'New' Summit Structure Retains Distribution Fees

'We had to make all of the facilities work with each other,' Grode said. 'When you have a bunch of different lenders, lending in different parts, you start to get into who should be where when the waterfall of money comes in.'

Another complication: The investors weren't just creating the new Summit Entertainment LLC; they were building it around an existing company, Summit Entertainment LP. The old Summit was a production and distribution studio, as well as the world's largest foreign-sales organization, handling its own films and those of independent-production companies, said Schuyler Moore of the Los Angeles office of Stroock & Stroock & Lavan, who represented the existing Summit shareholders and the old Summit. That acquisition portion of the deal, which involved an undisclosed amount of cash and stock, made the old Summit a subsidiary of the new entity. The deals closed simultaneously, Moore said.

The new Summit Entertainment plans to release 10 or 12 films annually, as well as handle foreign sales for its own films and those of independent-production companies. While the structure is an innovative one, it's not likely to be widely replicated, Grode said. The deal worked so well in part because they had very experienced film executives in management, such as former Paramount executive Robert Friedman and Summit CEO Patrick Wachsberger.

'There are not a lot of companies you could build this model around,' Grode said. 'There are not a lot of opportunities where you have that type of management and infrastructure that you could grow.'

A Liner Yankelevitz team out of Los Angeles represented the newly created entity Summit Entertainment, in a group led by partner Grode which included partner Bertha Willner, senior counsel Paul Swanson and associates Zachary Smith and Philip Piliero. Chicago partner Gary Stern led a team of Sidley Austin lawyers that represented Merrill Lynch. Stroock's Moore represented the existing Summit shareholders and the existing company, also called Summit. His team included L.A. associates Mari Anzai and Jeannette Hill-Yonis.

Kellie Schmitt is a reporter for The Recorder, the San Francisco-based daily legal newspaper and ALM sister publication of Entertainment Law & Finance.

Summit Entertainment's $1 billion movie financing deal ' which created a new production and distribution studio ' all started with a group of bankers and lawyers sitting around and talking about how to get more money from movie-financing deals. In recent years, investors have invested in films that are distributed by studios, which take a distribution fee of about 10% to 15%. With the Summit deal, the investors for the first time cut the middleman in this process.

'Here, they are the studio, and they're getting the benefit of the
distribution fee,' said Joshua Grode of Liner Yankelevitz Sunshine & Regenstreif, who represented the new Summit. 'It really changes the economics dramatically.' Outside investors financing Hollywood films took off about three years ago, Grode said. 'This is an evolution of the financing technology and the deal structure.'

That evolution required the legal team to keep pace, creating a 'highly structured' transaction that provided financing for the three aspects of filmmaking: the actual production, the costs of printing and advertising, and 'ultimates' financing, which is based on estimates of a film's net receipts over its life ' including DVD and television income. Some parties were lenders into all three aspects, or facilities, while others only participated in one or two.

'We had to make all of the facilities work with each other,' Grode said. 'When you have a bunch of different lenders, lending in different parts, you start to get into who should be where when the waterfall of money comes in.'

Another complication: The investors weren't just creating the new Summit Entertainment LLC; they were building it around an existing company, Summit Entertainment LP. The old Summit was a production and distribution studio, as well as the world's largest foreign-sales organization, handling its own films and those of independent-production companies, said Schuyler Moore of the Los Angeles office of Stroock & Stroock & Lavan, who represented the existing Summit shareholders and the old Summit. That acquisition portion of the deal, which involved an undisclosed amount of cash and stock, made the old Summit a subsidiary of the new entity. The deals closed simultaneously, Moore said.

The new Summit Entertainment plans to release 10 or 12 films annually, as well as handle foreign sales for its own films and those of independent-production companies. While the structure is an innovative one, it's not likely to be widely replicated, Grode said. The deal worked so well in part because they had very experienced film executives in management, such as former Paramount executive Robert Friedman and Summit CEO Patrick Wachsberger.

'There are not a lot of companies you could build this model around,' Grode said. 'There are not a lot of opportunities where you have that type of management and infrastructure that you could grow.'

A Liner Yankelevitz team out of Los Angeles represented the newly created entity Summit Entertainment, in a group led by partner Grode which included partner Bertha Willner, senior counsel Paul Swanson and associates Zachary Smith and Philip Piliero. Chicago partner Gary Stern led a team of Sidley Austin lawyers that represented Merrill Lynch. Stroock's Moore represented the existing Summit shareholders and the existing company, also called Summit. His team included L.A. associates Mari Anzai and Jeannette Hill-Yonis.

Kellie Schmitt is a reporter for The Recorder, the San Francisco-based daily legal newspaper and ALM sister publication of Entertainment Law & Finance.