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Fulfillment Services Agreement

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Sectors: Media
Governing Law: California , View California State Laws
Effective Date: December 09, 2005
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Exhibit 10.2


FULFILLMENT SERVICES AGREEMENT


between

DREAMWORKS ANIMATION HOME ENTERTAINMENT, L.L.C.

and


PARAMOUNT HOME ENTERTAINMENT, INC.


dated as of December 9, 2005

Table of Contents

Page
Section 1. Definitions and Usage; Conditions Precedent 1 Section 2. Period of Fulfillment Services; Video-on-Demand. 14 Section 3. Delivery Requirements 15 Section 4. Fulfillment Services 15 Section 5. Home Video Fulfillment Expenses - Approvals and Controls 30 Section 6. Home Video Fulfillment Expenses Accounting 31 Section 7. Services Fee 32 Section 8. Home Video Gross Receipts 34 Section 9. Representations, Warranties and Agreements 47 Section 10. Indemnity 49 Section 11. Default; Remedies and Termination 51 Section 12. Copyright 54 Section 13. Ownership 55 Section 14. Inventory of Materials 55 Section 15. Force Majeure 56 Section 16. Assignment 56 Section 17. Standard of Care 57 Section 18. Distribution Credit 57 Section 19. Other Activities 58 Section 20. Exercise of Discretion 58 Section 21. No Partnership or Third Party Benefit 58 Section 22. Integration/Formalities 59 Section 23. Dispute Resolution 59 Section 24. Severability of Provisions 60 Section 25. Waiver 60 Section 26. Governing Law 60 Section 27. Confidentiality 60 Section 28. Notice of Representatives 61 Section 29. Paragraph Headings 61 Section 30. Disclosure, Compliance and Reporting Obligations 61


(i)

Table of Contents

(continued)

Page
Section 31. Notices 63 Section 32. Counterparts 64 Section 33. Paramount Affiliates 64

FULFILLMENT SERVICES AGREEMENT dated as of December 9, 2005 (this " Agreement" ), by and between DreamWorks Animation Home Entertainment, L.L.C. (" DWA" ) and Paramount Home Entertainment, Inc. (" Paramount" ).

WHEREAS DWA is principally devoted to distributing feature-length animated motion pictures and other animated productions for Home Video Exhibition;


WHEREAS Paramount is engaged, inter alia , in the business of providing home video fulfillment services and Video-on-Demand services with respect to feature length motion pictures and other productions throughout the world;


WHEREAS DreamWorks Animation SKG, Inc. (" DWA SKG" ) and DreamWorks L.L.C. (" DWS" ) entered into that certain Distribution Agreement dated as of October 7, 2004, with respect to the distribution and exploitation by DWS in certain media throughout the world of motion pictures produced by DWA (the " Prior Agreement" );


WHEREAS Paramount Pictures Corporation (" PPC" ) has entered into that certain purchase agreement dated December 9, 2005 to acquire all of the equity interests in DWS (the " Purchase Agreement" );


WHEREAS, in connection with the consummation of the transactions contemplated by the Purchase Agreement, DWS and DWA SKG have agreed to terminate the Prior Agreement as of the Effective Date.


WHEREAS DWA desires to engage Paramount to provide certain fulfillment and ancillary services with respect to the DWA Pictures (as defined hereunder) in furtherance of DWA' s distribution of DWA Video Devices and the exploitation of the DWA Pictures via Home Video Exhibition, and Paramount desires to provide such fulfillment and other services on the terms and conditions contained herein; and


WHEREAS, on the date hereof, DWA SKG and PPC are entering into that certain Distribution Agreement attached hereto as Exhibit A pursuant to which DWA SKG grants a license to PPC to distribute and exploit DWA Pictures in certain media throughout the world (the " Distribution Agreement" );


NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, DWA and Paramount hereby agree as follows:


Section 1. Definitions and Usage; Conditions Precedent


1.1 Definitions :


Affiliate of Any Person shall mean any other Person controlling, controlled by or under common control with such Person. Post-Effective Date, DWS shall be deemed an Affiliate of Paramount. For the purposes of this Agreement, National Amusements, Inc., NAIRI, Inc., CBS Corporation and each direct or indirect subsidiary of CBS Corporation shall not be considered Affiliates of Paramount.

Animated Motion Picture(s) shall mean any Motion Picture that is created predominantly by one or more non-live action production methods (e.g., hand-drawn animation [such as Prince of Egypt ], CGI [such as Shrek ], stop-motion [such as Chicken Run ] and/or motion capture [such as Polar Express ]) (each, an " Animation Method" ). However, a Motion Picture shall not be deemed to be an Animated Motion Picture if digital Animation Method(s) are used, in whole or in part, to create photorealistic characters that interact with live-action characters in live-action settings. (Photorealistic characters include both " real world" characters modified by an Animation Method [e.g., Babe the pig in Babe ] and characters that are invented but which are depicted in a " real world" manner by an Animation Method [e.g., Yoda in Star Wars II: Attack of the Clones , Gollum in Lord of the Rings , the dinosaurs in Jurassic Park , the robots in I, Robot , the toy soldiers in Small Soldiers ].)


Base Films shall mean, initially (i.e., with respect to the first DWA Picture Delivered following the Effective Date), Shrek, Shark Tale and Madagascar . With respect to any DWA Picture Delivered thereafter, Base Films shall mean the three (3) immediately preceding Event Pictures (but excluding Shrek 2 and Wallace & Gromit: Curse of the Were-Rabbit ) released for Theatrical Exhibition in the Domestic Territory.


Business Day shall mean a day other than a Saturday, Sunday or other day on which financial institutions in Los Angeles, California or New York, New York are authorized or required by law to close.


CJ Agreement shall mean collectively the Theatrical Distribution Agreement, amended and restated as of February 10, 1999, between DWS and Cheil Jedang Corporation (" Cheil" ), the Home Video Fulfillment Services Agreement, amended and restated as of February 10, 1999, between DWS and Cheil, each as may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof, and all related agreements with respect to one or more DWA Pictures between DWS and Cheil or CJ Entertainment, Inc. (together with Cheil collectively " CJ Entertainment" ).


Closing Date shall mean the date of the closing of the purchase by PPC of all the equity interests in DWS pursuant to the Purchase Agreement.


Commercial Tie-in and Promotional Rights shall mean, with respect to each DWA Picture, the right to use or license the use of characters, designs, visual representations, names, logos, props, physical properties or other elements appearing or used in or in connection with such DWA Picture or all or any part of the literary material in connection with (i) the advertising, publicizing, marketing, promotion and/or packaging of merchandise, products or services and/or (ii) premiums or promotions.


Comparable as used with respect to any Motion Picture shall mean a similar, as determined on an overall basis, Motion Picture based on a comparison of the production budgets, cast, genre, ratings, pre-release audience surveys, festival results, theatrical box office and other performance metrics and established factors used in the Motion Picture industry in Los Angeles, California to compare Motion Pictures.


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Contingent Compensation shall mean, with respect to each DWA Picture, contractually required payments to or on behalf of any Person providing rights or services, or otherwise involved in the production of such DWA Picture, payable in respect of such DWA Picture, which (i) are dependent in whole or in part on box office, gross receipts, net receipts, or a percentage of such gross receipts or net receipts, and are payable in a fixed or allocable amount or as a percentage of such receipts, and/or (ii) are payable in a fixed amount upon the occurrence of a specified event such as receipt of an Academy Award or the sale of a specified number of Video Devices.


Control when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms " controlling" and " controlled" have meanings correlative to the foregoing.

Copyright Revenue shall mean, with respect to each DWA Picture, all royalties, fees and other revenue that DWA, the registered copyright owner or other appropriate entity, is otherwise entitled to collect by reason of any statute, governmental regulation or operation of law, based upon or in connection with, in whole or in part, or directly or indirectly, any use of such DWA Picture from time to time pursuant to the provision of Fulfillment Services with respect to such DWA Picture and the Licensed Marks relating to such DWA Picture, including the sale of blank recordable media and/or recording apparatus for the purpose of recording any such DWA Picture, commonly referred to as private copy levies and/or from the rental of pre-recorded Video Devices to consumers, commonly referred to as video rental right levies.


Delivery shall mean delivery, or the provision of access, to Paramount of all items referenced in Section 3 hereof. A DWA Picture shall be deemed to be Delivered hereunder only upon Paramount' s receipt of all such items (the " Delivery Date" ).

DTV Production(s) shall mean all Animated Motion Pictures or Hybrid Motion Pictures intended for initial Home Video Exhibition.

DWA-approved Fulfillment Servicing Agreement shall mean the Cheil Agreement, the Kadokawa Agreement, each agreement set forth on Schedule 1 hereto, as such agreement may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof, and each Fulfillment Servicing Agreement approved in writing by DWA in accordance with Sections 4.6.b and 4.13 below. The foregoing Schedule shall be completed by DWA on or before the Effective Date.


DWA-approved Third Party Service Agreement shall mean each agreement set forth on Schedule 4 hereto, as such agreement may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof, and each Third Party Service Agreement approved in writing by DWA in accordance with Section 4.11 below. The foregoing Schedule shall be completed by DWA on or before the Effective Date.


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DWA DTV Production shall mean a DWA Picture intended for initial Home Video Exhibition.


DWA Picture shall mean an Animated Motion Picture or Hybrid Motion Picture (i) that is available for Delivery prior to the expiration of the Output Term; (ii) the Distribution Rights with respect to which are licensed by DWA SKG to PPC pursuant to the Distribution Agreement; and (iii) with respect to which DWA owns or exclusively controls the right to release, distribute, Exhibit and otherwise exploit such Motion Picture via Home Video Exhibition.


DWA Theatrical Picture shall mean a DWA Picture intended for initial Theatrical Exhibition.

DWA Video Device shall mean a Video Device embodying a DWA Picture.


Effective Date shall mean the later of the (i) Closing Date; and (ii) date upon which all of the conditions precedent set forth in Section 1.3 below are satisfied, or such other date as mutually agreed between DWA and Paramount.

Event Picture shall mean any Animated Motion Picture or Hybrid Motion Picture that (i) is a DWA Theatrical Picture; (ii) is rated " G," " PG" or " PG-13" ; and (iii) is scheduled to be released for Theatrical Exhibition on not less than two thousand (2,000) screens in the Domestic Territory (irrespective of the anticipated theatrical release pattern in the International Territory).

Exhibit shall mean transmit, display, exhibit or perform. " Exhibiting" and " Exhibition" shall have correlative meanings.


Existing Picture(s) shall mean the following Animated Motion Pictures: Antz; The Prince of Egypt; The Road to Eldorado; Chicken Run; Shrek; Spirit: Stallion of the Cimarron; Sinbad: Legend of the Seven Seas; Shrek 2; Shark Tale; Madagascar ; and Wallace & Gromit: Curse of the Were-Rabbit.


Financial Benefit shall mean any and all advances (including sales advances and signing bonuses), volume and prompt payment discounts, laboratory and other vendor rebates or adjustments and any other economic consideration or financial advantages that are (i) attributable in whole or in part to the DWA Pictures and (ii) offered to, accepted by or otherwise received or credited to the account of, Paramount, any Paramount Affiliate or any of their respective controlled Affiliates after the Effective Date in connection with any transaction that relates to the services of Paramount, any Paramount Affiliate or any of their respective controlled Affiliates in connection with (x) the DWA Pictures, (y) the DWA Pictures and other Motion Pictures produced or distributed by Paramount, any Paramount Affiliate or any of their respective controlled Affiliates, or (z) the provision of Fulfillment Services hereunder. For the avoidance of doubt, Financial Benefit shall not include any advances, signing bonuses or other amounts actually paid to Paramount by any third Person prior to the Effective Date (unless such amounts, or any portion thereof, were paid to Paramount by such third Person in contemplation of this Agreement or Paramount' s provision of Fulfillment Services with respect to the DWA Pictures).


4

Fulfillment Servicing Agreement(s) shall mean any agreements or arrangements between Paramount or a Paramount Affiliate, as one party, and any Person, including any Subcontractor or other third party service provider, as the other party, with respect to the provision of any fulfillment services for a DWA Picture, as such agreements may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof.

GAAP shall mean generally accepted accounting principles in the United States.


GAAP Accrual Report shall have the meaning ascribed thereto in Section 8.5.e. below.

Good Faith Dispute shall mean any amount or provision that is the subject in a bona fide disagreement between the parties.


Home Video Exhibition shall mean all existing and future forms of home entertainment, including the right to manufacture, package, market, sell, rent, lease, Exhibit, distribute and otherwise exploit all forms of Video Devices, now known or hereafter devised, including future methods and means of delivering Video Devices into the home. Home Video Exhibition shall also include the right to Exhibit a Motion Picture via Video-On-Demand.

Home Video Fulfillment Expenses shall mean, with respect to each DWA Picture, the aggregate of all actual, direct out-of-pocket costs, charges and expenses (other than PPC' s, Paramount' s or any Affiliate' s overhead expenses) that have either been paid or incurred (i.e., reported as a liability in the accounts payable accounting system of PPC, Paramount or such Affiliate and paid within thirty (30) days thereafter) arising from the manufacture, duplication, replication, sales, marketing, promotion and other costs associated with rendering Fulfillment Services. As used in this definition:


(i) Manufacturing costs include the manufacture, packaging and shipping of Video Devices, including costs with respect to re-editing, dubbing, subtitling, closed captioning and narration for the deaf and blind, licensing and clearance costs for special features, mastering, duplication, replication, anti-piracy devices and anti-copy protection, raw material costs including tape, disc, shell, box, label, sleeves, containers, stickers, packaging materials and services including plastic wrapping, " pick, pack and ship" and other physical distribution and handling services, freight, transportation, warehousing, storage, processing of returns, degaussing and disposal.

(ii) Sales and marketing costs include selling, advertising, and promotion of Video Devices, including design, production, and manufacture (for the purposes of Home Video Exhibition) of marketing and advertising materials, press kits, advertising funding and rebates including co-operative advertising and regional marketing funds, wholesale rebates, direct-to-consumer rebates, display


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and point-of-purchase advertising, trailers, screening Video Devices, media purchases, artwork graphics, fulfillment, promotions, mass merchant advertising, advertising agency and consultant fees, sales incentive programs, anti-piracy costs including an allocable portion of the dues and assessments payable with respect to industry anti-piracy programs relating to Video Devices, research, public relations fees, trade show and entertainment costs, commercial tie-ins, mailers and sales commissions.

(iii) Development, production and other costs related to the delivery of so-called DVD extras, bonus and other material included in the Video Devices.


(iv) Any of the foregoing costs directly related to delivering a DWA Picture for Exhibition via VOD.


All Home Video Fulfillment Expenses shall be charged by Paramount at rates that do not exceed the rates charged by Paramount in connection with the Home Video Exhibition of comparable Motion Pictures exploited by Paramount. " Home Video Fulfillment Expenses" shall not include (a) Additional Home Video Fulfillment Expenses (as defined in Section 5.2.), (b) Residuals and Contingent Compensation, (c) expenses associated with delinquent payments by Paramount and/or any Paramount Affiliate to suppliers, vendors or other services providers (e.g., interest or finance charges) except to the extent caused by the actions or inactions of DWA or its Affiliates, (d) costs of checking and collection of Home Video Gross Receipts, and (e) trade dues and assessments by trade organizations. Paramount shall have no responsibility for any costs referenced in the foregoing clauses (a) and (b). Paramount shall be solely responsible for, and shall not charge or deduct, any costs referenced in the foregoing clauses (c), (d) and (e). Home Video Fulfillment Expenses shall be reduced by the net amount of any insurance recoveries attributable thereto to the extent received by Paramount.

For the avoidance of doubt, in computing Home Video Fulfillment Expenses for purposes of the GAAP Accrual Reports to be provided to DWA in accordance with Section 8.5.e below, Home Video Fulfillment Expenses shall be computed and reported in accordance with GAAP (and not on a " cash basis" as defined herein).

Home Video Gross Receipts shall mean with respect to each DWA Picture, the amounts set forth in Section 8. below, subject to the adjustments and exclusions as provided therein.

Home Video Net Receipts shall mean Home Video Gross Receipts, less the Services Fees thereon, as reported to DWA pursuant to Section 8.5 below for the applicable accounting and reporting period.


HV Release Date shall mean, with respect to a DWA Picture, the date on which DWA Video Devices with respect to such DWA Picture are initially made available for Home Video Exhibition in an applicable portion of the Territory.


Hybrid Motion Picture(s) shall mean any Motion Picture that is predominantly live-action, but in which at least two of the four characters with the most screen time, or in which a majority of the characters with speaking roles, are created (non- photorealistically) by an Animation Method. Who Framed Roger Rabbit, Looney Tunes - Back in Action and Space Jam would be Hybrid Motion Pictures.


6

Internet shall have the meaning ascribed thereto in the Distribution Agreement.

Interparty Agreement means that certain Interparty Agreement dated as of October 7, 2004 among DWS, DWA and Universal.


Kadokawa Agreement shall mean the Master Agreement dated as of April 22, 2004 among DWS, Kadokawa Entertainment Inc. (" Kadokawa" ) and Kadokawa Holdings Inc., as Guarantor, including Exhibits A, B, C and D attached thereto, as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof.

Licensed Marks shall mean, with respect to each DWA Picture from time to time, to the extent related to the Fulfillment Services, and to the extent of DWA' s rights in the Licensed Marks in the Territory, the right to use and sublicense the use of (i) the title of such DWA Picture (to the extent such title is a registered trademark) from time to time in any and all print styles and forms in connection with the rendering of Fulfillment Services with respect to such DWA Picture, and all goodwill associated therewith or symbolized thereby, and (ii) the DreamWorks Marks listed and depicted in Schedule A to the Trademark License Agreement solely in connection with the rendering of Fulfillment Services with respect to such DWA Picture in accordance with the terms hereof.


Linear shall mean the broadcast or exhibition of an audio or audiovisual program intended for passive viewing in a predetermined order or sequence, subject to the ability of the end-user or viewer to play, pause, stop, fast forward, rewind; provided , however , that the setting, progression of actual events as they occur, outcome, participants and contents of a Linear program cannot be manipulated or altered by the viewer or end-user. The availability of so-called " DVD Extras" or bonus features such as deleted scenes or alternative endings shall not, in and of itself, deem the exhibition of a DWA Picture to be non-Linear.


Major International Video Territory shall mean those territories listed on Schedule 2 hereto.

Major Release shall mean any theatrical Motion Picture rated " G," " PG," " PG-13" or " R" that is scheduled to be released for Theatrical Exhibition on not less than two thousand (2,000) screens in the Domestic Territory (irrespective of the anticipated theatrical release pattern in the International Territory).

Marketing Implants shall mean (i) agency personnel who, in connection with Paramount' s, or any Paramount Affiliate' s Motion Pictures (generally), render specific tasks or perform specific department functions related to marketing and advertising of such Motion Pictures or render any other services that are customarily rendered by in-house personnel of major home video services distributors; and (ii) marketing and advertising agencies who, on an out-sourced basis, administer the marketing, publicity and promotion of Paramount' s, or such other Paramount Affiliate' s Motion Pictures (generally) in a portion of the Territory.


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McDonald' s Agreement shall mean the Agreement dated as of July 19, 2005 between DWA and McDonald' s USA, LLC, McDonald' s Latin America, LLC, McDonald' s Apenea LLC, McDonald' s International LLC and McDonald' s Europe Inc. (collectively, " McDonald' s" ), as in effect on the date hereof.


McDonald' s Interparty Agreement shall mean that certain interparty agreement dated on or about the date hereof by and between PPC and DWA SKG.

Motion Picture(s) shall mean audiovisual product produced and distributed of every kind and character whatsoever, including all present and future technological developments, whether produced by means of any photographic, electrical, electronic, mechanical or other processes or devices now known or hereafter devised, and their accompanying devices and processes whether pictures, images, visual and aural representations are recorded or otherwise preserved for projection, reproduction, exhibition, or transmission by any means or media now known or hereafter devised in such manner as to appear to be in motion or sequence, including computer generated pictures and graphics other than video games.


Output Term shall mean the period commencing on the Effective Date and continuing until the expiration or earlier termination of the " Output Term" under the Distribution Agreement.

Outright Sale shall mean a license from Paramount to a Person to Exhibit a DWA Picture for a specified period of time in excess of one year, without any obligations on the part of such Person to account to Paramount for revenue and expenses received or incurred by such Person.

Paramount Affiliate shall mean any Person that qualifies as a controlled Affiliate of PPC and/or Paramount pursuant to the definitions of Affiliate and Control set forth above. For the avoidance of doubt, PPC and post-Effective Date, DWS, shall constitute Paramount Affiliates.

Person shall mean any individual, corporation, limited liability company, estate, partnership, joint venture, association, joint stock company, trust (including any beneficiary thereof), unincorporated organization or government or any agency or political subdivision thereof.

Rent-a-System Picture shall mean an Animated Motion Picture or Hybrid Motion Picture with respect to which DWA acquires only a license to exercise certain rights pursuant to an arms-length agreement with an unaffiliated third party, the applicable license agreement does not obligate DWA to pay an advance or minimum guarantee for such Motion Picture and under the license agreement DWA is entitled to receive or retain a customary rent-a-system distribution fee and such unaffiliated third party is obligated either to advance, guarantee or to pay on a full recourse basis all distribution expenses which may be incurred by DWA.


Required International Territories shall mean those territories listed on Schedule 5 hereto.


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Residuals shall mean, with respect to each DWA Picture, payments to third parties required (i) pursuant to collective bargaining, union or guild agreements applicable to DWA for the exploitation of such DWA Picture, including residuals, pension, health and welfare payments, and employer share of taxes, or (ii) for performance, synchronization, recording, re-use and video levies, patent, trademark and similar licenses as governmental requirements, incurred for the distribution or turning to account of such DWA Picture, or rights derived therefrom, in the case of each of clauses (i) and (ii) above, for the Home Video Exhibition of such DWA Picture throughout the Territory.

Separation Agreement shall mean the agreement dated as of October 7, 2004 by and among DWS, DWA SKG and DreamWorks Animation L.L.C. regarding the principal corporate transactions required to effect DWA SKG' s separation from DWS.


Services Agreement shall mean the agreement dated as of October 7, 2004 between DWS and DWA SKG whereby (i) DWS has agreed to provide DWA SKG with various corporate and administrative support services as enumerated therein, and such additional services that DWS and DWA SKG may identify from time to time in the future, and (ii) DWA SKG has agreed to provide DWS with certain support services as enumerated therein.

Service Term shall mean:

a. With respect to DWA Pictures Delivered to Paramount during the Output Term, the period commencing on the date such DWA Picture is Delivered to Paramount and ending the earlier of (i) sixteen (16) years after the DWA Picture' s Theatrical Release Date in the Domestic Territory, or (ii) seventeen (17) years after Delivery of the DWA Picture;


b. With respect to Existing Pictures, the period commencing on the Effective Date and ending on the date that is sixteen (16) years after each Existing Picture' s Theatrical Release Date in the Domestic Territory, as such Theatrical Release Dates are set forth on Schedule 3 ;


c. With respect to DWA DTV Productions, (i) if the HV Release Date for such DWA DTV Production occurred prior to the Effective Date, the period commencing on the Effective Date and ending ten (10) years thereafter, or (ii) if such DWA DTV Production is Delivered on or after the Effective Date, the period commencing on the Delivery Date and ending the earlier of (A) ten (10) years after such DWA DTV Production' s HV Release Date in the Domestic Territory, or (B) 126 months after such DWA DTV Production is Delivered to Paramount.


Notwithstanding the foregoing, the Service Term shall be subject to earlier termination in accordance with the terms hereof; provided that, subject to Section 11.2.c. below, (i) (A) the Service Term and this Agreement, as and to the extent they pertain to such Fulfillment Services to be rendered by Paramount hereunder that are also subject to any DWA-appr
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