Exhibit 10.3

 

DISTRIBUTION AGREEMENT

 

This Agreement and the attached Standard Terms (collectively, the “Agreement”)
are dated as of September 30, 2015 and set forth the terms of the Agreement
between FONU2, Inc. doing business as Moon River Studios, Inc. (“Owner” or a
“Party”) of 135 Goshen Road Ext., Suite 205, Rincon, Georgia 31326 and Magna
Entertainment (“Magna” or a “Party”) (and together with the Owner, collectively,
“Parties”) with respect to Owner’s engagement of Magna as agent in connection
with the distribution and exploitation of the motion picture “Yellow.” The
motion picture (written by Nick Cassavetes and Heather Wahlquist, directed by
Nick Cassavetes and starring Heather Wahlquist, Sienna Miller, Melanie Griffith,
Lucy Punch, Ray Liotta, Gena Rowlands…), currently titled Yellow (“Picture”)
shall be distributed on the following terms and conditions:

 

1) Engagement Magna will be exclusive Owner’s agent for all sales, licensing,
distribution, and other exploitation of the Picture in the Territory (as defined
below) across all Licensed Media (as defined below). Magna will also have the
right to advertise and promote, and arrange for the advertising and promotion
of, the Picture.     2) Territory Worldwide.     3) Term The period beginning on
execution of the Agreement and continuing for two (2) years from completion of
materials delivery, with successive one (1) year extensions unless either Party
ceases such extensions on sixty (60) days advance written notice to the other
Party. For clarity, after expiration or termination of the Term, Magna will
continue to receive its fee in connection with all exploitation of the Picture
arranged by Magna during the Term for any agreements mutually agreed upon.      

4) Licensed Media

All forms of exploitation, whether on a free, paid or subscription basis, or
otherwise, including without limitation:

 

(a)     theatrical

(b)     via all forms of Internet Protocol delivery to all IP-capable devices;

(c)     via all forms of video-on-demand and pay-per-view;

(d)     via all modes of television exhibition;

(e)     via traditional distribution of home video devices;

(f)      via so called “disc on demand,” “manufacture on demand,” and similar
fulfillment services;

(g)     to hotels, educational institutions, libraries, hospitals and corporate
locations;

(h)     to airlines, ships, oil rigs and military bases registered in and/or
flying the flag of any part of the Territory.

   

5) Gross Receipts

All sums received by Magna in connection with all sales, licensing, distribution
and exploitation of the Picture hereunder.

 

 

 

 

6) Magna Fee

As partial consideration for Magna entering into this Distribution Agreement,
the Owner shall have assumed and hereby fully guarantees $696,128.73 of
indebtedness of Medient Studios, a predecessor to the Owner, to an entity that
may be deemed an affiliate of Magna (which the Owner represents such funds were
used by Medient Studios in connection with production expenses of the film
“Yellow”) and the Owner shall immediately exchange such $696,128.73 of
indebtedness for an 8% Senior Convertible Exchange Note of the Owner in the
aggregate principal amount of $696,128.73 made payable to Magna, the form of
which is annexed hereto as Exhibit 1. Upon the Owner’s recoupment and receipt of
all distribution fees owed to it from the release of the film “Yellow”, and the
payment of all obligations of the Owner to Magna pursuant to the Exchange Note,
the balance of all remaining funds received by the Owner as a result of the
distribution of the film Yellow, shall be paid to Medient and/or its debtors.  
 

7) Print & Advertising Spend

For clarity, the budget for the Print & Advertising spend of the Picture,
including without limitation the theatrical exhibition, and all promotion of the
Picture, shall be mutually determined and agreed in advance by Owner and
Magna.  Owner hereby approves Magna’s theatrical distribution of the Picture via
Screen Media.    

8) Additional Owner Representations

Owner hereby represents and warrants that the claims of breach of contract,
breach of covenant and fair dealing, fraudulent misrepresentation, and negligent
misrepresentation that were filed against Nick Cassavetes, a producer of the
Picture, in Los Angeles Superior Court on December 18, 2012 by plaintiffs John
Thomas and Twinspin Music, naming Owner as a defendant, have been fully and
adequately resolved and that no further action is, or will be, taken by any
party in connection with any such claims. Further, Owner represents that it is
the exclusive owner of the worldwide distribution rights for the Picture. The
foregoing representations shall be in addition to any other representations made
by Owner in this Agreement and any addendum hereto.

    9) Allocation of Receipts

1.    Except as otherwise agreed, first, Magna will deduct and retain from Gross
Receipts all funds until all obligations to Magna under the Note and is paid in
full:.

2.    After item 9.1 is fully satisfied, from Gross Receipts, Owner shall
receive One Hundred Percent (100%) of further remaining sums pursuant to the
payment terms as per the Agreement (“Net Receipts”).

All payments of Net Receipts to the Owner shall be made within thirty (30) days
of actual receipt by Magna.

 

 

 

 

STANDARD TERMS

 

10) Appointment Owner appoints Magna to act as Owner’s agent in connection with
all sales, licensing, distribution and other exploitation of the Picture
throughout the Territory and for the Term in the Licensed Media, in all formats
and versions (including, without limitation, versions formatted for television
as well as segments or episodes derived from the Picture), as further set forth
in this Agreement and these Standard Terms. Magna shall additionally have the
right to advertise and promote the Picture, and arrange for the advertising and
promotion of the Picture, in all media now known or hereafter devised (the
“Advertising Rights”). For clarity, capitalized terms used herein that are not
defined shall have the meaning assigned to them in the Cover Sheet.      

11) Accounting, Reporting & Payment

Magna will make available accounting statements to Owner’s account via email,
and will deliver to Owner payment of Net Receipts (if any) to the reporting and
payment contact in accordance with paragraph 9 of the Agreement. All statements
submitted to Owner shall include, at a minimum, transactional data and revenues
generated by the Picture as reported to Magna by each such licensee of the
Picture, and all expenses incurred hereunder.

Owner shall have the right, upon at least thirty (30) days prior written notice,
to audit Magna’s books and records solely related to the Picture, at Magna’s
regular place of business and during Magna’s regular business hours. Such right
to audit is limited to the Picture, and under no circumstances shall Owner have
the right to examine records relating to Magna’s business generally, or with
respect to any other titles or content. Such audit shall be conducted by an
independent certified accountant at Owner’s sole cost and expense, and not more
frequently than once per year. No statement may be audited more than once and no
such audit shall be conducted in a manner that unreasonably interferes with
Magna’s business.

   

12) Residuals & Third Party Participations

Owner is responsible for any and all residual and other additional or
supplemental payments payable to any union, guild or other entity (e.g., SAG,
DGA, WGA) required to be made by reason of the exploitation of the Picture and
the advertising rights as set forth herein. Owner is responsible for paying all
third party participations granted by Owner in connection with the Picture.    
13) Delivery All necessary clearance, preparation, and delivery to Magna of such
materials necessary for the reasonable and efficient distribution and
exploitation of the Picture (“Materials”) shall be at Owner’s sole cost and
expense. Owner acknowledges and agrees that Owner’s failure to timely deliver
Materials may prevent Magna from making the Picture available for distribution,
and any delayed performance or non-performance by Magna arising from (i) Owner’s
failure to meet its delivery obligations of the Materials hereunder, or (ii) the
failure of the video elements of the Picture or any trailers for the Picture to
meet quality control standards of any licensee shall not be a breach hereof by
Magna.

 

 

 

 

14) Source Copy Loss or Damage

Owner is solely responsible for creating and retaining copies of the Picture or
other Materials prior to submitting them to Magna. Magna shall not be
responsible for any loss of or damage to physical elements of the Picture or
other Materials submitted to Magna under any circumstances or for any reason
whatsoever, provided such loss or damage is not the result of Magna’s negligence
or willful misconduct.     15) Editing Magna will not edit, and will not permit
third parties to edit the Picture except for the following purposes: (i) to
prepare closed captioned, subtitled and/or dubbed versions the Picture; (ii) to
avoid legal liability or conform the Picture to applicable laws, standards and
practices; (iii) if applicable, to insert interstitial advertisements; (iv) if
applicable, to compress the Picture and/or the credits as required by any third
party licensee in connection with time limitations in a manner customary in the
television industry; (v) to create clips, excerpts and segments for  promotional
use or in connection with serialized exhibition of the Picture; and, (vi) if
necessary, to create advertising and publicity materials for the Picture,
including without limitation trailers, still photos and customized metadata.    

16) Magna Logo

Magna shall be entitled to insert its trade names and/or logos before the main
titles of the Picture and after the end titles of the Picture, and to insert
such trade names and/or logos in all commercialization thereof and/or paid
advertising related thereto.  At Magna’s option, it shall have the right to one
additional logo to be added to the end titles. In addition, Magna shall have the
right to assume two (2) executive producer credits on the Picture.     17)
Publicity Other than as required by law, Owner shall not, without Magna’s prior
written consent, issue any press release or other publicity relating to the
Agreement or reference any trade name, trademark, logo, or commercial symbol of
Magna or its affiliated entities in brochures, websites, advertisements, email
communications, client lists or any other promotional materials, and/or
otherwise except as provided in these Standard Terms. The foregoing shall not
prevent Owner from making incidental, non-derogatory references to the existence
of the relationship between the Parties hereunder in general interviews,
provided that such references do not violate the Confidentiality provision set
forth below.     18) Confidentiality Other than as required by law, governmental
authority, or to enforce its rights hereunder, neither Party will, without the
express written consent of the other Party, disclose the terms of the Agreement
or any other business information shared by the other Party which should
reasonably be understood to be confidential, except to its attorneys, agents,
accountants, investors, lenders, or directors on a “need-to-know” basis,
provided that such persons are similarly required to keep such information
confidential.     19) Waiver No waiver by either Party of any provision of the
Agreement, or of any breach or default by the other Party shall constitute a
continuing waiver, and no waiver shall be effective unless made in a signed
writing.

 

 

 

 

20) Representations & Warranties Each of the Parties represents and warrants the
following: (i) that it is a duly organized, validly existing corporation or
other legally recognized business organization in good standing under the laws
of its jurisdiction of incorporation or formation, and (ii) that it has the full
legal right, power, and authority to execute this Agreement and to perform its
obligations hereunder, and the consent of no other person or entity is necessary
in connection with the foregoing. Owner further represents and warrants that it
has obtained all rights and clearances necessary to exploit the Picture and all
elements contained therein (as further set forth in the attached Schedule 1 and
incorporated by reference herein) and that Owner has not entered into and will
not enter into any agreement in conflict with Magna’s rights hereunder.     21)
Disclaimer Magna agrees to use good faith efforts to generate exposure for the
Picture and to maximize revenue from the sales, licensing, distribution and
other exploitation of the Picture. However, Magna makes no representations or
warranties that it will obtain opportunities to exploit the Picture or generate
any minimum amount of revenue.     22) Insurance Owner shall obtain, or cause to
be obtained, a standard producer’s and distributor’s errors and omissions
liability insurance policy in connection with the Picture, with minimum coverage
limits in the amount of One Million Dollars ($1,000,000) per claim and Three
Million Dollars ($3,000,000) in the aggregate. Upon request, Owner shall provide
Magna with proof of such coverage, and a certificate naming Magna or
sub-distributor as additional insured, in a form acceptable to Magna.     23)
Indemnification Each Party (an “Indemnifying Party”) agrees to defend, indemnify
and hold harmless the other Party and such other Parties, control persons (as
defined under the Federal Securities Laws), affiliates, officers, attorneys,
members, directors, equity and/or debt holders, employees, agents,
representatives and the other related persons (an “Indemnified Party”) from and
against any third party claim, action, judgment or liability of any kind arising
out of or in connection with any breach of any representation, warranty or
agreement made by the Indemnifying Party in the Agreement or these Standard
Terms or any addenda thereto.  By way of example, any cost or liability that
results from Owner’s failure to clear the Picture or to own or control the
applicable rights will be Owner’s sole responsibility.

 

 

 

 

24) Governing Law

This Agreement and the terms and conditions set forth herein, shall be governed
by and construed solely and exclusively in accordance with the internal laws of
the State of New York without regard to the conflicts of laws principles
thereof. The parties hereto hereby expressly and irrevocably agree that any suit
or proceeding arising directly and/or indirectly pursuant to or under this
Agreement shall be brought solely in a federal or state court located in the
City, County and State of New York. By its execution hereof, the parties hereto
covenant and irrevocably submit to the in personam jurisdiction of the federal
and state courts located in the City, County and State of New York and agree
that any process in any such action may be served upon any of them personally,
or by certified mail or registered mail upon them or their agent, return receipt
requested, with the same full force and effect as if personally served upon them
in New York, New York. The parties hereto expressly and irrevocably waive any
claim that any such jurisdiction is not a convenient forum for any such suit or
proceeding and any defense or lack of in personam jurisdiction with respect
thereto. In the event of any such action or proceeding, the party prevailing
therein shall be entitled to payment from the other parties hereto of all of its
reasonable counsel fees and disbursements.     25) Severability If any provision
of the Agreement shall be determined by any court of competent jurisdiction to
be void and unenforceable, all other provisions of the Agreement shall
nevertheless continue in full force and effect.     26) Complete Agreement:

This Agreement contains the full and complete understanding between the Parties
and supersedes all prior agreements and understandings, and cannot be modified
except in a writing signed by both Parties.

 

SIGNATURE PAGE TO FOLLOW

 

 

 

  

By signing below, the Parties agree to the terms set forth in this Agreement
including the Standard Terms that are incorporated herein by this reference. In
the event of a conflict between the Agreement and the Standard Terms, the terms
of the Agreement shall prevail:

 

Magna Entertainment     Fonu2, Inc.                     Name:     Name:  Roger
Miguel Title:     Title: Chief Executive Officer