Download Form 10-Q - Lionsgate

Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2007
Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from
to
Commission File No.: 1-14880
Lions Gate Entertainment Corp.
(Exact name of registrant as specified in its charter)
British Columbia, Canada
N/A
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1055 West Hastings Street, Suite 2200
Vancouver, British Columbia V6E 2E9
and
2700 Colorado Avenue, Suite 200
Santa Monica, California 90404
(Address of principal executive offices)
(877) 848-3866
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 
No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer 
Accelerated Filer 
Non-accelerated Filer 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes 
No 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable
date.
Title
of
Each
Class
Outstanding
at August 1,
2007
Common Shares, no par value per share
119,201,707 shares
TABLE OF CONTENTS
Item
1.
2.
3.
4.
Page
PART I — FINANCIAL INFORMATION
Financial Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Controls and Procedures
PART II — OTHER INFORMATION
1.
Legal Proceedings
1A.
Risk Factors
2.
Unregistered Sales of Equity Securities and Use of Proceeds
3.
Defaults Upon Senior Securities
4.
Submissions of Matters to a Vote of Security Holders
5.
Other Information
6.
Exhibits
EXHIBIT 10.40
EXHIBIT 10.41
EXHIBIT 10.42
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
2
4
30
44
45
45
45
45
45
45
45
46
Table of Contents
FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act
of 1995. In some cases you can identify forward-looking statements by terms such as “may,” “intend,” “will,” “could,”
“would,” “expects,” “believe,” “estimate,” or the negative of these terms, and similar expressions intended to identify
forward-looking statements.
These forward-looking statements reflect Lions Gate Entertainment Corp.’s (the “Company,” “Lionsgate,” “we,” “us”
or “our”) current views with respect to future events and are based on assumptions and are subject to risks and uncertainties.
Also, these forward-looking statements present our estimates and assumptions only as of the date of this report. Except for
our ongoing obligation to disclose material information as required by federal securities laws, we do not intend to update you
concerning any future revisions to any forward-looking statements to reflect events or circumstances occurring after the date
of this report.
Actual results in the future could differ materially and adversely from those described in the forward-looking statements
as a result of various important factors, including the substantial investment of capital required to produce and market films
and television series, increased costs for producing and marketing feature films, budget overruns, limitations imposed by our
credit facilities, unpredictability of the commercial success of our motion pictures and television programming, the cost of
defending our intellectual property, difficulties in integrating acquired businesses, technological changes and other trends
affecting the entertainment industry, and the risk factors found under the heading “Risk Factors” in our Annual Report on
Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 30, 2007, which risk factors are
incorporated herein by reference.
Unless otherwise indicated, all references to the “Company,” “Lionsgate,” “we,” “us,” and “our” include reference to
our subsidiaries as well.
3
Table of Contents
PART I — FINANCIAL INFORMATION
Item 1.
Financial Statements.
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
June 30,
March 31,
2007
2007
(Unaudited)
(Note 1)
(Amounts in thousands,
except share amounts)
ASSETS
Cash and cash equivalents
Restricted cash
Investments — auction rate securities
Investments — equity securities
Accounts receivable, net of reserve for video returns and allowances of $64,908
(March 31, 2007 — $77,691) and provision for doubtful accounts of
$5,931(March 31, 2007 — $6,345)
Investment in films and television programs
Property and equipment
Goodwill
Other assets
$
58,580
4,644
166,330
4,916
$
105,234
579,757
14,207
187,491
41,169
51,497
4,915
237,379
125
130,496
493,140
13,095
187,491
18,957
$
1,162,328
$
1,137,095
$
174,972
186,729
147,490
328,718
101,066
$
155,617
171,156
167,884
325,000
69,548
LIABILITIES
Accounts payable and accrued liabilities
Participation and residuals
Film obligations
Subordinated notes and other financing obligations
Deferred revenue
938,975
889,205
423,715
—
(202,769 )
2,407
398,836
—
(149,651 )
(1,295 )
223,353
247,890
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Common shares, no par value, 500,000,000 shares authorized, 119,201,707 and
116,970,280 shares issued and outstanding at June 30, 2007 and March 31, 2007,
respectively
Series B preferred shares (10 shares issued and outstanding)
Accumulated deficit
Accumulated other comprehensive income (loss)
$
See accompanying notes.
4
1,162,328
$
1,137,095
Table of Contents
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three
Three
Months
Months
Ended
Ended
June 30,
June 30,
2007
2006
(Amounts in thousands,
except per share amounts)
Revenues
Expenses:
Direct operating
Distribution and marketing
General and administration
Depreciation
$ 198,742
$ 172,456
87,058
135,501
26,840
908
68,545
87,046
19,233
544
250,307
175,368
Total expenses
Operating loss
Other expenses (income):
Interest expense
Interest and other income
Total other expenses, net
(51,565 )
(2,912 )
3,860
(3,803 )
4,676
(2,561 )
57
2,115
Loss before equity interests and income taxes
Equity interests income (loss)
(51,622 )
(807 )
(5,027 )
58
Loss before income taxes
Income tax provision (benefit)
(52,429 )
689
(4,969 )
(1,365 )
Net loss
$
(53,118 )
$
(3,604 )
Basic and Diluted Net Loss Per Common Share
$
(0.45 )
$
(0.03 )
See accompanying notes.
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LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Common Shares
Number
Balance at March 31,
2006
Reclassification of
unearned
compensation and
restricted share
common units upon
adoption of
SFAS No. 123(R )
Exercise of stock
options
Stock based
compensation, net of
share units
withholding tax
obligations of $504
Issuance of common
shares to directors for
services
Conversion of
4.875%notes, net of
unamortized issuance
costs
Comprehensive income
(loss)
Net income
Foreign currency
translation
adjustments
Net unrealized gain
on foreign
exchange contracts
Unrealized gain on
investments —
available for sale
104,422,765
Amount
$ 328,771
Series B
Preferred
Restricted
Shares
Share
Unearned
Accumulated
Numbe
Amoun
r
t
Units
Compensation
Deficit
(Amounts in thousands, except share amounts)
10
$
—
1,146
$
5,178
(5,178 )
$
(4,032 )
$
(Loss)
(Loss)
(177,130 )
$
Total
(3,517 )
$ 149,270
—
4,032
1,297,144
4,277
4,277
113,695
6,517
6,517
25,568
238
238
11,111,108
57,887
57,887
27,479
Comprehensive
income
Balance at March 31,
2007
Exercise of stock
options
Stock based
compensation, net of
share units
withholding tax
obligations of $235
Issuance of common
shares to directors for
services
Issuance of common
shares for investment
in NextPoint, Inc
Issuance of common
shares related to the
Redbus acquisition
Comprehensive income
(loss)
Net loss
Foreign currency
translation
adjustments
Net unrealized loss on
foreign exchange
contracts
Comprehensive
Income
Accumulated
Other
Comprehensive
Income
$
$
10
—
—
—
27,479
27,479
1,876
1,876
1,876
259
259
259
87
87
87
—
29,701
116,970,280
398,836
(149,651 )
61,807
390
390
174,368
2,611
2,611
10,126
127
127
1,890,189
20,851
20,851
94,937
900
900
(53,118 )
(1,295 )
$
(53,118 )
2,434
(12 )
247,890
(53,118 )
2,434
(12 )
2,434
(12 )
Unrealized gain on
investments —
available for sale
1,280
Comprehensive loss
Balance at June 30,
2007
$
119,201,707
$ 423,715
10
$
—
$
—
$
See accompanying notes.
6
—
$
(202,769 )
1,280
1,280
2,407
$ 223,353
(49,416 )
$
Table of Contents
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months
Three Months
Ended
Ended
June 30,
June 30,
2007
2006
(Amounts in thousands)
Operating Activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation of property and equipment
Amortization of deferred financing costs
Amortization of films and television programs
Amortization of intangible assets
Non-cash stock-based compensation
Equity interests income (loss)
Changes in operating assets and liabilities:
Restricted cash
Accounts receivable, net
Investment in films and television programs
Other assets
Accounts payable and accrued liabilities
Unpresented bank drafts
Participation and residuals
Film obligations
Deferred revenue
$
(53,118 )
$
(3,604 )
908
884
49,862
162
2,846
807
544
975
33,193
244
974
(58 )
271
9,439
(136,139 )
(3,061 )
20,185
—
15,527
(20,430 )
31,486
84
93,013
(60,439 )
4,717
(68,278 )
(14,772 )
(7,587 )
(2,349 )
8,319
(80,371 )
(15,024 )
(172,442 )
243,491
(3,432 )
16,343
(2,017 )
(165,620 )
190,594
—
—
(1,831 )
81,943
23,143
Financing Activities:
Exercise of stock options
Borrowings from financing obligation
390
3,718
353
—
Net Cash Flows Provided By Financing Activities
4,108
353
Net Cash Flows Used In Operating Activities
Investing Activities:
Purchases of investments — auction rate securities
Proceeds from the sale of investments — auction rate securities
Purchases of investments — equity securities
Proceeds from the sale of investments — equity securities
Purchases of property and equipment
Net Cash Flows Provided By Investing Activities
5,680
1,403
51,497
Net Change In Cash And Cash Equivalents
Foreign Exchange Effects on Cash
Cash and Cash Equivalents — Beginning Of Period
Cash and Cash Equivalents — End Of Period
$
See accompanying notes.
7
58,580
8,472
(592 )
46,978
$
54,858
Table of Contents
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
General
Nature of Operations
Lions Gate Entertainment Corp. (the “Company,” “Lionsgate,” “we,” “us” or “our”) is a diversified independent
producer and distributor of motion pictures, television programming, home entertainment, video-on-demand and music
content. The Company also acquires distribution rights from a wide variety of studios, production companies and
independent producers.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Lionsgate and all of
its wholly owned and controlled subsidiaries.
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to
Form 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Article 10 of Regulation S-X
under the Exchange Act. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for
complete financial statements. In the opinion of the Company’s management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation have been reflected in these unaudited condensed
consolidated financial statements. Operating results for the three months ended June 30, 2007 are not necessarily indicative
of the results that may be expected for the fiscal year ended March 31, 2008. The balance sheet at March 31, 2007 has been
derived from the audited financial statements at that date but does not include all the information and footnotes required by
U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements
should be read together with the consolidated financial statements and related notes included in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2007.
Certain amounts presented for fiscal 2007 have been reclassified to conform to the fiscal 2008 presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most
significant estimates made by the Company’s management in the preparation of the financial statements relate to ultimate
revenue and costs for investment in films and television programs; estimates of sales returns, provision for doubtful
accounts, fair value of assets and liabilities for allocation of the purchase price of companies acquired, income taxes and
accruals for contingent liabilities; and impairment assessments for investment in films and television programs, property and
equipment, goodwill and intangible assets. Actual results could differ from such estimates.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 123(R). In December 2004, the Financial Accounting Standards
Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based
Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) revises SFAS No. 123 and eliminates the alternative to use the intrinsic
method of accounting under Accounting Principles Board (“APB”) No. 25. SFAS No. 123(R) requires all public companies
accounting for share-based payment transactions in which an enterprise receives employee services in exchange for
(a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments
or that may be settled by the issuance of such equity instruments, to account for these types of transactions using a
fair-value-based method. Effective April 1, 2006, the Company adopted the fair value recognition provisions of
SFAS No. 123(R), using the modified-prospective
8
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
transition method. Under such transition method, compensation cost recognized in the three months ended June 30, 2007 and
2006 includes: (a) compensation cost for all stock options granted prior to, but not yet vested as of, April 1, 2006, based on
the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost
for all share-based payments granted on or after April 1, 2006, based on the grant-date fair value estimated in accordance
with the provisions of SFAS No. 123(R). See note 11 for further discussion of the Company’s stock-based compensation in
accordance with SFAS No. 123(R).
FASB Issued Interpretation No. 48. On July 13, 2006, the FASB issued Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the
accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109,
“Accounting for Income Taxes” (“SFAS No. 109”), and prescribes a recognition threshold and measurement attributes for
financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under FIN No. 48, the impact of
an uncertain income tax position on the income tax return must be recognized at the largest amount that is
more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not
be recognized if it has less than a 50% likelihood of being sustained. Additionally, FIN No. 48 provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is
effective for fiscal years beginning after December 15, 2006.
The Company adopted the provisions of FIN No. 48 on April 1, 2007. The total amount of unrecognized tax benefits as
of the date of adoption was $0.5 million that, if recognized, would affect the effective tax rate. The Company expects that it
is reasonably possible that the unrecognized tax benefits will decrease by $0.5 million within 12 months of this reporting
date due to the resolution of audits.
The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
For the three months ended June 30, 2007 and 2006 interest and penalties were not significant.
The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. With a few exceptions, the
Company is subject to income tax examination by U.S. and state tax authorities for the fiscal years ended March 31, 2004
and forward. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods
where net operating losses (“NOLs”) were generated and carried forward, and make adjustments up to the amount of the
NOLs. The Company’s fiscal years ended March 31, 2006 and forward are subject to examination by the UK tax authorities.
The Company’s fiscal years ended March 31, 1998 and forward are subject to examination by the Canadian tax authorities.
The Company is not currently under examination by the IRS. Currently, audits are occurring in Canada, and various state
and local tax jurisdictions.
The adoption of FIN No. 48 did not impact the Company’s financial condition, results of operations or cash flows. At
April 1, 2007, the Company had net deferred tax assets of $93.3 million. The deferred tax assets are largely composed of
federal and state tax NOLs. Due to uncertainties surrounding the Company’s ability to generate future taxable income to
realize these assets, a full valuation has been established to offset the net deferred tax asset. Additionally, the future
utilization of the Company’s NOLs to offset future taxable income may be subject to a substantial annual limitation as a
result of ownership changes that may have occurred previously or that could occur in the future.
Statement of Financial Accounting Standards No. 157. In September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements” (“SFAS No. 157”). SFAS No. 157 establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The changes to current practice resulting from the application of this statement
relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value
measurements. The Company will be required to adopt the provisions on SFAS No. 157 on April 1, 2008. The Company is
currently evaluating the impact of adopting the provisions of SFAS No. 157 but
9
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
does not believe that the adoption of SFAS No. 157 will materially impact its financial position, cash flows, or results of
operations.
Statement of Financial Accounting Standards No. 159. In February 2007, the FASB issued SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115,”
(“SFAS No. 159”), which is effective for fiscal years beginning after November 15, 2007. SFAS No. 159 permits an entity to
choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent
unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The
Company is currently evaluating the potential impact of SFAS No. 159.
2.
Investments Available-For-Sale
Investments classified as available-for-sale are reported at fair value based on quoted market prices, with unrealized
gains and losses excluded from earnings and reported as other comprehensive income or loss (see note 9). The cost of
investments sold is determined in accordance with the average cost method. As of June 30, 2007 and March 31, 2007, the
cost, unrealized losses and carrying value of the Company’s available-for-sale investments were as follows:
Cost
Auction rate notes
Equity securities
Carrying
Value
$ 166,330
3,636
$
—
1,280
$ 166,330
4,916
$ 169,966
$
1,280
$ 171,246
Cost
Auction rate notes
Equity securities
June 30, 2007
Unrealized
Holding
Gains (Losses)
(Amounts in thousands)
March 31, 2007
Unrealized
Holding
Gains (Losses)
(Amounts in thousands)
Carrying
Value
$ 237,379
125
$
—
—
$ 237,379
125
$ 237,504
$
—
$ 237,504
The Company began investing in Auction Rate Securities (“ARS”) during the fiscal year ended March 31, 2006. The
ARS carry interest rates or dividend yields that are periodically re-set through auctions, typically every 7, 14, 28, or 35 days.
ARS are usually issued with long-term maturities or in perpetuity and are auctioned at par. Thus, the return on the
investment between auction dates is determined by the interest rate or dividend yield set through the auctions. Accordingly,
dividends and interest earned on auction rate investments are computed as a percentage of the principal amount of the
security. Interest and dividend income earned during the three-month periods ended June 30, 2007 and June 30, 2006 on
ARS was $2.6 million and $1.9 million, respectively. The Company minimizes its credit risk associated with investments by
investing primarily in investment grade, highly liquid securities.
In accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and based on
our ability to market and sell these instruments, we classify ARS as available-for-sale securities and carry them at fair value
with unrealized gains and losses recorded in other comprehensive income or loss.
10
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Equity securities as of June 30, 2007 are comprised of 13,470,525 common shares of Magna Pacific Holdings
(“Magna”), an independent DVD distributor in Australia and New Zealand, purchased at an average cost of $0.23 per share.
The closing price of Magna’s common shares on June 30, 2007 was $0.36 per common share. As a result, the Company had
an unrealized gain of $1.3 million on its investment in Magna common shares as of June 30, 2007. The Company has
reported the $1.3 million unrealized gain in other comprehensive income in the unaudited condensed consolidated statement
of shareholder’s equity as of June 30, 2007. At March 31, 2007 equity securities were comprised of 592,156 common shares
of Magna purchased at an average cost per share of $0.21.
In July 2007, the Company purchased 3,111,625 additional common shares of Magna for approximately $1.2 million, at
an average price of $0.39 per share. On July 23, 2007 the Company sold 16,129,740 of Magna’s common shares for total
proceeds of approximately $7.4 million, resulting in a gain of approximately $2.7 million. At July 23, 2007 the Company
continued to own 452,410 Magna common shares.
3.
Investment in Films and Television Programs
June 30,
March 31,
2007
2007
(Amounts in thousands)
Motion Picture Segment — Theatrical and Non-Theatrical Films
Released, net of accumulated amortization
Acquired libraries, net of accumulated amortization
Completed and not released
In progress
In development
Product inventory
Television Segment — Direct-to-Television Programs
Released, net of accumulated amortization
In progress
In development
$ 150,661
88,532
15,374
135,238
7,058
28,180
$ 144,302
90,980
19,424
107,105
5,205
30,330
425,043
397,346
61,359
92,592
763
70,949
24,083
762
154,714
95,794
$ 579,757
$ 493,140
The following table sets forth acquired libraries that represent titles released three years prior to the date of acquisition,
and amortized over its expected revenue stream from acquisition date up to 20 years:
Acquired
Library
Trimark
Artisan
Modern
Acquisition
Date
October 2000
December
2003
August 2005
Total
Remaining
Amortization
Amortization
Period
Period
(In years)
20.00
13.25
20.00
20.00
16.50
18.00
Unamortized
Unamortized Costs
Costs
Three Months
Ended
Year Ended
June 30,
March 31,
2007
2007
(Amounts in thousands)
$
14,221
67,726
4,651
$
14,854
69,402
4,753
LGUK
October 2005
20.00
18.25
Total Acquired Libraries
1,934
$
11
88,532
1,971
$
90,980
Table of Contents
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company expects approximately 40% of completed films and television programs, net of accumulated
amortization, will be amortized during the one-year period ending June 30, 2008. Additionally, the Company expects
approximately 80% of completed and released films and television programs, net of accumulated amortization and excluding
acquired libraries, will be amortized during the three-year period ending June 30, 2010.
4.
Other Assets
June 30,
March 31,
2007
2007
(Amounts in thousands)
Deferred financing costs, net of accumulated amortization
Prepaid expenses and other
Equity method investments
$
9,405
5,738
26,026
$ 10,038
3,553
5,366
$ 41,169
$ 18,957
Deferred Financing Costs
Deferred financing costs primarily include costs incurred in connection with the credit facility (see note 5) and the
issuance of the 2.9375% Notes and the 3.625% Notes (see note 7) that are deferred and amortized to interest expense.
Prepaid expenses and other
Prepaid expenses and other primarily include prepaid expenses, security deposits and intangible assets.
Equity Method Investments
The carrying amount of equity method investments at June 30, 2007 and March 31, 2007 was as follows:
June 30,
March 31,
2007
2007
(Amounts in thousands)
Maple
CinemaNow
Horror Entertainment, LLC
NextPoint, Inc.
$
1,976
—
2,680
21,370
$
1,764
—
3,602
—
$ 26,026
$
5,366
Equity interest in equity method investments on our unaudited condensed consolidated statements of operations
represent our portion of the income or loss of our equity method investment based on our percentage ownership of the
investee. Equity interests in equity method investments for the three months ended June 30, 2007 and 2006 were as follows
(income (loss)):
Three Months
Ended
Three Months
Ended
June 30,
June 30,
2007
2006
(Amounts in thousands)
Maple
Horror Entertainment, LLC
12
$
61
(868 )
$
58
—
$
(807 )
$
58
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Maple. On April 8, 2005, Maple Pictures Corp., a Canadian corporation, (“Maple Pictures”) was formed by two
former Lionsgate executives and a third-party equity investor. Lionsgate entered into library and output agreements with
Maple Pictures, for the distribution of Lionsgate’s motion picture, television and home video product in Canada. Lionsgate
also acquired and as of June 30, 2007 owns a 10% minority interest in Maple Pictures. The Company is accounting for the
investment in Maple Pictures using the equity method.
CinemaNow. At March 31, 2006, the Company had a 30% equity interest on an undiluted basis in CinemaNow, Inc.
(“CinemaNow”). The investment in CinemaNow was accounted for using the equity method. In June 2006, the Company
purchased $1.0 million Series E Preferred Stock as part of a $20.3 million round of financing secured by CinemaNow. At
June 30, 2007, the Company’s equity interest in CinemaNow is 18.7% on a fully diluted basis and 21.1% on an undiluted
basis.
Horror Entertainment, LLC. On October 10, 2006, the Company purchased 300 membership interests in Horror
Entertainment, LLC (“FEARnet”), a multiplatform programming and content service provider of horror genre films
operating under the branding of “FEARnet.” In addition, the Company entered into a five-year license agreement with
FEARnet for the U.S. territories and possessions whereby the Company will license content to FEARnet for
video-on-demand and broadband exhibition. The Company has agreed not to compete in the area of a channel within the
horror genre and the Company cannot license to a horror genre competitor more than 25 titles in any year during the term of
the license agreement. The Company made a capital contribution to FEARnet of $5.1 million at the date of acquisition,
which includes direct transaction costs of $0.1 million, and has committed to a total capital contribution of $13.3 million,
which is expected to be fully funded over the next two-year period. Under certain circumstances, if the Company defaults on
any of its funding obligations, then the Company could forfeit its equity and its license agreement with FEARnet could be
terminated. The Company is accounting for the investment in FEARnet using the equity method because of the Company’s
ownership percentage of 33.33%. Due to the timing in availability of financial statements from FEARnet, the Company is
recording its share of the FEARnet results on a one quarter lag.
NextPoint, Inc. On June 29, 2007, the Company purchased a 42% equity interest or 21,000,000 shares of the Series B
Preferred Stock of NextPoint, Inc. (“Break.com”), an online video entertainment service provider operating under the
branding of “Break.com”, for an aggregate purchase price of $21.4 million which includes $0.5 million of transaction costs,
by issuing 1,890,189 of its common shares. The Company is accounting for the investment in Break.com using the equity
method. The Company has a call option which is exercisable at any time from June 29, 2007 until the earlier of 30 months
after June 29, 2007 or one year after a change of control, as narrowly defined, to purchase all, but not less than all, of the
remaining 58% equity interests, including in-the-money stock options, warrants and other rights, of Break.com for
$58 million in cash or common stock, at the Company’s option. Due to the timing in availability of financial statements from
Break.com the Company is recording its share of the Break.com results on a one quarter lag.
5.
Bank Loans
At June 30, 2007, the Company had a $215 million revolving line of credit, of which $10 million is available for
borrowing by Lionsgate UK in either U.S. dollars or British pounds sterling. At June 30, 2007, the Company had no
borrowings (March 31, 2007 — nil) under the credit facility. The credit facility expires December 31, 2008 and bears
interest at 2.75% over the “Adjusted LIBOR” or the “Canadian Bankers Acceptance” rate (as defined in the credit facility),
or 1.75% over the U.S. or Canadian prime rates. The availability of funds under the credit facility is limited by the borrowing
base. Amounts available under the credit facility are also limited by outstanding letters of credit, which amounted to
$15.2 million at June 30, 2007. At June 30, 2007 there was $199.8 million available under the credit facility. The Company
is required to pay a monthly commitment fee based upon 0.50% per annum on the total credit facility of $215 million less
the amount drawn. Right, title and interest in and to all personal property of Lions Gate Entertainment Corp. and Lions Gate
Entertainment Inc., the Company’s wholly owned U.S. subsidiary
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
is pledged as security for the credit facility. The credit facility is senior to the Company’s film obligations and subordinated
notes. The credit facility restricts the Company from paying cash dividends on its common shares.
6.
Film Obligations and Participation and Residuals
June 30,
March 31,
2007
2007
(Amounts in thousands)
Minimum guarantees(1)
Theatrical marketing obligations(2)
Production obligations(3)
$
Total film obligations
Less film obligations expected to be paid within one year
24,455
3,474
119,561
$
147,490
(58,554 )
Production obligations expected to be paid after one year
$
88,936
Participation and residuals
$ 186,729
19,286
4,482
144,116
167,884
(82,350 )
$
85,534
$ 171,156
The Company expects approximately 63% of accrued participants’ shares will be paid during the one-year period
ending June 30, 2008.
(1) Minimum guarantees represent amounts payable for film rights which the Company has acquired.
(2) Theatrical marketing obligations represent amounts received which are contractually committed for theatrical
marketing expenditures associated with specific titles.
(3) Production obligations represent amounts payable for the cost incurred for the production of film and television
programs that the Company produces, which in some cases are financed over periods exceeding one year. Production
obligations have contractual repayment dates either at or near the expected completion date, with the exception of
certain obligations containing repayment dates on a longer term basis. Production obligations incur interest at rates
ranging from 7.32% to 7.76%, with the exception of approximately $91.4 million of production obligations which are
non-interest bearing.
Theatrical Slate Financing
On May 25, 2007, the Company, through a series of agreements, closed a theatrical slate funding arrangement. Under
this arrangement Pride Pictures LLC (“Pride”), an unrelated entity, will fund, generally, 50% of the Company’s production,
acquisition, marketing and distribution costs of theatrical feature films up to an aggregate of approximately $196 million net
of transaction costs. The funds available from Pride are generated from the issuance by Pride of $35 million of subordinated
debt instruments, $35 million of equity and $134 million from a senior credit facility, which is subject to a borrowing base.
The Company is not a party to the Pride debt obligations or their senior credit facility, and provides no guarantee of
repayment of these obligations. The percentage of the contribution may vary on certain pictures. The slate of films covered
by the arrangement is expected to be comprised of 23 films over the next three years. Pride will participate in a pro rata
portion of the pictures’ net profits or losses similar to a co-production arrangement based on the portion of costs funded. The
Company continues to distribute the pictures covered by the arrangement with a portion of net profits after all costs and the
Company’s distribution fee being distributed to Pride based on their pro rata contribution to the applicable costs similar to a
back-end participation on a film.
The $134 million senior credit facility is a revolving facility for print and advertising costs, other releasing costs, and
direct production and acquisition costs. Borrowings for direct production and acquisition cost are subject
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to a borrowing base calculation generally based on 90% of the estimated ultimate amounts due to Pride on previously
released films, as defined.
Amounts funded from Pride are reflected as a participation liability. The ultimate participation expected to be paid to
Pride in excess of or less than the amount funded by Pride is amortized to expense under the individual film forecast method.
At June 30, 2007, $175.3 million was available to be funded by Pride under the terms of the arrangement.
7.
Subordinated Notes and Other Financing Obligations
The following table sets forth the subordinated notes and other financing obligations outstanding at June 30, 2007 and
March 31, 2007:
June 30,
March 31,
2007
2007
(Amounts in thousands)
2.9375% Convertible Senior Subordinated Notes
3.625% Convertible Senior Subordinated Notes
Other Financing Obligations
$ 150,000
175,000
3,718
$ 150,000
175,000
—
$ 328,718
$ 325,000
Subordinated Notes
3.625% Notes. In February 2005, Lions Gate Entertainment Inc. sold $150.0 million of 3.625% Convertible Senior
Subordinated Notes (the “3.625% Notes”). In connection with this sale, Lions Gate Entertainment Inc. granted the initial
purchasers of the 3.625% Notes an option to purchase up to an additional $25.0 million of the 3.625% Notes for 13 days.
The fair value of this option was not significant. The initial purchasers exercised this option in February 2005 and purchased
an additional $25 million of the 3.625% Notes. The Company received $170.2 million of net proceeds after paying
placement agents’ fees from the sale of $175.0 million of the 3.625% Notes. The Company also paid $0.6 million of offering
expenses incurred in connection with the 3.625% Notes. Interest on the 3.625% Notes is payable semi-annually on March 15
and September 15, which commenced on September 15, 2005. After March 15, 2012, interest will be 3.125% per annum on
the principal amount of the 3.625% Notes, payable semi-annually on March 15 and September 15 of each year. The
3.625% Notes mature on March 15, 2025. Lions Gate Entertainment Inc. may redeem all or a portion of the 3.625% Notes at
its option on or after March 15, 2012 at 100% of their principal amount, together with accrued and unpaid interest through
the date of redemption.
The holder may require Lions Gate Entertainment Inc. to repurchase the 3.625% Notes on March 15, 2012, 2015 and
2020 or upon a change in control at a price equal to 100% of the principal amount, together with accrued and unpaid interest
through the date of repurchase. Under certain circumstances, if the holder requires Lions Gate Entertainment Inc. to
repurchase all or a portion of their notes upon a change in control, they will be entitled to receive a make whole premium.
The amount of the make whole premium, if any, will be based on the price of our common shares on the effective date of the
change in control. No make whole premium will be paid if the price of our common shares is less than $10.35 per share or if
the price of the common shares of the Company exceeds $75.00 per share.
The 3.625% Notes are convertible, at the option of the holder, at any time before the close of business on or prior to the
trading day immediately before the maturity date, if the notes have not been previously redeemed or repurchased, at a
conversion rate of 70.0133 shares per $1,000 principal amount of the 3.625% Notes, subject to adjustment in certain
circumstances, which is equal to a conversion price of approximately $14.28 per share. Upon conversion of the
3.625% Notes, the Company has the option to deliver, in lieu of common shares, cash or a
15
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
combination of cash and common shares of the Company. The holder may convert the 3.625% Notes into common shares of
the Company prior to maturity if the notes have been called for redemption, a change in control occurs or certain corporate
transactions occur.
2.9375% Notes. In October 2004, Lions Gate Entertainment Inc. sold $150.0 million of 2.9375% Convertible Senior
Subordinated Notes (the “2.9375% Notes”). The Company received $146.0 million of net proceeds after paying placement
agents’ fees from the sale of $150.0 million of the 2.9375% Notes. The Company also paid $0.7 million of offering expenses
incurred in connection with the 2.9375% Notes. Interest on the 2.9375% Notes is payable semi-annually on April 15 and
October 15, which commenced on April 15, 2005, and the 2.9375% Notes mature on October 15, 2024. From October 15,
2009 to October 14, 2010, Lions Gate Entertainment Inc. may redeem the 2.9375% Notes at 100.839%; from October 15,
2010 to October 14, 2011, Lions Gate Entertainment Inc. may redeem the 2.9375% Notes at 100.420%; thereafter, Lions
Gate Entertainment Inc. may redeem the notes at 100%.
The holder may require Lions Gate Entertainment Inc. to repurchase the 2.9375% Notes on October 15, 2011, 2014 and
2019 or upon a change in control at a price equal to 100% of the principal amount, together with accrued and unpaid interest
through the date of repurchase. Under certain circumstances, if the holder requires Lions Gate Entertainment Inc. to
repurchase all or a portion of their notes upon a change in control, they will be entitled to receive a make whole premium.
The amount of the make whole premium, if any, will be based on the price of the common shares of the Company on the
effective date of the change in control. No make whole premium will be paid if the price of our common shares is less than
$8.79 per share or if the price of the common shares of the Company exceeds $50.00 per share.
The holder may convert the 2.9375% Notes into our common shares prior to maturity only if the price of the common
shares of the Company issuable upon conversion of a note reaches a specified threshold over a specified period, the trading
price of the notes falls below certain thresholds, the notes have been called for redemption, a change in control occurs or
certain corporate transactions occur. In addition, under certain circumstances, if the holder converts their notes upon a
change in control, they will be entitled to receive a make whole premium. Before the close of business on or prior to the
trading day immediately before the maturity date, if the notes have not been previously redeemed or repurchased, the holder
may convert the notes into our common shares at a conversion rate of 86.9565 shares per $1,000 principal amount of the
2.9375% Notes, subject to adjustment in certain circumstances, which is equal to a conversion price of approximately $11.50
per share.
Other Financing Obligations
On June 1, 2007, the Company entered into a bank financing agreement for $3.7 million to fund the acquisition of
certain capital assets. Interest is payable in monthly payments totaling $0.3 million per year for five years at an interest rate
of 8.02%, with the entire principal due June 2012.
8.
Direct Operating Expenses
Three Months
Three Months
Ended
Ended
June 30,
June 30,
2007
2006
(Amounts in thousands)
Amortization of films and television programs
Participation and residual expense
Amortization of acquired intangible assets
Other expenses
$
49,862
38,011
162
(977 )
$
33,193
37,198
244
(2,090 )
$
87,058
$
68,545
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other expenses primarily consist of the provision for doubtful accounts and foreign exchange gains and losses. The
provision for doubtful accounts for the three months ended June 30, 2007 and 2006 were benefits of $0.5 million and
$2.2 million, respectively. The benefit in the provision for doubtful accounts for the three months ended June 30, 2006 is due
to a reversal of the provision for doubtful accounts of $2.2 million, primarily due to collection of a portion of accounts
receivables related to a large retail customer that had declared bankruptcy and was previously reserved. Other expenses for
the three months ended June 30, 2007 also includes foreign exchange gains of $0.5 million.
9.
Comprehensive Loss
Three Months
Three Months
Ended
Ended
June 30,
June 30,
2007
2006
(Amounts in thousands)
Net loss
Add: Foreign currency translation adjustments
Add (Deduct): Net unrealized gain (loss) on foreign exchange contracts
Add (Deduct): Unrealized gain (loss) on investments — available for sale
$
(53,118 )
2,434
(12 )
1,280
$
(3,604 )
1,550
17
(363 )
Comprehensive loss
$
(49,416 )
$
(2,400 )
10.
Loss Per Share
The Company calculates loss per share in accordance with SFAS No. 128, “Earnings Per Share.” Basic loss per share is
calculated based on the weighted average common shares outstanding for the period. Basic loss per share for the three
months ended June 30, 2007 and 2006 are presented below:
Three Months
Three Months
Ended
Ended
June 30,
June 30,
2007
2006
(Amounts in thousands)
Basic and Diluted Net Loss Per Share:
Numerator:
Net loss
$
Denominator:
Weighted average common shares outstanding
Basic and Diluted Net Loss Per Common Share
(53,118 )
$
117,107
$
(0.45 )
(3,604 )
103,319
$
(0.03 )
Basic loss per common share is calculated using the weighted average number of common shares outstanding during
the three months ended June 30, 2007 and 2006 of 117,106,524 shares and 103,318,955 shares, respectively. The exercise of
common share equivalents including stock options, the conversion features of the 2.9375% Notes, and the 3.625% Notes and
restricted share units could potentially dilute income (loss) per share in the future, but were not reflected in diluted loss per
share during the periods presented because their effect is anti-dilutive.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company had 500,000,000 authorized shares of common stock at June 30, 2007 and March 31, 2007. The table
below outlines common shares reserved for future issuance:
June 30,
March 31,
2007
2007
(Amounts in thousands)
Stock options outstanding
Restricted share units — unvested
Share purchase options and restricted share units available for future issuance
Shares issuable upon conversion of 2.9375% Notes
Shares issuable upon conversion of 3.625% Notes
6,356
2,178
53
13,043
12,252
5,933
1,872
1,026
13,043
12,252
Shares reserved for future issuance
33,882
34,126
11.
Accounting for Stock-Based Compensation
Share-Based Compensation
The Company accounts for stock-based compensation in accordance with the provisions of SFAS No. 123(R).
SFAS No. 123(R) requires the measurement of all stock-based awards using a fair value method and the recognition of the
related stock-based compensation expense in the consolidated financial statements over the requisite service period. Further,
as required under SFAS No. 123(R), the Company estimates forfeitures for share-based awards that are not expected to vest.
As stock-based compensation expense recognized in the Company’s consolidated financial statements is based on awards
ultimately expected to vest, it has been reduced for estimated forfeitures.
The fair value of each option award is estimated on the date of grant using a closed-form option valuation model
(Black-Scholes) based on the assumptions noted in the following table. Expected volatilities are based on implied volatilities
from traded options on the Company’s stock, historical volatility of the Company’s stock and other factors. The expected
term of options granted represents the period of time that options granted are expected to be outstanding. The following table
represents the assumptions used in the Black-Scholes option-pricing model for options granted during the three months
ended June 30, 2007 (no options were granted during the three months ended June 30, 2006):
Three Months
Ended
June 30,
2007
Risk-free interest rate
Expected option lives (in years)
Expected volatility for options
Expected dividend yield
4.7% - 4.8%
5.6 to 6.3 years
31%
0.0%
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The weighted-average grant-date fair values for options granted during the three months ended June 30, 2007 was
$4.75. The Company recognized the following share-based compensation expense during the three months ended June 30,
2007 and 2006:
Three Months Ended
June 30,
2007
2006
(Amounts in thousands)
Compensation Expense (Benefit):
Stock Options
Restricted Share Units
Stock Appreciation Rights
$
Total
785
2,061
(380 )
$ 2,466
$
458
516
(1,384 )
$
(410 )
There was no income tax benefit recognized in the statements of operations for share-based compensation arrangements
during the three months ended June 30, 2007 and 2006.
Stock Options
A summary of option activity under our long-term incentive plans as of June 30, 2007 and changes during the three
months then ended is presented below:
Options:
Number of
Shares
WeightedAverage
Exercise
Price
Weighted
Average
Remaining
Contractual
Term in Years
Aggregate
Intrinsic
Value as of
June 30,
2007
Outstanding at March 31, 2007
Granted
Exercised
Forfeited or expired
5,933,289
490,000
(61,807 )
(5,665 )
$
4.18
11.70
6.31
8.75
Outstanding at June 30, 2007
6,355,817
$
6.71
4.41
$
27,762,266
Outstanding Options as of June 30, 2007, vested
or expected to vest in the future
6,348,834
$
6.71
4.41
$
27,755,902
Exercisable at June 30, 2007
3,557,816
$
4.13
0.93
$
24,555,490
The total intrinsic value of options exercised as of each exercise date during the three months ended June 30, 2007 was
$0.3 million (2006 — $0.8 million).
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted Share Units
A summary of the status of the Company’s restricted share units as of June 30, 2007, and changes during the three
months then ended is presented below:
Number of
Weighted Average
Grant Date Fair
Restricted
Share Units:
Shares
Value
Outstanding at March 31, 2007
Granted
Vested
Forfeited
1,872,243
505,833
(195,257 )
(5,206 )
$
9.78
11.69
9.86
10.01
Outstanding at June 30, 2007
2,177,613
$
10.22
The fair values of restricted share units are determined based on the market value of the shares on the date of grant.
The following table summarizes the total remaining unrecognized compensation related to nonvested stock options and
restricted share units and the weighted average remaining years over which the cost will be recognized:
Total
Weighted
Unrecognized
Average
Compensation
Remaining
Cost
Years
(Amounts in thousands)
Stock Options
Restricted Share Units
$
9,177
17,796
Total
$
26,973
2.8
2.5
Under the Company’s two stock option and long term incentive plans, the Company withholds shares to satisfy
minimum statutory federal, state and local tax withholding obligations arising from the vesting of restricted share units.
During the three months ended June 30, 2007, 20,889 shares were withheld upon the vesting of restricted share units.
The Company becomes entitled to an income tax deduction in an amount equal to the taxable income reported by the
holders of the stock options and restricted share units when vesting or exercise occurs, the restrictions are released and the
shares are issued. Restricted share units are forfeited if the employees terminate prior to vesting.
Stock Appreciation Rights
On February 2, 2004, an officer of the Company was granted 1,000,000 stock appreciation rights (“SARs”), which
entitles the officer to receive cash only, and not common shares. The amount of cash received will be equal to the amount by
which the trading price of common shares on the exercise notice date exceeds the SARs’ price of $5.20 multiplied by the
number of SARs exercised. The SARs vested one quarter immediately on the award date and one quarter on each of the first,
second and third anniversaries of the award date. These SARs are not considered part of the Company’s Employees’ and
Directors’ Equity Incentive Plan. Applying FIN No. 28 “Accounting for Stock Appreciation Rights and Other Variable
Stock Option or Award Plans,” the Company is accruing compensation expense over the service period, which is assumed to
be the three-year vesting period, using a graded approach. Through March 31, 2006, the Company measured compensation
expense as the amount by which the market value of common shares exceeded the SARs’ price at each reporting date.
Effective April 1, 2006, upon the adoption of SFAS No. 123(R), the Company measures compensation expense based on the
fair value of the SARs which is determined by using the Black-Scholes option-pricing model at each reporting date. For the
three months
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ended June 30, 2007, the following assumptions were used in the Black-Scholes option-pricing model: Volatility of 36.7%,
Risk Free Rate of 4.9%, Expected Term of 1.6 years, and Dividend of 0%. At June 30, 2007, the market price of our
common shares was $11.03, the weighted average fair value of the SARs was $6.27, and all 1,000,000 of the SARs had
vested. Due to the decrease in the market price of its common shares, the Company recorded a reduction in stock-based
compensation expense in the amount of $0.4 million in general and administration expenses in the unaudited condensed
consolidated statements of operations for the three months ended June 30, 2007 (2006 — $0.4 million). During the year
ended March 31, 2005 the officer exercised 150,000 of the vested SARs and the Company paid $0.9 million. The
compensation expense amount in the period is calculated by using the fair value of the SARs, multiplied by the remaining
1,000,000 SARs assumed to have vested under the graded methodology less the 150,000 SARs exercised less the amount
previously recorded. At June 30, 2007, the Company has a stock-based compensation liability accrual in the amount of
$5.3 million (March 31, 2007 — $5.7 million) included in accounts payable and accrued liabilities on the unaudited
condensed consolidated balance sheets relating to these SARs.
12.
Segment Information
SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information” requires the Company to make
certain disclosures about each reportable segment. The Company’s reportable segments are determined based on the distinct
nature of their operations and each segment is a strategic business unit that offers different products and services and is
managed separately. The Company evaluates performance of each segment using segment profit (loss) as defined below.
The Company has two reportable business segments: Motion Pictures and Television.
Motion Pictures consists of the development and production of feature films, acquisition of North American and
worldwide distribution rights, North American theatrical, video and television distribution of feature films produced and
acquired and worldwide licensing of distribution rights to feature films produced and acquired.
Television consists of the development, production and worldwide distribution of television productions, including
television series, television movies and mini-series and non-fiction programming.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Segmented information by business unit is as follows:
Three Months
Three Months
Ended
Ended
June 30,
June 30,
2007
2006
(Amounts in thousands)
Segment revenues
Motion Pictures
Television
Direct operating expenses
Motion Pictures
Television
Distribution and marketing
Motion Pictures
Television
General and administration
Motion Pictures
Television
Segment profit (loss)
Motion Pictures
Television
Acquisition of investment in films and television programs
Motion Pictures
Television
$
170,322
28,420
$
165,186
7,270
$
198,742
$
172,456
$
59,630
27,428
$
61,953
6,592
$
87,058
$
68,545
$
132,859
2,642
$
85,261
1,785
$
135,501
$
87,046
$
7,415
1,826
$
6,814
150
$
9,241
$
6,964
$
(29,582 )
(3,476 )
$
11,158
(1,257 )
$
(33,058 )
$
9,901
$
56,073
80,066
$
39,281
21,158
$
136,139
$
60,439
Purchases of property and equipment amounted to $2.0 million and $1.8 million for the three months ending June 30,
2007 and 2006, respectively, all primarily pertaining to the corporate headquarters.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Segment profit (loss) is defined as segment revenue less segment direct operating, distribution and marketing, and
general and administration expenses. The reconciliation of total segment profit (loss) to the Company’s loss before income
taxes is as follows:
Three Months
Three Months
Ended
Ended
June 30,
June 30,
2007
2006
(Amounts in thousands)
Company’s total segment profit (loss)
Less:
Corporate general and administration
Depreciation
Interest expense
Interest and other income
Equity interests income (loss)
$
Loss before income taxes
$
(33,058 )
$
(17,599 )
(908 )
(3,860 )
3,803
(807 )
9,901
(12,269 )
(544 )
(4,676 )
2,561
58
(52,429 )
$
(4,969 )
The following table sets forth significant assets as broken down by segment and other unallocated assets as of June 30,
2007 and March 31, 2007:
June 30, 2007
Motion
Pictures
Significant assets by
segment
Accounts receivable
Investment in films and
television programs
Goodwill
$
64,505
March 31, 2007
Motion
Total
Pictures
(Amounts in thousands)
Television
$
40,729
425,043
173,530
154,714
13,961
$ 663,078
$ 209,404
$
$
Other unallocated assets
(primarily cash and
available-for-sale
investments)
Total assets
13.
105,234
$
85,294
Television
$
45,202
579,757
187,491
397,346
173,530
95,794
13,961
872,482
$ 656,170
$ 154,957
Total
$
493,140
187,491
$
289,846
$
1,162,328
130,496
811,127
325,968
$
1,137,095
Contingencies
The Company is from time to time involved in various claims, legal proceedings and complaints arising in the ordinary
course of business. The Company does not believe that adverse decisions in any such pending or threatened proceedings, or
any amount which the Company might be required to pay by reason thereof, would have a material adverse effect on the
financial condition or future results of the Company. The Company has provided an accrual for estimated losses under the
above matters as of June 30, 2007, in accordance with SFAS No. 5, “Accounting for Contingencies.”
14.
Consolidating Financial Information
In October 2004, the Company sold $150.0 million of the 2.9375% Notes, through its wholly owned U.S. subsidiary
Lions Gate Entertainment Inc. (the “Issuer”). The 2.9375% Notes, by their terms, are fully and
23
Table of Contents
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
unconditionally guaranteed by the Company. On February 4, 2005, the Company filed a registration statement on Form S-3
to register the resale of the 2.9375% Notes and common shares issuable on conversion of the 2.9375% Notes. On March 3,
2005, the registration statement was declared effective by the SEC.
In February 2005, the Company sold $175.0 million of the 3.625% Notes through the Issuer. The 3.625% Notes, by
their terms, are fully and unconditionally guaranteed by the Company. On March 29, 2005, and as amended April 6, 2005,
the Company filed a registration statement on Form S-3 to register the resale of the 3.625% Notes and common shares
issuable on conversion of the 3.625% Notes. On April 13, 2005, the registration statement was declared effective by the
SEC.
The following tables present unaudited condensed consolidating financial information as of June 30, 2007 and
March 31, 2007 and for the three months ended June 30, 2007 and 2006 for (1) the Company, on a stand-alone basis, (2) the
Issuer, on a stand-alone basis, (3) the non-guarantor subsidiaries of the Company (including the subsidiaries of the Issuer),
on a combined basis (collectively, the “Other Subsidiaries”) and (4) the Company, on a consolidated basis.
BALANCE SHEET
Lions Gate
Entertainment
Corp.
As of June 30, 2007
Lions Gate
Entertainment
Other
Inc.
Subsidiaries
(Amounts in thousands)
Consolidating
Adjustments
BALANCE SHEET
Assets
Cash and cash equivalents
$
Restricted cash
Investments — auction rate
securities
Investments — equity securities
Accounts receivable, net
Investment in films and
television programs
Property and equipment
Goodwill
Other assets
Investment in subsidiaries
—
—
638
166,330
—
880
—
4,916
103,716
262
—
10,173
2,132
285,483
6,651
12,951
—
58,176
572,062
572,903
1,256
177,318
30,234
(64,900 )
$
300,815
$
866,227
$
837,363
$
$
851
180
75
—
—
$
22,905
1,623
5,500
325,000
—
$
151,216
184,926
141,915
3,718
101,066
$
Liabilities and Shareholders’
Equity (Deficiency)
Accounts payable and accrued
liabilities
Participation and residuals
Film obligations
Subordinated notes
Deferred revenue
Intercompany payables
(receivables)
Intercompany equity
Shareholders’ equity
2,127
—
(243,629 )
319,985
223,353
$
45,921
3,256
428,562
93,217
(10,580 )
$
10,532
1,388
54,011
270,983
(70,472 )
$
—
—
Lions Gate
Consolidated
$
—
—
—
166,330
4,916
105,234
(59 )
—
—
(49,373 )
(792,645 )
(842,077 )
—
—
—
—
—
(238,944 )
(684,185 )
81,052
58,580
4,644
579,757
14,207
187,491
41,169
—
$
1,162,328
$
174,972
186,729
147,490
328,718
101,066
—
—
223,353
(deficiency)
$
300,815
$
866,227
24
$
837,363
$
(842,077 )
$
1,162,328
Table of Contents
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
STATEMENT OF OPERATIONS
Lions Gate
Entertainment
Corp.
Revenues
EXPENSES:
Direct operating
Distribution and marketing
General and administration
Depreciation
$
47
Three Months Ended June 30, 2007
Lions Gate
Entertainment
Other
Consolidating
Inc.
Subsidiaries
Adjustments
(Amounts in thousands)
$
2,207
$
197,881
$
(1,393 )
Lions Gate
Consolidated
$
198,742
—
—
452
—
93
—
16,235
1
86,965
135,501
10,153
907
—
—
—
—
87,058
135,501
26,840
908
Total expenses
452
16,329
233,526
—
250,307
OPERATING LOSS
(405 )
(14,122 )
(35,645 )
—
(14 )
3,855
(3,790 )
Other Expense (Income):
Interest expense
Interest income
Total other expenses (income)
(14 )
65
(1,393 )
5
1
—
—
6
—
(51,565 )
3,860
(3,803 )
57
INCOME (LOSS) BEFORE
EQUITY INTERESTS AND
INCOME TAXES
Equity interests income (loss)
(391 )
(52,727 )
(14,187 )
(37,288 )
(35,651 )
(867 )
(1,393 )
90,075
(51,622 )
(807 )
INCOME (LOSS) BEFORE
INCOME TAXES
Income tax provision (benefit)
(53,118 )
—
(51,475 )
48
(36,518 )
641
88,682
—
(52,429 )
689
NET INCOME (LOSS)
$
(53,118 )
$
(51,523 )
25
$
(37,159 )
$
88,682
$
(53,118 )
Table of Contents
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
STATEMENT OF CASH FLOWS
Lions Gate
Entertainment
Corp.
NET CASH FLOWS
PROVIDED BY (USED IN)
OPERATING ACTIVITIES
$
INVESTING ACTIVITIES:
Purchases of investments —
auction rate securities
Sales of investments —
auction rate securities
Purchases of equity securities
Proceeds from sale of equity
securities
Purchases of property and
equipment
NET CASH FLOWS
PROVIDED BY (USED IN)
INVESTING ACTIVITIES
FINANCING ACTIVITIES:
Exercise of stock options
Borrowings from financing
obligation
NET CASH FLOWS
PROVIDED BY (USED IN)
FINANCING ACTIVITIES
NET CHANGE IN CASH AND
CASH EQUIVALENTS
FOREIGN EXCHANGE
EFFECT ON CASH
CASH AND CASH
EQUIVALENTS —
BEGINNING OF PERIOD
CASH AND CASH
EQUIVALENTS —
END OF PERIOD
(333 )
Three Months Ended June 30, 2007
Lions Gate
Entertainment
Other
Consolidating
Inc.
Subsidiaries
Adjustments
(Amounts in thousands)
$
(69,241 )
—
(172,442 )
—
—
243,491
—
—
16,343
—
(1,746 )
—
85,646
390
—
—
(10,797 )
$
$
(80,371 )
(172,442 )
—
—
243,491
(3,432 )
—
—
16,343
(271 )
—
(2,017 )
(3,703 )
—
81,943
—
—
390
—
3,718
—
3,718
390
—
3,718
—
4,108
57
16,405
(10,782 )
—
5,680
1,930
—
1,403
21,242
—
51,497
—
(3,432 )
(689 )
1,908
2,127
—
—
—
162
$
$
Lions Gate
Consolidated
28,347
$
44,063
26
$
12,390
$
—
$
58,580
Table of Contents
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
BALANCE SHEET
As of March 31, 2007
Lions Gate
Entertainment
Corp.
Assets
Cash and cash equivalents
Restricted cash
Investments — auction rate
securities
Investments — equity
securities
Accounts receivable, net
Investment in films and
television programs
Property and equipment
Goodwill
Other assets
Investment in subsidiaries
$
$
Liabilities and Shareholders’
Equity (Deficiency)
Accounts payable and
accrued liabilities
$
Participation and residuals
Film obligations
Subordinated notes
Deferred revenue
Intercompany payables
(receivables)
Intercompany equity
Shareholders’ equity
(deficiency)
$
1,908
—
Lions Gate
Entertainment
Inc.
$
Other
Subsidiaries
(Amounts in thousands)
28,347
2,475
$
21,242
2,440
Consolidating
Adjustments
$
—
—
Lions Gate
Consolidated
$
51,497
4,915
—
237,379
—
—
237,379
—
281
—
17,261
125
112,954
—
—
125
130,496
—
—
—
59
361,898
6,632
11,230
—
10,675
639,289
486,508
1,865
187,491
8,223
—
—
—
—
—
(1,001,187 )
364,146
$
953,288
$
820,848
$
390
—
—
—
—
$
28,313
229
5,500
325,000
—
$
126,914
170,927
162,384
—
69,548
$
(204,119 )
319,985
555,762
93,217
(126,108 )
364,536
247,890
(54,733 )
52,647
364,146
$
953,288
27
$
820,848
(1,001,187 )
—
—
—
—
—
493,140
13,095
187,491
18,957
—
$
1,137,095
$
155,617
171,156
167,884
325,000
69,548
—
—
(225,535 )
(777,738 )
2,086
$
(1,001,187 )
247,890
$
1,137,095
Table of Contents
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
STATEMENT OF OPERATIONS
Lions Gate
Entertainment
Corp.
Revenues
EXPENSES:
Direct operating
Distribution and marketing
General and administration
Depreciation
$
—
Three Months Ended June 30, 2006
Lions Gate
Entertainment
Other
Consolidating
Inc.
Subsidiaries
Adjustments
(Amounts in thousands)
$
3,618
$
168,838
$
—
Lions Gate
Consolidated
$
172,456
—
—
391
—
—
346
11,860
13
68,545
86,700
6,982
531
—
—
—
—
68,545
87,046
19,233
544
391
12,219
162,758
—
175,368
(391 )
(8,601 )
6,080
—
(2,912 )
Other Expenses (Income):
Interest expense
Interest income
100
(27 )
4,497
(2,497 )
278
(236 )
(199 )
199
4,676
(2,561 )
Total other expenses
(income), net
73
2,000
42
—
2,115
Total expenses
OPERATING INCOME (LOSS)
INCOME (LOSS) BEFORE
EQUITY INTERESTS AND
INCOME TAXES
Equity interests income (loss)
(464 )
(3,419 )
(10,601 )
6,728
6,038
58
—
(3,309 )
(5,027 )
58
INCOME (LOSS) BEFORE
INCOME TAXES
Income tax provision (benefit)
(3,883 )
(279 )
(3,873 )
399
6,096
(1,485 )
(3,309 )
—
(4,969 )
(1,365 )
NET INCOME (LOSS)
$
(3,604 )
$
(4,272 )
28
$
7,581
$
(3,309 )
$
(3,604 )
Table of Contents
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
STATEMENT OF CASH FLOWS
Lions Gate
Entertainment
Corp.
NET CASH FLOWS
PROVIDED BY (USED IN)
OPERATING ACTIVITIES
$
INVESTING ACTIVITIES:
Purchases of investments —
auction rate securities
Sales of investments —
auction rate securities
Purchases of property and
equipment
3,591
Three Months Ended June 30, 2006
Lions Gate
Entertainment
Other
Consolidating
Inc.
Subsidiaries
Adjustments
(Amounts in thousands)
$
$
6,267
$
—
$
(15,024 )
—
(165,620 )
—
—
(165,620 )
—
190,594
—
—
190,594
—
NET CASH FLOWS
PROVIDED BY (USED IN)
INVESTING ACTIVITIES
(24,882 )
Lions Gate
Consolidated
(153 )
(1,678 )
—
(1,831 )
(1,678 )
—
23,143
—
24,821
FINANCING ACTIVITIES:
Exercise of stock options
353
—
—
—
353
NET CASH FLOWS
PROVIDED BY (USED IN)
FINANCING ACTIVITIES
353
—
—
—
353
8,472
NET CHANGE IN CASH
AND CASH
EQUIVALENTS
FOREIGN EXCHANGE
EFFECT ON CASH
CASH AND CASH
EQUIVALENTS —
BEGINNING OF PERIOD
CASH AND CASH
EQUIVALENTS — END
OF PERIOD
15.
$
3,944
(61 )
4,589
—
(5,748 )
72
5,084
—
6,541
—
40,437
—
4,737
$
11
$
50,110
$
—
(592 )
46,978
$
54,858
Subsequent Events
Société Générale de Financement du Québec Filmed Entertainment Financing Deal
On July 30, 2007, the Company entered into a four-year filmed entertainment slate financing agreement with Société
Générale de Financement du Québec (“SGF”), the Québec provincial government’s investment arm. SGF will finance up to
35% of production costs of television and feature film productions produced in Québec for a four year period for an
aggregate investment of up to $140 million and the Company will advance all amounts necessary to fund the remaining
budgeted costs. The maximum aggregate of budgeted costs over the four-year period will be $400 million, including the
Company’s portion, but no more than $100 million per year. In connection with this agreement the Company and SGF will
proportionally share in the proceeds derived from the funded productions after the Company deducts a distribution fee,
recoups all distribution expenses and releasing costs, and pays all applicable participations and residuals.
29
Table of Contents
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Lions Gate Entertainment Corp. (“Lionsgate,” the “Company,” “we,” “us” or “our”) is a diversified independent
producer and distributor of motion pictures, television programming, home entertainment, family entertainment,
video-on-demand and music content. We release approximately 18 to 22 motion pictures theatrically per year. Our theatrical
releases include films we produce in-house and films we acquire from third parties. We also have produced approximately
77 hours of television programming on average each of the last three years. Our disciplined approach to acquisition,
production, and distribution is designed to maximize our profit by balancing our financial risks against the probability of
commercial success of each project. We currently distribute our library of more than 10,000 motion picture titles and
television episodes and programs directly to retailers, video rental stores, and pay and free television channels in the U.S.,
UK and Ireland and indirectly to other international markets through third parties. We own a minority interest in
CinemaNow, Inc. (“CinemaNow”), an internet video-on-demand provider, Horror Entertainment, LLC (“FEARnet”), a
multiplatform programming and content service provider, and in NextPoint, Inc. (“Break.com”), an online video
entertainment service provider. We also own a minority interest in Maple Pictures Corp. (“Maple Pictures”), a Canadian film
and television distributor based in Toronto, Canada. We have distribution agreements with Maple Pictures through which we
distribute our library and other titles in Canada.
Our revenues are derived from the following business segments:
• Motion Pictures, which includes Theatrical, Home Entertainment, Television and International Distribution.
Theatrical revenues are derived from the theatrical release of motion pictures in the U.S. which are distributed to
theatrical exhibitors on a picture by picture basis. The financial terms that we negotiate with our theatrical exhibitors
generally provide that we receive a percentage of the box office results and are negotiated on a picture by picture
basis. Home entertainment revenues are derived primarily from the sale of video and DVD releases of our own
productions and acquired films, including theatrical releases and direct-to-video releases, to retail stores. In addition,
we have revenue sharing arrangements with certain rental stores which generally provide that in exchange for a
nominal or no upfront sales price we share in the rental revenues generated by each such store on a title by title
basis. Television revenues are primarily derived from the licensing of our productions and acquired films to the
domestic cable, free and pay television markets. International revenues include revenues from our UK subsidiary
and from the licensing of our productions and acquired films to international markets on a territory-by-territory
basis. Our revenues are derived from the U.S., Canada and other foreign countries; none of the foreign countries
individually comprised greater than 10% of total revenue.
• Television Productions, which includes the licensing to domestic and international markets of one-hour and
half-hour drama series, television movies and mini-series and non-fiction programming and revenues from the sale
of television production movies or series in other media including home entertainment.
Our primary operating expenses include the following:
• Direct Operating Expenses, which include amortization of production or acquisition costs, participation and residual
expenses and provision for doubtful accounts. Participation costs represent contingent consideration payable based
on the performance of the film to parties associated with the film, including producers, writers, directors or actors,
etc. Residuals represent amounts payable to various unions or “guilds” such as the Screen Actors Guild, Directors
Guild of America, Writers Guild of America, based on the performance of the film in certain ancillary markets or
based on the individual’s (i.e. actor, director, writer) salary level in the television market.
• Distribution and Marketing Expenses, which primarily include the costs of theatrical “prints and advertising” and of
video and DVD duplication and marketing. Theatrical print and advertising represent the costs of the theatrical
prints delivered to theatrical exhibitors and advertising includes the advertising and marketing cost associated with
the theatrical release of the picture. Video and DVD duplication represent the cost of the video and DVD product
and the manufacturing costs associated with creating the physical products. Video and DVD marketing costs
represent the cost of advertising the product at or near the time of its release or special promotional advertising.
• General and Administration Expenses, which include salaries and other overhead.
30
Table of Contents
Recent Developments
NextPoint, Inc. On June 29, 2007, the Company purchased a 42% equity interest or 21,000,000 shares of the Series B
Preferred Stock of NextPoint, Inc. (“Break.com”), an online video entertainment service provider operating under the
branding of “Break.com”, for an aggregate purchase price of $21.4 million which includes $0.5 million of transaction costs,
by issuing 1,890,189 of its common shares in exchange for the 21,000,000 shares of the Series B Preferred Stock in
Break.com. The Company is accounting for the investment in Break.com using the equity method. The Company has a call
option which is exercisable at any time from June 29, 2007 until the earlier of 30 months after June 29, 2007 or a year after a
change of control, as narrowly defined, to purchase all, but not less than all, of the remaining 58% equity interests, including
in-the-money stock options, warrants and other rights, of Break.com for $58 million in cash or common stock, at the
Company’s option. Due to the timing in availability of financial statements from Break.com the Company is recording its
share of the Break.com results on a one quarter lag.
Theatrical Slate Financing. On May 25, 2007, the Company, through a series of agreements, closed a theatrical slate
funding arrangement. Under this arrangement Pride Pictures LLC (“Pride”), an unrelated entity, will fund, generally, 50% of
the Company’s production, acquisition, marketing and distribution costs of theatrical feature films up to an aggregate of
approximately $196 million net of transaction costs. The funds available from Pride are generated from the issuance by Pride
of $35 million of subordinated debt instruments, $35 million of equity and $134 million from a senior credit facility, which
is subject to a borrowing base. The Company is not a party to the Pride debt obligations or their senior credit facility, and
provides no guarantee of repayment of these obligations. The percentage of the contribution may vary on certain pictures.
The slate of films covered by the arrangement is expected to be comprised of 23 films over the next three years. Pride will
participate in a pro rata portion of the pictures net profits or losses similar to a co-production arrangement based on the
portion of costs funded. The Company continues to distribute the pictures covered by the arrangement with a portion of net
profits after all costs and the Company’s distribution fee being distributed to Pride based on their pro rata contribution to the
applicable costs similar to a back-end participation on a film.
Horror Entertainment, LLC. On October 10, 2006, the Company purchased 300 membership interests in Horror
Entertainment, LLC (“FEARnet”), a multiplatform programming and content service provider of horror genre films
operating under the branding of “FEARnet.” In addition, the Company entered into a five-year license agreement with
FEARnet for the US territories and possessions whereby the Company will license content to FEARnet for video-on-demand
and broadband exhibition. The Company has agreed not to compete in the area of a channel within the horror genre and the
Company cannot license to a horror genre competitor more than 25 titles in any year during the term of the license
agreement. The Company made a capital contribution to FEARnet of $5.1 million at the date of acquisition, which includes
direct transaction costs of $0.1 million, and has committed to a total capital contribution of $13.3 million, which is expected
to be fully funded over the next two-year period. Under certain circumstances, if the Company defaults on any of its funding
obligations, then the Company could forfeit its equity and its license agreement with FEARnet could be terminated. The
Company is accounting for the investment in FEARnet using the equity method because of the Company’s ownership
percentage of 33.33%. Due to the timing in availability of financial statements from FEARnet, the Company is recording its
share of the FEARnet results on a one quarter lag. The Company recorded a $0.9 million loss in its equity interests
associated with FEARnet’s operations through March 31, 2007 in the consolidated statement of operations for the three
months ended June 30, 2007. The investment in FEARnet is $2.7 million as of June 30, 2007 (March 31, 2007 —
$3.6 million).
4.875% Notes Conversion. On December 15, 2006, in response to our optional redemption notice, all of the
noteholders of the 4.875% Notes voluntarily elected to convert their notes into the Company’s common shares. A total of
$60 million of principal was converted into 11,111,108 common shares at a conversion price of $5.40 per share. In
connection with this conversion, the principal amount net of the unamortized portion of the financing costs associated with
the original conversion of the 4.875% Notes of approximately $2.1 million was recorded as an increase to common shares.
The shares issued pursuant to the conversion were previously reserved for such issuance pursuant to the conversion.
31
Table of Contents
Debmar. On July 3, 2006, the Company acquired all of the capital stock of Debmar-Mercury LLC (“Debmar”), an
independent distributor of film and television packages. Consideration for the Debmar acquisition was $27.0 million,
comprised of a combination of $24.5 million in cash paid on July 3, 2006 and up to $2.5 million in common shares of the
Company to be issued on January 1, 2008 if there are no breaches requiring indemnification by the seller of certain
representations and warranties made by the seller. An additional $0.2 million has been incurred in acquisition costs. In
addition, the Company assumed other obligations (including accounts payable and accrued liabilities and film obligations) of
$10.5 million. The $2.5 million of shares to be issued has been recorded as part of the purchase consideration and reflected
as a liability. If no incremental liabilities become known by January 1, 2008 then the shares will be issued and the
$2.5 million will be reclassified to equity. The purchase price may be adjusted for the payment of additional consideration
contingent on the financial performance of Debmar for the five-year period ending June 30, 2011. The Debmar acquisition
provides the Company with the rights to distribute certain television properties, such as the television series South Park, and
provides the Company with an experienced management team to further enhance its capacity to syndicate its own and others
television programming and feature film packages.
The Debmar acquisition was accounted for as a purchase, with the results of operations of Debmar consolidated from
July 3, 2006. Goodwill of $8.7 million represents the excess of purchase price over the fair value of the net identifiable
tangible and intangible assets acquired.
SGF. On July 30, 2007, the Company entered into a four-year filmed entertainment slate financing agreement with
Société Générale de Financement du Québec (“SGF”), the Québec provincial government’s investment arm. SGF will
finance up to 35% of production costs of television and feature film productions produced in Québec for a four year period
for an aggregate investment of up to $140 million and the Company will advance all amounts necessary to fund the
remaining budgeted costs. The maximum aggregate of budgeted costs over the four-year period will be $400 million,
including the Company’s portion, but no more than $100 million per year. In connection with this agreement the Company
and SGF will proportionally share in the proceeds derived from the funded productions after the Company deducts a
distribution fee, recoups all distribution expenses and releasing costs, and pays all applicable participations and residuals.
CRITICAL ACCOUNTING POLICIES
The application of the following accounting policies, which are important to our financial position and results of
operations, requires significant judgments and estimates on the part of management. As described more fully below, these
estimates bear the risk of change due to the inherent uncertainty attached to the estimate. For example, accounting for films
and television programs requires the Company to estimate future revenue and expense amounts which, due to the inherent
uncertainties involved in making such estimates, are likely to differ to some extent from actual results. For a summary of all
of our accounting policies, including the accounting policies discussed below, see note 2 to our March 31, 2007 audited
consolidated financial statements.
Generally Accepted Accounting Principles (“GAAP”). Our consolidated financial statements have been prepared in
accordance with U.S. GAAP.
Accounting for Films and Television Programs. In June 2000, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position 00-2 “Accounting by Producers or
Distributors of Films” (“SoP 00-2”). SoP 00-2 establishes accounting standards for producers or distributors of films,
including changes in revenue recognition, capitalization and amortization of costs of acquiring films and television programs
and accounting for exploitation costs, including advertising and marketing expenses.
We capitalize costs of production and acquisition, including financing costs and production overhead, to investment in
films and television programs. These costs are amortized to direct operating expenses in accordance with SoP 00-2. These
costs are stated at the lower of unamortized films or television program costs or estimated fair value. These costs for an
individual film or television program are amortized and participation and residual costs are accrued in the proportion that
current year’s revenues bear to management’s estimates of the ultimate revenue at the beginning of the year expected to be
recognized from exploitation, exhibition or sale of such film or television program over a period not to exceed ten years from
the date of initial release. For previously released film or
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television programs acquired as part of a library, ultimate revenue includes estimates over a period not to exceed twenty
years from the date of acquisition.
The Company’s management regularly reviews and revises when necessary its ultimate revenue and cost estimates,
which may result in a change in the rate of amortization of film costs and participations and residuals and/or write-down of
all or a portion of the unamortized costs of the film or television program to its estimated fair value. The Company’s
management estimates the ultimate revenue based on experience with similar titles or title genre, the general public appeal of
the cast, actual performance (when available) at the box office or in markets currently being exploited, and other factors such
as the quality and acceptance of motion pictures or programs that our competitors release into the marketplace at or near the
same time, critical reviews, general economic conditions and other tangible and intangible factors, many of which we do not
control and which may change. In the normal course of our business, some films and titles are more successful than
anticipated and some are less successful. Accordingly, we update our estimates of ultimate revenue and participation costs
based upon the actual results achieved or new information as to anticipated revenue performance such as (for home video
revenues) initial orders and demand from retail stores when it becomes available. An increase in the ultimate revenue will
generally result in a lower amortization rate while a decrease in the ultimate revenue will generally result in a higher
amortization rate and periodically results in an impairment requiring a write down of the film cost to the title’s fair value.
These write downs are included in amortization expense within direct operating expenses in our consolidated statements of
operations.
Revenue Recognition. Revenue from the sale or licensing of films and television programs is recognized upon meeting
all recognition requirements of SoP 00-2. Revenue from the theatrical release of feature films is recognized at the time of
exhibition based on the Company’s participation in box office receipts. Revenue from the sale of videocassettes and DVDs
in the retail market, net of an allowance for estimated returns and other allowances, is recognized on the later of receipt by
the customer or “street date” (when it is available for sale by the customer). Under revenue sharing arrangements, rental
revenue is recognized when the Company is entitled to receipts and such receipts are determinable. Revenues from television
licensing are recognized when the feature film or television program is available to the licensee for telecast. For television
licenses that include separate availability “windows” during the license period, revenue is allocated over the “windows.”
Revenue from sales to international territories are recognized when access to the feature film or television program has been
granted or delivery has occurred, as required under the sales contract, and the right to exploit the feature film or television
program has commenced. For multiple media rights contracts with a fee for a single film or television program where the
contract provides for media holdbacks (defined as contractual media release restrictions), the fee is allocated to the various
media based on management’s assessment of the relative fair value of the rights to exploit each media and is recognized as
each holdback is released. For multiple-title contracts with a fee, the fee is allocated on a title-by-title basis, based on
management’s assessment of the relative fair value of each title.
Cash payments received are recorded as deferred revenue until all the conditions of revenue recognition have been met.
Long-term, non-interest bearing receivables are discounted to present value.
Reserves. Revenues are recorded net of estimated returns and other allowances. We estimate reserves for video returns
based on previous returns and our estimated expected future returns related to current period sales on a title-by-title basis in
each of the video businesses. Factors affecting actual returns include limited retail shelf space at various times of the year,
success of advertising or other sales promotions, the near term release of competing titles, among other factors. We believe
that our estimates have been materially accurate in the past; however, due to the judgment involved in establishing reserves,
we may have adjustments to our historical estimates in the future.
We estimate provisions for accounts receivable based on historical experience and relevant facts and information
regarding the collectability of the accounts receivable. In performing this evaluation, significant judgments and estimates are
involved, including an analysis of specific risks on a customer-by-customer basis for our larger customers and an analysis of
the length of time receivables have been past due. The financial condition of a given customer and its ability to pay may
change over time and could result in an increase or decrease to our allowance for doubtful accounts, which, when the impact
of such change is material, is disclosed in our discussion on direct operating expenses elsewhere in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
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Income Taxes. The Company is subject to federal and state income taxes in the U.S., and in several foreign
jurisdictions in which we operate. We account for income taxes according to SFAS No. 109, “Accounting for Income Taxes”
(SFAS No. 109). SFAS No. 109 requires the recognition of deferred tax assets, net of applicable reserves, related to net
operating loss carryforwards and certain temporary differences. The standard requires recognition of a future tax benefit to
the extent that realization of such benefit is more likely than not or a valuation allowance is applied. Because of our
historical operating losses, we have provided a valuation allowance against our net deferred tax assets. When we have a
history of profitable operations sufficient to demonstrate that it is more likely than not that our deferred tax assets will be
realized, the valuation allowance will be reversed. However, this assessment of our planned use of our deferred tax assets is
an estimate which could change in the future depending upon the generation of taxable income in amounts sufficient to
realize our deferred tax assets.
Goodwill. On April 1, 2001, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” Goodwill
is reviewed annually for impairment within each fiscal year or between the annual tests if an event occurs or circumstances
change that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. The
Company performs its annual impairment test as of December 31 in each fiscal year. The Company performed its annual
impairment test on its goodwill as of December 31, 2006. No goodwill impairment was identified in any of the Company’s
reporting units. Determining the fair value of reporting units requires various assumptions and estimates. The estimates of
fair value include consideration of the future projected operating results and cash flows of the reporting unit. Such
projections could be different than actual results. Should actual results be significantly less than estimates, the value of our
goodwill could be impaired in the future.
Business Acquisitions. The Company accounts for its business acquisitions as a purchase, whereby the purchase price
is allocated to the assets acquired and liabilities assumed based on their estimated fair value. The excess of the purchase
price over estimated fair value of the net identifiable assets is allocated to goodwill. Determining the fair value of assets and
liabilities requires various assumptions and estimates. These estimates and assumptions are refined with adjustments
recorded to goodwill as information is gathered and final appraisals are completed over the allocation period allowed under
SFAS No. 141. The changes in these estimates could impact the amount of assets, including goodwill and liabilities,
ultimately recorded on our balance sheet as a result of an acquisition and could impact our operating results subsequent to
such acquisition. We believe that our estimates have been materially accurate in the past.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 123(R). In December 2004, the FASB issued SFAS No. 123
(revised 2004), “Share-Based Payment” (SFAS No. 123(R)). SFAS No. 123(R) revises SFAS No. 123 and eliminates the
alternative to use the intrinsic value method of accounting under APB No. 25. SFAS No. 123(R) requires accounting for
share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments
of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled
by the issuance of such equity instruments, to account for these types of transactions using a fair-value-based method.
Effective April 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), “Share-Based
Payment,” (SFAS No. 123(R)) using the modified-prospective transition method. Under such transition method,
compensation cost recognized in the three months ended June 30, 2007 and 2006 includes: (a) compensation cost for all
stock options granted prior to, but not yet vested as of, April 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all share-based payments granted
on or after April 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of
SFAS No. 123(R). See note 12 for further discussion of the Company’s stock-based compensation in accordance with
SFAS No. 123(R).
FASB Issued Interpretation No. 48. On July 13, 2006, the FASB issued Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the
accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109,
“Accounting for Income Taxes,” and prescribes a recognition threshold and measurement attributes for financial statement
disclosure of tax positions taken or expected to be taken on a tax return. Under FIN No. 48, the impact of an uncertain
income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be
sustained upon audit by the relevant taxing authority. An uncertain
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income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FIN No. 48
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and
transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006.
The Company adopted the provisions of FIN No. 48 on April 1, 2007. The total amount of unrecognized tax benefits as
of the date of adoption was $0.5 million that, if recognized, would affect the effective tax rate. The Company expects it is
reasonably possible that the unrecognized tax benefits will decrease by $0.5 million within 12 months of this reporting date
due to the resolution of audits.
Statement of Financial Accounting Standards No. 157. In September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements” (“SFAS No. 157”). SFAS No. 157 establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The changes to current practice resulting from the application of this statement
relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value
measurements. The Company will be required to adopt the provisions on SFAS No. 157 on April 1, 2008. The Company is
currently evaluating the impact of adopting the provisions of SFAS No. 157 but does not believe that the adoption of
SFAS No. 157 will materially impact its financial position, cash flows, or results of operations.
Statement of Financial Accounting Standards No. 159. In February 2007, the FASB issued SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115,”
(“SFAS No. 159”), which is effective for fiscal years beginning after November 15, 2007. SFAS No. 159 permits an entity to
choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent
unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The
Company is currently evaluating the potential impact of SFAS No. 159.
Results of Operations
Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
Consolidated revenues this quarter of $198.7 million increased $26.2 million, or 15.2%, compared to $172.5 million in
the prior year’s quarter. Motion pictures revenue of $170.3 million this quarter increased $5.1 million, or 3.1%, compared to
$165.2 million in the prior year’s quarter. Television revenues of $28.4 million this quarter increased $21.1 million, or
289.0%, compared to $7.3 million in the prior year’s quarter.
Motion Pictures Revenue
The increase in motion pictures revenue this quarter was mainly attributable to increases in television and international
revenue, offset by decreases in video revenue. The following table sets forth the components of revenue for the motion
pictures reporting segment for the three-month periods ended June 30, 2007 and 2006:
Motion Pictures
Theatrical
Three Months
Ended
June 30,
2007
Three Months
Ended
June 30,
Increase (Decrease)
2006
Amount
Percent
(Amounts in millions)
$
$
Video
Television
International
Other
19.0
103.8
22.4
22.7
2.4
$
35
170.3
18.5
$
114.8
14.8
15.5
1.6
$
165.2
$
0.5
(11.0 )
7.6
7.2
0.8
2.7 %
)
(9.6 %
51.4 %
46.5 %
50.0 %
5.1
3.1 %
Table of Contents
The following table sets forth the titles contributing significant motion pictures revenue for the three-month periods
ended June 30, 2007 and 2006:
Three Months Ended June 30,
2007
2006
Theatrical and
Video
Release
Date
Title
Theatrical:
Away From Her
Bug
Delta Farce
Hostel 2
The Condemned
Video:
Daddy’s Little Girls
Employee of the Month
Happily N’Ever After
Pride
Saw 3
May 2007
May 2007
May 2007
June 2007
April 2007
June 2007
January 2007
May 2007
June 2007
January 2007
Theatrical and
Video
Release
Date
Title
Theatrical:
Akeelah and the Bee
La Mujer De Mi Hermano
Larry the Cable Guy: Health Inspector
See No Evil
Video:
Barbie Diaries
Crash
April 2006
April 2006
February 2006
May 2006
May 2006
September
2005
January 2006
June 2006
June 2006
February 2006
February 2006
June 2006
Lord of War
Madea Goes to Jail
Madea’s Family Reunion
Saw 2
Waiting
Why Did I Get Married
Television:
Television:
Crank
Crash
Employee of the Month
The Devil’s Rejects
Saw 3
The Descent
International:
International:
Dirty Dancing — Stage Play
Fierce People
Right at Your Door
Hard Candy
Saw 3
Saw 2
The Punisher
Theatrical revenue of $19.0 million increased $0.5 million or 2.7% in this quarter as compared to the prior year’s
quarter due to an increase in the number of theatrical releases in the current quarter. In this quarter, the titles listed in the
above table as contributing significant theatrical revenue in the current quarter represented individually between 7% and
36% of total theatrical revenue and in the aggregate approximately 90% of total theatrical revenue. In the prior year’s
quarter, the titles listed in the above table as contributing significant theatrical revenue represented individually between 6%
and 39% of total theatrical revenue and in the aggregate approximately 92% of total theatrical revenue.
Video revenue of $103.8 million decreased $11.0 million or 9.6% in this quarter as compared to the prior year’s quarter.
The decrease is due to a decrease in revenues generated from the significant titles listed in the above table as compared to the
prior year’s quarter. The titles listed above as contributing significant video revenue in the current quarter represented
individually between 2% to 19% of total video revenue and in the aggregate 44% or $45.6 million of total video revenue for
the quarter. In the prior year’s quarter, the titles listed above as contributing significant video revenue represented
individually between 2% to 27% of total video revenue and in the aggregate 57% or $65.0 million of total video revenue for
the quarter. In the current quarter $58.3 million, or 56%, of total video revenue was contributed by titles that individually
make up less than 2% of total video revenue, and in the prior year’s quarter this amounted to $49.8 million or 43% of total
video revenue.
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Television revenue included in motion pictures revenue of $22.4 million in this quarter increased $7.6 million, or
51.4%, compared to the prior year’s quarter. The increase is due to more theatrical titles with television windows opening in
the current quarter as compared to the prior year’s quarter. In this quarter, the titles listed above as contributing significant
television revenue represented individually between 7% to 31% of total television revenue and in the aggregate 59% of total
television revenue for the quarter. In the prior year’s quarter the titles listed above as contributing significant television
revenue represented individually between 14% to 29% of total television revenue and in the aggregate 44% of total
television revenue for the quarter.
International revenue of $22.7 million increased $7.2 million or 46.5% in this quarter as compared to the prior year’s
quarter. Lionsgate UK, established from the acquisition of Redbus in fiscal 2006, contributed $8.0 million, or 35.2% of
international revenue in the current quarter, which included revenues from Employee of the Month, Saw III, The Lives of
Others, and An American Haunting , compared to $6.2 million, or 40.0%, of total international revenue in the prior year’s
quarter. In this quarter, the titles listed in the table above as contributing significant international revenue, which does not
include revenue generated from Lionsgate UK, represented individually between 5% to 10% of total international revenue
and in the aggregate 27% of total international revenue for the quarter. In the prior year’s quarter the titles listed in the table
above as contributing significant revenue represented individually between 3% to 19% of total international revenue and in
the aggregate 28% of total international revenue for the quarter.
Television Revenue
The following table sets forth the components of revenue that make up television production revenue for the
three-month periods ended June 30, 2007 and 2006:
Television Production
Domestic series licensing
International
Video releases of television production
Other
Three Months
Ended
June 30,
2007
Three Months
Ended
June 30,
Increase (Decrease)
2006
Amount
Percent
(Amounts in millions)
$
20.0
6.1
2.3
—
$
6.1
0.3
0.7
0.2
$ 13.9
5.8
1.6
(0.2 )
$
28.4
$
7.3
$ 21.1
227.9 %
1,933.3 %
228.6 %
100.0 %
289.0 %
The following table sets forth the number of television episodes delivered in the three months ended June 30, 2007 and
2006, respectively:
Three Months Ended
June 30, 2007
Episodes
Hours
Domestic Series Licensing
One Hour Series
Half Hour Series
Three Months Ended
June 30, 2006
Episodes
Hours
9
1
9.0
0.5
1
6
1.0
3.0
10
9.5
7
4.0
Television revenue of $28.4 million in this quarter increased by $21.1 million, or 289.0%, compared to $7.3 million in
the prior year’s quarter, due primarily to higher revenue from domestic series licensing, international revenue and video
releases of television production. Domestic series licensing increased partially due to an increase in episodes delivered of
Wildfire , The Dead Zone and The Dresden Files in the three months ended June 30, 2007 as compared to the three months
ended June 30, 2006. Domestic series licensing for the current quarter also increased due to $8.6 million of revenue
contributed in the current quarter from the July 3, 2006 acquisition of Debmar on television series such as House of Payne
and South Park , as compared to nil in the prior year’s quarter. Domestic
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series deliveries of one-hour series in this quarter included three one-hour episodes of The Dead Zone , four one-hour
episodes of Wildfire Season 4 , and two one-hour episodes of The Dresden Files , and of half-hour series included one
half-hour episode of Weeds Season 3. In the prior year’s quarter, domestic series deliveries of one-hour series included
Wildfire Season 2, and of half-hour series included Weeds Season 2 and Lovespring International.
International revenue of $6.1 million increased by $5.8 million in the current quarter mainly due to international
revenue from Hidden Palms, Lovespring International, The Dresden Files and The Dead Zone , compared to international
revenue of $0.3 million in the prior year’s quarter from Weeds and Wildfire .
Direct Operating Expenses
The following table sets forth direct operating expenses by segment for the three months ended June 30, 2007 and 2006:
Three Months Ended
June 30, 2007
Motion
Pictures
Direct operating expenses
Amortization of films and television
programs
Participation and residual expense
Amortization of acquired intangible
assets
Other expenses
$
$
20.7
6.8
—
—
0.2
(1.0 )
$
Direct operating expenses as a
percentage of segment revenues
29.2
31.2
Television
59.6
$
27.5
35.0 %
96.8 %
Three Months Ended
June 30, 2006
Motion
Total
Pictures
(Amounts in millions)
$ 49.9
38.0
$
0.2
(1.0 )
$ 87.1
43.8 %
27.0
36.4
Television
$
—
(0.4 )
0.2
(1.7 )
$
61.9
37.5 %
6.2
0.8
$
6.6
90.4 %
Total
$ 33.2
37.2
0.2
(2.1 )
$ 68.5
39.7 %
Direct operating expenses include amortization, participation and residual expenses and other expenses. Direct
operating expenses of the motion pictures segment of $59.6 million for this quarter were 35.0% of motion pictures revenue,
compared to $61.9 million, or 37.5% of motion pictures revenue for the prior year’s quarter. The decrease in direct operating
expense of the motion pictures segment in the quarter as a percent of revenue is due to the change in the mix of titles
generating revenue compared to the prior year’s quarter. The benefit in other expense in the current quarter resulted
primarily from foreign exchange gains of approximately $0.5 million and adjustments to the provision for bad debts due to
collection of accounts previously reserved. The benefit in other expense for the prior quarter resulted primarily from the
reversal of the provision for doubtful accounts of $2.2 million associated with the collection of a portion of accounts
receivable that was previously reserved, related to a large retail customer that declared bankruptcy. Direct operating
expenses of the motion pictures segment included charges for write downs of investment in film costs of $2.4 million and
$0.3 million in the current quarter and prior year quarter, respectively, due to the lower than anticipated actual performance
or previously expected performance of certain titles. In the current quarter, approximately $1.5 million of the write down
related to the unanticipated poor performance at the box office on one motion picture.
Direct operating expenses of the television segment of $27.5 million for this quarter were 96.8% of television revenue,
compared to $6.6 million, or 90.4% of television revenue for the prior year’s quarter. The increase in direct operating
expense of the television segment in the quarter is due to the increase in television production revenue in this quarter
compared to prior year’s quarter, and to the write off of film costs associated with a television pilot of approximately
$1.2 million.
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Distribution and Marketing Expenses
The following table sets forth distribution and marketing expenses by segment for the three months ended June 30,
2007 and 2006:
Three Months Ended
June 30, 2007
Motion
Pictures
Distribution and marketing expenses
Theatrical
Home Entertainment
Television
International
Other
Television
Three Months Ended
June 30, 2006
Motion
Total
Pictures
(Amounts in millions)
83.3
42.5
0.3
6.7
0.1
$
—
1.2
0.7
0.7
—
$
$ 132.9
$
2.6
$ 135.5
$
83.3
43.7
1.0
7.4
0.1
$
36.0
39.7
0.4
9.7
(0.6 )
85.2
Television
$
0.7
0.6
0.1
0.4
—
1.8
Total
$ 36.7
40.3
0.5
10.1
(0.6 )
87.0
The majority of distribution and marketing expenses relate to the motion pictures segment. Theatrical prints and
advertising (“P&A”) in the motion pictures segment in this quarter of $83.3 million increased $47.3 million, or 131.4%,
compared to $36.0 million in the prior year’s quarter. Domestic theatrical P&A from the motion pictures segment in this
quarter included P&A incurred on the release of titles such as Hostel 2, Bug, Delta Farce, The Condemned , and Slow Burn ,
which individually represented between 12% and 25% of total theatrical P&A and in the aggregate accounted for 86% of the
total theatrical P&A. Theatrical P&A in the prior year’s quarter included P&A incurred on the release of titles such as
Akeelah and the Bee, See No Evil, Hard Candy and La Mujer De Mi Hermano domestically, which individually represented
between 5% and 56% of total theatrical P&A and in the aggregate accounted for 92% of total theatrical P&A. Hard Candy ,
released theatrically during the three months ended June 30, 2006 individually contributed less than 3% of total theatrical
revenue in the prior year’s quarter. Slow Burn , released theatrically during the three months ended June 30, 2007
individually contributed less than 3% of total theatrical revenue in the current quarter.
Video distribution and marketing costs on motion pictures and television product in this quarter of $43.7 million
increased $3.4 million, or 8.4%, compared to $40.3 million in the prior year’s quarter. Video distribution and marketing
costs as a percentage of video revenues was 41.2% and 34.9% in the current quarter and prior year’s quarter, respectively.
This increase is mainly due to the decline in video revenue from the significant releases in the quarter noted in the table
above and partially due to higher video marketing costs in relation to revenues generated in the current quarter in comparison
to the prior year’s quarter.
International distribution and marketing expenses in this quarter includes $4.9 million of distribution and marketing
costs from Lionsgate UK, compared to $7.3 million in the prior year’s quarter. Current quarter distribution and marketing
expenses of the television segment include $0.7 million from the July 3, 2006 acquisition of Debmar.
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General and Administrative Expenses
The following table sets forth general and administrative expenses by segment for the three months ended June 30,
2007 and 2006:
Three Months
Ended
June 30,
2007
General and Administrative Expenses
Motion Pictures
Television
Corporate
Three Months
Ended
June 30,
2006
(Amounts in millions)
Increase (Decrease)
Amoun
t
Percent
$
7.4
1.8
17.6
$
6.8
0.1
12.3
$
0.6
1.7
5.3
8.8 %
NM
43.1 %
$
26.8
$
19.2
$
7.6
39.6 %
(NM) Percentage not meaningful.
The increase in general and administrative expenses is primarily due to corporate general and administration expenses
of $17.6 million which increased by $5.3 million or 43.1% compared to $12.3 million in the prior year’s quarter. The
increase in corporate general and administrative expenses is primarily due to an increase in stock-based compensation of
approximately $2.8 million (see table below), an increase in salaries and related expenses of approximately $1.7 million and
an increase of $0.8 million in other general overhead costs. The increase in salaries and related expenses of $1.7 million
includes a $1.5 million special bonus related to the closing of the Company’s theatrical slate financing agreement on
May 25, 2007. In this quarter, $1.8 million of production overhead was capitalized compared to $1.4 million in the prior
year’s quarter.
The following table sets forth corporate stock based compensation expense (benefit) for the three months ended
June 30, 2007 and 2006:
Three Months
Ended
June 30,
2007
Corporate Stock Based Compensation Expense (Benefit):*
Stock options
Restricted share units
$
Stock appreciation rights
Three Months
Ended
June 30,
2006
(Amounts in millions)
0.8
2.0
$
(0.4 )
$
2.4
0.5
0.5
Increase (Decrease)
Amoun
t
Percent
$
(1.4 )
$
(0.4 )
$
0.3
1.5
1.0
71.4 %
NM
)
(72.5 %
2.8
NM
(NM) Percentage not meaningful.
(*) The above table reflects only corporate stock based compensation expense (benefit) and not motion picture or
television stock based compensation expense (benefit), which amounted to $0.1 million and nil, respectively.
At June 30, 2007, as disclosed in note 11 to the unaudited condensed consolidated financial statements, there were
unrecognized compensation costs of approximately $27.0 million related to stock options and restricted stock units
previously granted, including the first annual installment of share grants that were subject to performance targets, which will
be expensed over the remaining vesting periods. In addition, in fiscal 2007 and the three months ended June 30, 2007 the
Company agreed to issue 702,500 shares of restricted stock units also subject to performance targets to three key executive
officers. These restricted stock units will vest in three and four annual installments assuming annual performance targets to
be set by the Company’s compensation committee have been met. The fair value of the 702,500 shares whose performance
targets have not been set was $7.7 million, based on the market price of the Company’s common stock as of June 30, 2007.
The market value will be remeasured when
40
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the performance criteria are set and the value will be expensed over the remaining vesting periods once it becomes probable
that the performance targets will be satisfied.
The increase in general and administrative expenses of the motion pictures segment of $0.6 million or 8.8% is primarily
due to general and administrative costs associated with Lionsgate UK. The increase in general and administrative expenses
of the television segment is primarily due to the July 3, 2006 acquisition of Debmar.
Depreciation and Other Expenses (Income)
Depreciation of $0.9 million this quarter increased $0.4 million, or 80.0% from $0.5 million in the prior year’s quarter.
Interest expense of $3.9 million this quarter decreased $0.8 million, or 17.0%, from prior year’s quarter of $4.7 million.
Interest and other income of $3.8 million for the quarter ended June 30, 2007, compared to $2.6 million in the prior
year’s quarter. Interest and other income this quarter was earned on the cash balance and available-for-sale investments held
during the three months ended June 30, 2007 which were higher than in the prior year’s quarter.
The equity interests in this quarter included a $0.9 million loss from the Company’s 33.33% equity interests in Horror
Entertainment, LLC and a $0.1 million gain from the Company’s 10% equity interest in Maple. For the three months ended
June 30, 2006, the equity interests consisted of a gain that was less than $0.1 million from the Company’s equity interest in
Maple.
The Company had an income tax expense of $0.7 million or (1.3%) of loss before income taxes in the three months
ended June 30, 2007, compared to a benefit of $1.4 million in the three months ended June 30, 2006. The tax expense
reflected in the current quarter is primarily attributable to U.S. state taxes. The Company’s actual annual effective tax rate
will differ from the statutory federal rate as a result of several factors, including changes in the valuation allowance against
net deferred tax assets, non-temporary differences, foreign income taxed at different rates, and state and local income taxes.
Income tax loss carryforwards amount to approximately $116.4 million for U.S. federal income tax purposes available to
reduce income taxes over twenty years, $80.4 million for U.S. state income tax purposes available to reduce income taxes
over future years with varying expirations, $29.2 million for Canadian income tax purposes available to reduce income taxes
over eight years, $13.7 million for UK income tax purposes available indefinitely to reduce future income taxes and
$0.9 million for Australian income tax purposes available indefinitely to reduce future income taxes.
Net loss for the three months ended June 30, 2007 was $53.1 million, or basic and diluted net loss per common share of
$0.45 on 117.1 million weighted average shares outstanding. This compares to net loss for the three months ended June 30,
2006 of $3.6 million or basic and diluted net loss per common share of $0.03 on 103.3 million weighted average common
shares outstanding.
Liquidity and Capital Resources
Our liquidity and capital resources are provided principally through cash generated from operations, issuance of
subordinated notes and our credit facility.
In October 2004, Lions Gate Entertainment Inc. sold $150.0 million of the 2.9375% Notes that mature on October 15,
2024. We received $146.0 million of net proceeds after paying placement agents’ fees. Offering expenses were $0.7 million.
The 2.9375% Notes are convertible at the option of the holder, at any time prior to maturity, upon satisfaction of certain
conversion contingencies, into common shares of the Company at a conversion rate of 86.9565 shares per $1,000 principal
amount of the 2.9375% Notes, which is equal to a conversion price of approximately $11.50 per share, subject to adjustment
upon certain events. From October 15, 2009 to October 14, 2010, Lions Gate Entertainment Inc. may redeem the
2.9375% Notes at 100.839%; from October 15, 2010 to October 14, 2011, Lions Gate Entertainment Inc. may redeem the
2.9375% Notes at 100.420%; and thereafter, Lions Gate Entertainment Inc. may redeem the notes at 100%.
In February 2005, Lions Gate Entertainment Inc. sold $175.0 million of the 3.625% Notes that mature on March 15,
2025. We received $170.2 million of net proceeds after paying placement agents’ fees. Offering expenses
41
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were approximately $0.6 million. The 3.625% Notes are convertible at the option of the holder, at any time prior to maturity
into common shares of the Company at a conversion rate of 70.0133 shares per $1,000 principal amount of the
3.625% Notes, which is equal to a conversion price of approximately $14.28 per share, subject to adjustment upon certain
events. Lions Gate Entertainment Inc. may redeem the 3.625% Notes at its option on or after March 15, 2012 at 100% of
their principal amount plus accrued and unpaid interest.
Credit Facility. At June 30, 2007, the Company had a $215 million revolving line of credit, of which $10 million is
available for borrowing by Lionsgate UK in either U.S. dollars or British pounds sterling. At June 30, 2007, the Company
had no borrowings (March 31, 2007 — nil) under the credit facility. The credit facility expires December 31, 2008 and bears
interest at 2.75% over the “Adjusted LIBOR” or the “Canadian Bankers Acceptance” rate, or 1.75% over the U.S. or
Canadian prime rates. The availability of funds under the credit facility is limited by the borrowing base. Amounts available
under the credit facility are also limited by outstanding letters of credit which amounted to $15.2 million at June 30, 2007. At
June 30, 2007 there was $199.8 million available under the credit facility. The Company is required to pay a monthly
commitment fee of 0.50% per annum on the total credit facility of $215 million less the amount drawn. Right, title and
interest in and to all personal property of Lions Gate Entertainment Corp. and Lions Gate Entertainment Inc. is pledged as
security for the credit facility. The credit facility is senior to the Company’s film obligations and senior subordinated notes.
The credit facility restricts the Company from paying cash dividends on its common shares.
Theatrical Slate Financing. On May 25, 2007, the Company, through a series of agreements, closed a theatrical slate
funding arrangement. Under this arrangement Pride Pictures LLC (“Pride”), an unrelated entity, will fund, generally, 50% of
the Company’s production, acquisition, marketing and distribution costs of theatrical feature films up to an aggregate of
approximately $196 million net of transaction costs. The funds available from Pride are generated from the issuance by Pride
of $35 million of subordinated debt instruments, $35 million of equity and $134 million from a senior credit facility, which
is subject to a borrowing base. The Company is not a party to the Pride debt obligations or their senior credit facility, and
provides no guarantee of repayment of these obligations. The percentage of the contribution may vary on certain pictures.
The slate of films covered by the arrangement is expected to be comprised of 23 films over the next three years. Pride will
participate in a pro rata portion of the pictures net profits or losses similar to a co-production arrangement based on the
portion of costs funded. The Company continues to distribute the pictures covered by the arrangement with a portion of net
profits after all costs and the Company’s distribution fee being distributed to Pride based on their pro rata contribution to the
applicable costs similar to a back-end participation on a film.
Filmed Entertainment Backlog. Backlog represents the amount of future revenue not yet recorded from executed
contracts for the licensing of films and television product for television exhibition and in international markets. Backlog at
June 30, 2007 and March 31, 2007 is $304.0 million and $320.2 million, respectively.
Cash Flows Used in Operating Activities. Cash flows used in operating activities for the three months ended June 30,
2007 were $80.4 million compared to cash flows used in operating activities in the three months ended June 30, 2006 of
$15.0 million. The increase in cash used in operating activities was primarily due to the increase in the net loss incurred in
the three months ended June 30, 2007 and increase in investment in film, decreases in film obligations and less cash
provided on the decrease in accounts receivable than in prior period. The above increased use of cash in the three months
ended June 30, 2007 was offset by sources of cash provided by increases in deferred revenue and accounts payable.
Cash Flows Provided by Investing Activities. Cash flows provided by investing activities of $81.9 million for the three
months ended June 30, 2007 consisted of net proceeds from the sale of $71.0 million of auction rate securities, $12.9 million
in net proceeds from the sale of equity securities and $2.0 million for purchases of property and equipment. Cash flows
provided by investing activities of $23.1 million in the three months ended June 30, 2006 included the net proceeds of
$24.9 million of investments available-for-sale, offset by $1.8 million for purchases of property and equipment.
Cash Flows Provided by Financing Activities. Cash flows provided by financing activities of $4.1 million in the three
months ended June 30, 2007 consisted of cash received from borrowings and the issuance of common shares. Cash flows
provided by financing activities of $0.4 million in the three months ended June 30, 2006 consisted of cash received from the
issuance of common shares.
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Table of Contents
Anticipated Cash Requirements. The nature of our business is such that significant initial expenditures are required to
produce, acquire, distribute and market films and television programs, while revenues from these films and television
programs are earned over an extended period of time after their completion or acquisition. We believe that cash flow from
operations, cash on hand, investments available-for-sale, credit facility availability, tax-efficient financing and production
financing available will be adequate to meet known operational cash requirements for the foreseeable future, including the
funding of future film and television production, film rights acquisitions and theatrical and video release schedules. We
monitor our cash flow liquidity, availability, fixed charge coverage, capital base, film spending and leverage ratios with the
long-term goal of maintaining our credit worthiness.
Our current financing strategy is to fund operations and to leverage investment in films and television programs through
our cash flow from operations, our credit facility, single-purpose production financing, government incentive programs, film
funds, and distribution commitments. In addition, we may acquire businesses or assets, including individual films or
libraries, that are complementary to our business. Any such transaction could be financed through our cash flow from
operations, credit facilities, equity or debt financing.
Future commitments under contractual obligations as of June 30, 2007 are as follows:
2008
Future annual
repayment of debt
and other film
obligations recorded
as of June 30, 2007
Film obligations(1)
$
Subordinated notes
and other financing
obligations
$
Contractual
commitments by
expected repayment
date
Distribution and
marketing
commitments(2)
$
Minimum guarantee
commitments(3)
Production obligation
commitments(3)
Operating lease
commitments
Other contractual
obligations
Employment and
consulting
contracts
Interest payments on
subordinated notes
and other financing
obligations
Total future
commitments under
contractual
Year Ended June 30,
2010
2011
(Amounts in thousands)
2009
58,554
$
—
25,268
$
—
2012
Thereafter
—
3,706
$ 29,975
$ 29,987
—
—
—
328,718
$ 29,975
$ 29,987
$ 328,718
$
476,208
—
$
154,583
58,554
$
25,268
$
3,706
60,397
$
94,186
$
—
$
—
$
—
$
Total
$
$
147,490
328,718
61,071
36,001
3,095
2,900
—
—
103,067
2,789
7,457
—
—
—
—
10,246
3,432
4,748
4,438
4,118
1,841
710
19,287
12,869
4,752
256
256
256
—
18,389
18,886
13,757
8,188
5,114
512
—
46,457
8,285
11,046
11,046
11,046
11,046
135,394
187,863
$ 167,729
$ 171,947
$ 27,023
$ 23,434
$ 13,655
$ 136,104
$
539,892
$ 226,283
$ 197,215
$ 30,729
$ 53,409
$ 43,642
$ 464,822
$
1,016,100
obligations
(1) Film obligations include minimum guarantees, theatrical marketing obligations and production obligations as
disclosed in note 6 of our unaudited condensed consolidated financial statements. Repayment dates are based on
anticipated delivery or release date of the related film or contractual due dates of the obligation.
(2) Distribution and marketing commitments represent contractual commitments for future expenditures associated with
distribution and marketing of films which the Company will distribute. The payment dates of these amounts are
primarily based on the anticipated release date of the film.
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Table of Contents
(3) Minimum guarantee commitments represent contractual commitments related to the purchase of film rights for future
delivery. Production obligation commitments represent amounts committed for future film production and
development to be funded through production financing and recorded as a production obligation liability. Future
payments under these obligations are based on anticipated delivery or release dates of the related film or contractual
due dates of the obligation. The amounts include future interest payments associated with the obligations.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
Currency and Interest Rate Risk Management
Market risks relating to our operations result primarily from changes in interest rates and changes in foreign currency
exchange rates. Our exposure to interest rate risk results from the financial debt instruments that arise from transactions
entered into during the normal course of business. As part of our overall risk management program, we evaluate and manage
our exposure to changes in interest rates and currency exchange risks on an ongoing basis. Hedges and derivative financial
instruments will be used in the future in order to manage our interest rate and currency exposure. We have no intention of
entering into financial derivative contracts, other than to hedge a specific financial risk.
Currency Rate Risk. We incur certain operating and production costs in foreign currencies and are subject to market
risks resulting from fluctuations in foreign currency exchange rates. Our principal currency exposure is between Canadian
and U.S. dollars. The Company enters into forward foreign exchange contracts to hedge its foreign currency exposures on
future production expenses denominated in Canadian dollars. As of June 30, 2007, we had outstanding contracts to sell
US$1.7 million in exchange for CDN$2.0 million over a period of five weeks at a weighted average exchange rate of
CDN$1.1887. Changes in the fair value representing an unrealized fair value loss on foreign exchange contracts outstanding
during the three months ended June 30, 2007 amounted to less than $0.1 million, and are included in accumulated other
comprehensive loss, a separate component of shareholders’ equity. During the three months ended June 30, 2007, we
completed foreign exchange contracts denominated in Canadian dollars. The net gains resulting from the completed
contracts were $0.8 million. These contracts are entered into with a major financial institution as counterparty. We are
exposed to credit loss in the event of nonperformance by the counterparty, which is limited to the cost of replacing the
contracts, at current market rates. We do not require collateral or other security to support these contracts.
Interest Rate Risk. Our principal risk with respect to our debt is interest rate risk. We currently have minimal exposure
to cash flow risk due to changes in market interest rates related to our outstanding debt and other financing obligations. Our
credit facility has a nil balance at June 30, 2007. Other financing obligations subject to variable interest rates include
$28.2 million owed to film production entities on delivery of titles.
The table below presents repayments and related weighted average interest rates for our interest-bearing debt and
production obligations and subordinate notes and other financing obligations as of June 30, 2007.
2008
Revolving Credit Facility:
Variable(1)
Production Obligations:
Variable(2)
Subordinated Notes and
Other Financing
Obligations:
Fixed(3)
Fixed(4)
Fixed(5)
Year Ended March 31,
2010
2011
2012
(Amounts in thousands)
2009
$ —
$ —
$ —
16,093
12,058
—
—
—
—
28,151
—
—
222
—
—
296
—
—
296
—
—
296
—
—
296
150,000
175,000
3,768
150,000
175,000
5,174
$ 16,315
$ 12,354
$ 296
$ 296
$ 296
$ 328,768
$ 358,325
$
44
$
—
Total
—
$
—
Thereafter
$
—
Table of Contents
(1) Revolving credit facility, which expires December 31, 2008. At June 30, 2007, the Company had no borrowings
under this facility.
(2) Amounts owed to film production entities on anticipated delivery date or release date of the titles or the contractual
due dates of the obligation. Production obligations incur interest at rates ranging from 7.32% to 7.76%. Not included
in the table above are approximately $91.4 million of production obligations which are non-interest bearing.
(3) 2.9375% Notes with fixed interest rate equal to 2.9375%.
(4) 3.625% Notes with fixed interest rate equal to 3.625%.
(5) Other financing obligation with fixed interest rate equal to 8.02%.
Item 4.
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
Act of 1934 (the “Exchange Act”). These rules refer to the controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded,
processed, summarized and reported within required time periods.
As of June 30, 2007, the end of the period covered by this report, the Company carried out an evaluation under the
supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of our
disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded that such
controls and procedures were effective as of June 30, 2007.
Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d) of the Exchange Act, the Company, under the supervision and with the participation of
the Company’s management, including the Chief Executive Officer and Chief Financial Officer, also evaluated whether any
changes occurred to the Company’s internal control over financial reporting during the period covered by this report that
have materially affected, or are reasonably likely to materially affect, such control. Based on that evaluation, there has been
no such change during the period covered by this report.
PART II — OTHER INFORMATION
Item 1.
Legal Proceedings.
None
Item 1A. Risk Factors.
None
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3.
Defaults Upon Senior Securities.
None
Item 4.
Submission of Matters to a Vote of Security Holders.
None
Item 5.
Other Information.
None
45
Table of Contents
Item 6.
Exhibits.
Exhibit
Numbe
r
3 .1(1)
3 .2(2)
3 .3(2)
3 .4(2)
10 .40(3)
10 .41(3)
10 .42(3)
31 .1
31 .2
32 .1
Description of
Documents
Articles
Notice of Articles
Vertical Short Form Amalgamation Application
Certificate of Amalgamation
Revenue Participation Purchase Agreement dated as of July 25, 2007 among Lions Gate Entertainment
Inc., Lions Gate Films Inc., Lions Gate Television Inc., MQP, LLC and SGF Entertainment, Inc.
Master Distribution Agreement (Film Productions) dated as of July 25, 2007 between MQP LLC and
Lions Gate Films Inc.
Master Distribution Agreement (Television Productions) dated as of July 25, 2007 between MQP LLC
and Lions Gate Television Inc.
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1) Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2005
as filed on June 29, 2005.
(2) Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007
as filed on May 30, 2007.
(3) Confidential treatment has been requested for portions of this exhibit. Portions of this document have been omitted
and submitted separately to the Securities and Exchange Commission.
46
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
LIONS GATE ENTERTAINMENT CORP.
By: /s/ James Keegan
Name: James Keegan
Title: Duly Authorized Officer and Chief Financial
Officer
Date: August 9, 2007
47
Exhibit 10.40
CONFIDENTIAL TREATMENT REQUESTED: INFORMATION FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED IS OMITTED AND IS NOTED WITH “*****.” AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
REVENUE PARTICIPATION PURCHASE AGREEMENT
Dated as of July 25, 2007
among
MQP, LLC
as Issuer,
SGF ENTERTAINMENT INC.
as a Revenue Participation Holder,
and
LIONS GATE ENTERTAINMENT INC.
as a Revenue Participation Holder,
and
LIONS GATE FILMS INC.
as Distributor for Film Productions
and
LIONS GATE TELEVISION INC.
as Distributor for Television Productions
REVENUE PARTICIPATION PURCHASE AGREEMENT, dated as of July 25, 2007, among MQP, LLC , a Delaware limited
liability company, as “ Issuer ” and SGF ENTERTAINMENT INC. , a Delaware corporation (“ SGF ”), LIONS GATE
ENTERTAINMENT INC. (“ LGEI ”), LIONS GATE FILMS INC., a Delaware corporation (“ LGF ”), and LIONS GATE TELEVISION
INC., a Delaware corporation (“ LGTV ”).
INTRODUCTORY STATEMENT
Terms in this Agreement are used as defined in Article 1 or as defined elsewhere herein.
Whereas on the Initial Closing Date Issuer wishes to issue and sell, and the Revenue Participation Holders wish to purchase, the Initial
Revenue Participations subject to the terms hereof in accordance herewith.
Accordingly, the parties hereto hereby agree as follows:
1. DEFINITIONS
For the purposes hereof, unless the context otherwise requires, the following terms shall have the meanings indicated, all accounting terms
not otherwise defined herein shall have the respective meanings accorded to them under GAAP. Unless the context otherwise requires, any of
the following terms may be used in the singular or the plural, depending on the reference:
“ Accounting Period ” shall mean, with respect to a Funded Qualifying Project, (i) each ***** during the ***** following the Release Date
for such Funded Qualifying Project; and (ii) thereafter, each quarterly period during the Term; provided , however , that the first Accounting
Period for each Funded Qualifying Project shall commence on the date of receipt of the first Gross Receipts for such Funded Qualifying
Project.
“ Adjusted Receipts ” has the meaning attributed thereto in the Master Distribution Agreement .
“ Affiliate ” shall mean any Person, which, directly or indirectly, is in control of, is controlled by, or is under common control with another
Person. For purposes of this definition, a Person shall be deemed to be “ controlled by ” another Person if such latter Person possesses, directly
or indirectly, the power either to direct or cause the direction of the management and policies of such controlled Person whether by contract or
otherwise.
“ Affiliate Payment ” shall mean, with respect to a Qualifying Project, an amount payable to (i) Issuer, LGEI, Distributor or any of their
respective Affiliates, (ii) any officer, director or management of Issuer, LGEI or Distributor or any entity in which officer, director or
management of Issuer, LGEI or Distributor has any interest or (iii) any officer, director or management of any affiliate of Issuer, LGEI or
Distributor or any entity in which any officer, director or management of any affiliate of Issuer, LGEI or Distributor has any interest, excluding
in each case payments expressly permitted hereunder; provided, however, that each Executive Producer Fee shall not be considered an Affiliate
Payment.
1
“ Agreement ” means this Revenue Participation Purchase Agreement, as amended, supplemented or otherwise modified, renewed or
replaced from time to time, and references to “ Articles ”, “ Schedules ” and “ Sections ” refer to Articles, Schedules and Sections of this
Agreement.
“ Ancillary Rights ” means and includes the right to exploit all ancillary, incidental and subsidiary rights in and to any Qualifying Project,
including, without limitation, all Merchandising, commercial tie-ins, music, music publishing, soundtrack, photonovel, novelization, screenplay
publication, interactive media, multi-media, and theme park (or other “themed” or location-based attraction) rights.
“ Applicable Law ” shall mean all provisions of statutes, rules, regulations and orders of the United States of America, any state thereof or
municipality therein or of any foreign governmental body or of any regulatory agency applicable to the Person in question, and all orders and
decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party.
“ Board ” shall mean the Board of Governors of the Federal Reserve System.
“ Business Day ” shall mean any day other than a Saturday, Sunday or other day on which banks are required or permitted to close in either
the Province of Quebec or the State of California.
“ CIPO ” shall mean the Canadian Intellectual Property Office.
“ Code ” shall mean the Internal Revenue Code of 1986 and the rules and regulations issued thereunder, as now and hereafter in effect, as
codified at 26 U.S.C. § 1 et seq . or any successor provision thereto.
“ Co-Financier ” means a Person that is not an Affiliate of LGEI, the Issuer or the Distributor who makes an investment in a Qualifying
Project pursuant to a Co-Financing Transaction.
“ Co-Financing Amount ” means, with respect to a Qualifying Project, all amounts actually received by Issuer or its Affiliates on a
non-refundable basis from any Co-Financing Transaction; provided , however , that Co-Financing Amounts shall exclude any Co-Financing
Participations.
“ Co-Financing Participation ” means any amount payable to any Person that is not an Affiliate of LGEI in connection with a Co-Financing
Transaction, including pass through and defeasance amounts.
“ Co-Financing Transaction ” means, with respect to a Funded Qualifying Project, (i) tax advantaged financing transactions, including,
without limitation, tax credits, government incentives, labor credits, sale/leaseback transactions, governmental subsidy/rebate programs or
similar transactions and other so-called “soft money” transactions, in each case, that are contemplated to create a so-called “soft money”
benefit, or (ii) a transaction pursuant to which a Co-Financier provides a Co-Financing Amount.
2
“ Co-Producer ” means, with respect to a Qualifying Project, any co-producer, co-venturer, joint venturer or other production participant that
is not an Affiliate of LGEI.
“ Copyright ” means, with respect to a Qualifying Project, all Canadian, United States and other copyrights, whether registered or
unregistered, and pending applications to register the same, for or pertaining to such Qualifying Project.
“ Copyright Owner ” means the owner of the Copyright in any Qualifying Project.
“ Direct Competitor ” means a direct competitor of LGEI listed in Schedule 9.2 .
“ Direct Costs ” shall mean, with respect to a Qualifying Project, the aggregate of the following costs: all actual and verifiable out-of-pocket
costs, charges and expenses incurred by Issuer or an Affiliate in connection with the acquisition (including payments made with respect to
guarantees, advances and other payments made to rights holders), development, preparation, production, completion and/or delivery of such
Qualifying Project, including, without limitation, Executive Producer Fees, payments for the acquisition of underlying rights, development
costs and expenses, pre-production costs and expenses (including development fees attributable to such Qualifying Project), outside legal
charges, reasonable and customary outside accounting charges, insurance costs, in each case incurred with respect to such Qualifying Project,
reduced by the amount of any Co-Financing Amounts actually received on a non-refundable basis in respect of such Qualifying Project;
provided , however , that Direct Costs shall not include (i) any Affiliate Payments; or (ii) any allocation of overhead administrative charges or
indirect charges or expenses among pictures (for clarity, the foregoing shall not prevent the single purpose vehicle producing the picture from
having a line item in the budget for its own overhead, but such amount will not be considered a Direct Cost, except to the extent used for third
party costs and expenses).
“ Distribution Expenses ” shall have the meaning attributed thereto in the Master Distribution Agreement.
“ Distribution Records ” shall mean, collectively, books of account in respect of the distribution of each Funded Qualifying Project.
“ Distribution Rights ” means, with respect to each Funded Qualifying Project, the sole, exclusive and irrevocable right, under copyright,
throughout the Term, to (and to license others to) exhibit, distribute, market, display, project, transmit, broadcast, perform, advertise, publicize,
exploit, sell copies of, dispose of and otherwise communicate publicly or privately and/or turn to account such Funded Qualifying Project, in
whole or in part (and its plot, themes and other elements), and trailers and clips and excerpts therefrom, in any and all languages and versions,
in the Territory, on any and all kinds, sizes, gauges and/or widths of film, tape, computer, electronic, digital, on-line transmission by any and
every means, method, process or device or other delivery systems now known or hereafter developed, and in all markets and media now known
and exploited, now known and hereafter exploited, and not yet known or devised, including, without limitation, Ancillary Rights , Theatrical
Rights, Non-Theatrical Rights, Television Rights and Home Video Rights.
3
“ Distributor ” shall mean (a) with respect to each Qualifying Project that is a Television Production, Lions Gate Television Inc., a Delaware
corporation and (b) with respect to all other Qualifying Projects, Lions Gate Films Inc., a Delaware corporation.
“ Dollars ” and “ $ ” shall mean lawful money of the United States of America.
“ Eligible Project ” shall mean any Production that LGEI elects, in its sole discretion, to produce in the Province of Quebec, Canada, and
which shall have an MPAA rating no more restrictive than “R”.
“ Encumbrance ” means any lien (statutory or other), claim, charge, security interest, mortgage, deed of trust, pledge, hypothecation,
assignment, conditional sale or other title retention agreement, preference, priority or other security agreement or preferential arrangement of
any kind, and any easement, encroachment, covenant, restriction, right of way, defect in title or other encumbrance of any kind.
“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as heretofore and hereafter amended, as codified at 29 U.S.C.
§ 1001 et seq . and the regulations promulgated thereunder.
“ ERISA Affiliate ” shall mean each “Person” (as defined in Section 3(9) of ERISA) which is treated as a single employer under
Section 414(b), (c), (m) or (o) of the Code.
“ Estimated Tax Credit Amounts ” shall mean, for each Qualifying Project, Issuer’s estimate of the Tax Credit Amounts for such Qualifying
Project, as accepted by the Revenue Participation Holders.
“ Executive Producer Fee ” shall mean, for any Qualifying Project, the executive producer fee payable to LGEI being an amount equal to
***** of the Production Budget for such Qualifying Project; provided, however, that LGEI’s Executive Producer Fee shall not be calculated on
amounts allocated to actors and actresses in excess of an aggregate amount of ***** in the Production Budget for any Qualifying Project.
“ Film Production ” means a Production that is intended to be exploited theatrically and specifically excludes a Television Production.
“ Free Television ” means (a) exhibition over television broadcast stations, whether network stations or independent stations, where no
charge is made to the viewer and/or (b) exhibition by means of satellite or cable television for which subscribing members of the public may
pay for the transmission service provided by the satellite or cable system, but do not otherwise pay a premium for the programming transmitted
by the satellite or cable system.
“ Funded Qualifying Project ” shall mean any Qualifying Project in which the Revenue Participation Holders have purchased a Revenue
Participation.
“ GAAP ” shall mean generally accepted accounting principles in the United States of America in effect from time to time consistently
applied (except for accounting changes in response to FASB releases, or other authoritative pronouncements).
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“ Governmental Authority ” shall mean any federal, state, municipal or other governmental department, commission, board, bureau, agency
or instrumentality, or any court, in each case whether of the United States of America or any foreign jurisdiction.
“ Gross Receipts ” shall have the meaning ascribed thereto in Schedule “GR” .
“ Home Video Rights ” means and includes the sole and exclusive right (1) to manufacture, advertise, promote, exploit and distribute a
Qualifying Project on a sale, lease or rental basis directly or through licensees, in all languages, versions, and sizes, on all formats of video
devices now known or hereafter known or devised, including (a) any and all forms of videocassettes, cartridges, phonograms, tape, video discs,
laser discs, 8mm recordings and any other visual or optical recording, (b) any and all forms of DVD (including, without limitation, HD-DVD
and Blu-Ray), DVD-ROM, and Internet access-ready DVDs, CD-I and CD-ROM, Video Compact Discs, or (c) on Videograms, and (2) the
right to exploit such Qualifying Project by means of Video-On-Demand or Near Video-On-Demand, and all forms of digital or on-line
exploitation, distribution and/or transmission (including, without limitation, Internet transmission) and computerized or computer-assisted
media.
“ Initial Closing Date ” shall mean, in connection with the sale of the Initial Revenue Participations, the date on which the conditions
precedent set forth in Section 4.1 have been satisfied or waived.
“ Initial Revenue Participations ” means the Revenue Participations to be purchased on the Initial Closing Date in respect of Qualifying
Projects determined by the Revenue Participation Holders as of the Initial Closing Date.
“ Intellectual Property Rights ” means, with respect to a Qualifying Project, all rights necessary to develop, produce, and exploit such
Qualifying Project, including, without limitation, all Copyrights, and all national, foreign, state and common-law registrations, applications for
registration, renewals and extensions of the foregoing for such Qualifying Project, regardless of whether any such rights arise under the laws of
Canada, the United States or any other state, country or jurisdiction, and all rights and remedies against infringement or other violation thereof.
“ Issuer ” shall mean MQP, LLC, a Delaware limited liability company.
“ Issuer’s Organizational Documents ” shall mean collectively, (a) the Certificate of Formation for the Issuer and (b) the Limited Liability
Company Operating Agreement for the Issuer, which can only be amended, supplemented or modified with the prior written consent of the
Revenue Participation Holders.
“ LIBOR ” shall mean (a) the rate per annum (expressed on the basis of a 360 day year) determined by National Bank of Canada as being
the rate shown on Telerate page 3750 (as defined in the International Swaps and Derivatives Association, Inc. definitions, as modified and
amended from time to time) as of 11:00 a.m. (London, England time) on the interest determination date for United States Dollars deposits for a
period comparable to the period of the loan upon which interest is to be paid on the basis of LIBOR (the “LIBOR Period”), and if different
rates are quoted for United States Dollars deposits in varying amounts, in an amount
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which is comparable to the Purchase Price during such LIBOR Period, or (b) if for any reason the Telerate rates are unavailable to determine
the rate applicable to LIBOR advances in United States Dollars, “LIBOR” for such LIBOR advances in United States Dollars during the
relevant LIBOR Period shall mean the rate of interest per annum (expressed on the basis of a 360 day year) determined by National Bank of
Canada by reference to the rates quoted on the Reuters Monitor Screen, page LIBOR (or any successor source from time to time) as being the
arithmetic average (rounded upwards, if necessary, to the nearest whole multiple of 1/16th of 1%) of the rates offered in London, England by
reference banks shown on such screen as of 11:00 a.m. (London, England time) on the interest determination date to make deposits in United
States Dollars with leading banks in the London Inter Bank Eurodollar market for a period comparable to such LIBOR Period, and if different
rates are quoted for United States Dollars deposits in varying amounts, in an amount which is comparable to the Purchase Price during such
LIBOR Period, or (c) if for any reason neither the Telerate rates nor the Reuters Monitor Screen rates are available in respect of the relevant
LIBOR Period, “LIBOR” for such LIBOR advances in United States Dollars during the relevant LIBOR Period shall mean the annual rate of
interest (expressed on the basis of a year of 360 days and rounded upwards, if necessary, to the nearest whole multiple of 1/16th of 1%)
determined by National Bank of Canada as being the rate of interest at which National Bank of Canada, in accordance with its normal
practices, would be prepared to offer to leading banks in the London Inter Bank Eurodollar market for delivery on the first day of the relative
LIBOR Period for a period equal to such LIBOR Period based on the number of days comprised therein, deposits in United States Dollars of
amounts comparable to the Purchase Price during such LIBOR Period, at or about 11:00 a.m. (London, England time) on the applicable interest
determination date.
“ LGEI Contribution ” shall mean the amount indicated for LGEI under the column “Contribution” in Schedule 2.1 , which shall not surpass
in any event the Maximum LGEI Funding Amount.
“ Margin Stock ” shall be as defined in Regulation U.
“ Master Distribution Agreement ” shall mean collectively, the master distribution agreements between Issuer and Distributor in connection
with all Funded Qualifying Projects, which agreements shall not be amended or modified without the Revenue Participation Holders’ prior
written consent and which are attached hereto as Schedule “MDA” .
“ Material Adverse Effect ” shall mean any change or effect that (a) has a materially adverse effect on the business, assets, properties,
prospects, operations or financial condition of Issuer, (b) materially impairs the legal right, power or authority of Issuer to perform its
obligations hereunder or (c) materially impairs the validity or enforceability of, or materially impairs the rights, remedies or benefits available
to the Revenue Participation Holders hereunder.
“ Maximum Funding Amount ” shall mean the sum of the Maximum LGEI Funding Amount and the Maximum SGF Funding Amount.
“ Maximum LGEI Funding Amount ” shall mean subject to the terms and conditions hereof $260,000,000, or such greater amount as LGEI
may agree to in writing from time to time;
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“ Maximum SGF Funding Amount ” shall mean subject to the terms and conditions hereof $140,000,000 or such greater amount as SGF
may agree to in writing from time to time
“ Merchandising ” includes the right to create and exploit computer, video and other electronic games based upon a Qualifying Project or
any element thereof, including the sole and exclusive right to create or license the creation of interactive programs, whether in CD-ROM, DVD
(including, without limitation, HD-DVD and Blu-Ray), set-top or arcade formats; and the right to create and exploit toys, comic books and
so-called “making of books,” apparel, food and beverages, posters, and any and all other commodities, services or items based upon such
Qualifying Project or any element thereof.
“ Modified SGF Pro Rata Amount ” has the meaning ascribed thereto in Section 2.4 .
“ Multiemployer Plan ” shall mean a plan described in Section 4001(a)(3) of ERISA.
“ Near Video-On-Demand ” incorporates the definition of Video-On-Demand, except that, instead of the consumer determining the starting
time for viewing a Qualifying Project, the consumer is able to select the starting time from viewing times determined by the provider, where
the provider permits a selection of starting times not more than 15 minutes apart.
“ Nonpublic Information ” means information which has not been disseminated in a manner making it available to investors generally,
within the meaning of Regulation FD.
“ Non-Theatrical Markets ” means and includes airlines, schools, libraries, hospitals, hotels, Army, Navy, Air Force and other military or
armed services installations, and ships at sea flying the flag of a country in the Territory or which are serviced from within the country of such
flag, and other institutions that typically license recorded entertainment materials from programming suppliers.
“ Non-Theatrical Rights ” means and includes the sole and exclusive right to exploit a Qualifying Project in Non-Theatrical Markets by any
and all means, whether now known or hereafter known or devised.
“ Other Releasing Costs ” shall mean, with respect to a Funded Qualifying Project, the aggregate of the following costs and expenses, which
costs and expenses shall be actual out-of-pocket costs and expenses paid or payable within *****: home video/DVD manufacturing,
duplication, shipping and marketing costs for such Funded Qualifying Project and all other actual out-of-pocket distribution, manufacturing or
other costs and expenses paid to an unaffiliated third party (other than participations, residuals, or as otherwise included in P&A Costs, Direct
Costs, or otherwise duplicated costs) with respect to such Funded Qualifying Project.
“ P&A Costs ” shall mean, with respect to a Funded Qualifying Project that is a motion picture, the aggregate of the following costs, which
costs shall be actual out-of-pocket costs paid or payable within ***** or incurred not later than ***** after the date of the first theatrical
release: all prints, marketing, advertising, promotion and publicity costs incurred in the exercise by Distributor of the theatrical distribution
rights in such Funded Qualifying Project (i) in the United States; and (ii) for any other territory in which Distributor directly distributes such
Funded Qualifying Project.
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“ Pay-Per-View ” means exhibition over a service for which subscribers pay a premium on a per-program basis for each program which they
choose to receive.
“ Pay Television ” means exhibition over a service for which subscribers pay a premium for the programming transmitted ( e.g. , HBO).
“ PBGC ” shall mean the Pension Benefit Guaranty Corporation or any successor thereto.
“ Permitted Encumbrances ” means: (a) Encumbrances for taxes not yet due and payable; (b) Encumbrances arising from and pursuant to the
Transaction Documents; (c) Encumbrances arising in the ordinary course of production of a Production, including, without limitation, those
arising out of or with respect to or pursuant to any collective bargaining agreement ( e.g. , guild liens, possessory liens of laboratories, transfer
facilities and other post-production facilities); (d) Encumbrances created under any distribution agreement entered into with a Subdistributor in
the ordinary course of business in connection with the distribution or exploitation of any Funded Qualifying Project; (e) Encumbrances created
pursuant to the terms of any Co-Financing Transaction; (f) Encumbrances in favour of any completion guarantor providing a completion
guarantee for any Funded Qualifying Project; (g) Encumbrances in favour of any interim financier of the production costs for a Funded
Qualifying Project; and (h) the Senior Lender Encumbrances.
“ Person ” shall mean any natural person, corporation, division of a corporation, limited liability company, partnership, trust, joint venture,
association, company, estate, unincorporated organization or government or any agency or political subdivision thereof.
“ Plan ” shall mean an employee benefit plan within the meaning of Section 3(3) of ERISA, other than a Multiemployer Plan, maintained or
contributed to by any party hereto, or any ERISA Affiliate, or any other plan covered by Title IV of ERISA that covers employees of the
Revenue Participation Holders.
“ Pro Rata Amount ” shall mean, for each Revenue Participation Holder, the percentage set out beside such Revenue Participation Holder’s
name under the column “Pro Rata Amount” at Schedule 2.1 , or such other amount agreed to by both Revenue Participation Holders in respect
of any Funded Qualifying Project, provided, however, that SGF shall only be entitled to request a reduction of its Pro Rata Amount where
(a) the Maximum SGF Funding Amount has been (or would be) reached and/or (b) Co-Financing Participations are payable to a Co-Financier
in respect of such Funded Qualifying Project.
“ Production ” means any motion picture or television production of every kind and character whatsoever, including, without limitation, all
present and future technological developments, whether produced by means of any photographic, electrical, electronic, optical, mechanical or
other processes or devices now known or hereafter devised, and their accompanying devices and processes whereby 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, without limitation, computer generated
pictures and graphics other than video games.
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“ Production Budget ” means the production budget for an Eligible Project.
“ Production Services Agreement ” shall mean, for each Funded Qualifying Project, a production services agreement, to be entered into
between Issuer and a Services Company in the form of the agreement attached hereto as Schedule “PSA” , which agreement may only be
amended, restated, supplemented or otherwise modified from time to time with the prior written consent of the Revenue Participation Holders.
“ Production Specifications ” shall mean, in respect of each Funded Qualifying Project, the documents, information or items listed in
Schedule 1 , which shall be in form and content satisfactory to the Revenue Participation Holders in their sole discretion, as accepted in writing
by the Revenue Participation Holders in respect of each Funded Qualifying Project, which Production Specifications may only be amended,
restated or modified with the prior written consent of the Revenue Participation Holders, subject to Section 3.19 .
“ Projected Budget ” shall mean, in respect of each Qualifying Project, the Production Budget for such Qualifying Project, as accepted in
writing by the Revenue Participation Holders.
“ Purchase Price ” shall mean, for each Qualifying Project, each Revenue Participation Holder’s Pro Rata Amount of the actual Direct Costs
of such Qualifying Project, less any Tax Credit Amounts for such Qualifying Project provided , however , that (i) prior to confirmation of the
actual Direct Costs of such Qualifying Project, the Projected Budget for such Qualifying Project shall be used in lieu of such actual Direct
Costs above; (ii) prior to confirmation of the actual Tax Credit Amounts for such Qualifying Project, the Estimated Tax Credit Amounts for
such Qualifying Project shall be used above; and (iii) the amount payable by SGF on account of the Purchase Price shall at all times be subject
to the Maximum SGF Funding Amount.
“ Qualifying Project ” shall mean any Eligible Project that is accepted in writing by the Revenue Participation Holders and which shall be
based on the Production Specifications.
“ Regulation FD ” means Regulation FD as promulgated by the US Securities and Exchange Commission under the Securities Act and
Exchange Act as in effect from time to time.
“ Regulation U ” shall mean Regulation U of the Board as it is from time to time in effect and all official rulings and interpretations
thereunder or thereof.
“ Related Rights ” means the right to use the names, photographs, likenesses, acts, poses, sound effects and voices of all artists appearing in
each Funded Qualifying Project, the director thereof, and others appearing in or connected with each Funded Qualifying Project in connection
with the exploitation of the Distribution Rights in any and all parts of the Territory and to do any and all of the foregoing for promotional
purposes on the Internet, and to write and publish articles concerning each Funded Qualifying Project in connection with the exploitation,
publicizing, advertising and licensing of each such Funded Qualifying Project, subject only to contractual restrictions of such use in
Merchandising, commercial tie-ins or other endorsements, provided , however , that such restrictions shall be customary in the motion picture
industry, the television industry, or the video industry, as applicable, including, without limitation, not having any restrictions on the use of any
name in the billing block on any item of Merchandising or commercial tie-in.
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“ Release Date ” shall mean, for any Funded Qualifying Project, the date of the initial public exhibition of such Funded Qualifying Project
(which, for clarity, shall exclude any festival screenings or test screenings) or, in the case of Television Productions, the date of the initial
public broadcast of such Funded Qualifying Project.
“ Reportable Event ” shall mean any reportable event as defined in Section 4043(c) of ERISA, other than a reportable event as to which
provision for 30-day notice to the PBGC has been waived under applicable regulations.
“ Repurchase Date ” has the meaning ascribed thereto in Section 9 .
“ Revenue Participation Holders ” shall mean SGF and LGEI and each of their respective permitted successors and assigns, and “ Revenue
Participation Holder ” means any one of them.
“ Revenue Participation(s) ” shall mean collectively, the rights and interests of the Revenue Participation Holders under this Agreement,
including, without limitation, the right to receive the amounts described in Section 8 ; provided , however , that no Revenue Participation shall
confer on any Revenue Participation Holder (a) any ownership interest in or to any Funded Qualifying Project, including, without limitation,
any copyright therein, (b) any right to make any creative or financial decisions relating to any Funded Qualifying Project (except to the extent
required by this Agreement) or (c) any right to develop, produce, distribute or otherwise exploit any Funded Qualifying Project or any rights
therein.
“ Rights ” means, with respect to each Qualifying Project, the Distribution Rights and the Intellectual Property Rights for such Qualifying
Project, to the extent owned or controlled by Issuer.
“ RP Closing Date ” shall mean, in connection with the sale of any Revenue Participation other than the Initial Revenue Participations, the
date on which the conditions precedent in Section 4.2 have been satisfied or waived in connection with such Revenue Participation.
“ RPMRR ” shall mean the Register of Personal Movable Real Rights (Quebec).
“ Senior Lender Encumbrances ” shall mean the Encumbrances in favour of the Senior Lenders and the Senior Loan Administrative Agent.
“ Senior Lender InterCreditor ” shall mean the intercreditor agreement to be entered into by SGF and the Senior Loan Administrative Agent.
“ Senior Lenders ” shall mean the lenders in the Senior Loan Syndicate.
“ Senior Loan Administrative Agent ” shall mean JPMorgan Chase Bank, National Association.
“ Senior Loan Syndicate ” shall mean the senior credit facilities in favour of Lions Gate Entertainment Corp. and LGEI administered by the
Senior Loan Administrative Agent.
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“ Services Company ” shall mean, for each Funded Qualifying Project, a corporation having a permanent establishment in Quebec which
provides production services for such Qualifying Project.
“ Settlement Date ” shall mean the *****following the end of an Accounting Period.
“ Settlement Report ” shall have the meaning ascribed thereto in Article 8 .
“ SGF Contribution ” shall mean the amount indicated for SGF under the heading “Contribution” in Schedule 2.1 , which shall not surpass
in any event the Maximum SGF Funding Amount.
“ Subdistributor ” shall mean any third party that is not an Affiliate of Distributor to which all or part of the Distribution Rights are licensed
or sublicensed to by the Distributor in respect of a Funded Qualifying Project.
“ Subsidiary ” shall mean with respect to any Person, any corporation, association, joint venture, partnership or other business entity
(whether now existing or hereafter organized) of which at least a majority of the voting stock or other ownership interests having ordinary
voting power for the election of directors (or the equivalent) is, at the time as of which any determination is being made, owned or controlled
by such Person or one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person.
“ Tax Credit Amounts ” shall mean, for each Funded Qualifying Project, the amounts received by Issuer, a Services Company or any other
Person on account of Canadian federal or provincial tax credits and other incentives relating to the production of such Funded Qualifying
Project.
“ Taxes ” shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any
Governmental Authority.
“ Television Production ” means a Production that is intended to be exploited on any form of television including Free Television, Pay
Television and Pay-Per-View and specifically excludes a Production exploited theatrically.
“ Television Rights ” means and includes the sole and exclusive right to exploit a Qualifying Project by means of television signal, without
regard as to how such signal is distributed (e.g., broadcast over the air, or via satellite, fiberoptic cable, telephone wire, or any and all forms of
Internet, wireless or other computer or digital technology, or any other form of technology, now known or hereafter known or devised.
Television Rights includes, the right to exploit such Qualifying Project via Pay Television, Pay-Per-View and Free Television.
“ Term ” shall mean four (4) years commencing on the date of the first day of principal photography of the first Funded Qualifying Project.
“ Territory ” means, with respect to a Funded Qualifying Project, those countries and territories for which Issuer controls all or a portion of
the Distribution Rights.
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“ Theatrical Rights ” means and includes the sole and exclusive right to rent, lease, license, exhibit, distribute and otherwise deal in and with
a Qualifying Project for viewing by the public in theatres, in any and all languages or versions, and including, without limitation, the right to
enter into rentals, leases and licenses respecting all theaters or other places of public viewing, without regard as to how such Qualifying Project
is distributed to theatres (e.g., on any and all sizes and gauges of film, tape or disc or distribution to theatres by any other means, whether now
known or hereafter known or devised, including, without limitation, satellite, cable or other electronic transmission).
“ Third Party Participation ” means, with respect to a Funded Qualifying Project, any amount payable to any Person other than (i) LGEI,
Issuer, Distributor or any Affiliate thereof or (ii) any officer, director, management employee of any of LGEI, Issuer, Distributor or any
Affiliate thereof, whether characterized as a deferment, gross participation, net participation, profit participation, contingent compensation, box
office bonus, award or credit bonus, or otherwise which amount is based, dependent, computed, or payable, in whole or in part, on the net or
gross receipts, earnings, or proceeds derived from such Funded Qualifying Project or any percentage of the foregoing or is payable at such time
as any such receipts, earnings, or proceeds equal a specified amount whether such receipts, earnings, or proceeds are computed in the same
manner as provided in the Distribution Agreement or are otherwise computed or any similar type of payment or the economic equivalent
thereof. For the avoidance of doubt, (a) a “Third Party Participation” shall include “deferments” payable in connection with a Funded
Qualifying Project which are fixed obligations in a definite amount whether or not the receipts, earnings, or proceeds of such Funded
Qualifying Project equal a specified amount, and (b) a “Third Party Participation” shall not include Co-Financing Participations unless (i) the
contractual arrangements with a Co-Financier require such Co-Financier’s Co-Financing Participation to be paid from Gross Receipts in the
same position in the Waterfall as Third Party Participations and (ii) such contractual arrangements have been disclosed to the Revenue
Participation Holders in the Production Specifications.
“ Transaction Documents ” means this Agreement, the Master Distribution Agreement, the Production Services Agreements for the Funded
Qualifying Projects and all certificates, documents and instruments entered into the Revenue Participation Holders, the Issuer, the Distributor
and any applicable Services Company in connection therewith.
“ UCC ” shall mean the Uniform Commercial Code, as applicable in the State of Delaware.
“ USCO ” shall mean the United States Copyright Office.
“ Videograms ” means and includes any and all forms of computer software, or any configuration of computer software and technology, for
private use by consumers by any means, whether now known or hereafter known or devised.
“ Video-On-Demand ” means and includes the transmission of a Qualifying Project through any method now known or hereafter devised,
including, without limitation, broadcast television signal, whether analog or digital, or via satellite, cable, telephone wire, fiberoptics,
cyberspace, Internet or other computerized or digital technology, on-line transmission, every sort
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of electronic transmission or any and all other delivery systems, to a television receiver, computer monitor or other comparable display,
whereby the consumer can select such Qualifying Project from a central library and whereby the consumer determines the starting time of such
Qualifying Project.
“ Waterfall ” shall mean the order of disbursement of Gross Receipts for each Funded Qualifying Project, as more particularly described in
Section 8.3 .
2. PURCHASE AND SALE OF THE REVENUE PARTICIPATIONS
Section 2.1 Revenue Participations .
(a) Notwithstanding anything to the contrary herein, no Revenue Participation Holder shall be liable for any other Revenue Participation
Holder’s obligations to purchase Revenue Participations hereunder.
(b) No Revenue Participations may be sold to a Person other than the Revenue Participation Holders without the prior written consent of
each of the Revenue Participation Holders.
(c) Notwithstanding the foregoing, LGEI may assign this Agreement or its rights hereunder, including, without limitation, its Revenue
Participations, without the need to obtain the prior written consent of Issuer or SGF, (i) in connection with its corporate credit facilities ,
including, without limitation, the Senior Loan Syndicate, in the form of a grant of a security interest, (ii) in connection with any financing or
interim financing of a Funded Qualifying Project in the form of a grant of a security interest, or (iii) to any of its Affiliates, provided , however
, that any such assignment hereunder shall be subject to the rights of Issuer and SGF hereunder.
Section 2.2 Purchase and Sale of the Initial Revenue Participations .
(a) Subject to the terms and conditions set forth herein, each Revenue Participation Holder severally (and not jointly) agrees to purchase
from Issuer, and Issuer agrees to sell to such Revenue Participation Holder, an Initial Revenue Participation on the Initial Closing Date for an
amount equal to the Purchase Price for such Initial Revenue Participations.
Section 2.3 Closing and Closing Deliveries for the Initial Revenue Participations .
(a) The closing of the purchase of the Initial Revenue Participations contemplated by this Agreement shall take place at the offices of
LGEI or such other place as the parties agree, upon the satisfaction or waiver of all conditions to closing set forth in Section 4.1 .
(b) Subject to the terms and conditions of this Agreement, the parties agree to consummate the following transactions on the Initial
Closing Date:
(i) Issuer shall deliver to each of the Revenue Participation Holders the items specified in Section 4.1 relating to those Qualifying
Projects that are the subject of the Initial Revenue Participations;
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(ii) SGF shall, upon receipt of a copy of the items deliverable to it pursuant to Section 2.3(b)(i) , pay to Issuer, to an account
designated by Issuer, the aggregate Purchase Price payable for SGF’s Initial Revenue Participations (x) in instalments based upon the schedule
of disbursements attached hereto as Schedule 2.3(b)(ii) or (y) in such other instalments as may be agreed by Issuer and SGF; provided ,
however , that SGF shall not be entitled to receive its Pro Rata Amount of Gross Receipts for such Qualifying Projects under the Waterfall until
such time as such Purchase Price is paid in full; and
(iii) LGEI shall, upon receipt of a copy of the items deliverable to it pursuant to Section 2.3(b)(i) , pay to Issuer, to an account
designated by Issuer, the aggregate Purchase Price payable for LGEI’s Initial Revenue Participations (x) in instalments based upon the schedule
of disbursements attached hereto as Schedule 2.3(b)(ii) , (y) in instalments based upon the schedule of advances to be made by the financiers or
interim financiers of such Qualifying Projects engaged by LGEI or (z) in such other instalments as may be agreed by Issuer and LGEI;
provided , however , that LGEI shall not be entitled to receive its Pro Rata Amount of Gross Receipts for such Qualifying Projects under the
Waterfall until such time as such Purchase Price is paid in full.
(c) In the event that Issuer or any of its Affiliates finances or interim finances the Direct Costs of any Qualifying Project that is the
subject of the Initial Revenue Participations, Issuer shall be entitled to use all or any part of the proceeds of the Purchase Price payable by a
Revenue Participation Holder in respect of such Qualifying Project to repay such financing or interim financing and Issuer shall be entitled to
direct such Revenue Participation Holder to pay all or any part of such Purchase Price to such financier or interim financier. For greater
certainty, the repayment of such financing or interim financing shall exclude any costs, interests and fees associated with such financings or
interim financings.
Section 2.4 Purchase and Sale of the Additional Revenue Participations .
(a) Subject to the terms and conditions set forth herein, each Revenue Participation Holder severally (and not jointly) agrees to purchase
from Issuer, and Issuer agrees to sell to such Revenue Participation Holder, from time to time throughout the Term, additional Revenue
Participations for an amount equal to the applicable Purchase Price for each such Revenue Participation until such time as the Revenue
Participation Holders have advanced the Maximum Funding Amount to Issuer on account of Revenue Participations. If the purchase of any
Revenue Participation by SGF would result in SGF exceeding the Maximum SGF Funding Amount, SGF may purchase such Revenue
Participation (and only such Revenue Participation) for an amount that is less than its ordinary Pro Rata Amount (the “ Modified SGF Pro Rata
Amount ”).
Section 2.5 Closing and Closing Deliveries for the Additional Revenue Participations .
(a) The closing of the purchase of each Revenue Participation (other than the Initial Revenue Participations) contemplated by this
Agreement shall take place at the offices of LGEI or such other place as the parties agree, upon the satisfaction or waiver of all conditions to
closing set forth in Section 4.2 .
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(b) Subject to the terms and conditions of this Agreement, the parties agree to consummate the following transactions on the applicable
RP Closing Date:
(i) Issuer shall deliver to each of the Revenue Participation Holders the items specified in Section 4.2 relating to the Qualifying
Project that is the subject of the applicable Revenue Participation;
(ii) SGF shall, upon receipt of a copy of the items deliverable to it pursuant to Section 2.5(b)(i) , pay to Issuer, to an account
designated by Issuer, the aggregate Purchase Price payable for SGF’s Revenue Participation in such Qualifying Project (x) in instalments based
upon the production cashflow schedule for such Qualifying Project as approved in writing by the Revenue Participation Holders or (y) in such
other instalments as may be agreed by Issuer and SGF; provided , however , that SGF shall not be entitled to receive its Pro Rata Amount of
Gross Receipts for such Qualifying Project under the Waterfall until such time as such Purchase Price is paid in full; and
(iii) LGEI shall, upon receipt of a copy of the items deliverable to it pursuant to Section 2.5(b)(ii) , pay to Issuer, to an account
designated by Issuer, the aggregate Purchase Price payable for LGEI’s Revenue Participation for such Qualifying Project (x) in instalments
based upon the production cashflow schedule for such Qualifying Project, as approved in writing by the Revenue Participation Holders (y) in
instalments based upon the schedule of advances to be made by the financiers or interim financiers of such Qualifying Projects engaged by
LGEI or (z) in such other instalments as may be agreed by Issuer and LGEI; provided , however , that LGEI shall not be entitled to receive its
Pro Rata Amount of Gross Receipts for such Qualifying Project under the Waterfall until such time as such Purchase Price is paid in full.
(c) In the event that Issuer or any of its Affiliates finances or interim finances the Direct Costs of the Qualifying Project that is the subject
of the foregoing Revenue Participation, Issuer shall be entitled to use all or any part of the proceeds of the Purchase Price payable by a Revenue
Participation Holder in respect of such Qualifying Project to repay such financing or interim financing and Issuer shall be entitled to direct such
Revenue Participation Holder to pay all or any part of such Purchase Price to such financier or interim financier. For greater certainty, the
repayment of such financings or interim financings shall exclude any costs, interests and fees associated with such financings or interim
financings.
Section 2.6 Failure of SGF to Fund any Purchase Price .
(a) If SGF fails to fund any instalment of the Purchase Price for any Revenue Participation as and when required by Section 2.3 or
Section 2.5, as applicable, then Issuer shall provide SGF with a written notice thereof (the “ Cure Notice ”) and SGF shall have ***** from
receipt of the Cure Notice to fund such installment of the Purchase Price. If SGF fails to fund an installment of the Purchase Price following a
Cure Notice, then Issuer shall have the option, exercisable upon prior written notice to SGF, to require SGF to sell such Revenue Participation
to Issuer. If Issuer exercises such option, then (a) Issuer shall pay to SGF an amount equal to that portion of the Purchase Price paid by SGF up
to the date of the exercise of such option in connection with such Revenue Participation, less any amounts paid to SGF on
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account of such Revenue Participation prior to such exercise date and (b) upon payment of such amount to SGF, (1) all of SGF’s rights, title
and interest in and to the Funded Qualifying Project relating to such Revenue Participation, including, without limitation, any Gross Receipts
related thereto, shall automatically revert to Issuer, (2) all Gross Receipts and Rights in and to such Funded Qualifying Project shall be released
from any hypothec or security interest granted in favour of SGF and (3) SGF shall execute and deliver to Issuer and Distributor all such
documents and instruments as may be reasonably necessary to give effect to such reversion and release, including, without limitation, UCC
financing change statements, documents to be filed in the RPMRR and an assignment and quitclaim to be registered in the CIPO and the
USCO. Nothing contained herein shall limit the rights or remedies of Issuer available at law or in equity, including, without limitation, for
breach of contract, arising from a Revenue Participation Holder’s failure to fund any instalment of the Purchase Price for any Revenue
Participation as and when required by Section 2.3 or Section 2.5, as applicable.
Section 2.7 No Obligation to Produce in Quebec .
(a) There shall be no requirement on Issuer, LGEI or any of their Affiliates to produce any Production in the Province of Quebec, Canada
other then Funded Qualifying Projects or Eligible Projects for which the Production Specifications have been approved by SGF.
Section 2.8 Submission of Eligible Projects .
(a) Once Issuer has, pursuant to Sections 4.1(b) or 4.2(a), as applicable, submitted the Production Specifications for any Eligible Project
to SGF and SGF has confirmed in writing that it has accepted such Eligible Project as a Qualifying Project, then each Revenue Participation
Holder shall, subject to the terms and conditions of this Agreement, including without limitation, Section 3.19 hereof, purchase a Revenue
Participation in such Qualifying Project in accordance with the terms and conditions hereof.
3. REPRESENTATIONS AND WARRANTIES OF ISSUER
In order to induce the Revenue Participation Holders to enter into this Agreement and purchase the Revenue Participations as provided
herein, Issuer makes the following representations and warranties to, and agreements with, the Revenue Participation Holders, all of which
shall survive the execution and delivery of this Agreement and the issuance and sale of the Revenue Participations.
Section 3.1 Existence and Power .
(a) Issuer is a limited liability company duly organized and validly existing in jurisdictions in which it is applicable, in good standing
under the laws of its jurisdiction of organization and where applicable, in good standing as a foreign entity in all jurisdictions where the nature
of its properties or business so requires, or the failure to be so qualified or be in good standing could, individually or in the aggregate, be
expected to have a Material Adverse Effect. A list of such jurisdictions as of the date hereof is attached hereto as Schedule 3.1 .
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(b) Issuer has the power and authority to (i) own its property and carry on its business as now being conducted and as intended to be
conducted, (ii) execute, deliver and perform, as applicable, its obligations under this Agreement and any other documents contemplated hereby
to which it is a party.
Section 3.2 Authority and No Violation . The execution, delivery and performance of this Agreement by Issuer and the issuance and sale
hereunder of the Revenue Participations, (i) have been duly authorized by all necessary corporate action (or similar action) on the part of Issuer,
(ii) will not constitute a violation of any provision of Applicable Law in any material respect or any order of any Governmental Authority
applicable to Issuer, or any properties or assets in any material respect, (iii) will not violate any provision of Issuer’s Organizational
Documents, (iv) will not violate any provision of any indenture, agreement, bond, note or other similar instrument to which Issuer is a party or
by which Issuer or any of its properties or assets are bound, other than where any such violation could not, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, and (v) will not be in conflict with, result in a breach of, or constitute
(with due notice or lapse of time or both) a default under, or create any right to terminate, any such indenture, agreement, bond, note or other
similar instrument, other than where any such violation could not, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
Section 3.3 Governmental Approval . All authorizations, approvals, licenses, registrations or filings from or with any Governmental
Authority required for the consummation of the execution, delivery and performance by Issuer of this Agreement have been duly obtained or
made or duly applied for, and are in full force and effect, except those which, if not obtained, could not, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, and if any further authorizations, approvals, registrations or filings should hereafter
become necessary, Issuer shall obtain or make all such authorizations, approvals, registrations or filings; provided , however , that any failure to
make any such authorization, approval, registration or filing will not be a breach of this Agreement if such failure could not, either individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 3.4 Binding Agreement . This Agreement, when executed, will constitute a legal, valid and binding obligation of Issuer,
enforceable against Issuer in accordance with its terms, subject, as to the enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors’ rights generally and to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Section 3.5 Places of Business . The chief executive office of Issuer is located at 2700 Colorado Avenue, Suite 200, Santa Monica, CA
90404.
Section 3.6 Federal Reserve Regulations . Issuer is not engaged principally or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Revenue Participations will be used, directly
or indirectly, whether immediately, incidentally or ultimately (i) to purchase or carry any Margin Stock or to extend credit to others for the
purpose of purchasing or carrying any Margin Stock, or (ii) for any other purpose, in each case, violative of or inconsistent with any of the
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provisions of any regulation of the Board, including, without limitation, Regulations T, U and X thereto.
Section 3.7 Investment Company Act . Issuer is not, or will not during the term of this Agreement be, (i) an “investment company”, within
the meaning of the Investment Company Act of 1940, as amended, or (ii) subject to regulation under the Public Utility Holding Company Act
of 1935, the Federal Power Act or any foreign, federal or local statute or any other Applicable Law of the United States of America or any
other jurisdiction, in each case limiting its ability to incur indebtedness for money borrowed.
Section 3.8 Compliance with ERISA . Issuer’s Plans, each of which has been maintained and operated in all material respects in
accordance with all Applicable Laws, including, without limitation, ERISA and the Code, and each Plan intended to qualify under Section
401(a) of the Code satisfies the requirements of this Section 3.8 in all material respects. No Reportable Event has occurred in the last five years
as to any Plan, and the present value of all benefits under all Plans subject to Title IV of ERISA (based on those assumptions used to fund such
Plans) did not, in the aggregate, as of the last annual valuation date applicable thereto, exceed the actuarial value of the assets of such Plans
allocable to such benefits by more than $100,000. No material liability has been, and no circumstances exist pursuant to which any material
liability is reasonably likely to be, imposed upon Issuer or any ERISA Affiliate (i) under Sections 4971 through 4980E of the Code, Sections
502(i) or 502(l) of ERISA, or Title IV of ERISA with respect to any Plan or Multiemployer Plan, or with respect to any plan heretofore
maintained by Issuer or any ERISA Affiliate, or any entity that heretofore was an ERISA Affiliate, (ii) for the failure to fulfill any obligation to
contribute to any Multiemployer Plan, or (iii) with respect to any Plan that provides post-retirement welfare coverage (other than as required
pursuant to Section 4980B of the Code). Neither Issuer nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in
reorganization or has been terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected to be in
reorganization or to be terminated.
Section 3.9 Compliance with Laws . Issuer is not in violation of any Applicable Law except for such violations in the aggregate which
could not reasonably be expected to have a Material Adverse Effect. The issuance and sale of the Revenue Participations hereunder, the
intended use of the proceeds of the Revenue Participations and any other transactions contemplated hereby will not violate any Applicable
Law.
Section 3.10 Use of Proceeds . Proceeds from sale of the Revenue Participations will be used exclusively for payment of the Direct Costs
of Funded Qualifying Projects, or to repay any financing or interim financing of such Direct Costs. For greater certainty, the repayment of such
financings or interim financings shall exclude any costs, interests and fees associated with such financings or interim financings.
Section 3.11 Ownership or Control of Rights . Except as otherwise provided herein, Issuer will own or control a sufficient interest in the
Rights for each Funded Qualifying Project to enable it to produce (or co-produce, if applicable) such Funded Qualifying Project and to exploit
the Distribution Rights in the Territory and to be entitled to Gross Receipts in such
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Funded Qualifying Project relating to the Territory, unless and to the extent otherwise disclosed to the Revenue Participation Holders by Issuer
in writing.
Section 3.12 No-Impairment of Agreement . Issuer has no agreement with or obligations to any third party with respect to any Funded
Qualifying Project which might materially conflict or interfere with any of the provisions of this Agreement.
Section 3.13 Copyright . Each Funded Qualifying Project for which Issuer or an Affiliate of Issuer is the Copyright Owner shall be duly
and properly registered (and, if appropriate, renewed) for copyright in the United States, and, to the best of the knowledge of Issuer and its
Affiliates, the Copyrights in each Funded Qualifying Project and the literary, dramatic and musical materials upon which such Funded
Qualifying Project is based, or which are contained in such Funded Qualifying Project, are and will be valid and subsisting during the Term
throughout the Territory.
Section 3.14 No Infringement . Neither any Funded Qualifying Project, nor any part thereof, nor any materials contained therein or
synchronized therewith, nor the title thereof, nor the exercise of any right, license or privilege granted to the other party hereunder, violates or
will violate, or infringes or will infringe, any trademark, trade name, service mark, patent, copyright (whether common law or statutory), or, the
literary, dramatic, musical, artistic, personal, private, civil, “ droit moral ”, moral rights or property right or rights of privacy or any other right
of any person or entity whatsoever, or unfairly competes with or slanders or libels (or constitutes a trade disparagement of) any Person or entity
whatsoever.
Section 3.15 No Litigation . There is no litigation, arbitration, claim, demand, or investigation pending or, to the knowledge of Issuer,
threatened with respect to any Funded Qualifying Project, or the literary, dramatic or musical material upon which such Funded Qualifying
Project is based or which is contained therein, or concerning the physical properties thereof.
Section 3.16 Production . Except as permitted by this Agreement, including, without limitation, Section 3.19 , Issuer shall ensure that the
Qualifying Projects are produced in accordance with the Production Specifications.
Section 3.17 Private Offering .
(a) Neither Issuer nor any Person acting on its behalf has directly or indirectly offered or sold the Revenue Participations by any form of
general solicitation or general advertising (including, without limitation, any advertisement, article, notice or other communication published in
any newspaper, magazine or similar media or any broadcast over television or radio or any seminar or meeting whose attendees have been
invited by any form of general solicitation or general advertising).
(b) Neither Issuer nor any Person acting on its behalf has, either directly or indirectly, sold or offered for sale to, or otherwise approached
or negotiated in respect thereof with, any Person any of the Revenue Participations except as contemplated by this Agreement, and neither
Issuer nor any Person acting on its behalf (other than the Revenue Participation Holders and their Affiliates) will sell or offer for sale to any
Person any such Revenue
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Participation to, or solicit any offers to buy any such Revenue Participation from, or otherwise approach or negotiate in respect thereof with,
any Person or Persons so as thereby to bring the issuance or sale of any of the Revenue Participations within the registration provisions of
Section 5 of the Securities Act of 1933. The offer and sale of the Revenue Participations pursuant to this Agreement is exempt from the
registration and prospectus delivery requirements of the Securities Act.
Section 3.18 No Violation of Laws . Issuer shall not take any action (or omit to take any action) otherwise permitted under this Agreement
which would cause the performance of this Agreement to violate any law, rule or regulation or require an order, consent, permit or approval to
be obtained from any Governmental Authority, except where such violation or such failure to obtain such order, consent, permit or approval
could not reasonably be expected to result in a Material Adverse Effect.
Section 3.19 Production Specifications . If, after submission of the Production Specifications for a Qualifying Project, such Production
Specifications change either prior to or following a written acceptance thereof by the Revenue Participation Holders, then Issuer shall: (i) for
the Production Specifications listed as items (i) to (xii) inclusively resubmit the amended Production Specifications for acceptance and written
approval by the Revenue Participation Holders; (ii) for the Production Specifications listed as items (xiii) to (xvi) inclusively be entitled to
make changes without approval if such changes result from force majeure, production exigencies and other matters beyond the reasonable
control of Issuer, the Copyright Owner of such Funded Qualifying Project, if applicable, any Co-Producer of such Funded Qualifying Project, if
applicable, and the Services Company providing services in connection with such Funded Qualifying Project; and (iii) for the Production
Specifications listed as items (xvii) to (xix) inclusively resubmit the amended Production Specifications for acceptance and written approval by
the Revenue Participation Holders if such change results in a fluctuation which is *****. In the event SGF does not approve any change to the
Production Specifications for a Funded Qualifying Project requiring approval of the Revenue Participation Holders, then (a) Issuer shall pay to
SGF an amount equal to the Purchase Price paid by SGF in connection with such Funded Qualifying Project, less any amounts paid to SGF on
account of its Revenue Participation for such Funded Qualifying Project prior to the date of such payment, plus LIBOR (calculated from the
date of each advance of funds by SGF) and (b) upon payment of such amount to SGF, (1) all of SGF’s rights, title and interest in and to such
Funded Qualifying Project, including, without limitation, any Gross Receipts related thereto, shall automatically revert to Issuer, (2) all Gross
Receipts and Rights in and to such Funded Qualifying Project shall be released from any hypothec or security interest granted in favour of SGF
and (3) SGF shall execute and deliver to Issuer and Distributor all such documents and instruments as may be reasonably necessary to give
effect to such reversion and release, including, without limitation, UCC financing change statements, documents to be filed in the RPMRR and
an assignment and quitclaim to be registered in the CIPO and the USCO.
4. CONDITIONS OF PURCHASE
Section 4.1 Conditions Precedent to Purchase of Initial Revenue Participations . The obligation of each Revenue Participation Holder to
purchase the Initial Revenue Participations
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on the Initial Closing Date is subject to the satisfaction in full at each Revenue Participation Holder’s sole discretion, of the following
conditions precedent:
(a) Corporate Documents . The Revenue Participation Holders each shall have received:
(i) a copy of a Certificate of Incorporation for Issuer, certified as of a recent date by the Secretary of State of Delaware;
(ii) a copy of a certificate of the Secretary of State of Delaware (or other applicable jurisdiction) and of the franchise tax agency of
such State, dated as of a recent date as to the good standing of, and payment of taxes by, Issuer which certificate lists (if available) the charter
documents on file in the office of such Secretary of State; and
(iii) from each jurisdiction in which it is available, a copy of a certificate dated as of a recent date as to the good standing and/or
authority to conduct business of Issuer issued by the Secretary of State or other relevant office of each jurisdiction in which Issuer is qualified
as a foreign organization as listed in Schedule 3.1 .
(iv) such additional supporting documents that are materially related to those items submitted pursuant to Sections 4.1(a)(i), (ii) and
(iii) , as any Revenue Participation Holder may reasonably request.
(b) Documents . The Revenue Participation Holders each shall have received and accepted (each in its sole discretion) the Production
Specifications for the Qualifying Projects that are the subject of the Initial Revenue Participations.
(c) Representations and Warranties Correct . The representations and warranties made by Issuer in Section 3 shall be true and correct in
all respects as of the Initial Closing Date.
(d) Agreement . Each Revenue Participation Holder shall have received executed counterparts of this Agreement, which, when taken
together, bear the signatures of all of the Revenue Participation Holders.
(e) Required Consents and Approvals . The Revenue Participation Holders shall be satisfied that all required consents and approvals have
been obtained with respect to the transactions contemplated hereby from all Governmental Authorities with jurisdiction over the business and
activities of Issuer and from any other entity whose consent or approval the Revenue Participation Holders in their reasonable discretion deem
necessary to the transactions contemplated hereby.
(f) Minimum Qualifying Projects . No fewer than three (3) Eligible Projects shall have been submitted to the Revenue Participation
Holders for acceptance as Qualifying Projects prior to the Initial Closing Date.
(g) Security. The Revenue Participation Holders shall have received the security described in Section 7.1(d) .
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Section 4.2 Conditions Precedent to Purchase of Additional Revenue Participations . The obligation of each Revenue Participation Holder
to purchase any Revenue Participation (other than the Initial Revenue Participations) on any RP Closing Date is subject to the satisfaction in
full at each Revenue Participation Holder’s sole discretion, of the following conditions precedent:
(a) Documents . No later than 15 days prior to the proposed RP Closing Date, the Revenue Participation Holders each shall have received
and accepted (each in its sole discretion) the Production Specifications for the Qualifying Projects that are the subject of such additional
Revenue Participations.
(b) Representations and Warranties Correct . The representations and warranties made by Issuer in Section 3 shall be true and correct in
all respects as of the applicable RP Closing Date.
5. ACCOUNTING, RECORDS AND REPORTING
Section 5.1 Books and Records . Books and records of Issuer shall be kept, and the financial position and the results of its operations
recorded, in accordance with the accounting methods required for federal income tax purposes, provided however, that Issuer also may be
required to keep financial records in accordance with GAAP. The books and records of Issuer shall reflect all Issuer transactions and shall be
appropriate and adequate for Issuer’s business.
Section 5.2 Access to Information . The Revenue Participation Holders may jointly or severally at their own expense, audit the applicable
books cost reports in respect of each Qualifying Project, contracts and records at the place where Issuer maintains the same in order to verify
the Revenue Participations payable to the Revenue Participation Holders hereunder; provided , however , that, so long as no Event of Default
has occurred and is continuing, no Revenue Participation Holder shall be entitled to require any such audit more than *****. Any such audit
shall be conducted only by one of the so-called “Big Four” accounting firms, provided that the appointment of such party to conduct such audit
shall not create any conflicts of interest (and if all of the “Big Four” accounting firms have such conflicts, then such other public accountant
reasonably acceptable to the Revenue Participation Holder requesting the audit). Any such audit shall be conducted during reasonable business
hours in such manner as not to interfere with Issuer’s normal business activities.
Section 5.3 Filings . Issuer, at Issuer’s expense, shall cause the income tax returns for Issuer to be prepared and timely filed with the
appropriate authorities and any taxes owed in respect of such returns to be paid in a timely manner. Issuer, at Issuer’s expense, shall also cause
to be prepared and timely filed, with appropriate federal and state regulatory and administrative bodies, amendments to, or restatements of,
Issuer’s Organizational Documents and all reports required to be filed by Issuer with those entities under then current applicable laws, rules,
and regulations.
Section 5.4 Accounting Decisions and Reliance on Others . All decisions as to accounting matters, except as otherwise specifically set
forth herein, shall be made by Issuer. Notwithstanding the foregoing, in respect of all accounting matters or positions taken in respect
22
of tax returns of the Issuer which may have a tax implication for the Revenue Participation Holders, such decision shall be made in consultation
with the Revenue Participation Holders.
Section 5.5 Settlement Reports . On each Settlement Date, Distributor shall render to Issuer (with a copy to each Revenue Participation
Holder, provided that Distributor’s inadvertent failure to provide such copy to any Revenue Participation Holder shall be a breach of this
Agreement) a settlement report for each Funded Qualifying Project. Each Settlement Report shall be delivered by Distributor to Issuer on each
Settlement Date together with any sums being shown due to Issuer. Settlement Reports rendered by Distributor may be changed from time to
time to give effect to year-end adjustments made by Distributor’s accounting department or public accountants, to items overlooked, to correct
errors, or to reflect any indebtedness which may become uncollectible for any similar purposes. Should Distributor make any overpayment to
Issuer for any reason, Distributor shall have the right to deduct and retain for its own account an amount equal to any such overpayment from
any sums that may thereafter become due or payable by Distributor to Issuer or for Issuer’s account. Should Distributor make any
underpayment to Issuer for any reason, Distributor shall on the next succeeding Settlement Date pay to Issuer an amount equal to any such
underpayment; provided , however , that all amounts payable to Issuer hereunder shall be subject to all laws and regulations now or hereafter in
existence requiring the deduction or withholding of payments for income or other taxes payable by or assessable against Issuer arising out of or
in connection with this Agreement. Distributor shall have the right to make such deductions and withholdings, and the payment thereof to the
governmental agency concerned in accordance with its interpretation in good faith of such laws and regulations shall constitute payment
hereunder to Issuer, and Distributor shall not be liable to Issuer for the making of such deductions or withholdings or the payment thereof to the
governmental agency concerned. In any such event, Issuer shall make and prosecute any and all claims which it may have (and which it desires
to make and prosecute) with respect to the same directly with the governmental agency having jurisdiction in the premises.
Section 5.6 Accounting Records . Books of account in respect of the distribution of each Funded Qualifying Project (which books of
account are hereinafter referred to collectively as the “ Distribution Records ”), shall be kept at Distributor’s or its Affiliates’ various offices
(both in the United States and abroad) where generated or customarily kept, for as long as such Distribution Records are customarily retained
by such office ( provided , however , that the foregoing obligation shall not apply to any Subdistributors of a Funded Qualifying Project) and in
the form customarily maintained by Distributor or such Affiliates.
Section 5.7 Audits . Issuer and each Revenue Participation Holder shall each have the right, at its own expense, but not more than *****
each, to audit the Distribution Records at the aforesaid office in order to verify the Settlement Reports rendered hereunder in connection with
each Funded Qualifying Project. Any such audit shall be conducted only by a certified public accountant during reasonable business hours and
in such manner as not to interfere with Distributor’s normal business activities, shall not continue for more than ***** and be conducted by a
third party accounting firm approved by the Revenue Participation Holders (Sills & Adelmann, Hacker, Douglas & Company, and any of the
so-called “Big-Four” accounting firms are hereby pre-approved), provided that no such firm is compensated on a “percentage of recovery”
basis, it being understood that Distributor shall have the right to approve any “percentage of recovery” retainer), provided, however, that such
third party accounting firm shall
23
agree in writing, for the benefit of Distributor, to be bound by the same duties of confidentiality arising under this Agreement. The Issuer and
each Revenue Participation Holder shall be entitled to conduct the audit within ***** of the Issuer or each Revenue Participation Holder’s
notice to conduct the audit. Issuer shall not have the right to examine or inquire into any matters or items which are contained in any such
Settlement Report after the expiration of ***** from and after the date of receipt of such Settlement Report, and such Settlement Report shall
be final and conclusive upon Issuer upon the expiration of such ***** period notwithstanding that the matters or items embraced by or
contained therein may later be contained or referred to in a cumulative statement pertaining to more than one Accounting Period. Except in the
context of litigation, such cumulative statement shall not be subject to audit by Issuer to the extent the material contained therein was first
reflected on a Settlement Report submitted more than ***** prior to the date of mailing of such cumulative statement. Issuer shall be forever
barred from maintaining or instituting any action or proceeding based upon, or in any way relating to, any transactions had by Distributor, its
Affiliates, or its licensees, in connection with the Funded Qualifying Projects which are reflected on any Settlement Report rendered hereunder,
or the accuracy of any item appearing therein, unless written objection thereto stating with specificity the particular transaction(s) or item(s) to
which Issuer objects shall have been delivered by Issuer to Distributor prior to the expiration of the ***** period with respect to such
Settlement Report unless such action or proceeding is commenced within such period. Notwithstanding the foregoing, a notice of intention to
conduct an audit or to institute litigation shall interrupt each aforementioned ***** period. In the event the audit is not conducted or litigation
instituted within a reasonable delay from the date of such notice, the right to conduct such audit or institute litigation shall terminate *****
from a written notice thereof by the Distributor. The Issuer and each Revenue Participation Holder shall be entitled to examine: all licensing,
distribution and sub-distribution agreements relating to Funded Qualifying Projects. If a Funded Qualifying Project has been distributed,
licensed, sub-distributed or packaged with Productions which are not Funded Qualifying Projects (“ Packaged Projects ”), the Issuer and each
Revenue Participation Holder shall be entitled to examine all licensing, distribution and sub-distribution agreements in connection with such
Funded Qualifying Project and such Packaged Projects, as well as all accounts, records, Distribution Records, Settlement Reports and
documents which set forth, inter alia , the price allocation for such Funded Qualifying Project and such Packaged Projects. In connection with
the delivery of each Settlement Report, Distributor shall provide an officer’s certificate that (i) sets forth the amount of all rebates, advances
and credits allocated to one or more Funded Qualifying Projects pursuant to agreements with film processing laboratories or other home video
replication entities (e.g., film duplication advances) for such Accounting Period (collectively, “ Rebates ”) (on a Production by Production
basis), (ii) the aggregate amount, if any, of any out-of-pocket third party costs (“ Rebate Costs ”) incurred in acquiring such Rebates allocated
to one or more Funded Qualifying Projects (on a Production by Production basis), and (iii) certifies that, taking into account all of the facts and
circumstances, the Rebates and Rebate Costs were allocated to the Funded Qualifying Projects in a fair and reasonable manner. To the extent
that the results of an audit of the Distribution Records reveals that additional Adjusted Receipts are due to Issuer, Distributor agrees to pay such
sums to Issuer together with interest thereon at LIBOR, accruing from the date such amount should have been paid to Issuer.
Section 5.8 Statements and Payments . All statements and payments contemplated by this Agreement shall be sent to the respective parties
address as set forth in Section 13.1 .
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6. REPRESENTATIONS AND WARRANTIES OF REVENUE PARTICIPATION HOLDERS
Each Revenue Participation Holder hereby represents and warrants to Issuer and each other Revenue Participation Holder as follows:
Section 6.1 No Representations of Profits, etc . Neither Issuer, nor any other Person has at any time expressly or implicitly represented,
guaranteed, or warranted to it that (a) a percentage of profit and/or amount or type of consideration will be realized as a result of the purchase
of the Revenue Participations, (b) past performance or experience on the part of Issuer, its Affiliates or any other Person in any way indicates
the predictable results of the ownership of Revenue Participations or of the overall business of Issuer, or (c) any cash distributions from Issuer’s
operations or otherwise will be made to the Revenue Participation Holders by any specific date or will be made at all.
Section 6.2 Authority . It has the full right, power and authority to execute and deliver this Agreement and to perform each of its
obligations hereunder; that the execution, delivery and performance of this Agreement does not violate any law or regulation to which it is
subject, and does not constitute a breach or default under any contract or undertaking to which it is a party; and that this Agreement and all
other documents required to be executed and delivered hereunder by it, when so executed and delivered, will constitute legal, valid and binding
obligations of it, enforceable against it in accordance with their respective terms, subject, as to the enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights generally and to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in equity or at law).
Section 6.3 Access to Information . It acknowledges that all documents and other materials pertaining to a purchase of a Revenue
Participation that it has requested to examine have been made available for inspection by it. It, or a Person or Persons acting on its behalf, has
had a reasonable opportunity to ask questions of and receive answers from Issuer concerning the issuance of the Revenue Participations and
Issuer, including, without limitation, Issuer’s prospective business plans, and all such questions have been answered to its full satisfaction. The
foregoing, however, does not limit or modify the representations and warranties of Issuer in Section 3 and the Production Specifications, or the
right of any Revenue Participation Holder to rely thereon.
Section 6.4 Contingent Nature of Projections . It acknowledges, recognizes and understands that: (a) Issuer is a start-up with no financial
and operating history and that a purchase of a Revenue Participation involves substantial risks; (b) any financial projections that may have been
provided to it are based upon assumptions of future operating results developed in good faith by Issuer, (c) such financial projections merely
represent an estimate by Issuer of future results that Issuer hopes can be achieved based upon assumptions as to certain events (many of which
are beyond Issuer’s control); and (d) no assurances or representations can be given that the actual results of the operations will conform to the
projected results.
Section 6.5 Reliance . It has carefully considered and has, to the extent it believes such discussion necessary, discussed with its
professional legal, tax and financial advisors, the
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suitability of investing in the Revenue Participations for its particular tax and financial situation, and it has determined that the Revenue
Participations are a suitable investment for it. In making its investment decision, it has relied solely on its own advisors, and not on the advice
of Issuer, LGEI, Distributor, any of their Affiliates or their respective legal counsel or financial advisors. It acknowledges that it is not relying
upon any person, firm, limited liability company or corporation in making its decision to purchase a Revenue Participation and that it has not
received any general solicitation or general advertising concerning Issuer, LGEI, Distributor, any of their Affiliates or the Revenue
Participation, nor is such Revenue Participation Holder aware that any such solicitation or advertising was received by anyone else.
Section 6.6 Information Provided . Notwithstanding the foregoing, LGEI represents and warrants to SGF that the financial and operating
history and financial results provided to SGF and the Salter Group are true and accurate in all material respects consistent with what LGEI
utilizes in its own financial projections supplied to its auditors, except that LGEI has also added a terminal value required because Salter Group
required information on ultimate values for a period of time different from that used by such auditors to calculate such ultimate values. Nothing
contained herein, in any other Transaction Document or in any information previously or in future provided to SGF or the Salter Group, neither
LGEI nor its Affiliates shall be construed as providing any representation or warranty regarding the future performance of any Eligible Project.
7. PRODUCTION AND DISTRIBUTION
Section 7.1 Production .
(a) For each Funded Qualifying Project, Issuer (and, if Issuer is not the Copyright Owner of such Funded Qualifying Project, such
Copyright Owner) shall enter into a Production Services Agreement with a Services Company (and such Copyright Owner, if applicable).
Subject to the terms of this Agreement, including, without limitation, Section 3.19 , Issuer shall ensure that each Funded Qualifying Project is
produced in accordance with the Production Specifications, subject to changes resulting from force majeure, production exigencies and other
matters beyond the reasonable control of Issuer, the Copyright Owner of such Funded Qualifying Project, if applicable, any Co-Producer of
such Funded Qualifying Project, if applicable, and the Services Company providing services in connection with such Funded Qualifying
Project, which changes shall be subject to the approval of the Revenue Participation Holders, acting reasonably.
(b) The Revenue Participation Holders acknowledge and agree that, subject to the Revenue Participations purchased by the Revenue
Participation Holders, except as otherwise provided herein, Issuer will own or control a sufficient interest in the Rights for each Funded
Qualifying Project to enable it to produce (or co-produce, if applicable) such Funded Qualifying Project and to exploit the Distribution Rights
in the Territory and to be entitled to Gross Receipts in such Funded Qualifying Project relating to the Territory, unless and to the extent
otherwise disclosed to the Revenue Participation Holders by Issuer in writing
(c) Subject to the terms of this Agreement, Issuer shall have sole and exclusive control of all decisions relating to the development,
production, distribution, exhibition
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and other exploitation of each Funded Qualifying Project, subject to the rights of (i) if Issuer is not the Copyright Owner of such Funded
Qualifying Project, such Copyright Owner, and (ii) any Co-Producer of such Funded Qualifying Project, if applicable.
(d) Each of Issuer and Distributor, shall grant in favour of each Revenue Participation Holder, pari passu , a security interest, in and to
(i) the Gross Receipts for each Funded Qualifying Project, and (ii) the Rights, the Ancillary Rights, the Related Rights and including without
limitation the tangible and intangible assets for each Funded Qualifying Project, solely to the extent required to distribute and exploit such
Funded Qualifying Project, which security interest shall be in a form registrable in the State of Delaware and the Province of Quebec. The
Revenue Participation Holders acknowledge and agree that the security interests granted to them by Issuer and Distributor shall be subject to
Permitted Encumbrances, provided, however, that, with respect to the Senior Lender Encumbrances, the Senior Lender InterCreditor
Agreement shall provide that SGF shall have a first priority security interest in its Pro Rata Amount of the Gross Receipts for each Funded
Qualifying Project, subject to the terms of the Senior Lender InterCreditor Agreement.
Section 7.2 Distribution . On or before the Initial Closing Date, Issuer and Distributor shall enter into the Master Distribution Agreement,
which shall provide for the following:
(a) Subject to the terms and conditions hereof, Distributor shall be the sole and exclusive distributor for the Funded Qualifying Projects,
in any language, in any and all media and formats now known or hereafter devised, in perpetuity in the Territory. The parties acknowledge that
Distributor and its Affiliates only distribute the Funded Qualifying Projects directly in the United Kingdom and the United States of America,
and that for all other territories, the Distribution Rights for the Funded Qualifying Projects will be licensed to a Subdistributor.
(b) Distributor shall use diligent efforts and skill (consistent with the quality standards of first-class distributors and with its theatrical
release pattern for films of a similar genre and budget) in the distribution and exploitation of the Funded Qualifying Projects in all media
throughout the Territory to maximize Gross Receipts, including, without limitation, obtaining any permits permissions and/or clearances
necessary to exploit the Funded Qualifying Projects throughout the Territory.
(c) Distributor shall distribute each Funded Qualifying Project in a manner consistent with the manner in which it distributes films,
videos and television series that are not Funded Qualifying Projects, and shall include, without limitation, all Funded Qualifying Projects in
output agreements (or other similar type arrangements) on a non-discriminatory basis with other films, videos and television series distributed
by which it distributes that are not Funded Qualifying Projects.
(d) For each Funded Qualifying Project, Distributor shall be entitled to receive a distribution fee, on an uncrossed basis with all other
Funded Qualifying Projects (the “ Distribution Fee ”), in an amount equal to ***** for such Funded Qualifying Project, escalating on a
prospective basis only to ***** for such Funded Qualifying Project at such time, if ever, as the sum of the aggregate amount actually paid to
SGF hereunder on account of its Revenue
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Participation for such Funded Qualifying Project shall equal ***** paid by SGF for such Revenue Participation and further escalating on a
prospective basis only to ***** for such Funded Qualifying Project at such time, if ever, as the sum of the aggregate amount actually paid to
SGF hereunder on account of its Revenue Participation for such Funded Qualifying Project shall equal ***** paid by SGF for such Revenue
Participation; provided , however , that, for any Funded Qualifying Project that is a Television Production, the Distributor shall not be entitled
to a Distribution Fee on any Gross Receipts relating to the principal license fee payable by a U.S. licensee that orders such Funded Qualifying
Project that is a Television Production. Any escalation in the Distribution Fee for a Funded Qualifying Project, and the date of such escalation,
shall be indicated in the Settlement Report for such Funded Qualifying Project for the Accounting Period in which such escalation occurred. In
the event that SGF contests the amount actually paid to SGF pursuant to the RP Purchase Agreement on account of its Revenue Participation
for such Funded Qualifying Project, then the Distribution Fee shall not escalate to ***** (as the case may be), until such time as the parties
hereto have had the opportunity to review and agree on such amount, and the date upon which such amount was actually paid to SGF, and any
overpayment of such Distribution Fee shall be corrected in the Settlement Report for the next Accounting Period (or Accounting Periods, if
Gross Receipts are not sufficient to correct such overpayment in such next Accounting Period).
(e) If Distributor licenses a Funded Qualifying Project as part of a package with any other motion picture or television series, then
Distributor shall allocate the proceeds and expenses in respect of such Funded Qualifying Project on a good faith, arm’s length and
non-discriminatory basis.
(f) Distributor shall not use such Funded Qualifying Project to obtain more favorable terms on other motion pictures or television series,
licensed by Distributor or its Affiliates.
(g) On each Settlement Date, Distributor shall provide Issuer, as part of the applicable Settlement Report, and Issuer shall provide the
Revenue Participation Holders, with copies of all license agreements entered into by Distributor in connection with any Funded Qualifying
Project or any rights therein, during the Accounting Period relating to such Settlement Report, if any .
(h) All Gross Receipts relating to the Funded Qualifying Projects shall be paid directly to Distributor. In the event that any party hereto
receives any Gross Receipts directly or indirectly, such party agrees to hold such monies in trust for Distributor and to pay to Distributor, upon
receipt, all such Gross Receipts, without any deductions or withholdings whatsoever.
(i) LGEI agrees, on behalf of it and its Affiliates, including, without limitation, Issuer and Distributor, that notwithstanding any provision
to the contrary in any other agreement, it and they will not deduct any fees or expenses whatsoever from the Gross Receipts prior to or
contemporaneously with the paying of the Gross Receipts to the Revenue Participation Holders except as contemplated in the Master
Distribution Agreement.
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(j) For each Funded Qualifying Project that is a Film Production and which has been identified as a theatrical release pursuant to the
Production Specifications, Distributor shall release such Funded Qualifying Project theatrically within ***** of delivery of such Funded
Qualifying Project to Distributor. Subject to the terms hereof, the size, date, cost and scope of such theatrical release shall be determined in the
sole discretion of Distributor in accordance with its theatrical release pattern for films of a similar genre and budget. In the event Distributor
fails to release a Funded Qualifying Project that is a Film Production and which has been identified as a theatrical release pursuant to the
Production Specifications as provided above, then (a) Issuer shall pay to SGF an amount equal to the Purchase Price paid by SGF in connection
with such Funded Qualifying Project, less any amounts paid to SGF on account of its Revenue Participation for such Funded Qualifying
Project prior to the date of such payment, plus LIBOR (calculated from the date of each advance of funds by SGF) and (b) upon payment of
such amount to SGF, (1) all of SGF’s rights, title and interest in and to such Funded Qualifying Project, including, without limitation, any
Gross Receipts related thereto, shall automatically revert to Issuer, (2) all Gross Receipts and Rights in and to such Funded Qualifying Project
shall be released from any hypothec or security interest granted in favour of SGF and (3) SGF shall execute and deliver to Issuer and
Distributor all such documents and instruments as may be reasonably necessary to give effect to such reversion and release, including, without
limitation, UCC financing change statements, documents to be filed in the RPMRR and an assignment and quitclaim to be registered in the
CIPO and the USCO.
(k) For each Funded Qualifying Project which is not completed and delivered within ***** of its anticipated completion and delivery
date as specified in the Production Specifications (Production Schedule), SGF shall have the option, exercisable within ***** following such
*****, to require Issuer to pay to SGF an amount equal to the Purchase Price paid by SGF in connection with such Funded Qualifying Project
plus LIBOR (calculated from the date of each advance of funds by SGF). If SGF exercises such option, then (a) Issuer shall pay to SGF an
amount equal to the Purchase Price paid by SGF in connection with such Funded Qualifying Project, less any amounts paid to SGF on account
of its Revenue Participation for such Funded Qualifying Project prior to the date of such payment, plus LIBOR (calculated from the date of
each advance of funds by SGF) and (b) upon payment of such amount to SGF, (1) all of SGF’s rights, title and interest in and to such Funded
Qualifying Project, including, without limitation, any Gross Receipts related thereto, shall automatically revert to Issuer, (2) all Gross Receipts
and Rights in and to such Funded Qualifying Project shall be released from any hypothec or security interest granted in favour of SGF and (3)
SGF shall execute and deliver to Issuer and Distributor all such documents and instruments as may be reasonably necessary to give effect to
such reversion and release, including, without limitation, UCC financing change statements, documents to be filed in the RPMRR and an
assignment and quitclaim to be registered in the CIPO and the USCO .
8. TERMS OF REVENUE PARTICIPATIONS
Section 8.1 In General . Each Revenue Participation shall consist solely of the right to receive distributions from Issuer or Distributor on
account of Gross Receipts for a specific Funded Qualifying Project as provided in this Article 8 and those other rights specified in this
Agreement. No Revenue Participation Holder (a) is or shall be an owner of any stock in the capital of, or any other equity interest in, Issuer,
except for LGEI, which owns, directly or
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indirectly, 100% of the capital stock of Issuer, (b) is or shall be an assignee of any ownership interest in Issuer, (c) is or shall be an assignee or
owner of any of the assets or property of Issuer, except to the extent of the Revenue Participations purchased pursuant to this Agreement, or
(d) shall have any liability for any of the debts, liabilities or other obligations of Issuer. Nothing herein contained shall constitute a partnership
among or joint venture by any party hereto or constitute either party the agent of the other. No party shall hold itself out contrary to the terms of
this Section 8.1 and no party shall become liable by reason of any representation, act or omission of the other contrary to the provisions hereof.
Section 8.2 Adjustments to Pro Rata Amounts . The Revenue Participation Holders acknowledge that their Pro Rata Amounts have been
determined based on Projected Budgets rather than actual Direct Costs and Estimated Tax Credit Amounts and that once the actual Direct Costs
and Tax Credit Amounts are known, such Pro Rata Amounts may be subject to change and adjustment. If the actual Direct Costs for a Funded
Qualifying Project are greater or less than the Projected Budget used to calculate the Purchase Price for the Revenue Participations for such
Funded Qualifying Project, and/or the actual Tax Credit Amounts for such Funded Qualifying Project are greater or less than the Estimated Tax
Credit Amounts for such Funded Qualifying Project, then (a) the Pro Rata Amount for such Funded Qualifying Project for SGF shall be
calculated as the ratio between (i) the Purchase Price paid by SGF for its Revenue Participation for such Funded Qualifying Project and (ii) the
difference between (1) the actual Direct Costs for such Funded Qualifying Project and (2) the actual Tax Credit Amounts for such Funded
Qualifying Project and (b) the Pro Rata Amount for such Funded Qualifying Project for LGEI shall be calculated as 100% less the adjusted
SGF Pro Rata Amount for such Funded Qualifying Project determined in accordance with Section 8.2(a) . If Gross Receipts are paid to a
Revenue Participation Holder prior to an adjustment to such Revenue Participation Holder’s Pro Rata Amount, then the immediately
subsequent payment or payments of Gross Receipts to such Revenue Participation Holder shall be increased or decreased until such time as for
any deficit or surplus resulting from the calculation of the original Pro Rata Amount has been corrected.
Section 8.3 Distributions to the Revenue Participation Holders; Waterfall . Issuer shall disburse, or shall cause Distributor to disburse, the
Gross Receipts for each Funded Qualifying Project, (together with any accrued interest thereon and/or any net income or gain on the
investment of such Gross Receipts, if applicable) in the following order of priority (the “ Waterfall ”):
(a) first , to the payment of any Third Party Participations (including, without limitation, any Co-Financing Participations that are
included in the Third Party Participations) and residuals relating to such Funded Qualifying Project;
(b) second , to Distributor, for the payment of the Distribution Fee relating to such Gross Receipts;
(c) third , to Distributor for payment of the Distribution Expenses for such Funded Qualifying Project; and
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(d) fourth , one hundred percent (100%) to (i) each Revenue Participation Holder based on its Pro Rata Amount then in effect for such
Funded Qualifying Project, subject to any adjustments required by the final sentence of Section 8.2 and (ii) the payment of Co-Financing
Participations that are not included in the Third Party Participations, pari passu and pro rata .
Section 8.4 Settlement Reports . On each Settlement Date, Issuer or LGEI shall cause Distributor to submit to the Revenue Participation
Holders a settlement report (“ Settlement Report ”) detailing (i) Gross Receipts received by Issuer, LGEI, Distributor or any affiliate thereof for
each Funded Qualifying Project for and through the most recently concluded Accounting Period; (ii) the Distribution Expenses incurred with
respect to each Funded Qualifying Project for and through such Accounting Period or payable within ***** after such Accounting Period; and
(iii) any change or adjustment in the Pro Rata Amounts required due to (1) any change in the Direct Costs for such Funded Qualifying Project
that may have occurred in such Accounting Period and/or (2) any difference between the Estimated Tax Credit Amount for such Funded
Qualifying Project and the actual Tax Credit Amount for such Funded Qualifying Project, as may be determined in such Accounting Period.
Section 8.5 Payments to the Revenue Participation Holders . Each Settlement Report shall be accompanied by payment, if any, of amounts
payable to each Revenue Participation Holder.
Section 8.6 Gross Receipts Not Crossed . Gross Receipts shall be disbursed through the Waterfall on a Funded Qualifying
Project-by-Funded Qualifying Project basis and Gross Receipts from one Funded Qualifying Project will not be crossed with Gross Receipts
from any other Funded Qualifying Project.
9. LGEI REPURCHASE OBLIGATION
Section 9.1 LGEI shall have the obligation (the “ Repurchase Obligation ”) to make a reasonable good faith written offer (each an “ LGEI
Offer ”) to purchase, at fair market value (based on the net present value of expected future cash flows for the Funded Qualifying Projects) (the
“ Repurchase Price ”), (a) all Revenue Participations of SGF and (b) all other interests of SGF in the Funded Qualifying Projects (collectively,
the “ SGF Interest ”), on the date that is (a) for Funded Qualifying Projects for which production was completed in the first three (3) years of
the Term, six (6) years following the actual Release Date of the first such Funded Qualifying Project and (b) for Funded Qualifying Projects for
which production was completed in the fourth (4 th ) year of the Term, three (3) years from the actual Release Date of each such Funded
Qualifying Project.
Section 9.2 SGF and LGEI shall negotiate in good faith for ***** after presentation of the LGEI Offer. If SGF and LGEI fail to reach an
agreement on the Repurchase Price within such period, SGF may, either; (i) for ***** following such period negotiate with third parties for the
sale of the SGF Interest to third parties, provided that SGF shall provide a minimum of ***** notice to LGEI of its intention to sell such SGF
Interest to a third party on terms satisfactory to SGF (the “ Third Party Offer ”), which notice shall disclose all material terms of the Third Party
Offer ; or (ii) opt to submit the evaluation of the Repurchase Price to (x) a mutually acceptable
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“Big Four” accounting firms with an expertise in business valuations or (y) a mutually acceptable valuator, such as Houlihan Lokey Howard &
Zukin, Salem Partners LLC or The Salter Group LLC , each of which are pre-approved. The valuation of the Repurchase Price determined by
such accounting firm or valuator shall, in the absence of fraud, be final and binding and no appeal shall lie therefrom. If SGF elects to proceed
with a valuation of the Repurchase Price pursuant to Section 9.2(ii), then the purchase of the SGF Interest shall occur within ***** of the date
of such valuation, or such later date as LGEI and SGF may mutually agree. Notwithstanding anything contained herein, SGF shall not be
permitted to sell the SGF Interest to any Direct Competitor.
Section 9.3 Upon LGEI’s receipt of notice from SGF of its intention to sell the SGF Interest pursuant to a Third Party Offer, LGEI shall
have ***** within which LGEI shall have the right and option (its “ Matching Right ”) to purchase such SGF Interest upon the terms of the
Third Party Offer. If LGEI elects to exercise its Matching Right, then the purchase of the SGF Interest shall occur within ***** of the date of
such election, or such later date as LGEI and SGF may mutually agree.
Section 9.4 If LGEI opts not to exercise its Matching Right, SGF shall have the right to sell the SGF Interest pursuant to the Third Party
Offer, provided that any sale of such SGF Interest shall be subject to this Agreement, including, without limitation, the requirement that SGF
shall not be permitted to sell the SGF Interest to any Direct Competitor.
Section 9.5 Notwithstanding the foregoing, in the event SGF does not secure a Third Party Offer, within the ***** period described in
Section 9.2(i), i t shall be entitled to accept the LGEI Offer upon written notice thereof, provided that such acceptance occurs within ***** of
the expiry of the ***** period described in Section 9.2(i).
Section 9.6 Upon payment of the Repurchase Price, or such other amount payable pursuant to the Matching Right, to SGF by LGEI, (1) all
of SGF’s rights, title and interest in and to the Funded Qualifying Projects, including, without limitation, any Gross Receipts related thereto,
shall be transferred to LGEI, (2) the hypothec and security interests granted in favour of SGF by Issuer and Distributor shall be released and
(3) SGF shall execute and deliver to LGEI, Issuer and Distributor all such documents and instruments as may be reasonably necessary to give
effect to such transfer and release, including, without limitation, UCC financing change statements, documents to be filed in the RPMRR and
an assignment and quitclaim to be registered in the CIPO and the USCO .
10. SEQUELS, PREQUELS AND REMAKES
Section 10.1 SGF shall have the right of first negotiation to have submitted and have included as a Funded Qualifying Project hereunder
any Production that is a sequel, series, new season, prequel, spin-off, remake, based on or derived from any Funded Qualifying Project (in each
case, a “ Sequel ”) in accordance with and pursuant to the terms and conditions of this Agreement, to the extent that LGEI or its Affiliates owns
or controls sufficient rights to develop, produce (or co-produce, as applicable) and exploit such Sequel.
Section 10.2 Notwithstanding the foregoing, SGF’s rights under this Article 10 shall
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not extend to (a) any Production that is based on or derived from any Production that is not a Funded Qualifying Project, or (b) any Production
that is a Sequel of any Production that has had a release, public exhibition or public broadcast prior to the Closing Date, including, without
limitation, prior seasons of any Television Production (each a “ Franchise Project ”), regardless of whether any other Sequel of a Franchise
Project is produced as a Funded Qualifying Project.
Section 10.3 SGF’s rights under this Article 10 shall be subject to third party contractual restrictions. LGEI agrees to inform SGF in
writing of all such contractual restrictions prior to SGF agreeing to purchase a Revenue Participation in a project submitted to the Revenue
Participation Holders for acceptance as a Funded Qualifying Project, as contemplated by the provisions of this Agreement relating to the
acceptance of any Production Specifications.
Section 10.4 There shall be no requirement on Issuer, LGEI or any of their Affiliates to produce any Sequel in the Province of Quebec,
Canada.
Section 10.5 SGF’s rights to acquire Revenue Participations in Sequels shall automatically terminate if SGF has not accepted as Qualifying
Projects ***** successive Eligible Projects submitted by Issuer or LGEI hereunder, which are subsequently produced by Issuer, LGEI or their
Affiliates and which, as submitted, would have resulted in not less than 65% of the Direct Costs being incurred in the Province of Quebec,
Canada.
11. EVENT OF DEFAULT; REMEDIES
(a) The occurrence of any of the following events shall be considered an “ Event of Default ”:
(i) Issuer fails to make a payment due to a Revenue Participation Holder more than ***** after its receipt of notice of such failure (an
“ Issuer Payment Default ”).
(ii) Any representation or warranty by Issuer made or deemed made herein or in the Production Specifications is incorrect in any
respect on or as of the date made or deemed made and shall remain unremedied for ***** after the date upon which written notice thereof shall
have been given.
(iii) Issuer or Distributor fails to perform or observe any term, covenant or agreement contained hereunder or the Transaction
Documents and shall remain unremedied for ***** after the date upon which written notice thereof shall have been given.
(iv) Issuer or Distributor shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of creditors, (i) voluntarily cease to conduct its business in the ordinary
course, or (ii) any proceeding shall be instituted by or against Issuer seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an order to relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property, or (iii) shall take any action to authorize any of the actions set forth hereinabove,
an “ Insolvency Event ”.
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(b) If an Issuer Payment Default or an Insolvency Event occurs and is continuing, each Revenue Participation Holder shall have the right,
but not the obligation, to terminate this Agreement, provided , however , that with respect to any Funded Qualifying Project that has been
produced, all rights and obligations of such Revenue Participation Holder with respect to such Funded Qualifying Project shall survive such
termination subject to the terms and conditions of this Agreement.
(c) All rights and remedies set forth herein, are cumulative in nature and are not intended to be exclusive of any other rights and remedies
any party may have under this Agreement or under applicable law for any Event of Default or other breach of this Agreement.
12. TERMINATION
Section 12.1 Unless otherwise provided herein, this Agreement shall terminate upon expiration of the Term except that all of SGF’s rights
to receive Revenue Participations shall continue until such time as LGEI has executed its Repurchase Obligation.
13. MISCELLANEOUS
Section 13.1 Notices .
(a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph
(b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:
(i) if to Issuer, to it at 2700 Colorado Avenue, Suite 200, Santa Monica, CA 90404, Attention: General Counsel, Facsimile:
(310) 255-3860.
(ii) if to any Revenue Participation Holder, to it at its address (or telecopy number) set forth on Schedule 2.1 .
(b) Notices and other communications to the Revenue Participation Holders hereunder may be delivered or furnished by electronic
communications pursuant to procedures approved by such Revenue Participation Holder. Issuer may, in its discretion, agree to accept notices
and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided , that approval of
such procedures may be limited to particular notices or communications.
(c) Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to all of the
other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall
be deemed to have been given on the date of receipt.
Section 13.2 Successors and Assigns .
(a) This Agreement shall enure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. Each
Revenue Participation Holder may
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assign all, but not less than all, of its rights and obligations in and to this Agreement and its Revenue Participations to any one of its Affiliates
without the prior written consent of Issuer or any other Revenue Participation Holder, provided that such assignment shall not relieve the
assignor of its obligations to fund Purchase Prices under this Agreement. Subject to the provisions of this Section 13.2 , such transfer shall be
effective upon receipt by Issuer of an assignment and assumption agreement with respect to such Revenue Participations in a form reasonably
acceptable to Issuer. Notwithstanding the foregoing, no Revenue Participation Holder may assign any of its rights or obligations in and to this
Agreement or its Revenue Participation to any Direct Competitor.
(b) No Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.
(c) By its acceptance of the Revenue Participations, each Revenue Participation Holder acknowledges that the Revenue Participations
have not been registered under the Securities Act of 1933, as amended (the “ Securities Act ”) and may be resold only if registered pursuant to
the provisions of the Securities Act or if an exemption from registration is available, and that Issuer is not required to register the Revenue
Participations. Each Revenue Participation Holder represents that it is an “ accredited investor ” within the meaning of Rule 501(a) under the
Securities Act, and is acquiring the Revenue Participations for investment for its own account, with no present intention of dividing its
participation with others (except for a potential transfer or transfers of the Revenue Participations to Affiliates of such Revenue Participation
Holder) or reselling or otherwise distributing the same in violation of the Securities Act or any applicable state securities laws.
Section 13.3 Indemnity . Issuer agrees (a) to indemnify and hold harmless the Revenue Participation Holders and their respective Affiliates
and their Affiliates’ respective directors, officers, employees, consultants and agents (each an “ Indemnified Party ”) (to the full extent
permitted by Applicable Law) from and against any and all claims, demands, losses, judgments, damages and liabilities (including, without
limitation, liabilities for penalties) incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, any
investigation, litigation or other proceeding (whether or not any Revenue Participation Holder is a party thereto) related to the entering into
and/or performance this Revenue Participation Agreement, including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation, litigation or other proceeding (but excluding (i) any such losses, liabilities, claims, damages
or expenses of an Indemnified Party to the extent they are found in a final judgment of a court of competent jurisdiction to have been incurred
by reason of the gross negligence or willful misconduct of such Indemnified Party and (ii) litigation solely between Issuer, on the one hand, and
the Revenue Participation Holders, on the other hand, in connection with this Agreement or the transactions contemplated hereby if, after final
non-appealable judgment of a court of competent jurisdiction, Issuer is the prevailing party or parties in such litigation). If any proceeding,
including, without limitation, any governmental investigation, shall be instituted involving any Indemnified Party, in respect of which
indemnity may be sought against Issuer, such Indemnified Party shall promptly notify Issuer in writing. The foregoing indemnity agreement
includes, without limitation, any costs incurred by an Indemnified Party in connection with any action or proceeding in connection with which
any officer or employee of the Revenue Participation Holders is called as a witness or deponent,
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including, without limitation, the reasonable fees and disbursements of the Revenue Participation Holders in appearing as a witness or in
otherwise complying with legal process served upon them. The obligations of Issuer under this Section 13.3 shall survive the termination of
this Agreement and shall inure to the benefit of any Person who was a Revenue Participation Holder notwithstanding such Person’s assignment
of all its Revenue Participations in accordance herewith.
Section 13.4 Press Release . The Revenue Participation Holders shall issue a mutually approved press release announcing the transaction
contemplated hereby.
Section 13.5 Screen Credits . Subject to contractual restrictions, Issuer shall accord SGF an “In Association With” credit in the main titles
of a Qualifying Project on screen and in the billing block advertising (subject to customary exclusions) of each Funded Qualifying Project, on a
separate card following the production company’s credit.
Section 13.6 Entire Agreement . This Agreement cannot be amended, modified or changed except by a written instrument duly executed
by authorized officers of the parties hereto. This Agreement cancels and supersedes all prior negotiations and understandings between the
parties relating to the production, financing and distribution of the Qualifying Projects and contains all of the terms, covenants, conditions,
representations and warranties of the parties hereto. This Agreement may be signed in counterpart, each of which shall be deemed an original,
but all of which together shall constitute the Agreement.
Section 13.7 CHOICE OF LAW . THIS AGREEMENT SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH,
AND GOVERNED BY, THE LAWS OF THE STATE OF CALIFORNIA WHICH ARE APPLICABLE TO CONTRACTS MADE AND TO
BE PERFORMED WHOLLY WITHIN SUCH STATE.
Section 13.8 WAIVER OF JURY TRIAL . TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE
WAIVED, EACH PARTY HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM,
DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE SUBJECT MATTER
HEREOF, ANY OTHER FUNDAMENTAL DOCUMENT OR THE SUBJECT MATTER THEREOF, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE. EACH PARTY
ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES HERETO THAT THE PROVISIONS OF THIS
SECTION 13.8 CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH SUCH OTHER PARTIES HAVE RELIED, ARE RELYING
AND WILL RELY IN ENTERING INTO THIS AGREEMENT AND ANY OTHER FUNDAMENTAL DOCUMENT. ANY PARTY MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 13.8 WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF ANY PARTY TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
36
Section 13.9 Judicial Reference . The parties to this Agreement prefer that any dispute between or among them be resolved in litigation
subject to a jury trial waiver as set forth in Section 13.8 . If, and only if, a pre-dispute jury trial waiver of the type provided for in Section 13.8
is unenforceable in litigation to resolve any dispute, claim, cause of action or controversy under this Agreement (each, a “ Claim ”) in the venue
where the Claim is being brought pursuant to the terms of this Agreement, then, upon the written request of any party, such Claim, including,
without limitation, any and all questions of law or fact relating thereto, shall be determined exclusively by a judicial reference proceeding.
Except as otherwise provided in Section 13.12 , venue for any such reference proceeding shall be in the state or federal court in the County or
District where venue is appropriate under applicable law (the “ Court ”). The parties shall select a single neutral referee, who shall be a retired
state or federal judge. If the parties cannot agree upon a referee within *****, the Court shall appoint the referee. The referee shall report a
statement of decision to the Court. Notwithstanding the foregoing, nothing in this paragraph shall limit the right of any party at any time to
exercise self-help remedies, foreclose against collateral or obtain provisional remedies (including, without limitation, requests for temporary
restraining orders, preliminary injunctions, writs of possession, writs of attachment, appointment of a receiver, or any orders that a court may
issue to preserve the status quo, to prevent irreparable injury). The parties shall bear the fees and expenses of the referee equally unless the
referee orders otherwise. The referee also shall determine all issues relating to the applicability, interpretation, and enforceability of this
Section 13.9 . The parties acknowledge that any Claim determined by reference pursuant to this Section 13.9 shall not be adjudicated by a jury.
Section 13.10 WAIVER WITH RESPECT TO DAMAGES . EACH PARTY ACKNOWLEDGES THAT NO PARTY HAS ANY
FIDUCIARY RELATIONSHIP WITH, OR FIDUCIARY DUTY TO, ANY OTHER PARTY ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT OR ANY OTHER FUNDAMENTAL DOCUMENT AND THE RELATIONSHIP BETWEEN THE PARTIES
IN CONNECTION HEREWITH IS SOLELY THAT OF INDEPENDENT CONTRACTORS. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NO PARTY SHALL ASSERT, AND EACH PARTY HEREBY WAIVES, ANY CLAIMS AGAINST ANY OTHER
PARTY ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED
TO DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF, THIS REVENUE
PARTICIPATION PURCHASE AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 13.11 Severability . Any provision of this Agreement or of the Revenue Participations which is invalid, illegal or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without invalidating
the remaining provisions hereof, and any such invalidity, illegality or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 13.12 SERVICE OF PROCESS . EACH PARTY (EACH A “ SUBMITTING PARTY ”) HEREBY IRREVOCABLY SUBMITS
TO THE JURISDICTION OF THE STATE COURTS OF THE STATE OF CALIFORNIA IN LOS ANGELES COUNTY AND TO THE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL
37
DISTRICT OF CALIFORNIA, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR
BASED UPON THIS AGREEMENT AND THE SUBJECT MATTER HEREOF. EACH SUBMITTING PARTY TO THE EXTENT
PERMITTED BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A
DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN THE ABOVE-NAMED
COURTS, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF SUCH COURTS, THAT ITS
PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR
THAT THIS AGREEMENT, THE SUBJECT MATTER HEREOF, MAY NOT BE ENFORCED IN OR BY SUCH COURT, (B) HEREBY
WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED BY ANY SUBMITTING PARTY IN
STATE COURT TO FEDERAL COURT, AND (C) HEREBY WAIVES THE RIGHT TO ASSERT IN ANY SUCH ACTION, SUIT OR
PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE
ARISE FROM THE SAME SUBJECT MATTER. EACH SUBMITTING PARTY HEREBY CONSENTS TO SERVICE OF PROCESS BY
MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN TO IT PURSUANT TO SECTION 9.1 . EACH SUBMITTING
PARTY AGREES THAT ITS SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR
THE EXPRESS BENEFIT OF EACH OF THE OTHER SUBMITTING PARTIES. FINAL JUDGMENT AGAINST ANY SUBMITTING
PARTY IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION (X) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL
BE CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF INDEBTEDNESS OR LIABILITY OF THE SUBMITTING
PARTY THEREIN DESCRIBED, OR (Y) IN ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH
OTHER JURISDICTION.
Section 13.13 Headings . Section headings used herein and the Table of Contents are for convenience only and are not to affect the
construction of or be taken into consideration in interpreting this Agreement.
Section 13.14 Execution in Counterparts . This Agreement may be executed by facsimile and in any number of counterparts, each of which
shall constitute an original, but all of which taken together shall constitute one and the same instrument.
Section 13.15 Entire Agreement . This Agreement (including, without limitation, the Schedules hereto) represents the entire agreement of
the parties with regard to the subject matter hereof and the terms of any letters and other documentation entered into between any of the parties
hereto prior to the execution of this Agreement which relate to the Revenue Participations shall be replaced by the terms of this Agreement. To
the extent that there are any inconsistencies or conflicting provisions contained in this Agreement and any other Agreement, including without
limitation the Master Distribution Agreement, the terms and conditions of this Agreement shall prevail.
38
Section 13.16 Confidentiality . Each of the Revenue Participation Holders agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (a) to it and its Affiliates’ directors, officers, employees and agents, including,
without limitation, accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any
regulatory authority, (c) to the extent required by Applicable Laws or by any subpoena or similar legal process, or pursuant to requirements of
internal document retention and disclosure policies of general application promulgated pursuant to applicable law, (d) to any other party to this
Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the
enforcement of rights hereunder, (f) with the consent of the Revenue Participation Holders, or (g) to the extent such Information (x) becomes
publicly available other than as a result of a breach of this Section 13.16 , or (y) becomes available to the Revenue Participation Holder on a
non-confidential basis from a source other than Issuer. For the purposes of this Section 13.16 , “ Information ” means all information received
from Issuer relating to Issuer or its business, including, without limitation, Nonpublic Information, other than any such information that is
available to Issuer or any Revenue Participation Holder on a non-confidential basis prior to disclosure by Issuer; provided, that in the case of
information received from Issuer after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person
required to maintain the confidentiality of Information as provided in this Section 13.16 shall be considered to have complied with its
obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person
would accord to its own confidential information. The obligations of the Revenue Participation Holders under this Section 13.16 shall survive
the termination of this Agreement and shall remain an obligation, in accordance with the terms hereof, of any Person who ceases for whatever
reason to be a Revenue Participation Holder hereunder. SGF acknowledges that it may, from time to time, come into possession of material
Nonpublic Information regarding LGEI and its Affiliates and that U.S. securities laws prohibit any person or entity in possession of such
material Nonpublic Information from purchasing or selling securities of LGEI or any of its Affiliates. SGF agrees that it will use any material
Nonpublic Information regarding LGEI and its Affiliates in accordance with LGEI’s compliance policies and applicable law, including,
without limitation, federal, provincial and state securities laws.
Section 13.17 Waiver of Equitable Remedies . The sole and exclusive remedy of any Revenue Participation Holder for any breach or
default by Issuer or Distributor, as applicable, hereof shall be to bring an action at law to recover damages, and no Revenue Participation
Holder shall be entitled to any form of equitable relief, and in no event shall any Revenue Participation Holder be entitled to terminate or
rescind this Agreement or Issuer’s or Distributor’s rights with respect to a Funded Qualifying Project or enjoin or restrain or otherwise interfere
with Issuer’s or Distributor’s distribution, exhibition or other exploitation of any Funded Qualifying Project or Issuer’s or Distributor’s use,
publication or dissemination of any advertising issued in connection with the Funded Qualifying Project. In furtherance of and without limiting
the foregoing, each Revenue Participation Holder agrees that it shall not interfere or authorize or cause any other party to interfere with the
rights of Issuer or Distributor to quietly and peacefully enjoy and possess all rights in the Funded Qualifying Projects,
39
including, without limitation, all rights under copyright, to the extent owned or controlled by Issuer or Distributor, as applicable.
[Signature Pages Follow]
40
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and the year first written.
MQP, LLC ,
as Issuer
By:
/s/ Wayne Levin
Name:
Title:
Wayne Levin
Director
LIONS GATE ENTERTAINMENT INC.,
as Revenue Participation Holder
By:
/s/ Wayne Levin
Name:
Title:
Wayne Levin
General Counsel
LIONS GATE FILMS INC. ,
as a Distributor
By:
/s/ Wayne Levin
Name:
Title:
Wayne Levin
General Counsel
LIONS GATE TELEVISION INC. ,
as a Distributor
By:
/s/ Wayne Levin
Name:
Title:
Wayne Levin
General Counsel
SGF ENTERTAINMENT INC.,
as a Revenue Participation Holder
By:
/s/ Peter Shiroky
Name:
Title:
Peter Shiroky
Mandataire et Fondé de Pouvoir
SCHEDULE 1
Schedule 1 to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as a
Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate
Television Inc. (the “ Agreement ”).
Production Specifications
(i)
List of proposed financing partners;
(ii)
Chain of title documents including a description of the Rights owned or controlled by Issuer or Distributor;
(iii)
Details regarding third party contractual restrictions in respect of prequels, sequels, remakes and other derivative works, if
applicable;
(iv)
Insurance policies;
(v)
Existing license agreements or deal memos (excluding any agreements entered into by LGEI or its Affiliates that are of an ongoing
or multiple Production nature or that are subject to confidentiality obligations of LGEI or any of its Affiliates ( e.g . output
agreements);
(vi)
Territory;
(vii)
Financing Plan;
(viii)
Third Party Participations (and their required position in the Waterfall);
(ix)
Lead cast;
(x)
Contractual restriction regarding Screen Credit;
(xi)
Designation as a theatrical or non-theatrical release;
(xii)
Co-Financing Participations (and their required position in the Waterfall);
(xiii)
Screenplay or synopsis;
(xiv)
Director;
(xv)
Production Schedule;
(xvi)
Services Company;
(xvii)
Estimated Tax Credit Amounts;
(xviii)
Production Budget;
(xix)
Estimated Quebec spend.
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SCHEDULE 2.1
Schedule 2.1 to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as a
Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate
Television Inc. (the “ Agreement ”).
Schedule of Contributions
Revenue Participation Holder
Lions Gate Entertainment Inc.
SGF Entertainment Inc.
Notice Address
2700 Colorado Avenue
Suite 200
Santa Monica, CA 90404
Attention: General Counsel
Facsimile: (310) 255-3860
c/o Société générale de
financement du Québec
600 de la Gauchetière Street West
Suite 1500
Montreal, Quebec H3B 4L8
Attention: Vice President Legal
Affairs and Secretary
Facsimile: (514) 876-9306
TOTAL:
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Contribution
Pro Rata
Amount
$260,000,000
65%
$140,000,000
35%
$400,000,000
100%
SCHEDULE 2.3(b)(ii)
Schedule 2.3(b)(ii) to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc.,
as a Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate
Television Inc. (the “ Agreement ”).
Cashflow Schedules for the Initial Revenue Participations
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SCHEDULE 3.1
Schedule 3.1 to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as a
Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate
Television Inc. (the “ Agreement ”).
List of Jurisdictions
1. State of Delaware.
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SCHEDULE 9.2
Schedule 9.2 to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as a
Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate
Television Inc. (the “ Agreement ”).
Direct Competitors
*****
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SCHEDULE “GR”
Schedule “GR” to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as a
Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate
Television Inc. (the “ Agreement ”).
Definition of “Gross Receipts”
1. Definitions . As used in this Schedule “GR” , all defined terms shall have the meanings as defined in the Agreement, unless specifically
defined herein, and all references to “Paragraphs” shall refer to paragraphs of this Schedule “GR” .
2. Gross Receipts . For the purposes of this Agreement, “ Gross Receipts ” shall mean, for each Funded Qualifying Project, one hundred
percent (100%) of all amounts, other than Co-Financing Amounts, actually received by Issuer, LGEI, Distributor or any of their Affiliates, net
of applicable withholding taxes, in respect of the exhibition, distribution, sale, licensing, sub-licensing and exploitation of such Funded
Qualifying Project in all gauges, formats, media (now known or hereafter devised) and languages (except as otherwise provided herein)
throughout the universe and for greater certainty, including, without limitation, the Rights, all right, title and interest to any associated rights,
Merchandising, Ancillary Rights, secondary or publishing rights, including, without limitation, pre-sales, advances, bonuses, prizes and similar
proceeds regardless of when such amounts are received ( i.e. , whether they are received prior to or after the purchase of Revenue Participations
in the applicable Funded Qualifying Project, provided the Revenue Participation Holders purchase Revenue Participations in the applicable
Funded Qualifying Project and provided further that such amounts are generated prior to the Repurchase Date), but excluding advances, etc.
taken into account in the definition of P&A Costs and Other Releasing Costs and Affiliate Payments, including, without limitation, the
following:
A. All non-refundable sums actually received by Distributor from the following sources:
(i)
Licenses by Distributor directly to exhibitors of the right to exhibit the Funded Qualifying Project by means of Theatrical,
Non-Theatrical or Television;
(ii)
Licenses by Distributor to Subdistributors, net of any fees and expenses charged by such Subdistributor;
(iii)
The sale or lease of souvenir Funded Qualifying Projects and booklets;
(iv)
Recoveries by Distributor from actions based on unfair competition, piracy and/or infringements of copyrights and trademarks of
the Funded Qualifying Project, which recoveries are intended to compensate Distributor for losses sustained in respect of the
Funded Qualifying Project and shall be fairly and reasonably allocated among all Productions involved therein; provided, that no
Distribution Fee shall be charged on any portion of such recovery included in the Gross Receipts that represents punitive, rather
than actual or statutory, damages;
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(v)
The net receipts from so-called “four-wall” deals on a collective basis, i.e. , the sums received by Distributor from theater(s)
where Distributor has taken over the operation of such theater(s) specifically for the exhibition of the Funded Qualifying Project,
less all out-of-pocket costs of operating the theater(s) and those advertising costs that would normally and actually be paid by
theaters and which are paid by Distributor;
(vi)
Monies received from the Copyright Royalty Tribunal (or similar agencies established under the laws of any jurisdiction);
(vii)
Exploitation of the Ancillary Rights;
(viii)
Monies received by Distributor from the distribution, sale or other exploitation of Home Video Rights and any Video Levies (as
defined below) collected by Distributor, less local taxes, rebates, discounts, credit adjustments for defective Videograms, customs
duties, import charges, shipping, mailing and insurance charges, dubbing and subtitling costs, and mastering and submastering
costs; provided , however , that Distributor shall have the right to deduct up to ***** of all such monies as a reserve for returns
and credits of any nature, including, without limitation, those on account of one hundred percent (100%) or a lesser return
privilege, defective merchandise, exchange privilege, promotional credits, errors in billing, unusual overstock, bad debts and
errors in shipping, which reserves shall be liquidated within *****, pursuant to Distributor’s customs and practices. “ Video
Levies ” shall mean levies or other charges collected under operation of law with respect to the Funded Qualifying Project in the
Territory on the sale of video recorders, blank video cassettes or video discs or similar items or the rental of Videograms which
become payable to the Copyright Owner or the distributor of the Funded Qualifying Project. Distributor shall be entitled to collect
all revenue from Video Levies.
B. Gross Receipts shall be determined after all reserves, refunds, credits, discounts, allowances and adjustments granted to exhibitors and
Subdistributors, whether occasioned by condemnation by boards of censorship, settlement of disputes or otherwise. advance payments and
guarantees shall not be included in Gross Receipts until earned by the exhibition of the Funded Qualifying Project or forfeited.
C. Gross Receipts shall not include (a) any portion thereof which is contributed to charitable organizations in connection with or related to
premieres of the Funded Qualifying Project; (b) the receipts which are the contractually acquired property of the following parties,
whether or not Subsidiaries or divisions of Distributor: (i) exhibitors or others who may use or actually exhibit the Funded Qualifying
Project, (ii) radio or television broadcasters (including, without limitation, pay, cable, and closed circuit systems), (iii) book or music
publishers, (iv) phonograph record producers or distributors and (v) merchandisers, manufacturers and the like.
- ii -
D. Amounts charged back to Distributor or its Affiliates in any Accounting Period for damaged goods and returns of home video units shall
reduce Gross Receipts in such Accounting Period.
- iii -
SCHEDULE “MDA”
Schedule “MDA” to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc.,
as a Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate
Television Inc. (the “ Agreement ”).
Master Distribution Agreement
Part 1 – Lions Gate Films Inc.
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SCHEDULE “MDA”
Schedule “MDA” to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc.,
as a Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate
Television Inc. (the “ Agreement ”).
Master Distribution Agreement
Part 2 – Lions Gate Television Inc.
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SCHEDULE “PSA”
Schedule “PSA” to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as
a Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate
Television Inc. (the “ Agreement ”).
Form of Production Services Agreement
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Exhibit 10.41
CONFIDENTIAL TREATMENT REQUESTED: INFORMATION FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED IS OMITTED AND IS NOTED WITH “*****.” AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
MASTER DISTRIBUTION AGREEMENT
(FILM PRODUCTIONS)
Dated as of July 25, 2007
between
MQP, LLC
as Issuer,
and
LIONS GATE FILMS, INC.
as Distributor,
MASTER DISTRIBUTION AGREEMENT (FILM PRODUCTIONS), dated as of July 25, 2007, between MQP, LLC , a Delaware
limited liability company, as “ Issuer ” and LIONS GATE FILMS, INC. as “ Distributor ”.
INTRODUCTORY STATEMENT
WHEREAS, Issuer, Distributor and the Revenue Participation Holders (as defined in the RP Purchase Agreement) have entered into that
certain Revenue Participation Purchase Agreement (the “ RP Purchase Agreement ”) pursuant to which Issuer has agreed to sell, and each of
the Revenue Participation Holders has agreed to purchase, Revenue Participations (as defined in the RP Purchase Agreement) in each Funded
Qualifying Project on the terms set forth therein; and
WHEREAS, Issuer and the Revenue Participation Holders each desire to have Distributor distribute each Funded Qualifying Project on the
terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement and the RP Purchase Agreement
and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by each of the parties hereto), the
parties hereby agree as follows:
1. DEFINITIONS AND ACCOUNTING TERMS .
1.1 Defined Terms . As used in this Agreement the following terms shall have the respective meanings set forth in this Section 1.1 . Unless
otherwise defined herein, all defined terms shall have the meanings ascribed thereto in the RP Purchase Agreement.
“ Accounting Period ” shall mean, with respect to a Funded Qualifying Project, (i) each ***** period during the ***** following the
Release Date for such Funded Qualifying Project and (ii) thereafter, each quarterly period during the Term; provided , however , that the first
Accounting Period for each Funded Qualifying Project shall commence on the date of receipt of the first Gross Receipts for such Funded
Qualifying Project.
“ Adjusted Receipts ” has the meaning set forth in Section 6.3.4 .
“ Affiliate ” shall mean any Person, which, directly or indirectly, is in control of, is controlled by, or is under common control with another
Person. For purposes of this definition, a Person shall be deemed to be “ controlled by ” another Person if such latter Person possesses, directly
or indirectly, the power either to direct or cause the direction of the management and policies of such controlled Person whether by contract or
otherwise.
“ Affiliate Payment ” shall mean, with respect to a Qualifying Project, an amount payable to (i) Issuer, LGEI, Distributor or any of their
respective Affiliates, (ii) any officer, director or management of Issuer, LGEI or Distributor or any entity in which officer, director or
management of Issuer, LGEI or Distributor has any interest or (iii) any officer, director or management of any affiliate of Issuer, LGEI or
Distributor or any entity in which any officer, director or management of any affiliate of Issuer, LGEI or Distributor has any interest,
excluding in each case payments expressly permitted hereunder; provided, however, that each Executive Producer Fee shall not be considered
an Affiliate Payment.
“ Agreement ” means this Master Distribution Agreement, as amended, supplemented or otherwise modified, renewed or replaced from time
to time, and references to “ Schedules ” and “ Sections ” refer to Schedules and Sections of this Agreement.
“ Ancillary Rights ” means and includes, without limitation, the right to exploit all ancillary, incidental and subsidiary rights in and to any
Funded Qualifying Project, including, without limitation, all Merchandising, commercial tie-ins, music, music publishing, soundtrack,
photonovel, novelization, screenplay publication, interactive media, multi-media, and theme park (or other “themed” or location-based
attraction) rights.
“ Applicable Law ” shall mean all provisions of statutes, rules, regulations and orders of the United States of America, any state thereof or
municipality therein or of any foreign governmental body or of any regulatory agency applicable to the Person in question, and all orders and
decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party.
“ Appellate Arbitrators ” has the meaning set forth in Section 13.2 .
“ Arbitral Board ” has the meaning set forth in Section 13.1 .
“ Business Day ” shall mean any day other than a Saturday, Sunday or other day on which banks are required or permitted to close in either
the Province of Quebec or the State of California.
“ CIPO ” shall mean the Canadian Intellectual Property Office.
“ Co-Financier ” means a Person that is not an Affiliate of LGEI, the Issuer or the Distributor who makes an investment in a Qualifying
Project pursuant to a Co-Financing Transaction.
“ Co-Financing Amount ” means, with respect to a Qualifying Project, all amounts actually received by Issuer or its Affiliates on a
non-refundable basis from any Co-Financing Transaction; provided , however , that Co-Financing Amounts shall exclude any Co-Financing
Participations.
“ Co-Financing Participation ” means any amount payable to any Person that is not an Affiliate of LGEI in connection with a Co-Financing
Transaction, including pass through and defeasance amounts.
“ Co-Financing Transaction ” means, with respect to a Funded Qualifying Project, (i) tax advantaged financing transactions, including,
without limitation, tax credits, government incentives, labor credits, sale/leaseback transactions, governmental subsidy/rebate programs or
similar transactions and other so-called “soft money” transactions, in each case, that are contemplated to create a so-called “soft money”
benefit, or (ii) a transaction pursuant to
-2-
which a Person that is not an Affiliate of LGEI makes an equity investment in such Funded Qualifying Project.
“ Defect Notice ” has the meaning set forth in Section 8.1 .
“ Delivery ” has the meaning set forth in Section 8.1 .
“ Delivery Materials ” means (a) for any Funded Qualifying Project that is a Film Production, those materials listed on Schedule “DM” and
(b) for any Funded Qualifying Project that is neither a Film Production nor a Television Production ( e.g. a “direct-to-video” Production), such
materials as Distributor shall notify Issuer in writing no less than ***** prior to Delivery of such Funded Qualifying Project.
“ Distribution Expenses ” has the meaning set forth in Schedule “GR” .
“ Distribution Fee ” has the meaning set forth in Section 4 .
“ Distribution Records ” has the meaning set forth in Section 7.3 .
“ Distribution Rights ” means with respect to each Funded Qualifying Project the sole, exclusive and irrevocable right, under copyright,
throughout the Term, to (and to license others to) exhibit, distribute, market, display, project, transmit, broadcast, perform, advertise, publicize,
exploit, sell copies of, dispose of and otherwise communicate publicly or privately and/or turn to account such Funded Qualifying Project, in
whole or in part (and its plot, themes and other elements), and trailers and clips and excerpts therefrom, in any and all languages and versions,
in the Territory, on any and all kinds, sizes, gauges and/or widths of film, tape, computer, electronic, digital, on-line transmission by any and
every means, method, process or device or other delivery systems now known or hereafter developed, and in all markets and media now known
and exploited, now known and hereafter exploited, and not yet known or devised, including, without limitation, Ancillary Rights , Theatrical
Rights, Non-Theatrical Rights, Television Rights and Home Video Rights .
“ Distributor Collateral ” has the meaning set forth in Section 19 .
“ Distributor Security Agreement ” has the meaning set forth in Section 19 .
“ Distributor Security Interest ” has the meaning set forth in Section 19 .
“ Encumbrance ” means any lien (statutory or other), claim, charge, security, interest, mortgage, deed of trust, pledge, hypothecation,
assignment, conditional sale or other title retention agreement, preference, priority or other security agreement or preferential arrangement of
any kind, and any easement, encroachment, covenant, restriction, right of way, defect in title or other encumbrance of any kind.
“ Film Production ” means a Production that is intended to be exploited theatrically and specifically excludes a Television Production.
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“ Force Majeure ” has the meaning set forth in Section 17 .
“ Free Television ” means (a) exhibition over television broadcast stations, whether network stations or independent stations, where no
charge is made to the viewer and/or (b) exhibition by means of satellite or cable television for which subscribing members of the public may
pay for the transmission service provided by the satellite or cable system, but do not otherwise pay a premium for the programming transmitted
by the satellite or cable system.
“ Funded Qualifying Project ” shall mean any Qualifying Project in which the Revenue Participation Holders have purchased a Revenue
Participation, and, for the purposes of this Agreement only, in which Distributor has been granted Distribution Rights, the Related Rights and
other rights pursuant to Section 2 .
“ GAAP ” shall mean generally accepted accounting principles in the United States of America in effect from time to time consistently
applied (except for accounting changes in response to FASB releases, or other authoritative pronouncements).
“ Gross Receipts ” has the meaning set forth in Schedule “GR” .
“ Home Video Rights ” means and includes, without limitation, the sole and exclusive right (1) to manufacture, advertise, promote, exploit
and distribute the Funded Qualifying Projects on a sale, lease or rental basis directly or through licensees, in all languages, versions, and sizes,
on all formats of video devices now known or hereafter known or devised, including, without limitation, (a) any and all forms of
videocassettes, cartridges, phonograms, tape, video discs, laser discs, 8mm recordings and any other visual or optical recording, (b) any and all
forms of DVD (including, without limitation, HD-DVD and Blu-Ray), DVD-ROM, and Internet access-ready DVDs, CD-I and CD-ROM,
Video Compact Discs, or (c) on Videograms, and (2) the right to exploit the Funded Qualifying Projects by means of Video-On-Demand or
Near Video-On-Demand, and all forms of digital or on-line exploitation, distribution and/or transmission (including, without limitation,
Internet transmission) and computerized or computer-assisted media.
“ Indemnified Party ” has the meaning set forth in Section 12.1 .
“ Indemnifying Party ” has the meaning set forth in Section 12.1 .
“ Issuer Collateral ” has the meaning set forth in Section 20 .
“ Issuer Event of Default ” has the meaning set forth in Section 11.2 .
“ Issuer Obligations ” has the meaning set forth in Section 6.2 .
“ Issuer Security Agreement ” has the meaning set forth in Section 20 .
“ Issuer Security Interest ” has the meaning set forth in Section 20 .
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“ JAMS ” has the meaning set forth in Section 13 .
“ LGEI ” means Lions Gate Entertainment Inc., a Delaware corporation.
“ Merchandising ” includes, without limitation, the right to create and exploit computer, video and other electronic games based upon a
Funded Qualifying Project or any element thereof, including, without limitation, the sole and exclusive right to create or license the creation of
interactive programs, whether in CD-ROM, DVD (including, without limitation, HD-DVD and Blu-Ray), set-top or arcade formats; and the
right to create and exploit toys, comic books and so-called “making of books,” apparel, food and beverages, posters, and any and all other
commodities, services or items based upon a Funded Qualifying Project or any element thereof.
“ Near Video-On-Demand ” incorporates the definition of Video-On-Demand, except that, instead of the consumer determining the starting
time for viewing the Funded Qualifying Project, the consumer is able to select the starting time from viewing times determined by the provider,
where the provider permits a selection of starting times not more than 15 minutes apart.
“ Nonpublic Information ” means information which has not been disseminated in a manner making it available to investors generally,
within the meaning of Regulation FD.
“ Non-Theatrical Markets ” means and includes, without limitation, airlines, schools, libraries, hospitals, hotels, Army, Navy, Air Force and
other military or armed services installations, and ships at sea flying the flag of a country in the Territory or which are serviced from within the
country of such flag, and other institutions that typically license recorded entertainment materials from programming suppliers.
“ Non-Theatrical Rights ” means and includes, without limitation, the sole and exclusive right to exploit the Funded Qualifying Projects in
Non-Theatrical Markets by any and all means, whether now known or hereafter known or devised.
“ Other Releasing Costs ” shall mean, with respect to a Funded Qualifying Project, the aggregate of the following costs and expenses, which
costs and expenses shall be actual out-of-pocket costs and expenses paid or payable within *****: home video/DVD manufacturing,
duplication, shipping and marketing costs for such Funded Qualifying Project and all other actual out-of-pocket distribution, manufacturing or
other costs and expenses paid to an unaffiliated third party (other than participations, residuals, or as otherwise included in P&A Costs, Direct
Costs, or otherwise duplicated costs) with respect to such Funded Qualifying Project.
“ P&A Costs ” shall mean, with respect to a Funded Qualifying Project that is a motion picture, the aggregate of the following costs, which
costs shall be actual out-of-pocket costs paid or payable within ***** or incurred not later than ***** after the date of the first theatrical
release: all prints, marketing, advertising, promotion and publicity costs incurred in the exercise by Distributor of the theatrical distribution
rights in such Funded Qualifying
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Project (i) in the United States; and (ii) for any other territory in which Distributor directly distributes such Funded Qualifying Project.
“ Pay-Per-View ” means exhibition over a service for which subscribers pay a premium on a per-program basis for each program which they
choose to receive.
“ Pay Television ” means exhibition over a service for which subscribers pay a premium for the programming transmitted (e.g., HBO).
“ Permitted Encumbrances ” means: (a) Encumbrances for taxes not yet due and payable; (b) Encumbrances arising from and pursuant to the
Transaction Documents; (c) Encumbrances arising in the ordinary course of production of a Production, including, without limitation, those
arising out of or with respect to or pursuant to any collective bargaining agreement ( e.g. , guild liens, possessory liens of laboratories, transfer
facilities and other post-production facilities); (d) Encumbrances created under any distribution agreement entered into with a Subdistributor in
the ordinary course of business in connection with the distribution or exploitation of any Funded Qualifying Project; (e) Encumbrances created
pursuant to the terms of any Co-Financing Transaction; (f) Encumbrances in favour of any completion guarantor providing a completion
guarantee for any Funded Qualifying Project; (g) Encumbrances in favour of any interim financier of the production costs for a Funded
Qualifying Project; and (h) the Senior Lender Encumbrances.
“ Person ” shall mean any natural person, corporation, division of a corporation, limited liability company, partnership, trust, joint venture,
association, company, estate, unincorporated organization or government or any agency or political subdivision thereof.
“ Proceedings ” has the meaning set forth in Section 13 .
“ Production ” means any motion picture or television production of every kind and character whatsoever, including, without limitation, all
present and future technological developments, whether produced by means of any photographic, electrical, electronic, optical, mechanical or
other processes or devices now known or hereafter devised, and their accompanying devices and processes whereby 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, without limitation, computer generated
pictures and graphics other than video games.
“ Production Specifications ” shall mean, in respect of each Funded Qualifying Project, the documents or items pre-approved in writing by
the Revenue Participation Holders in respect of such Funded Qualifying Project pursuant to the RP Purchase Agreement.
“ Rebate Costs ” has the meaning set forth in Section 7.4 .
“ Rebates ” has the meaning set forth in Section 7.4 .
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“ Regulation FD ” means Regulation FD as promulgated by the US Securities and Exchange Commission under the Securities Act and
Exchange Act as in effect from time to time.
“ Residuals ” shall mean the costs incurred and payments required under applicable collective bargaining agreements (in all applicable
jurisdictions) by reason of or as a condition to use or exhibition of a Funded Qualifying Project in any media.
“ Revenue Participation Holders ” shall mean SGF and LGEI and each of their respective permitted successors and assigns, and “ Revenue
Participation Holder ” means any one of them.
“ RPMRR ” shall mean the Register of Personal Movable Real Rights (Quebec).
“ Rules ” has the meaning set forth in Section 13 .
“ Senior Lender Encumbrances ” shall mean the Encumbrances in favour of the Senior Lenders and the Senior Loan Administrative Agent.
“ Senior Lender InterCreditor ” shall mean the intercreditor agreement to be entered into by SGF and the Senior Loan Administrative Agent.
“ Senior Lenders ” shall mean the lenders in the Senior Loan Syndicate.
“ Senior Loan Administrative Agent ” shall mean JP Morgan Chase Bank, National Association.
“ Senior Loan Syndicate ” shall mean the senior credit facilities in favour of Lions Gate Entertainment Corp. and LGEI administered by the
Senior Loan Administrative Agent.
“ Settlement Date ” means, the ***** following the end of an Accounting Period.
“ Settlement Report ” has the meaning set forth in Section 7.2 .
“ SGF ” means SGF Entertainment Inc. and its successors and assigns.
“ Short Form License Agreement ” has the meaning set forth in Section 10.2.3 .
“ Subdistributor ” has the meaning set forth in Section 4.2 .
“ Television Production ” means a Production that is intended to be exploited on any form of television including, without limitation, Free
Television, Pay Television and Pay-Per-View and specifically excludes a Production exploited theatrically.
“ Television Rights ” means and includes, without limitation, the sole and exclusive right to exploit the Funded Qualifying Projects by
means of television signal, without regard as to how such signal is distributed (e.g., broadcast over the air, or via satellite, fiberoptic cable,
telephone wire, or any and all forms of Internet, wireless or other computer or digital
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technology, or any other form of technology, now known or hereafter known or devised. Television Rights includes, without limitation, the
right to exploit the Funded Qualifying Projects via Pay Television, Pay-Per-View and Free Television.
“ Term ” means, with respect to a Funded Qualifying Project, the duration of time that Issuer owns and/or controls the Distribution Rights
for such Funded Qualifying Project.
“ Territory ” means, with respect to a Funded Qualifying Project, those countries and territories for which Issuer owns and/or controls all or
a portion of the Distribution Rights.
“ Theatrical Rights ” means and includes, without limitation, the sole and exclusive right to rent, lease, license, exhibit, distribute and
otherwise deal in and with the Funded Qualifying Projects for viewing by the public in theatres, in any and all languages or versions, and
including, without limitation, the right to enter into rentals, leases and licenses respecting all theaters or other places of public viewing, without
regard as to how the Funded Qualifying Projects are distributed to theatres (e.g., on any and all sizes and gauges of film, tape or disc or
distribution to theatres by any other means, whether now known or hereafter known or devised, including, without limitation, satellite, cable or
other electronic transmission).
“ Third Party Participation ” means, with respect to a Funded Qualifying Project, any amount payable to any Person other than (i) LGEI,
Issuer, Distributor or any Affiliate thereof or (ii) any officer, director, management employee of any of LGEI, Issuer, Distributor or any
Affiliate thereof, whether characterized as a deferment, gross participation, net participation, profit participation, contingent compensation, box
office bonus, award or credit bonus, or otherwise which amount is based, dependent, computed, or payable, in whole or in part, on the net or
gross receipts, earnings, or proceeds derived from such Funded Qualifying Project or any percentage of the foregoing or is payable at such time
as any such receipts, earnings, or proceeds equal a specified amount whether such receipts, earnings, or proceeds are computed in the same
manner as provided in the Distribution Agreement or are otherwise computed or any similar type of payment or the economic equivalent
thereof. For the avoidance of doubt, (a) a “ Third Party Participation ” shall include, “deferments” payable in connection with a Funded
Qualifying Project which are fixed obligations in a definite amount whether or not the receipts, earnings, or proceeds of such Funded
Qualifying Project equal a specified amount, and (b) a “ Third Party Participation ” shall not include Co-Financing Participations unless (i) the
contractual arrangements with a Co-Financier require such Co-Financier’s Co-Financing Participation to be paid from Gross Receipts in the
same position in the Waterfall as Third Party Participations and (ii) such contractual arrangements have been disclosed to the Revenue
Participation Holders in the Production Specifications.
“ Third Party Payments ” has the meaning set forth in Section 6.1 .
“ UCC ” shall mean the Uniform Commercial Code, as applicable in the State of Delaware.
“ USCO ” shall mean the United States Copyright Office.
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“ Videograms ” means and includes, without limitation, any and all forms of computer software, or any configuration of computer software
and technology, for private use by consumers by any means, whether now known or hereafter known or devised.
“ Video-On-Demand ” means and includes, without limitation, the transmission of a Funded Qualifying Project through any method now
known or hereafter devised, including, without limitation, broadcast television signal, whether analog or digital, or via satellite, cable,
telephone wire, fiberoptics, cyberspace, Internet or other computerized or digital technology, on-line transmission, every sort of electronic
transmission or any and all other delivery systems, to a television receiver, computer monitor or other comparable display, whereby the
consumer can select the Funded Qualifying Project from a central library and whereby the consumer determines the starting time of the Funded
Qualifying Project.
“ Waterfall ” has the meaning set forth in Section 6.3 .
1.2 Computation of Time Periods . Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date
to a later specified date, the word “ from ” means “ from and including ”, the word “ through ” means “ to and including ”, and the words “ to ”
and “ until ” each mean “ to but excluding ”.
1.3 Accounting Terms / Ratios .
1.3.1 Except as otherwise expressly provided herein or in the RP Purchase Agreement, all accounting terms not defined herein or in the
RP Purchase Agreement shall be construed in accordance with GAAP.
1.3.2 All calculations of financial ratios hereunder shall be calculated to the same number of decimal places as the relevant ratios are
expressed in and shall be rounded upward if the number in the decimal place immediately following the last calculated decimal place is five or
greater, and rounded down if otherwise.
1.4 Rules of Construction . Unless the context otherwise clearly requires:
1.4.1 whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms;
1.4.2 the word “ will ” shall be construed to have the same meaning and effect as the word “ shall ”;
1.4.3 any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on
such amendments, supplements or modification set forth herein);
1.4.4 any reference to any law herein shall be construed as referring to such law as from time to time amended;
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1.4.5 any reference herein to any Person, or to any Person in a specified capacity, shall be construed to include such Person’s
successors and assigns or such Person’s successors in such capacity, as the case may be;
1.4.6 the words “ herein ,” “ hereunder ” and other words of similar import refer to this Agreement as a whole and not to any
particular Schedule , Section , or other subdivision;
1.4.7 to the extent that there are any inconsistencies with the terms and conditions of this Agreement and the terms and conditions of
the RP Purchase Agreement, the terms and conditions of the RP Purchase Agreement shall prevail; and
1.4.8 all capitalized terms not otherwise defined herein shall have the meaning attributed thereto in the RP Purchase Agreement and
shall be incorporated herein as if herein recited at length.
2. GRANT OF RIGHTS .
2.1 Issuer hereby grants and conveys the Distribution Rights to Distributor, to the extent owned or controlled by Issuer.
2.2 Issuer hereby grants the Related Rights to Distributor, to the extent owned or controlled by Issuer.
2.3 Distributor shall have the sole and exclusive right to advertise, publicize, promote and market each Funded Qualifying Project by any
means in the Territory and over the Internet.
2.4 Issuer shall not release or disclose any information, advertising or publicity relating to any Funded Qualifying Project in the Territory
without Distributor’s prior written approval.
3. EXPLOITATION DECISIONS .
3.1 Subject to the terms of the RP Purchase Agreement and the terms and conditions of this Agreement, Distributor shall have absolute
discretion concerning the exploitation of each Funded Qualifying Project, including the right to release and distribute (and/or refrain from
releasing and distributing) each Funded Qualifying Project in such manner and media, and through such releasing or distribution entity or
entities (and/or to engage such Subdistributors or licensees). Issuer agrees that any such determination on the part of Distributor and its
sublicensees regarding any matter affecting the exploitation of a Funded Qualifying Project shall be binding and conclusive upon Issuer.
Without limiting the foregoing:
3.1.1 Distributor may, at its discretion, prepare closed-captioned versions of the Funded Qualifying Projects and use excerpts, clips and
trailers thereof for advertising and promotional purposes.
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3.1.2 Distributor may incorporate onto Videograms of a Funded Qualifying Project (A) preceding and/or following the main and end
titles of such Funded Qualifying Project, Distributor’s or any of Distributor’s, sublicensees’, Affiliates’ and affiliated licensees’ names,
trademarks, logos, trailers, clips, (B) excerpts of other Funded Qualifying Projects, (C) Distributor’s standard “opening” and “closing”
sequences, including, without limitation, an introductory visual “logo” with or without music, (D) any legal notices or other information which
Distributor determines is necessary, (E) paid advertising (provided monies received from such paid advertising shall be included in Gross
Receipts) and (F) any so-called “making of” or “behind the scenes” documentary footage or programming, including, without limitation, any
part of the electronic press kits, featurettes, interviews, television specials and publicity clips prepared in connection with such Funded
Qualifying Project.
3.1.3 Distributor may incorporate trailers, clips or excerpts of a Funded Qualifying Project on Videograms of other Productions and may
incorporate trailers, clips or excerpts of other Productions on Videograms of a Funded Qualifying Project.
3.1.4 Distributor shall have the right, at its discretion, to either make any and all changes and modifications in a Funded Qualifying
Project (including, without limitation, its title) which Distributor shall determine to be necessary or desirable by reason of censorship,
registration (i.e. ratings) or other requirements of governmental or other authorities or law, all at Issuer’s sole cost and expense as part of the
Distribution Expenses of such Funded Qualifying Project. Issuer agrees to cooperate with Distributor to clear customs, registrations and
censorship or similar authorities and any fees associated therewith may be deductible from any amounts payable to Issuer. Distributor shall
have the right to select, designate or change the title of a Funded Qualifying Project in its discretion and to release such Funded Qualifying
Project in any or all parts of the Territory under such title or titles as Distributor may designate.
3.1.5 Distributor may include Distributor’s (or one or more of Distributor’s or any of Distributor’s sublicensees’, affiliates’ and affiliated
licensees’ names) name, logo, trademark or emblem in such manner, position, form and substance as Distributor may elect on the prints of the
Funded Qualifying Projects, and on all advertising and publicity materials for the Funded Qualifying Projects (including, without limitation,
any trailers of the Funded Qualifying Projects), together with such words as Distributor may elect indicating that such Funded Qualifying
Projects are being distributed by Distributor or any of Distributor’s sublicensees’, affiliates’ and affiliated licensees’ names.
3.2 Maximizing Gross Receipts . Distributor shall use diligent efforts and skill (consistent with the quality standards of first-class
distributors of Productions) in the distribution and exploitation of the Funded Qualifying Projects in all media throughout the Territory to
maximize Gross Receipts, including, without limitation, obtaining any permits permissions and/or clearances necessary to exploit the Funded
Qualifying Projects in all territories throughout the Territory.
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3.3 Copies of License Agreements . Distributor shall provide Issuer with copies of all license agreements entered into by the Distributor in
connection with any Funded Qualifying Project or any rights therein, promptly upon execution thereof.
3.4 Theatrical Release of Film Productions . For each Funded Qualifying Project that is a Film Production, Distributor shall release such
Funded Qualifying Project theatrically. The size, date, cost and scope of such theatrical release shall be determined in the sole discretion of
Distributor and in accordance with the standards of first-class distributors of Productions taking into account its theatrical release pattern for
films of a similar genre and budget.
4. DISTRIBUTION FEE
4.1 Distribution Fee . For each Funded Qualifying Project, Distributor shall be entitled to receive a distribution fee, on an uncrossed basis
with all other Funded Qualifying Projects (the “ Distribution Fee ”), in an amount equal to ***** for such Funded Qualifying Project,
escalating on a prospective basis only to ***** for such Funded Qualifying Project at such time, if ever, as the sum of the aggregate amount
actually paid to SGF pursuant to the RP Purchase Agreement on account of its Revenue Participation for such Funded Qualifying Project shall
equal ***** paid by SGF for such Revenue Participation, and further escalating on a prospective basis only to ***** for such Funded
Qualifying Project at such time, if ever, as the sum of the aggregate amount actually paid to SGF pursuant to the RP Purchase Agreement on
account of its Revenue Participation such Funded Qualifying Project shall equal ***** paid by SGF for such Revenue Participation; provided ,
however , that the Distributor shall not be entitled to a Distribution Fee on any Gross Receipts relating to the principal license fee payable by a
U.S. licensee for any Funded Qualifying Project that is a Television Production. Any escalation in the Distribution Fee for a Funded Qualifying
Project, and the date of such escalation, shall be indicated in the Settlement Report for such Funded Qualifying Project for the Accounting
Period in which such escalation occurred. In the event that SGF contests the amount actually paid to SGF pursuant to the RP Purchase
Agreement on account of its Revenue Participation for such Funded Qualifying Project, then the Distribution Fee shall not escalate to ***** (as
the case may be), until such time as the parties hereto have had the opportunity to review and agree on such amount, and the date upon which
such amount was actually paid to SGF, and any overpayment of such Distribution Fee shall be corrected in the Settlement Report for the next
Accounting Period (or Accounting Periods, if Gross Receipts are not sufficient to correct such overpayment in such next Accounting Period).
4.2 Subdistribution . Distributor shall be entitled to the Distribution Fees set forth above, in any part of the Territory where Distributor
exploits each Funded Qualifying Project either directly or through a third party that is not an Affiliate of Distributor to which all or part of the
Distribution Rights are licensed or sublicensed (“ Subdistributor ”), regardless of the amounts retained by any such Subdistributor.
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5. DISTRIBUTION EXPENSES .
All Distribution Expenses incurred in connection with the Distribution of each Funded Qualifying Project in the Territory shall be advanced
by Distributor and recouped as provided in Section 6 .
6. ALLOCATION OF GROSS RECEIPTS .
6.1 Third Party Payments . All Third Party Participations, Residuals, music synchronization, performance and other mechanical fees, and
any other license fees (including, without limitation, all literary, all EU copyright directives, artistic, musical, technological and/or intellectual
property rights fees) in connection with each Funded Qualifying Project shall be the obligation of Issuer and shall not be the obligation of
Distributor (collectively, “ Third Party Payments ”). Issuer shall deliver each Funded Qualifying Project free and clear of any Encumbrances,
other than Permitted Encumbrances. Upon Delivery of a Funded Qualifying Project to Distributor in accordance with the terms of this
Agreement, Distributor shall assume any applicable union and/or guild payment obligation(s) due to such union(s) and/or guild(s) as a result of
Distributor’s exploitation of the Distribution Rights for such Funded Qualifying Project in the Territory and each payment made by Distributor
in respect of such obligations shall be considered a Third Party Payment.
6.2 Paymaster Services . So long as Distributor controls the Distribution Rights with respect to a Funded Qualifying Project, then with
respect to each such Funded Qualifying Project during the Term, Distributor agrees to (i) provide to Issuer paymaster services in connection
with the payment of Third Party Payments and other Distribution Expenses for such Funded Qualifying Project and (ii) advance, on behalf of
Issuer the Third Party Payments and other Distribution Expenses (the “ Issuer Obligations ”). Distributor’s agreement to pay Issuer Obligations
in its capacity as paymaster pursuant to the immediately preceding sentence is subject to Distributor’s timely receipt from Issuer of all
contractual provisions and cost and participation information relating to the Funded Qualifying Projects which Issuer hereby agrees to provide
on a timely basis. Distributor shall be entitled to fully recoup, as a Distribution Expense, any amount advanced in respect of Issuer Obligations,
including any amount paid by Distributor on account of Third Party Payments, out of Gross Receipts.
6.3 Allocation of Gross Receipts . Subject to any rights and remedies of Distributor as set forth in this Agreement, Distributor shall, on an
ongoing and continuing basis, deduct and allocate the following items from Gross Receipts from each Funded Qualifying Project, on a
continuing basis in the following order of priority (the “ Waterfall ”):
6.3.1 First , to the payment of any required Third Party Payments, including, without limitation, any Co-Financing Participations that are
included in such Third Party Payments; provided however , that all unreimbursed Third Party Payments and Co-Financing Participations paid
or earned prior to or during such Accounting Period shall be retained by Distributor; provided further , however , that if a Co-Financing
Transaction
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requires that such Co-Financing Participation be paid at a higher or lower level of the Waterfall, then such Co-Financing Participation shall,
with respect to the Gross Receipts received in connection with such applicable Funded Qualifying Project, be deducted and paid to such
co-financing participant at such applicable level of the Waterfall; provided further , however , that if the contractual arrangements relating to a
Third Party Payment require that such Third Party Payment be paid at a higher or lower level of the Waterfall, then such Third Party Payment
shall, with respect to the Gross Receipts received in connection with such applicable Funded Qualifying Project, be deducted and paid to such
the applicable third party participant at such applicable level of the Waterfall.
6.3.2 Second, to Distributor on account of the Distribution Fee for such Accounting Period;
6.3.3 Third , To Distributor on account of all unreimbursed Distribution Expenses paid or incurred during or prior to such Accounting
Period shall be retained by Distributor (for purposes of the foregoing, “ incurred ” shall mean Distribution Expenses that Distributor is
obligated to pay to third parties prior to or during the applicable Accounting Period), which amounts shall include all unreimbursed Third Party
Payments paid or earned prior to or during such Accounting Period (for purposes of the foregoing, “ earned ” shall mean with respect to third
parties the amount that Distributor is contractually obligated to pay to such third parties as a result of the calculation of revenues and expenses
recognized, or events occurring, during the Accounting Period in question, and, with respect to Residuals, amounts that Distributor is
contractually obligated to pay pursuant to collective bargaining agreements with all applicable guilds as a result of the calculation of revenues
and expenses recognized during the Accounting Period in question); and
6.3.4 Fourth , all remaining amounts (“ Adjusted Receipts ”) shall be distributed to the Revenue Participation Holders (and, if applicable,
(a) any Co-Financier, on account of Co-Financing Participations and (b) any third party recipient of a Third Party Payment), as set forth in the
RP Purchase Agreement.
6.4 Gross Receipts Not Crossed . Gross Receipts shall be disbursed through the Waterfall on a Funded Qualifying Project-by-Funded
Qualifying Project and Gross Receipts from one Funded Qualifying Project will not be crossed with Gross Receipts from any other Funded
Qualifying Project.
7. ACCOUNTING / SETTLEMENT REPORTS / AUDIT .
7.1 Accounting Period . Distributor shall account to Issuer with respect to each Funded Qualifying Project distributed by Distributor
hereunder for each Accounting Period.
7.2 Settlement Reports . On each Settlement Date, Distributor shall render to Issuer (with a copy to each Revenue Participation Holder,
provided that Distributor’s inadvertent failure to provide such copy to any Revenue Participation Holder shall be a breach of this Agreement) a
settlement report for each Funded Qualifying Project (each, a “ Settlement Report ”). Each Settlement Report shall be delivered by Distributor
to Issuer on each Settlement Date together with any sums being shown due to Issuer. Settlement Reports
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rendered by Distributor may be changed from time to time to give effect to year-end adjustments made by Distributor’s accounting department
or public accountants, to items overlooked, to correct errors, or to reflect any indebtedness which may become uncollectible for any similar
purposes. Should Distributor make any overpayment to Issuer hereunder for any reason, Distributor shall have the right to deduct and retain for
its own account an amount equal to any such overpayment from any sums that may thereafter become due or payable by Distributor to Issuer or
for Issuer’s account. Should Distributor make any underpayment to Issuer hereunder for any reason, Distributor shall on the next succeeding
Settlement Date pay to Issuer an amount equal to any such underpayment; provided , however , that all amounts payable to Issuer hereunder
shall be subject to all laws and regulations now or hereafter in existence requiring the deduction or withholding of payments for income or
other taxes payable by or assessable against Issuer arising out of or in connection with this Agreement. Distributor shall have the right to make
such deductions and withholdings, and the payment thereof to the governmental agency concerned in accordance with its interpretation in good
faith of such laws and regulations shall constitute payment hereunder to Issuer, and Distributor shall not be liable to Issuer for the making of
such deductions or withholdings or the payment thereof to the governmental agency concerned. In any such event Issuer shall make and
prosecute any and all claims which it may have (and which it desires to make and prosecute) with respect to the same directly with the
governmental agency having jurisdiction in the premises.
7.3 Accounting Records . Books of account in respect of the distribution of each Funded Qualifying Project (which books of account are
hereinafter referred to collectively as the “ Distribution Records ”), shall be kept at Distributor’s or its Affiliates’ various offices (both in the
United States and abroad) where generated or customarily kept, for as long as such Distribution Records are customarily retained by such office
( provided , however , that the foregoing obligation shall not apply to any Subdistributors of a Funded Qualifying Project) and in the form
customarily maintained by Distributor or such Affiliates.
7.4 Audits . Issuer and each Revenue Participation Holder shall each have the right, at its own expense, but not more than *****, to audit
the Distribution Records at the aforesaid office in order to verify the Settlement Reports rendered hereunder in connection with each Funded
Qualifying Project. Any such audit shall be conducted only by a certified public accountant during reasonable business hours and in such
manner as not to interfere with Distributor’s normal business activities, shall not continue for more than ***** and be conducted by a third
party accounting firm approved by the Revenue Participation Holders (Sills & Adelmann, Hacker, Douglas & Company, and any of the
so-called “Big-Four” accounting firms are hereby pre-approved), provided that no such firm is compensated on a “percentage of recovery”
basis, it being understood that Distributor shall have the right to approve any “percentage of recovery” retainer), provided, however, that such
third party accounting firm shall agree in writing, for the benefit of Distributor, to be bound by the same duties of confidentiality arising under
this Agreement and the RP Purchase Agreement. The Issuer and each Revenue Participation Holder shall be entitled to conduct the audit within
***** of the Issuer or each Revenue Participation Holder’s notice to conduct the audit. Issuer shall not have the right to examine or inquire into
any matters or items which are contained in any such Settlement Report after the expiration of ***** from and after the date
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of receipt of such Settlement Report, and such Settlement Report shall be final and conclusive upon Issuer upon the expiration of such *****
period notwithstanding that the matters or items embraced by or contained therein may later be contained or referred to in a cumulative
statement pertaining to more than one Accounting Period. Except in the context of litigation, such cumulative statement shall not be subject to
audit by Issuer to the extent the material contained therein was first reflected on a Settlement Report submitted more than ***** prior to the
date of mailing of such cumulative statement. Issuer shall be forever barred from maintaining or instituting any action or proceeding based
upon, or in any way relating to, any transactions had by Distributor, its Affiliates, or its licensees, in connection with the Funded Qualifying
Projects which are reflected on any Settlement Report rendered hereunder, or the accuracy of any item appearing therein, unless written
objection thereto stating with specificity the particular transaction(s) or item(s) to which Issuer objects shall have been delivered by Issuer to
Distributor prior to the expiration of the ***** period with respect to such Settlement Report unless such action or proceeding is commenced
within such period. Notwithstanding the foregoing, a notice of intention to conduct an audit or to institute litigation shall interrupt each
aforementioned ***** period. In the event the audit is not conducted or litigation instituted within a reasonable delay from the date of such
notice, the right to conduct such audit or institute litigation shall terminate ***** from a written notice thereof by the Distributor. The Issuer
and each Revenue Participation Holder shall be entitled to examine: all licensing, distribution and sub-distribution agreements relating to
Funded Qualifying Projects. If a Funded Qualifying Project has been distributed, licensed, sub-distributed or packaged with Productions which
are not Funded Qualifying Projects (“ Packaged Projects ”), the Issuer and each Revenue Participation Holder shall be entitled to examine all
licensing, distribution and sub-distribution agreements in connection with such Funded Qualifying Project and such Packaged Projects, as well
as all accounts, records, Distribution Records, Settlement Reports and documents which set forth, inter alia , the price allocation for such
Funded Qualifying Project and such Packaged Projects. In connection with the delivery of each Settlement Report, Distributor shall provide an
officer’s certificate that (i) sets forth the amount of all rebates, advances and credits allocated to one or more Funded Qualifying Projects
pursuant to agreements with film processing laboratories or other home video replication entities (e.g., film duplication advances) for such
Accounting Period (collectively, “ Rebates ”) (on a Production by Production basis), (ii) the aggregate amount, if any, of any out-of-pocket
third party costs (“ Rebate Costs ”) incurred in acquiring such Rebates allocated to one or more Funded Qualifying Projects (on a Production by
Production basis), and (iii) certifies that, taking into account all of the facts and circumstances, the Rebates and Rebate Costs were allocated to
the Funded Qualifying Projects in a fair and reasonable manner. To the extent that the results of an audit of the Distribution Records reveals
that additional Adjusted Receipts are due to Issuer, Distributor agrees to pay such sums to Issuer together with interest thereon at LIBOR,
accruing from the date such amount should have been paid to Issuer.
7.5 Statements and Payments . All statements and payments contemplated by this Agreement shall be sent to the respective parties address
as set forth in Section 16 .
8. DELIVERY .
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8.1 Definition and Procedures . Issuer shall deliver each Funded Qualifying Project in strict conformity with the Production Specifications
applicable to such Funded Qualifying Project. “ Delivery ” shall mean Distributor’s receipt, at Issuer’s sole cost and expense, of all Delivery
Materials applicable to each Funded Qualifying Project. If all the Delivery Materials are not timely delivered to Distributor, or if any of the
Delivery Materials are incomplete or technically unacceptable, or if the Funded Qualifying Project does not conform to the Production
Specifications, Distributor shall notify Issuer in writing specifying the defects (“ Defect Notice ”). Such Defect Notice shall be delivered within
***** of receipt by Distributor of the last item required for Delivery sent by Issuer. If Issuer fails to cure the specified defects within *****
from the date such Defect Notice was sent, or if Issuer fails to timely deliver the Funded Qualifying Project, Distributor may secure acceptable
replacements and withhold from Adjusted Receipts or any other amounts due to Issuer Distributor’s reasonable estimate of the cost of
conforming the Funded Qualifying Project and or delivery of the Funded Qualifying Project to the requirements of this Agreement.
Notwithstanding the foregoing, approval by Distributor of less than all Delivery Materials or any release of the Funded Qualifying Project shall
not be deemed a waiver by Distributor of Issuer’s obligation of complete Delivery of the Funded Qualifying Project hereunder. Under no
circumstances shall Issuer be relieved of the obligation to complete Delivery of all of the Materials required hereunder, unless Distributor shall
so notify Issuer in writing designating the particular Materials which need not be delivered by Issuer to Distributor.
9. REPRESENTATIONS AND WARRANTIES .
9.1 Representations and Warranties by each Party . Each party hereby severally represents, warrants and agrees as follows:
9.1.1 Organization and Related Matters . Such party (i) is duly organized, validly existing and in good standing under the laws of the
applicable state and/or country in which it is organized; (ii) has all necessary power and authority to carry on its business as now being
conducted; and (iii) has the necessary power and authority to execute, deliver and perform this Agreement and any related agreements to which
it is a party.
9.1.2 Authorization . The execution, delivery and performance of this Agreement and any related agreements by such party has been duly
and validly authorized by all necessary action on the part of such party. This Agreement constitutes the legal, valid and binding obligation of
such party, enforceable against such party in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditors’ rights generally.
9.1.3 No Conflicts . The execution, delivery and performance of this Agreement and any related agreements by such party will not
violate or constitute a breach or default (whether upon lapse of time and/or the occurrence of any act or event or otherwise) under (i) the charter
documents of such party; (ii) any law to which such party is subject; or (iii) any contract to which such party is a party that is material to the
financial condition, results of operations or conduct of the business of such party.
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9.2 Representations and Warranties of Issuer . With respect to each Funded Qualifying Project, Issuer represents and warrants to Distributor
as of the date of the Short Form License Agreement with respect to each Funded Qualifying Project (except with respect to the representations
and warranties in Section 9.2.1 which are made as of the date hereof):
9.2.1 Clear Title . Issuer has not entered into any agreement with or made any Obligations to any third party with respect to such Funded
Qualifying Project which might conflict or interfere with or adversely affect any of the provisions of this Agreement or the use or enjoyment by
Distributor of any of the Distribution Rights granted to it hereunder. Issuer has not sold, assigned, transferred or conveyed, and will not sell,
assign, transfer or convey, to any party any right, title or interest in and to such Funded Qualifying Project or any part thereof, or in and to the
dramatic or literary material upon which it is based, adverse to or in derogation of the Distribution Rights granted to Distributor.
9.2.2 Litigation . Such Funded Qualifying Project and the Distribution Rights granted to Distributor as contemplated hereunder will not,
and there has been no claim that the Funded Qualifying Project does, infringe upon, violate or conflict with any rights whatsoever of any
Person. There is not now outstanding any litigation or threatened litigation, or any claims, demands, investigations or threats of claims, with
respect to the Funded Qualifying Project, the literary, dramatic or musical material upon which the Funded Qualifying Project is based, or
which is used therein, or the physical properties thereof.
9.2.3 Funded Qualifying Project .
9.2.3.1. Copyright . The Funded Qualifying Project has been duly and properly registered (and, if appropriate, renewed) for copyright
in the United States by or on behalf of the owner of such copyright, or can be so registered (and, if appropriate, renewed), and the copyrights in
the Funded Qualifying Project and the literary, dramatic and musical materials upon which the Funded Qualifying Project is based, or which
are contained in the Funded Qualifying Project, are and will be valid and subsisting during the Term throughout the Territory.
9.2.3.2. Compliance . The Funded Qualifying Project, and all parts thereof, will be, or has been produced in compliance with any and
all relevant laws, rules and regulations, whether state, federal, international or local (i.e., those imposed by any union, guild or labor
organization), applicable to the production and completion of Productions.
9.2.3.3. Accurate Delivery . All deliverables required to be delivered by Issuer pursuant to the Delivery Schedule, including, without
limitation, cast lists, credits, “paid ad” and talent restrictions statements, and copies of documents, are complete and accurate and Distributor
will incur no liability to any third party from its reliance thereon and/or compliance therewith.
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10. COVENANTS .
10.1 Covenants Applicable to Each Party. Each Party to this Agreement hereby covenants to the other that it will at all times:
10.1.1 Compliance with Laws, Etc . Comply in all material respects with all Applicable Law.
10.1.2 Payment of Taxes, Etc . Pay and discharge or otherwise satisfy, before the same shall become delinquent or subjected to penalty,
all taxes imposed upon it or its property which are due, except where the amount or validity thereof is currently being contested in good faith
by appropriate proceedings, if any, and reserves in conformity with GAAP with respect thereto have been provided on the books and records of
such Party or any consolidated group to which such Party is a party.
10.1.3 Preservation of Existence, Etc . (i) Preserve and maintain its corporate existence, and (ii) qualify and remain qualified in good
standing as a foreign corporation under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its
business requires such qualification, and (iii) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises
necessary or desirable in the normal conduct of its business.
10.2 Covenants of Issuer . Issuer hereby covenants to Distributor that it will at all times:
10.2.1 Keeping of Books . Implement and maintain administrative and operating procedures, and keep and maintain at such place or
places as may from time to time be customary pursuant to its ordinary business practices, all documents, books, records and other information,
reasonably necessary in connection with the activities of such party contemplated by the Transaction Documents.
10.2.2 Performance of Documents . Timely and fully (A) perform, observe and comply in all material respects with all of the provisions,
covenants and other terms required to be performed or observed by it under each Transaction Document to it is a party in accordance with its
terms, (B) maintain each such Transaction Document in full force and effect, and (C) make to each other party to each such Transaction
Document such demands and requests for information and reports or for action as such party is entitled to make under such Transaction
Document.
10.2.3 Short Form License Agreement . Execute and deliver to Distributor a short form license agreement, in form satisfactory to
Distributor, (each, a “ Short Form License Agreement ”) with respect to each Funded Qualifying Project.
10.3 Covenants of Distributor . Distributor will at all times, unless consented to in writing by Issuer:
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10.3.1 Allocated Costs . Whenever Distributor (i) makes any expenditures or incurs any liability in respect of a group of Productions
which includes one or more of the Funded Qualifying Projects, or (ii) receives from any licensee either a flat sum or a percentage of the
receipts, or both, for any right to a group of Productions which includes any of the Funded Qualifying Projects, under any agreement (whether
or not the same shall provide for the exhibition, sale, lease or delivery of positive prints of any of said Productions) which does not specify
what portion of the license payments apply to the respective Productions in the group (or to such prints or other material, if any, as may be
supplied), then, in any and all such situations, Distributor shall, in good faith, include in, or deduct from, the Gross Receipts for any such
Funded Qualifying Projects, as the case may be, such sums in a non-discriminatory manner.
10.3.2 Manner of Distribution . Notwithstanding anything to the contrary contained herein, Distributor will distribute each Funded
Qualifying Project (including, without limitation, expending amounts for prints and advertising for each Funded Qualifying Project) in
accordance with the standards of first-class distributors of Productions and in a non-discriminatory manner commensurate with the treatment of
Productions owned solely by Distributor or an Affiliate thereof, taking into account the genre, budget, marketplace, strength of competition,
time of the year, the director, the rating and NRG index scores of such Funded Qualifying Project; provided , however , Distributor is making
no representation, warranty or guaranty that any receipts received with respect to any Funded Qualifying Project from any media or territory
will be comparable to the receipts received for any other Production distributed by Distributor in such media or territory. The determination
whether a Funded Qualifying Project has been distributed in a non-discriminatory manner will be made based upon the overall treatment of the
applicable Funded Qualifying Project over all media and territories, rather than on a transaction-by-transaction basis. Subject to the terms and
conditions hereof and the RP Purchased Agreement, Distributor shall have complete and exclusive discretion and control (which it shall
exercise in a manner consistent with the standards of first-class distributors of Productions of similar genre and budget) as to the time, manner,
terms and extent of distribution, exhibition and exploitation of each Funded Qualifying Project, in accordance with such policies, terms and
conditions and through such Persons as Distributor in its business judgment (which it shall make in a manner consistent with the standards of
first-class distributors of Productions of similar genre and budget) may determine proper or expedient. Except as permitted under or as
contemplated by the Transaction Documents, to the extent that Distributor enters into any transactions under this Agreement with Affiliates,
Distributor shall do so and shall perform its obligations and enforce its rights thereunder upon terms consistent with those upon which
Distributor customarily conducts business at such time, applied on a non-discriminatory basis as if such Funded Qualifying Projects were not
subject to this Agreement.
10.4 Subdistribution . Distributor shall have the sole discretion to sell, subdistribute or license any Distribution Rights and/or Related Rights
with respect to any Funded Qualifying Project in a non-discriminatory manner commensurate with the treatment of Productions owned solely
by Distributor or an Affiliate thereof. With respect to such subdistribution agreements entered into by Distributor, Distributor shall exercise the
same degree of diligence and skill in the performance of its duties in connection therewith as it
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applies to its or its Affiliates own Productions not subject to this Agreement, and shall take or cause to be taken all such actions as may be
necessary or desirable to collect Gross Receipts from time to time, all in accordance with Applicable Law.
11. EVENT OF DEFAULT / REMEDIES .
11.1 By Distributor; Limitation of Issuer’s Remedies . Upon the occurrence and continuance of a breach by Distributor of any of its
agreements, representations, warranties, obligations and covenants set forth herein or the Transaction Documents (each a “ Distributor Event of
Default ”), the sole and exclusive remedy of Issuer or any Revenue Participation Holder for such Distributor Event of Default shall be to bring
an action at law to recover damages, and neither Issuer nor any Revenue Participation Holder shall be entitled to any form of equitable relief. In
no event shall Issuer, any Revenue Participation Holder or any party transferring rights or rendering services in connection with a Funded
Qualifying Project be entitled to terminate or rescind this Agreement or Distributor’s rights with respect to a Funded Qualifying Project or
enjoin or restrain or otherwise interfere with Distributor’s distribution, exhibition or other exploitation of any Funded Qualifying Project or
Distributor’s use, publication or dissemination of any advertising issued in connection with the Funded Qualifying Project. In furtherance of
and without limiting the foregoing, Issuer agrees that it shall not interfere or authorize or cause any other party to interfere with the rights of
Distributor and its Subdistributors to quietly and peacefully enjoy and possess all rights in the Funded Qualifying Projects, including, without
limitation, all rights under copyright, to the extent owned or controlled by Issuer.
11.2 By Issuer . Upon the occurrence and during the continuance of a breach by Issuer of any of its agreements, representations, warranties
or covenants set forth herein (each a “ Issuer Event of Default ”), then Distributor shall have the right to terminate this Agreement and to seek
any and all remedies available at law and in equity. Notwithstanding the foregoing, Distributor shall not have the right to withhold and reserve
from any monies whatsoever payable to Issuer or its designee hereunder, other than amounts relating to any Issuer Obligations.
12. INDEMNIFICATION .
12.1 Mutual Indemnity . Each party (“ Indemnifying Party ”) hereby indemnifies, defends and holds harmless the other party and its
successors, licensees, assigns, and employees, officers and directors (collectively for the purposes of this Section “ Indemnified Party ”) from
and against any and all liability, loss, damage, cost and expense, including, reasonable attorney’s fees (but excluding lost profits or
consequential damages) arising out of any breach or claim by a third party with respect to any warranty, representation or agreement made by
the Indemnifying Party herein. The Indemnified Party shall promptly notify the Indemnifying Party of any claim to which the foregoing
indemnification applies and the Indemnifying Party shall undertake, at its own cost and expense, the defense thereof. The Indemnified Party
may, at its option and expense, engage its own counsel. If the Indemnifying Party fails to promptly appoint competent and experienced counsel,
the Indemnified Party may engage its own counsel and the reasonable charges in connection
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therewith shall promptly be paid by the Indemnifying Party. If the Indemnified Party settles or compromises any such suit, claim or proceeding,
the amount thereof shall be charged to the Indemnifying Party, provided that the Indemnifying Party’s reasonable prior approval has been
secured.
12.2 Control of Litigation . Distributor shall have the right to assume the defense of any claim made by a third party and arising from a
breach or alleged breach of any representation, warranty or agreement of Issuer hereunder or that otherwise may be subject to the indemnity set
forth in Section 12.1. Issuer shall have the right as well as the obligation to consult and cooperate with Distributor in connection with any such
claim and, upon Distributor’s request, to furnish Distributor with any and all evidence, materials or other information relevant thereto. Issuer
shall have the right (at Issuer’s sole expense) to have Issuer’s own counsel present in connection with the defense of any such claim, provided
that such counsel fully cooperates with Distributor’s counsel and in no way interferes with the handling of the case by Distributor’s counsel.
Issuer understands and agrees that all aspects of the defense of any such claim, whether as part of any litigation, negotiations or otherwise
(including any decision regarding any settlement), shall be controlled by Distributor, Distributor shall be free to use counsel of Distributor’s
choice in connection therewith, and such control shall in no way abrogate or diminish Issuer’s obligations under Section 12.1.
13. ARBITRATION .
All actions or proceedings arising in connection with, touching upon or relating to this Agreement between the parties, the breach thereof
and/or the scope of the provisions of this Section 13 (a “ Proceeding ”) shall be submitted to the Judicial Arbitration and Mediation Service or
its successor (“ JAMS ”) for binding arbitration under its Comprehensive Arbitration Rules and Procedures if the matter in dispute is over
***** or under its Streamlined Arbitration Rules and Procedures if the matter in dispute is ***** (as applicable, the “ Rules ”) to be held solely
in Los Angeles, California, U.S.A., in the English language in accordance with the provisions below.
13.1 Each arbitration shall be conducted by an arbitral tribunal (the “ Arbitral Board ”) consisting of a single arbitrator who shall be an
attorney or a retired judge with at least ten (10) years experience in commercial matters and the motion picture industry or the television
industry, as applicable. The arbitrator shall be mutually agreed upon by the parties. If the parties are unable to agree on an arbitrator, the
arbitrator shall be appointed by JAMS. The Arbitral Board shall assess the cost, fees and expenses of the arbitration against the losing party,
and the prevailing party in any arbitration or legal proceeding relating to this letter agreement shall be entitled to all reasonable expenses
(including reasonable attorney’s fees). Notwithstanding the foregoing, the Arbitral Board may require that such fees be borne in such other
manner as the Arbitral Board determines is required in order for this arbitration clause to be enforceable under Applicable Law. The parties
shall be entitled to conduct discovery in accordance with Section 1283.05 of the California Code of Civil Procedure; provided that (i) the
Arbitral Board must authorize all such discovery in advance based on findings that the material sought is relevant to the issues in dispute and
that the nature and scope of such discovery is reasonable under the circumstances; and (ii) discovery shall be
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limited to depositions and production of documents unless the Arbitral Board finds that another method of discovery ( e.g. , interrogatories) is
the most reasonable and cost efficient method of obtaining the information sought.
13.2 There shall be a record of the proceedings at the arbitration hearing and the Arbitral Board shall issue a Statement of Decision setting
forth the factual and legal basis for the Arbitral Board’s decision. If neither party gives written notice requesting an appeal within ***** after
the issuance of the Statement of Decision, the Arbitral Board’s decision shall be final and binding as to all matters of substance and procedure,
and may be enforced by a petition to the Los Angeles County Superior Court or such other court having jurisdiction over the parties for
confirmation and enforcement of the award. If either party gives written notice requesting an appeal within ***** after the issuance of the
Statement of Decision, the award of the Arbitral Board shall be appealed to three neutral arbitrators (the “ Appellate Arbitrators ”), each of
whom shall have the same qualifications and be selected through the same procedure as the Arbitral Board. The appealing party shall file its
appellate brief within ***** after its written notice requesting the appeal and the other party shall file its brief within ***** thereafter. The
Appellate Arbitrators shall thereupon review the decision of the Arbitral Board (applying the same standards of review and all of the same
presumptions) as if the Appellate Arbitrators were a California Court of Appeals reviewing a judgment of the Los Angeles County Superior
Court, except that the Appellate Arbitrators shall in all cases issue a final award and shall not remand the matter to the Arbitral Board. The
decision of the Appellate Arbitrators shall be final and binding as to all matters of substance and procedure, and may be enforced by a petition
to the Los Angeles County Superior Court or such other court having jurisdiction over the parties, which may be made ex parte, for
confirmation and enforcement of the award. The party appealing the decision of the Arbitral Board shall pay all costs and expenses of the
appeal, including the fees of the Appellate Arbitrators and the reasonable outside attorneys’ fees of the opposing party, unless the decision of
the Arbitral Board is reversed, in which event the costs, fees and expenses of the appeal shall be borne as determined by the Appellate
Arbitrators.
13.3 Subject to a party’s right to appeal pursuant to the above, neither party shall challenge or resist any enforcement action taken by the
party in whose favor the Arbitral Board, or if appealed, the Appellate Arbitrators, decided. The Arbitral Board (or the Appellate Arbitrators, if
applicable) shall have the power to enter temporary restraining orders, preliminary and permanent injunctions. Neither party shall be entitled or
permitted to commence or maintain any action in a court of law with respect to any matter in dispute until such matter shall have been
submitted to arbitration as herein provided and then only for the enforcement of the Arbitral Board’s award (or if appealed, the Appellate
Arbitrators’ award); provided , however , that prior to the appointment of the Arbitral Board (or if appealed, the Appellate Arbitrators) or for
remedies beyond the jurisdiction of an arbitrator, at any time, either party may seek pendente lite relief in a court of competent jurisdiction in
Los Angeles County, California or such other court that may have jurisdiction over the parties, without thereby waiving its right to arbitration
of the dispute or controversy under this section. All arbitration proceedings (including, without limitation, proceedings before the Appellate
Arbitrators) shall be closed to the public and confidential and all records relating thereto shall be permanently sealed, except as necessary to
obtain court confirmation of the
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arbitration award. The provisions of this Section 13.3 shall supersede any inconsistent provisions of any prior agreement between the parties.
Nothing in this Section 13.3 shall prevent either party from seeking interlocutory and/or injunctive relief from a court of competent jurisdiction
pursuant to the preceding paragraph, subject to the terms of this Section 13.3 .
14. WAIVER/ GOVERNING LAW / PROCEEDINGS .
14.1 No Waiver . No waiver of any default or breach of this Agreement by either party shall be deemed a continuing waiver or a waiver of
any other breach or default, no matter how similar.
14.2 Governing Law . The laws of the State of California and the United States of America applicable to contracts made and performed
entirely in California shall govern (i) the validity and interpretation of this agreement, (ii) the performance by the parties of their respective
obligations hereunder, and (iii) all other causes of action (whether sounding in contract or in tort) arising out of or relating to this Agreement, or
the termination of this Agreement.
14.3 Legal Proceedings . Distributor, its successors and assigns, are hereby empowered to bring, prosecute, defend and appear in suits,
actions and proceedings of any nature under or concerning infringement of or interference with any of the Distribution Rights granted.
Distributor will notify Issuer in writing ***** prior to commencement of any suit, action or proceedings. Issuer may participate in any suit,
action or proceeding using counsel of its choice. Issuer’s expenses will be reimbursed from any recovery in equal proportion with Distributor’s
expenses. If Distributor fails to take necessary action, Issuer may, but will not be obligated to, take such action in Issuer’s or Distributor’s name
with all recoveries belonging to Issuer. If Issuer elects not to participate, all recoveries in connection therewith shall belong solely to
Distributor. If both parties participate, all recoveries shall be deemed to be part of Gross Receipts.
15. INSURANCE .
Distributor shall on behalf of Issuer for the benefit of Distributor, with respect to each Funded Qualifying Project for which Distributor has
the Distribution Rights, procure and maintain in full force and effect standard producer’s liability (errors and omissions) insurance issued by a
nationally recognized insurance carrier covering the Funded Qualifying Project with minimum limits of at least ***** for any claim arising out
of a single occurrence and ***** for all claims in the aggregate. Such insurance:
15.1 shall be written on either (i) an occurrence basis, in which event it shall remain in full force and effect until the end of the term thereof
and may not be permitted to lapse, or (ii) a claims-made basis, in which event it shall remain in full force and effect until the end of the term
thereof, shall cover any claims made at any time during the term thereof and may not be permitted to lapse;
15.2 may not be canceled without ***** prior written notice to Distributor;
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15.3 shall not carry a deductible larger than ***** ;
15.4 shall name Distributor its parent, subsidiaries and related companies, its licensees and affiliates and its officers, directors, agents and
employees, as additional insureds and such addition shall be endorsed by the insurance carrier and acknowledged by the underwriter;
15.5 shall provide coverage for the Funded Qualifying Project, and advertising and promotion materials with respect thereto, and shall be
primary and not contributing to or in excess of any such insurance maintained by Distributor with regard to all of the Rights.
15.6 All costs and expenses of such insurance shall be a Distribution Expense.
16. NOTICE .
Any notice or demand which any party is required, or may desire, to give to the other parties shall be in writing and shall be given by
addressing the same to the other parties at the address hereinafter set forth, or at such other address as may be designated in writing by any such
party by notice given to the other in the manner prescribed in this Section 16 and shall be deemed effective (i) when delivered personally
during normal business hours, (ii) on the date of receipt specified in any return receipt if it shall have been deposited postage prepaid in the
United States mail (certified or registered with return receipt requested), (iii) on the second Business Day after dispatch by Federal Express,
DHL, Airborne or other recognized international courier service, or (iv) when sent by facsimile transmission, if, and only if, such facsimile
transmission is followed within two (2) Business Days by a written notice sent in accordance with clauses (i), (ii) or (iii) above, whichever of
the foregoing shall first occur; provided, however, that any notice alleging a default must be given by the means set forth in clauses (i), (iii) or
(iv) above.
Any notice or demand to Distributor shall be addressed as follows:
Lions Gate Films, Inc.
2700 Colorado Avenue, Suite 200
Santa Monica, California 90404
Attn: General Counsel
Telephone: (310) 449-9200
Facsimile: (310) 255-3840
Any notice or demand to Issuer shall be addressed as follows:
MQP, LLC
2700 Colorado Avenue, Suite 200
Santa Monica, California 90404
Attn: Chief Executive Officer
Telephone: (310) 449-9200
Facsimile: (310) 255-3840
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17. FORCE MAJEURE .
If either party’s performance hereunder is prevented by reason of an event of Force Majeure, then during the existence of such event, the
effected party shall not be liable for its failure to timely perform its obligations hereunder and this Agreement shall be extended for a period
equal to the delay caused by the occurrence of the Force Majeure. “ Force Majeure ” as used herein shall mean fire, flood, epidemic,
earthquake, explosion, accident, labor dispute or strike, Act of God or public enemy, riot or civil disturbance, invasion, war (whether declared)
or armed conflict, inability to obtain personnel or facilities, failure of common carriers, any municipal ordinance, any state or federal law,
governmental order or regulation, order of any court of competent jurisdiction, restriction imposed by the Motion Picture Export Association of
America, Inc. or any other similar thing or occurrence not within the control of that party.
18. HOLDING OF MONIES .
Distributor shall not be obligated to segregate Gross Receipts from other funds held or received by it, and Distributor shall not be deemed a
trustee, pledgeholder or fiduciary of Issuer or any Revenue Participation Holder in respect of Gross Receipts that may be or become payable to
such parties.
19. SECURITY INTEREST IN FAVOR OF DISTRIBUTOR .
Subject to Distributor not being in breach of this Agreement and the RP Purchase Agreement, Issuer hereby grants to Distributor a security
interest (“ Distributor Security Interest ”) in all rights granted to Distributor in connection with each Funded Qualifying Project, including the
Distribution Rights, the Related Rights, the right of access to the Materials and all proceeds of the foregoing, including proceeds of proceeds
(the “ Distributor Collateral ”), as collateral security for Issuer’s timely performance of its obligations hereunder, for the right of Distributor to
receive the Distribution Fee and for the right of Distributor to recoup all amounts expended on account of Issuer Obligations, including
Distribution Expenses and Third Party Participations, which security interest shall be in a form registrable in the State of Delaware, the
Province of Quebec, the CIPO and the USCO. Other than as provided in the RP Purchase Agreement, Issuer warrants and represents that it has
not previously assigned, granted or transferred an interest in the Distributor Collateral to any party which would conflict, interfere or be
inconsistent with the Distributor Security Interest granted to Distributor herein. Issuer agrees to execute UCC-1 financing statements, copyright
mortgages, laboratory access letters, the security agreement delivered herewith (the “ Distributor Security Agreement ”), other security
documentation required by Distributor and any such other document as Distributor may require to perfect, protect, publish, record, register or
evidence the foregoing Security Interest. If Issuer fails to deliver such security documents within 30 days after Distributor’s request therefor,
Issuer irrevocably appoints Distributor to execute such security documents as Issuer’s attorney-in-fact, coupled with an interest.
20. SECURITY INTEREST IN FAVOR OF ISSUER .
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Subject to Issuer not being in breach of this Agreement and subject to Issuer and each Revenue Participation Holder not being in breach of
the RP Purchase Agreement, Distributor hereby grants to Issuer and each Revenue Participation Holder, a security interest (“ Issuer Security
Interest ”) in and to (i) the Gross Receipts for each Funded Qualifying Project, and (ii) the Rights, the Ancillary Rights, the Related Rights and
the tangible and intangible assets for each Funded Qualifying Project, solely to the extent required to distribute and exploit such Funded
Qualifying Project (“ Issuer Collateral ”), which security interest shall be in a form registrable in the State of Delaware, the Province of
Quebec, the CIPO and the USCO. Issuer acknowledges and agrees that the security interest granted to it by Distributor shall be subject to
Permitted Encumbrances and the Senior Lender Encumbrances, provided, however, that the Senior Lender InterCreditor Agreement shall
provide that Issuer shall have a first priority security interest in its share of Gross Receipts for each Funded Qualifying Project, subject to the
terms of the Senior Lender InterCreditor Agreement. Other than as provided in the RP Purchase Agreement, Distributor warrants and
represents that it has not previously assigned, granted or transferred an interest in the Issuer Collateral to any party which would conflict,
interfere or be inconsistent with the Issuer Security Interest granted to Issuer herein. Distributor agrees to execute UCC-1 financing statements,
copyright mortgages, laboratory access letters, the security agreement delivered herewith (“ Issuer Security Agreement ”), other security
documentation required by Issuer and any such other document as Issuer may require to perfect, protect, publish, record, register or evidence
the foregoing Issuer Security Interest. If Distributor fails to deliver such security documents within 30 days after Issuer’s request therefor,
Distributor irrevocably appoints Issuer to execute such security documents as Distributor’s attorney-in-fact, coupled with an interest.
21. ASSIGNMENT .
21.1 Distributor shall have the right, at any time, to sell, transfer, assign or hypothecate any or all of its right, title and interest, in and to the
Funded Qualifying Project and the negative and copyright thereof to any party which is acquiring all or a substantial part of Distributor’s
business in a sale or as a result of a consolidation or merger; provided , however , that any such sale, transfer, assignment or hypothecation
shall be subject to the rights of Issuer hereunder. Upon the purchaser, transferee or assignee assuming in writing the performance of
Distributor’s executory obligations hereunder in place and stead of Distributor, Distributor shall be released and discharged of and from any
further liability or obligation hereunder and none of the monies or other consideration received by, or paid or payable to, Distributor shall
constitute Gross Receipts hereunder, and Issuer shall have no rights in respect of any thereof. In addition, Distributor may assign this
Agreement or its rights hereunder, without the need to obtain the prior written consent of Issuer, (i) in connection with its corporate credit
facilities, (ii) in connection with any financing or interim financing of a Funded Qualifying Project, or (iii) to any of its Affiliates or
Subsidiaries, provided , however , that any such assignment shall be subject to the rights of Issuer hereunder.
21.2 Issuer may assign Issuer’s right to receive the monies payable to Issuer hereunder, provided, however, that (i) any such assignment
shall be in writing and in form and substance satisfactory to Distributor; (ii) Distributor shall not be required to accept or honor any
- 27 -
assignment or assignments which would result in requiring Distributor to make payments to an aggregate of more than two (2) parties unless a
single party is designated to receive and disburse all monies payable to Issuer and all other parties entitled to share therein; (iii) in no event
shall any party other than Issuer have the right to audit Distributor’s records by reason of such assignment; and (iv) any such assignment shall
at all times be subject to all pertinent laws and governmental regulations and to all of the rights of Distributor hereunder.
21.3 Notwithstanding anything contained in this Agreement, neither the Issuer nor any Revenue Participation Holder may assign its rights
under this Agreement to any Direct Competitor.
22. AMENDMENTS AND WAIVERS . Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated
orally or in writing, without the prior written consent of the parties hereto and each Revenue Participation Holder. Notwithstanding the
foregoing, any term of this Agreement may be amended and the observance of any such term may be waived (either generally or in a particular
instance and either retroactively or prospectively) with (but only with) the written consent of all of the parties hereto and each Revenue
Participation Holder; provided, however, that no such amendment or waiver shall extend to or affect any obligation not expressly waived or
impair any right consequent therein. No delay or omission to exercise any right, power or remedy accruing to any party hereto or each Revenue
Participation Holder shall impair any such right, power or remedy of such party nor be construed to be a waiver of any such right, power or
remedy nor constitute any course of dealing or performance hereunder.
23. MISCELLANEOUS .
23.1 This Agreement consists of these provisions, the attached exhibits and schedules all of which exhibits and schedules are herein
incorporated by this reference and made a part hereof. Nothing contained herein shall be deemed to create a relationship of partnership, joint
venture, agency, fiduciary or employment between the parties.
23.2 This Agreement sets forth the entire understanding of the parties regarding the subject matter hereof and supersedes all prior oral or
written agreements between them.
23.3 This Agreement may not be changed, modified, amended or supplemented, except in a writing signed by both parties and the Revenue
Participation Holder.
23.4 Section headings are inserted herein for convenience only and do not constitute a part of this Agreement.
23.5 Neither Issuer nor Distributor shall disclose to any third party (other than its respective employees, directors and officers, in their
capacity as such on a need-to-know basis), any information with respect to the financial terms and provisions of this Agreement except: (i) to
the extent necessary to comply with the law or the valid order of a court of competent jurisdiction, in which event(s) the party making such
disclosure shall so notify the other as promptly as practicable (if possible, prior to making such disclosure) and shall seek confidential treatment
of such information, (ii) to the extent necessary to comply with S.E.C.
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or similar disclosure requirements, (iii) to its parent and affiliated companies, their banks (and their respective advisors and attorneys),
prospective financiers and investors (and such persons’ investment bankers, agents, attorneys, accountants and necessary experts), auditors,
investment bankers, attorneys and similar professionals, provided that such companies, banks, advisors, financiers, investors, investment
bankers, experts, auditors, accountants, attorneys and similar professionals agree to be bound by the provisions of this subparagraph, and (iv) in
order to enforce its rights pursuant to this Agreement. Issuer acknowledges that it may, from time to time, come into possession of material
Nonpublic Information regarding Distributor and its Affiliates and that U.S. securities laws prohibit any person or entity in possession of such
material Nonpublic Information from purchasing or selling securities of Distributor or any of its Affiliates. Issuer agrees that it will use any
material Nonpublic Information regarding Distributor and its Affiliates in accordance with Issuer’s compliance policies and Applicable Law,
including, without limitation, federal, provincial and state securities laws
23.6 Issuer and Distributor shall each execute, acknowledge and deliver any and all further documents that are necessary, expedient or
proper to implement, administer and effectuate the purpose and intent of this Agreement. If Issuer fails to deliver such additional documents
within ***** after Distributor’s request therefor, including, without limitation, a Short Form License Agreement with respect to each Funded
Qualifying Project, Issuer irrevocably appoints Distributor to execute such additional documents as Issuer’s attorney-in-fact, coupled with an
interest.
23.7 The invalidity, illegality or unenforceability of any provision of this Agreement, pursuant to judicial decree, shall not affect the validity
or enforceability of any other provision of the Agreement, all of which shall remain in full force and effect.
23.8 Nothing in this Agreement shall confer any rights or remedies under or by reason of this Agreement on any Persons other than Issuer
and its successors and assigns nor shall anything in this Agreement relieve or discharge the obligation or liability of any third person to any
party to this Agreement, nor shall any provision give any third person any right of subrogation or action over or against any party to this
Agreement. Notwithstanding the foregoing and anything to the contrary contained in this Agreement, the parties expressly acknowledge and
agree that each Revenue Participation Holder is an intended third party beneficiary with respect to Section 6, Section 7 , Section 10 , Section 11
, Section 12 and Section 13 of this Agreement and as such, each Revenue Participation Holder shall be entitled to directly exercise its rights or
the rights of Issuer under this Agreement without the concurrence of Issuer.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties have executed this Master Distribution Agreement as of the date first above written.
LIONS GATE FILMS INC.
By:
/s/ Wayne Levin
Name:
Wayne Levin
Title:
General Counsel
MQP, LLC
By:
/s/ Wayne Levin
Name:
Wayne Levin
Title:
Director
[Signature Page]
SCHEDULE “GR”
Schedule “GR” to Master Distribution Agreement (Film Productions) dated July 25, 2007 between MQP, LLC, as Issuer, and Lions Gate
Films, Inc., as Distributor (the “ Agreement ”).
GROSS RECEIPTS — DISTRIBUTION EXPENSES
1. Definitions . As used in this Schedule “GR” , all defined terms shall have the meanings as defined in the Agreement, unless specifically
defined herein, and all references to “Paragraphs” shall refer to paragraphs of this Schedule “GR” .
2. Gross Receipts . For the purposes of this Agreement, “ Gross Receipts ” shall mean, for each Funded Qualifying Project, one hundred
percent (100%) of all amounts, other than Co-Financing Amounts, actually received by Issuer, LGEI, Distributor or any of their Affiliates, net
of applicable withholding taxes, in respect of the exhibition, distribution, sale, licensing, sub-licensing and exploitation of such Funded
Qualifying Project in all gauges, formats, media (now known or hereafter devised) and languages (except as otherwise provided herein)
throughout the universe and for greater certainty, including, without limitation, the Rights, all right, title and interest to any associated rights,
Merchandising, Ancillary Rights, secondary or publishing rights, including, without limitation, pre-sales, advances, bonuses, prizes and similar
proceeds regardless of when such amounts are received ( i.e. , whether they are received prior to or after the purchase of Revenue Participations
in the applicable Funded Qualifying Project, provided the Revenue Participation Holders purchase Revenue Participations in the applicable
Funded Qualifying Project and provided further that such amounts are generated prior to the Repurchase Date), but excluding advances, etc.
taken into account in the definition of P&A Costs and Other Releasing Costs and Affiliate Payments, including, without limitation, the
following:
A. All non-refundable sums actually received by Distributor from the following sources:
(i)
Licenses by Distributor directly to exhibitors of the right to exhibit the Funded Qualifying Project by means of Theatrical,
Non-Theatrical or Television;
(ii)
Licenses by Distributor to Subdistributors, net of any fees and expenses charged by such Subdistributor;
(iii)
The sale or lease of souvenir Funded Qualifying Projects and booklets;
(iv)
Recoveries by Distributor from actions based on unfair competition, piracy and/or infringements of copyrights and trademarks
of the Funded Qualifying Project, which recoveries are intended to compensate Distributor for losses sustained in respect of the
Funded Qualifying Project and shall be fairly and reasonably allocated among all
Productions involved therein; provided, that no Distribution Fee shall be charged on any portion of such recovery included in
the Gross Receipts that represents punitive, rather than actual or statutory, damages;
(v)
The net receipts from so-called “four-wall” deals on a collective basis, i.e. , the sums received by Distributor from theater(s)
where Distributor has taken over the operation of such theater(s) specifically for the exhibition of the Funded Qualifying
Project, less all out-of-pocket costs of operating the theater(s) and those advertising costs that would normally and actually be
paid by theaters and which are paid by Distributor;
(vi)
Monies received from the Copyright Royalty Tribunal (or similar agencies established under the laws of any jurisdiction);
(vii)
Exploitation of the Ancillary Rights;
(viii)
Monies received by Distributor from the distribution, sale or other exploitation of Home Video Rights and any Video Levies
(as defined below) collected by Distributor, less local taxes, rebates, discounts, credit adjustments for defective Videograms,
customs duties, import charges, shipping, mailing and insurance charges, dubbing and subtitling costs, and mastering and
submastering costs; provided , however , that Distributor shall have the right to deduct up to ***** of all such monies as a
reserve for returns and credits of any nature, including, without limitation, those on account of one hundred percent (100%) or
a lesser return privilege, defective merchandise, exchange privilege, promotional credits, errors in billing, unusual overstock,
bad debts and errors in shipping, which reserves shall be liquidated within ***** , pursuant to Distributor’s customs and
practices. “ Video Levies ” shall mean levies or other charges collected under operation of law with respect to the Funded
Qualifying Project in the Territory on the sale of video recorders, blank video cassettes or video discs or similar items or the
rental of Videograms which become payable to the Copyright Owner or the distributor of the Funded Qualifying Project.
Distributor shall be entitled to collect all revenue from Video Levies.
B. Gross Receipts shall be determined after all reserves, refunds, credits, discounts, allowances and adjustments granted to exhibitors and
Subdistributors, whether occasioned by condemnation by boards of censorship, settlement of disputes or otherwise. advance payments
and guarantees shall not be included in Gross Receipts until earned by the exhibition of the Funded Qualifying Project or forfeited.
-Schedule“GR” Page 2 -
C.
Gross Receipts shall not include (a) any portion thereof which is contributed to charitable organizations in connection with or related to
premieres of the Funded Qualifying Project; (b) the receipts which are the contractually acquired property of the following parties,
whether or not Subsidiaries or divisions of Distributor: (i) exhibitors or others who may use or actually exhibit the Funded Qualifying
Project, (ii) radio or television broadcasters (including, without limitation, pay, cable, and closed circuit systems), (iii) book or music
publishers, (iv) phonograph record producers or distributors and (v) merchandisers, manufacturers and the like.
D. Amounts charged back to Distributor or its Affiliates in any Accounting Period for damaged goods and returns of home video units
shall reduce Gross Receipts in such Accounting Period.
3. Distribution Fees . Distribution fees of Distributor shall be computed as provided in Section 4 .
4. Distribution Expenses . “ Distribution Expenses ” shall mean, on an uncrossed basis, Distributor’s actual, direct, verifiable, out-of-pocket
third party expenses incurred in connection with the distribution and exploitation of a Funded Qualifying Project, which shall exclude, for sake
of clarity, any finance and interest charges in connection therewith but which shall include, without limitation, all P&A Costs and Other
Releasing Costs. The Distribution Expenses shall include, without limitation, all costs, charges and expenses actually incurred by Distributor,
or a Subdistributor accounting to Distributor, in connection with the distribution, exhibition, advertising, exploitation and turning to account of
the Funded Qualifying Project, or in the exercise of any of Distributor’s other rights (including, without limitation, Ancillary Rights) in the
Funded Qualifying Project, of whatever kind or nature, including, without limitation, all costs, charges and expenses incurred for or in
connection with any of the following (provided, that (i) no item of cost shall be charged more than once and (ii) if any item of cost shall have
been deducted from the Gross Receipts in any prior accounting period and any such cost is thereafter reimbursed to Distributor, an appropriate
adjustment shall be made without any Distribution Fee charged in respect of the amount so reimbursed):
A. All negatives, sound tracks, prints, and other physical properties utilized in connection with the distribution of the Funded Qualifying
Project (“ Physical Properties ”).
B. All services and facilities rendered or utilized in connection with the transportation, preparation, checking and servicing of the Physical
Properties or other properties used in rendering distribution services, including, without limitation, any cost of cutting, editing, dubbing
or subtitling the Funded Qualifying Project or other services or facilities used in preparing the Funded Qualifying Project for exhibition
including, without limitation, costs of shipping containers and cans, laboratory and warehouse storage, insurance packaging, freight,
transportation, shipping and handling charges.
-Schedule “GR” Page 3 -
B. Advertising, promoting, marketing, exploiting and publicizing (collectively, “ Advertising ”) the Funded Qualifying Project in any
way, including without limitation, all costs associated with Videograms including without limitation the creation of bonus material, and
new artwork, of cooperative, theater or joint Advertising in connection with exhibition of the Funded Qualifying Project in theaters or
other places where an admission is charged, which Distributor pays or is charged with; costs of publicity materials; tours and personal
appearances; salaries, living costs and traveling expenses of regular employees of Distributor, where such employees are assigned to
render services in the Territory in connection with the Advertising of the Funded Qualifying Project, appropriately allocated to the
Funded Qualifying Project; trailers, including without limitation, the cost of production thereof.
C.
All costs and expenditures in connection with so-called four-wall deals not recouped pursuant to Paragraph 2.A.(v) .
D. All costs of preparing and delivering the Funded Qualifying Project for distribution, including without limitation, all costs incurred in
connection with the following: Screenings and audience testing and market studies; the production of foreign language versions of the
Funded Qualifying Project, whether dubbed, superimposed or otherwise; changing the title of the Funded Qualifying Project for release
in any part of the Territory or for exhibition on television or other media, or in order to conform to the particular national or political
prejudices likely to be encountered in any part of the Territory or for any other purpose or reason; censorship costs including, without
limitation, the legal costs of censorship proceedings; and producing and delivering trailers of the Funded Qualifying Project.
E.
All sales, use, receipts, excise, remittance, value added and other taxes (however denominated) to any governmental or taxing authority
assessed upon, or with respect to, the negatives, duplicate negatives, prints or sound records of the Funded Qualifying Project, or upon
the use, distribution or other exploitation of the Funded Qualifying Project, or upon the revenues derived therefrom, or any part thereof
and any and all sums paid or accrued on account of duties, customs and imports, costs of acquiring permits, and any similar authority to
secure the entry, licensing, exhibition, performance, use or televising of the Funded Qualifying Project in any country or part thereof,
regardless of whether such payments or accruals are assessed against the Funded Qualifying Project or the proceeds thereof or against a
group of Productions in which the Funded Qualifying Project may be included or the proceeds thereof (in the latter case with an
allocation being made to the Funded Qualifying Project that is fair and reasonable). In no event shall the recoupable amount of any
such tax (however denominated) imposed upon Distributor be decreased (nor the Gross Receipts increased) because of the manner in
which such taxes are elected to be treated by
-Schedule “GR” Page 4 -
Distributor in filing net income, corporate franchise, excess profits or similar tax returns. There shall be no deduction from the Gross
Receipts, and Issuer shall not be required to pay or participate in, (x) Distributor’s or any Subdistributor’s United States Federal and
State income taxes and franchise taxes based on Distributor’s or such Subdistributor’s net income, or (y) any income tax payable to any
country or Territory by Distributor or any Subdistributor based on the net earnings of Distributor or such Subdistributor in such country
or Territory. Expenses of transmitting to the United States any funds accruing to Distributor from the Funded Qualifying Project in
foreign countries, such as cable expenses, or any discounts from such funds taken to convert such funds directly or indirectly into U.S.
dollars and the cost of contesting or settling any of the matters described above, with a view to reducing the same, shall similarly be
deducted. If any taxes deducted pursuant hereto are subsequently refunded to Distributor by the taxing authority to which such taxes
were initially paid, the Distribution Expenses previously deducted pursuant to this Paragraph shall be readjusted by crediting thereto an
amount equal to so much of such refund received by Distributor as shall represent a refund of taxes in respect of the Funded Qualifying
Project previously deducted.
F.
Copyright, patent and trademark expenses; royalties payable to manufacturers of sound recording and reproducing equipment;
reasonable legal fees to other than Distributor’s regularly employed legal department; and any and all other expenses in addition to
those referred to herein incurred by Distributor in connection with the licensing of the Funded Qualifying Project for exhibition or for
other uses of the Funded Qualifying Project including, without limitation, any exploitation of the rights granted to Distributor.
G. Dues and assessments from the MPAA or any similar associations or bodies, including, without limitation, payments for the support of
the Academy of Motion Picture Arts and Sciences.
H. Costs and expenses (including, without limitation, reasonable attorneys’ fees) incurred by Distributor in connection with the following:
All costs incurred in securing any amounts included in Gross Receipts, any action taken by Distributor (whether by litigation or
otherwise) in enforcing collection of Gross Receipts including, without limitation, costs of collection from the Copyright Royalty
Tribunal (or similar agencies established under the laws of any jurisdiction); or (on a pro rata basis) for checking attendance and
exhibitors’ receipts; or to prevent unauthorized exhibition or distribution of the Funded Qualifying Project; or to prosecute or defend
actions under the anti-trust laws; or to prevent any impairment of, encumbrance on or infringement upon, the rights of Distributor in
and to the Funded Qualifying Project; or to audit the books and records of any exhibitor, Subdistributor or licensee; or to recover
monies due pursuant to any agreement relating to the distribution or exhibition of the Funded
-Schedule “GR” Page 5 -
Qualifying Project; provided, that no deduction shall be made for the fees or salaries of Distributor’s regularly employed staff attorneys
and accountants.
J.
All monies paid or payable pursuant to applicable collective bargaining agreements by reason of any exhibition or other exploitation of
the Funded Qualifying Project or by reason of, or as a condition for, any use, re-use or re-run thereof for any purpose or in any manner
whatsoever (herein called “ Residuals ”), and all taxes, pension fund contributions, and other costs and payments computed on or
payable in respect of any such residuals or participations in the net profits or Gross Receipts of the Funded Qualifying Project to any
Person, including, without limitation, any firm, corporation, guild, union, trustee or fund (other than Distributor); provided, however,
that if Issuer or any principal stockholder of Issuer, or any heirs, executors, administrators, successors or assigns of Issuer or any such
stockholder, is entitled, either directly or by way of participation in any pension fund, to any such Residuals, the amount payable shall
be treated as an advance against Issuer’s share of the receipts hereunder, and conversely, any share of the receipts paid to Issuer
hereunder shall constitute an advance against such Residuals payable to or for the benefit of Issuer or any principal stockholder or
member of Issuer, or any such heirs, executors, administrators, successors or assigns; provided further that this Paragraph shall not be
interpreted to require Distributor to make any payments that it is not required under the Agreement to make.
K. Participations including without limitation Third Party Participations;
L.
All costs associated with the exploitation of the Home Video Right including without limitation, all manufacturing, reproduction,
shipping, packaging, storage, boxing, sorting and delivery of Videograms.
M. All insurance covering or relating to the distribution of the Funded Qualifying Project, including, without limitation, errors and
omissions insurance (to the extent not provided by Issuer); provided, that Distributor shall not be obligated to take out or maintain any
such insurance. The net receipts of any insurance policy maintained by Distributor in respect of the Funded Qualifying Project actually
received by Distributor by way of reimbursement for any cost or expense previously deducted as a Distribution Expense shall be
applied in reduction of such cost or expense to the extent that the same was reimbursed by such proceeds.
N. All discounts, rebates, or credits actually received by Distributor or any Subdistributor shall be taken into account in computing
Distribution Expenses in the Accounting Period in which such discount, rebate or credit is actually received, with the exception of
those based upon either (i) the volume or quantity of Advertising, prints, negatives, Videograms or other materials ordered annually, or
-Schedule “GR” Page 6 -
(ii)
the manner or time of payment of any Distribution Cost and Expense which shall not be taken into account.
O.
Any and all other expenses in addition to those referred to herein incurred by Distributor in connection with the exercise of the
Rights in the Funded Qualifying Project.
5. Allocations . Wherever Distributor (i) makes any expenditures or incurs any liability in respect of a group of Productions that includes a
Funded Qualifying Project, or (ii) receives from any licensee either a flat sum or a percentage of the receipts, or both, for any right to a group of
Productions that includes the Funded Qualifying Project, under any agreement (whether or not the same shall provide for the exhibition, sale,
lease or delivery of positive prints of any of the said Productions) which does not specify what portion of the license payments apply to the
respective Productions in the group (or to such prints or other material, if any, as may be supplied), then in any and all such situations,
Distributor shall, reasonably and in good faith, include in, or deduct from (as the case may be), the Gross Receipts such sums in a
non-discriminatory manner.
6. Reserves . In addition to the reserves mentioned above in Paragraph 4 , if Distributor reasonably anticipates taxes, residuals, or other
reasonably anticipated costs, expenses or losses relating to the Funded Qualifying Project, which, if and when incurred, will be properly
deductible hereunder, Distributor may set up appropriate reserves therefor. If Distributor establishes a reserve for retroactive wage adjustments,
taxes, residuals, uncollectible accounts, or other reasonably anticipated costs, expenses, or losses relating to the Funded Qualifying Project, and
after ***** from the establishment of such reserve, such reserve is not liquidated or collected and no proceeding is pending protesting any such
cost, expense, or loss, or no tax audit is pending, Distributor shall liquidate such reserve (or remaining portion thereof) and make a
corresponding adjustment in the Gross Receipts of the Funded Qualifying Project or in the Distribution Expenses, subject to the right of
Distributor to thereafter deduct any such cost, expense, or loss if a proceeding is thereafter instituted protesting such cost, expense, or loss, or if
a tax audit is thereafter commenced, or, if any such cost, expense, or loss is thereafter otherwise incurred, sustained, or paid for by Distributor.
The foregoing shall be subject to, and without prejudice to, the right of Distributor to make corrections and adjustments from time to time.
7. Foreign Receipts . No sums received by Distributor in respect of the Funded Qualifying Project shall be included in Gross Receipts or in
Settlement Reports hereunder for the purpose of determining Issuer’s share payable to Issuer, unless such sums are freely remittable to
Distributor in U.S. dollars in the United States, or used by Distributor. Sums derived from territories outside of the United States which are not
remittable to Distributor in the United States in U.S. dollars by reason of currency or other restrictions may be reflected on statements rendered
hereunder for informational purposes only, and Distributor shall, at the request and expense of Issuer (subject to any and all limitations,
restrictions, laws, rules, and regulations affecting such transactions), deposit into a bank designated by Issuer in the country involved, or pay to
any other party designated by Issuer in such territory, such part thereof, if any, as would have been payable to Issuer hereunder. Such deposits
or payments to or for Issuer shall
-Schedule “GR” Page 7 -
constitute remittance to Issuer, and Distributor shall have no further responsibility therefor. Distributor makes no warranties or representations
that any part of any such foreign currencies may be converted into U.S. dollars or transferred to the account of Issuer in any foreign country.
Costs incurred in a territory during a period when all receipts are blocked shall be charged only against blocked receipts from such territory.
Costs incurred in a territory during a period when part of the receipts is blocked and part is remittable to the United States shall be charged
proportionately against the blocked and dollar receipts from said territory. However, if costs charged against blocked receipts, in either of the
foregoing instances, have not been recovered therefrom within ***** after such costs were incurred, the deficit shall be computed in dollars at
the official rate or such rate of exchange as may be announced from time to time by Bank of America, as Distributor may elect.
8. Settlement Reports . Distributor shall render to Issuer (with a copy to each Revenue Participation Holder, provided that Distributor’s
inadvertent failure to provide such copy to any Revenue Participation Holder shall be a breach of this Agreement) the Settlement Reports as set
forth in Section 7.2 . Such Settlement Report shall show, in as much detail as Distributor usually furnishes in such statements rendered to other
parties, the appropriate calculations pursuant to this Schedule. Statements and any sums due with respect to the Funded Qualifying Project shall
be prepared in U.S. dollars and provided to Issuer on each Settlement Date; provided that no statement shall be rendered for any period in
which no receipts are received or charges incurred. Statements rendered by Distributor may be changed from time to time to give effect to
year-end adjustments made by Distributor’s accounting department or public accountants, to items overlooked, to correct errors, or to reflect
any indebtedness which may become uncollectible for any similar purposes. Should Distributor make any overpayment to Issuer hereunder for
any reason, Distributor shall have the right to deduct and retain for its own account an amount equal to any such overpayment from any sums
that may thereafter become due or payable by Distributor to Issuer or for Issuer’s account, or may demand repayment from Issuer in which
event Issuer shall repay the same when such demand is made. Any U.S. dollars due and payable to Issuer by Distributor pursuant to any such
statement shall be paid to Issuer simultaneously with the rendering of such statement; provided, that all amounts payable to Issuer hereunder
shall be subject to all laws and regulations now or hereafter in existence requiring the deduction or withholding of payments for income or
other taxes payable by or assessable against Issuer. Distributor shall have the right to make such deductions and withholdings, and the payment
thereof to the governmental agency concerned in accordance with its interpretation in good faith of such laws and regulations shall constitute
payment hereunder to Issuer, and Distributor shall not be liable to Issuer for the making of such deductions or withholdings or the payment
thereof to the governmental agency concerned. In any such event Issuer shall make and prosecute any and all claims which it may have (and
which it desires to make and prosecute) with respect to the same directly with the governmental agency having jurisdiction in the premises.
9. Ownership . Issuer shall not have any lien or other rights in or to any of the receipts of the Funded Qualifying Project, it being understood
that the references herein thereto are intended solely for the purpose of determining the time, manner and amount of payments, if any, due to
Issuer hereunder.
-Schedule “GR” Page 8 -
10. No Warranties . Distributor has not made any express or implied representation, warranty, guarantee or agreement (i) as to the amount of
Gross Receipts which will be derived from the distribution of the Funded Qualifying Project, or (ii) that there will be any sums payable to
Issuer hereunder, or (iii) that the Funded Qualifying Project will be favorably received by exhibitors or by the public, or will be distributed or
that any such distribution will be continuous, or (iv) that it now has or will have or control any theaters or other facility in the United States or
elsewhere, or (v) that any non-subsidiary licensee will make payment of any sums payable pursuant to any agreement between such licensee
and Distributor, Distributor’s obligation hereunder being limited to accounting only for such license fees as may be actually received by
Distributor from such licensee. In no event shall Issuer make any claim that Distributor has failed to realize receipts or revenues which should
or could have been realized in connection with the Funded Qualifying Project or any of Distributor’s rights therein.
11. Excess of Permitted Payments . In the event the proceeds payable to Issuer hereunder shall exceed that permitted by any law or
governmental regulation, Distributor shall (at Issuer’s cost) use its reasonable efforts to assist Issuer in the application to the appropriate
authority for the right to pay Issuer all of the Gross Receipts payable to Issuer pursuant to the Agreement and shall pay the difference between
the proceeds payable pursuant to the Agreement and the proceeds permitted to be paid at such time, if ever, as it may be legally permissible to
Distributor to pay the difference.
-Schedule “GR” Page 9 -
SCHEDULE “DM”
Schedule “DM” to Master Distribution Agreement (Film Productions) dated July 25, 2007 between MQP, LLC, as Issuer, and Lions Gate
Films, Inc., as Distributor (the “ Agreement ”).
DELIVERY MATERIALS
QUALITY CONTROL REQUIREMENTS :
All film, sound and video materials shall be in accordance with the custom and standard of the local film industries throughout the Territory.
ASPECT RATIOS :
The Picture shall not be in an aspect ratio other than the standard theatrical 1:85 to 1 without Lions Gates prior written consent. No elements
shall be “letter boxed” without Lions Gates prior written consent.
DELIVERY PROVISIONS :
All materials to be delivered on an “if available” basis shall not be considered part of Delivery for purposes of deeming delivery complete if
such materials are not available. In the event the original Legal and Publicity Documents are in a language other than English, the documents
shall be provided along with the English translation. All Film and Video Materials, unless indicated otherwise, shall be vaulted in a reputable
laboratory. The Original Negative (or, if applicable, the Digital Intermediate Negative) and the Color Interpositive Protection Master shall be
vaulted in separate laboratories (or in separate film vaults if vaulted at the same laboratory). All Film and Video Materials shall be of first class
technical quality. The Picture shall be shot and delivered on 35mm film stock. The Picture shall be shot and delivered in the English language.
The Picture shall have an M.P.A.A. rating of no more restrictive than “___”. The Picture shall have a total run time of no less than ___minutes.
If the Picture has been submitted to any Film Festival, a list of such festivals shall be delivered on or before the Delivery Date. This schedule of
Delivery Requirements is on a non-precedential basis.
If the Picture contains any English subtitles, the Delivery Requirements shall be revised to incorporate the necessary Film Materials and Video
Materials.
A. Delivery Locations :
1. “Vice-President of Post Production Services; Attn: Valoen Power”: Lions Gate Entertainment Corp., 2700 Colorado Avenue, Suite 200,
Santa Monica, CA 90404.
2. Vice President, Legal & Business Affairs; Attn: Charlyn Adkins”: Lions Gate Entertainment Corp., 2700 Colorado Avenue, Suite 200, Santa
Monica, CA 90404.
B. Film Materials :
1. Original Negative : The original 35mm picture negative (without scratches or defects) fully cut, edited and assembled complete with credits
and main, narrative (if any), end and all descriptive titles, and conforming to the final edited version of the action work print of the Picture
approved by Lions Gate and in all respects ready and suitable for the manufacture of a protection interpositive. (Deliver to “Vice-President of
Post Production Services”).
OR
1. Digital Intermediate Negative : The original Digital Intermediate Negative (without scratches or defects) fully cut, edited and assembled
complete with credits and main, narrative (if any), end and all descriptive titles, and conforming to the final edited version of the action work
print of the Picture approved by Lions Gate and in all respects ready and suitable for the manufacture of a protection interpositive. (Deliver to
“Vice-President of Post Production Services”).
2. Quad Optical Sound Track Negative : One (1) fully mixed and recorded original 35mm optical sound track negative of the Picture, of
technically acceptable quality prepared for printing in perfect synchronization with the Original Negative and conforming in all respects to the
Answer Print approved by Lions Gate. The Optical Sound Track Negative shall contain Dolby SR, Dolby SRD, SDDS and D.T.S. digital
information. Note: All digital information must be contained on the optical soundtrack negative in order to playback the applicable digital
formats. All proper licenses for Dolby SR, Dolby SRD, SDDS and D.T.S. must be paid in full for a worldwide theatrical release including, a
U.S. national theatrical release, without limitations or restrictions and copies of said licenses shall be delivered. (Deliver to “Vice-President of
Post Production Services”).
3. Printmaster (2-Track LT RT and 6-Track 5.1): One (1) 2-Track and one (1) 6-Track stereo master of the dubbed soundtrack of the Picture
along with the corresponding M.O. disk, CD ROM drives, etc. The Printmaster shall be in perfect synchronization and shall conform in all
respects to the final delivered version(s) of the Picture. With respect to format, the Protool Files on DVD shall be delivered. Note: Lions Gate
shall provide Grantor with a copy of its technical specifications. (Deliver to “Vice-President of Post Production Services”).
4. Answer Print : One (1) first class (pristine or new) composite 35mm positive print of the Picture fully timed or color corrected, manufactured
from the Original Negative or, if applicable, the Digital Intermediate Negative (item #1 above) and the Optical Sound Track Negative (item #2
above), fully titled, with the sound track printed thereon in perfect synchronization with photographic action and conformed to the final edited
version of the
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action work print of the Picture approved by Lions Gate and in all respects ready and suitable for distribution and exhibition. (Deliver to
“Vice-President of Post Production Services”).
5. Color Interpositive Protection Master : One (1) 35mm color corrected and complete interpositive master of the Picture, conformed in all
respects to the Answer Print for protection purposes without scratches or defects. If the Picture is in black and white, one (1) graded or timed
protection master of the Picture, conformed in all respects to the Answer Print unless otherwise requested by the “Executive Vice-President of
Physical Operations”. If applicable, the Color Interpositive Protection Master shall be manufactured from the pristine (new) Digital
Intermediate Negative. (Deliver to “Vice-President of Post Production Services”).
6. Color Internegative/Dupe Negative : One (1) 35mm Internegative manufactured from the color interpositive protection master suitable for
the manufacturing of worldwide commercially acceptable 35mm composite release prints without scratches or defects, of any kind, including
but not limited to acceptable focus, manufactured on polyester based stock. (Deliver to “Vice-President of Post Production Services”).
7. Check Print: One (1) first class (pristine or new) composite 35mm positive print of the Picture fully timed or color corrected, manufactured
from the Color Internegative/Dupe Negative (item #6 above) and Optical Sound Track Negative (item #2 above), fully titled, with the sound
track printed thereon in perfect synchronization with photographic action and conformed to the final edited version of the action work print of
the Picture approved by Lions Gate and in all respects ready and suitable for distribution and exhibition. (Deliver to “Vice-President of Post
Production Services”).
8. Titles/Textless Backgrounds : One (1) original 35mm textless (i.e. without any superimposed lettering) main and end title background optical
negative and one (1) 35mm textless (i.e. without any superimposed lettering) main and end title background interpositive protection master
(which includes all in-show scenes, narrative and all descriptive titles with textless backgrounds) conformed in all respects to the background
of the Original Negative or, if applicable, to the background of the Digital Intermediate Negative. (Deliver to “Vice-President of Post
Production Services”).
9. Sound Tracks (Stems) : The separate stereo discrete dialogue tracks, stereo discrete sound effects tracks and stereo discrete music effects
from which the original composite sound track master was made. A separate dialogue track for each language into which the Picture has been
dubbed by Producer shall be provided. With respect to format, the Protool Files on DVD shall be delivered. Note: If the original language of
the Picture (or any part thereof) is other than English, an English dub is also required. (Deliver to “Vice-President of Post Production
Services”).
10. Music Tracks (Source) : One (1) copy of the original licensed music (with each song in its entirety and assembled in the order that they
appear in the Picture) which Lions Gate can utilize in connection with creating trailers for the Picture, and if soundtrack album rights
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are granted to Lions Gate, from which Lions Gate can produce a soundtrack album. The Music Tracks shall be delivered to Lions Gate on a
Compact Disc (CD). An inventory of the tracks shall also be provided. (Deliver to “Vice-President of Post Production Services”).
11. Music Tracks (Score) : One (1) copy of the original score (with each song in its entirety and assembled in the order that they appear in the
Picture) which Lions Gate can utilize in connection with creating trailers for the Picture, and if soundtrack album rights are granted to Lions
Gate, from which Lions Gate can produce a soundtrack album. The Music Tracks shall be delivered to Lions Gate on a Compact Disc (CD). An
inventory of the tracks shall also be provided. (Deliver to “Vice-President of Post Production Services”).
12. Spanish Dialogue Track : If currently available or subsequently created by Grantor (or by any other distributor of the Picture), one
(1) Spanish dialogue track in perfect synchronization with the music and effects track of the feature. The Spanish Dialogue Track may be
delivered to Lions Gate in its available format. (Deliver to “Vice-President of Post Production Services”).
13. French Dialogue Track : If currently available or subsequently created by Grantor (or by any other distributor of the Picture), one
(1) French dialogue track in perfect synchronization with the music and effects track of the feature. The French Dialogue Track may be
delivered to Lions Gate in its available format. (Deliver to “Vice-President of Post Production Services”).
14. Foreign Language Dialogue Track : If currently available or subsequently created by Grantor (or by any other distributor of the Picture),
one (1) dialogue track for each language respective to the Territory granted Lions Gate under the Agreement in perfect synchronization with
the music and effects track of the feature. The Dialogue Track may be delivered to Lions Gate in its available format. (Deliver to
“Vice-President of Post Production Services”).
15. M&E Track/6+2 (5.1 and 2.0): The combined mixed music tracks and the 100% fully filled effects track where the effects track contains all
effects including any effects recorded on the dialogue track. This M&E Track shall also include a separate dialogue guide track. There shall be
no English dialogue in the M&E tracks. If any dialogue is treated or used as a sound effect, an additional sweetner channel is to be used
containing said dialogue. If the Picture is to be released with digital sound, an additional multi-channel 100% fully filled M&E Track, minus
any English dialogue or narration, shall be delivered in order to recreate the appropriate digital format. The stereo audio configuration shall be
left/center/right/left surround/right surround/subwoofer. With respect to format, the Protool Files on DVD shall be delivered. Note: Lions Gate
shall provide Grantor with a copy of its technical specifications . (Deliver to “Vice-President of Post Production Services”).
16. M&E Track/4+2: The combined mixed music tracks and the 100% fully filled effects track where the effects track contains all effects
including any effects recorded on the dialogue track. This M&E Track shall also include a separate dialogue guide track. There
- Schedule “DM” Page 4 -
shall be no English dialogue in the M&E tracks. If any dialogue is treated or used as a sound effect, an additional sweetner channel is to be
used containing said dialogue. If the Picture is to be released with digital sound, an additional multi-channel 100% fully filled M&E Track,
minus any English dialogue or narration, shall be delivered in order to recreate the appropriate digital format. The stereo audio configuration
shall be left/center/right/surround/optional material/dialogue guide track. With respect to format, the Protool Files on DVD shall be delivered.
Note: Lions Gate shall provide Grantor with a copy of its technical specifications . (Deliver to “Vice-President of Post Production Services”).
17. D,M&E Track : The discrete stereo dialogue, discrete stereo music and discrete stereo effects. With respect to format, the Protool Files on
DVD shall be delivered. Note: Lions Gate shall provide Grantor with a copy of its technical specifications . (Deliver to “Vice-President of Post
Production Services”).
18(a). Trims and Outs : All unused takes and trims, and all other film, video and soundtrack materials produced for or used in the process of
preparing the Picture (e.g. all original camera negative and/or digital camera media with the corresponding original production sound, and all
first generation video dailies made directly from the production camera source and the production mixers recorded sound). (Deliver to
“Vice-President of Post Production Services”).
18(b). Editorial Paperwork/Files: Copies of the code books/flex files, the final line script from the production, the negative cutters inventory (if
applicable), the final non-linear editing project files and/or EDL’s, the camera reports, the sound reports, the re-recording sound reports
(including all ADR and TV lines) and all other paperwork used in connection with the post production of the Picture. (Deliver to
“Vice-President of Post Production Services”).
19. Closed Captioned Version : To the extent created, all closed captioned elements. In addition, Grantor shall provide Lions Gate with the
name of the vendor (including the phone number and contact name) used for the creation of the Closed Captioned Materials, if any, in
connection with the television exhibition of the Picture. (Deliver to “Vice-President of Post Production Services”).
20. Television “Cover Shots” : If required in order to enable the Picture to be exhibited on network television, the necessary television
elements, as applicable, including “cover shots” (for content) and dialogue coverage (for language) shall be provided. TV coverage shall be
compiled by an editor in chronological order in accordance with the sequence of events in which scenes occurred in the feature. Coverage will
be compiled on one or two reels of 35mm negative (accompanied with the matching video and flex file) on one or two additional reels on a
newly created video tape with window burn-ins to be used for video editing. The negative reel will be cut together by the feature negative
cutters in accordance with the editors work print reel or reels and/or video tape. Also, the matching production track shall be supplied on one or
two reels and/or DAT, along with access to the original production
- Schedule “DM” Page 5 -
sound. Enough TV coverage shall be supplied to create a TV version with a running time of no less than 85 minutes for domestic distribution
purposes and no less than 94 minutes for international distribution purposes. A clearly noted, marked up final line script of all TV coverage will
be supplied along with the TV coverage elements, as well as all other applicable paperwork and/or files noted in item 18(b) above. (Deliver to
“Vice-President of Post Production Services”).
C. Video Materials :
1. Digital High Definition Video Masters (HDCam SR): Two (2) HDCam SR video masters in the 24P format, in a 4:4:4 color space, as
follows: (i) one (1) video master in the 4X3 (1.33:1 full frame) format and one (1) video master in the 16X9 (1.78:1 full frame) format. Each
video master shall contain proper head slates (which include, without limitation, the title, running time, aspect ratio, audio configuration, name
of the record vendor, the date of creation, etc.). Channels 1 & 2 shall contain stereo audio. Channels 3 & 4 shall contain 100% fully filled stereo
M&E. Channels 5 & 6 shall contain Dolby E. All textless backgrounds shall be attached to the tail of each video master. The textless
backgrounds shall be in the proper aspect ratio and shall be color timed. (Deliver to “Vice-President of Post Production Services”).
2. Digital Standard Definition Video Masters : Three (3) Digital Beta video masters individually manufactured (conversions not acceptable
unless it is a down conversion from the Digital High Definition Video Master referenced above (HDCam SR)) in the NTSC format as follows:
one (1) video master (panned and scanned in the 4X3 (1.33:1 aspect ratio) if the Picture is in 1.85 ratio or in anamorphic), one (1) video master
in the 16X9 (1.78 full frame) format and one (1) video master in the 4X3 (1.85 letterbox) format, and three (3) Digital Beta video masters
individually manufactured (conversions not acceptable unless it is a down conversion from the Digital High Definition Video Master
referenced above (HDCam SR)) in the PAL format as follows: one (1) video master (panned and scanned in the 4X3 (1.33:1 aspect ratio) if the
Picture is in 1.85 ratio or in anamorphic), one (1) video master in the 16X9 (1.78 full frame) format and one (1) video master in the 4X3 (1.85
letterbox) format. Each video master shall contain proper head slates (which include, without limitation, the title, running time, aspect ratio,
audio configuration, name of the record vendor, the date of creation, etc.). Channels 1 & 2 shall contain stereo audio. Channels 3 & 4 shall
contain 100% fully filled stereo M&E. All textless backgrounds shall be attached to the tail of each video master. The textless backgrounds
shall be in the proper aspect ratio and shall be color timed. The inclusion of textless backgrounds shall be noted in the head slate of each video
master. (Deliver to “Vice-President of Post Production Services”).
(a) The transfer process from film to videotape shall not cause any coloration when a pure white, gray or black scene is reproduced.
(b) For full frame or panned and scanned versions, all transfers done from widescreen or anamorphic film elements to tape must be panned
and scanned so as to make them acceptable for television framing. In the case of 1.85:1 or 1.66:1 elements, framelines
- Schedule “DM” Page 6 -
in the picture (letter boxing) are not acceptable except in the case of titles. If necessary, for title safety, the main and/or end title sequences may
be transferred with a slight or minimal letterbox format so long as the framelines are wiped with a complimentary color to the picture behind
the credits. (White or colored titles in a black field need not be wiped). Additionally, no manipulation of the video master(s), except with
respect to standard color correction, will be acceptable (i.e. speed ups, slow downs, squeezes, etc.) without the prior written approval of Lions
Gate.
3. DLT: If available, one (1) fully built DLT. The DLT shall be accompanied by a DLT Specifications Form. All material (including any music
embodied therein) shall be fully cleared for Lions Gates exploitation thereof in all media granted Lions Gate under the Agreement throughout
the Territory during the Term without any additional clearance costs (or other supplemental payments) required to be paid in connection
therewith. (Deliver to “Vice-President of Post Production Services”).
4. Digital High Definition Television Video Masters (HDCam SR) : Two (2) HDCam SR video masters in the 24P format, in a 4:4:4 color
space, individually manufactured from the original film element as follows: (i) one (1) video master in the 4X3 (1.33:1 full frame) format and
one (1) video master in the 16X9 (1.78:1 full frame) format with a running time of no less than 85 minutes for domestic distribution purposes
and no less than 94 minutes for purposes of international distribution purposes. Each video master shall contain proper head slates (which
include, without limitation, the title, running time, aspect ratio, audio configuration, name of the record vendor, the date of creation, etc.).
Channels 1 & 2 shall contain stereo audio. Channels 3 & 4 shall contain 100% fully filled stereo M&E. The Digital High-Definition Television
Masters shall be free of excessive and/or graphic violence, grotesque scenes, profanity, obscene language, nudity, sexual activity, etc. that are
not reasonably expected to be seen on free broadcast television and/or on ships and airplanes. In the event that the music in the television
version of the Picture varies from the music in the original delivered version of the Picture, a Music Cue Sheet and the Music Licenses shall be
delivered. Note: If the Picture, as delivered, is free of excessive and/or graphic violence, grotesque scenes, profanity, obscene language, nudity,
sexual activity, etc., the Digital Television Master shall be deemed deleted. (Deliver to “Vice-President of Post Production Services”).
(a) The transfer process from film to videotape shall not cause any coloration when a pure white, gray or black scene is reproduced.
(b) All transfers done from widescreen or anamorphic film elements to tape must be panned and scanned so as to make them acceptable for
television framing. In the case of 1.85:1 or 1.66:1 elements, framelines in the picture (letter boxing) are not acceptable except in the case of
titles. If necessary, for title safety, the main and/or end title sequences may be transferred in the letterbox format so long as the framelines
are wiped with a complimentary color to the picture behind the credits. (White or colored titles in a black field need not be wiped).
Additionally, no manipulation of the video master(s),
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except with respect to standard color correction, will be acceptable (i.e. speed ups, slow downs, squeezes, etc.) without the prior written
approval of Lions Gate.
5. Digital Trailer Video Master : If available, one (1) High Definition Video Master and/or one (1) Digital Beta video master individually
manufactured (conversions not acceptable unless it is a down conversion from the Digital High Definition Video Master referenced above
(HDCam SR)) Trailer Video Master in the NTSC format (panned and scanned if the Picture is in 1.85 ratio or in scope) made from the
interpositive of the feature. Channels 1 & 2 shall contain stereo audio. Channels 3 & 4 shall contains 100% fully filled stereo M&E. All textless
backgrounds shall be attached to the tail of the trailer video master. All music embodied therein shall be fully cleared for Lions Gates
exploitation thereof in all media granted Lions Gate under the Agreement throughout the Territory during the Term without any additional
clearance costs (or other supplemental payments) required to be paid in connection therewith. (Deliver to “Vice-President of Post Production
Services”).
6. Digital High Definition Unrated Video Masters : To the extent applicable, two (2) HDCam SR video masters in the 24P format, in a 4:4:4
color space, as follows: (i) one (1) video master in the 4X3 (1.33:1 full frame) format and one (1) video master in the 16X9 (1.78:1 full frame)
format . Each video master shall contain proper head slates (which include, without limitation, the title, running time, aspect ratio, audio
configuration, name of the record vendor, the date of creation, etc.). Channels 1 & 2 shall contain stereo audio. Channels 3 & 4 shall contain
100% fully filled stereo M&E. The Digital Unrated High Definition Masters shall contain such outtakes, scenes and footage that would result
in a rating of “NC-17” if the Picture were rated by the M.P.A.A. All textless backgrounds shall be attached to the tail of the unrated masters. In
the event that the music, footage, dialogue, etc. in the unrated version of the Picture varies from the music, footage, dialogue, etc. in the original
(rated) version of the Picture, a Music Cue Sheet, the Music Licenses, a Dialogue Continuity and Sporting List and all other respective
documentation shall be delivered. In the event that the audio in the unrated version of the Picture varies from the audio in the original
(rated) version of the Picture, all respective audio materials shall be delivered (i.e. Printmaster (5.1), M&E Track and Sound Track (5.1
Stems)). NOTE: A list (or similar documentation) identifying the footage (and the placement of the footage by means of accurate time codes)
that has been added to the unrated version of the Picture shall be delivered. (Deliver to “Vice-President of Post Production Services”).
(a) The transfer process from film to videotape shall not cause any coloration when a pure white, gray or black scene is reproduced.
(b) All transfers done from widescreen or anamorphic film elements to tape must be panned and scanned so as to make them acceptable for
television framing. In the case of 1.85:1 or 1.66:1 elements, framelines in the picture (letter boxing) are not acceptable except in the case of
titles. If necessary, for title safety, the main and/or end title sequences may be transferred in the letterbox format so long as the framelines
are wiped with a complimentary
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color to the picture behind the credits. (White or colored titles in a black field need not be wiped). Additionally, no manipulation of the
video master(s), except with respect to standard color correction, will be acceptable (i.e. speed ups, slow downs, squeezes, etc.) without the
prior written approval of Lions Gate.
D. Publicity / Promotional Materials :
1. Color Photography : A minimum of three hundred (300) different (approved) production color digital photographs depicting scenes in the
Picture with members of the cast (including principals) appearing therein. The photography shall be delivered digitally in the highest resolution
format possible (a minimum of 300dpi) and saved as a Tiff File. The Contact Sheets and a photo identification caption list shall be provided.
The distinction between “kill shots” and “approved shots” shall be clearly made (either directly on the contact sheets or on a separate list).
Note: Any and all talent approvals or other authorizations that are required in connection with the use of the delivered photography shall be
secured and delivered. (Deliver to “Vice President, Legal & Business Affairs”).
2. Advertising Materials: One (1) copy of all advertisements, paper accessories and other advertising materials, if any, prepared by Grantor, the
Producer or by any other party affiliated with the Picture, including, without limitation, press clippings, newspaper ads (including, the artwork,
billing and title treatment for the newspaper ad), cast and crew interviews, commentaries, one-sheet posters, flyers, behind-the-scene footage,
key art elements and transparencies, television spots, etc. Note: If key art is available, it shall be delivered in a layered Photoshop file in the
highest resolution format possible. All materials (including any music) shall be fully cleared for Lions Gates exploitation thereof in all media
granted Lions Gate under the Agreement throughout the Territory during the Term without any additional clearance costs (or other
supplemental payments) required to be paid in connection therewith. Any and all talent approvals or other authorizations that are required in
connection with the use of the materials shall be secured and delivered. In the event that any material is not fully cleared as set forth above, a
written statement outlining in detail the material that has not been cleared shall be provided. In the event that a written statement outlining in
detail the material that has not been cleared is not provided, the material(s) will be considered approved for all purposes. (Deliver to “Vice
President, Legal & Business Affairs”).
3. Electronic Press Kit : One (1) Electronic Press Kit (“EPK”) created using 35mm film or broadcast quality video tape suitable in all respects
for exploitation. The EPK shall contain interviews with the principal cast, interviews with the principal crew (e.g. director and producer),
behind-the-scenes footage, “bloopers”, outtakes, “making of” footage, production footage, etc. The EPK shall have four track discrete audio
with the voice-over and/or narration on one track, the dialogue on a separate track, the music on a separate track and the effects on a separate
track. All footage (including the music embodied therein, behind-the-scene footage, etc.) shall be fully cleared for Lions Gates exploitation
thereof in all media granted Lions Gate under the Agreement throughout the Territory during the Term (and all
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releases with respect thereto shall be delivered) without any additional clearance costs (or other supplemental payments) required to be paid in
connection therewith. Any and all talent approvals or other authorizations that are required in connection with the use of the materials shall be
secured and delivered. In the event that any material is not fully cleared as set forth above, a written statement outlining in detail the material
that has not been cleared shall be provided. In the event that a written statement outlining in detail the material that has not been cleared is not
provided, the EPK will be considered approved for all purposes. Note: It is understood and agreed that the use of the materials is subject to
those third party contractual restrictions, which restrictions shall be delivered to Lions Gate in writing on or before the Delivery Date. (Deliver
to “Vice President, Legal & Business Affairs”).
6. Screening Copy: One (1) DVD copy of the Picture. (Deliver to “Vice President, Legal & Business Affairs”).
7(a). Ancillary Materials (DVD “Bonus” Materials): One (1) Digital Beta video master in the NTSC format containing all material created by
Grantor (or by any other party affiliated with the Picture) for the inclusion in the DVD master. Channels 1 & 2 shall contain stereo audio.
Channels 3 & 4 shall contain 100% fully filled stereo M&E. Textless background shall be attached to the tail of the video master. All material
(including any music embodied therein, behind-the-scene footage, etc. ) shall be fully cleared for the exploitation thereof in all media granted
Lions Gate under the Agreement throughout the Territory during the Term (and all releases with respect thereto shall be delivered). In the event
that any material is not fully cleared as set forth above, a written statement outlining in detail the material that has not been cleared shall be
provided. In the event that a written statement outlining in detail the material that has not been cleared is not provided, the Ancillary Materials
will be considered approved for all purposes. (Deliver to “Vice President, Legal & Business Affairs”).
7(b). Ancillary Audio Materials (DVD “Bonus” Materials): The discrete stereo audio, discrete stereo dialogue, discrete stereo music and
discrete stereo effects. With respect to format, the Protool Files on DVD shall be delivered. (Deliver to “Vice President, Legal & Business
Affairs”).
E. Legal and Publicity Documents :
1. Laboratory Access Letter : Three (3) original copies of the Laboratory Access Letter granting Lions Gate irrevocable access during the Term
to all Film and Video Materials, as applicable. The Laboratory Access Letter shall be signed by Grantor and the laboratory. Lions Gate shall
provide Grantor with a copy of its standard Laboratory Access Letter. (Deliver to “Vice President, Legal & Business Affairs”).
2. Press Books : Five (5) Press Books, including (approved) biographies (one to three typewritten pages in length) of the principal cast and
crew members, a complete cast and crew list, the running time, production notes (item #3 below), synopsis (item #6 below), etc. (Deliver to
“Vice President, Legal & Business Affairs”).
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3. Production Notes : One (1) copy of the (approved) production notes of the Picture prepared by the Unit Publicist, including items relating to:
underlying work (original screenplay, book, etc.), places where the Picture was photographed, anecdotes about the production of background of
the Picture. The Production Notes shall be approved by all respective parties and/or individuals. (Deliver to “Vice President, Legal & Business
Affairs”).
4. Feature Dialogue Continuity and Spotting List : One (1) copy in the English language of a detailed, final dialogue and action continuity, in
an acceptable format, of the completed Picture and one (1) copy in the English language of a detailed, final spotting list, in an acceptable
format, of the Picture. Note: If the original language of the Picture (or any part thereof) is other than English, the English subtitles shall be
included. (Deliver to “Vice President, Legal & Business Affairs”).
5. Trailer Dialogue Continuity and Spotting List: If a Trailer is delivered, if available, one (1) copy in the English language of a detailed, final
dialogue and action continuity, in an acceptable format, of the completed trailer and one (1) copy in the English language of a detailed, final
spotting list, in an acceptable format, of the trailer. (Deliver to “Vice President, Legal & Business Affairs”).
6. Synopsis : One (1) full synopsis of the Picture. (Deliver to “Vice President, Legal & Business Affairs”).
7. Screen Credit Obligations : One (1) summary of the Screen Credit Obligations (main titles) for all individuals and entities affiliated with the
Picture, and one (1) copy of the main titles and the end titles as they exactly appear on screen. In addition to a hard copy, the screen credits
shall be delivered to Lions Gate electronically. If the Picture is under the jurisdiction of any guild/union, Grantor shall deliver the
documentation evidencing the credits (main and end titles) have been approved by the respective guild/union. All respective waivers, if any,
shall be provided. (Deliver to “Vice President, Legal & Business Affairs”).
8. Advertising Credit Provisions : Two (2) copies of the Advertising Credit Obligations (including all obligations, restrictions, approval and/or
consultation rights pertaining to paid advertising, excluded ads, audio ads, trailers, TV spots, artwork, billing block, commercial tie-ins,
merchandising, bloopers, trims and outtakes, “making of” films, behind-the-scene footage, etc.) for all individuals and entities affiliated with
the Picture. If there are no advertising credit provisions, a written statement on which Lions Gate can rely on indicating such shall be provided.
If the Picture is under the jurisdiction of any domestic and/or foreign guild/union, Grantor shall deliver the documentation evidencing the
credits have been approved by the respective guild/union (including, without limitation, a copy of the Notice Of Tentative Writing Credit form
as required by the WGA, the final determination of the writing credits as determined by the WGA and, if applicable, proof of payment of the
Script Publication Fee). All respective waivers, if any, shall be provided. If the Picture is not under the jurisdiction of any union/guild, a written
statement indicating such shall be provided. (Deliver to “Vice President, Legal & Business Affairs”).
- Schedule “DM” Page 11 -
9. Billing Block : Two (2) copies of the approved and final billing block. The billing block shall include all required logos and the Copyright
Notice for the motion picture. The camera-ready artwork for all logos required to be included shall be delivered on a disc and electronically.
Each logo shall be delivered as an EPS file and as a jpeg and/or pdf file and shall be delivered independent of the billing block. In addition to a
hard copy, the billing block shall be delivered to Lions Gate electronically. (Deliver to “Vice President, Legal & Business Affairs”).
10. Name and Likeness Provisions : Two (2) copies of all name and likeness restrictions and/or obligations pertaining to all individuals and
entities affiliated with the Picture (including any still, likeness and/or artistic rendering approval rights). If there are no name and likeness
restrictions and/or obligations, a written statement on which Lions Gate can rely on indicating such shall be provided. (Deliver to “Vice
President, Legal & Business Affairs”)
11. Talent Agreements (executed) : Copies of the agreements for the principal cast (inclusive of any featured voices and cameo appearances),
key personnel (e.g. director, director of photography, costume designer, production designer, editor, screenwriters (inclusive of all agreements
for all rewrites), author of any underlying work, (or other owner of the underlying material, if applicable), producer(s), unit production
manager, 1 st assistant director, 2 nd assistant director, music producers (if applicable), etc.) and all Releases for all individuals appearing in the
Picture. The respective Agent’s name, address, fax and phone number shall be provided. All Nudity Riders, if any, shall be provided. All
agreements for all minors appearing in the Picture shall be provided. The Work Permits and Guardian Release Forms shall accompany all
agreements for all minors. All Agreements and Releases shall include work-for-hire language and language that prevents injunctive relief. If
applicable, and to the extent required by applicable law, all Talent Agreements for all minors shall be confirmed by the court. In the event that
court confirmation is not applicable, a letter from an attorney in the jurisdiction in which principal production took place stating that the
agreements are valid, binding and enforceable under the laws of said jurisdiction shall be provided . (Deliver to “Vice President, Legal &
Business Affairs”).
12. Music Cue Sheet : Two (2) copies of the Music Cue Sheet of the Picture. The music cue sheet shall include the title of each composition
(inclusive of any “samples”), the composers, publishers, copyright owners, form of usage (e.g. background, instrumental, etc.), performing
rights society (e.g. BMI, ASCAP, etc.), as well as film footage and running time. (Deliver to “Vice President, Legal & Business Affairs”).
13. Music Cue Sheet (Trailer) : If a Trailer is delivered, one (1) copy of the Music Cue Sheet of the Trailer. The music cue sheet shall include
the title of each composition (inclusive of any “samples”), the composers, publishers, copyright owners, form of usage (e.g. background,
instrumental, etc.), performing rights society (e.g. BMI, ASACAP, etc.), as well as film footage and running time. (Deliver to “Vice President,
Legal & Business Affairs”).
- Schedule “DM” Page 12 -
14. Certificates of Origin : Ten (10) original notarized Certificates of Origin issued by an authorized agent in the country of origin (or
Certificates of Nationality certified by the official applicable government agency) and, if applicable, the Canadian Content Certificate. (Deliver
to “Vice President, Legal & Business Affairs”).
15. Assignment of Rights (notarized) : Three (3) original notarized assignments of the rights granted Lions Gate in and to the Picture under the
Agreement. Lions Gate will prepare the document for Grantor’s review, approval and execution. (Deliver to “Vice President, Legal & Business
Affairs”).
16. Copyright Registration Certificates : One (1) U.S. Copyright Registration Certificate / Form PA (stamped by the Library of Congress) for
the screenplay and one (1) U.S. Copyright Registration Certificate / Form PA (stamped by the Library of Congress) for the motion picture. If
the certificates (Form PA) have not yet been returned from the Library of Congress, Grantor shall deliver a copy of each certificate (Form PA)
along with a copy of the cover letter and check that accompanied each certificate (Form PA) to the Copyright Office. Grantor agrees to
immediately deliver one (1) copy of the Copyright Registration Certificates to Lions Gate when received from the Library of Congress. Note: If
the screenplay and/or motion picture has been recorded with the Canadian Copyright Office, the Certificate of Registration of Copyright shall
be provided. (Deliver to “Vice President, Legal & Business Affairs”).
17. Producer’s Errors and Omissions Insurance Policy : One (1) copy of the Insurance Application (executed), one (1) copy of the Insurance
Policy, and an original Certificate of Errors & Omissions Insurance (and the Endorsement) naming each (i) Lions Gate Entertainment Corp.,
each partner therein and division thereof, and its respective parents, subsidiary and related entities, distributors, licensees and assigns, and the
respective officers, directors, shareholders, employees and agents of the foregoing, 2700 Colorado Avenue, Suite 200, Santa Monica, CA
90404 (ii) Maple Pictures Corporation, 2 Bloor Street West, Suite 1001, Toronto, ON M4W 3E2 and (iii) JP Morgan Chase Bank, 1111 Fannin,
10 TH Floor, Houston, Texas 77002 as an additional insured. The minimum coverage shall be ***** for a single occurrence and ***** for
aggregate claims with a deductible of no more than ***** for a minimum term of ***** from the Delivery Date but, no less than ***** from
Lions Gates initial commercial release date. Grantor shall be responsible for all deductibles and retentions under the policy. The policy shall
cover all aspects of the Picture and any and all materials relating thereto (including all underlying material with respect thereto, the release of a
soundtrack album, if applicable, and all behind-the-scene footage, “making of” documentaries, bloopers, and all trims and outtakes, as well as
the title thereof, the music therein, and the distribution/release of the motion picture on video cassettes, tapes, discs and future technology) and
the endorsements to this effect shall be delivered. Documentation evidencing that the premium has been paid in full for the entire ***** term
and a guarantee of at least ***** written notice of cancellation or other material change to the policy shall be provided. The policy shall
include a provision that the policy shall be primary and not contributory to any other insurance provided for the benefit of or by any additional
insured. The insurance carrier shall agree to name any other person and/or entity as an additional
- Schedule “DM” Page 13 -
insured, at no additional cost, and provide a Certificate of Insurance with respect thereto, as requested by Lions Gate throughout the policy
term. Note: A Rights Period Endorsement Policy is not acceptable and coverage under a blanket policy is not acceptable. (Deliver to “Vice
President, Legal & Business Affairs”).
18. Music Licenses (executed) : Copies of the Music Licenses (synchronization, master and mechanical) for all music (inclusive of “samples”)
used in the Picture and proof of payment of the licensing fees. All licenses shall provide for all media (on a full buy-out basis) necessary to
effect the terms of the Agreement (including, but not limited to, Internet (without limitations) and future media as devised throughout the
Term) throughout the Territory during the Term without any future payment obligations (e.g. “step” payments, video bonuses, box office
bonuses, etc.). All licenses and agreements shall include language that prevents injunctive relief and shall preclude the licensor from
terminating the license. (Deliver to “Vice President, Legal & Business Affairs”).
19. Music Licenses (Trailer): If a Trailer is delivered, copies of the Music Licenses (master, synchronization and mechanical) for all music
(inclusive of “samples”) used in the Trailer and proof of payment of the licensing fees. All licenses shall provide for all media necessary to
effect the terms of the Agreement (including, but not limited to, Internet and future media as devised throughout the Term) throughout the
Territory during the Term. All licenses and agreements shall include language that prevents injunctive relief and shall preclude the licensor
from terminating the license. (Deliver to “Vice President, Legal & Business Affairs”).
20. Composer Agreement (executed) : One (1) copy of the Composer Agreement (inclusive of a Certificate of Authorship) and all other
agreements for all other music personnel (including, without limitation, the Music Supervisor and any co-publishing or administration
agreements). All Agreements shall include language that prevents injunctive relief. (Deliver to “Vice President, Legal & Business Affairs”).
21. Music Lyrics: One (1) copy of all song lyrics used in the Picture. (Deliver to “Vice President, Legal & Business Affairs”).
22. Chain of Title : Complete chain of title materials (including, without limitation, a copy of Grantor’s Articles of Incorporation, an original
Certificate of Authorship executed by each Writer, an original Author’s Attestation executed by each Writer and, to the extent applicable, the
executed Publisher’s Release) suitable for filing with the United States Copyright Office and reasonably suitable to Lions Gates primary lender
and insurance carrier indicating that Grantor has full right, title and interest in and to the Picture and all underlying property with respect
thereto (including, without limitation, proof of payment of all fees due in connection with the purchase of the screenplay and all underlying
materials, if any, upon which the screenplay is based (e.g. Option Payment(s), Purchase Price, Fixed Compensation, Passive Payments, etc.)).
All Chain of Title documents shall include language that prevents injunctive relief. (Deliver to “Vice President, Legal & Business Affairs”).
- Schedule “DM” Page 14 -
23. UCC Search : One (1) current UCC Search of Grantor, Production Company and all other respective entities (from a reputable service)
from the following states: (i) California; (ii) the state of Grantor’s principal place of business; and, (iii) the state of producer’s principal place of
business. Each search report must show that the Picture is free and clear of any and all liens. Each report must include copies of the referenced
filings, if any, and shall identify the collateral. (Deliver to “Vice President, Legal & Business Affairs”).
24. M.P.A.A. Rating Certificate : One (1) M.P.A.A. Certificate of Approval and Rating. (Deliver to “Vice President, Legal & Business
Affairs”).
25. Title Report : One (1) current (within sixty (60) days of the Delivery Date) Title Report showing that the title of the Picture is available for
use without infringing any other person or entity’s rights. If the title of the Picture has insurance coverage under the Errors and Omissions
Insurance Policy, a copy of the Title Report submitted to the insurance carrier will suffice. (Deliver to “Vice President, Legal & Business
Affairs”).
26. Copyright Report : One (1) current (within sixty (60) days of the Delivery Date) Copyright Report (from a reputable service; i.e. Thomson
& Thomson) showing that Grantor has good clear title to the Picture and all underlying rights. The Copyright Report must include the specifics
of the referenced filings, if any. (Deliver to “Vice President, Legal & Business Affairs”).
27. Copyright Mortgage and Assignment (notarized): Three (3) original agreements, fully executed by Grantor, granting Lions Gate a first
position security interest in and to the rights granted Lions Gate in and to the Picture under the Agreement. Lions Gate will prepare the
document for Grantor’s review, approval and execution. (Deliver to “Vice President, Legal & Business Affairs”).
28. U CC Financing Statement : One (1) UCC-1 Financing Statement granting Lions Gate a first position security interest in and to the rights
granted Lions Gate in and to the Picture under the Agreement. Lions Gate will prepare the document for Grantor’s review and approval.
(Deliver to “Vice President, Legal & Business Affairs”).
29. Stock Footage Licenses / Clip Licenses / Legal Clearances/Releases : If the Picture contains any stock footage, film clips, TV clips, news
clips, media clips, radio clips, print media, paintings, posters, logos, artwork, copyrighted and/or trademarked materials, any materials which
includes a trademark (registered or pending), photographs, portraits, books, publications, any third party likeness, etc., copies of all licenses
(and proof of payment of the licensing fee) shall be provided. All licenses shall provide for all media granted Lions Gate under the Agreement
throughout the Territory during the Term (including the use of any music embodied therein). In the event that the Picture contains any stock
footage, a Stock Footage Cue Sheet shall be provided. All licenses and releases shall include language that prevents injunctive relief and shall
preclude the licensor from terminating the license. Note: In the event that there is any music in any clip (whether score and/or source), the
Music Cue
- Schedule “DM” Page 15 -
Sheet delivered for the motion picture shall include such music. (Deliver to “Vice President, Legal & Business Affairs”).
30. Shooting Script: One (1) copy of the final shooting script.
(Deliver to “Vice President, Legal & Business Affairs”).
31. Fact Sheet (executed): One (1) completed Fact Sheet. Lions Gate shall provide Grantor with a copy of its standard Fact Sheet. (Deliver to
“Vice President, Legal & Business Affairs”).
32. Dolby (Dolby SR and Dolby SRD) License Agreements : One (1) copy of the fully executed license agreements in full force and effect for
unlimited distribution of the Picture throughout the Territory during the Term and proof of payment of the fees. (Deliver to “Vice President,
Legal & Business Affairs”).
32. SDDS License Agreement : One (1) copy of the fully executed license agreement in full force and effect for unlimited distribution of the
Picture throughout the Territory during the Term and proof of payment of the fee. (Deliver to “Vice President, Legal & Business Affairs”).
34. Digital Theater Systems License Agreement (DTS): One (1) copy of the fully executed license agreement in full force and effect for
unlimited distribution of the Picture throughout the Territory during the Term and proof of payment of the fee. (Deliver to “Vice President,
Legal & Business Affairs”).
35. IRS Tax Forms: The original executed IRS Forms (as applicable) shall be provided. (Deliver to “Vice President, Legal & Business
Affairs”).
36. Dubbing/Subtitling Restrictions: One (1) statement of all dubbing and subtitling restrictions relating to the replacement of any voice,
including the dubbing of dialogue in a language other than the language in which the Picture was originally recorded. If there are no
Dubbing/Subtitling Restrictions, a written statement on which Lions Gate can rely on indicating such shall be provided. (Deliver to “Vice
President, Legal & Business Affairs”).
37. Cutting/Editing Restrictions: One (1) statement of all third party cutting/editing restrictions including, without limitations, any and all
consultation rights accorded to any individual including, without limitation, the Director (whether by contract or by union affiliation). If there
are no Cutting/Editing Restrictions, a written statement on which Lions Gate can rely on indicating such shall be provided. (Deliver to “Vice
President, Legal & Business Affairs”).
38. Cast and Crew List: One (1) complete list of all cast and all crew members. The list shall include the names of all cast and crew members,
their contact information (agent name, address, fax and phone number), their affiliation to the Picture and union affiliation, if any. (Deliver to
“Vice President, Legal & Business Affairs”).
- Schedule “DM” Page 16 -
F. Complete 35MM Trailer Materials : All available, if any, Trailer Materials. (Deliver to “Vice-President of Post Production Services”).
1. Trailer Picture Negative : If available, one (1) 35mm negative (without scratches or defects), fully cut, edited and assembled, of the
completed trailer.
2. Trailer Optical Sound Track Negative : If available, one (1) fully mixed and recorded original 35mm optical sound track negative of the
Completed Trailer prepared for printing in perfect synchronization with the Trailer Picture negative.
3. Trailer Magnetic Sound Track : If available, one (1) 35mm original magnetic three-track, consisting of separate dialogue, music and 100%
filled sound effects, fully recorded and equalized in perfect synchronization with the Trailer Picture Negative.
4. Trailer Answer Print : If available, one (1) first class sample composite 35mm positive print of the Completed Trailer, fully timed and color
corrected, manufacture from the Trailer Picture Negative and Trailer Sound Track Negative, with the sound track printed thereon in perfect
synchronization with photographic action and with Lions Gate identification symbols as Lions Gate shall determine, in all respects ready and
suitable for distribution and exhibition.
5. Trailer Overlay Text : If available, one (1) 35mm negative of the text used for superimposing the lettering of the Completed Trailer fully cut
to match the trailer picture negative.
6. Trailer Sound Track : If available, the separate dialogue tracks, sound effect tracks, narration tracks and music tracks, each in 35mm
magnetic tracks from which the original Trailer Magnetic Sound Track was made.
7. Trailer Textless Background : If available, one (1) 35mm textless (i.e. without any superimposed lettering) background negative of the
Completed Trailer conformed in all respects to the background of the Trailer Negative.
- Schedule “DM” Page 17 -
Exhibit 10.42
CONFIDENTIAL TREATMENT REQUESTED: INFORMATION FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED IS OMITTED AND IS NOTED WITH “*****.” AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
MASTER DISTRIBUTION AGREEMENT
(TELEVISION PRODUCTIONS)
Dated as of July 25, 2007
between
MQP, LLC
as Issuer,
and
LIONS GATE TELEVISION, INC.
as Distributor,
MASTER DISTRIBUTION AGREEMENT (TELEVISION PRODUCTIONS), dated as of July 25, 2007, between MQP, LLC , a
Delaware limited liability company, as “ Issuer ” and LIONS GATE TELEVISION, INC. as “ Distributor ”.
INTRODUCTORY STATEMENT
WHEREAS, Issuer, Distributor and the Revenue Participation Holders (as defined in the RP Purchase Agreement) have entered into that
certain Revenue Participation Purchase Agreement (the “ RP Purchase Agreement ”) pursuant to which Issuer has agreed to sell, and each of
the Revenue Participation Holders has agreed to purchase, Revenue Participations (as defined in the RP Purchase Agreement) in each Funded
Qualifying Project on the terms set forth therein; and
WHEREAS, Issuer and the Revenue Participation Holders each desire to have Distributor distribute each Funded Qualifying Project on the
terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement and the RP Purchase Agreement
and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by each of the parties hereto), the
parties hereby agree as follows:
1. DEFINITIONS AND ACCOUNTING TERMS .
1.1 Defined Terms . As used in this Agreement the following terms shall have the respective meanings set forth in this Section 1.1 . Unless
otherwise defined herein, all defined terms shall have the meanings ascribed thereto in the RP Purchase Agreement.
“ Accounting Period ” shall mean, with respect to a Funded Qualifying Project, (i) each ***** period during the ***** following the
Release Date for such Funded Qualifying Project and (ii) thereafter, each quarterly period during the Term; provided , however , that the first
Accounting Period for each Funded Qualifying Project shall commence on the date of receipt of the first Gross Receipts for such Funded
Qualifying Project.
“ Adjusted Receipts ” has the meaning set forth in Section 6.3.4 .
“ Affiliate ” shall mean any Person, which, directly or indirectly, is in control of, is controlled by, or is under common control with another
Person. For purposes of this definition, a Person shall be deemed to be “ controlled by ” another Person if such latter Person possesses, directly
or indirectly, the power either to direct or cause the direction of the management and policies of such controlled Person whether by contract or
otherwise.
“ Affiliate Payment ” shall mean, with respect to a Qualifying Project, an amount payable to (i) Issuer, LGEI, Distributor or any of their
respective Affiliates, (ii) any officer, director or management of Issuer, LGEI or Distributor or any entity in which officer, director or
management of Issuer, LGEI or Distributor has any interest or (iii) any officer, director or management of any affiliate of Issuer, LGEI or
Distributor or any entity in which any officer, director or management of any affiliate of Issuer, LGEI or Distributor has any interest,
excluding in each case payments expressly permitted hereunder; provided, however, that each Executive Producer Fee shall not be considered
an Affiliate Payment.
“ Agreement ” means this Master Distribution Agreement, as amended, supplemented or otherwise modified, renewed or replaced from time
to time, and references to “ Schedules ” and “ Sections ” refer to Schedules and Sections of this Agreement.
“ Ancillary Rights ” means and includes, without limitation, the right to exploit all ancillary, incidental and subsidiary rights in and to any
Funded Qualifying Project, including, without limitation, all Merchandising, commercial tie-ins, music, music publishing, soundtrack,
photonovel, novelization, screenplay publication, interactive media, multi-media, and theme park (or other “themed” or location-based
attraction) rights.
“ Applicable Law ” shall mean all provisions of statutes, rules, regulations and orders of the United States of America, any state thereof or
municipality therein or of any foreign governmental body or of any regulatory agency applicable to the Person in question, and all orders and
decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party.
“ Appellate Arbitrators ” has the meaning set forth in Section 13.2 .
“ Arbitral Board ” has the meaning set forth in Section 13.1 .
“ Business Day ” shall mean any day other than a Saturday, Sunday or other day on which banks are required or permitted to close in either
the Province of Quebec or the State of California.
“ CIPO ” shall mean the Canadian Intellectual Property Office.
“ Co-Financier ” means a Person that is not an Affiliate of LGEI, the Issuer or the Distributor who makes an investment in a Qualifying
Project pursuant to a Co-Financing Transaction.
“ Co-Financing Amount ” means, with respect to a Qualifying Project, all amounts actually received by Issuer or its Affiliates on a
non-refundable basis from any Co-Financing Transaction; provided , however , that Co-Financing Amounts shall exclude any Co-Financing
Participations.
“ Co-Financing Participation ” means any amount payable to any Person that is not an Affiliate of LGEI in connection with a Co-Financing
Transaction, including pass through and defeasance amounts.
“ Co-Financing Transaction ” means, with respect to a Funded Qualifying Project, (i) tax advantaged financing transactions, including,
without limitation, tax credits, government incentives, labor credits, sale/leaseback transactions, governmental subsidy/rebate programs or
similar transactions and other so-called “soft money” transactions, in each case, that are contemplated to create a so-called “soft money”
benefit, or (ii) a transaction pursuant to
-2-
which a Person that is not an Affiliate of LGEI makes an equity investment in such Funded Qualifying Project.
“ Defect Notice ” has the meaning set forth in Section 8.1 .
“ Delivery ” has the meaning set forth in Section 8.1 .
“ Delivery Materials ” means (a) for any Funded Qualifying Project that is a Film Production, those materials listed on Schedule “DM” and
(b) for any Funded Qualifying Project that is neither a Film Production nor a Television Production ( e.g. a “direct-to-video” Production), such
materials as Distributor shall notify Issuer in writing no less than ***** prior to Delivery of such Funded Qualifying Project.
“ Distribution Expenses ” has the meaning set forth in Schedule “GR” .
“ Distribution Fee ” has the meaning set forth in Section 4 .
“ Distribution Records ” has the meaning set forth in Section 7.3 .
“ Distribution Rights ” means with respect to each Funded Qualifying Project the sole, exclusive and irrevocable right, under copyright,
throughout the Term, to (and to license others to) exhibit, distribute, market, display, project, transmit, broadcast, perform, advertise, publicize,
exploit, sell copies of, dispose of and otherwise communicate publicly or privately and/or turn to account such Funded Qualifying Project, in
whole or in part (and its plot, themes and other elements), and trailers and clips and excerpts therefrom, in any and all languages and versions,
in the Territory, on any and all kinds, sizes, gauges and/or widths of film, tape, computer, electronic, digital, on-line transmission by any and
every means, method, process or device or other delivery systems now known or hereafter developed, and in all markets and media now known
and exploited, now known and hereafter exploited, and not yet known or devised, including, without limitation, Ancillary Rights , Theatrical
Rights, Non-Theatrical Rights, Television Rights and Home Video Rights .
“ Distributor Collateral ” has the meaning set forth in Section 19 .
“ Distributor Security Agreement ” has the meaning set forth in Section 19 .
“ Distributor Security Interest ” has the meaning set forth in Section 19 .
“ Encumbrance ” means any lien (statutory or other), claim, charge, security, interest, mortgage, deed of trust, pledge, hypothecation,
assignment, conditional sale or other title retention agreement, preference, priority or other security agreement or preferential arrangement of
any kind, and any easement, encroachment, covenant, restriction, right of way, defect in title or other encumbrance of any kind.
“ Film Production ” means a Production that is intended to be exploited theatrically and specifically excludes a Television Production.
-3-
“ Force Majeure ” has the meaning set forth in Section 17 .
“ Free Television ” means (a) exhibition over television broadcast stations, whether network stations or independent stations, where no
charge is made to the viewer and/or (b) exhibition by means of satellite or cable television for which subscribing members of the public may
pay for the transmission service provided by the satellite or cable system, but do not otherwise pay a premium for the programming transmitted
by the satellite or cable system.
“ Funded Qualifying Project ” shall mean any Qualifying Project in which the Revenue Participation Holders have purchased a Revenue
Participation, and, for the purposes of this Agreement only, in which Distributor has been granted Distribution Rights, the Related Rights and
other rights pursuant to Section 2 .
“ GAAP ” shall mean generally accepted accounting principles in the United States of America in effect from time to time consistently
applied (except for accounting changes in response to FASB releases, or other authoritative pronouncements).
“ Gross Receipts ” has the meaning set forth in Schedule “GR” .
“ Home Video Rights ” means and includes, without limitation, the sole and exclusive right (1) to manufacture, advertise, promote, exploit
and distribute the Funded Qualifying Projects on a sale, lease or rental basis directly or through licensees, in all languages, versions, and sizes,
on all formats of video devices now known or hereafter known or devised, including, without limitation, (a) any and all forms of
videocassettes, cartridges, phonograms, tape, video discs, laser discs, 8mm recordings and any other visual or optical recording, (b) any and all
forms of DVD (including, without limitation, HD-DVD and Blu-Ray), DVD-ROM, and Internet access-ready DVDs, CD-I and CD-ROM,
Video Compact Discs, or (c) on Videograms, and (2) the right to exploit the Funded Qualifying Projects by means of Video-On-Demand or
Near Video-On-Demand, and all forms of digital or on-line exploitation, distribution and/or transmission (including, without limitation,
Internet transmission) and computerized or computer-assisted media.
“ Indemnified Party ” has the meaning set forth in Section 12.1 .
“ Indemnifying Party ” has the meaning set forth in Section 12.1 .
“ Issuer Collateral ” has the meaning set forth in Section 20 .
“ Issuer Event of Default ” has the meaning set forth in Section 11.2 .
“ Issuer Obligations ” has the meaning set forth in Section 6.2 .
“ Issuer Security Agreement ” has the meaning set forth in Section 20 .
“ Issuer Security Interest ” has the meaning set forth in Section 20 .
-4-
“ JAMS ” has the meaning set forth in Section 13 .
“ LGEI ” means Lions Gate Entertainment Inc., a Delaware corporation.
“ Merchandising ” includes, without limitation, the right to create and exploit computer, video and other electronic games based upon a
Funded Qualifying Project or any element thereof, including, without limitation, the sole and exclusive right to create or license the creation of
interactive programs, whether in CD-ROM, DVD (including, without limitation, HD-DVD and Blu-Ray), set-top or arcade formats; and the
right to create and exploit toys, comic books and so-called “making of books,” apparel, food and beverages, posters, and any and all other
commodities, services or items based upon a Funded Qualifying Project or any element thereof.
“ Near Video-On-Demand ” incorporates the definition of Video-On-Demand, except that, instead of the consumer determining the starting
time for viewing the Funded Qualifying Project, the consumer is able to select the starting time from viewing times determined by the provider,
where the provider permits a selection of starting times not more than 15 minutes apart.
“ Nonpublic Information ” means information which has not been disseminated in a manner making it available to investors generally,
within the meaning of Regulation FD.
“ Non-Theatrical Markets ” means and includes, without limitation, airlines, schools, libraries, hospitals, hotels, Army, Navy, Air Force and
other military or armed services installations, and ships at sea flying the flag of a country in the Territory or which are serviced from within the
country of such flag, and other institutions that typically license recorded entertainment materials from programming suppliers.
“ Non-Theatrical Rights ” means and includes, without limitation, the sole and exclusive right to exploit the Funded Qualifying Projects in
Non-Theatrical Markets by any and all means, whether now known or hereafter known or devised.
“ Other Releasing Costs ” shall mean, with respect to a Funded Qualifying Project, the aggregate of the following costs and expenses, which
costs and expenses shall be actual out-of-pocket costs and expenses paid or payable within ***** : home video/DVD manufacturing,
duplication, shipping and marketing costs for such Funded Qualifying Project and all other actual out-of-pocket distribution, manufacturing or
other costs and expenses paid to an unaffiliated third party (other than participations, residuals, or as otherwise included in P&A Costs, Direct
Costs, or otherwise duplicated costs) with respect to such Funded Qualifying Project.
“ P&A Costs ” shall mean, with respect to a Funded Qualifying Project that is a motion picture, the aggregate of the following costs, which
costs shall be actual out-of-pocket costs paid or payable within ***** or incurred not later than ***** after the date of the first theatrical
release: all prints, marketing, advertising, promotion and publicity costs incurred in the exercise by Distributor of the theatrical distribution
rights in such Funded Qualifying
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Project (i) in the United States; and (ii) for any other territory in which Distributor directly distributes such Funded Qualifying Project.
“ Pay-Per-View ” means exhibition over a service for which subscribers pay a premium on a per-program basis for each program which they
choose to receive.
“ Pay Television ” means exhibition over a service for which subscribers pay a premium for the programming transmitted (e.g., HBO).
“ Permitted Encumbrances ” means: (a) Encumbrances for taxes not yet due and payable; (b) Encumbrances arising from and pursuant to the
Transaction Documents; (c) Encumbrances arising in the ordinary course of production of a Production, including, without limitation, those
arising out of or with respect to or pursuant to any collective bargaining agreement ( e.g. , guild liens, possessory liens of laboratories, transfer
facilities and other post-production facilities); (d) Encumbrances created under any distribution agreement entered into with a Subdistributor in
the ordinary course of business in connection with the distribution or exploitation of any Funded Qualifying Project; (e) Encumbrances created
pursuant to the terms of any Co-Financing Transaction; (f) Encumbrances in favour of any completion guarantor providing a completion
guarantee for any Funded Qualifying Project; (g) Encumbrances in favour of any interim financier of the production costs for a Funded
Qualifying Project; and (h) the Senior Lender Encumbrances.
“ Person ” shall mean any natural person, corporation, division of a corporation, limited liability company, partnership, trust, joint venture,
association, company, estate, unincorporated organization or government or any agency or political subdivision thereof.
“ Proceedings ” has the meaning set forth in Section 13 .
“ Production ” means any motion picture or television production of every kind and character whatsoever, including, without limitation, all
present and future technological developments, whether produced by means of any photographic, electrical, electronic, optical, mechanical or
other processes or devices now known or hereafter devised, and their accompanying devices and processes whereby 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, without limitation, computer generated
pictures and graphics other than video games.
“ Production Specifications ” shall mean, in respect of each Funded Qualifying Project, the documents or items pre-approved in writing by
the Revenue Participation Holders in respect of such Funded Qualifying Project pursuant to the RP Purchase Agreement.
“ Rebate Costs ” has the meaning set forth in Section 7.4 .
“ Rebates ” has the meaning set forth in Section 7.4 .
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“ Regulation FD ” means Regulation FD as promulgated by the US Securities and Exchange Commission under the Securities Act and
Exchange Act as in effect from time to time.
“ Residuals ” shall mean the costs incurred and payments required under applicable collective bargaining agreements (in all applicable
jurisdictions) by reason of or as a condition to use or exhibition of a Funded Qualifying Project in any media.
“ Revenue Participation Holders ” shall mean SGF and LGEI and each of their respective permitted successors and assigns, and “ Revenue
Participation Holder ” means any one of them.
“ RPMRR ” shall mean the Register of Personal Movable Real Rights (Quebec).
“ Rules ” has the meaning set forth in Section 13 .
“ Senior Lender Encumbrances ” shall mean the Encumbrances in favour of the Senior Lenders and the Senior Loan Administrative Agent.
“ Senior Lender InterCreditor ” shall mean the intercreditor agreement to be entered into by SGF and the Senior Loan Administrative Agent.
“ Senior Lenders ” shall mean the lenders in the Senior Loan Syndicate.
“ Senior Loan Administrative Agent ” shall mean JP Morgan Chase Bank, National Association.
“ Senior Loan Syndicate ” shall mean the senior credit facilities in favour of Lions Gate Entertainment Corp. and LGEI administered by the
Senior Loan Administrative Agent.
“ Settlement Date ” means, the ***** following the end of an Accounting Period.
“ Settlement Report ” has the meaning set forth in Section 7.2 .
“ SGF ” means SGF Entertainment Inc. and its successors and assigns.
“ Short Form License Agreement ” has the meaning set forth in Section 10.2.3 .
“ Subdistributor ” has the meaning set forth in Section 4.2 .
“ Television Production ” means a Production that is intended to be exploited on any form of television including, without limitation, Free
Television, Pay Television and Pay-Per-View and specifically excludes a Production exploited theatrically.
“ Television Rights ” means and includes, without limitation, the sole and exclusive right to exploit the Funded Qualifying Projects by
means of television signal, without regard as to how such signal is distributed (e.g., broadcast over the air, or via satellite, fiberoptic cable,
telephone wire, or any and all forms of Internet, wireless or other computer or digital
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technology, or any other form of technology, now known or hereafter known or devised. Television Rights includes, without limitation, the
right to exploit the Funded Qualifying Projects via Pay Television, Pay-Per-View and Free Television.
“ Term ” means, with respect to a Funded Qualifying Project, the duration of time that Issuer owns and/or controls the Distribution Rights
for such Funded Qualifying Project.
“ Territory ” means, with respect to a Funded Qualifying Project, those countries and territories for which Issuer owns and/or controls all or
a portion of the Distribution Rights.
“ Theatrical Rights ” means and includes, without limitation, the sole and exclusive right to rent, lease, license, exhibit, distribute and
otherwise deal in and with the Funded Qualifying Projects for viewing by the public in theatres, in any and all languages or versions, and
including, without limitation, the right to enter into rentals, leases and licenses respecting all theaters or other places of public viewing, without
regard as to how the Funded Qualifying Projects are distributed to theatres (e.g., on any and all sizes and gauges of film, tape or disc or
distribution to theatres by any other means, whether now known or hereafter known or devised, including, without limitation, satellite, cable or
other electronic transmission).
“ Third Party Participation ” means, with respect to a Funded Qualifying Project, any amount payable to any Person other than (i) LGEI,
Issuer, Distributor or any Affiliate thereof or (ii) any officer, director, management employee of any of LGEI, Issuer, Distributor or any
Affiliate thereof, whether characterized as a deferment, gross participation, net participation, profit participation, contingent compensation, box
office bonus, award or credit bonus, or otherwise which amount is based, dependent, computed, or payable, in whole or in part, on the net or
gross receipts, earnings, or proceeds derived from such Funded Qualifying Project or any percentage of the foregoing or is payable at such time
as any such receipts, earnings, or proceeds equal a specified amount whether such receipts, earnings, or proceeds are computed in the same
manner as provided in the Distribution Agreement or are otherwise computed or any similar type of payment or the economic equivalent
thereof. For the avoidance of doubt, (a) a “ Third Party Participation ” shall include, “deferments” payable in connection with a Funded
Qualifying Project which are fixed obligations in a definite amount whether or not the receipts, earnings, or proceeds of such Funded
Qualifying Project equal a specified amount, and (b) a “ Third Party Participation ” shall not include Co-Financing Participations unless (i) the
contractual arrangements with a Co-Financier require such Co-Financier’s Co-Financing Participation to be paid from Gross Receipts in the
same position in the Waterfall as Third Party Participations and (ii) such contractual arrangements have been disclosed to the Revenue
Participation Holders in the Production Specifications.
“ Third Party Payments ” has the meaning set forth in Section 6.1 .
“ UCC ” shall mean the Uniform Commercial Code, as applicable in the State of Delaware.
“ USCO ” shall mean the United States Copyright Office.
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“ Videograms ” means and includes, without limitation, any and all forms of computer software, or any configuration of computer software
and technology, for private use by consumers by any means, whether now known or hereafter known or devised.
“ Video-On-Demand ” means and includes, without limitation, the transmission of a Funded Qualifying Project through any method now
known or hereafter devised, including, without limitation, broadcast television signal, whether analog or digital, or via satellite, cable,
telephone wire, fiberoptics, cyberspace, Internet or other computerized or digital technology, on-line transmission, every sort of electronic
transmission or any and all other delivery systems, to a television receiver, computer monitor or other comparable display, whereby the
consumer can select the Funded Qualifying Project from a central library and whereby the consumer determines the starting time of the Funded
Qualifying Project.
“ Waterfall ” has the meaning set forth in Section 6.3 .
1.2 Computation of Time Periods . Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date
to a later specified date, the word “ from ” means “ from and including ”, the word “ through ” means “ to and including ”, and the words “ to ”
and “ until ” each mean “ to but excluding ”.
1.3 Accounting Terms / Ratios .
1.3.1 Except as otherwise expressly provided herein or in the RP Purchase Agreement, all accounting terms not defined herein or in the
RP Purchase Agreement shall be construed in accordance with GAAP.
1.3.2 All calculations of financial ratios hereunder shall be calculated to the same number of decimal places as the relevant ratios are
expressed in and shall be rounded upward if the number in the decimal place immediately following the last calculated decimal place is five or
greater, and rounded down if otherwise.
1.4 Rules of Construction . Unless the context otherwise clearly requires:
1.4.1 whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms;
1.4.2 the word “ will ” shall be construed to have the same meaning and effect as the word “ shall ”;
1.4.3 any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on
such amendments, supplements or modification set forth herein);
1.4.4 any reference to any law herein shall be construed as referring to such law as from time to time amended;
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1.4.5 any reference herein to any Person, or to any Person in a specified capacity, shall be construed to include such Person’s successors
and assigns or such Person’s successors in such capacity, as the case may be;
1.4.6 the words “ herein ,” “ hereunder ” and other words of similar import refer to this Agreement as a whole and not to any particular
Schedule , Section , or other subdivision;
1.4.7 to the extent that there are any inconsistencies with the terms and conditions of this Agreement and the terms and conditions of the
RP Purchase Agreement, the terms and conditions of the RP Purchase Agreement shall prevail; and
1.4.8 all capitalized terms not otherwise defined herein shall have the meaning attributed thereto in the RP Purchase Agreement and shall
be incorporated herein as if herein recited at length.
2. GRANT OF RIGHTS .
2.1 Issuer hereby grants and conveys the Distribution Rights to Distributor, to the extent owned or controlled by Issuer.
2.2 Issuer hereby grants the Related Rights to Distributor, to the extent owned or controlled by Issuer.
2.3 Distributor shall have the sole and exclusive right to advertise, publicize, promote and market each Funded Qualifying Project by any
means in the Territory and over the Internet.
2.4 Issuer shall not release or disclose any information, advertising or publicity relating to any Funded Qualifying Project in the Territory
without Distributor’s prior written approval.
3. EXPLOITATION DECISIONS .
3.1 Subject to the terms of the RP Purchase Agreement and the terms and conditions of this Agreement, Distributor shall have absolute
discretion concerning the exploitation of each Funded Qualifying Project, including the right to release and distribute (and/or refrain from
releasing and distributing) each Funded Qualifying Project in such manner and media, and through such releasing or distribution entity or
entities (and/or to engage such Subdistributors or licensees). Issuer agrees that any such determination on the part of Distributor and its
sublicensees regarding any matter affecting the exploitation of a Funded Qualifying Project shall be binding and conclusive upon Issuer.
Without limiting the foregoing:
3.1.1 Distributor may, at its discretion, prepare closed-captioned versions of the Funded Qualifying Projects and use excerpts, clips and
trailers thereof for advertising and promotional purposes.
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3.1.2 Distributor may incorporate onto Videograms of a Funded Qualifying Project (A) preceding and/or following the main and end
titles of such Funded Qualifying Project, Distributor’s or any of Distributor’s, sublicensees’, Affiliates’ and affiliated licensees’ names,
trademarks, logos, trailers, clips, (B) excerpts of other Funded Qualifying Projects, (C) Distributor’s standard “opening” and “closing”
sequences, including, without limitation, an introductory visual “logo” with or without music, (D) any legal notices or other information which
Distributor determines is necessary, (E) paid advertising (provided monies received from such paid advertising shall be included in Gross
Receipts) and (F) any so-called “making of” or “behind the scenes” documentary footage or programming, including, without limitation, any
part of the electronic press kits, featurettes, interviews, television specials and publicity clips prepared in connection with such Funded
Qualifying Project.
3.1.3 Distributor may incorporate trailers, clips or excerpts of a Funded Qualifying Project on Videograms of other Productions and may
incorporate trailers, clips or excerpts of other Productions on Videograms of a Funded Qualifying Project.
3.1.4 Distributor shall have the right, at its discretion, to either make any and all changes and modifications in a Funded Qualifying
Project (including, without limitation, its title) which Distributor shall determine to be necessary or desirable by reason of censorship,
registration (i.e. ratings) or other requirements of governmental or other authorities or law, all at Issuer’s sole cost and expense as part of the
Distribution Expenses of such Funded Qualifying Project. Issuer agrees to cooperate with Distributor to clear customs, registrations and
censorship or similar authorities and any fees associated therewith may be deductible from any amounts payable to Issuer. Distributor shall
have the right to select, designate or change the title of a Funded Qualifying Project in its discretion and to release such Funded Qualifying
Project in any or all parts of the Territory under such title or titles as Distributor may designate.
3.1.5 Distributor may include Distributor’s (or one or more of Distributor’s or any of Distributor’s sublicensees’, affiliates’ and affiliated
licensees’ names) name, logo, trademark or emblem in such manner, position, form and substance as Distributor may elect on the prints of the
Funded Qualifying Projects, and on all advertising and publicity materials for the Funded Qualifying Projects (including, without limitation,
any trailers of the Funded Qualifying Projects), together with such words as Distributor may elect indicating that such Funded Qualifying
Projects are being distributed by Distributor or any of Distributor’s sublicensees’, affiliates’ and affiliated licensees’ names.
3.2 Maximizing Gross Receipts . Distributor shall use diligent efforts and skill (consistent with the quality standards of first-class
distributors of Productions) in the distribution and exploitation of the Funded Qualifying Projects in all media throughout the Territory to
maximize Gross Receipts, including, without limitation, obtaining any permits permissions and/or clearances necessary to exploit the Funded
Qualifying Projects in all territories throughout the Territory.
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3.3 Copies of License Agreements . Distributor shall provide Issuer with copies of all license agreements entered into by the Distributor in
connection with any Funded Qualifying Project or any rights therein, promptly upon execution thereof.
3.4 Theatrical Release of Film Productions . For each Funded Qualifying Project that is a Film Production, Distributor shall release such
Funded Qualifying Project theatrically. The size, date, cost and scope of such theatrical release shall be determined in the sole discretion of
Distributor and in accordance with the standards of first-class distributors of Productions taking into account its theatrical release pattern for
films of a similar genre and budget.
4. DISTRIBUTION FEE
4.1 Distribution Fee . For each Funded Qualifying Project, Distributor shall be entitled to receive a distribution fee, on an uncrossed basis
with all other Funded Qualifying Projects (the “ Distribution Fee ”), in an amount equal to ***** for such Funded Qualifying Project,
escalating on a prospective basis only to ***** for such Funded Qualifying Project at such time, if ever, as the sum of the aggregate amount
actually paid to SGF pursuant to the RP Purchase Agreement on account of its Revenue Participation for such Funded Qualifying Project shall
equal ***** paid by SGF for such Revenue Participation, and further escalating on a prospective basis only to ***** for such Funded
Qualifying Project at such time, if ever, as the sum of the aggregate amount actually paid to SGF pursuant to the RP Purchase Agreement on
account of its Revenue Participation such Funded Qualifying Project shall equal ***** paid by SGF for such Revenue Participation; provided ,
however , that the Distributor shall not be entitled to a Distribution Fee on any Gross Receipts relating to the principal license fee payable by a
U.S. licensee for any Funded Qualifying Project that is a Television Production. Any escalation in the Distribution Fee for a Funded Qualifying
Project, and the date of such escalation, shall be indicated in the Settlement Report for such Funded Qualifying Project for the Accounting
Period in which such escalation occurred. In the event that SGF contests the amount actually paid to SGF pursuant to the RP Purchase
Agreement on account of its Revenue Participation for such Funded Qualifying Project, then the Distribution Fee shall not escalate to ***** (as
the case may be), until such time as the parties hereto have had the opportunity to review and agree on such amount, and the date upon which
such amount was actually paid to SGF, and any overpayment of such Distribution Fee shall be corrected in the Settlement Report for the next
Accounting Period (or Accounting Periods, if Gross Receipts are not sufficient to correct such overpayment in such next Accounting Period).
4.2 Subdistribution . Distributor shall be entitled to the Distribution Fees set forth above, in any part of the Territory where Distributor
exploits each Funded Qualifying Project either directly or through a third party that is not an Affiliate of Distributor to which all or part of the
Distribution Rights are licensed or sublicensed (“ Subdistributor ”), regardless of the amounts retained by any such Subdistributor.
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5. DISTRIBUTION EXPENSES .
All Distribution Expenses incurred in connection with the Distribution of each Funded Qualifying Project in the Territory shall be advanced
by Distributor and recouped as provided in Section 6 .
6. ALLOCATION OF GROSS RECEIPTS .
6.1 Third Party Payments . All Third Party Participations, Residuals, music synchronization, performance and other mechanical fees, and
any other license fees (including, without limitation, all literary, all EU copyright directives, artistic, musical, technological and/or intellectual
property rights fees) in connection with each Funded Qualifying Project shall be the obligation of Issuer and shall not be the obligation of
Distributor (collectively, “ Third Party Payments ”). Issuer shall deliver each Funded Qualifying Project free and clear of any Encumbrances,
other than Permitted Encumbrances. Upon Delivery of a Funded Qualifying Project to Distributor in accordance with the terms of this
Agreement, Distributor shall assume any applicable union and/or guild payment obligation(s) due to such union(s) and/or guild(s) as a result of
Distributor’s exploitation of the Distribution Rights for such Funded Qualifying Project in the Territory and each payment made by Distributor
in respect of such obligations shall be considered a Third Party Payment.
6.2 Paymaster Services . So long as Distributor controls the Distribution Rights with respect to a Funded Qualifying Project, then with
respect to each such Funded Qualifying Project during the Term, Distributor agrees to (i) provide to Issuer paymaster services in connection
with the payment of Third Party Payments and other Distribution Expenses for such Funded Qualifying Project and (ii) advance, on behalf of
Issuer the Third Party Payments and other Distribution Expenses (the “ Issuer Obligations ”). Distributor’s agreement to pay Issuer Obligations
in its capacity as paymaster pursuant to the immediately preceding sentence is subject to Distributor’s timely receipt from Issuer of all
contractual provisions and cost and participation information relating to the Funded Qualifying Projects which Issuer hereby agrees to provide
on a timely basis. Distributor shall be entitled to fully recoup, as a Distribution Expense, any amount advanced in respect of Issuer Obligations,
including any amount paid by Distributor on account of Third Party Payments, out of Gross Receipts.
6.3 Allocation of Gross Receipts . Subject to any rights and remedies of Distributor as set forth in this Agreement, Distributor shall, on an
ongoing and continuing basis, deduct and allocate the following items from Gross Receipts from each Funded Qualifying Project, on a
continuing basis in the following order of priority (the “ Waterfall ”):
6.3.1 First , to the payment of any required Third Party Payments, including, without limitation, any Co-Financing Participations that are
included in such Third Party Payments; provided however , that all unreimbursed Third Party Payments and Co-Financing Participations paid
or earned prior to or during such Accounting Period shall be retained by Distributor; provided further , however , that if a Co-Financing
Transaction
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requires that such Co-Financing Participation be paid at a higher or lower level of the Waterfall, then such Co-Financing Participation shall,
with respect to the Gross Receipts received in connection with such applicable Funded Qualifying Project, be deducted and paid to such
co-financing participant at such applicable level of the Waterfall; provided further , however , that if the contractual arrangements relating to a
Third Party Payment require that such Third Party Payment be paid at a higher or lower level of the Waterfall, then such Third Party Payment
shall, with respect to the Gross Receipts received in connection with such applicable Funded Qualifying Project, be deducted and paid to such
the applicable third party participant at such applicable level of the Waterfall.
6.3.2 Second, to Distributor on account of the Distribution Fee for such Accounting Period;
6.3.3 Third , To Distributor on account of all unreimbursed Distribution Expenses paid or incurred during or prior to such Accounting
Period shall be retained by Distributor (for purposes of the foregoing, “ incurred ” shall mean Distribution Expenses that Distributor is
obligated to pay to third parties prior to or during the applicable Accounting Period), which amounts shall include all unreimbursed Third Party
Payments paid or earned prior to or during such Accounting Period (for purposes of the foregoing, “ earned ” shall mean with respect to third
parties the amount that Distributor is contractually obligated to pay to such third parties as a result of the calculation of revenues and expenses
recognized, or events occurring, during the Accounting Period in question, and, with respect to Residuals, amounts that Distributor is
contractually obligated to pay pursuant to collective bargaining agreements with all applicable guilds as a result of the calculation of revenues
and expenses recognized during the Accounting Period in question); and
6.3.4 Fourth , all remaining amounts (“ Adjusted Receipts ”) shall be distributed to the Revenue Participation Holders (and, if applicable,
(a) any Co-Financier, on account of Co-Financing Participations and (b) any third party recipient of a Third Party Payment), as set forth in the
RP Purchase Agreement.
6.4 Gross Receipts Not Crossed . Gross Receipts shall be disbursed through the Waterfall on a Funded Qualifying Project-by-Funded
Qualifying Project and Gross Receipts from one Funded Qualifying Project will not be crossed with Gross Receipts from any other Funded
Qualifying Project.
7. ACCOUNTING / SETTLEMENT REPORTS / AUDIT .
7.1 Accounting Period . Distributor shall account to Issuer with respect to each Funded Qualifying Project distributed by Distributor
hereunder for each Accounting Period.
7.2 Settlement Reports . On each Settlement Date, Distributor shall render to Issuer (with a copy to each Revenue Participation Holder,
provided that Distributor’s inadvertent failure to provide such copy to any Revenue Participation Holder shall be a breach of this Agreement) a
settlement report for each Funded Qualifying Project (each, a “ Settlement Report ”). Each Settlement Report shall be delivered by Distributor
to Issuer on each Settlement Date together with any sums being shown due to Issuer. Settlement Reports
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rendered by Distributor may be changed from time to time to give effect to year-end adjustments made by Distributor’s accounting department
or public accountants, to items overlooked, to correct errors, or to reflect any indebtedness which may become uncollectible for any similar
purposes. Should Distributor make any overpayment to Issuer hereunder for any reason, Distributor shall have the right to deduct and retain for
its own account an amount equal to any such overpayment from any sums that may thereafter become due or payable by Distributor to Issuer or
for Issuer’s account. Should Distributor make any underpayment to Issuer hereunder for any reason, Distributor shall on the next succeeding
Settlement Date pay to Issuer an amount equal to any such underpayment; provided , however , that all amounts payable to Issuer hereunder
shall be subject to all laws and regulations now or hereafter in existence requiring the deduction or withholding of payments for income or
other taxes payable by or assessable against Issuer arising out of or in connection with this Agreement. Distributor shall have the right to make
such deductions and withholdings, and the payment thereof to the governmental agency concerned in accordance with its interpretation in good
faith of such laws and regulations shall constitute payment hereunder to Issuer, and Distributor shall not be liable to Issuer for the making of
such deductions or withholdings or the payment thereof to the governmental agency concerned. In any such event Issuer shall make and
prosecute any and all claims which it may have (and which it desires to make and prosecute) with respect to the same directly with the
governmental agency having jurisdiction in the premises.
7.3 Accounting Records . Books of account in respect of the distribution of each Funded Qualifying Project (which books of account are
hereinafter referred to collectively as the “ Distribution Records ”), shall be kept at Distributor’s or its Affiliates’ various offices (both in the
United States and abroad) where generated or customarily kept, for as long as such Distribution Records are customarily retained by such office
( provided , however , that the foregoing obligation shall not apply to any Subdistributors of a Funded Qualifying Project) and in the form
customarily maintained by Distributor or such Affiliates.
7.4 Audits . Issuer and each Revenue Participation Holder shall each have the right, at its own expense, but not more than ***** , to audit
the Distribution Records at the aforesaid office in order to verify the Settlement Reports rendered hereunder in connection with each Funded
Qualifying Project. Any such audit shall be conducted only by a certified public accountant during reasonable business hours and in such
manner as not to interfere with Distributor’s normal business activities, shall not continue for more than ***** and be conducted by a third
party accounting firm approved by the Revenue Participation Holders (Sills & Adelmann, Hacker, Douglas & Company, and any of the
so-called “Big-Four” accounting firms are hereby pre-approved), provided that no such firm is compensated on a “percentage of recovery”
basis, it being understood that Distributor shall have the right to approve any “percentage of recovery” retainer), provided, however, that such
third party accounting firm shall agree in writing, for the benefit of Distributor, to be bound by the same duties of confidentiality arising under
this Agreement and the RP Purchase Agreement. The Issuer and each Revenue Participation Holder shall be entitled to conduct the audit within
***** of the Issuer or each Revenue Participation Holder’s notice to conduct the audit. Issuer shall not have the right to examine or inquire into
any matters or items which are contained in any such Settlement Report after the expiration of ***** from and after the date
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of receipt of such Settlement Report, and such Settlement Report shall be final and conclusive upon Issuer upon the expiration of such *****
period notwithstanding that the matters or items embraced by or contained therein may later be contained or referred to in a cumulative
statement pertaining to more than one Accounting Period. Except in the context of litigation, such cumulative statement shall not be subject to
audit by Issuer to the extent the material contained therein was first reflected on a Settlement Report submitted more than ***** prior to the
date of mailing of such cumulative statement. Issuer shall be forever barred from maintaining or instituting any action or proceeding based
upon, or in any way relating to, any transactions had by Distributor, its Affiliates, or its licensees, in connection with the Funded Qualifying
Projects which are reflected on any Settlement Report rendered hereunder, or the accuracy of any item appearing therein, unless written
objection thereto stating with specificity the particular transaction(s) or item(s) to which Issuer objects shall have been delivered by Issuer to
Distributor prior to the expiration of the ***** period with respect to such Settlement Report unless such action or proceeding is commenced
within such period. Notwithstanding the foregoing, a notice of intention to conduct an audit or to institute litigation shall interrupt each
aforementioned ***** period. In the event the audit is not conducted or litigation instituted within a reasonable delay from the date of such
notice, the right to conduct such audit or institute litigation shall terminate ***** from a written notice thereof by the Distributor. The Issuer
and each Revenue Participation Holder shall be entitled to examine: all licensing, distribution and sub-distribution agreements relating to
Funded Qualifying Projects. If a Funded Qualifying Project has been distributed, licensed, sub-distributed or packaged with Productions which
are not Funded Qualifying Projects (“ Packaged Projects ”), the Issuer and each Revenue Participation Holder shall be entitled to examine all
licensing, distribution and sub-distribution agreements in connection with such Funded Qualifying Project and such Packaged Projects, as well
as all accounts, records, Distribution Records, Settlement Reports and documents which set forth, inter alia , the price allocation for such
Funded Qualifying Project and such Packaged Projects. In connection with the delivery of each Settlement Report, Distributor shall provide an
officer’s certificate that (i) sets forth the amount of all rebates, advances and credits allocated to one or more Funded Qualifying Projects
pursuant to agreements with film processing laboratories or other home video replication entities (e.g., film duplication advances) for such
Accounting Period (collectively, “ Rebates ”) (on a Production by Production basis), (ii) the aggregate amount, if any, of any out-of-pocket
third party costs (“ Rebate Costs ”) incurred in acquiring such Rebates allocated to one or more Funded Qualifying Projects (on a Production by
Production basis), and (iii) certifies that, taking into account all of the facts and circumstances, the Rebates and Rebate Costs were allocated to
the Funded Qualifying Projects in a fair and reasonable manner. To the extent that the results of an audit of the Distribution Records reveals
that additional Adjusted Receipts are due to Issuer, Distributor agrees to pay such sums to Issuer together with interest thereon at LIBOR,
accruing from the date such amount should have been paid to Issuer.
7.5 Statements and Payments . All statements and payments contemplated by this Agreement shall be sent to the respective parties address
as set forth in Section 16 .
8. DELIVERY .
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8.1 Definition and Procedures . Issuer shall deliver each Funded Qualifying Project in strict conformity with the Production Specifications
applicable to such Funded Qualifying Project. “ Delivery ” shall mean Distributor’s receipt, at Issuer’s sole cost and expense, of all Delivery
Materials applicable to each Funded Qualifying Project. If all the Delivery Materials are not timely delivered to Distributor, or if any of the
Delivery Materials are incomplete or technically unacceptable, or if the Funded Qualifying Project does not conform to the Production
Specifications, Distributor shall notify Issuer in writing specifying the defects (“ Defect Notice ”). Such Defect Notice shall be delivered within
***** of receipt by Distributor of the last item required for Delivery sent by Issuer. If Issuer fails to cure the specified defects within *****
from the date such Defect Notice was sent, or if Issuer fails to timely deliver the Funded Qualifying Project, Distributor may secure acceptable
replacements and withhold from Adjusted Receipts or any other amounts due to Issuer Distributor’s reasonable estimate of the cost of
conforming the Funded Qualifying Project and or delivery of the Funded Qualifying Project to the requirements of this Agreement.
Notwithstanding the foregoing, approval by Distributor of less than all Delivery Materials or any release of the Funded Qualifying Project shall
not be deemed a waiver by Distributor of Issuer’s obligation of complete Delivery of the Funded Qualifying Project hereunder. Under no
circumstances shall Issuer be relieved of the obligation to complete Delivery of all of the Materials required hereunder, unless Distributor shall
so notify Issuer in writing designating the particular Materials which need not be delivered by Issuer to Distributor.
9. REPRESENTATIONS AND WARRANTIES .
9.1 Representations and Warranties by each Party . Each party hereby severally represents, warrants and agrees as follows:
9.1.1 Organization and Related Matters . Such party (i) is duly organized, validly existing and in good standing under the laws of the
applicable state and/or country in which it is organized; (ii) has all necessary power and authority to carry on its business as now being
conducted; and (iii) has the necessary power and authority to execute, deliver and perform this Agreement and any related agreements to which
it is a party.
9.1.2 Authorization . The execution, delivery and performance of this Agreement and any related agreements by such party has been duly
and validly authorized by all necessary action on the part of such party. This Agreement constitutes the legal, valid and binding obligation of
such party, enforceable against such party in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditors’ rights generally.
9.1.3 No Conflicts . The execution, delivery and performance of this Agreement and any related agreements by such party will not
violate or constitute a breach or default (whether upon lapse of time and/or the occurrence of any act or event or otherwise) under (i) the charter
documents of such party; (ii) any law to which such party is subject; or (iii) any contract to which such party is a party that is material to the
financial condition, results of operations or conduct of the business of such party.
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9.2 Representations and Warranties of Issuer . With respect to each Funded Qualifying Project, Issuer represents and warrants to Distributor
as of the date of the Short Form License Agreement with respect to each Funded Qualifying Project (except with respect to the representations
and warranties in Section 9.2.1 which are made as of the date hereof):
9.2.1 Clear Title . Issuer has not entered into any agreement with or made any Obligations to any third party with respect to such Funded
Qualifying Project which might conflict or interfere with or adversely affect any of the provisions of this Agreement or the use or enjoyment by
Distributor of any of the Distribution Rights granted to it hereunder. Issuer has not sold, assigned, transferred or conveyed, and will not sell,
assign, transfer or convey, to any party any right, title or interest in and to such Funded Qualifying Project or any part thereof, or in and to the
dramatic or literary material upon which it is based, adverse to or in derogation of the Distribution Rights granted to Distributor.
9.2.2 Litigation . Such Funded Qualifying Project and the Distribution Rights granted to Distributor as contemplated hereunder will not,
and there has been no claim that the Funded Qualifying Project does, infringe upon, violate or conflict with any rights whatsoever of any
Person. There is not now outstanding any litigation or threatened litigation, or any claims, demands, investigations or threats of claims, with
respect to the Funded Qualifying Project, the literary, dramatic or musical material upon which the Funded Qualifying Project is based, or
which is used therein, or the physical properties thereof.
9.2.3 Funded Qualifying Project .
9.2.3.1. Copyright . The Funded Qualifying Project has been duly and properly registered (and, if appropriate, renewed) for
copyright in the United States by or on behalf of the owner of such copyright, or can be so registered (and, if appropriate, renewed), and the
copyrights in the Funded Qualifying Project and the literary, dramatic and musical materials upon which the Funded Qualifying Project is
based, or which are contained in the Funded Qualifying Project, are and will be valid and subsisting during the Term throughout the Territory.
9.2.3.2. Compliance . The Funded Qualifying Project, and all parts thereof, will be, or has been produced in compliance with any and
all relevant laws, rules and regulations, whether state, federal, international or local (i.e., those imposed by any union, guild or labor
organization), applicable to the production and completion of Productions.
9.2.3.3. Accurate Delivery . All deliverables required to be delivered by Issuer pursuant to the Delivery Schedule, including, without
limitation, cast lists, credits, “paid ad” and talent restrictions statements, and copies of documents, are complete and accurate and Distributor
will incur no liability to any third party from its reliance thereon and/or compliance therewith.
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10. COVENANTS .
10.1 Covenants Applicable to Each Party. Each Party to this Agreement hereby covenants to the other that it will at all times:
10.1.1 Compliance with Laws, Etc . Comply in all material respects with all Applicable Law.
10.1.2 Payment of Taxes, Etc . Pay and discharge or otherwise satisfy, before the same shall become delinquent or subjected to penalty,
all taxes imposed upon it or its property which are due, except where the amount or validity thereof is currently being contested in good faith
by appropriate proceedings, if any, and reserves in conformity with GAAP with respect thereto have been provided on the books and records of
such Party or any consolidated group to which such Party is a party.
10.1.3 Preservation of Existence, Etc . (i) Preserve and maintain its corporate existence, and (ii) qualify and remain qualified in good
standing as a foreign corporation under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its
business requires such qualification, and (iii) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises
necessary or desirable in the normal conduct of its business.
10.2 Covenants of Issuer . Issuer hereby covenants to Distributor that it will at all times:
10.2.1 Keeping of Books . Implement and maintain administrative and operating procedures, and keep and maintain at such place or
places as may from time to time be customary pursuant to its ordinary business practices, all documents, books, records and other information,
reasonably necessary in connection with the activities of such party contemplated by the Transaction Documents.
10.2.2 Performance of Documents . Timely and fully (A) perform, observe and comply in all material respects with all of the provisions,
covenants and other terms required to be performed or observed by it under each Transaction Document to it is a party in accordance with its
terms, (B) maintain each such Transaction Document in full force and effect, and (C) make to each other party to each such Transaction
Document such demands and requests for information and reports or for action as such party is entitled to make under such Transaction
Document.
10.2.3 Short Form License Agreement . Execute and deliver to Distributor a short form license agreement, in form satisfactory to
Distributor, (each, a “ Short Form License Agreement ”) with respect to each Funded Qualifying Project.
10.3 Covenants of Distributor . Distributor will at all times, unless consented to in writing by Issuer:
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10.3.1 Allocated Costs . Whenever Distributor (i) makes any expenditures or incurs any liability in respect of a group of Productions
which includes one or more of the Funded Qualifying Projects, or (ii) receives from any licensee either a flat sum or a percentage of the
receipts, or both, for any right to a group of Productions which includes any of the Funded Qualifying Projects, under any agreement (whether
or not the same shall provide for the exhibition, sale, lease or delivery of positive prints of any of said Productions) which does not specify
what portion of the license payments apply to the respective Productions in the group (or to such prints or other material, if any, as may be
supplied), then, in any and all such situations, Distributor shall, in good faith, include in, or deduct from, the Gross Receipts for any such
Funded Qualifying Projects, as the case may be, such sums in a non-discriminatory manner.
10.3.2 Manner of Distribution . Notwithstanding anything to the contrary contained herein, Distributor will distribute each Funded
Qualifying Project (including, without limitation, expending amounts for prints and advertising for each Funded Qualifying Project) in
accordance with the standards of first-class distributors of Productions and in a non-discriminatory manner commensurate with the treatment of
Productions owned solely by Distributor or an Affiliate thereof, taking into account the genre, budget, marketplace, strength of competition,
time of the year, the director, the rating and NRG index scores of such Funded Qualifying Project; provided , however , Distributor is making
no representation, warranty or guaranty that any receipts received with respect to any Funded Qualifying Project from any media or territory
will be comparable to the receipts received for any other Production distributed by Distributor in such media or territory. The determination
whether a Funded Qualifying Project has been distributed in a non-discriminatory manner will be made based upon the overall treatment of the
applicable Funded Qualifying Project over all media and territories, rather than on a transaction-by-transaction basis. Subject to the terms and
conditions hereof and the RP Purchased Agreement, Distributor shall have complete and exclusive discretion and control (which it shall
exercise in a manner consistent with the standards of first-class distributors of Productions of similar genre and budget) as to the time, manner,
terms and extent of distribution, exhibition and exploitation of each Funded Qualifying Project, in accordance with such policies, terms and
conditions and through such Persons as Distributor in its business judgment (which it shall make in a manner consistent with the standards of
first-class distributors of Productions of similar genre and budget) may determine proper or expedient. Except as permitted under or as
contemplated by the Transaction Documents, to the extent that Distributor enters into any transactions under this Agreement with Affiliates,
Distributor shall do so and shall perform its obligations and enforce its rights thereunder upon terms consistent with those upon which
Distributor customarily conducts business at such time, applied on a non-discriminatory basis as if such Funded Qualifying Projects were not
subject to this Agreement.
10.4 Subdistribution . Distributor shall have the sole discretion to sell, subdistribute or license any Distribution Rights and/or Related Rights
with respect to any Funded Qualifying Project in a non-discriminatory manner commensurate with the treatment of Productions owned solely
by Distributor or an Affiliate thereof. With respect to such subdistribution agreements entered into by Distributor, Distributor shall exercise the
same degree of diligence and skill in the performance of its duties in connection therewith as it
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applies to its or its Affiliates own Productions not subject to this Agreement, and shall take or cause to be taken all such actions as may be
necessary or desirable to collect Gross Receipts from time to time, all in accordance with Applicable Law.
11. EVENT OF DEFAULT / REMEDIES .
11.1 By Distributor; Limitation of Issuer’s Remedies . Upon the occurrence and continuance of a breach by Distributor of any of its
agreements, representations, warranties, obligations and covenants set forth herein or the Transaction Documents (each a “ Distributor Event of
Default ”), the sole and exclusive remedy of Issuer or any Revenue Participation Holder for such Distributor Event of Default shall be to bring
an action at law to recover damages, and neither Issuer nor any Revenue Participation Holder shall be entitled to any form of equitable relief. In
no event shall Issuer, any Revenue Participation Holder or any party transferring rights or rendering services in connection with a Funded
Qualifying Project be entitled to terminate or rescind this Agreement or Distributor’s rights with respect to a Funded Qualifying Project or
enjoin or restrain or otherwise interfere with Distributor’s distribution, exhibition or other exploitation of any Funded Qualifying Project or
Distributor’s use, publication or dissemination of any advertising issued in connection with the Funded Qualifying Project. In furtherance of
and without limiting the foregoing, Issuer agrees that it shall not interfere or authorize or cause any other party to interfere with the rights of
Distributor and its Subdistributors to quietly and peacefully enjoy and possess all rights in the Funded Qualifying Projects, including, without
limitation, all rights under copyright, to the extent owned or controlled by Issuer.
11.2 By Issuer . Upon the occurrence and during the continuance of a breach by Issuer of any of its agreements, representations,
warranties or covenants set forth herein (each a “ Issuer Event of Default ”), then Distributor shall have the right to terminate this Agreement
and to seek any and all remedies available at law and in equity. Notwithstanding the foregoing, Distributor shall not have the right to withhold
and reserve from any monies whatsoever payable to Issuer or its designee hereunder, other than amounts relating to any Issuer Obligations.
12. INDEMNIFICATION .
12.1 Mutual Indemnity . Each party (“ Indemnifying Party ”) hereby indemnifies, defends and holds harmless the other party and its
successors, licensees, assigns, and employees, officers and directors (collectively for the purposes of this Section “ Indemnified Party ”) from
and against any and all liability, loss, damage, cost and expense, including, reasonable attorney’s fees (but excluding lost profits or
consequential damages) arising out of any breach or claim by a third party with respect to any warranty, representation or agreement made by
the Indemnifying Party herein. The Indemnified Party shall promptly notify the Indemnifying Party of any claim to which the foregoing
indemnification applies and the Indemnifying Party shall undertake, at its own cost and expense, the defense thereof. The Indemnified Party
may, at its option and expense, engage its own counsel. If the Indemnifying Party fails to promptly appoint competent and experienced counsel,
the Indemnified Party may engage its own counsel and the reasonable charges in connection
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therewith shall promptly be paid by the Indemnifying Party. If the Indemnified Party settles or compromises any such suit, claim or proceeding,
the amount thereof shall be charged to the Indemnifying Party, provided that the Indemnifying Party’s reasonable prior approval has been
secured.
12.2 Control of Litigation . Distributor shall have the right to assume the defense of any claim made by a third party and arising from a
breach or alleged breach of any representation, warranty or agreement of Issuer hereunder or that otherwise may be subject to the indemnity set
forth in Section 12.1. Issuer shall have the right as well as the obligation to consult and cooperate with Distributor in connection with any such
claim and, upon Distributor’s request, to furnish Distributor with any and all evidence, materials or other information relevant thereto. Issuer
shall have the right (at Issuer’s sole expense) to have Issuer’s own counsel present in connection with the defense of any such claim, provided
that such counsel fully cooperates with Distributor’s counsel and in no way interferes with the handling of the case by Distributor’s counsel.
Issuer understands and agrees that all aspects of the defense of any such claim, whether as part of any litigation, negotiations or otherwise
(including any decision regarding any settlement), shall be controlled by Distributor, Distributor shall be free to use counsel of Distributor’s
choice in connection therewith, and such control shall in no way abrogate or diminish Issuer’s obligations under Section 12.1.
13. ARBITRATION .
All actions or proceedings arising in connection with, touching upon or relating to this Agreement between the parties, the breach thereof
and/or the scope of the provisions of this Section 13 (a “ Proceeding ”) shall be submitted to the Judicial Arbitration and Mediation Service or
its successor (“ JAMS ”) for binding arbitration under its Comprehensive Arbitration Rules and Procedures if the matter in dispute is over
***** or under its Streamlined Arbitration Rules and Procedures if the matter in dispute is ***** (as applicable, the “ Rules ”) to be held solely
in Los Angeles, California, U.S.A., in the English language in accordance with the provisions below.
13.1 Each arbitration shall be conducted by an arbitral tribunal (the “ Arbitral Board ”) consisting of a single arbitrator who shall be an
attorney or a retired judge with at least ten (10) years experience in commercial matters and the motion picture industry or the television
industry, as applicable. The arbitrator shall be mutually agreed upon by the parties. If the parties are unable to agree on an arbitrator, the
arbitrator shall be appointed by JAMS. The Arbitral Board shall assess the cost, fees and expenses of the arbitration against the losing party,
and the prevailing party in any arbitration or legal proceeding relating to this letter agreement shall be entitled to all reasonable expenses
(including reasonable attorney’s fees). Notwithstanding the foregoing, the Arbitral Board may require that such fees be borne in such other
manner as the Arbitral Board determines is required in order for this arbitration clause to be enforceable under Applicable Law. The parties
shall be entitled to conduct discovery in accordance with Section 1283.05 of the California Code of Civil Procedure; provided that (i) the
Arbitral Board must authorize all such discovery in advance based on findings that the material sought is relevant to the issues in dispute and
that the nature and scope of such discovery is reasonable under the circumstances; and (ii) discovery shall be
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limited to depositions and production of documents unless the Arbitral Board finds that another method of discovery ( e.g. , interrogatories) is
the most reasonable and cost efficient method of obtaining the information sought.
13.2 There shall be a record of the proceedings at the arbitration hearing and the Arbitral Board shall issue a Statement of Decision setting
forth the factual and legal basis for the Arbitral Board’s decision. If neither party gives written notice requesting an appeal within ***** after
the issuance of the Statement of Decision, the Arbitral Board’s decision shall be final and binding as to all matters of substance and procedure,
and may be enforced by a petition to the Los Angeles County Superior Court or such other court having jurisdiction over the parties for
confirmation and enforcement of the award. If either party gives written notice requesting an appeal within ***** after the issuance of the
Statement of Decision, the award of the Arbitral Board shall be appealed to three neutral arbitrators (the “ Appellate Arbitrators ”), each of
whom shall have the same qualifications and be selected through the same procedure as the Arbitral Board. The appealing party shall file its
appellate brief within ***** after its written notice requesting the appeal and the other party shall file its brief within ***** thereafter. The
Appellate Arbitrators shall thereupon review the decision of the Arbitral Board (applying the same standards of review and all of the same
presumptions) as if the Appellate Arbitrators were a California Court of Appeals reviewing a judgment of the Los Angeles County Superior
Court, except that the Appellate Arbitrators shall in all cases issue a final award and shall not remand the matter to the Arbitral Board. The
decision of the Appellate Arbitrators shall be final and binding as to all matters of substance and procedure, and may be enforced by a petition
to the Los Angeles County Superior Court or such other court having jurisdiction over the parties, which may be made ex parte, for
confirmation and enforcement of the award. The party appealing the decision of the Arbitral Board shall pay all costs and expenses of the
appeal, including the fees of the Appellate Arbitrators and the reasonable outside attorneys’ fees of the opposing party, unless the decision of
the Arbitral Board is reversed, in which event the costs, fees and expenses of the appeal shall be borne as determined by the Appellate
Arbitrators.
13.3 Subject to a party’s right to appeal pursuant to the above, neither party shall challenge or resist any enforcement action taken by the
party in whose favor the Arbitral Board, or if appealed, the Appellate Arbitrators, decided. The Arbitral Board (or the Appellate Arbitrators, if
applicable) shall have the power to enter temporary restraining orders, preliminary and permanent injunctions. Neither party shall be entitled or
permitted to commence or maintain any action in a court of law with respect to any matter in dispute until such matter shall have been
submitted to arbitration as herein provided and then only for the enforcement of the Arbitral Board’s award (or if appealed, the Appellate
Arbitrators’ award); provided , however , that prior to the appointment of the Arbitral Board (or if appealed, the Appellate Arbitrators) or for
remedies beyond the jurisdiction of an arbitrator, at any time, either party may seek pendente lite relief in a court of competent jurisdiction in
Los Angeles County, California or such other court that may have jurisdiction over the parties, without thereby waiving its right to arbitration
of the dispute or controversy under this section. All arbitration proceedings (including, without limitation, proceedings before the Appellate
Arbitrators) shall be closed to the public and confidential and all records relating thereto shall be permanently sealed, except as necessary to
obtain court confirmation of the
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arbitration award. The provisions of this Section 13.3 shall supersede any inconsistent provisions of any prior agreement between the parties.
Nothing in this Section 13.3 shall prevent either party from seeking interlocutory and/or injunctive relief from a court of competent jurisdiction
pursuant to the preceding paragraph, subject to the terms of this Section 13.3 .
14. WAIVER/ GOVERNING LAW / PROCEEDINGS .
14.1 No Waiver . No waiver of any default or breach of this Agreement by either party shall be deemed a continuing waiver or a waiver of
any other breach or default, no matter how similar.
14.2 Governing Law . The laws of the State of California and the United States of America applicable to contracts made and performed
entirely in California shall govern (i) the validity and interpretation of this agreement, (ii) the performance by the parties of their respective
obligations hereunder, and (iii) all other causes of action (whether sounding in contract or in tort) arising out of or relating to this Agreement, or
the termination of this Agreement.
14.3 Legal Proceedings . Distributor, its successors and assigns, are hereby empowered to bring, prosecute, defend and appear in suits,
actions and proceedings of any nature under or concerning infringement of or interference with any of the Distribution Rights granted.
Distributor will notify Issuer in writing ***** prior to commencement of any suit, action or proceedings. Issuer may participate in any suit,
action or proceeding using counsel of its choice. Issuer’s expenses will be reimbursed from any recovery in equal proportion with Distributor’s
expenses. If Distributor fails to take necessary action, Issuer may, but will not be obligated to, take such action in Issuer’s or Distributor’s name
with all recoveries belonging to Issuer. If Issuer elects not to participate, all recoveries in connection therewith shall belong solely to
Distributor. If both parties participate, all recoveries shall be deemed to be part of Gross Receipts.
15. INSURANCE .
Distributor shall on behalf of Issuer for the benefit of Distributor, with respect to each Funded Qualifying Project for which Distributor has
the Distribution Rights, procure and maintain in full force and effect standard producer’s liability (errors and omissions) insurance issued by a
nationally recognized insurance carrier covering the Funded Qualifying Project with minimum limits of at least ***** for any claim arising out
of a single occurrence and ***** for all claims in the aggregate. Such insurance:
15.1 shall be written on either (i) an occurrence basis, in which event it shall remain in full force and effect until the end of the term thereof
and may not be permitted to lapse, or (ii) a claims-made basis, in which event it shall remain in full force and effect until the end of the term
thereof, shall cover any claims made at any time during the term thereof and may not be permitted to lapse;
15.2 may not be canceled without ***** prior written notice to Distributor;
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15.3 shall not carry a deductible larger than ***** ;
15.4 shall name Distributor its parent, subsidiaries and related companies, its licensees and affiliates and its officers, directors, agents and
employees, as additional insureds and such addition shall be endorsed by the insurance carrier and acknowledged by the underwriter;
15.5 shall provide coverage for the Funded Qualifying Project, and advertising and promotion materials with respect thereto, and shall be
primary and not contributing to or in excess of any such insurance maintained by Distributor with regard to all of the Rights.
15.6 All costs and expenses of such insurance shall be a Distribution Expense.
16. NOTICE .
Any notice or demand which any party is required, or may desire, to give to the other parties shall be in writing and shall be given by
addressing the same to the other parties at the address hereinafter set forth, or at such other address as may be designated in writing by any such
party by notice given to the other in the manner prescribed in this Section 16 and shall be deemed effective (i) when delivered personally
during normal business hours, (ii) on the date of receipt specified in any return receipt if it shall have been deposited postage prepaid in the
United States mail (certified or registered with return receipt requested), (iii) on the second Business Day after dispatch by Federal Express,
DHL, Airborne or other recognized international courier service, or (iv) when sent by facsimile transmission, if, and only if, such facsimile
transmission is followed within two (2) Business Days by a written notice sent in accordance with clauses (i), (ii) or (iii) above, whichever of
the foregoing shall first occur; provided, however, that any notice alleging a default must be given by the means set forth in clauses (i), (iii) or
(iv) above.
Any notice or demand to Distributor shall be addressed as follows:
Lions Gate Television, Inc.
2700 Colorado Avenue, Suite 200
Santa Monica, California 90404
Attn: General Counsel
Telephone: (310) 449-9200
Facsimile: (310) 255-3840
Any notice or demand to Issuer shall be addressed as follows:
MQP, LLC
2700 Colorado Avenue, Suite 200
Santa Monica, California 90404
Attn: Chief Executive Officer
Telephone: (310) 449-9200
Facsimile: (310) 255-3840
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17. FORCE MAJEURE .
If either party’s performance hereunder is prevented by reason of an event of Force Majeure, then during the existence of such event, the
effected party shall not be liable for its failure to timely perform its obligations hereunder and this Agreement shall be extended for a period
equal to the delay caused by the occurrence of the Force Majeure. “ Force Majeure ” as used herein shall mean fire, flood, epidemic,
earthquake, explosion, accident, labor dispute or strike, Act of God or public enemy, riot or civil disturbance, invasion, war (whether declared)
or armed conflict, inability to obtain personnel or facilities, failure of common carriers, any municipal ordinance, any state or federal law,
governmental order or regulation, order of any court of competent jurisdiction, restriction imposed by the Motion Picture Export Association of
America, Inc. or any other similar thing or occurrence not within the control of that party.
18. HOLDING OF MONIES .
Distributor shall not be obligated to segregate Gross Receipts from other funds held or received by it, and Distributor shall not be deemed a
trustee, pledgeholder or fiduciary of Issuer or any Revenue Participation Holder in respect of Gross Receipts that may be or become payable to
such parties.
19. SECURITY INTEREST IN FAVOR OF DISTRIBUTOR .
Subject to Distributor not being in breach of this Agreement and the RP Purchase Agreement, Issuer hereby grants to Distributor a security
interest (“ Distributor Security Interest ”) in all rights granted to Distributor in connection with each Funded Qualifying Project, including the
Distribution Rights, the Related Rights, the right of access to the Materials and all proceeds of the foregoing, including proceeds of proceeds
(the “ Distributor Collateral ”), as collateral security for Issuer’s timely performance of its obligations hereunder, for the right of Distributor to
receive the Distribution Fee and for the right of Distributor to recoup all amounts expended on account of Issuer Obligations, including
Distribution Expenses and Third Party Participations, which security interest shall be in a form registrable in the State of Delaware, the
Province of Quebec, the CIPO and the USCO. Other than as provided in the RP Purchase Agreement, Issuer warrants and represents that it has
not previously assigned, granted or transferred an interest in the Distributor Collateral to any party which would conflict, interfere or be
inconsistent with the Distributor Security Interest granted to Distributor herein. Issuer agrees to execute UCC-1 financing statements, copyright
mortgages, laboratory access letters, the security agreement delivered herewith (the “ Distributor Security Agreement ”), other security
documentation required by Distributor and any such other document as Distributor may require to perfect, protect, publish, record, register or
evidence the foregoing Security Interest. If Issuer fails to deliver such security documents within 30 days after Distributor’s request therefor,
Issuer irrevocably appoints Distributor to execute such security documents as Issuer’s attorney-in-fact, coupled with an interest.
20. SECURITY INTEREST IN FAVOR OF ISSUER .
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Subject to Issuer not being in breach of this Agreement and subject to Issuer and each Revenue Participation Holder not being in breach of
the RP Purchase Agreement, Distributor hereby grants to Issuer and each Revenue Participation Holder, a security interest (“ Issuer Security
Interest ”) in and to (i) the Gross Receipts for each Funded Qualifying Project, and (ii) the Rights, the Ancillary Rights, the Related Rights and
the tangible and intangible assets for each Funded Qualifying Project, solely to the extent required to distribute and exploit such Funded
Qualifying Project (“ Issuer Collateral ”), which security interest shall be in a form registrable in the State of Delaware, the Province of
Quebec, the CIPO and the USCO. Issuer acknowledges and agrees that the security interest granted to it by Distributor shall be subject to
Permitted Encumbrances and the Senior Lender Encumbrances, provided, however, that the Senior Lender InterCreditor Agreement shall
provide that Issuer shall have a first priority security interest in its share of Gross Receipts for each Funded Qualifying Project, subject to the
terms of the Senior Lender InterCreditor Agreement. Other than as provided in the RP Purchase Agreement, Distributor warrants and
represents that it has not previously assigned, granted or transferred an interest in the Issuer Collateral to any party which would conflict,
interfere or be inconsistent with the Issuer Security Interest granted to Issuer herein. Distributor agrees to execute UCC-1 financing statements,
copyright mortgages, laboratory access letters, the security agreement delivered herewith (“ Issuer Security Agreement ”), other security
documentation required by Issuer and any such other document as Issuer may require to perfect, protect, publish, record, register or evidence
the foregoing Issuer Security Interest. If Distributor fails to deliver such security documents within 30 days after Issuer’s request therefor,
Distributor irrevocably appoints Issuer to execute such security documents as Distributor’s attorney-in-fact, coupled with an interest.
21. ASSIGNMENT .
21.1 Distributor shall have the right, at any time, to sell, transfer, assign or hypothecate any or all of its right, title and interest, in and to the
Funded Qualifying Project and the negative and copyright thereof to any party which is acquiring all or a substantial part of Distributor’s
business in a sale or as a result of a consolidation or merger; provided , however , that any such sale, transfer, assignment or hypothecation
shall be subject to the rights of Issuer hereunder. Upon the purchaser, transferee or assignee assuming in writing the performance of
Distributor’s executory obligations hereunder in place and stead of Distributor, Distributor shall be released and discharged of and from any
further liability or obligation hereunder and none of the monies or other consideration received by, or paid or payable to, Distributor shall
constitute Gross Receipts hereunder, and Issuer shall have no rights in respect of any thereof. In addition, Distributor may assign this
Agreement or its rights hereunder, without the need to obtain the prior written consent of Issuer, (i) in connection with its corporate credit
facilities, (ii) in connection with any financing or interim financing of a Funded Qualifying Project, or (iii) to any of its Affiliates or
Subsidiaries, provided , however , that any such assignment shall be subject to the rights of Issuer hereunder.
21.2 Issuer may assign Issuer’s right to receive the monies payable to Issuer hereunder, provided, however, that (i) any such assignment
shall be in writing and in form and substance satisfactory to Distributor; (ii) Distributor shall not be required to accept or honor any
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assignment or assignments which would result in requiring Distributor to make payments to an aggregate of more than two (2) parties unless a
single party is designated to receive and disburse all monies payable to Issuer and all other parties entitled to share therein; (iii) in no event
shall any party other than Issuer have the right to audit Distributor’s records by reason of such assignment; and (iv) any such assignment shall
at all times be subject to all pertinent laws and governmental regulations and to all of the rights of Distributor hereunder.
21.3 Notwithstanding anything contained in this Agreement, neither the Issuer nor any Revenue Participation Holder may assign its rights
under this Agreement to any Direct Competitor.
22. AMENDMENTS AND WAIVERS . Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated
orally or in writing, without the prior written consent of the parties hereto and each Revenue Participation Holder. Notwithstanding the
foregoing, any term of this Agreement may be amended and the observance of any such term may be waived (either generally or in a particular
instance and either retroactively or prospectively) with (but only with) the written consent of all of the parties hereto and each Revenue
Participation Holder; provided, however, that no such amendment or waiver shall extend to or affect any obligation not expressly waived or
impair any right consequent therein. No delay or omission to exercise any right, power or remedy accruing to any party hereto or each Revenue
Participation Holder shall impair any such right, power or remedy of such party nor be construed to be a waiver of any such right, power or
remedy nor constitute any course of dealing or performance hereunder.
23. MISCELLANEOUS .
23.1 This Agreement consists of these provisions, the attached exhibits and schedules all of which exhibits and schedules are herein
incorporated by this reference and made a part hereof. Nothing contained herein shall be deemed to create a relationship of partnership, joint
venture, agency, fiduciary or employment between the parties.
23.2 This Agreement sets forth the entire understanding of the parties regarding the subject matter hereof and supersedes all prior oral or
written agreements between them.
23.3 This Agreement may not be changed, modified, amended or supplemented, except in a writing signed by both parties and the Revenue
Participation Holder.
23.4 Section headings are inserted herein for convenience only and do not constitute a part of this Agreement.
23.5 Neither Issuer nor Distributor shall disclose to any third party (other than its respective employees, directors and officers, in their
capacity as such on a need-to-know basis), any information with respect to the financial terms and provisions of this Agreement except: (i) to
the extent necessary to comply with the law or the valid order of a court of competent jurisdiction, in which event(s) the party making such
disclosure shall so notify the other as promptly as practicable (if possible, prior to making such disclosure) and shall seek confidential treatment
of such information, (ii) to the extent necessary to comply with S.E.C.
- 28 -
or similar disclosure requirements, (iii) to its parent and affiliated companies, their banks (and their respective advisors and attorneys),
prospective financiers and investors (and such persons’ investment bankers, agents, attorneys, accountants and necessary experts), auditors,
investment bankers, attorneys and similar professionals, provided that such companies, banks, advisors, financiers, investors, investment
bankers, experts, auditors, accountants, attorneys and similar professionals agree to be bound by the provisions of this subparagraph, and (iv) in
order to enforce its rights pursuant to this Agreement. Issuer acknowledges that it may, from time to time, come into possession of material
Nonpublic Information regarding Distributor and its Affiliates and that U.S. securities laws prohibit any person or entity in possession of such
material Nonpublic Information from purchasing or selling securities of Distributor or any of its Affiliates. Issuer agrees that it will use any
material Nonpublic Information regarding Distributor and its Affiliates in accordance with Issuer’s compliance policies and Applicable Law,
including, without limitation, federal, provincial and state securities laws
23.6 Issuer and Distributor shall each execute, acknowledge and deliver any and all further documents that are necessary, expedient or
proper to implement, administer and effectuate the purpose and intent of this Agreement. If Issuer fails to deliver such additional documents
within ***** after Distributor’s request therefor, including, without limitation, a Short Form License Agreement with respect to each Funded
Qualifying Project, Issuer irrevocably appoints Distributor to execute such additional documents as Issuer’s attorney-in-fact, coupled with an
interest.
23.7 The invalidity, illegality or unenforceability of any provision of this Agreement, pursuant to judicial decree, shall not affect the validity
or enforceability of any other provision of the Agreement, all of which shall remain in full force and effect.
23.8 Nothing in this Agreement shall confer any rights or remedies under or by reason of this Agreement on any Persons other than Issuer
and its successors and assigns nor shall anything in this Agreement relieve or discharge the obligation or liability of any third person to any
party to this Agreement, nor shall any provision give any third person any right of subrogation or action over or against any party to this
Agreement. Notwithstanding the foregoing and anything to the contrary contained in this Agreement, the parties expressly acknowledge and
agree that each Revenue Participation Holder is an intended third party beneficiary with respect to Section 6, Section 7 , Section 10 , Section 11
, Section 12 and Section 13 of this Agreement and as such, each Revenue Participation Holder shall be entitled to directly exercise its rights or
the rights of Issuer under this Agreement without the concurrence of Issuer.
[Remainder of page intentionally left blank]
- 29 -
IN WITNESS WHEREOF, the parties have executed this Master Distribution Agreement as of the date first above written.
LIONS GATE TELEVISION INC.
By:
Name:
Title:
/s/ Wayne Levin
Wayne Levin
General Counsel
MQP, LLC
By:
Name:
Title:
/s/ Wayne Levin
Wayne Levin
Director
[Signature Page]
SCHEDULE “GR”
Schedule “GR” to Master Distribution Agreement (Television Productions) dated July 25, 2007 between MQP, LLC, as Issuer, and Lions Gate
Television, Inc., as Distributor (the “ Agreement ”).
GROSS RECEIPTS — DISTRIBUTION EXPENSES
1. Definitions . As used in this Schedule “GR” , all defined terms shall have the meanings as defined in the Agreement, unless specifically
defined herein, and all references to “Paragraphs” shall refer to paragraphs of this Schedule “GR” .
2. Gross Receipts . For the purposes of this Agreement, “ Gross Receipts ” shall mean, for each Funded Qualifying Project, one hundred
percent (100%) of all amounts, other than Co-Financing Amounts, actually received by Issuer, LGEI, Distributor or any of their Affiliates, net
of applicable withholding taxes, in respect of the exhibition, distribution, sale, licensing, sub-licensing and exploitation of such Funded
Qualifying Project in all gauges, formats, media (now known or hereafter devised) and languages (except as otherwise provided herein)
throughout the universe and for greater certainty, including, without limitation, the Rights, all right, title and interest to any associated rights,
Merchandising, Ancillary Rights, secondary or publishing rights, including, without limitation, pre-sales, advances, bonuses, prizes and similar
proceeds regardless of when such amounts are received ( i.e. , whether they are received prior to or after the purchase of Revenue Participations
in the applicable Funded Qualifying Project, provided the Revenue Participation Holders purchase Revenue Participations in the applicable
Funded Qualifying Project and provided further that such amounts are generated prior to the Repurchase Date), but excluding advances, etc.
taken into account in the definition of P&A Costs and Other Releasing Costs and Affiliate Payments, including, without limitation, the
following:
A.
All non-refundable sums actually received by Distributor from the following sources:
(i)
Licenses by Distributor directly to exhibitors of the right to exhibit the Funded Qualifying Project by means of Theatrical,
Non-Theatrical or Television;
(ii)
Licenses by Distributor to Subdistributors, net of any fees and expenses charged by such Subdistributor;
(iii)
The sale or lease of souvenir Funded Qualifying Projects and booklets;
(iv)
Recoveries by Distributor from actions based on unfair competition, piracy and/or infringements of copyrights and
trademarks of the Funded Qualifying Project, which recoveries are intended to compensate Distributor for losses sustained in
respect of the Funded Qualifying
Project and shall be fairly and reasonably allocated among all Productions involved therein; provided, that no Distribution Fee
shall be charged on any portion of such recovery included in the Gross Receipts that represents punitive, rather than actual or
statutory, damages;
B.
(v)
The net receipts from so-called “four-wall” deals on a collective basis, i.e. , the sums received by Distributor from theater(s)
where Distributor has taken over the operation of such theater(s) specifically for the exhibition of the Funded Qualifying
Project, less all out-of-pocket costs of operating the theater(s) and those advertising costs that would normally and actually
be paid by theaters and which are paid by Distributor;
(vi)
Monies received from the Copyright Royalty Tribunal (or similar agencies established under the laws of any jurisdiction);
(vii)
Exploitation of the Ancillary Rights;
(viii)
Monies received by Distributor from the distribution, sale or other exploitation of Home Video Rights and any Video
Levies (as defined below) collected by Distributor, less local taxes, rebates, discounts, credit adjustments for defective
Videograms, customs duties, import charges, shipping, mailing and insurance charges, dubbing and subtitling costs, and
mastering and submastering costs; provided , however , that Distributor shall have the right to deduct up to ***** of all
such monies as a reserve for returns and credits of any nature, including, without limitation, those on account of one
hundred percent (100%) or a lesser return privilege, defective merchandise, exchange privilege, promotional credits, errors
in billing, unusual overstock, bad debts and errors in shipping, which reserves shall be liquidated within ***** , pursuant to
Distributor’s customs and practices. “ Video Levies ” shall mean levies or other charges collected under operation of law
with respect to the Funded Qualifying Project in the Territory on the sale of video recorders, blank video cassettes or video
discs or similar items or the rental of Videograms which become payable to the Copyright Owner or the distributor of the
Funded Qualifying Project. Distributor shall be entitled to collect all revenue from Video Levies.
Gross Receipts shall be determined after all reserves, refunds, credits, discounts, allowances and adjustments granted to exhibitors and
Subdistributors, whether occasioned by condemnation by boards of censorship, settlement of disputes or otherwise. advance payments
and guarantees shall not be included in Gross Receipts until earned by the exhibition of the Funded Qualifying Project or forfeited.
- Schedule “GR” Page 2 -
C.
Gross Receipts shall not include (a) any portion thereof which is contributed to charitable organizations in connection with or related
to premieres of the Funded Qualifying Project; (b) the receipts which are the contractually acquired property of the following parties,
whether or not Subsidiaries or divisions of Distributor: (i) exhibitors or others who may use or actually exhibit the Funded Qualifying
Project, (ii) radio or television broadcasters (including, without limitation, pay, cable, and closed circuit systems), (iii) book or music
publishers, (iv) phonograph record producers or distributors and (v) merchandisers, manufacturers and the like.
D.
Amounts charged back to Distributor or its Affiliates in any Accounting Period for damaged goods and returns of home video units
shall reduce Gross Receipts in such Accounting Period.
3. Distribution Fees . Distribution fees of Distributor shall be computed as provided in Section 4 .
4. Distribution Expenses . “ Distribution Expenses ” shall mean, on an uncrossed basis, Distributor’s actual, direct, verifiable, out-of-pocket
third party expenses incurred in connection with the distribution and exploitation of a Funded Qualifying Project, which shall exclude, for sake
of clarity, any finance and interest charges in connection therewith but which shall include, without limitation, all P&A Costs and Other
Releasing Costs. The Distribution Expenses shall include, without limitation, all costs, charges and expenses actually incurred by Distributor,
or a Subdistributor accounting to Distributor, in connection with the distribution, exhibition, advertising, exploitation and turning to account of
the Funded Qualifying Project, or in the exercise of any of Distributor’s other rights (including, without limitation, Ancillary Rights) in the
Funded Qualifying Project, of whatever kind or nature, including, without limitation, all costs, charges and expenses incurred for or in
connection with any of the following (provided, that (i) no item of cost shall be charged more than once and (ii) if any item of cost shall have
been deducted from the Gross Receipts in any prior accounting period and any such cost is thereafter reimbursed to Distributor, an appropriate
adjustment shall be made without any Distribution Fee charged in respect of the amount so reimbursed):
A.
All negatives, sound tracks, prints, and other physical properties utilized in connection with the distribution of the Funded Qualifying
Project (“ Physical Properties ”).
B.
All services and facilities rendered or utilized in connection with the transportation, preparation, checking and servicing of the
Physical Properties or other properties used in rendering distribution services, including, without limitation, any cost of cutting,
editing, dubbing or subtitling the Funded Qualifying Project or other services or facilities used in preparing the Funded Qualifying
Project for exhibition including, without limitation, costs of shipping containers and cans, laboratory and warehouse storage,
insurance packaging, freight, transportation, shipping and handling charges.
- Schedule “GR” Page 3 -
B.
Advertising, promoting, marketing, exploiting and publicizing (collectively, “ Advertising ”) the Funded Qualifying Project in any
way, including without limitation, all costs associated with Videograms including without limitation the creation of bonus material,
and new artwork, of cooperative, theater or joint Advertising in connection with exhibition of the Funded Qualifying Project in
theaters or other places where an admission is charged, which Distributor pays or is charged with; costs of publicity materials; tours
and personal appearances; salaries, living costs and traveling expenses of regular employees of Distributor, where such employees are
assigned to render services in the Territory in connection with the Advertising of the Funded Qualifying Project, appropriately
allocated to the Funded Qualifying Project; trailers, including without limitation, the cost of production thereof.
C.
All costs and expenditures in connection with so-called four-wall deals not recouped pursuant to Paragraph 2.A.(v) .
D.
All costs of preparing and delivering the Funded Qualifying Project for distribution, including without limitation, all costs incurred in
connection with the following: Screenings and audience testing and market studies; the production of foreign language versions of the
Funded Qualifying Project, whether dubbed, superimposed or otherwise; changing the title of the Funded Qualifying Project for
release in any part of the Territory or for exhibition on television or other media, or in order to conform to the particular national or
political prejudices likely to be encountered in any part of the Territory or for any other purpose or reason; censorship costs including,
without limitation, the legal costs of censorship proceedings; and producing and delivering trailers of the Funded Qualifying Project.
E.
All sales, use, receipts, excise, remittance, value added and other taxes (however denominated) to any governmental or taxing
authority assessed upon, or with respect to, the negatives, duplicate negatives, prints or sound records of the Funded Qualifying
Project, or upon the use, distribution or other exploitation of the Funded Qualifying Project, or upon the revenues derived therefrom,
or any part thereof and any and all sums paid or accrued on account of duties, customs and imports, costs of acquiring permits, and
any similar authority to secure the entry, licensing, exhibition, performance, use or televising of the Funded Qualifying Project in any
country or part thereof, regardless of whether such payments or accruals are assessed against the Funded Qualifying Project or the
proceeds thereof or against a group of Productions in which the Funded Qualifying Project may be included or the proceeds thereof
(in the latter case with an allocation being made to the Funded Qualifying Project that is fair and reasonable). In no event shall the
recoupable amount of any such tax (however denominated) imposed upon Distributor be decreased (nor the Gross Receipts increased)
because of the manner in which such taxes are elected to be treated by
- Schedule “GR” Page 4 -
Distributor in filing net income, corporate franchise, excess profits or similar tax returns. There shall be no deduction from the Gross
Receipts, and Issuer shall not be required to pay or participate in, (x) Distributor’s or any Subdistributor’s United States Federal and
State income taxes and franchise taxes based on Distributor’s or such Subdistributor’s net income, or (y) any income tax payable to
any country or Territory by Distributor or any Subdistributor based on the net earnings of Distributor or such Subdistributor in such
country or Territory. Expenses of transmitting to the United States any funds accruing to Distributor from the Funded Qualifying
Project in foreign countries, such as cable expenses, or any discounts from such funds taken to convert such funds directly or
indirectly into U.S. dollars and the cost of contesting or settling any of the matters described above, with a view to reducing the same,
shall similarly be deducted. If any taxes deducted pursuant hereto are subsequently refunded to Distributor by the taxing authority to
which such taxes were initially paid, the Distribution Expenses previously deducted pursuant to this Paragraph shall be readjusted by
crediting thereto an amount equal to so much of such refund received by Distributor as shall represent a refund of taxes in respect of
the Funded Qualifying Project previously deducted.
F.
Copyright, patent and trademark expenses; royalties payable to manufacturers of sound recording and reproducing equipment;
reasonable legal fees to other than Distributor’s regularly employed legal department; and any and all other expenses in addition to
those referred to herein incurred by Distributor in connection with the licensing of the Funded Qualifying Project for exhibition or for
other uses of the Funded Qualifying Project including, without limitation, any exploitation of the rights granted to Distributor.
G.
Dues and assessments from the MPAA or any similar associations or bodies, including, without limitation, payments for the support
of the Academy of Motion Picture Arts and Sciences.
H.
Costs and expenses (including, without limitation, reasonable attorneys’ fees) incurred by Distributor in connection with the
following: All costs incurred in securing any amounts included in Gross Receipts, any action taken by Distributor (whether by
litigation or otherwise) in enforcing collection of Gross Receipts including, without limitation, costs of collection from the Copyright
Royalty Tribunal (or similar agencies established under the laws of any jurisdiction); or (on a pro rata basis) for checking attendance
and exhibitors’ receipts; or to prevent unauthorized exhibition or distribution of the Funded Qualifying Project; or to prosecute or
defend actions under the anti-trust laws; or to prevent any impairment of, encumbrance on or infringement upon, the rights of
Distributor in and to the Funded Qualifying Project; or to audit the books and records of any exhibitor, Subdistributor or licensee; or
to recover monies due pursuant to any agreement relating to the distribution or exhibition of the Funded
- Schedule “GR” Page 5 -
Qualifying Project; provided, that no deduction shall be made for the fees or salaries of Distributor’s regularly employed staff
attorneys and accountants.
J.
All monies paid or payable pursuant to applicable collective bargaining agreements by reason of any exhibition or other exploitation
of the Funded Qualifying Project or by reason of, or as a condition for, any use, re-use or re-run thereof for any purpose or in any
manner whatsoever (herein called “ Residuals ”), and all taxes, pension fund contributions, and other costs and payments computed
on or payable in respect of any such residuals or participations in the net profits or Gross Receipts of the Funded Qualifying Project to
any Person, including, without limitation, any firm, corporation, guild, union, trustee or fund (other than Distributor); provided,
however, that if Issuer or any principal stockholder of Issuer, or any heirs, executors, administrators, successors or assigns of Issuer or
any such stockholder, is entitled, either directly or by way of participation in any pension fund, to any such Residuals, the amount
payable shall be treated as an advance against Issuer’s share of the receipts hereunder, and conversely, any share of the receipts paid
to Issuer hereunder shall constitute an advance against such Residuals payable to or for the benefit of Issuer or any principal
stockholder or member of Issuer, or any such heirs, executors, administrators, successors or assigns; provided further that this
Paragraph shall not be interpreted to require Distributor to make any payments that it is not required under the Agreement to make.
K.
Participations including without limitation Third Party Participations;
L.
All costs associated with the exploitation of the Home Video Right including without limitation, all manufacturing, reproduction,
shipping, packaging, storage, boxing, sorting and delivery of Videograms.
M.
All insurance covering or relating to the distribution of the Funded Qualifying Project, including, without limitation, errors and
omissions insurance (to the extent not provided by Issuer); provided, that Distributor shall not be obligated to take out or maintain any
such insurance. The net receipts of any insurance policy maintained by Distributor in respect of the Funded Qualifying Project
actually received by Distributor by way of reimbursement for any cost or expense previously deducted as a Distribution Expense shall
be applied in reduction of such cost or expense to the extent that the same was reimbursed by such proceeds.
N.
All discounts, rebates, or credits actually received by Distributor or any Subdistributor shall be taken into account in computing
Distribution Expenses in the Accounting Period in which such discount, rebate or credit is actually received, with the exception of
those based upon either (i) the volume or quantity of Advertising, prints, negatives, Videograms or other materials ordered
- Schedule “GR” Page 6 -
annually, or (ii) the manner or time of payment of any Distribution Cost and Expense which shall not be taken into account.
O.
Any and all other expenses in addition to those referred to herein incurred by Distributor in connection with the exercise of the Rights
in the Funded Qualifying Project.
5. Allocations . Wherever Distributor (i) makes any expenditures or incurs any liability in respect of a group of Productions that includes a
Funded Qualifying Project, or (ii) receives from any licensee either a flat sum or a percentage of the receipts, or both, for any right to a group of
Productions that includes the Funded Qualifying Project, under any agreement (whether or not the same shall provide for the exhibition, sale,
lease or delivery of positive prints of any of the said Productions) which does not specify what portion of the license payments apply to the
respective Productions in the group (or to such prints or other material, if any, as may be supplied), then in any and all such situations,
Distributor shall, reasonably and in good faith, include in, or deduct from (as the case may be), the Gross Receipts such sums in a
non-discriminatory manner.
6. Reserves . In addition to the reserves mentioned above in Paragraph 4 , if Distributor reasonably anticipates taxes, residuals, or other
reasonably anticipated costs, expenses or losses relating to the Funded Qualifying Project, which, if and when incurred, will be properly
deductible hereunder, Distributor may set up appropriate reserves therefor. If Distributor establishes a reserve for retroactive wage adjustments,
taxes, residuals, uncollectible accounts, or other reasonably anticipated costs, expenses, or losses relating to the Funded Qualifying Project, and
after ***** from the establishment of such reserve, such reserve is not liquidated or collected and no proceeding is pending protesting any such
cost, expense, or loss, or no tax audit is pending, Distributor shall liquidate such reserve (or remaining portion thereof) and make a
corresponding adjustment in the Gross Receipts of the Funded Qualifying Project or in the Distribution Expenses, subject to the right of
Distributor to thereafter deduct any such cost, expense, or loss if a proceeding is thereafter instituted protesting such cost, expense, or loss, or if
a tax audit is thereafter commenced, or, if any such cost, expense, or loss is thereafter otherwise incurred, sustained, or paid for by Distributor.
The foregoing shall be subject to, and without prejudice to, the right of Distributor to make corrections and adjustments from time to time.
7. Foreign Receipts . No sums received by Distributor in respect of the Funded Qualifying Project shall be included in Gross Receipts or in
Settlement Reports hereunder for the purpose of determining Issuer’s share payable to Issuer, unless such sums are freely remittable to
Distributor in U.S. dollars in the United States, or used by Distributor. Sums derived from territories outside of the United States which are not
remittable to Distributor in the United States in U.S. dollars by reason of currency or other restrictions may be reflected on statements rendered
hereunder for informational purposes only, and Distributor shall, at the request and expense of Issuer (subject to any and all limitations,
restrictions, laws, rules, and regulations affecting such transactions), deposit into a bank designated by Issuer in the country involved, or pay to
any other party designated by Issuer in such territory, such part thereof, if any, as would have been payable to Issuer hereunder. Such deposits
or payments to or for Issuer shall
- Schedule “GR” Page 7 -
constitute remittance to Issuer, and Distributor shall have no further responsibility therefor. Distributor makes no warranties or representations
that any part of any such foreign currencies may be converted into U.S. dollars or transferred to the account of Issuer in any foreign country.
Costs incurred in a territory during a period when all receipts are blocked shall be charged only against blocked receipts from such territory.
Costs incurred in a territory during a period when part of the receipts is blocked and part is remittable to the United States shall be charged
proportionately against the blocked and dollar receipts from said territory. However, if costs charged against blocked receipts, in either of the
foregoing instances, have not been recovered therefrom within ***** after such costs were incurred, the deficit shall be computed in dollars at
the official rate or such rate of exchange as may be announced from time to time by Bank of America, as Distributor may elect.
8. Settlement Reports . Distributor shall render to Issuer (with a copy to each Revenue Participation Holder, provided that Distributor’s
inadvertent failure to provide such copy to any Revenue Participation Holder shall be a breach of this Agreement) the Settlement Reports as set
forth in Section 7.2 . Such Settlement Report shall show, in as much detail as Distributor usually furnishes in such statements rendered to other
parties, the appropriate calculations pursuant to this Schedule. Statements and any sums due with respect to the Funded Qualifying Project shall
be prepared in U.S. dollars and provided to Issuer on each Settlement Date; provided that no statement shall be rendered for any period in
which no receipts are received or charges incurred. Statements rendered by Distributor may be changed from time to time to give effect to
year-end adjustments made by Distributor’s accounting department or public accountants, to items overlooked, to correct errors, or to reflect
any indebtedness which may become uncollectible for any similar purposes. Should Distributor make any overpayment to Issuer hereunder for
any reason, Distributor shall have the right to deduct and retain for its own account an amount equal to any such overpayment from any sums
that may thereafter become due or payable by Distributor to Issuer or for Issuer’s account, or may demand repayment from Issuer in which
event Issuer shall repay the same when such demand is made. Any U.S. dollars due and payable to Issuer by Distributor pursuant to any such
statement shall be paid to Issuer simultaneously with the rendering of such statement; provided, that all amounts payable to Issuer hereunder
shall be subject to all laws and regulations now or hereafter in existence requiring the deduction or withholding of payments for income or
other taxes payable by or assessable against Issuer. Distributor shall have the right to make such deductions and withholdings, and the payment
thereof to the governmental agency concerned in accordance with its interpretation in good faith of such laws and regulations shall constitute
payment hereunder to Issuer, and Distributor shall not be liable to Issuer for the making of such deductions or withholdings or the payment
thereof to the governmental agency concerned. In any such event Issuer shall make and prosecute any and all claims which it may have (and
which it desires to make and prosecute) with respect to the same directly with the governmental agency having jurisdiction in the premises.
9. Ownership . Issuer shall not have any lien or other rights in or to any of the receipts of the Funded Qualifying Project, it being understood
that the references herein thereto are intended solely for the purpose of determining the time, manner and amount of payments, if any, due to
Issuer hereunder.
- Schedule “GR” Page 8 -
10. No Warranties . Distributor has not made any express or implied representation, warranty, guarantee or agreement (i) as to the amount of
Gross Receipts which will be derived from the distribution of the Funded Qualifying Project, or (ii) that there will be any sums payable to
Issuer hereunder, or (iii) that the Funded Qualifying Project will be favorably received by exhibitors or by the public, or will be distributed or
that any such distribution will be continuous, or (iv) that it now has or will have or control any theaters or other facility in the United States or
elsewhere, or (v) that any non-subsidiary licensee will make payment of any sums payable pursuant to any agreement between such licensee
and Distributor, Distributor’s obligation hereunder being limited to accounting only for such license fees as may be actually received by
Distributor from such licensee. In no event shall Issuer make any claim that Distributor has failed to realize receipts or revenues which should
or could have been realized in connection with the Funded Qualifying Project or any of Distributor’s rights therein.
11. Excess of Permitted Payments . In the event the proceeds payable to Issuer hereunder shall exceed that permitted by any law or
governmental regulation, Distributor shall (at Issuer’s cost) use its reasonable efforts to assist Issuer in the application to the appropriate
authority for the right to pay Issuer all of the Gross Receipts payable to Issuer pursuant to the Agreement and shall pay the difference between
the proceeds payable pursuant to the Agreement and the proceeds permitted to be paid at such time, if ever, as it may be legally permissible to
Distributor to pay the difference.
- Schedule “GR” Page 9 -
SCHEDULE “DM”
Schedule “DM” to Master Distribution Agreement (Television Productions) dated July 25, 2007 between MQP, LLC, as Issuer, and Lions Gate
Television, Inc., as Distributor (the “ Agreement ”).
DELIVERY MATERIALS
LIONSGATE TV POST PRODUCTION DELIVERY REQUIREMENTS
General
1.
All delivery requirements must be agreed upon in writing prior to the beginning of production on the project. A list of all Delivery
requirements will become part of the contract on the project.
2.
LIONSGATE must approve all post-production contracts, agreements, or deals before execution. This includes, but is not limited to,
laboratory rates, editors, assistant editors, editing rooms, video dailies, post production sound, visual effects, stock footage, title designers,
negative cutter, editorial equipment rental and or purchases, technical support, group ADR, and video dubs.
Visual Effects
1.
On-the-set visual effect supervisors should be hired only for the work to be performed during the filming of the picture. LIONSGATE
reserves the right to hire, at a later date, any other individual or facility that feels appropriate to produce the final visual effects needed on a
particular production.
Dubs of Dailies or Full Versions
1.
In order to minimize piracy, LIONSGATE should be informed at all times of any dubs made of any edited version or original dailies of
the film. Editorial should keep a log as to when and where any dubs were created and the specific purpose of them. All dubs should
include a constant burn-in, visible and above the matte, reading “ PROPERTY OF LIONSGATE TELEVISION ”
2.
When possible, dubs should be retrieved from the individuals or entities that requested them.
Technical Lock of the Show
1.
A facility should not start performing any post-production work BEFORE a show is considered officially locked. LIONSGATE should be
informed ahead of time when a facility requires advance delivery of elements before the official lock occurs.
Music
1.
To comply with copyright law and all LIONSGATE agreements, it is the Producer’s responsibility to secure rights for all original and/or
pre-existing music. This is required to avoid liability for copyright infringement, to meet delivery requirements, and to comply with errors
and omissions insurance procedures. LIONSGATE will provide form licenses and agreements.
2.
All music created for the production shall be on a “work for hire” basis and full copyright ownership and music publishing rights shall be
retained by LIONSGATE .
3.
No music or lyrics whatsoever can be used in the production in any form until an agreement has been reached and approved by
LIONSGATE regarding permission for such use. This clearance must be obtained IN ADVANCE of the filming of any scene in which
such music and/or lyrics will be used or prior to the recording of any music to be used in the production and prior to the mix of the picture.
This includes material thought to be in the public domain and any incidental music contained in clips.
TELEVISION ASSET DELIVERY SCHEDULE
FOR DOMESTIC AND INTERNATIONAL DISTRIBUTION
A. Video Requirements
1.
If produced in High Definition, One (1)-High Definition HDCAM SR (1080/24p) Color Timed, Sweetened, Edited, Texted
(Original language) for each episode. All video must be 16:9 full frame protected for 4:3 picture safe, so that a 4:3 full frame center
cut extraction can be created. Audio configuration will be Channel 1 & 2 – Stereo Compilation (original language), Channels 3 & 4
– Filled Stereo Music & Effects. (MOW/MFT configuration is noted below.) Each show must have all textless material :30 sec
after end of program logo. All textless material includes Main Titles, generic, inserts, and episodic, for the opening and closing for
each episode.
2.
If produced in Standard Definition PAL, One (1) PAL 16:9 & (1) NTSC (1.78) Digital Betacam Color Timed, Sweetened, Edited,
Texted (Original language) for each episode. All video must be 16:9 full frame protected for 4:3 picture safe, so that a 4:3 full
frame center cut extraction can be created. Audio configuration will be Channel 1 & 2 – Stereo Compilation (original language),
Channels 3 & 4 – Filled Stereo Music & Effects. Each show must have all textless material :30 sec after end of program logo. All
textless material includes Main Titles, generic, inserts, and episodic, for the opening and closing for each episode. (If not shot and
posted in 16:9, a 4:3 is acceptable)
3.
If produced in Standard Definition NTSC, One (1) NTSC 16:9 (1.78) Digital
- Schedule “DM” Page 2 -
Betacam Color Timed, Sweetened, Edited, Texted (Original language) for each episode. All video must be 16:9 full frame
protected for 4:3 picture safe, so that a 4:3 full frame center cut extraction can be created. Audio configuration will be Channel 1 &
2 – Stereo Compilation (original language), Channels 3 & 4 – Filled Stereo Music & Effects. Each show must have all textless
material :30 sec after end of program logo. All textless material includes Main Titles, generic, inserts, and episodic, for the opening
and closing for each episode. (If not shot and posted in 16:9, a 4:3 is acceptable)
4.
Note: All Standard Definition NTSC shows must be approved by Lionsgate TV Post Production; additional HD delivery may be
required.
B. Audio Requirements
1.
One (1) CD — all music written and/or recorded
2.
One (1) CD — Theme of series/pilot
3.
5.1 Audio Configuration for the HDCAM SR, MOW/MFT’s
Channels 1 & 2 — English Stereo Comp.
Channels 3 & 4 — M&E Stereo
English Comp. Mix 5.1
Channel 5 — Left
Channel 6 — Right
Channel 7 — Center
Channel 8 — Low Frequency Effects
Channel 9 — Left Surround
Channel 10 — Right Surround
Channel 11 – Mono Mix
Channel 12 – Mono Mix
4.
One (1) DA88 DM&E of each episode, formatted as video material noted above.
Track 1 — Stereo Left Dialogue only
Track 2 — Stereo Right Dialogue only
Track 3 — Stereo Left Music only
Track 4 — Stereo Right Music only
Track 5 — Stereo Left Effects only
Track 6 — Stereo Right Effects only
Track 7 — Stereo Left Composite (Original Language)
Track 8 — Stereo Right Composite (Original Language)
5.
One (1) DA88 – M&E 5.1
Channel 1 — Left
Channel 2 — Right
Channel 3 — Center
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Channel 4 — Low Frequency Effects
Channel 5 — Left Surround
Channel 6 — Right Surround
Channels 7 & 8 – Optional Dialogue Guide
6.
One (1) DA88 – 5.1 PM
Channels 1 – Stereo left
Channels 2 — Stereo Right
Channels 3 — Center
Channels 4 — Low Frequency Effects
Channel 5 — Left Surround
Channel 6 — Right Surround
Channel 7 – Stereo Right Composite
Channel 8 — Stereo Left Composite
C. Documentation (Per episode)
1.
1-As Broadcast Continuity Script (English) per episode (prefer computer file, if available)
2.
Original Language and English as-Broadcast Script (Computer file if available)
3.
One (1) Staff & Crew List (If available)
4.
One (1) Shooting & Taping Schedule (If available)
5.
One (1) Final Credits
6.
Edit Decision List — if shot on film, must contain film keycodes.
7.
Code Book, Lined Script (Film Production Only)
8.
Laboratory Access Letter for original film material (Film Production Only)
D. Music (Per episode)
1.
Music Cue Sheets (Per episode)
2.
Composer Agreements (include I-9 & W-9/4)
3.
CD or DAT of the masters
4.
All Source Music Licenses (Sync and Master use, as applicable)
5.
Certificates of Authorship
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6.
Any/All documents with union, guild, or similar reuse/renewal implications
7.
Chain-Of-Title documents (aka “Assignment of Rights” or “Transfer of Rights”) or similar agreements which set forth music rights (e.g.,
production/distribution agreement or similar document)
E. Publicity / Promotional Materials :
1. B&W Stills : Twenty (15) different production B&W shots (8X10 B&W stills and 8X10 B&W negatives) depicting scenes in the Picture
with members of the cast (including principals) appearing therein. Note: Any and all approvals or other authorizations that are required in
connection with the use of the delivered photography shall be secured and delivered. (Deliver to “Associate Director, Business & Legal
Affairs”).
2. Color Stills : Twenty (15) different production color shots (8X10 color stills and 8X10 color negative) depicting scenes in the Picture with
members of the cast (including principals) appearing therein. Note: Any and all approvals or other authorizations that are required in
connection with the use of the delivered photography shall be secured and delivered. (Deliver to “Associate Director, Business & Legal
Affairs”).
3. Color Slides : A minimum of three hundred (300) different (approved) production color slides (35mm color transparencies) depicting scenes
in the Picture with members of the cast (including principals) appearing therein. Lions Gate shall have irrevocable access during the Term to all
original photography. If the photography is delivered on a disc, it shall be in the highest resolution format possible (a minimum of 300dpi) and
saved as a Tiff File. The Contact Sheets and a photo identification caption list shall be provided. The distinction between “kill shots” and
“approved shots” shall be clearly made (either directly on the contact sheets or on a separate list). Note: Any and all approvals or other
authorizations that are required in connection with the use of the delivered photography shall be secured and delivered. (Deliver to “Associate
Director, Business & Legal Affairs”).
4. Advertising Materials: One (1) copy of all advertisements, paper accessories and other advertising materials, if any, prepared by Grantor, the
Producer or by any other party affiliated with the Picture, including, without limitation, press clippings, cast and crew interviews,
commentaries, one-sheet posters, flyers, behind-the-scene footage, key art elements and transparencies, television spots, etc. Note: If the key art
is delivered on a disc, it shall be a layered Photoshop file in the highest resolution format possible. All materials (including any music) shall be
fully cleared for Lions Gates exploitation thereof in all media granted Lions Gate under the Agreement throughout the Territory during the
Term without any additional clearance costs (or other supplemental payments) required to be paid in connection therewith. In the event that any
material is not fully cleared as set forth above, a written statement outlining in detail the material that has not been cleared shall be provided.
(Deliver to “Associate Director, Business & Legal Affairs”).
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5. Electronic Press Kit : One (1) Electronic Press Kit (“EPK”) created using 35mm film or broadcast quality video tape suitable in all respects
for exploitation. The EPK shall contain interviews with the principal cast, interviews with the principal crew (e.g. director and producer),
behind-the-scenes footage, “bloopers”, outtakes, “making of” footage, production footage, etc. The EPK shall have four track discrete audio
with the voice-over and/or narration on one track, the dialogue on a separate track, the music on a separate track and the effects on a separate
track. All footage (including the music embodied therein, behind-the-scene footage, etc.) shall be fully cleared for Lions Gates exploitation
thereof in all media granted Lions Gate under the Agreement throughout the Territory during the Term without any additional clearance costs
(or other supplemental payments) required to be paid in connection therewith. In the event that any material is not fully cleared as set forth
above, a written statement outlining in detail the material that has not been cleared shall be provided. (Deliver to “Associate Director, Business
& Legal Affairs”).
6. Screening Cassette: One (1) VHS screening cassette (in the NTSC format) of the Picture. (Deliver to “Associate Director, Business & Legal
Affairs”).
7 (a). Ancillary Materials (DVD Assets): If available, One (1) Digital Beta video master in the NTSC format containing all material created by
Grantor (or by any other party affiliated with the Picture) for the inclusion in the DVD master. Channels 1 & 2 shall contain stereo audio.
Channels 3 & 4 shall contain 100% fully filled stereo M&E. Textless background shall be attached to the tail of the video master. All material
(including any music embodied therein, behind-the-scene footage, etc. ) shall be fully cleared for the exploitation thereof in all media granted
Lions Gate under the Agreement throughout the Territory during the Term. In the event that any material is not fully cleared as set forth above,
a written statement outlining in detail the material that has not been cleared shall be provided. (Deliver to “Associate Director, Business &
Legal Affairs”).
7(b). Ancillary Audio Materials: On DA-88 cassettes or DA-98 cassettes, the discrete stereo audio, discrete stereo dialogue, discrete stereo
music and discrete stereo effects. (Deliver to “Associate Director, Business & Legal Affairs”).
Delivery addresses for items delivered pursuant to the agreement are as followed:
Lions Gate Television
Bobby Williams
2700 Colorado Ave, 2 nd Floor
Santa Monica, CA 90404
Tel: 310-255-3832
Fax: 310-255-4020
[email protected]
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Items under “Documentation Only”:
Lions Gate Television
Sofia Stanley
2700 Colorado Ave, 5th Floor
Santa Monica, CA 90404
Tel: 310-255-3902
Fax: 310-255-3970
[email protected]
TECHNICAL REQUIREMENTS FOR DELIVERY OF BROADCAST MASTER:
1.
With the following audio configuration:
Channel 1: Stereo Left Compilation (Original Language) with laughs if applicable
Channel 2: Stereo Right Compilation (Original Language) with laughs if applicable
Channel 3: Filled Stereo M&E Left (w/o/ laughs)
Channel 4: Filled Stereo M&E Right (w/o laughs)
Cue Track: Laughs (if applicable, if no Laughs, mono Dialogue)
2.
Head Format
: 30 black
: 60 bars & tone (Full Field 75% Reference Bars/ 1 kHz @ -20dB)
: 10 black
: 10 slate (see 17b)
: 10 black
Start show with continuous Timecode beginning at hour 1:00:00:00 at first frame of
program video.
NTSC – Drop Frame Time Code (DFTC) Digital Betacam
PAL – European Broadcast Union (EBU) Digital Betacam
HD – Non Drop Frame Time Code (NDFTC) HDCAM
3.
A. If shooting in the 16:9 aspect ratio, 16:9 must be maintained throughout the entire post production process, and must be framed
with the 4:3 aspect ratio in mind. A 4:3 clone made from a 16:9 master must be delivered from a non-pan and scan center cut of the
16:9. All essential program content and titling must be contained in the 4:3 safe portion of the 16:9 frame.
B.
If shooting in the 4:3 aspect ratio, only a 4:3 master is required.
4.
All production logos followed by the appropriate Lions Gate Television logo, must be at the tail of each episode. (see contract for
correct logo i.e. LIONSGATE)
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5.
All technical specifications, including the horizontal and vertical blanking, audio and video levels, reference bars and tone to be
SMPTE/EBU specifications and to match program content.
6.
Component serial digital signal paths should be maintained throughout the post production process in creating the digital master.
7.
Video must be free of drop outs, glitches and other technical flaws.
8.
All commercial blacks are to be pulled between :01 and :02 seconds in length.
9.
No in-show bumpers, i.e. commercial in or out bumpers.
10.
Rapid detailed motion credits are to be kept to minimum and within 4:3 center, picture safe area. State credit cards are preferable to
crawls for reasons of standard conversion.
11.
Consolidates episodes (i.e. special 1 hour) must be delivered in original length format (i.e. 2- / 2 hour episodes).
12.
No time Compression, Time Expansion, Enhancement, Noise Reduction or Electric Dirt Concealment Process.
13.
No Network, TV Ratings, Closed Captioning or In-Stereo logos are permitted.
14.
No Hi-8 or consumer quality source material to be utilized unless inserted digitally inside a graphics mask or prop TV.
15.
No voice overs for bumpers i.e. “We’ll Be Right Back” in program.
16.
No crushed blacks or clipped whites.
17.
No address, telephone number, or Web Page references in program.
18.
Episode Numbering, Labeling & Slating:
1
a. Episode labeling must comply with LGTV labeling procedures, with the first of the three/four – digit episode number (which ever has
been determined by Lions Gate Television) reflective of the season of production and the last two digits of the episode number reflective
of the episode number production has assigned. For example episode #101 is the first episode of the first season, episode #210 is the tenth
episode of the second season, etc.
b. For series that will have more than 100 episodes per season it is generally expected that the episode numbers follow a 4 digit sequence,
i.e. 1001, 1002, 1003
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etc. For series that will have less then 100 episodes per season it is generally expected that the episode numbers follow a 3 digit sequence,
i.e. 101, 102, 103 etc.
c. For remakes and format shows, please note the original version’s episode number as the production number, and the current shows
corresponding number as the new episodic number.
d. Material must be labeled and slated as follows:
English Show Title / Native Language Show Title
Lions Gate Television Episode #
Episode Title (English) / Native Language
Ch1-audio / Ch2-audio / Ch3-audio / Ch4-audio /
Tape Format, Standard, Version – Runtime XX:XX
Date of Creation
Facility Name
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Exhibit 31.1
CERTIFICATION
I, Jon Feltheimer certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lions Gate Entertainment Corp. (the “Company”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for,
the periods presented in this report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred
during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial
reporting; and
5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons
performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the Company’s internal control over financial reporting.
/s/ JON FELTHEIMER
Jon Feltheimer
Chief Executive Officer
Date: August 9, 2007
Exhibit 31.2
CERTIFICATION
I, James Keegan certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lions Gate Entertainment Corp. (the “Company”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for,
the periods presented in this report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred
during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial
reporting; and
5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons
performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the Company’s internal control over financial reporting.
/s/ JAMES KEEGAN
James Keegan
Chief Financial Officer
Date: August 9, 2007
Exhibit 32.1
WRITTEN STATEMENT
PURSUANT TO
18 U.S.C. SECTION 1350
The undersigned officers of Lions Gate Entertainment Corp. (the “Company”), pursuant to 18 U.S.C. § 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that, to their knowledge:
(i) the Form 10-Q of the Company (the “Report”) for the quarterly period ended June 30, 2007, fully complies with
the requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company as of, and for the period covered by this report.
/s/ JON FELTHEIMER
Jon Feltheimer
Chief Executive Officer
Date: August 9, 2007
/s/ JAMES KEEGAN
James Keegan
Chief Financial Officer
Date: August 9, 2007