Exhibit "A") of additional
countries in Asia in which the Korean Shareholder commences distribution
of motion pictures, such that the Regional Billings for the portion of the
Far East thereafter remaining in the Territory is less than 75% of the
Regional Billings of the portion of the Far East initially included in the
Territory; and in such event, the remainder of the Far East remaining in
the Territory shall instead be included as part of Japan for Minimum
Results purposes (with appropriate adjustments to account for the increase
in the size of Japan in such event). Appropriate adjustments shall also be
made for Minimum Results purposes to the extent necessary to account for
(a) a Picture not being distributed by UIP in any portion of the Territory
due solely to censorship or governmental prohibition, and (b) only with
respect to Pictures with Domestic Billings of less than ***, a Picture not
being distributed by UIP in any portion of the Territory pursuant to the
first sentence of Paragraph 2.c of Exhibit "A".
2. Definitions:
a. "Amblin' Performance Standard" ("APS") shall mean the following:
(i) "APS I" shall mean the percentage amount *** determined by
dividing (x) the aggregate Domestic Billings for all
theatrical motion pictures produced by Amblin' Entertainment
("Amblin") and initially released for theatrical exhibition in
the Domestic Territory in the years 1988 through 1995
inclusive (the "Base Period") and thereafter released for
theatrical exhibition in the Territory which achieved Domestic
Billings of *** (other than "Schindler's List" and
"Arachnophobia") into (y) the aggregate Territory Billings for
the same group of Amblin' pictures. By way of example only,
assume aggregate Domestic Billings in the Base Period of ***
and aggregate Territory Billings for the same group of Amblin'
pictures of ***. The APS I for the Territory would be ***.
(ii) "APS II" shall mean the percentage amount *** determined by
dividing (x) the aggregate Domestic Billings for all
theatrical motion pictures produced by Amblin' and initially
released for theatrical exhibition in the
41
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
Domestic Territory in the Base Period and thereafter released
for theatrical exhibition in the Territory which achieved
Domestic Billings of less than *** and more than *** into (y)
the aggregate Territory Billings for the same group of Amblin'
pictures. By way of example only, assume aggregate Domestic
Billings in the Base Period of *** and aggregate Territory
Billings for all such Amblin' pictures of ***. The APS II for
the Territory would be ***.
b. "Regional or Country Billing Percentage", as the case may be, shall
mean the percentage amount *** determined by dividing (x) the
aggregate Regional or Country Billings, as the case may be, for all
UIP pictures released in the last three (3) years of the Base Period
into (y) the aggregate Territory Billings for the same group of UIP
pictures. By way of example only, assume aggregate Country Billings
in Germany for all UIP pictures released in the years 1993, 1994 and
1995 of *** and aggregate Territory Billings for the same group of
UIP pictures of ***. The Country Billing Percentage would be ***.
The Regional or Country Billing Percentage shall be subject to
adjustment on an annual basis utilizing a floating three (3) year
average updated each year.
c. "Regional or Country Performance Standard", as the case may be,
shall be determined by multiplying (x) Domestic Billings for the
applicable Picture by (y) the applicable APS as determined by the
Picture's Domestic Billings, the product of which shall be
multiplied by (z) the Regional or Country Billing Percentage, as the
case may be. By way of example only, assume (i) Domestic Billings
for the applicable picture of *** (ii) an APS I of ***, and (iii) a
Country Billing Percentage of *** for the specific Top 6 Country
within the Territory (e.g., Germany). Based on the foregoing, the
applicable Country Performance Standard for a Picture achieving
Domestic Billings of *** would be ***.
3. Minimum Results:
Minimum Results for a Picture in the Territory as a whole, in each Region,
and in each Top 6 Country, as the case may be, shall be deemed to have
been achieved if with respect to each Picture:
(a) For the Territory as a whole -- the Territory Billings for a Picture
as a percentage of the Picture's Domestic Billings fall within
fifteen (15) percentage points of the applicable APS. By way of
example only, assume the APS I is ***. Then each Picture which
achieves Domestic Billings of *** or more must achieve Territory
Billings equal to at least *** of such Picture's Domestic Billings
in order to meet Minimum Results for the Territory as a whole.
(b) For each Region or Top 6 Country within the Territory -- the
Regional or Country Billings, as the case may be, for a Picture fall
within *** of the Regional or Country Performance Standard. By way
of example only, assume (i) a Country Performance Standard of ***
for a specific Picture in Germany, calculated in accordance with
Paragraph 2.c. above, and (ii) Country Billings in Germany of
42
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
*** for the Picture. Based on the foregoing, the Picture will have
failed to achieve Minimum Results in Germany because it failed to
achieve Country Billings of at least ***.
(c) For purposes of determining the applicable APS for a Picture, the
*** breakpoint will be adjusted by the percentage change in the
annual average movie ticket price outside the U.S., as reported by
the MPAA or MPA, as applicable.
4. Projection of Final Results:
If final Domestic Billings, Territory Billings, Regional Billings and/or
Country Billings for a Picture are not yet available (e.g., because the
date of the initial theatrical distribution in a country within the
Territory has not occurred or because some or all final billing results
are not available), DW may, nevertheless, utilize interim billing figures
(in the Domestic Territory, the Territory and/or any Region or Top 6
Country), reasonable projections based thereon, and historical billings
from the immediately preceding year to determine whether a Picture has
failed or will fail to achieve Minimum Results. If a Picture fails to meet
Minimum Results based on such projections, but ultimately achieves Minimum
Results based on actual results, then it shall be deemed to meet Minimum
Results for all purposes; provided, in no event will rental receipts from
third-party distribution (i.e., other than UIP or an affiliated party) be
included for purposes of calculating Minimum Results and in no event will
DW be required to retroactively reverse any termination hereunder.
43
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
SCHEDULE A-TC
AMENDED AND SUPPLEMENTAL TERMS AND CONDITIONS APPLICABLE TO EXHIBIT A
1. Territory. "Territory" as defined in Exhibit A shall exclude the
following:
a. The entire territorial United States and its possessions, territories
and commonwealths, including the U.S. Virgin Islands, Puerto Rico, Guam,
and the former U.S. Trust Territories of the Pacific Islands, including
the Carolina Islands, the Marshall Islands and the Mariana Islands, Saipan
and American Samoa; the Dominican Republic, the British Virgin Islands,
the Bahamas, Bermuda, Saba Island, St. Eustatius Island, St. Kitts Island,
St. Martin Island, St Maarten Island; and Canada and its possessions and
territories;
b. Republic of South Korea, Democratic People's Republic of North Korea
and the People's Republic of China (including Hong Kong) to the extent DW
licenses Theatrical Distribution Rights in such countries to or through
DW's Korean shareholder or any of its Affiliates, their successors or
designees.
c. Either Japan or the "German Territory", as DW may elect. The Federal
Republic of Germany, the Republic of Austria and German-language rights in
Lichtenstein, Luxembourg and Alto Adige shall constitute the German
Territory. At any time during the Term, as a basis to raise additional
capital, DW may assign, license or grant to any third party(ies)Theatrical
Distribution Rights in and to Pictures for either Japan or the German
Territory (the "Output Arrangement"), in which event Distributor shall not
have the right to exercise Theatrical Distribution Rights to the
applicable Pictures in the designated territory, except as otherwise may
be provide in Exhibit A. DW, however, shall have the right to cause
Distributor to provide all of the "Services" (as defined herein) in
connection with such Theatrical Distribution Rights in Japan or the German
Territory, in which event Distributor shall be entitled to the applicable
Distribution Fees as set forth in Exhibit A, calculated on Gross Receipts
(as defined in Exhibit A) derived from the applicable territory, and such
Gross Receipts shall be taken into account for purposes of calculating the
Gross Receipts breakpoints for the Schedules Percentages in Paragraph
5.b.i. of Exhibit A. DW and such third parties shall have free access to
all Picture elements and related materials for all purposes, provided DW
and such third parties shall bear all duplication, freight and delivery
costs in connection therewith. DW will provide Distributor with reasonable
notice of termination of Theatrical Distribution Rights in the applicable
territory, provided, however, if Distributor has prior to such notice (x)
booked theatres for any Picture(s) subject to the Output Arrangement, then
Distributor shall continue to provide all of the Services in connection
with such Picture(s) in the applicable territory and shall be entitled to
retain the applicable Distribution Fees thereon, or (y) incurred approved
Distribution Expenses for any Picture(s) subject to the Output
Arrangement, then DW shall reimburse Distributor for the cost thereof
unless such Distribution Expenses are otherwise reimbursed to Distributor
pursuant to the terms of Exhibit A.
1
<PAGE>
2. Non-Theatrical Rights. Certain Non-Theatrical Rights, as set forth and
defined in a. below, are granted to Distributor for exploitation pursuant
to Exhibit A.
a. "Non-Theatrical Rights" shall refer to the right to exhibit a Picture
solely in the Territory in hotels, motels, hospital and other health care
facilities; correctional facilities; schools and other educational
institutions; common areas of residential living communities; retirement
centres, camps, religious institutions, buses, coaches and trains;
libraries and museums; restaurants, bars and clubs; community military
bases and government installations (excluding US/Canadian); and oil fields
and oil rigs (excluding Aramco/US/Canadian sites).
b. Non-Theatrical Rights retained by DW and specifically excluded from
Exhibit A include: all airlines and aircraft (including military aircraft,
e.g. the Royal Air Force) and all ships at sea (including cruise ships and
ferries); all US and Canadian military and government installations (e.g.
embassies and diplomatic posts) wherever located; Aramco/US/Canadian
industrial sites; and all other non-theatrical venues and rights not
specifically granted to Distributor hereunder.
c. Distributor agrees to use reasonable efforts to exploit on behalf of DW
Non-Theatrical Rights with respect to the Pictures during the Term, and
such Non-Theatrical Rights shall be subject to the terms and conditions of
Exhibit A, including (i) the accounting for revenues and related
distribution expenses in accordance with Exhibit A, and (ii) the rights of
DW to withhold, withdraw and/or terminate Non-Theatrical Rights, as and to
the extent permitted by the terms of Exhibit A with respect to the
Pictures and Theatrical Distribution Rights. Additionally, upon six (6)
months written notice to Distributor, DW shall have the right to terminate
Distributor's exploitation of such Non-Theatrical Rights, subject to
existing licenses entered into prior to such notice and provided that the
term of any licenses entered into after such notice shall not continue
beyond the six (6) month notice period unless preapproved by DW.
3. Services. Subject to and without limiting anything set forth in Exhibit A
except as amended by the terms of this Schedule A-TC (provided that in the
event of any conflict between Exhibit A, the Settlement Agreement (as
defined below) and this Schedule A-TC, the provisions of this Schedule
A-TC shall control over both the Settlement Agreement and Exhibit A, and
the Settlement Agreement shall control over Exhibit A), Distributor shall
supply and render, either itself or through third parties, at no cost or
expense to DW, except for Distributor's retention of the applicable
Distribution Fees set forth in Exhibit A, or as expressly set forth in the
Settlement Agreement or Paragraph 4. below, the services ("Services") as
described in Paragraph 4. below. Distributor and DW shall bear the cost of
Services during the "Initial Term" and during the Extended Term (as such
capitalized terms are defined in Paragraph 4. below) in accordance with
Exhibit A as supplemented by that certain Settlement and Release Agreement
between the parties hereto, dated as of December 29, 2000 (the "Settlement
Agreement"), and as further amended and supplemented by the provisions of
this Schedule A-TC.
4. Definition of Services. Distributor shall render all customary services
required to distribute the Pictures in a manner consistent with Services
rendered during the initial
2
<PAGE>
term, i.e. the period from June 1995 through June 19, 2001 ("the Initial
Term"), throughout the Territory. Any Services rendered by UIP personnel
during the Initial Term shall not be charged separately or allocated in
any manner to Pictures under the Agreement during the extended Term, i.e.,
from June 20, 2001 until termination of the Term (the "Extended Term"),
whether the Services are hereafter performed by UIP personnel or through
third parties, except as expressly permitted in this Schedule A-TC.
Services shall not be deemed to include permitted Distribution Expenses
pursuant to Exhibit A, costs for which DW is responsible under Paragraph 4
of this Schedule A-TC, or are Distribution Expenses specifically approved
by DW. If any Services that DW knowingly agreed to pay as a third party
cost during the Initial Term ("DW Approved Prior Costs", e.g. ***) are
hereafter subsequently provided internally by UIP or Universal, DW will
agree (prior to such costs being permitted Distribution Expenses as
defined in Exhibit A) on an appropriate charge or allocation of such costs
to Pictures, provided such charge or allocation shall be calculated in a
fair and equitable manner and in no event exceed the rate or outside
service charges formerly paid as a third party cost, taking into
consideration prevailing market changes. DW's approval of third party
costs in any given territory or country shall not be deemed approval in
other territories or countries unless expressly agreed in writing by the
parties. During the Extended Term, DW shall be responsible only for costs
for controlled agency services and backroom services to the extent such
services are performed by third parties as of April 15, 2001 on a
country-by-country basis throughout the Territory. Promptly after June 15,
2001 (and not later than July 31, 2001), Distributor shall provide to DW a
list of all controlled agency service providers as of April 15, 2001, on a
country-by-country basis, provided that an inadvertent failure to list a
controlled agency service provider on such list shall not preclude
Distributor from using such provider (or affect DW's responsibility for
the costs associated therewith) if such provider (or a prior controlled
agency service provider) in fact provided controlled agency services as of
April 15, 2001. Services shall include, but are not limited to:
a. Marketing And Distribution
i. For the top fifteen (15) countries and for all countries within
the Territory in the case of animated feature films, and otherwise
mutually agreed -- prepare and recommend in full consultation with
DW country-by-country marketing plans, budgets and distribution
plans containing such information, analysis and recommendations as
DW may from time-to-time reasonably request. Country-by-country
distribution plans for each Picture shall specify release dates and
pursuant to and in accordance with UIP's SF4 policies (which shall
not materially change from the policy as in effect on April 15,
2001), the theaters in each key city. The top 15 countries as of the
date hereof are: Japan, Germany, UK, France, Italy, Spain, Sweden,
Belgium, Netherlands, Switzerland, Argentina, Brazil, Mexico,
Australia and Taiwan.
ii. Where rights are known to be available, all plans to be
delivered no less than six (6) weeks prior to the initial theatrical
release date in the Territory for each Picture. Notwithstanding the
foregoing, in circumstances where media availability or advance
booking deadlines require earlier commitments to
3
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
facilitate the cost effective purchase of media, UIP shall use its
reasonable efforts to deliver plans in time to allow DW at least 5
business days to review and approve budgets and media plans ahead of
such deadlines (provided in no event shall Distributor be required
to provide plans more than 60 days prior to initial theatrical
release).
iii. Provide marketing and advertising services, including all staff
and personnel costs, excluding (a) controlled agency services (to
the extent DW bears the costs thereof as set forth in the
penultimate sentence of Paragraph 4, above), which for purposes of
Exhibit A (including this Schedule A-TC) shall mean (i) "implants",
i.e., agency personnel located at or substantially based at UIP
offices (unless UIP has no local office) and who, in connection with
UIP pictures generally, render specific tasks or perform specific
department functions related to marketing and advertising (e.g., ***
personnel in the United Kingdom), and (ii) marketing and advertising
agencies who on an out-sourced basis administer the marketing and
promotion of UIP pictures generally in a territory (e.g., the *** in
Germany), (b) DW Approved Prior Costs, and (c) costs included in DW
approved budgets, provided any budget item(s) specifically
disapproved by DW shall not be provided unless and until Distributor
and DW mutually agree on such costs.
iv. Develop strategies for media buying and advertising and
promotion, including the preparation of advertising budgets and
advertising media and publicity plans. Negotiate with third party
agencies and media representatives in respect of media buying.
Coordinate and place orders for media buying on behalf of DW,
including broadcast transmissions, display space, publicity
material, etc. The basic services described herein are included
within the Distribution Fees, excluding (a) any controlled agency
services rendered in connection with such basic services, (b) DW
Approved Prior Costs, and (c) costs included in DW approved budgets,
provided any budget item(s) specifically disapproved by DW shall not
be provided unless and until Distributor and DW mutually agree on
such costs. Costs of media buyer agency commissions and actual ad
costs will continue to be borne by DW.
v. Adapt advertising and promotional concepts on a
country-by-country basis.
vi. Advise on the selection of local or alternative titles for DW's
approval.
vii. Where applicable, develop and implement in-theatre promotions,
exhibitor and consumer mailings.
viii. Select and purchase on behalf of DW goods and services from
third parties, including graphic designers, printers, producers,
sound and film labs.
ix. Arrange and supervise the production of all filmed, taped and
recorded advertising and publicity. The basic services described
herein are included within the Distribution Fees, excluding (a) any
controlled agency services rendered in
4
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE>
connection with such basic services, (b) DW Approved Prior Costs,
and (c) costs included in DW approved budgets, provided any budget
item(s) specifically disapproved by DW shall not be provided unless
and until Distributor and DW mutually agree on such costs.
x. In-house evaluation of the effectiveness of media buying and
other campaigns against final box office results on an occasional
basis as requested by DW.
xi. Coordination of the preparation and control of advertising and
promotional materials (e.g. text, scripts, ad sales materials,
etc.). The basic services described herein are included within the
Distribution Fees, excluding (a) any controlled agency services
rendered in connection with such basic services, (b) DW Approved
Prior Costs, and(c) costs included in DW approved budgets, provided
any budget item(s) specifically disapproved by DW shall not be
provided unless and until Distributor and DW mutually agree on such
costs.
xii. To the extent made available to UIP, pass through to DW media
buying reports and statistics.
xiii. To the extent applicable, arrange for the development of
secondary marketing and new product opportunities.
xiv. Provide all publicity coordination services (including UIP
in-house supervision). The cost of third party publicists will be
borne by DW, subject to DW's prior approval of the designated third
party publicist and costs thereof. The basic services described
herein are included within the Distribution Fees, excluding (a) any
controlled agency services rendered in connection with such basic
services, (b) DW Approved Prior Costs, (c) costs included in DW
approved budgets, provided any budget item(s) specifically
disapproved by DW shall not be provided unless and until Distributor
and DW mutually agree on such costs.
xv. Develop and use reasonable efforts to secure national and local
tie-in partner promotions.
xvi. Advise DW re censorship issues and submit each Picture to
censorship authorities.
b. Finance
i. Develop and maintain profit/loss statements for all released
Pictures per the level of information currently received as of the
date hereof.
ii. Provide financial/accounting reports/results per the current
level of information and frequency of reporting as of the date
hereof.
iii. Code and approve expenditures and invoices. Review and approve
purchase orders.
5
<PAGE>
iv. Prepare gross billings reports, booking confirmations, sales
dating charts, reports detailing by Picture and by country local box
office (in both U.S. Dollars and local currency) and theater
admissions where available, bad debt/write-off reports and Blocked
Currency totals to the extent applicable after the date hereof.
v. Provide comparative performance data, such as competitive grosses
to the extent such information is available in the relevant market
and the provision of such information will not result in a violation
of law.
vi. Maintain exhibitor data, including key theater ownership, number
of screens and seats, local applicable taxes on admission prices and
geographical breakdown of theaters.
vii. Collection of billings.
c. Operations
i. Oversee all print duplication operations.
ii. Manage all vendor and supplier activities.
iii. Manage and render all services and provide all facilities and
space in connection with the shipping, storage and inspection of
prints and trailers in accordance with the procedures set forth in
Exhibit A. DW shall pay for such service costs, whether incurred by
UIP or third parties if (i) in the relevant territory, such services
were provided by third parties as of April 15, 2001, and (ii) to the
extent such costs do not exceed the cost previously charged by third
parties, taking into consideration prevailing market changes.
iv. Prepare and submit dubbing budgets on a country-by-country,
Picture-by-Picture basis in U.S. Dollars and in local currency other
than to the extent DW chooses to provide such services itself.
v. Manage all dubbing, subtitling and editing of the Pictures and
trailers thereof other than to the extent DW chooses to provide such
services itself. If and only if DW utilizes UIP internal supervisory
dubbing personnel, the cost thereof shall be allocated on a
non-discriminatory basis to the applicable Picture(s).
vi. Manage and implement all security and anti-piracy measures.
vii. Provide all backroom services, facilities and maintenance in
accordance with the procedures set forth in Exhibit A. DW shall pay
for such backroom service costs, whether incurred by UIP or third
parties if (i) in the relevant territory, such services were
provided by third parties as of April 15, 2001, and (ii) to the
extent such costs do not exceed the cost previously charged by third
parties, taking into consideration prevailing market changes.
6
<PAGE>
viii. Print servicing -- store, catalog, check and track all prints,
trailers and other advertising material, including the maintenance
and preparation of the foregoing for shipment to and from theaters
in accordance with the procedures set forth in Exhibit A. DW shall
pay for such backroom service costs, whether incurred by UIP or
third parties if (i) in the relevant territory, such services were
provided by third parties as of April 15, 2001, and (ii) to the
extent such costs do not exceed the cost previously charged by third
parties, taking into consideration prevailing market changes.
ix. Arrange for the destruction of prints and the issuance of
certificates of destruction.
x. Order and invoice for prints and trailers.
xi. Manage movement of prints, trailers and other advertising
materials in accordance with the procedures set forth in Exhibit A.
DW shall pay for such backroom service costs (excluding UIP internal
personnel who supervise such management), whether incurred by UIP or
third parties if (i) in the relevant territory, such services were
provided by third parties as of April 15, 2001, and (ii) to the
extent such costs do not exceed the cost previously charged by third
parties, taking into consideration prevailing market changes
5. "American Beauty". Distributor agrees to pay to DW, within ten (10)
business days from execution of the amended and restated DW/Universal
Studios, Inc. Master Agreement, *** in full and complete settlement of the
"American Beauty" reel 3 ab issue pertaining to the additional costs
incurred to reprint the altered negative.
Except as specifically provided above, all other terms and conditions set forth
in Exhibit A shall continue in full force and effect.
7
***Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.