In this Letter of Credit and in the Schedules hereto, except where the context otherwise requires, the following expressions have the following meanings:
'Certificate of Delivery'
'Holding Company' 'Issuer'
'Minimum Guarantee Payment'
'Non-delivery Pre-payment Date' [ ]
'Payment Amount' 'Payment Date'
'Subsidiary' has the meaning given to it in section 736 of the Companies Act 1985 (as amended).
The definitions set out the full meaning of defined terms and phrases used throughout the letter of credit. The use of defined terms is essential to ensure that there is no ambiguity or inconsistency in the letter of credit.
2. Undertaking to pay
The Beneficiary may make L/C Demands under this Letter of Credit in accordance with this Clause.
The undertaking to pay (clause 2) contains the actual promise by the Issuer to pay the Beneficiary in the event of a failure by the Distributor to pay certain amounts owed. This clause contains a lot of detail as to the terms and conditions upon which the Issuer will be obliged to meet its promise under the letter of credit. In many cases, the payments owed by the Distributor under the Distribution Agreement will be structured over a certain period of time, perhaps as much as a 20-year period. On this basis, the payment obligations of the Issuer under the letter of credit need to match the payment obligations of the Distributor. The undertaking to pay also contains provisions for payment of interest that will have accrued on the payment amounts owed by the Distributor. The letter of credit also contains specific provisions dealing with the amount that would be payable by the Issuer to the Beneficiary in the event that a demand was made because the film had not been completed and delivered. This amount is known as the 'Abandonment Amount'.
In most cases the Issuer will require to see certain documentation in support of any demand for payment made by the Beneficiary. Under the example letter of credit, the demand must be in an agreed format together with a certificate of delivery in circumstances where a demand is made after the film has been completed and delivered.
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