Exhibit 10.3


 


May 30, 2005


 


VIA EMAIL


 


Gray Fredrickson


John Simonelli


Graymark Productions, Inc.


 


Re:  “First
Look” Production and Distribution Partnership/Joint Venture


 


Dear Gray and John


 


Pursuant to your conversations with Barry
Gordon and myself, and pending final review, the following are the terms and
conditions under which Image Entertainment would enter into a “First Look”
Production and Distribution partnership with Graymark Productions Inc. for the
development of various types of Graymark branded properties to be produced or
acquired by the venture:


 


First Look: Image will have a
first look on all projects up to $2,000,000 from Graymark Productions Inc.  The parties anticipate the initial projects
hereunder will have budgets up to $500,000. 
If Image passes on any projects, Graymark shall have the right to
product the projects with another partner and/or distributor without any
further obligation to Image.


 


Newly Produced Features (up to 50% in Image guarantees):  Image would provide up to
50% of each production budget for mutually agreed upon projects.  Graymark will finance the remaining balance
of each production budget for the mutually agreed upon projects.  Graymark shall be the primary creative driver
on all projects.


 


Prequel – Sequel Rights:  Image retains the right of first and last
negotiation for any remake, prequel or sequel project derived from any project
contained herein.  Should the project(s)
be of a larger scope and budget than Image is comfortable partnering on, the
parties agree to provide an equitable profit participation for Image regardless
of who is financing or distributing.


 


Output Term:  Three (3) years selection term, beginning on the complete Delivery
of the 1st program hereunder, Image will have the exclusive option
to select any projects from Graymark.  At
the end of the 2nd year of the Output Term the paties shall
negotiate in good faith to extend the Output Term for an additional 2 years.


 


Distribution Term:  20
years


 


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Territory:  The world.


 


Exclusive Distribution Territory and Rights:  Image
will be entitled to exclusively distribute and exploit throughout the world all
forms of home video and audio (including soundtracks) currently available or
hereinafter invented, all forms of Digital exploitation (as defined below), all
non-theatrical and airline passenger rights (as defined below).  Graymark and Image shall mutually agree on
the method of distribution outside of North America for all rights in all other
media.  Image and Graymark will retain
their profit participation for all distribution, less any third party
distribution fee.  For Domestic
theatrical exploitation please see below.


 


Home Video and Audio Formats Distribution Fee:  All formats of home video
and audio currently available or hereinafter invented; Image will receive a 25%
distribution fee from gross domestic sales and a back end profit participation
from all sales worldwide after a distribution fee (as detailed herein). The
actual back-end profit participation percentage shall be equal to the
percentage Image funds said project after mutually approved expenses.  For example, if Image guarantees 50% of a
budget, Image will be entitled to its 25% distribution fee (for domestic sales)
and 50% of back –end home video profits (for all sales worldwide; subject to
the cross recoupment as defined herein). 
For revenue share units, Image and Graymark will split profits 50/50
after recoupment and expenses.  All
international revenue shall be split according to the profit participation
above.


 


Digital Content Distribution:
Image, through its subsidiary Egami, shall have worldwide distribution rights
for secure digital downloading or streaming of still photos, clips or complete
programs to computers, portable devices, mobile phones or other similar devices
that utilize industry standard transmission technologies currently available or
hereinafter invented.  The parties will
split profits 50/50 after expenses and subject to the cross-recoupment
provision herein.


 


Broadcast Formats Distribution Fee: 
The parties shall mutually
agree on exploitation of the broadcast rights. The parties shall receive profit
participation equal to the same percentage of the budget guarantee.  Such profit participation shall be from revenue,
less any third party fee and all expenses. 
For example if Image and Graymark each guarantee 50% of a budget, Image
and Graymark will split the profits, after expenses, 50/50.  This shall be subject to the cross-recoupment
provision herein.


 


International Exploitation Distribution Fee:  The
parties shall mutually agree to the exploitation of all rights not otherwise
granted to Image hereunder.  The parties
shall receive profit participation equal to the same percentage of the budget
guarantee.  Such profit participation
shall be from revenue, less any third party fee and all expenses.  For example if Image and Graymark each
guarantee 50% of a budget, Image and Graymark will split the profits, after
expenses, 50/50.  This shall be subject
to the cross-recoupment provision herein.


 


Theatrical Exploitation:  Distribution of the programs theatrically outside of North America
shall fall under the International Exploitation paragraph above. In the event
that international theatrical distribution requires home video rights to be
bundled with theatrical rights for a specific territory, the home video rights
for that specific territory shall fall under the International 


 


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Exploitation paragraph.  If the parties mutually agree to a North
American theatrical release, the parties shall share equally in all expenses
and in all profits after expenses for theatrical distribution in North America.


 


Non-Theatrical:  All non-theatrical including hotels, institutions, military establishments,
embassies, inflight and other vessel entertainment.  Unless serviced via standard packaged media
distribution, Image and Graymark will split all revenues, after expenses, 50/50
subject to the cross-recoupment provision herein.


 


Airline Passenger Rights:  Image will have the right to license airlines for passenger use on
portable DVD players aboard commercial flights. 
Image and Graymark will split all revenue, after expenses, 50/50 subject
to the cross-recoupment provision herein.


 


Delivery:  Delivery will be a Digibeta, high definition
video master and film elements (if theatrical); all necessary artwork to create
packaging and a two-channel stereo and if applicable, a 24 bit 5.1 surround
audio mix.  Delivery for audio will be a
CD-R for compact disc release.  Delivery
for new audio formats (SACD, DVD-A ect.) will be mutually determined.


 


Sponsorship, Subsidies, Tax Benefits: 
Along with Graymark, Image
will have the right to seek sponsorship, subsidy, and tax benefit opportunities
for the products hereunder.  Image and
Graymark will use 100% of sponsorship, subsidy, and tax benefit monies received
to recoup production expenses.  First
sponsorship, subsidy, and tax benefit monies received will be allocated and
recouped pro-rata against each partner’s percentage of commitment to the
overall production budget.  Once the
venture has recouped its production expenses, the monies received from
sponsorship, subsidy, or tax benefit will be split 50/50.


 


E&O Insurance:  Graymark will be responsible for obtaining
E&O insurance for all projects.  The
cost will be considered in the production budget.


 


Returns:  Image will maintain reasonable reserve for returns.


 


Cross-Recoupment:  Image and Graymark will earn 25% distribution fees in their
territories and respective rights (except the distribution fee shall only be
20% for broadcast in North America), recoup mutually approved direct
distribution expenses related thereto and then recoup their respective share of
each film’s budget.  If one party is
unrecouped, i.e. has not recovered its share of the production budget after
fees and expenses, and the other party is recouped, then the unrecouped party
will have the right to a full distribution of proceeds, after mutually approved
fees and expenses, from all territories and rights until both are completely
recouped.


 


Pictures Uncrossed:  The pictures hereunder will not be crossed
against each other for purposes of cross recoupment.


 


Copyright:  Image and Graymark will share the copyright
on all newly produced programs according to the percentage guarantee of each
party.  . 
For example if Image and Graymark each guarantee 50% of a budget, Image
and Graymark will share the copyright 50/50.


 


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Merchandising:  Image will be entitled to merchandising profits for each project;
Image will receive its pro-rata profits equal to the same percentage budget
guarantee.  For example, if Image
guarantees 50% of a budget, Image will be entitled to 50% of merchandising
profits.  The parties shall mutually
agree upon a strategy for the merchandising exploitation.


 


Guarantee/Project Funding:  Image will fund all newly produced projects
as follows: 20% of guarantee on approved production budget through
pre-production, 60% of guarantee through the physical shooting schedule, and
20% through the post production process.


 


Graymark Branding/Image Corporate Recognition: All projects will be “branded”, marketed, and packaged with the
Graymark imprint and will also include the Image logo on all packaging,
collateral materials, ect.  All projects
will be produced by Graymark and Image will have a mutually agreed upon “Producer”
credit in the completed projects.


 


Buy/Sell Provision:  In the event that either party decides to
sell their rights to the programs hereunder, the other party shall have a “first
look” right as well as a “last/matching right” to the purchase of such rights.


 


In the event the foregoing meets with your
approval, please sign below.  Please note that by doing so, you are entering into a binding,
short-form agreement with Image, which will govern the relationship between the
parties until such time (if ever) that a long-form agreement between the
parties is fully negotiated and executed, which the parties agree to use good
faith efforts to conclude within a reasonable time period after full execution
hereof.


 


We look forward to creating an exciting
business venture with you and your group.


 


 


	
   

  	
  Best Regards,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Dennis H. Cho,

  
	
   

  	
  SVP Business Affairs, General Counsel

  



 


 


THE ABOVE IS ACKNOWLEDGED AND AGREED


 


GRAYMARK PRODUCTIONS , INC.


 


 


	
   

  	
   

  
	
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