PROFIT PARTICIPATION AGREEMENT
EXHIBIT
10.2
THIS
PROFIT PARTICIPATION AGREEMENT (as amended, restated or otherwise modified from
time to time, the "Participation
Agreement") is entered into as of the 7th day of November, 2008, by and
among 301 PRODUCTIONS, INC., a California corporation (the "Grantor"). VS
INVESTMENT B, LLC (referred to as the "Grantee"), and
National Lampoon, Inc. ("NL"). The Grantor, Grantee and NL are sometimes
referred to herein collectively as the "Parties" and each
individually as a "Party".
RECITALS
WHEREAS,
simultaneously herewith, the Grantee is making a loan in the principal amount of
$600,000 (the "Loan"), evidenced by that Secured Promissory Note of Grantor
dated as of November 7, 2008 (the "Secured Promissory
Note"), the proceeds of which will be used to fund the production,
marketing and distribution of the motion picture currently titled "National
Lampoon's The Legend of Awesomest Maximus" (the "Picture").
WHEREAS,
simultaneously herewith, the Grantee, Grantor and NL are entering into that Loan
and Security Agreement dated November 7, 2008 (the "Security Agreement")
pursuant to which Grantor and NL agreed to enter into this
Agreement.
WHEREAS,
NL controls and owns all of the issued and outstanding equity securities of
Grantor, and NL and Grantor have entered into that certain Worldwide
Distribution Agreement dated as of November 7, 2008 (the "NL Distribution
Agreement") pursuant to which Grantor has appointed NL as the worldwide
distributor of the Picture.
WHEREAS,
NL is receiving direct benefits as the result of the Loan and under the Security
Agreement, and Grantee is not willing to make the Loan unless NL enters into
this Agreement.
NOW,
THEREFORE, as a further inducement to the Grantee to make the Loan evidenced by
the Secured Promissory Note and the Security Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties agree as follows:
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1.
PARTIAL ASSIGNMENT OF PROFIT PARTICIPATION. NL shall pay, or cause to be paid,
to Grantee, an amount equal to Fifteen and Four-Tenths percent (15.4%) of One
Hundred Percent (100%) of all Net Profits, as defined below (the "Participation
Amount").
As used
herein, the term "Net
Profits" shall mean the sum of all Gross Proceeds (defined below) minus
the sum of the following:
(i)
Distribution and sales fees, which shall not exceed 20% (inclusive of any NL
override fee);
(ii)
Actual, direct, out of pocket sales, marketing or distribution expenses,
and
out-of-pocket costs of manufacturing or delivery of the Picture incurred by NL
or Grantor,
if any, which expenses and costs have been approved by Grantee and Grantor in
writing,
in advance;
(iii) All
guild residuals and deferred compensation paid directly by Grantor
(and not included in "negative costs" pursuant to clause (v) below) to any
person providing
rights or services in connection with production of the Picture;
(iv) Financing
costs, including interest, paid by Grantor to all third party lenders,
but excluding payment of amounts to any such lenders or other financing sources
that are
in the nature of profits interests or participations, equity participations or
are otherwise
contingent or based on profits of the Picture;
(v) the
8% royalty payable to NL with respect to its license of intellectual
property
in accordance with the terms of the NL Distribution Agreement; and
(vi) Negative
cost, which shall mean the direct, out-of-pocket cost of producing
the Picture, which shall not exceed the amount of the Final Budget (as defined
in the
Security Agreement), and which shall not include any item included under any of
the
foregoing clauses (i) through (v).
As used
herein, the term "Gross Receipts" with
respect to the Picture shall mean one hundred (100%) percent of all sums
received by or on behalf of, or credited to, NL (or any affiliate), or Grantor,
directly or indirectly from the sale, distribution or exploitation of the Rights
(as defined in the NL Distribution Agreement) and/or the Picture, with no
deduction therefrom other than withholding tax, sales tax or other similar taxes
or levies charged on the exhibition, distribution or exploitation of the
Picture, and specifically excluding any corporate income or similar taxes levied
against NL, Grantor or any of their affiliates. For the avoidance of doubt Gross
Receipts shall include income derived from so-called 'outright licenses',
non-returnable advances, tax credits, subsidies or guarantees (whether or not
earned) paid to NL (or any affiliate) or Grantor and all other revenues
howsoever earned by NL (or any affiliate) or Grantor in respect of the Rights
and/or the Picture.
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2.
ACCOUNTING & PAYMENT. NL shall pay to Grantee, at the address for notices to
Grantee pursuant to Section 5 below, all sums constituting a portion of the
Participation Amount which are received or credited during any calendar quarter
ending after the date hereof within thirty (30) days following the end of such
quarter ("Quarterly Payments"). Together with each Quarterly Payment, NL shall
deliver to Grantee a true and accurate accounting statement for the quarter,
showing all inputs to the calculation of Gross Proceeds, Net Profits and the
amount payable to Grantee, all as calculated in accordance with this Agreement.
If no Quarterly Payment is due to Grantee for the subject calendar quarter, NL
shall not be required to provide a statement of accounting unless it is
requested in writing by Grantee. Without limiting the foregoing, After five (5)
years following the date on which the first such quarterly statement is
provided, accounting statements will be provided to Grantee one (1) time per
year unless a Quarterly Payment is due for a calendar quarter. Without limiting
Grantee's rights under the Security Agreement or under any other document or
instrument, no more frequently than once per calendar year, and upon reasonable
prior written notice, Grantee may, at its sole and own expense, audit NL's
records, solely as they pertain to the Picture. Any such audit will be conducted
upon reasonable notice to NL during NL's normal business hours as scheduled by
NL and shall not last more than ten (10) days. Any auditor used by NL and/or
Grantee shall specialize in entertainment industry audits.
3. NO CROSS
COLLATERALIZATION. Grantee acknowledges that this Participation Agreement is to
be binding only upon Participation due and payable from the Picture. At no time
will NL cross collateralize with or set-off against any amounts for any other
motion picture distributed by NL.
4. ASSIGNMENT.
This Participation Agreement and all obligations of NL hereunder shall be
binding upon the successors and assigns of NL (including any
debtor-in-possession on behalf of Grantor) and shall, together with the rights
and remedies of Grantee hereunder, inure to the benefit of Grantee, all future
holders of any instrument evidencing any of the Obligations and its respective
successors and assigns. Grantee may assign its interest or any portion of its
interest hereunder by providing thirty (30) days written notice to Grantor and
to NL.
5. NOTICES.
All notices must be in writing and sent to a Party at its address hereunder by
fax or first class mail. Notices may be sent by email but will not be effective
until recipient acknowledges receipt. All notices sent to Grantor must be
addressed to:
301
Productions, Inc.
ATTN:
Xxxxxxxx Xxxxxxx
0000
Xxxxxx Xxxxxxxxx
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
F:
000-000-0000
If to
NL:
National
Lampoon, Inc.
ATTN:
Xxxxxxxx Xxxxxxx
0000
Xxxxxx Xxxxxxxxx
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
F:
000-000-0000
If to
Grantee:
VS
Investment B, LLC
0000
Xxxxx Xxxxxxx Xxxxxx
Xxxxxxx,
Xxxxxxxx 00000
F:
000-000-0000
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6.
MODIFICATION. No modification to this Participation Agreement
is effective unless the modification is in writing and signed by all
Parties.
7. ADDITIONAL
DOCUMENTS. Upon reasonable request, each Party will execute and deliver such
additional documents necessary to evidence, effectuate or confirm this
Participation Agreement.
8. GOVERNING
LAW. This Agreement will be governed by and interpreted under the laws of the
state of California. The Parties agree that all disputes under this Agreement
will be resolved in Los Angeles, California.
IN
WITNESS WHEREOF, each of the parties hereto has caused this Participation
Agreement to be executed and delivered by its duly authorized officer as of the
date first set forth above.
GRANTOR
301
Productions, Inc.
|
By:
|
/s/ Xxxxxx X. Xxxxxx | |
| Xxxxxx X. Xxxxxx | ||
| Its: | CEO and President | |
NL
National
Lampoon, Inc.
|
By:
|
/s/ Xxxxxx X. Xxxxxx | |
| Xxxxxx X. Xxxxxx | ||
| Its: | CEO and President | |
GRANTEE
VS Investment B,
LLC
|
By:
|
||
| Its: | ||
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