Exhibit 10.1

 

[DWA LOGO]

 

November 11, 2005

 

DreamWorks L.L.C.

1000 Flower Street

Glendale, CA 91201

Attention: General Counsel / Chief Financial Officer

 

Re: Letter of Amendment and Clarification

 

Ladies and Gentlemen:

 

We refer to the Distribution Agreement, dated as of October 7, 2004 (the
“Distribution Agreement”) between DreamWorks Animation SKG, Inc. (“DWA”) and
DreamWorks L.L.C. (“Distributor”). This letter is to amend and clarify certain
provisions of the Distribution Agreement as, and to the sole extent, set forth
below to more precisely reflect DWA’s and Distributor’s mutual understanding of
the applicability of such provisions as evidenced by DWA’s and Distributor’s
business practices since the effective date of the Distribution Agreement and by
that certain memorandum, dated July 14, 2004, from Dea Benson entitled
“DreamWorks Animation: Financial Accounting for Revenue and Costs Pursuant to
the Distribution Agreement between DreamWorks LLC and DreamWorks Animation,
Inc.” Capitalized terms in this letter not otherwise defined shall have the
meaning ascribed thereto in the Distribution Agreement.

 

1. Clarification of “Reported and Paid to DWA”. DWA and Distributor acknowledge
and agree that the central principle of the Distribution Agreement is that
Distributor, and not DWA, is responsible for the payments of Distribution
Expenses, that the Distributor is only entitled to recoup Distribution Expenses
so paid out of available Gross Receipts and that DWA has no responsibility to
reimburse Distributor for unrecouped Distribution Expenses, other than
Additional Distribution Expenses. In recognition thereof, DWA and Distributor
hereby agree that Section 8.1 of the Distribution Agreement shall be amended by
inserting the following sentence at the end of Section 8.1(j)(ii) as it
presently appears:

 

For the avoidance of doubt, the parties acknowledge and agree that the words
“reported and paid to DWA” are intended to clarify that to the extent
Distribution Expenses were deducted from Gross Receipts by Distributor, then the
amount of any overstatement of such Gross Receipts that Distributor shall be
entitled to recoup pursuant to this Section 8.1(j)(ii) shall be commensurately
reduced.

 

2. Amendment to Sections 8.1(j)(ii) and 8.6(d). In addition, DWA and Distributor
acknowledge and agree that Sections 8.1(j)(ii) and 8.6(d) of the Distribution
Agreement must be read in connection with both Section 8.4 thereof, which
provides that except for an End of Term Reserve, Distributor is not entitled to
establish a cash reserve of any kind in connection with Gross Receipts,
Distribution Fees, Distribution Expenses, Residuals and Contingent Compensation
or for any other reason and Section 8.6(b) thereof, which provides that
Distributor shall furnish to DWA, on a monthly basis, revenue reports
sufficiently detailed to enable DWA to record Picture revenue on an accrual
basis in accordance with GAAP. Further, nothing in Section 8.1(j)(ii) or
Section 8.6(d) should be construed to amend or modify the central principle of
the Distribution Agreement that Distributor, and not DWA, is responsible for the
payment of all Distribution Expenses, that Distributor shall only recoup
Distribution Expenses so paid out of Gross Receipts and that DWA has no
responsibility to reimburse Distributor for unrecouped Distribution Expenses,
other than Additional Distribution Expenses.

 

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In recognition of the foregoing, DWA and Distributor hereby agree that (i) the
last sentence of Section 8.1(j)(ii) of the Distribution Agreement as it
presently appears shall be amended by inserting the following parenthetical at
the end thereof:

 

(it being understood that DWA shall not be obligated to repay cash amounts to
Distributor, nor shall Distributor be entitled to deduct from cash amounts
otherwise due and payable to DWA hereunder, to the extent that any such
repayment or deduction would result in the cumulative cash amounts received by
DWA with respect to a Licensed Picture under this Agreement, as of the
applicable measurement date, being less than the cumulative revenue reported by
Distributor to DWA on an accrual basis in accordance with GAAP pursuant to
Section 8.6(b) hereof with respect to such Licensed Picture as of such date).
Any overstated amounts not repaid or recouped in one period shall be carried
forward to the next accounting period.

 

and (ii) the last sentence of Section 8.6(d) of the Distribution Agreement as it
presently appears shall be amended by inserting the following at the end
thereof:

 

; provided, however, that DWA shall not be obligated to pay all or a portion of
any Final Payment Amount to Distributor to the extent that any such payment
would result in the cumulative cash amounts received by DWA with respect to a
Licensed Picture under this Agreement as of the applicable measurement date,
being less than the cumulative revenue reported by Distributor to DWA on an
accrual basis in accordance with GAAP pursuant to Section 8.6(b) hereof with
respect to such Licensed Picture as of such date.

 

3. Amendment to Section 8.6(b). Distributor and DWA acknowledge and agree that,
in connection with the foregoing amendments and clarifications to the
Distribution Agreement, Section 8.6 of the Distribution Agreement shall also be
amended by adding the following to the end of Section 8.6(b) as it presently
appears:

 

In preparing the reports required to be furnished to DWA under this
Section 8.6(b), Distributor shall be entitled to establish a reasonable reserve
against accrued Gross Receipts for a Licensed Picture in accordance with GAAP
(e.g., for returns of Video Devices, refunds of advances or security deposits
included in Gross Receipts) taking into consideration historical return history
for comparable animated Motion Pictures, current economic trends, projection of
consumer demand for the product, point of sale data as available from certain
retailers and other relevant factors.

 

4. Illustrative Examples. Set forth below, solely for illustrative purposes, are
numerical examples concerning the application of the Distribution Agreement, as
amended and clarified by this letter agreement:

 

A. The amount by which Gross Receipts were overstated for any reason (e.g., for
returns of Video Devices, refunds of advances or security deposits included in
Gross Receipts) exceeds the GAAP reserve established by Distributor pursuant to
the amendment to Section 8.6(b). Example reflects Distributor GAAP reporting
(“GAAP”) and cash remitted to DWA (“Cash”).

 

     GAAP

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    Cash

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First Reporting Period

                

Home video shipments

   $ 100     $ 100  

Reserve/Actual for returns

     (20 )     —         

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Home video revenues

     80       100  

Distribution Expenses

     60       60       

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--------------------------------------------------------------------------------

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Recouped (Unrecouped)

     20       40       

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Reported and Paid to DWA—First Period

   $ 20     $ 40  

Second Reporting Period

                

Home video shipments

     —         —    

Reserve/Actual for returns

     (10 )     (30 )     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Home video revenues

     (10 )     (30 )

Distribution Expenses

     —         —         

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Recouped (Unrecouped)

     (10 )     (30 )     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

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Reported and Paid to DWA—Second Period

     —         (20 )

Cumulative Two Periods

                

Reported and Paid to DWA

     20       20  

 

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B. The amount by which Gross Receipts were overstated for any reason (e.g., for
returns of Video Devices, refunds of advances or security deposits included in
Gross Receipts) is less than the GAAP Reserve established by Distributor
pursuant to the amendment to Section 8.6(b). Example reflects Distributor GAAP
reporting (“GAAP”) and cash remitted to DWA (“Cash”).

 

     GAAP

--------------------------------------------------------------------------------

    Cash

--------------------------------------------------------------------------------

 

First Reporting Period

                

Home video shipments

   $ 100     $ 100  

Reserve/Actual for returns

     (20 )     —         

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Home video revenues

     80       100  

Distribution expenses

     60       60       

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Recouped (Unrecouped)

     20       40       

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Reported and Paid to DWA—First Period

   $ 20     $ 40  

Second Reporting Period

                

Home video shipments

     —         —    

Reserve/Actual for returns

     10       (10 )     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Home video revenues

     10       (10 )

Distribution expenses

     —         —         

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Recouped (Unrecouped)

     10       (10 )     

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

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Reported and Paid to DWA—Second Period

     10       (10 )

Cumulative Two Periods

                

Reported and Paid to DWA

     30       30  

 

Except as expressly provided herein, the terms and provisions of the
Distribution Agreement shall are hereby ratified and confirmed and shall remain
in full force and effect.

 

(signature page follows)

 

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If this letter accurately reflects our understanding, please sign and return the
enclosed copy.

 

Very truly yours,

 

DREAMWORKS ANIMATION SKG, INC.,

By:   /s/    KRISTINA M. LESLIE            

Name: Kristina M. Leslie

Title: Chief Financial Officer

 

 

Accepted and agreed as of the date first above written:

 

DREAMWORKS L.L.C.

By:  

/s/    STEVE BERTRAM        

   

Name: Steve Bertram

Title: Chief Financial Officer

 

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