“THE WAY OF THE PEACEFUL
WARRIOR” a/k/a “PEACEFUL WARRIOR”
This agreement
(the “Agreement”) is made and entered into as of
December 6, 2005 by and between Sobini Films, a California
Corporation (“Grantor”), whose address is 2700 Colorado
Avenue, Suite 510B, Santa Monica, California, 90404, and Lions
Gate Films Inc. (“LGF”), whose principal address is
2700 Colorado Avenue, Second Floor, Santa Monica, California,
90404, with respect to that certain motion picture presently
entitled “The Way of the Peaceful Warrior” a/k/a
“Peaceful Warrior”.
1.
Picture: The “Picture” shall mean that certain
motion picture presently entitled “The Way of the Peaceful
Warrior” a/k/a “Peaceful Warrior” and any and all
versions thereof and all “bloopers”, footage, trims and
outtakes thereof (including, without limitation, the
Director’s Cut and the Final Cut and any and all versions of
each of the foregoing, all versions rated by the Motion Picture
Association of America and unrated versions of the Picture,
“behind the scenes”, “making of” and any
and all other documentary or short films concerning the Picture,
and all footage, “bloopers”, trims and out-takes of
each of the foregoing), produced by, on behalf of or at
Grantor’s direction, in the year 2005.
2.
Territory: The “Territory” shall mean and
include each of the following: (a) United States of America
(including but not limited to, Guam, Saipan, Midway Island, the
Trust Territory Islands, the Caroline Islands, the Marshall
Islands, the Virgin Islands, Puerto Rico and American Samoa)
(“U. S.”), its territories, possessions, trusteeships
and commonwealths and all military bases, ships at sea, airlines
and oil rigs flying the flag or serviced from of the U.S.,
(b) Canada (including, but not limited to, Quebec, Prince
Edward Island, the Northwest Territories, the Yukon Territories and
Newfoundland), its territories, possessions, trusteeships and
commonwealths, and all military bases, ships at sea, airlines and
oil rigs flying the flag of or serviced from Canada, and
(c) for the purposes of Television exploitation in the U.S.
only, Bermuda and the Bahamas Islands.
a. Rights
Granted to LGF : Grantor hereby grants to LGF, on an exclusive
basis, all distribution rights in and to the Picture and the
underlying material with respect thereto (to the extent necessary
to effectuate the grant of Rights hereunder), under copyright and
otherwise, throughout the Territory, in all languages and in all
media, whether now known or hereafter devised, including, without
limitation, all Theatrical, Non-Theatrical, Home Video, and
Television Rights in and to the Picture, by all methods of
delivery, whether now know or hereafter devised, including without
limitation, all Internet Delivery Mechanisms, all as such rights
may be more specifically defined in Schedule “A”, which
is attached hereto and incorporated herein by this reference
(collectively, the “Rights”), excluding without
limitation, all Ancillary Rights and all the sequel, prequel and
remake rights in and to the Picture (including, without limitation,
any and all Television spin-off rights), the Blockbuster Store
Rights (as that
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term is defined
in paragraph 3(b) hereinbelow, and all Ancillary Rights (as that
term is defined in paragraph 3(c) hereinbelow) in and to the
Picture (collectively, the “Reserved Rights”). Without
limiting the generality of the foregoing, the Rights granted to LGF
hereunder shall include, without limitation, the exclusive right to
market, advertise, promote and publicize the Picture in all media,
whether now known or hereafter devised.
b.
Remakes, Prequels & Sequels : LGF shall have a right of
first refusal (a “Right of First Refusal”) with respect
to worldwide distribution rights in any motion picture produced by
Grantor alone or in conjunction with others during the Term (a
“Qualifying Picture”) to the extent that Grantor
controls the licensing of such distribution rights; provided, that
such Right of First Refusal shall not apply to any rights to
distribute a Qualifying Picture which has been licensed,
transferred or otherwise disposed of prior to the time that Grantor
controls the licensing of such distribution rights unless at such
later time Grantor has obtained the control of the Subject
Distribution Rights. Such a Right of First Refusal shall apply to
all rights to distribute the Qualifying Picture in the United
States (“U.S. Rights”) and to all rights to distribute
the Qualifying Picture outside of the United States (“Foreign
Rights”). The rights as to which LGF has the Right of First
Refusal set forth in this paragraph shall be referred to herein as
“Subject Distribution Rights”.
i. Grantor
shall notify LGF in writing of any Qualifying Picture (a
“First Refusal Notice”) setting forth a description of
the Material Elements. For purposes of this Agreement,
“Material Elements” shall mean the proposed director,
lead actor and amount of the budget for the Qualifying Picture. LGF
shall have until 5:00 p.m. on the eighth (8
th ) business day following provision of the First
Refusal Notice by Grantor (the “Exercise Period”) to
notify Grantor in writing (an “Exercise Notice”) that
LGF is exercising its right to negotiate in good faith to acquire
the U.S. Rights and/or the Foreign Rights. If LGF so exercises its
Right of First Refusal with respect to the U.S. Rights and/or with
respect to the Foreign Rights, LGF shall thereupon be obligated to
negotiate with Grantor in good faith for a period of ten
(10) business days (“Negotiation
Period”).
ii. If the
parties fail to reach agreement ( or are deemed to fail to reach
agreement) prior to the expiration of the Negotiation Period with
respect to U.S. Rights and/or Foreign Rights, subject to and in
accordance with subsections (iv) and (v) below, Grantor
may accept any third party offer to acquire U.S. rights and/or
Foreign Rights on monetary terms or conditions materially more
favorable to Grantor that the monetary terms and conditions last
offered by LGF to Grantor during the Negotiation Period and/ or may
sell or license Foreign Rights on a territory-by territory basis
without any further obligation to LGF.
iii. LGF’s
failure to provide an Exercise Notice prior to the expiration of
the Exercise Period shall be deemed an election by LGF to not
exercise its Right of First Refusal to acquire any of the Subject
Distribution Rights. In the event LGF fails to provide an Exercise
Notice within the applicable Exercise Period or fails to negotiate
with Grantor during the appropriate Negotiation Period, Grantor
shall have the right to dispose of the Subject Distribution Rights
with respect to Qualifying Picture without any further obligation
to LGF.
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iv. Subject
to paragraph 3(b)(v) hereinbelow, if at any time there is a
substantial change in the Material Elements pertaining to a
Qualifying Picture, Grantor shall within ten (10) business
days following such change to provide a First Refusal Notice to LGF
describing such change of Material Elements. The Exercise Period,
Negotiation Period and the mechanics for LGF’s exercise or
deemed election not to exercise its rights under any such First
Refusal Notice shall be the same as set forth above. For purposes
of this Agreement, a “substantial change” in the
Material Elements pertaining to a Qualifying Picture shall mean
(A) any change in the proposed director or lead actor or
(B) a decrease of more than ten percent (10%) in the amount of
the proposed budget.
v. Notwithstanding
anything to the contrary in this Agreement, if Grantor enters into
an agreement with a third party regarding the U.S. Rights or the
Foreign Rights in Qualifying Picture, thereafter there is a
substantial change in Material Elements pertaining to such
Qualifying Picture, and Grantor has theretofore compiled with his
first refusal obligations as set forth herein, LGF’s Right of
First Refusal shall not apply to such Qualifying Picture. By way of
clarification, in such event, Grantor would, among other things,
not be required to provide a subsequent First Refusal Notice to LGF
with respect to a Qualifying Picture, even if the Material Elements
of such Qualifying Picture were to change substantially subsequent
to the time such agreement is entered into.
c.
Blockbuster Store Rights : LGF acknowledges that Sobini has
entered into a revenue sharing agreement with Blockbuster Inc.
(“Blockbuster”) with respect to the rental of DVDs
(including, without limitation, Blu-Ray™) of the Picture for
the first twenty-six (26) weeks commencing with LGF’s
initial Home Video Street Date of the Picture (the “Revenue
Share Period”) via (i) Blockbuster’s “brick
and mortar” retail stores or locations in the Territory with
the limited exception of stores or locations located in Hawaii or
Alaska or any United States’ territory or possession other
than the District of Columbia (the “Blockbuster
Territory”) that are wholly owned or operated by Blockbuster
or its affiliates (the “Blockbuster Parties”); and (ii)
blockbuster.com (collectively, the “Blockbuster Store
Rights”). LGF further acknowledges that this Picture will not
be a “Rental Picture” under any revenue share agreement
between LGF and Blockbuster that is or will be in effect as of
LGF’s initial Home Video Street Date of the Picture (i.e.,
any “brick and mortar” or online revenue share
agreement). For clarification purposes, LGF will not be prohibited
or restricted from selling Videograms (including, without
limitation, DVDs) of the Picture to any of the Blockbuster Parties
for retail purposes in the Blockbuster Territory prior to or during
the Revenue Share Period nor will LGF be prohibited or restricted
from selling Videograms (including, without limitation, DVDs) of
the Picture to any of the Blockbuster Parties in the Blockbuster
Territory for retail and/or rental purposes after the expiration of
the Revenue Share Period. “Videograms” means and
includes, without limitation, all kinds of tapes, cassettes, discs,
chips, cards and other devices, whether now known or hereafter
devised, including but not limited to, all formats of videotapes,
videocassettes, videodiscs, chips, cards, and other technologies in
which the Picture is embodied in a tangible medium of expression
(including, without limitation, VHS, DVD, PSP, Blu-Ray™ and
laser discs), as these terms are commonly understood in the video
industry which contain the Picture, or portions thereof and are
intended primarily for viewing of the Picture in its original
continuity.
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d.
Specialty Home Video Markets : LGF shall use good faith
efforts to engage Gaiam to handle the distribution of Video Devices
of the Picture in certain non-mass-merchant and specialty Home
Video markets, provided that (i) LGF approves all of the terms
of such distribution agreement with Gaiam, and (ii) LGF
approves of the specific retail chains to be handled by Gaiam under
such agreement.
e.
Ancillary Rights : As used herein, “Ancillary
Rights” shall mean and include, without limitation, all
Soundtrack, Music Publishing, Literary Publishing, Electronic
Publishing and Merchandising Rights in and to the Picture.
Notwithstanding any reservation of the Ancillary Rights in and to
the Picture, LGF is hereby granted the exclusive right to
merchandise the key art in and to the Picture (e.g., posters, toys,
key chains, etc.) for the purposes of promoting the Picture in the
Territory.
4. Term:
The “Term” of this Agreement shall commence as of the
date first written above and shall terminate ten (10) years
from LGF’s initial Theatrical release of the Picture in the
Territory (which Theatrical release shall be deemed to have
occurred on the earlier of (a) the actual initial commercial
Theatrical release date of the Picture in the Territory, and
(b) twelve (12) months from the date of complete Delivery
(and LGF’s acceptance) of the Picture in accordance with the
Delivery Schedule). Notwithstanding the foregoing, the Term of this
Agreement shall be deemed extended as is necessary to comply with
any license of Television Rights to Showtime Networks Inc.. After
the expiration of the Term, there shall be a six (6) month
exclusive sell-off period (the “Sell-Off Period”).
During the Sell-Off Period, LGF shall only manufacture that number
of Video Devices LGF reasonable requires in order to fill orders
during the Sell-Off Period. LGF shall not manufacture more Video
Devices during the last six (6) months of the Term than it
reasonably expects to sell during the Term, exclusive of the
Sell-Off Period. Without limiting the generality of the foregoing,
LGF shall have a right of first negotiation (for a period of ten
(10) business days commencing on Grantor’s receipt of
LGF’s written notice of its intent to commence such
negotiations, which notice shall be Delivered to Grantor no later
than the last day of the Term) with respect to any extensions of
the Term hereof.
5. Minimum
Guarantee: None.
6.
Grantor’s Participation; Distribution Fees:
a.
Grantor’s Participation : From One Hundred Percent
(100%) of all monies received by LGF on a non-refundable basis from
the exploitation of the Picture in all media throughout the
Territory, LGF shall be entitled to deduct the following on a
continuing basis and in the following order: (i) LGF’s
Distribution Fee for all media, (ii) LGF’s Distribution
Expenses (as that term is defined hereinbelow) plus Interest, and
(iii) third party participation payments (to the extent that
LGF pays such third party participation payments on Grantor’s
behalf, if at all, and which shall only be payable from any monies
remaining after the foregoing deductions; for the purposes of
clarity, LGF shall not be required to assume any payment
obligations of Grantor nor shall LGF be required to make any third
party participation payment that is greater than the amount of
revenues available after LGF has first deducted its Distribution
Fees and Distribution Expenses). All revenues remaining after the
foregoing deductions shall be referred to herein as
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“AGR”. Grantor shall be entitled to
receive One Hundred Percent (100%) of the AGR. Notwithstanding the
foregoing, in the event that LGF contributes Two Million Dollars
($2,000,000.00) or more in actual, direct, out-of-pocket, third
party print, marketing, advertising, promotional and publicity
expenses in connection with the theatrical release of the Picture,
then One Hundred Percent (100%) of the AGR shall paid to Grantor
until such time, if ever, as Grantor has received the aggregate of
Two Million Five Hundred Thousand Dollars ($2,500,000.00) under
this Agreement plus an amount equal to any and all monies drawn
down from the LC by LGF pursuant to paragraph 6(c)(i) hereinbelow.
Thereafter, the AGR shall be allocated and paid Ten Percent (10%)
to LGF and Ninety Percent (90%) to Grantor for the duration of the
Term. That portion of the AGR allocated to Grantor pursuant to this
paragraph shall be referred to herein as “Grantor’s
Participation”. LGF shall be entitled to cross-collateralize
all revenues received by LGF from the exploitation of the Picture
from all media throughout the Territory for the purposes of
recouping LGF’s recoupable Distribution Expenses. LGF shall
be entitled to hold a reasonable amount of Home Video Gross
Receipts in reserve to accommodate bad debt, returns, damaged
goods, residuals and the like, which reserves shall be liquidated
on an annual basis in accordance with LGF’s standard business
practices. The amount of reserves held by LGF commencing on
LGF’s initial Home Video release of the Picture in the
Territory and continuing for a consecutive twelve (12) month period
thereafter shall not exceed twenty-seven percent (27%) of Home
Video Gross Receipts. Thereafter, the amount of reserves held by
LGF shall not exceed thirty (percent (30%) of Home Video Gross
Receipts. Nothing set forth herein shall preclude LGF from making
adjustments to its reporting statements to reflect the actual or
anticipated rate of returns, damaged goods, and the like. LGF shall
not be entitled to cross-collateralize revenues received by LGF
from the exploitation of the Picture with revenues received by LGF
from the exploitation of any other motion picture or property
distributed by LGF for any recoupment purposes, including, but not
limited to, recoupment of its Distribution Expenses. The Picture
shall not be treated as a “loss leader” by LGF. If LGF
includes the Picture in a package of motion pictures licensed to a
third party, then the price allocated to the Picture shall be on
the basis of a reasonable allocation of revenues in light of the
commercial worth of the motion pictures in the package as
determined by LGF in the exercise of its reasonable good faith
business judgment.
b.
Distribution Fees : LGF’s “Distribution
Fee” shall equal Fifteen Percent (15%) of One Hundred Percent
(100%) of all Gross Receipts received by LGF from the exploitation
of the Picture in all media throughout the Territory.
c.
Distribution Expenses : As used herein, “Distribution
Expenses” shall mean, with respect to all rights granted to
LGF hereunder, one hundred percent (100%) of the aggregate of all
actual, direct, out-of-pocket, third party costs expended or
incurred by LGF in direct connection with the distribution and
exploitation of the Picture throughout the Territory in all media,
including, without limitation, all DLT Creation Costs, and all
conversion, manufacturing, duplication, shipping, marketing,
advertising, promotion and publicity costs, all Residual Payments,
and all costs to complete Delivery of the Picture (to the extent
(i) LGF elects to cure any failure of Grantor to complete
Delivery of the Picture in accordance with the Delivery Schedule
and/or (ii) LGF is required to take “access” to
any Delivery Materials pursuant to the Delivery Schedule; and/or
(iii) Grantor is not required to deliver such elements under
the Delivery Schedule).
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i.
P&A Contribution : Grantor shall pay LGF the sum of Two
Million Dollars ($2,000,000.00) (the “P&A
Contribution”) in the form of an irrevocable letter of credit
(“LC”), which LC shall be Delivered to LGF on or before
March 31, 2006. LGF shall be entitled to draw down from the
LC, without restriction, commencing on that date which is eighteen
(18) months following the first day of the initial commercial
theatrical release of the Picture in the Territory (or earlier if
LGF determines in good faith that it will not recoup its
Distribution Fees and Distribution Expenses (including, but not
limited to, its marketing, advertising, promotional, publicity and
print (“P&A”) expenditure in connection with the
initial Theatrical release of the Picture in the Territory) based
on the performance of the Picture) and continuing until that date
which is twenty-four (24) months after the commencement of the
initial commercial Theatrical release of the Picture in the
Territory. Such LC shall only be drawn upon to the extent that
Gross Receipts fail to equal LGF’s Distribution Fees plus
LGF’s Distribution Expenses (together with Interest thereon)
as of the date(s) the LC is drawn upon. By way of example, if LGF
spends $2,000,000.00 in connection with the initial commercial
theatrical release of the Picture in the
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