Formation Agreement

Exhibit 10.2


FORMATION AGREEMENT


Among


DREAMWORKS ANIMATION SKG, INC.,


DREAMWORKS L.L.C.,


[HOLDCO] LLLP


and


THE STOCKHOLDERS AND OTHER PERSONS PARTY HERETO


Dated As Of October [ ], 2004
TABLE OF CONTENTS


Page
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ARTICLE I


Definitions


Section 1.01. Certain Defined Terms ............................................ 1 Section 1.02. Other Definitional Provisions .................................... 6


ARTICLE II


Distribution and Contribution; Holdco Transactions


Section 2.01. Contributions and Redemptions of Preferred Interests; Distribution
of DWA LLC Interests; Execution of Amended LLC Agreement ...... 6 Section 2.02. Contribution of the DWA LLC Interests to the Company; Issuance of
Common Stock by the Company ................................... 7 Section 2.03. Residual DW Distribution ......................................... 7 Section 2.04. Formation of Holdco; Contribution of Common Stock to Holdco ...... 7 Section 2.05. IPO .............................................................. 8


ARTICLE III


Follow-on Offering


Section 3.01. Initial Follow-on Offering ....................................... 8 Section 3.02. Pricing Period ................................................... 9 Section 3.03. Subsequent Follow-on Offering .................................... 9 Section 3.04. Registration Rights .............................................. 10 Section 3.05. Size of Follow-on Offering ....................................... 11 Section 3.06. Anti-Manipulation ................................................ 11


ARTICLE IV


Universal Triggered Offering


Section 4.01. Universal Triggered Offering ..................................... 12


ARTICLE V


Additional Agreements; Further Assurances


Section 5.01. Certain Holdco Expenses .......................................... 13 Section 5.02. Further Assurances ............................................... 14


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ARTICLE VI


Representations and Warranties; Indemnification


Section 6.01. Representations and Warranties of Each Party ..................... 14 Section 6.02. Tax Representation ............................................... 16 Section 6.03. Representation and Warranty of the Company ....................... 16 Section 6.04. Survival ......................................................... 16 Section 6.05. Indemnification .................................................. 16


ARTICLE VII


General Provisions


Section 7.01. Notices .......................................................... 18 Section 7.02. Counterparts ..................................................... 19 Section 7.03. Entire Agreement; No Third Party Beneficiaries ................... 19 Section 7.04. Governing Law .................................................... 19 Section 7.05. Severability ..................................................... 19 Section 7.06. Assignment; Amendments ........................................... 19 Section 7.07. Enforcement ...................................................... 20 Section 7.08. Titles and Subtitles ............................................. 20 Section 7.09. Submission to Jurisdiction; Waivers .............................. 20


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FORMATION AGREEMENT, dated as of October [ ], 2004,
among DREAMWORKS ANIMATION SKG, INC., a Delaware corporation
(the "Company"), DREAMWORKS L.L.C., a Delaware limited
liability company ("DW"), [HOLDCO] LLLP, a Delaware limited
liability limited partnership ("Holdco"), and the stockholders
and other persons party hereto.


WHEREAS, DW, the Company and DreamWorks Animation L.L.C., a Delaware limited liability company ("DWA LLC"), have entered into a Separation Agreement dated as of the date hereof, providing for the separation of the animation business from DW;


WHEREAS, on the Separation Date (as defined below) immediately prior to effectiveness of the Underwriting Agreement (as defined below), DW made a distribution-in-kind to its members (in accordance with Article VIII of the Sixth Amended and Restated Limited Liability Company Agreement of DW) of its interest in DWA LLC;


WHEREAS, the distributed DWA LLC interests will be contributed to the Company in exchange for Common Stock (as defined below);


WHEREAS, each Contributing Member (as defined below) desires to form Holdco and to contribute any shares of such Common Stock received from the Company, other than the IPO Sale Shares (as defined below) and other than as set forth in Section 2.04, to Holdco in exchange for partnership interests in Holdco;


WHEREAS, the Contributing Members desire to provide for the sale, in a follow-on secondary offering, of all or a portion of the shares of Common Stock held directly by the Contributing Members and the shares of Common Stock contributed to Holdco by the Contributing Members; and


WHEREAS, the Company, Holdco and certain other parties hereto have entered into a Registration Rights Agreement, dated as of the date hereof (the "Registration Rights Agreement"), that, among other things, provides for certain procedures with respect to the Follow-on Offering and the Universal Triggered Offering (each as defined below);


NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:


ARTICLE I


Definitions


Section 1.01. Certain Defined Terms. As used in this Agreement:


"Agreement" means this Formation Agreement, as it may be amended, supplemented, restated or modified from time to time.
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"Amended LLC Agreement" means the Seventh Amended and Restated Limited Liability Company Agreement of DW, dated as of October [ ], 2004, as it may be amended, supplemented, restated or modified from time to time.


"Asserted Liability" has the meaning assigned to such term in Section 6.05(d).


"Business Day" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in The City of New York.


"Charter" means the Restated Certificate of Incorporation of the Company, as amended or restated from time to time.


"Claims" has the meaning assigned to such term in Section 6.05(a).


"Claims Notice" has the meaning assigned to such term in Section 6.05(d).


"Class A Stock" means the Company's Class A Common Stock, par value $0.01 per share.


"Class B Stock" means the Company's Class B Common Stock, par value $0.01 per share.


"Class C Stock" means the Company's Class C Common Stock, par value $0.01 per share.


"Class B Stockholder Agreement" means the Stockholder Agreement, dated as of October [ ], 2004, among Holdco, M&J K, M&J K B, The JK Annuity Trust, The MK Annuity Trust, Katzenberg 1994 Irrevocable Trust, DG-DW, Jeffrey Katzenberg and David Geffen, as in effect on the date hereof.


"Class T/T Interests" means Class T/T limited liability company interests in DW.


"Class U Interests" means Class U limited liability company interests in DW.


"Common Stock" means the Class A Stock, Class B Stock and Class C Stock.


"Company" has the meaning assigned to such term in the preamble hereto.


"Contribution" has the meaning assigned to such term in Section 2.02.


"Contributing Members" means M&J K, M&J K B, DG-DW, DW Lips, DWI II, Lee Entertainment, L.L.C. and Universal.


"Control" (including the terms "Controlled By" and "Under Common Control With") has the meaning assigned to such term in the Charter as in effect at consummation of the IPO.


"DG-DW" means DG-DW, L.P., a Delaware limited partnership.
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"DW" has the meaning assigned to such term in the preamble hereto.


"DW Distribution" has the meaning assigned to such term in the Separation Agreement.


"DWA LLC" has the meaning assigned to such term in the recitals hereto.


"DWA LLC Interest" means a limited liability company interest in DWA LLC.


"DWI" means DW Investment Inc., a Washington corporation.


"DWI II" means DW Investment II, Inc., a Washington corporation.


"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.


"Final Allocation" has the meaning assigned to such term in the Holdco Partnership Agreement as in effect on the Separation Date.


"Follow-on Offering" means either the Initial Follow-on Offering or the Subsequent Follow-on Offering, as applicable.


"Group" has the meaning assigned to such term in Section 13(d)(3) of the Exchange Act.


"Holdco" has the meaning assigned to such term in the preamble hereto.


"Holdco Contribution" has the meaning assigned to such term in Section 2.04.


"Holdco Obligations" has the meaning assigned to such term in Section 5.01(b).


"Holdco Partnership Agreement" means the Limited Liability Limited Partnership Agreement of Holdco, dated as of October [ ], 2004, among the Contributing Members, as in effect on the Separation Date.


"Indemnitee" has the meaning assigned to such term in Section 6.05(d).


"Indemnitor" has the meaning assigned to such term in Section 6.05(d).


"Initial Follow-on Offering" has the meaning assigned to such term in Section 3.01(a).


"Initial Period" has the meaning assigned to such term in Section 3.01(a).


"IPO" means the initial public offering by the Company and the selling stockholders identified in the IPO Registration Statement of shares of Class A Stock pursuant to the IPO Registration Statement.
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"IPO Price" means the gross public offering price per share (calculated before deduction of any underwriting discounts or commissions) in the IPO.


"IPO Registration Statement" means the registration statement on Form S-1 (File No. 333-117528) filed under the Securities Act, pursuant to which the Class A Stock to be issued in the IPO will be registered, together with all amendments thereto.


"IPO Sale Shares" means, with respect to any Contributing Member, the number of shares of Class A Stock to be sold in the IPO for the account of such Contributing Member pursuant to the IPO Registration Statement.


"JK/DG Trigger Notice" has the meaning assigned to such term in Section 3.01(a).


"JK/DG Triggered Follow-on Offering" means an Initial Follow-on Offering initiated by M&J K B and DG-DW, acting together, pursuant to Section 3.01(a) or converted to such pursuant to Section 3.01(b).


"Liens" has the meaning assigned to such term in Section 6.01.


"Losses" has the meaning assigned to such term in Section 6.05(a).


"M&J K" means M&J K Dream Limited Partnership, a Delaware limited partnership.


"M&J K B" means M&J K B Limited Partnership, a Delaware limited partnership.


"Member" means each member of DW listed on Schedule 2.02.


"Minimum Registrable Amount" has the meaning assigned to such term in Section 3.05.


"Parent" means each of Steven Spielberg, Jeffrey Katzenberg, David Geffen, Paul Allen, NBC Universal, Inc. and CJ Corp.


"Participating Partner" has the meaning assigned to such term in the Holdco Partnership Agreement.


"Person" has the meaning assigned to such term in the Charter (as modified in Section 2(f) of Article IV thereof) as in effect at consummation of the IPO.


"Preferred Contributions" has the meaning assigned to such term in Section 2.01(a).


"Preferred Redemptions" has the meaning assigned to such term in Section 2.01(a).
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"Pricing Period" means the 20 consecutive trading days on The New York Stock Exchange beginning on the date specified in the Pricing Period Notice.


"Pricing Period Notice" has the meaning assigned to such term in Section 3.02(a).


"Pricing Period Price" has the meaning assigned to such term in Section 3.02(b).


"Proceeding" has the meaning assigned to such term in Section 7.09.


"Registration Rights Agreement" has the meaning assigned to such term in the recitals hereto.


"Residual DW Distribution" has the meaning assigned to such term in Section 2.03(a).


"Revolving Credit Facility" means the revolving credit facility, dated as of October [ ], 2004, among DW and the lenders party thereto (or any refinancing thereof that does not extend the term thereof).


"Satisfaction Event" has the meaning assigned to such term in the Holdco Partnership Agreement. For the avoidance of doubt, all references in this Agreement to a Satisfaction Event resulting from a Follow-on Offering or a Universal Triggered Offering shall require that the Satisfaction Event result from such offering without requiring the exercise of any overallotment option in such offering.


"Securities Act" means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.


"Separation Agreement" means the Separation Agreement, dated as of October [ ], 2004, among DW, DWA LLC and the Company, as in effect on the Separation Date.


"Separation Date" has the meaning assigned to such term in the Separation Agreement.


"Subsequent Follow-on Offering" has the meaning assigned to such term in Section 3.03(a).


"Subsequent Period" has the meaning assigned to such term in Section 3.03(a).


"Subsequent Vulcan Trigger Notice" has the meaning assigned to such term in Section 3.03(a).


"Thomson" means Thomson Inc.


"Underwriting Agreement" has the meaning assigned to such term in the Separation Agreement.


"Universal" means Vivendi Universal Entertainment LLLP.
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"Universal Period" has the meaning assigned to such term in Section 4.01(a).


"Universal Trigger Notice" has the meaning assigned to such term in Section 4.01(a).


"Universal Triggered Offering" has the meaning assigned to such term in Section 4.01(a).


"Volume Weighted Average Price" over any period means, with respect to the Class A Stock, the volume weighted average price per share for the entire applicable period on the principal national securities market or exchange on which the Class A Stock is listed or quoted.


"Vulcan Stockholder Agreement" means the Stockholder Agreement, dated as of October [ ], 2004, among the Company, Holdco, M&J K, M&J K B, The JK Annuity Trust, The MK Annuity Trust, Katzenberg 1994 Irrevocable Trust, DG-DW, DWI II, Jeffrey Katzenberg, David Geffen and Paul Allen, as it may be amended, supplemented, restated or modified from time to time.


"Vulcan Trigger Notice" has the meaning assigned to such term in Section 3.01(a).


"Vulcan Triggered Follow-on Offering" means an Initial Follow-on Offering initiated by DWI II pursuant to Section 3.01(a) unless converted into a JK/DG Triggered Follow-on Offering pursuant to Section 3.01(b).


Section 1.02. Other Definitional Provisions. (a) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article and Section references are to this Agreement unless otherwise specified. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation".


(b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.


ARTICLE II


Distribution and Contribution; Holdco Transactions


Section 2.01. Contributions and Redemptions of Preferred Interests; Distribution of DWA LLC Interests; Execution of Amended LLC Agreement. (a) On the Separation Date, after consummation of the transactions contemplated in Section 2.01 of the Separation Agreement, (x) Thomson shall contribute 33-1/3% of the Class T/T Interests to the Company in exchange for the number of shares of Common Stock set forth on Schedule 2.02 and (y) Universal shall contribute 50% of the Class U Interests to the Company in exchange for the number of shares of Common Stock set forth on Schedule 2.02 (the "Preferred Contributions"). For the avoidance of doubt, the number of shares of Common Stock received in exchange for the Preferred Contributions shall be equal to (i) in the case of Universal, $75 million divided by the
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IPO Price and (b) in the case of Thomson, $50 million divided by the IPO Price. Immediately after consummation of the Preferred Contributions, DW shall redeem such Class T/T Interests and such Class U Interests from the Company in exchange for (i) all of DW's 100% interest in the capital stock of DreamWorks Inc. and (ii) the number of DWA LLC Interests set forth in Schedule 2.01(a) (the "Preferred Redemptions"). DW acknowledges that it will treat the Preferred Redemptions as a liquidating distribution with respect to the Class T/T Interests and Class U Interests so redeemed and shall report the Preferred Redemptions as such under Section 732(b) of the Internal Revenue Code.


(b) On the Separation Date, immediately after consummation of the DW Distribution, each Member (other than Universal and Thomson) shall execute and deliver a pledge agreement in favor of the lenders under the Revolving Credit Facility, which pledge agreements shall provide for the pledge of Common Stock having an aggregate value of $300 million (valued at the IPO Price), allocated among such Members in an amount equal to their participation percentages in DW (as of the date hereof) as set forth on Schedule 2.01(b) multiplied by $300 million (which amount shall be subject to adjustment in the case of Contributing Members based upon the Final Allocation of such pledged shares of Common Stock).


Section 2.02. Contribution of the DWA LLC Interests to the Company; Issuance of Common Stock by the Company. On the Separation Date, after consummation of the DW Distribution and following effectiveness of the Underwriting Agreement, each Member (or DWI II, in the case of DW Investment Inc.) shall contribute all its right, title and interest in and to the DWA LLC Interests to the Company in exchange for the number of shares of Class A Stock, Class B Stock or Class C Stock, as applicable, set forth on Schedule 2.02 (the "Contribution"). The Company hereby acknowledges that it intends to continue the existence of DWA LLC as a partnership for Federal income tax purposes.


Section 2.03. Residual DW Distribution. (a) On the Separation Date, immediately after consummation of the PDI Merger (as defined in the Separation Agreement), DW shall distribute (in accordance with Article VIII of the Sixth Amended and Restated Limited Liability Company Agreement of DW) all its right, title and interest in and to all shares of Class A Stock then held by DW (after giving effect to the LLC Employee Distribution (as defined in the Separation Agreement)) to the Members listed on Schedule 2.03(a) hereto, in the amounts set forth on Schedule 2.03(a) (the "Residual DW Distribution").


(b) On the Separation Date, immediately after consummation of the Residual DW Distribution, the Members shall execute and deliver the Amended LLC Agreement.


Section 2.04. Formation of Holdco; Contribution of Common Stock to Holdco. (a) Immediately prior to the Holdco Contribution (as defined below), each Contributing Member shall execute and deliver the Holdco Partnership Agreement, and the Contributing Members shall form Holdco.


(b) On the Separation Date, immediately after the formation of Holdco, (i) Holdco shall execute and deliver a pledge agreement in favor of the lenders under the Revolving Credit Facility, which pledge agreement shall be in substitution for the pledge of the shares of
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Common Stock pledged by each Contributing Member (other than Universal) pursuant to Section 2.01(b) until the Final Allocation and (ii) each Contributing Member shall contribute all its right, title and interest in and to the Common Stock received by such Contributing Member in any of the Contribution, the Preferred Contributions or the Residual DW Distribution, as applicable (other than (w) such Contributing Member's IPO Sale Shares, (x) in the case of each Contributing Member other than Universal, the respective number of shares of Class A Stock or Class B Stock set forth on Schedule 2.04(b)(x) and (y) in the case of DWI II, the one share of Class C Stock) to Holdco, and in exchange therefor shall receive the interests in Holdco set forth in Section 5.01 of the Holdco Partnership Agreement (the "Holdco Contribution").


(c) Each Contributing Member shall, to the extent it has not already done so, appoint an agent for service of process in the State of Delaware.


(d) Each Continuing Partner (as defined in the Holdco Partnership Agreement) agrees (for itself and its permitted transferees) that (i) it shall remain a partner in Holdco for at least six months after the Vulcan GP Date (as defined in the Holdco Partnership Agreement), (ii) such Continuing Partner shall not amend or modify the Holdco Partnership Agreement or take or cause to be taken any action in each case which would effect the dissolution of Holdco prior to the end of such six month period (it being understood that distributions to such Continuing Partners of shares of Common Stock not constituting Continuing Partner Minimum Ownership Shares (as defined in the Holdco Partnership Agreement) shall not constitute such actions) and (iii) such Continuing Partner shall not amend or modify the definition of "Final Allocation" in the Holdco Partnership Agreement.


(e) Holdco agrees to convert shares of Class B Stock held by it into shares of Class A Stock at the time required by the terms of the Holdco Partnership Agreement.


Section 2.05. IPO. The Members shall be entitled to participate in the secondary sale of shares of Class A Stock in the IPO (and the overallotment option relating to the IPO, if exercised) pro rata in proportion to Unreturned Capital Contributions (as defined in the Sixth Amended and Restated Limited Liability Company Agreement of DW) of such participating Members, or deemed Unreturned Capital Contributions, as applicable, of such participating Members immediately prior to consummation of the DW Distribution as set forth on Schedule 2.05.


ARTICLE III


Follow-on Offering


Section 3.01. Initial Follow-on Offering. (a) At any time during the period beginning on the date that is six months after consummation of the IPO and prior to May 31, 2006 (the "Initial Period"), either of (i) M&J K B and DG-DW, acting together, or (ii) DWI II, shall have the right to cause Holdco to effect one Follow-on Offering (the "Initial Follow-on Offering"), in either case by causing Holdco to exercise Holdco's demand registration rights pursuant to Section 1.02 of the Registration Rights Agreement by delivering written notice (the "JK/DG Trigger Notice" or the "Vulcan Trigger Notice", as applicable) thereof (which notice shall also specify the number of shares of Class A Stock proposed to be sold in such Initial
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Follow-on Offering (assuming the maximum number of Participating Partners), which number shall comply with the terms of Section 3.05) to Holdco during the Initial Period (with a copy of such notice concurrently delivered to each other Contributing Member). Upon receipt by Holdco of either a JK/DG Trigger Notice or a Vulcan Trigger Notice, the general partners of Holdco in their capacity as such shall, within three Business Days of the date of such receipt, deliver a Demand Request (as defined in the Registration Rights Agreement) to the Company (with a copy of such notice concurrently delivered to each Contributing Member notifying each Contributing Member of its right to participate in such offering) requesting that the Company register such shares of Class A Stock as soon as practicable pursuant to Section 1.02 of the Registration Rights Agreement.


(b) In the event that the Initial Follow-on Offering is a Vulcan Triggered Follow-on Offering, M&J K B and DG-DW shall have the right at any time at or prior to the pricing of such Initial Follow-on Offering to convert such Initial Follow-on Offering from a Vulcan Triggered Follow-on Offering to a JK/DG Triggered Follow-on Offering by delivering written notice of such conversion to Holdco and DWI II at or prior to such pricing. Upon receipt by Holdco of such notice, such Initial Follow-on Offering shall be treated solely as a JK/DG Triggered Follow-on Offering for purposes of Article VII of the Holdco Partnership Agreement.


Section 3.02. Pricing Period. (a) If a Vulcan Triggered Follow-on Offering is consummated, M&J K B and DG-DW, acting together, shall, on the date selected by them during the period beginning on the date of consummation of the Vulcan Triggered Follow-on Offering (excluding any exercise of an overallotment option granted to the underwriters of such offering, if any) ...