VIP rejects Brass Hat pact

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COLOGNE, Germany -- The management of German film fund VIP is refusing to approve a $200 million production financing deal with London-based financier Brass Hat Films, claiming the agreement was not made in good faith or in the interests of VIP shareholders.

The deal, set up by VIP's then-managing director Dirk Specht last September, would use VIP capital to bankroll projects picked by Brass Hat. The agreement would see VIP and Brass Hat typically provide upfront equity covering 20% of a film's budget, with the remainder paid through distribution agreements or other forms of financing.

Brass Hat has previously backed films such as "Premonition," "Shopgirl" and "The Persuaders."

But VIP's current management is refusing to approve the deal, accusing Specht of "colluding" with Brass Hat to bypass VIP shareholders.

VIP's board fired Specht a week after signing the Brass Hat deal, replacing him with Peter H. Riedel.

"The (Brass Hat) agreement, which puts all the burden (of risk) on us is invalid and fully unacceptable," Riedel said. "If these contracts were enforced, it would mean the fund could no longer negotiate a single project on its own."

Brass Hat has filed suit against VIP in district court in Munich, demanding that the company fulfill its contractual obligations.

The Brass Hat deal isn't the only one causing legal headaches for VIP. The Munich prosecutors' office searched VIP offices last week as part of an investigation into the financing of one of VIP's big hits: the German-language comedy "7 Dwarves -- Men Alone in the Forest."

VIP is still struggling to rebuild its reputation and business model following the criminal prosecution for fraud of VIP founder Andreas Schmid and his partner Andreas Grosch. Schimid received a six-year sentence in November; Grosch a two-year suspended sentence. Both are appealing the ruling.
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