Exhibit 10.5 to
Form 10-Q
MCA
UNIVERSAL CITY STUDIOS, INC., 000 XXXXXXXXX XXXX XXXXX, XXXXXXXXX XXXX,
XXXXXXXXXX 00000
as of July 10, 1996
Xxxxxx Xxxxxxxxx, Chairman
BEACON PICTURES
c/o Warner-Hollywood Studios
0000 X. Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Dear Armyan:
This letter sets forth the basic terms of the agreement reached between
Universal Pictures, a division of Universal City Studios, Inc. ("Universal"),
and Beacon Pictures ("Beacon"), with respect to the acquisition by Universal of
exclusive distribution rights to all theatrical motion pictures produced by
Beacon.
1. TERM: Five (5) years commencing on September 1, 1996 ("Term").
2. PICTURES: Beacon will deliver to Universal and Universal will
accept up to twenty (20) theatrical motion pictures during the
Term (individually "Picture" and collectively "Pictures"), but
Universal will not be obligated to accept delivery of more than
four (4) Pictures per year, and each Picture must conform to
Universal's customary production specifications (including,
without limitation, MPAA rating, running time, cover shots for
television and other versions, compliance with laws, timely
delivery and delivery requirements). With respect to running
time requirements, each Picture must have a running time of not
less than ninety (90) minutes and not more than one hundred
twenty (120) minutes (exclusive of main and end titles);
provided, however, that not more than once per year Universal
will consider increasing the running time for a Picture directed
by a director who has previously been accorded final cutting
rights by a major studio, and on an occasional basis during the
Term, Universal will consider Beacon's request to increase a
Picture's running time due to the Picture's scope and/or subject
matter. Universal will only be obligated to accept Pictures
which commence principal photography during the Term; provided,
however, that in no event will Universal be obligated to accept
a Picture which is delivered more than one (1) year after the
conclusion of the Term. Attached hereto as Exhibit "1" is a
list of theatrical motion pictures (for which the distribution
rights for the Territory [as defined below] are owned or
controlled by a third party) which shall be deemed excluded from
this agreement.
3. PRODUCER SERVICES: Xxxxxx Xxxxxxxxx must actually and actively
render producing services on each Picture (it being acknowledged
that the parties contemplate Beacon delivering four (4) Pictures
per year to Universal, each of which will be produced by Xx.
Xxxxxxxxx), and must receive appropriate producer or executive
producer in connection with each Picture. If at any time, for
any reason, Xx. Xxxxxxxxx ceases or fails to render producer
services on a Picture, or becomes incapable of rendering
producer services on future pictures, or is no longer an
employee or principal of Beacon, Universal shall have the right
in its sole discretion to terminate this agreement.
4. DISTRIBUTION TERRITORY: United States, Canada and their
respective territories and possessions (including without
limitation, Guam, American Samoa, U.S. Virgin Islands, British
Virgin Islands, Netherland Antilles, West Indies, Saipan,
Bahamas Islands, Bermuda and Puerto Rico) ("Territory"). The
Territory shall include, without limitation, any and all
military and diplomatic installations or facilities, common
carriers, (e.g. airlines, ships at sea, trains, etc.),
industrial installations (e.g. drilling platforms, oil rigs,
construction sites, company theaters etc.), educational
institutions, libraries, prisons, museums and churches flying
the flag of any nation within the Territory (regardless of where
situated) or located in any nation within the Territory, and
catalog rental companies shipping from a fulfillment site within
the Territory. Beacon agrees to advise all licensees of
distribution rights outside the Territory of the specific
territories which have been licensed to Universal hereunder as
part of the Territory.
5. DISTRIBUTION TERM: For each Picture, a minimum of two (2) full television
syndication cycles (based on Universal's customary sequential pattern of
release), extendible for such period as is necessary for Universal to
recoup the Advance (see Paragraph 10. below) with respect to the Picture,
but not to exceed twenty-one (21) years from the theatrical release of
each Picture.
6. DISTRIBUTION RIGHTS: The sole and exclusive motion picture,
television, video, allied and ancillary distribution rights
(including, without limitation, the publishing, derivative
distribution and commercial tie-up rights) in and to the
Pictures, during the Distribution Term, in the Territory,
subject to the Reserved Rights (see Paragraph 7. below)
("Distribution Rights"). The rights granted to Universal include
the right to exploit the Pictures on hotel pay-per-view services
(excluding hotels serviced by the "On Command" service [see
Paragraph 7.d. below]).
7. RESERVED RIGHTS:
a. Soundtrack Album: Beacon will retain all soundtrack album
rights in the Pictures; provided, however, that MCA
Records will be accorded a right of first refusal to
distribute the soundtrack album for each Picture, in the
Territory, during the Term, and in such other territories in which
Beacon desires to distribute a soundtrack album. If MCA Records
distributes the soundtrack album, the revenues derived therefrom
will be accounted for separately.
b. Music Publishing: Beacon will retain all music publishing
rights in the Pictures; provided, however, that MCA's
music publishing company will administer such rights for
each Picture in the Territory, during the Term, for which
it will receive
administrative fee. All revenue
derived from the exploitation of music publishing rights
will be paid to Beacon, on a separate accounting basis,
after the deduction of (i) the administrative fee, (ii)
all out-of-pocket costs and expenses and (iii) all third
party royalties. The parties agree to negotiate in good
faith an appropriate advance of music publishing revenue.
c. Merchandising: Beacon will retain all merchandising rights
in the Pictures; provided, however, that Universal's
merchandising affiliate will administer such rights for
each Picture in the Territory, during the Term, for which
it will receive
administrative fee. All revenue
derived from the exploitation of merchandising rights will
be paid to Beacon, on a separate accounting basis, after
the deduction of (i) the administrative fee, (ii) all
out-of-pocket costs and expenses and (iii) all third party
royalties.
d. Hotels Utilizing On Command Pay-Per-View Service: Beacon
will retain the right to exploit the Pictures in hotel
rooms in the Territory utilizing the On Command
pay-per-view service. Upon execution of this agreement,
Beacon will provide Universal with a list of the hotel
rooms serviced by On Command. Beacon's gross proceeds
from the exercise of such rights shall be included in
calculating (i) the escalation of Universal's Non-Video
Distribution Fee under Paragraph 12.b and (ii) Beacon's
Non-Video Participation (as defined in Paragraph 13.) from
which Universal may be entitled to recoup the Advance (as
defined in Paragraph 13.)
8. OVERHEAD/DEVELOPMENT CONTRIBUTION: Beacon will receive
during each year of the Term, payable monthly in
arrears, as an overhead/development contribution ("Overhead
Contribution"). The Overhead Contribution will be recoupable by
Universal during each year of the Term as a distribution expense
If during any
year of the Term Beacon does not deliver four (4) Pictures, the unrecouped
portion of the Overhead Contribution will be reallocated to Pictures
delivered in subsequent years; provided, however, that such reallocation
shall not exceed an additional .
9. CONCEPT APPROVAL: As a condition precedent to Universal's
obligation to accept delivery of a Picture hereunder, Beacon
agrees to obtain Universal's approval of the concept of each
theatrical motion picture project ("Project") Beacon
contemplates producing during the Term ("Concept Approval"). To
obtain Concept Approval, at such time as Beacon chooses in its
sole discretion, Beacon agrees to submit to the Motion Picture
Group Chairman (presently Xxxxx Xxxxxx) or his designee, the
concept of the Project, plus any additional material information
about the project then known. Universal agrees to approve or
disapprove the Project based on the information provided within
. If Universal disapproves, Beacon will have the
right to offer the Project to another distributor. If the
concept as presented to Universal materially changes, Beacon
will resubmit the Project to Universal for Concept Approval.
10. ADVANCE: Upon delivery to Universal of a Picture which meets the
production specifications and delivery requirements set forth in
Paragraph 2. above, Universal will advance to Beacon an amount
equal to . The actual amount advanced to
Beacon for each Picture plus interest thereon at
is hereinafter referred to as "the Advance". The budget for
each Picture hereunder may not include a producing fee for
Beacon in excess of . Notwithstanding the
foregoing, if prior to the commencement of principal
photography, Beacon provides Universal with evidence that a
Picture is bonded and has adequate insurance coverage, Beacon
may elect to have Universal cash flow such Picture up to the
amount of the Advance (exclusive of interest), in lieu of paying
the Advance upon acceptance of delivery of the Picture. If
Universal does not cash flow the Picture, the actual production
cost of the Picture may include interest at a rate not to exceed
Universal's (or MCA's) then applicable internal rate of
borrowing. With respect to Pictures for which the total
"all-in" direct cost budget exceeds the parties will
negotiate in good faith an appropriate adjustment of the Advance.
11. BEACON PARTICIPATION: With respect to each Picture, Beacon will
receive all proceeds from the exercise by Universal of the
Distribution Rights after the deduction by Universal of (i) the
applicable distribution fee (see Paragraph 12. below), (ii)
customary distribution expenses (including, without limitation,
marketing, manufacturing and distribution expenses with respect
to home video), and subject further to Universal's recoupment of
the Advance (see Paragraph 13. below). In calculating customary
distribution expenses, Universal agrees .
At Beacon's request, Universal will act as the paymaster for all third
party participations which will be deducted as a distribution expense
(non-video and video on a fully cross-collateralized basis) from the
proceeds payable to Beacon. In addition, as an accommodation to Beacon,
Universal will advance all guild residuals due, and will deduct all
residuals advanced from the proceeds payable to Beacon as a distribution
expense (on a non-cross-collateralized basis). Universal will provide
appropriate documentation to the applicable guild or labor union.
12. DISTRIBUTION FEES:
for all media (including home video distribution) escalating as follows:
a. Video Distribution Fee: The distribution fee for home
video will escalate
the applicable Picture.
b. Non-Video Distribution Fee: The distribution fee for all
other media will escalate
the applicable Picture.
13. RECOUPMENT OF ADVANCE: In connection with each Picture, the
Advance will be deemed initially an advance against Beacon's
participation in the proceeds
If Universal determines based on internal projections (calculated in a
manner consistent with generally accepted accounting principles) that the
Advance will not be fully recouped from , Universal will be entitled to
recoup the Advance from Beacon's
participation in as follows:
a. Universal will be entitled to establish appropriate reserves from
Beacon's
which will be used to enable Universal to recoup the
Advance, such reserves to be subject to liquidation on a periodic
basis.
b. Solely for purposes of determining whether Universal can
to recoup the Advance,
will be re-calculated without the deduction of the
distribution fee or interest on the Advance.
c. Universal will be entitled to recoup the Advance from
d. Universal will not be entitled to recoup the Advance or
its distribution expenses from one Picture from Beacon's
on any other Picture hereunder.
e. Beacon will be entitled to review the documentation upon which
Universal's projections are based at such time Universal determines
(if ever) that a reserve should be established, and thereafter at
reasonable times and intervals.
14. CONSULTATION: Beacon will consult with Universal with respect to all
material creative and production matters, including, without limitation,
screenplay, budget, director, principal cast, production schedule, filming
location, post-production schedule, and delivery date.
Universal will consult fully and in good faith with Beacon with respect to
all material marketing and distribution matters, including, without
limitation, the advertising/publicity campaign, marketing budget and
release pattern for the initial theatrical and home video release of each
Picture in the Territory. Universal agrees that each Picture will have a
print and advertising budget comparable to that expended by Universal, on a
non-discriminatory basis, for comparable pictures that are fully financed
by Universal, and in an amount sufficient to qualify for Universal's output
arrangements. Universal will also consult with Beacon with respect to
television syndication arrangements and the initial sale of the home video
units for each Picture (i.e. rental vs. sell through).
15. CREDIT: In addition to the producer credit which must be
accorded to Xxxxxx Xxxxxxxxx pursuant to Paragraph 3. above,
Beacon will be accorded a presentation credit (including logo
credit) on screen and in paid advertising in connection with
each Picture accepted for delivery by Universal, whenever and
wherever Universal's credit (including logo credit) appears.
All other credits will be accorded by Beacon in its sole
discretion subject to guild requirements and Universal's
customary credit policies.
16. KEY ART: Beacon will be accorded free access to all available
key art and related advertising material (including trailer
materials) created by Universal for use by Beacon in connection
with the exploitation of the Pictures outside the Territory.
17. REMAKES AND SEQUELS: If Beacon intends to produce a remake or sequel of
any Picture for release in the Territory after the expiration of Term,
Beacon will accord Universal a right of first negotiation/last refusal to
acquire Distribution Rights in the Territory to each such remake or
sequel.
18. COPYRIGHT: As between Universal and Beacon, Beacon will be the
sole and exclusive owner of the copyright in the Pictures.
19. MUSIC: Universal and Beacon will discuss in good faith the
possibility of establishing a co-venture to exploit the
soundtrack album and music publishing rights in the Pictures,
but unless and until such co-venture is established (as to which
no commitment has been made by Universal), the provisions of
Paragraphs 7.a. and b. will govern the soundtrack album and
music publishing rights, respectively, in the Pictures.
20. PRESS RELEASE: Universal and Beacon will mutually approve all
press and publicity releases with respect to this agreement.
Since this letter will serve as our agreement until long form
documentation is prepared, please acknowledge your agreement to the foregoing by
signing where indicated below.
Sincerely,
Universal Pictures, a division of
Universal City Studios, Inc.
By:/s/ Xxxx Xxxxxxx
Its:Executive Vice President
AGREED TO AND ACCEPTED:
BEACON PICTURES
By: /s/ B. Xxxxxx Xxxxxxxxx
Its: Chairman
