EFTA01134802.pdf

MSP FILM FUND LLC COMMITMENT LETTER As of May 1, 2013 To the undersigned purchaser: The purpose of this Commitment Letter is to set forth the commitment of the undersigned purchaser ("Purchase.") to purchase the equity interests being offered by MSP Film Fund LLC ("Fund") on the terms set forth herein. The Fund and Purchaser hereby agree as follows: 1. Summary of The Offering. a. The Fund. The Fund is raising $275 Million (to be increased to up to $550 Million for Oversubscriptions, as discussed and defined below) through the offer of equity interests in the Fund ("Frity Interectc"). Proceeds from the offering will be used to co-finance the production and print and advertising costs of the next 100 consecutive motion pictures, without exclusions (collectively, "Fund Pictures"), released by the US major motion picture studio, Universal Pictures, a division of NBCUniversal, Inc. ("Univercal") pursuant to the terms and conditions set forth in the Co-Financing and Distribution Agreement dated July 14, 2012 between Universal and the Fund ("Closing Agreement"). The Fund also is arranging and expects to obtain a senior secured credit facility with Union Bank (Mitsubishi) as lead bank ("Union") in the a principal amount not to exceed $250 Million (subject to proportionate increase in the event of added Equity Interests due to Oversubscriptions) on customary motion picture industry terms for slate financing transactions (the "Union Bank Proposal"), as arranged by the Managing Member (as defined below) in its sole discretion, with major banks active in motion picture financing and in this form of loan transaction ("Credit Facility"). The Credit Facility will be non-recourse to Purchaser and other purchasers of the Equity Interests, and Purchaser will have no liability, indemnification obligations or other obligations under the Credit Facility or for any other debts, obligations or liabilities of the Fund. b. Pictures Financed and Financing Percentage. Pursuant to the Closing Agreement between Universal and the Fund, Universal will provide 75% of the production and print and advertising costs of each Fund Picture and the Fund will provide the remaining 25% (the percentage financed respectively by each of the Fund and Universal for each Fund Picture is referred to herein as its "Financing Percentage")(subject to the proportional increase in the event of added Equity Interests due to Oversubscriptions, as described below). The Fund will provide its 25% portion of the production cost of each Fund Picture 30 days before the initial domestic theatrical release and Universal will advance the Fund's 25% portion of 1 EFTA01134802 the print and advertising costs of each Fund Picture. The Fund will only be required to provide its 25% share of any shortfall in print and advertising costs that is not recouped by Universal out of film revenues, should that occur. The specific Financing Percentages of the Fund and Universal have been agreed to by the Fund and Universal and will be the same for all Fund Pictures, whether Universal Initiated Pictures (as defined below) or Management Initiated Pictures (as defined below), to ensure maintaining parity between the Fund and Universal for all Fund Pictures. Of the Fund Pictures, 100 will be developed or acquired and initiated by Universal ("Universal Initiated Pictures") and are expected to have leading talent in all aspects of film production, including actors, directors, producers, writers and crews, etc., customary for films released by major motion picture studios. (The Fund will co- finance the next 100 motion pictures produced or acquired by Universal without any exclusions.) The Fund may initiate a few additional Fund Pictures by the Managing Member ("Management Initiated Pictures") but such Management Initiated Pictures will be subject to approval by Universal and will be required to meet Universal's standards in terms of talent, quality, budgets, etc. Each of the Management Initiated Pictures will be required to provide the same Financing Percentage as for the Universal Initiated Pictures and Universal will commit to distribute such Management Initiated Pictures worldwide (without which commitments the Fund will not proceed with any Management Initiated Picture). c. Oversubscriptions. In the event the Fund raises Equity Interests of over $275 million ("Oversubscriptions"), the Financing Percentages of the Fund and Universal will change correspondingly on a pro-rata basis to reflect such Oversubscriptions -- i.e., Oversubscriptions of $275 million will change the respective Financing Percentages of the Fund from 25% to 50% and of Universal from 75% to 50%. In no event will Oversubscriptions be accepted for greater than $275 million (for a total of $550 Million in Equity Interests), resulting in Financing Percentages for the Fund of 50% and Universal of 50%. The amount of the Credit Facility will also be increased proportionately in the event of Oversubscriptions. As Oversubscriptions will be applied to increase the Financing Percentage of the Fund on a pro-rata basis, Oversubscriptions will not result on any dilution to Purchaser's Equity Interests. d. Distribution of Fund Pictures. Pursuant to the Closing Agreement, Universal will provide distribution for all Fund Pictures (including both Universal Initiated Pictures and Management Initiated Pictures) throughout all major worldwide territories in all principal media, including theatrical, home video/DVD, television and Internet. Universal will also handle worldwide exploitation of allied, ancillary and subsidiary rights in each Fund Picture, including video games, merchandising, music and book publishing, soundtrack albums, and commercial tie- ins. Universal will deduct a 10% distribution fee from gross receipts and then the Fund and Universal will recoup their print and advertising costs and other out-of- pocket distribution expenses and marketing costs based upon the Financing Percentages and then pay applicable talent participations (e.g., actors, producers, directors, etc.) and residuals. Remaining proceeds from each Fund Picture 2 EFTA01134803 (including both Universal Initiated Pictures and Management Initiated Pictures) will be then divided between the Fund and Universal based upon the Financing Percentages. In addition, each Fund Picture will be accounted for as a separate unit and no Fund Picture will be cross-collateralized with any other Fund Picture or other production. The Fund will also own a percentage of each Fund Picture through pro-rata ownership of the copyright equal to the Fund's Financing Percentage (which will be the same for all Fund Pictures). The ownership interest of the Fund in each Fund Picture will be recorded with the US Copyright Office at the time of purchase and such recordation will not be removed until the Fund's ownership interest in a Fund Picture until sold. e. Reinvestment; Leverage. The Fund will reinvest proceeds received from Fund Pictures into additional Fund Pictures. In addition, the Fund will leverage the amounts invested by the holders of the Equity Interests through the Credit Facility. The Managing Member believes that the combination of reinvesting proceeds and the Credit Facility will enable the Fund to finance at least 100 Fund Pictures, thereby increasing the opportunity to participate in major "hit" films, reducing the negative effect of "loss" films and increasing the probability that the entire slate of Fund Pictures will achieve profitability on an overall basis. f. $ale of Fund Interests At the end of the Universal deal, the Fund will own a substantial library of films that will be resold to Universal on terms set forth in the Closing Agreement Pursuant to the Closing Agreement, Universal is "required" to repurchase both the economic and ownership interests of the Fund in the Fund Pictures at certain specific time periods. The Closing Agreement also contains a negotiation procedure and a repurchase formula, negotiated by the Company, to be used by the Company, if necessary, which the Company believes will result in a fair and reasonable repurchase price ("Put Option Price"). The Managing Member is authorized, in its sole discretion, to negotiate, accept, enter into and agree to the terms pursuant to which the Fund's interests in the copyrights and proceeds of the Fund Pictures will be resold to Universal. 2. Management The sole managing member of the Fund will be Major Studio Partners LLC ("Managing Member"). The Managing Member is overseeing and managing the entire transaction, including originating the transaction; obtaining, negotiating and executing the Term Sheet with Universal; negotiating and closing the Closing Agreement with Universal; raising the equity commitments and arranging the Credit Facility; reviewing the production budgets, distribution budgets and talent contracts of all 100 Fund Pictures; monitoring the production, promotion and distribution of the Fund Pictures; overseeing and reviewing all investments, receipt of proceeds and disbursements; ensuring service and reporting to the Credit Facility lenders and holders of the Equity Interests; ensuring and overseeing continuing audits of all the Fund Pictures; and arranging and negotiating the eventual sale of the economic and ownership interests of the Fund in the Fund Pictures to Universal. The Managing Member has already engaged independent certified public accountants for the Fund, Nigro Karlin Segal & Feldstein, LLP ("Nigro 3 EFTA01134804 Karlin") that specialize in and have an established practice in film finance, production and distribution accounting and audits to maintain complete books and records for the Fund Pictures, prepare periodic reports, maintain bank records and accounts, make payments and disbursements, prepare tax returns and conduct continuing audits of all the Fund Pictures and accounting statements received by the Fund from Universal. The Managing Member will not receive an organizational fee, closing fee, reimbursement of out-of-pocket organizational and closing costs or disposition fees upon the eventual sale of the Fund Pictures but will receive (i) annual management fees equal to 3% of the total equity capital commitments ("Management Fees"), (ii) executive producer fees of 1% of the production cost of each Fund Picture payable only thirty (30) days prior to the domestic theatrical release of each Fund Picture ("rxecutive Producer Fees"), and (iii) a profit participation of 20% of proceeds after the holders of the Equity Interests have received in the aggregate 150% of their capital commitments (collectively, "Total Management Compensation"). Out of the Total Management Compensation, the Managing Member will pay all out-of-pocket expenses incurred on behalf of the Fund, such as legal and accounting fees, the costs of annual audits of the Fund Pictures and staff and office expenses, as well as certain deferred brokerage commissions incurred in connection with the offering of Equity Interests in order to preserve capital available for early investment in the Fund Pictures. Certain non- deferred brokerage commissions will be paid out of the Fund and not out of the Management Fees ("Non-Deferred Brokerage Commissions"). 3. Distributions. Holders of the Equity Interests will receive annual dividends equal to 11.5% of their capital commitments beginning 6 months after closing ("Dividends"), in order to provide earlier returns and a high yield. Apart from such Dividends, the payments to the lender(s) under the Credit Facility, the Non-Deferred Brokerage Commissions, and the Management Fees and Executive Producer Fees, distributions made by the Fund will be allocated and paid as follows, in the following order of priority: a. First, 100% of all Fund distributions will be made to the holders of the Equity Interests until such time as they have received a cumulative aggregate amount equal to 150% of the amount of their commitments (including all cumulative Dividends received by them). b. Second, following receipt by the holders of the Equity Interests of a cumulative aggregate amount equal to 150% of their commitments, 80% of all Fund distributions will be made to the holders of the Equity Interests and 20% of all Fund distributions will be made to the Managing Member. 4. Purchase Commitment. Purchaser hereby agrees to purchase from the Fund the Equity Interests in the Fund indicated on the Signature Page to this Commitment Letter and to pay the full amount of Purchaser's capital/purchase commitment to the Fund immediately upon demand by the Managing Member following Purchaser's execution hereof. The Fund will provide Purchaser with account details 4 EFTA01134805 and wire transfer instructions for Purchaser's capital/purchase commitment promptly following Purchaser's execution of this Commitment Letter. Following payment by Purchaser of the full amount of Purchaser's capital/equity commitment to the Fund, Purchaser will have no further obligation to contribute any additional sums to the Fund, whether through capital calls or otherwise. 5. Purchaser's Acknowledgements. Purchaser (a) acknowledges that that an investment in the Fund is speculative and involves a high degree of risk, and is suitable only for accredited investors meeting certain net worth tests, or "financially sophisticated" investors, in each case who can demonstrate that they, either independently or through their representatives, have such knowledge and experience in financial and business matters as will enable them to evaluate the merits and risks of a proposed investment in the Fund; (b) understands that an investment in the Equity Interests is a speculative, long-term investment that is subject to restrictions on transfer; and (c) confirms that it is able to bear the economic risk of such investment. Purchaser represents and warrants to the Fund that it satisfies these criteria. Purchaser further represents and warrants that it: (1) has conducted its own analysis and due diligence and independently, without reliance on the Fund, the Managing Member, or any placement agent or representative involved in the offer and sale of the Equity Interests, obtained such information as it deems necessary in order to make an informed investment decision with respect to the Equity Interests; (2) has consulted with Purchaser's own attorney, accountant, tax advisors and/or investment advisors with respect to the investment in the Equity Interests contemplated hereby and acknowledges that all material documents, records and books pertaining to the investment have, on request, been made available to Purchaser and Purchaser's advisors and that they have had the opportunity to ask questions, receive answers and verify information prior to investing; and (3) is conducting this transaction for its own account and is a "qualified purchaser" within the meaning of Section 2(a)(51) of the Investment Company Act of 1940, as amended. The Purchaser understands that the Equity Interests are being offered and sold in reliance on specific exemptions from the registration requirements of United States federal and state securities laws, and that the certificates or documentation representing the Equity Interests are not transferable except as set forth in the Limited Liability Company Agreement for the Fund attached hereto as Exhibit A and incorporated herein by reference ("LLC Agreement"). Purchaser agrees to execute and enter into the LLC Agreement together with the Managing Member and all other purchasers of the Equity Interests. 6. Miscellaneous. a. Assignment. This Commitment Letter may not be assigned or transferred by either the Fund or Purchaser. b. Entire Agreement This Commitment Letter and the exhibits attached hereto constitutes the entire agreement among the parties pertaining to the 5 EFTA01134806 purchase of Equity Interests in the Fund as set forth herein, and supersedes any prior or contemporaneous understandings or documentation regarding such purchase, and neither this Commitment Letter nor any provision hereof shall be waived, modified, or terminated except by an instrument in writing signed by the party against whom any waiver, modification or termination is sought c. Governing Law and Venue. This Commitment Letter shall be construed in accordance with and governed by the laws of the State of New York, without regard to the conflicts of laws principles thereof. Any dispute between the parties under this Commitment Letter shall be resolved in accordance with the provisions of Sections 10.12 and 10.14 of the LLC Agreement. TO THE EXTENT ANY SUCH DISPUTE CANNOT BE RESOLVED THROUGH NEGOTIATIONS PURSUANT TO SECTION 10.12 OF THE LLC AGREEMENT, SUCH DISPUTE SHALL BE SUBMITTED TO BINDING ARBITRATION IN ACCORDANCE WITH SECTION 10.14 OF THE LLC AGREEMENT TO BE CONDUCTED IN NEW YORK, NEW YORK, USA. THE PARTIES EXPRESSLY WAIVE ALL RIGHTS TO TRIAL BY JURY FOR ANY MATTERS ARISING UNDER THIS COMMITMENT LETTER. d. Counterparts. This Commitment Letter may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. A signature of a party to this Commitment Latter sent by facsimile, email, or other electronic transmission shall have the same force and effect as an original signature of such party. (Signatures contained on following page) 6 EFTA01134807 Signature Page to Commitment Letter The undersigned Purchaser hereby represents that such person has read this Commitment Letter and all exhibits attached hereto in their entirety and agrees to be bound by the terms hereof. The foregoing Commitment Letter is hereby agreed to by the undersigned as of May 1, 2013. Purchaser Name (please print) Purchaser Signature Date: Signature of Authorized Representative (if not an individual) (Must be signed manually) Legal Form of Entity (if not an individual) Jurisdiction of Organization Residence or Office Address: TOTAL CAPITAL/PURCHASE COMMITMENT: Equity Interests: $ AGREED TO AND ACCEPTED: MSP FILM FUND LLC By: Major Studio Partners LLC By: Name: Howard Schuster Title: CEO 7 EFTA01134808  EXHIBIT A LIMITED LIABILITY COMPANY AGREEMENT OF MSP FILM FUND LLC This LIMITED LIABILITY COMPANY AGREEMENT ("Agreement") of MSP Film Fund LLC, a Delaware limited liability company ("Company"), is made to be effective as of May 1, 2013 ("Effective Date") by and among the Company, Major Studio Partners LLC, a Delaware limited liability company ("Manager"), and the persons and/or entities listed from time to time in Exhibit A of this Agreement, as Members (the "Members"). NOW, THEREFORE, in consideration of the mutual promises and agreements herein made and intending to be legally bound hereby, the parties agree as follows: I. FORMATION AND MANAGEMENT 1.1 Formation. The Company was formed as a limited liability company under the provisions of the Delaware Limited Liability Company Act (6 Del. C. § 18-101 et seq.), as amended from time to time ("LLC Act"). The Certificate of Formation for the Company was filed with the Delaware Secretary of State. The term of the Company shall continue until dissolved by the Manager (as provided below). The name of the Company shall be "MSP Film Fund LLC." The Company shall have its principal place of business at 17 Amy's Court, Box 2034, East Hampton, New York 11937, USA, or at such other place or places as the Manager may, in its sole discretion, from time to time, select. The address of the Company's registered office in the State of Delaware is: 615 South DuPont Highway, Dover, Delaware 19901, USA. The name of the registered agent at the address is National Corporate Research, Ltd. The objective of the Company is to realize significant profits through co-financing a slate of 100 motion pictures with Universal Pictures, a division of NBCUniversal, Inc. ("Universal"), to be produced or acquired and distributed by Universal ("Universal Initiated Pictures"), and possibly a few additional motion pictures originated by the Company (which will be subject to the approval of Universal and will be co-financed by the Fund and Universal and distributed by Universal on the same terms as the Universal Originated Pictures) ("Company Initiated Pictures") (the Universal Initiated Pictures and the Company Initiated Pictures are collectively referred to herein as the "Fund Pictures"), pursuant to the Co-Financing and Distribution Agreement dated as of July 14, 2012 between the Company and Universal Pictures (a copy of which is attached hereto as Exhibit B) ("Definitive Agreement"). The Company shall have the power to engage in any lawful act or activity for which limited liability companies may be organized under the LLC Act. The Manager may not invest Company funds in any new Fund Picture after December 31, 2017 (the "Investment Deadline") and the Company, within thirty (30) 8 EFTA01134809 days that is five years from the release date of the last Picture in each of successive calendar years, the Company will dispose of its investments periodically beginning in the first quarter of 2018 (the "Disposition Dates"). The Company will dissolve upon a date determined by the Manager (or the Members to the extent permitted herein), unless sooner dissolved as required by law. In addition, upon disposition of all investments made by Company in the Fund Pictures and the distribution of all proceeds therefrom to the Members and the Manager, the Company will be promptly dissolved by the Manager. 1.2 Management by Manager; Member Approval; Management Fee. (a) Management by the Manager. Except as provided in Section 1.2(b) below, the Company shall be managed exclusively by the Manager. No Member other than Manager shall have the right or power to take part, in the control of the business of the Company, nor shall any Member other than Manager have any right or authority to act for or bind the Company. Although the Company generally will be required to indemnify the Manager as provided in Section 6 below, the Manager will not be entitled to indemnification for acts of bad faith, gross negligence or intentional fraudulent misconduct. The Manager is expressly authorized by the Members to negotiate, agree to, enter into and execute the Definitive Agreement on behalf of the Company, provided that such Definitive Agreement are consistent with (or contain more favorable economic terms to the Fund than under) the Term Sheet (as determined by the Manager in its sole discretion.) (b) Member Approval. Notwithstanding any provision to the contrary contained herein, the following acts of the Company must be submitted by the Manager to the Members for approval and are subject to the prior written consent of any Member or group of Members holding Capital Commitments (as defined below) of more than fifty percent (50%) of the aggregate Capital Commitments held by all Members ("Majority in Interest"): (i) amendment of the Company's Certificate of Formation; (ii) dissolution of the Company; and (iii) merger or consolidation of the Company with any other person or entity, other than with an affiliated person or entity ("Affiliate"). Actions by the Members shall be taken in accordance with Exhibit C. (c) No Reimbursement of Expenses. Except for Indemnification Expenses under this Agreement as set forth and defined in Section 6 below, the Manager will not be entitled to payment by or reimbursement from the Company for any and all out-of-pocket expenses incurred on behalf of the Company in accordance with this Agreement, including all organizational and offering fees and expenses incurred in the formation and the operation of the Company and all Operating Out-of-Pocket Expenses (as defined below). 9 EFTA01134810  (d) Management and Producer Fees. Solely in consideration of the management of the Company by the Manager and the costs and expenses incurred by the Manager under this Agreement, the Company shall pay to the Manager the following fees: (i) an annual base management fee (the "Management Fee"), from the Effective Date until the date on which the Company no longer holds interests in any Fund Pictures in an annual amount equal to three percent (3%) of the aggregate Capital Commitments (as defined below) of the Members; (ii) executive producer fees ("Executive Producer Fees") equal to one percent (1%) of the production cost of each Fund Picture payable when placed into domestic theatrical distribution, and (iii) a profit participation of 20% of proceeds received by the Fund after the Members have received in the aggregate an amount equal to 150% of their Capital Commitments. The Management Fee for each year shall be paid on a semi-annual basis in advance, with the first payment being made on the First Closing (as defined below) with respect to the Capital Commitments covered thereby (which shall be prorated for any partial period) then semi-annually on the first day of each January and July thereafter. Management Fees payable with respect to the Capital Commitments of any Subsequent Members (as defined below) shall be payable as provided in Section 3.1(b) below. The Executive Producer Fee for each applicable motion picture shall be payable thirty (30) days prior to the initial theatrical release of such motion picture. 1.3 Powers. The Manager shall have the right, at its sole option, to cause the Company to borrow money from any person, or to obtain loans or other extensions of credit for any purpose on terms decided, in its sole discretion, by the Manager. Without limiting the generality of the foregoing, the Members acknowledge and understand that the Manager intends (but is under no obligation) to obtain a senior secured revolving credit facility in an amount of up to approximately $250 million (to be increased proportionately in the event that the aggregate Capital Commitments exceed $275 Million) on customary motion picture industry on customary motion picture industry terms for slate financing transactions, as determined by the Manager in its sole discretion ("Credit Facility"), and the Members hereby expressly authorize the Manager to negotiate, accept, enter into and execute the Credit Facility. The Manager shall have the right to purchase and sell any Fund Picture or portion thereof (upon terms and conditions acceptable to the Manager in its sole discretion), to borrow money (upon terms and conditions acceptable to the Manager in its sole discretion), to grant a security interest in, pledge and otherwise encumber any Fund Picture or portion thereof and to admit new Members. Third parties dealing with the Company are entitled to rely conclusively upon the authority of the Manager as set forth in this Agreement. Manager is hereby also designated as the "Tax Matters Partner" under Section 6231(a)(7) of the Internal Revenue Code (the "Code"), to manage administrative tax proceedings conducted at the Company level by the Internal Revenue Service with respect to Company matters. Subject to the provisions of this Agreement, the Company, and the Manager, acting on behalf of the Company, shall be empowered to do or cause to be done, or not to do, any and all acts deemed by the Manager in its sole discretion to be necessary or appropriate in furtherance of the purposes of the Company. 10 EFTA01134811 1.4 Allocations and Distributions. (a) Loss. After making the allocations required in Exhibit D Loss (as defined in Exhibit D) shall be allocable to the Members in the following order of priority: (i) First, to the Members and the Manager in proportion to and up to the amount of Income previously allocated to the Members and the Manager under Section 1.4(b), to the extent not previously offset by allocations under this Section 1.4(a)(i) or Section 1.4(a)(ii) below. (ii) Second, to the Members in proportion to their respective percentage interests of the total of all Capital Commitments, as set forth on Exhibit A ("Percentage Interests"), up to the amount of their then Invested Capital (as defined below). (iii) Third, any remaining Loss not allocated pursuant to Sections 1.4(a)(i) and (ii) above for any period shall be carried forward and allocated as provided in Sections 1.4(a)(i) and (ii) in each subsequent period. (b) Income. After making the allocations required in Exhibit D Income (as defined in Exhibit D) shall be allocable to the Members in the following order of priority: (i) First, to the Members in accordance with their Percentage Interests, to the extent of their then Invested Capital, up to the amount of Loss previously allocated to them under Sections 1.4(a)(i) and (ii) above. (ii) Second, to the Members and the Manager in accordance with Section 1.4 (d). (c) Operating Rules for Tax Allocations. Each of the foregoing allocations shall be applied to each period for which the Company is required to make allocations. (d) Distributions. Except for the expenses and payments described in this Agreement and as otherwise required by Sections 1.4(e) and 7.2 below, distributions shall be made in the following order of priority: (i) First, one hundred percent (100%) of all distributions shall be made to the holders of the Equity Interests who have not defaulted on their Capital Commitments in accordance with their Percentage Interests until such time as such holders of the Equity Interests have received a cumulative aggregate amount (including without limitation all distributions made to such holders the Equity Interests under Section 1.4(e) below) equal to one hundred fifty percent (150%) of all unreturned 11 EFTA01134812  Capital Commitment capital contributions actually made by them to the Company ("Invested Capital"). (ii) Second, after the holders of the Equity Interests have received all distributions required under Section 1.4(d)(i) above, one hundred percent (100%) of all distributions shall be made as follows: eighty percent (80%) to the holders of the Equity Interests who have not defaulted on their Capital Commitments in accordance with their Percentage Interests, and twenty percent (20%) to the Manager. (e) Dividends. Company shall pay annual dividends to the Members in an amount equal to 11.5% of their Capital Commitments for four years beginning first quarter 2013 and thereafter from proceeds available from the annual sale of ownership and economic interests in the Fund Pictures beginning in the last quarter 2017. (0 Operating Rules for Distributions. All decisions with respect to distributions shall be made by the Manager. The Manager may reinvest proceeds received by the Company from the Fund Pictures into additional Fund Pictures instead of distributing such proceeds pursuant to Section 1.4(d). 1.5 Liability of Manager. Neither the Manager nor any of its Affiliates, nor any officer, director, stockholder, member, partner, employee, agent or assign of the Manager or any of its Affiliates (collectively, the "Manager Related Persons"), shall be liable, responsible or accountable, whether directly or indirectly, in contract or tort or otherwise, to the Company, any other person in which the Company has an interest or any Member (or any Affiliate thereof) for any losses or damages asserted against, suffered or incurred by any person or entity arising out of, relating to or in connection with any act or failure to act pursuant to this Agreement or otherwise with respect to the management or conduct of the business and affairs of the Company, any Fund Picture or investment therein, any other person in which the Company has a direct or indirect interest or any of their respective Affiliates or the offer and sale of interests in the Company; provided, that such action or failure to act did not constitute bad faith, gross negligence or intentional fraudulent misconduct. 1.6 No Liability of Members or Representatives. No Member or any representative of any Member shall have any liability whatsoever to the Manager or any Member resulting from the exercise of approval rights pursuant to Section 1.2(b). Each of these parties shall have the unqualified right to act in its or his own self-interest without regard to, and without considering the interests of, the other Members. In no event shall any of these parties have any fiduciary or other duties to the Members by virtue of Section 1.2(b), and each Member hereby waives, and covenants not to sue on the basis of, any law (statutory, common law or otherwise) that is inconsistent with this Section 1.6. Nothing in this Section 1.6 detracts from the liability of the Manager under Section 1.5, if any. In no event shall any Member have any liability for any debts, obligations or liabilities of Company, including without limitation any obligations or liability under the Credit Facility. 12 EFTA01134813  1.7 Placement Agent: Fees and Liability. (a) Fees. Certain placement agents engaged by the Company (each, a "Placement Agent") will be paid a placement fee equal to three percent (3%) of each Capital Commitment paid to the Company by the Members introduced, directly or indirectly, by the Placement Agent. In addition, the Placement Agent will receive a percentage of the aggregate Management Fees, Executive Producer Fees and other management compensation actually received by the Manager in connection with the management of the Company and will be reimbursed for expenses that were pre-approved by the Manager. In addition to the compensation payable to the Placement Agents as described above, additional fees and commissions may be payable by Company to other third parties in connection with Company's obtaining of the Capital Commitments. (b) Neither the Placement Agent nor any of its Affiliates, nor any officer, director, controlling person or entity, stockholder, member, partner, employee, agent or assign of the Placement Agent or is Affiliates (collectively, the "Placement Agent Related Persons"), shall be liable, responsible or accountable, whether directly or indirectly, in contract or tort or otherwise, to the Company, the Manager, any other person in which the Company has an interest or any Member (or any Affiliate thereof) for any losses or damages asserted against, suffered or incurred by any person or entity arising out of, relating to or in connection with any matters contemplated by this Agreement, the Engagement Letter or any other engagement letter, placement agency agreement or other agreement between the Placement Agent, Company and/or the Manager or any other agreements or acts conducted by the Placement Agent or the offer and sale of interests in the Company; provided, that such losses or damages were not incurred as a direct result of the Placement Agent's gross negligence or intentional fraudulent misconduct. Notwithstanding anything to the contrary herein and to the extent permitted by applicable law, in no event shall the Placement Agent or Placement Agent Related Person be required to pay an aggregate amount in excess of the aggregate fees actually paid to Placement Agent under this Agreement for any and all losses, claims, damages and liabilities, joint or several, to which such Placement Agent or Placement Agent Related Persons become subject to arising out of, relating to or in connection with this Agreement or its services as a Placement Agent to the Company or Manager. 2. MEMBERS 2.1 Members. The Company shall consist of the Members listed from time to time in Exhibit A hereto, and such additional and substituted Members as may be admitted to the Company. All Members shall be treated equally in accordance with their Percentage Interests. The Members acknowledge that their Percentage Interests may be diluted by Capital Commitments made by Subsequent Members; provided, however, that Company will not accept aggregate Capital Commitments from all Members and Subsequent Members in excess of $550 million. 13 EFTA01134814  2.2 Limited Liability of Members. The liability of each Member is limited to its obligation to make capital contributions to the Company in amounts provided by this Agreement and in no event will any Member be required to make contributions to Company in excess of it Capital Commitment or as otherwise specifically required by this Agreement. In no event will any Member be liable for any debts, obligations or liabilities of Company, including without limitation any obligations or liability under the Credit Facility. 3. CAPITAL CONTRIBUTIONS 3.1 Capital Contributions. (a) Each Member, upon admission to the Company, shall be deemed to have made a capital commitment equal to the amount specified as such on Exhibit A (each, a "Capital Commitment" and, collectively, the "Capital Commitments"). The Capital Commitment of a Member shall represent the maximum aggregate amount of cash that such Member shall be required to contribute to the capital of the Company. The entire Capital Commitment of each Member shall be payable to the Company in full in cash upon execution of this Agreement. The Manager shall withdraw the Management Fee from Company funds on a semi-annual basis in advance as provided in Sections 1.2(d) and 3.1(b). Capital contributions for fees and commissions payable to the Placement Agents and/or any other third parties entitled to payment of fees or commissions in connection with Company's obtaining of the Capital Commitments will be included in the Capital Commitments. No such fees or commissions shall reduce the Percentage Interests of the Members. There shall be no limitation as to the amount of the Company's funds that may be used by the Manager in any given year, provided that such funds are used for the financing of Fund Pictures, the servicing of the Credit Facility, and/or the payment of Management Fees and Executive Producer Fees, all as provided herein. In addition, it is understood and agreed that, in the sole discretion of the Manager, the Company may proceed with investments in the Fund Pictures immediately following the First Closing (as defined below) without regard to the receipt of any minimum amount of Capital Commitments at such First Closing. (b) The Manager may, from time to time, after the Effective Date or after the first closing at which the Company first accepts capital contributions (the "First Closing"), admit one (1) or more additional Member (an "Additional Member") or permit any Member to increase its Capital Commitment (an "Increasing Member" and together with the Additional Members, the "Subsequent Members"); provided, however, that Company will not accept aggregate Capital Commitments from all Members and Subsequent Members in excess of $550 Million. Upon the admission of any Subsequent Member after the first $275 Million is raised, the Manager will have arranged with Universal that the financing percentage of the Company in each Fund Picture will be increased proportionately and the Participation Percentage of Universal in each Fund Picture will be decreased proportionately to correspond to the added Capital 14 EFTA01134815  Commitments of the Subsequent Member so that there will be no dilution in the participation of each Member's economic and ownership interests in the Fund Pictures. Upon the admission to the Company of each Additional Member or the making of an increased Capital Commitment by an Increasing Member, the Company shall pay to the Manager all Management Fees and Executive Producer Fees to which the Manager would have been entitled if such Additional Member or Increasing Member had participated fully in the First Closing. The Company will pay any fees payable to the Placement Agents or other third party entitled to fees or commissions in connection therewith as a result of the Capital Commitments of an Additional Member or the additional Capital Commitment of an Increasing Member upon such Additional Member's or Increasing Member's first capital contribution to the Company. 3.2 Defaulting Member. The failure by any Member to make any portion of the capital contribution required to be contributed by such Member pursuant to this Agreement shall constitute an event of default by such Member. A defaulting Member shall be charged interest at a fixed rate of eighteen percent (18%) per annum and shall forfeit all distributions that such defaulting Member would otherwise receive. Notwithstanding any other provision of this Agreement, each Member agrees to pay on demand all costs and expenses (including attorney's fees) incurred by or on behalf of the Company in connection with the enforcement of this Agreement against such Member sustained as a result of such defaulting Member and that any such payment shall not constitute a capital contribution to the Company. 4. CAPITAL ACCOUNTS 4.1 Capital Account. A capital account (a "Capital Account") shall be established and maintained for each Member. The Capital Accounts of the Members shall be adjusted and maintained in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv) and Exhibit D. The net income (and items thereof) and net loss (and items thereof) for any fiscal year shall be allocated among the Members in a manner such that the Capital Account of each Member, immediately after giving effect to such allocation, is, as nearly as possible, equal (proportionately) to the amount equal to the distributions that would be made to such Member during such fiscal year pursuant to Section 1.4 of this Agreement. The Manager may, in its sole discretion, make such assumptions as it deems reasonably necessary or appropriate in order to effectuate the intended economic arrangement of the Members. No Member shall have the right to withdraw capital or demand or receive distributions or other returns of any amount in its Capital Account, except as expressly provided herein. 5. TRANSFER OF MEMBERSHIP INTERESTS; SUBSTITUTE MEMBERS 5.1 Restrictions on Transfer. No Member shall have the right or power to withdraw, resign or retire from the Company prior to the expiration of the term of the Company and, except upon the occurrence of a Disabling Event as set forth in Section 5.2, no Member may directly or indirectly (through an issuance or transfer of equity or otherwise) sell, transfer, assign, hypothecate, pledge or otherwise dispose of or 15 EFTA01134816 encumber all or any part of such Member's interest in the Company (including, without limitation, any right to receive distributions or allocations in respect of such interests and whether voluntarily, involuntarily or by operation of law) without the prior written consent of the Manager. 5.2 Disabling Event. The occurrence of death, incapacity, bankruptcy or adjudication of incompetency (a "Disabling Event") in respect of a Member shall not dissolve the Company, and the Company shall continue in a reconstituted form, if necessary, without any action on the part of the remaining Members. The trustee, executor, administrator, committee or guardian of the Member or of the Members estate, as the case may be, shall have all the rights of the Member for the purpose of settling or managing the estate, provided that any such trustee, executor, administrator, committee or guardian shall become a substitute Member only upon compliance with the provisions of this Section 5.2. No assignee of all or any part of a membership interest of a Member in the Company upon the occurrence of a Disabling Event shall be admitted to the Company as a substitute Member unless and until the Manager has consented to such substitution in its sole discretion. The Manager may require any assignee to execute and acknowledge an instrument of transfer in form and substance satisfactory to the Manager, and may require the transferee to make certain representations and warranties to the Company, Placement Agent and Members and to accept, adopt and approve in writing all of the terms and provisions of this Agreement. Unless and until an assignee of a membership interest upon the occurrence of a Disabling Event becomes a substitute Member, such assignee shall not be entitled to exercise any vote, consent or any other right or entitlement with respect to such membership interest. In the event of the admission of an assignee as a substitute Member, all references herein to the assigning Member shall be deemed to apply to such substitute Member, and such substitute Member shall succeed to all rights, liabilities and obligations of the assigning Member hereunder. A person or entity shall be deemed admitted to the Company as a substitute Member at the time that the Manager consents. The Manager shall revise Exhibit A attached hereto to reflect such admission. 6. INDEMNIFICATION OF MANAGER The Company shall, to the maximum extent permitted by applicable law, indemnify and hold harmless the Manager, Placement Agent, all Manager Related Persons, all Placement Agent Related Persons and each of their respective principals, members, managers, directors, officers, employees, attorneys, controlling persons and Affiliates from and against any and all losses or damages, including, without limitation, losses or damages incurred in investigating, preparing or defending any action or claim, which, in the judgment of the Manager or Placement Agent, arise out of, relate to or are in connection with this Agreement or the management or conduct of the business or affairs of the Manager, the Company, any Fund Picture or investment therein (including, without limitation, any losses or damages incurred by the Manager in connection with any indebtedness of the Company), except for any such losses or damages that are finally f