Exhibit 10.3
"Pages where confidential treatment has been requested are stamped 'Confidential
Treatment Requested and the Redacted Material has been separately filed with the
Commission', and the confidential section has been marked in the margin with a
star (*)."
REVENUE SHARING
OUTPUT LICENSE TERMS
As of February 28, 2000
The following (the "Agreement") sets forth the terms of the license agreement
(the "License") between Warner Home Video ("WHV"), a division of Time Warner
Entertainment Company, L.P. and Xxxxx.xxx (the "Retailer") for revenue sharing
on WHV's Rental Picture output (as defined below).
1 . TERM: Five (5) year period commencing upon the "Street Date" of the first
"Rental Picture" (as such terms are defined below) released by WHV on or
after May 16, 2000 (subject to change by Retailer upon notice to WHV).
2. TERRITORY: United States and its territories and possessions only.
3. DEFINITIONS:
a. "LICENSED UNITS" shall mean the total number of units (VHS and DVD)
licensed to Retailer hereunder.
b. "MONTH" shall be defined as each calendar Month, and each Month shall
end on the last day of such Month.
c. "PICTURE TERM" means for each Rental Picture the first twelve (12)
months following the initial release of a title in either the VHS or
DVD format.
d. "RENTAL PICTURE" means each and every "New Release" on videocassette
and DVD of a feature motion picture distributed by WHV in the
Territory (subject to any and all approvals required by any third
party, including, without limitation, New Line and HBO) of not fewer
than seventy (70) minutes in length, provided, however, that product
controlled by third parties who do not approve of the terms hereof
shall be specifically excluded from Rental Pictures. "New Release"
refers to the initial release of a title in either the VHS or DVD
format. WHV reserves its right, upon notice to Retailer, prospectively
to withdraw any Rental Picture or distributed line from the terms
hereof in the event WHV ceases to own or control homevideo
distribution in the Territory with respect thereto.
e. "REVENUE" means all consumer-generated videocassette rental revenue,
related extended viewing fees, lost unit fees, and any other fees, and
any and all interest accruing thereon per rental transactions, of all
Licensed Units, less actual Bad Debt (as
defined below), if applicable, and net of any and all Taxes (as
defined below). The parties agree that Retailer's calculation of Bad
Debt and Taxes shall be subject to review and verification by WHV.
(i) "BAD DEBT" shall mean, for purposes hereof (A) Retailer's total
gross rental revenues (including extended viewing fees) relating
to WHV Rental Picture product multiplied by (B) the quotient of
(x) actual net write-offs by Retailer on an annual basis divided
by (y) Retailer's total gross rental revenues (including extended
viewing fees) chain-wide, provided that in no event shall
Retailer's Bad Debt exceed 10% of Retailer's total gross rental
revenues relating to WHV Rental Picture product.
(ii) "TAXES" shall mean any and all sales, excise, value added or
other taxes which meet the following qualifications: (A) the
taxes are separately stated, (B) the taxes are required by law to
be collected from Retailer's customers, and (C) the taxes are
actually paid by Retailer to taxing authorities.
f. "STREET DATE" means the first day retailers are permitted by WHV to
make a title available for rental to consumers or, for purposes
hereof, in the case of DVD product, the first day Retailers are
permitted to make a title available to consumers.
g. "TURN" shall mean one (1) actual rental transaction generated by a
Licensed Unit. The parties acknowledge and agree that invoicing and/or
payment of extended viewing fees, lost unit fees or other similar fees
shall be considered a part of the Turn with which it is associated and
shall not be considered a separate transaction or Turn.
4. LICENSED RIGHTS:
a. HOMEVIDEO DISTRIBUTION LICENSE: WHV licenses to Retailer on a limited
and non-exclusive basis homevideo distribution rights to the Rental
Pictures in VHS and DVD formats only for rental only in the retail
market in the Territory during the Term, subject to the terms
hereunder and subject to Retailer's agreement to accept all Rental
Pictures offered by WHV pursuant to the terms hereunder and to acquire
sufficient quantities of such Rental Pictures to support the marketing
efforts of WHV and Retailer contemplated hereby, subject to Paragraph
5(a) below.
b. CREDIT APPROVAL: WHV and Retailer agree that this License is and shall
during the Term be conditioned upon and subject to (i) Retailer's
credit approval by WHV or its designee and (ii) maintenance of such
level of credit worthiness during the Term, which level may be
evaluated periodically by WHV or its designee at any time during the
Term.
c. RESERVATION OF TITLE: Legal title to, and risk of loss of, the
Licensed Units hereunder shall remain vested in WHV, subject to
disposition of Licensed Units pursuant to
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Paragraph 8 below. Retailer shall not permit any encumbrance to attach
to any Licensed Units delivered pursuant to this Agreement.
d. LIMITATIONS ON BUNDLING: In the event Retailer elects to bundle Rental
Pictures with any other of Retailer's products, the effective retail
price of the Rental Picture(s) shall be proportionate to the effective
rental and/or retail price of each of the other products in the
bundle, subject to WHV's minimum Revenue Share, pursuant to Paragraph
6.a. below.
5. INITIAL PAYMENT TO WHV:
a. INITIAL PAYMENT: For each Rental Picture licensed hereunder, Retailer
shall advance to WHV a non-refundable aggregate amount (the "Initial
Payment") as follows:
* (i) MUTUAL DETERMINATION: [***] per Licensed Unit, with WHV and
Retailer mutually determining the number of Licensed Units per
Rental Picture and WHV's decision final; or
* (ii) RETAILER'S DETERMINATION: [***] per Licensed Unit, with Retailer
unilaterally determining the number of Licensed Units per Rental
Picture.
b. PAYMENT TERMS. For each Rental Picture, if applicable, the Initial
Payment shall be due and payable by Retailer sixty (60) days after
Street Date.
c. RECOUPMENT: Retailer shall recoup each Initial Payment from WHV's
Revenue Share on a Rental Picture-by-Rental Picture basis. No Initial
Payment or any other amount due or owing on any Rental Picture shall
be cross-collateralized with the Initial Payment or any other amount
due or owing on any other Rental Picture(s).
6. REVENUE SHARING: For each Rental Picture, subject to
Paragraph 5.c. above, WHV's share of the Revenue shall be
calculated as follows:
* a. DURING THE PICTURE TERM: During the Picture Term, on an average
aggregate basis per Licensed Unit per Turn, WHV's Revenue Share shall
equal the greater of (i) [***] of Revenue or (ii) U.S.$[***] which is
net of Bad Debt and Taxes as defined in Paragraph 3.e. above.
b. POST-PICTURE TERM: After the Picture Term, Retailer retains all
revenue.
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* Confidential Treatment Requested and the Redacted Material has been separately
filed with the Commission.
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7. STATEMENTS AND PAYMENTS:
a. STATEMENTS: On a Monthly basis, within ten (10) business days after
the Month, for each Rental Picture, Retailer shall provide to WHV, in
the formats reasonably requested and as periodically amended by WHV, a
statement (the "Statement") which reflects the rental and related
activities for such Month, including, without limitation, Initial
Payment, WHV's Revenue Share, (as defined below in Paragraph 8) and
actual Bad Debt.
b. PAYMENTS: For each Rental Picture, to the extent any amounts are due
pursuant to the Statements, such amounts shall be due and payable
within ten (10) business days following Month-end.
8. DISPOSITION OF LICENSED UNITS AFTER PICTURE TERM:
a. NO SALES: Retailer shall not sell any Licensed Units.
b. TREATMENT OF LICENSED UNITS AFTER PICTURE TERM: For each Rental
Picture, at the expiration of the Picture Term, Retailer, upon written
notice to WHV by the expiration of the Picture Term, may elect to keep
some or all of the Licensed Units for purposes of renting such units
to consumers for up to two (2) additional years (the "Additional
Period"). At the end of the Additional Period, or in the event
Retailer does not elect to retain some or all Licensed Units for all
or part of the Additional Period, WHV, at its option, shall instruct
Retailer to return or destroy such Licensed Units, subject to
Paragraph 8.c. below.
* c. RETAILER'S RENTAL INVENTORY: For each Rental Picture, Retailer may
elect to keep up to [***] of the Licensed Units, per format, for
rental inventory ("Rental Inventory).
* d. RENTAL INVENTORY PAYMENT: For each Licensed Unit retained as "Rental
Inventory" within ten (10) business days after the end of the
Additional Period (or if there is no Additional Period, at the end of
the Picture Term), Retailer shall pay to WHV the non-recoupable sum of
$[***] per unit.
e. EFFECT OF NON-COMPLIANCE: The parties agree that failure by Retailer
to comply with this Paragraph 8 shall constitute a material breach of
this Agreement.
*9. MARKETING/PROMOTION: [***] Retailer agrees that this positioning shall be
no worse than the positioning for the video product of any other Studio (as
defined below). Both parties agree to review Retailer's marketing/promotion
of WHV's product on an on-going basis during the Term.
*10. ADVERTISING SUPPORT: WHV shall provide advertising support funds to
Retailer [***] on a by-Rental Picture basis, with media to be pre-approved
by WHV. [***]
---------
* Confidential Treatment Requested and the Redacted Material has been separately
filed with the Commission.
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11. DELIVERY: WHV, at its cost, shall use its good faith reasonable efforts to
deliver product to a distribution center designated by Retailer not less
than ten (10) business days prior to Street Date for each Rental Picture,
subject to timely placement of purchase orders by Retailer (i.e., by
standard order due date).
12. INFORMATION TO BE PROVIDED BY RETAILER: To the extent reasonably available
to Retailer and with respect to WHV product only, Retailer agrees to
provide the following information to WHV at Retailer's expense:
a. REVENUE SHARE REPORTING: On a weekly basis, no later than Tuesday
morning for activity through the previous Sunday, Retailer shall
deliver to WHV, via EDI or hard copy as reasonably requested by WHV,
reports detailing the number of copies, the number of rental
transactions and gross revenues per Rental Picture, in each instance,
by format, by warehouse, provided that for the first ninety (90) days
of the Term, the parties will work together to establish an
appropriate reporting system for Retailer.
b. OTHER INFORMATION: Retailer and WHV shall mutually agree on other
information, reporting formats and/or tracking or information formats
and systems to be provided to each other.
13. AUDIT RIGHTS: Upon not less than seven (7) days advance written notice to
Retailer, WHV, or its representatives or designees, shall have the right
during normal business hours, but not more than one (1) time per year
during the Term and all the Picture Terms and one (1) time after the
expiration of the Term and all the Picture Terms (but not the Additional
Period), to inspect, audit and make extracts of the books and records of
Retailer insofar as said books and records relate to the calculation or
determination by Retailer of (a) Revenue, (b) WHV's Revenue Share, (c) Bad
Debt, and (d) the rights licensed hereunder. Such rights of audit shall
continue for a period of one (1) year following the expiration of all
Picture Terms, (but not the Additional Period) as provided for under this
Agreement. For purposes of clarification, there shall be no more than one
(1) audit per year during the auditable period. The parties agree that
Retailer shall have the right reasonably to approve independent auditors
hired by WHV to conduct an audit, provided that the internal auditors of
WHV and/or Time Warner and the accounting firm of Ernst & Young or WHV's
then existing auditors shall be deemed pre-approved for any and all audits
conducted pursuant hereto.
14. SELL-THROUGH PRODUCT: WHV agrees to offer sell-through product (including
catalog) to Retailer at WHV's best cost price for Retailer's category.
15. EQUITY POSITION: In partial consideration for the rights granted hereunder,
Retailer agrees to give WHV or its designee $10 million in Retailer's
Series F Convertible Preferred.
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Stock ("Stock") to be issued in its private placement. The parties agree to
execute and deliver any and all documentation required to effect such stock
conveyance.
16. CONFIDENTIALITY: Each of WHV and Retailer acknowledges that (i) the terms
and conditions of this Agreement, and (ii) all information and data
(including, without limitation, rental and revenue forecasts, projections
and estimates and actual results, in whatever form or medium)
(collectively, the "Confidential Information") provided by each party to
the other under this Agreement are highly proprietary and confidential.
Each of WHV and Retailer agrees that it shall not use Confidential
Information (other than in connection with the performance of its
obligations under this Agreement or the exercise of its rights under this
Agreement) or disclose Confidential Information to any person (other than
its officers, employees, agents, representatives and licensors and
licensees on a need-to-know basis only and who agree to be bound by the
confidentiality obligations hereunder) or unless compelled by subpoena or
court order or state or federal securities laws to disclose any such
Confidential Information. This Paragraph 16 shall survive expiration or
earlier termination of this Agreement.
17. INDEMNIFICATION:
a. INDEMNIFICATION BY RETAILER: Except as otherwise provided in Paragraph
17.b. below, Retailer shall defend, indemnify and hold WHV, its parent
company, their affiliates and subsidiaries, and the officers,
directors, agents and employees of each, free and harmless from all
suits, claims, demands and other liabilities and expenses (including
reasonable attorneys' fees) (each, a "Claim") which may arise directly
or indirectly out of or by reason of (i) the unauthorized use by
Retailer of any patented invention, or of any copyrighted material
provided by WHV, (ii) a Claim from a customer arising out of
Retailer's rental or retail practices or course of dealing with
respect to such customer, and/or (iii) a breach or violation of this
Agreement or any obligation, covenant, representation or warranty made
hereunder by Retailer.
b. INDEMNIFICATION BY WHV: Except as otherwise provided in Paragraph
17.a. above, WHV shall defend, indemnify and hold Retailer, its parent
company, their affiliates, subsidiaries, and franchisees, and the
officers, directors, agents, and employees of each, free and harmless
from all Claims (including reasonable attorneys' fees) which may arise
directly or indirectly out of or by reason of (i) copyright or
trademark infringement by, or other third party Claim against, WHV or
Retailer with respect to the content of any Rental Picture, provided
such Claim or infringement is not the result of the negligence of
Retailer or any employee or agent of Retailer, (ii) a physical defect
in any Licensed Unit provided to Retailer hereunder by WHV, provided
such defect was not caused by the negligence of Retailer or any
employee or agent of Retailer, and/or (iii) a breach or violation of
this Agreement or any obligation, covenant, representation or warranty
made hereunder by WHV.
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18. REMEDIES:
a. GENERAL: Each of WHV and Retailer acknowledge and agree that a
material breach by either party of any of its obligations under this
Agreement, gives the other party the right to terminate this Agreement
upon thirty (30) days prior written notice; provided that in the event
the breaching party cures such breach within the notice period, the
termination notice shall be void with respect to such cured breach
only. Retailer waives any rights to seek injunctive relief with
respect to the sale, license and/or other distribution of any Rental
Picture, provided that Retailer does not waive any right it may have
to seek specific performance under this Agreement with respect to any
Rental Picture being distributed by WHV in the rental retail
marketplace. The termination of this Agreement shall not relieve the
parties of any obligations incurred prior to such termination.
* b. LIQUIDATED DAMAGES: In the event of termination by Retailer due to
a material breach by WHV of any of its obligations under this
Agreement, WHV shall pay Retailer liquidated damages [***]. At
WHV's option, in lieu of paying liquidated damages to Retailer
pursuant to the foregoing and subject to applicable securities laws
and regulations, WHV may convey back to Retailer for no
consideration that number of shares of Stock [***]. The parties
agree that in the event of liquidated damages or reconveyance of
Stock hereunder, the number of shares shall be adjusted as
appropriate to reflect conversion and/or reverse splits of such
shares. Nothing contained in this paragraph 18.b. shall preclude
Retailer from seeking other remedies as permitted under this
Agreement.
19. REPRESENTATIONS AND WARRANTIES:
a. REPRESENTATIONS AND WARRANTIES OF RETAILER:
(i) AUTHORITY: Retailer hereby agrees, warrants and represents that
Retailer has full authority, capacity and ability to execute this
Agreement and to perform all of its obligations hereunder.
* (ii) [***]
b. REPRESENTATIONS AND WARRANTIES OF WHV: WHV hereby agrees, warrants and
represents that WHV has full authority, capacity, ability and right to
execute this Agreement, to perform all of its obligations hereunder
and to license the rights to Retailer hereunder pursuant to Paragraph
4 above.
---------
* Confidential Treatment Requested and the Redacted Material has been separately
filed with the Commission.
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20. MISCELLANEOUS:
a. AMENDMENT AND WAIVER: Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement
shall be effective against any party unless such modification,
amendment or waiver is approved in writing by both Retailer and WHV.
The failure of any party to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of such provisions
and shall not affect the right of such party thereafter to enforce
each and every provision of this Agreement in accordance with its
terms.
b. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable
law or rule in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision or any other
jurisdiction, but this Agreement shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
c. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein, this
document embodies the complete agreement and understanding between the
parties hereto with respect to the subject matter hereof and
supersedes and preempts any prior understandings, agreements or
representations by or between the parties, written or oral, which may
have related to the subject matter hereof in any way.
d. ASSIGNMENT:
(i) RETAILER ASSIGNMENT: This Letter Agreement shall not be assigned
by Retailer without the prior written consent of WHV, which
consent shall not be unreasonably withheld or delayed, provided
that WHV has the right not to approve an assignment in the event
of a sale of Retailer to a Studio (as defined below) or to a
Third Party Retailer (as defined below).
(ii) WHV ASSIGNMENT: This Letter Agreement shall not be assigned by
WHV without the prior written consent of Retailer, except to any
corporation or entity which controls, is controlled by, or under
common control with WHV.
(iii) PURCHASE OF RETAILER BY A STUDIO OR THIRD PARTY RETAILER.
(A) PURCHASE BY STUDIO: In the event a motion picture studio or
a company which produces or acquires theatrical or
non-theatrical product for release into the homevideo market
in VHS, DVD laser disc, and/or
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other video formats, either directly to retailers or through
wholesalers (for purposes hereof, in each instance, a
"Studio") enters into an agreement to acquire Retailer, WHV
shall be given prompt notice of such agreement and shall
have the option to terminate this Agreement immediately upon
written notice to Retailer. Promptly following such notice
of acquisition agreement, Retailer, in consultation with
WHV, shall undertake to provide adequate assurance in
writing to WHV that proprietary and confidential information
of WHV shall not be disclosed to, or otherwise made
accessible to, the management or other employees of such
Studio following such acquisition. As used in this Paragraph
20.d.(iii)(A), the term "Studio" shall also include, without
limitation, the respective affiliated corporations which
control, are controlled by, or are under common control
with, any such Studio. The term "control" shall refer to the
ownership of at least fifty percent (50%) of the outstanding
voting power of the corporation or entity which is subject
to such "control".
(B) PURCHASE BY/OF THIRD PARTY RETAILER: Subject to Paragraph
20.d.(i) above, in the event a third party retailer (a
"Third Party Retailer") enters into an agreement to acquire
Retailer, or Retailer enters into an agreement to acquire a
Third Party Retailer, then WHV and Retailer agree that in
such event, the terms of this Agreement shall apply only to
Retailer, unless and until WHV approves in writing inclusion
of such Third Party Retailer hereunder.
(C) DEFINITION OF "PURCHASE": For purposes of this Subparagraph
20.d.(iii) the term "Purchase" shall include acquisition,
merger and/or other consolidation.
e. COUNTERPARTS. This Agreement may be executed in separate counterparts
each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
f. DUE AUTHORIZATION. Each of WHV and Retailer represents and warrants
that the officer executing this Agreement has been duly authorized and
that this Agreement when executed and delivered shall be valid and
binding and enforceable in accordance with its terms.
g. NOTICES. All notices provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first
class mail (postage prepaid) or sent by reputable overnight courier
service (charges prepaid) to the parties as follows:
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If to Retailer:
Xxxxx.xxx
00 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxx, President and C.A.O.
Xxxxx Xxxxx, C.F.O.
Xxxxx Xxxxxxx, V.P. Business Development
with a copy to Xxxx Xxxxx, Esq.
Xxxxxxxxx and Traurig
000 Xxxx Xxx.
Xxx Xxxx, XX 00000
If to WHV:
Warner Home Video
0000 Xxxxxx Xxxxxxxxx
Xxxxxxx, XX 00000
Attention: Xxx Xxxxxxxx, Executive Vice President
North American Operations
Xxxx Xxxxx, Senior Vice President, Business
and Legal Affairs and General Counsel
h. GOVERNING LAW. This Agreement and all matters or issues material
thereto shall be governed by the laws of the State of California,
applicable to contracts performed entirely therein.
i. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this
Agreement.
j. RELATIONSHIP OF PARTIES. Nothing contained herein shall constitute a
partnership, joint venture, association or principal and agent
relationship or be construed to evidence the intention of the parties
to constitute such. Retailer and WHV are independent contractors and
neither has any authority to act on the other's behalf or to bind the
other in any way.
k. FORCE MAJEURE. Whenever performance by any party of its obligations
under this Agreement, other than any of Retailer's payment obligations
hereunder, is substantially prevented by reason of any act of God,
strike, lock-out, or other industrial or transportational disturbance,
fire, lack of materials, law, regulation or ordinance, war or war
conditions, or by reason of any other matter beyond such party's
reasonable control, then such performance shall be excused and this
Agreement shall be deemed suspended during the continuation of such
prevention, and the term shall be extended for a period equal to the
time of such suspension.
l. THIRD PARTIES. None of the provisions of this Agreement is intended
for the benefit of or shall be enforceable by any third parties,
including creditors of Retailer or WHV.
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In WITNESS WHEREOF, this Agreement was executed by the parties on the date first
written above.
RETAILER WARNER HOME VIDEO, a division of
Time Warner Entertainment Company,
L.P. ("WHV")
By: /s/ illegible By: /s/ illegible
------------------------------ ------------------------------
Its: Its:
----------------------------- -----------------------------
Retailer:
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