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Profit Participation Agreement

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Sectors: Computer Software and Services
Governing Law: California , View California State Laws
Effective Date: July 31, 2003
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EXHIBIT 10.31

EXECUTION ORIGINAL

PROFIT PARTICIPATION AGREEMENT

BETWEEN

PLAYA VISTA ? WATER'S EDGE, LLC.,
A DELAWARE LIMITED LIABILITY COMPANY

AND

ELECTRONIC ARTS INC.,

A DELAWARE CORPORATION ELECTRONIC ARTS INC.
[Profit Participation Agreement]


TABLE OF CONTENTS Page 1. Definitions 1 2. Payment of Profit Participation Allocation 5 3. Financial Records and Statements of Playa 8 4. Sale of Portion of Phase I 9 5. Default and Remedies 9 6. Miscellaneous 9 ELECTRONIC ARTS INC.
[Profit Participation Agreement]

(i)


PROFIT PARTICIPATION AGREEMENT

THIS PROFIT PARTICIPATION AGREEMENT (this "Agreement" ) is made as of July 31, 2003 by and between the PLAYA VISTA ? WATER'S EDGE, LLC., a Delaware limited liability company, ("Playa") , and ELECTRONIC ARTS INC., a Delaware corporation ("EA").

R E C I T A L S:

A. Playa owns an office project located at the corner of Jefferson and Lincoln Boulevards, in Los Angeles, California, commonly known as Playa Vista-Water's Edge (the "Playa Project" ). The Playa Project will be developed in two phases (hereinafter, "Phase I" and "Phase II" ) on certain real property, as more particularly described on Exhibit "A" attached hereto and made a part hereof. Phase I is improved with two commercial office buildings located at 5510 and 5570 Lincoln Boulevard, Los Angeles, California, together with underground parking and other improvements. Phase II will be improved with an athletic field (the "Field" ) and surface parking lot and, at some point in the future, with an office building ( "Building 3" ) and parking garage located under the Field and Building 3. Concurrently with the execution hereof, and pursuant to that certain Office Lease, as of the date hereof (the "Lease" ), by and between Playa and EA, EA has agreed to lease from Playa certain premises situated on Phase I and the Field, and portions of any parking garage hereafter constructed under the Field, situated on Phase II. This Agreement shall not be applicable to Phase II of the Playa Project or the sale of any portion thereof, except as specifically provided herein.

B. As partial consideration for EA's entering into the Lease, Playa has agreed to pay to EA a certain amount of the profit from the sale of Phase I, if and when Playa sells Phase I, including a sale of Phase I to EA or an EA Affiliate (as defined below), all as more particularly set forth below. Playa and EA acknowledge that a fee interest or as an exclusive easement interest in the Field and an easement interest in a portion of the parking garage which may hereafter be constructed under the Field may be sold with Phase I.

A G R E E M E N T :

NOW, THEREFORE, in consideration of the above and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

1. Definitions .

1.1 Intentionally Omitted.

1.2 "Closing Costs" shall mean and refer to the actual out-of-pocket costs incurred by Playa strictly in connection with the sale of Phase I, including, but not limited to, advertising costs, sales commissions, title insurance premiums, transfer taxes and escrow fees, ELECTRONIC ARTS INC.
[Profit Participation Agreement]


provided, however, in no event shall any fees, costs, expenses or other amounts (i) paid to Playa or a Playa Affiliate (as defined below) or (ii) incurred with respect to internal issues and dealings between members or partners, as the case may be, of Playa and/or any Playa Affiliate, in connection with the sale of Phase I be included in the calculation "Closing Costs."

1.3 "EA Affiliate" shall mean (a) an entity which is controlled by, controls or is under common control with EA (an "EA Affiliated Entity" ), (b) an entity which merges with or acquires or is acquired by EA or a parent or an EA Affiliated Entity, or a subsidiary of EA's parent or an EA Affiliated Entity, (c) a transferee of all or substantially all of the assets of EA or an entity which is controlled by, controls or is under common control with EA or an EA Affiliated Entity, or (d) a transfer, by operation of law or otherwise, in connection with the merger, consolidation or other reorganization of EA or an EA Affiliated Entity or of an entity which is controlled by, controls or is under common control with EA or an EA Affiliated Entity along with any other entity which will qualify as an "affiliate" under California General Corporations Code Sections 150 and 5031. For purposes of this Agreement, "control" shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or entity, or majority ownership of any sort, whether through the ownership of voting securities, by contract or otherwise.

1.4 "Gross Sales Price" shall mean and refer to the total sales price paid in connection with the sale of Phase I (or in the event of a "Joint Sale" as defined below, both Phase I and II), and shall include, without limitation, key money and bonus money or other consideration of any kind paid by the buyer of Phase I (or in the event of a Joint Sale, both Phase I and II), or otherwise granted to Playa or a Playa Affiliate in connection with the sale of Phase I (or in the event of a Joint Sale, both Phase I and II) and shall be reduced by any pre or post closing monetary obligations assumed by Playa in connection with the applicable sale. In the event Phase I is sold together with Phase II (a "Joint Sale" ), the Gross Sales Price from such Joint Sale shall be allocated between Phase I and Phase II on a proportionate basis, as follows. First, the "Market Value" of each of Phase I and Phase II shall be determined as if each were being sold separately (the "Individual Values" ). Second, the amount of the Gross Sales Price for the Joint Sale shall be allocated to each of Phase I and Phase II (the "Allocated Gross Sales Price" ) as follows. The Allocated Gross Sales Price for a particular phase shall be equal to the product of (i) the Gross Sales Price of both Phase I and Phase II, and (ii) a fraction, the numerator of which is the Individual Value of such phase and the denominator of which is the aggregate Individual Values of both phases. Collectively, the Allocated Gross Sales Prices shall be known as the "Joint Sale Allocation". The Allocated Gross Sales Prices calculation shall be submitted to EA at the same time that Playa submits its "Accounting" (defined in Section 2.3 below) to EA, and if EA disputes the Joint Sale Allocation, such Joint Sale Allocation will be subject to the provisions of Section 2.3 below.

1.5 "Invested Capital" shall mean an amount equal to the sum of the following items set forth in Sections 1.5.1 through 1.5.11 below, as modified by Sections 1.5.12, below (collectively, "Capital Investment Items" ). Each category of Capital Investment Items comprising Invested Capital shall, to the extent not specifically allocable solely to Phase I, be allocated between Phase I and Phase II on an equitable and reasonable basis (the "Phase I/Phase II Allocation" ), and only Capital Investment Items allocable to Phase I will be considered for purposes of this Agreement. Playa agrees that costs and/or items of Invested Capital included in
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one group of Capital Investment Items shall not be included in any other group of Capital Investment Items (i.e., no cost shall be counted twice in determining the amount of Invested Capital for purposes of this Agreement), and, generally, it is the intention of the parties that all out-of-pocket costs of Playa or any Playa Affiliate allocable to Phase I as provided herein shall be included in Invested Capital and all revenue from any source received by Playa or any Playa Affiliate and allocable to Phase I as provided herein shall be credited against Invested Capital.

1.5.1 Land Acquisition Cost. The acquisition price paid by Playa or a Playa Affiliate for the Playa Project, in the amount of $27,055,000.00.

1.5.2 Land Acquisition Transaction Costs. The out-of-pocket transaction costs paid by Playa or a Playa Affiliate to Unaffiliated Third Parties (defined below) which were directly related to acquiring the Playa Project, such as title insurance and endorsements, legal fees, easement costs, due diligence costs and market studies and other similar or related costs. The amount of the escrow charges, title fees, endorsement fees, recording fees and broker fees was an amount equal to $421,824.60.

1.5.3 Site Improvement Costs. On-site and off-site improvement costs actually expended by Playa or a Playa Affiliate which were directly related to Phase I for engineering, consultants, bonds, grading, wet utilities, dry utilities, street improvements, walls and fences, landscaping, and any other facilities located in Phase I and other similar or related costs.

1.5.4 Indirect Construction. Indirect construction costs actually expended by Playa or a Playa Affiliate which were directly related to the construction of Phase I for entitlements, permits and fees, architecture, engineering, inspections, site supervision, construction trailer and security and other similar or related costs.

1.5.5 Direct Construction. The actual costs of the construction of Phase I including construction materials, equipment rental, labor and subcontractors, expended by Playa or a Playa Affiliate for the construction of Phase I and other similar or related costs.

1.5.6 Financing Costs. Any actual or imputed interest charges, loan fees, points, commitment fees and other costs required to be paid by Playa or a Playa Affiliate to obtain any actual or imputed debt or equity directly related to the acquisition of Phase I, the development of Phase I, or the operation of Phase I.

1.5.7 Property Taxes. Costs of property taxes and assessments levied on Phase I, and all other assessments paid in connection with community facility districts, landscape maintenance districts and any other public financing districts charged against Phase I.

1.5.8 Marketing Costs. Actual out-of-pocket costs of sales office, signage, and advertising costs and other similar or related costs which are directly related to the marketing and/or leasing of Phase I or any portion thereof.

1.5.9 Insurance. Cost of insurance paid by Playa or a Playa Affiliate with respect to Phase I including construction insurance for Phase I.
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1.5.10 Overhead Allocation. A percentage of the gross revenue of Phase I to compensate Playa or a Playa Affiliate for its overhead in connection with the development of Phase I for costs not specifically allocated to Phase I such as: payroll additives and salaries of Playa's or a Playa Affiliate's corporate and division office executives, officers, department heads and staff in directing, administering and supervising such development; employee bonuses, general legal and accounting fees; and the operating expenses of Playa's or a Playa Affiliate's corporate and division offices such as rent, utilities, office supplies, office equipment and other office related expenses.

1.5.11 Other Allocable Costs. Any other actual out-of-pocket costs expended by Playa or a Playa Affiliate in connection with the acquisition, development, construction, leasing, and financing of Phase I, and Phase I operating expenses, including legal fees, tenant improvement costs, leasing commissions, and development fees.

1.5.12 Exclusions. Notwithstanding anything to the contrary contained in this Section 1.5, Invested Capital shall not include the following: (i) except to the extent such amounts do not materially exceed the amount that would have been paid to Unaffiliated Third Parties in an arms-length transaction, any fees, costs, expenses or other amounts paid or reimbursed to Playa or a Playa Affiliate in connection with the acquisition of Phase I, or the development, ownership or maintenance of Phase I, and (ii) any fees, costs, expenses or other amounts reimbursed by any Playa Member to another Playa Member for fees, costs, or expenses that were already included in Invested Capital.

1.5.13 Preliminary Cost Basis and Allocation. On or before December 31, 2004, Playa shall deliver to EA a "Preliminary Cost Basis and Allocation Statement" which shall itemize all Invested Capital Items as of a date no earlier than July 31, 2003 (the "Current Basis Date" ) and shall state Playa's determination of the Phase I/Phase II Allocation as of the Current Basis Date, and shall meet the requirements of the "Accounting," as that term is defined in Section 2.3.1 of this Agreement. At any time within one hundred eighty (180) days following receipt by EA of the Preliminary Cost Basis and Allocation Statement, if EA disputes the same, EA shall notify Playa of such dispute and the parties shall follow the procedures to attempt to resolve the dispute and/or arbitrate the dispute in the same manner as with respect to the "Final Accounting" as set forth in Section 2.3 below and the "Dispute Resolution Period" (defined in Section 2.3 below) shall commence upon delivery of EA's dispute notice hereunder. The ruling of the arbitrators in this event, however, will be limited solely as to the correct amount of the Preliminary Cost Basis and Allocation Statement and all components thereof, and such ruling will be deemed the "Interim Arbitration Ruling." The Interim Arbitration Ruling shall be binding upon the parties with respect to the period up to the Current Basis Date in any future dispute regarding the Profit Participation Allocation or any component thereof. If EA does not timely dispute such Preliminary Cost Basis and Allocation Statement, then EA shall be deemed to have conclusively approved of the same.

1.6 "Net Profits from Sale" shall mean and refer to the amount derived from the sale of Phase I (other than to Playa or a Playa Affiliate), but specifically including a sale of Phase I to EA or an EA Affiliate, which amount shall be calculated as follows: Allocated Gross Sales Price for Phase I minus (i) Closing Costs for Phase I, (ii) Invested Capital for Phase I, and (iii) "Required IRR" (as defined below) for Phase I. In the event of a Joint Sale, the Net Profits
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from Sale shall be determined as a result of the allocation of the Gross Sales Price, Closing Costs, Invested Capital, and Required IRR provided in Sections 1.4 and 1.5, above, and Section 1.9 below.

1.7 "Playa Affiliate" shall mean (A) (i) CA-Playa Vista Water's Edge Limited Partnership, a Delaware limited partnership, (ii) McGuire Partners SCS, Inc., a Delaware corporation, and (iii) McGuire Partners-PV Investor Partnership, L.P., California limited partnership, (iv) McGuire Properties Inc., a Maryland corporation, (v) Equity Office Properties Trust, and (vi) McGuire Partners Ltd., a California limited partnership (each of (i)-(vi), a "Playa Member" ), or (B) an entity which is controlled by, controls or is under common control with Playa or any Playa Member, or (C) an entity which merges with or acquires or is acquired by Playa or Playa Member or a parent, subsidiary or member of Playa or any Playa Member, provided that if any entity acquires or merges with Playa (and such entity is not otherwise a Playa Affiliate under items (A) or (B) of this Section 1.7), such acquiring entity after the acquisition or merger shall not be deemed a Playa Affiliate if the acquiring entity, or any of its affiliates, in connection with such acquisition, or merger does not acquire any other material assets of any Playa Members, or (D) a transferee of substantially all of the assets of Playa or any Playa Member, provided that if any entity acquires Playa, (and such entity is not otherwise a Playa Affiliate under items (A) or (B) of this Section 1.7) such acquiring entity after the acquisition shall not be deemed a Playa Affiliate if the acquiring entity or any of its affiliates, in connection with such acquisition does not acquire any other material assets of any Playa Members.

1.8 "Profit Participation Allocation" shall mean the amount, if any, due and payable to EA pursuant to the terms of this Agreement, which amount shall be equal to twenty-five percent (25%) of the Net Profits from Sale.

1.9 "Required IRR" shall mean an amount equal to a twelve percent (12%) per annum return on Invested Capital (as allocated to Phase I pursuant to Section 1.5, above) from the time of the applicable investment of each component of Invested Capital, which amount shall be reduced by (and at the time that) (i) any "Base Rent" is actually received from EA under the Lease or any other net income is received as to Phase I, or (ii) that any other fees, costs or expenses are reimbursed to Playa or a Playa Affiliate by EA under the Lease or any other reimbursements are received by Playa or a Playa Affiliate as to Phase I.

1.10 "Unaffiliated Third Party" shall mean any party other than Playa, a Playa Affiliate, or a "Foreclosure Owner" (defined below).

2. Payment of Profit Participation Allocation. Playa hereby agrees to pay the Profit Participation Allocation to EA, at the time and in the manner specified below.

2.1 Transactions Excluded. The requirement that Playa pay to EA (including any EA Affiliate possessing the lessee's interest under the Lease) the Profit Participation Allocation pursuant to this Agreement shall expressly not apply in the event that Playa transfers the Phase I to a Playa Affiliate or a Foreclosure Owner ("Excluded Transaction"), provided that any Playa Affiliate who acquires title to Phase I shall be obligated to pay the Profit Participation Allocation to EA in accordance with the terms of this Agreement if
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such Playa Affiliate subsequently sells, conveys or transfers Phase I, to an Unaffiliated Third Party, specifically including a sale of Phase I, to EA or an EA Affiliate.

2.2 Termination of Right. Notwithstanding anything to the contrary in this Agreement, EA's right to receive the Profit Participation pursuant to this Agreement shall terminate upon the occurrence of either of the following: (i) in the event that the Lease is terminated for any reason; other than as a result of a default by Playa or a Playa Affiliate, or (ii) upon a transfer to a "Foreclosure Owner." For purposes of this Agreement, a "Foreclosure Owner" shall be an entity or person, other than Playa or a Playa Affiliate, which becomes the owner of Phase I through a foreclosure by trustee's power of sale, judicially or otherwise, or as a purchaser at a foreclosure sale or by deed in lieu (collectively, a "Foreclosure Event" ).

2.3 Payment.

2.3.1 The Accounting. Not less than fifteen (15) business days prior to the close of escrow for the sale of Phase I, except in connection with any Excluded Transaction, Playa shall complete and submit to EA, Playa's best estimate of the Profit Participation in a detailed "Accounting" (defined below). As used herein, an "Accounting" shall mean a report prepared by Playa showing in reasonable detail (including reasonable back-up documentation) the calculation of the Profit Participation Allocation, including Invested Capital Items (and the dates incurred), Closing Costs, and Net Profits from Sale of Phase I (or in the event of a Joint Sale, both Phase I and Phase II), the required IRR , the Phase I/Phase II Allocation, if applicable, the Joint Sale Allocation, any Preliminary Cost Basis and Allocation Statement (or the Interim Arbitration Ruling, if any) and the Phase I/Phase II Allocation given with such Preliminary Cost Basis and Alloca
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