Lions Gate Entertainment Corp.

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N2a0GmKCUhB6OJpgnZBawDdGxihpI5vgC7CEpK82lEM6UG7hFfWe6boFYL8lCP2j LZxPcL5UDuBVQQLFBp+/qw== 0000950148-07-000187.txt : 20070809 0000950148-07-000187.hdr.sgml : 20070809 20070809170006 ACCESSION NUMBER: 0000950148-07-000187 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070809 DATE AS OF CHANGE: 20070809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIONS GATE ENTERTAINMENT CORP /CN/ CENTRAL INDEX KEY: 0000929351 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14880 FILM NUMBER: 071041451 BUSINESS ADDRESS: STREET 1: 555 BROOKSBANK AVENUE CITY: NORTH VANCOUVER STATE: A1 ZIP: V7J3S5 BUSINESS PHONE: 604-983-5555 MAIL ADDRESS: STREET 1: 555 BROOKSBANK AVENUE CITY: NORTH VANCOUVER STATE: A1 ZIP: V7J 3S5 FORMER COMPANY: FORMER CONFORMED NAME: BERINGER GOLD CORP DATE OF NAME CHANGE: 19970618 FORMER COMPANY: FORMER CONFORMED NAME: GUYANA GOLD CORP DATE OF NAME CHANGE: 19960212 10-Q 1 v32671e10vq.htm FORM 10-Q Lions Gate Entertainment Corp.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, 2007
Or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
		For the transition period from to

Commission File No.: 1-14880

Lions Gate Entertainment Corp.

(Exact name of registrant as specified in its charter)


British Columbia, Canada		N/A
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

1055 West Hastings Street, Suite 2200

Vancouver, British Columbia V6E 2E9

and

2700 Colorado Avenue, Suite 200

Santa Monica, California 90404

(Address of principal executive offices)

(877) 848-3866

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated Filer þ Accelerated Filer o Non-accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Title of Each Class		Outstanding at August 1, 2007

Common Shares, no par value per share		119,201,707 shares

TABLE OF CONTENTS


Item			Page

PART I — FINANCIAL INFORMATION
	1.	Financial Statements		4
	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
	3.	Quantitative and Qualitative Disclosures About Market Risk		44
	4.	Controls and Procedures		45

PART II — OTHER INFORMATION
	1.	Legal Proceedings		45
	1A.	Risk Factors		45
	2.	Unregistered Sales of Equity Securities and Use of Proceeds		45
	3.	Defaults Upon Senior Securities		45
	4.	Submissions of Matters to a Vote of Security Holders		45
	5.	Other Information		45
	6.	Exhibits		46
EXHIBIT 10.40
EXHIBIT 10.41
EXHIBIT 10.42
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases you can identify forward-looking statements by terms such as “may,” “intend,” “will,” “could,” “would,” “expects,” “believe,” “estimate,” or the negative of these terms, and similar expressions intended to identify forward-looking statements.

These forward-looking statements reflect Lions Gate Entertainment Corp.’s (the “Company,” “Lionsgate,” “we,” “us” or “our”) current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Also, these forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by federal securities laws, we do not intend to update you concerning any future revisions to any forward-looking statements to reflect events or circumstances occurring after the date of this report.

Actual results in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors, including the substantial investment of capital required to produce and market films and television series, increased costs for producing and marketing feature films, budget overruns, limitations imposed by our credit facilities, unpredictability of the commercial success of our motion pictures and television programming, the cost of defending our intellectual property, difficulties in integrating acquired businesses, technological changes and other trends affecting the entertainment industry, and the risk factors found under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 30, 2007, which risk factors are incorporated herein by reference.

Unless otherwise indicated, all references to the “Company,” “Lionsgate,” “we,” “us,” and “our” include reference to our subsidiaries as well.

PART I — FINANCIAL INFORMATION


Item 1.	*Financial Statements.*

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30,			March 31,
	2007			2007
	(Unaudited)			(Note 1)
	(Amounts in thousands,
	except share amounts)

ASSETS
Cash and cash equivalents	$	58,580		$	51,497
Restricted cash		4,644			4,915
Investments — auction rate securities		166,330			237,379
Investments — equity securities		4,916			125
Accounts receivable, net of reserve for video returns and allowances of $64,908 (March 31, 2007 — $77,691) and provision for doubtful accounts of $5,931(March 31, 2007 — $6,345)		105,234			130,496
Investment in films and television programs		579,757			493,140
Property and equipment		14,207			13,095
Goodwill		187,491			187,491
Other assets		41,169			18,957

	$	1,162,328		$	1,137,095


LIABILITIES
Accounts payable and accrued liabilities	$	174,972		$	155,617
Participation and residuals		186,729			171,156
Film obligations		147,490			167,884
Subordinated notes and other financing obligations		328,718			325,000
Deferred revenue		101,066			69,548

		938,975			889,205

Commitments and contingencies

SHAREHOLDERS’ EQUITY
Common shares, no par value, 500,000,000 shares authorized, 119,201,707 and 116,970,280 shares issued and outstanding at June 30, 2007 and March 31, 2007, respectively		423,715			398,836
Series B preferred shares (10 shares issued and outstanding)		—			—
Accumulated deficit		(202,769	)		(149,651	)
Accumulated other comprehensive income (loss)		2,407			(1,295	)

		223,353			247,890

	$	1,162,328		$	1,137,095

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months			Three Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Amounts in thousands,
	except per share amounts)

Revenues	$	198,742		$	172,456
Expenses:
Direct operating		87,058			68,545
Distribution and marketing		135,501			87,046
General and administration		26,840			19,233
Depreciation		908			544

Total expenses		250,307			175,368

Operating loss		(51,565	)		(2,912	)

Other expenses (income):
Interest expense		3,860			4,676
Interest and other income		(3,803	)		(2,561	)

Total other expenses, net		57			2,115

Loss before equity interests and income taxes		(51,622	)		(5,027	)
Equity interests income (loss)		(807	)		58

Loss before income taxes		(52,429	)		(4,969	)
Income tax provision (benefit)		689			(1,365	)

Net loss	$	(53,118	)	$	(3,604	)

Basic and Diluted Net Loss Per Common Share	$	(0.45	)	$	(0.03	)

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


																					Accumulated
					Series B																Other
					Preferred				Restricted									Comprehensive			Comprehensive
	Common Shares				Shares				Share			Unearned			Accumulated			Income			Income
	Number		Amount		Number		Amount		Units			Compensation			Deficit			(Loss)			(Loss)			Total
	(Amounts in thousands, except share amounts)

Balance at March 31, 2006		104,422,765	$	328,771		10	$	—	$	5,178		$	(4,032	)	$	(177,130	)				$	(3,517	)	$	149,270
Reclassification of unearned compensation and restricted share common units upon adoption of SFAS No. 123(R )				1,146						(5,178	)		4,032												—
Exercise of stock options		1,297,144		4,277																					4,277
Stock based compensation, net of share units withholding tax obligations of $504		113,695		6,517																					6,517
Issuance of common shares to directors for services		25,568		238																					238
Conversion of 4.875%notes, net of unamortized issuance costs		11,111,108		57,887																					57,887
Comprehensive income (loss)
Net income																27,479		$	27,479						27,479
Foreign currency translation adjustments																			1,876			1,876			1,876
Net unrealized gain on foreign exchange contracts																			259			259			259
Unrealized gain on investments — available for sale																			87			87			87

Comprehensive income																		$	29,701						—

Balance at March 31, 2007		116,970,280		398,836		10		—		—			—			(149,651	)					(1,295	)		247,890
Exercise of stock options		61,807		390																					390
Stock based compensation, net of share units withholding tax obligations of $235		174,368		2,611																					2,611
Issuance of common shares to directors for services		10,126		127																					127
Issuance of common shares for investment in NextPoint, Inc		1,890,189		20,851																					20,851
Issuance of common shares related to the Redbus acquisition		94,937		900																					900
Comprehensive income (loss)
Net loss																(53,118	)	$	(53,118	)					(53,118	)
Foreign currency translation adjustments																			2,434			2,434			2,434
Net unrealized loss on foreign exchange contracts																			(12	)		(12	)		(12	)
Unrealized gain on investments — available for sale																			1,280			1,280			1,280

Comprehensive loss																		$	(49,416	)

Balance at June 30, 2007		119,201,707	$	423,715		10	$	—	$	—		$	—		$	(202,769	)				$	2,407		$	223,353

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months			Three Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Amounts in thousands)

Operating Activities:
Net loss	$	(53,118	)	$	(3,604	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation of property and equipment		908			544
Amortization of deferred financing costs		884			975
Amortization of films and television programs		49,862			33,193
Amortization of intangible assets		162			244
Non-cash stock-based compensation		2,846			974
Equity interests income (loss)		807			(58	)
Changes in operating assets and liabilities:
Restricted cash		271			84
Accounts receivable, net		9,439			93,013
Investment in films and television programs		(136,139	)		(60,439	)
Other assets		(3,061	)		4,717
Accounts payable and accrued liabilities		20,185			(68,278	)
Unpresented bank drafts		—			(14,772	)
Participation and residuals		15,527			(7,587	)
Film obligations		(20,430	)		(2,349	)
Deferred revenue		31,486			8,319

Net Cash Flows Used In Operating Activities		(80,371	)		(15,024	)

Investing Activities:
Purchases of investments — auction rate securities		(172,442	)		(165,620	)
Proceeds from the sale of investments — auction rate securities		243,491			190,594
Purchases of investments — equity securities		(3,432	)		—
Proceeds from the sale of investments — equity securities		16,343			—
Purchases of property and equipment		(2,017	)		(1,831	)

Net Cash Flows Provided By Investing Activities		81,943			23,143

Financing Activities:
Exercise of stock options		390			353
Borrowings from financing obligation		3,718			—

Net Cash Flows Provided By Financing Activities		4,108			353

Net Change In Cash And Cash Equivalents		5,680			8,472
Foreign Exchange Effects on Cash		1,403			(592	)
Cash and Cash Equivalents — Beginning Of Period		51,497			46,978

Cash and Cash Equivalents — End Of Period	$	58,580		$	54,858

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.	General

Nature of Operations

Lions Gate Entertainment Corp. (the “Company,” “Lionsgate,” “we,” “us” or “our”) is a diversified independent producer and distributor of motion pictures, television programming, home entertainment, video-on-demand and music content. The Company also acquires distribution rights from a wide variety of studios, production companies and independent producers.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Lionsgate and all of its wholly owned and controlled subsidiaries.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Article 10 of Regulation S-X under the Exchange Act. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these unaudited condensed consolidated financial statements. Operating results for the three months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2008. The balance sheet at March 31, 2007 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

Certain amounts presented for fiscal 2007 have been reclassified to conform to the fiscal 2008 presentation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most significant estimates made by the Company’s management in the preparation of the financial statements relate to ultimate revenue and costs for investment in films and television programs; estimates of sales returns, provision for doubtful accounts, fair value of assets and liabilities for allocation of the purchase price of companies acquired, income taxes and accruals for contingent liabilities; and impairment assessments for investment in films and television programs, property and equipment, goodwill and intangible assets. Actual results could differ from such estimates.

Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 123(R). In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) revises SFAS No. 123 and eliminates the alternative to use the intrinsic method of accounting under Accounting Principles Board (“APB”) No. 25. SFAS No. 123(R) requires all public companies accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments, to account for these types of transactions using a fair-value-based method. Effective April 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), using the modified-prospective

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

transition method. Under such transition method, compensation cost recognized in the three months ended June 30, 2007 and 2006 includes: (a) compensation cost for all stock options granted prior to, but not yet vested as of, April 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all share-based payments granted on or after April 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). See note 11 for further discussion of the Company’s stock-based compensation in accordance with SFAS No. 123(R).

FASB Issued Interpretation No. 48. On July 13, 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”), and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under FIN No. 48, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FIN No. 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006.

The Company adopted the provisions of FIN No. 48 on April 1, 2007. The total amount of unrecognized tax benefits as of the date of adoption was $0.5 million that, if recognized, would affect the effective tax rate. The Company expects that it is reasonably possible that the unrecognized tax benefits will decrease by $0.5 million within 12 months of this reporting date due to the resolution of audits.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. For the three months ended June 30, 2007 and 2006 interest and penalties were not significant.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. With a few exceptions, the Company is subject to income tax examination by U.S. and state tax authorities for the fiscal years ended March 31, 2004 and forward. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses (“NOLs”) were generated and carried forward, and make adjustments up to the amount of the NOLs. The Company’s fiscal years ended March 31, 2006 and forward are subject to examination by the UK tax authorities. The Company’s fiscal years ended March 31, 1998 and forward are subject to examination by the Canadian tax authorities. The Company is not currently under examination by the IRS. Currently, audits are occurring in Canada, and various state and local tax jurisdictions.

The adoption of FIN No. 48 did not impact the Company’s financial condition, results of operations or cash flows. At April 1, 2007, the Company had net deferred tax assets of $93.3 million. The deferred tax assets are largely composed of federal and state tax NOLs. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets, a full valuation has been established to offset the net deferred tax asset. Additionally, the future utilization of the Company’s NOLs to offset future taxable income may be subject to a substantial annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future.

Statement of Financial Accounting Standards No. 157. In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of this statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. The Company will be required to adopt the provisions on SFAS No. 157 on April 1, 2008. The Company is currently evaluating the impact of adopting the provisions of SFAS No. 157 but

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

does not believe that the adoption of SFAS No. 157 will materially impact its financial position, cash flows, or results of operations.

Statement of Financial Accounting Standards No. 159. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115,” (“SFAS No. 159”), which is effective for fiscal years beginning after November 15, 2007. SFAS No. 159 permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The Company is currently evaluating the potential impact of SFAS No. 159.


2.	Investments Available-For-Sale

Investments classified as available-for-sale are reported at fair value based on quoted market prices, with unrealized gains and losses excluded from earnings and reported as other comprehensive income or loss (see note 9). The cost of investments sold is determined in accordance with the average cost method. As of June 30, 2007 and March 31, 2007, the cost, unrealized losses and carrying value of the Company’s available-for-sale investments were as follows:


	June 30, 2007
			Unrealized
			Holding		Carrying
	Cost		Gains (Losses)		Value
	(Amounts in thousands)

Auction rate notes	$	166,330	$	—	$	166,330
Equity securities		3,636		1,280		4,916

	$	169,966	$	1,280	$	171,246


	March 31, 2007
			Unrealized
			Holding		Carrying
	Cost		Gains (Losses)		Value
	(Amounts in thousands)

Auction rate notes	$	237,379	$	—	$	237,379
Equity securities		125		—		125

	$	237,504	$	—	$	237,504

The Company began investing in Auction Rate Securities (“ARS”) during the fiscal year ended March 31, 2006. The ARS carry interest rates or dividend yields that are periodically re-set through auctions, typically every 7, 14, 28, or 35 days. ARS are usually issued with long-term maturities or in perpetuity and are auctioned at par. Thus, the return on the investment between auction dates is determined by the interest rate or dividend yield set through the auctions. Accordingly, dividends and interest earned on auction rate investments are computed as a percentage of the principal amount of the security. Interest and dividend income earned during the three-month periods ended June 30, 2007 and June 30, 2006 on ARS was $2.6 million and $1.9 million, respectively. The Company minimizes its credit risk associated with investments by investing primarily in investment grade, highly liquid securities.

In accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and based on our ability to market and sell these instruments, we classify ARS as available-for-sale securities and carry them at fair value with unrealized gains and losses recorded in other comprehensive income or loss.

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Equity securities as of June 30, 2007 are comprised of 13,470,525 common shares of Magna Pacific Holdings (“Magna”), an independent DVD distributor in Australia and New Zealand, purchased at an average cost of $0.23 per share. The closing price of Magna’s common shares on June 30, 2007 was $0.36 per common share. As a result, the Company had an unrealized gain of $1.3 million on its investment in Magna common shares as of June 30, 2007. The Company has reported the $1.3 million unrealized gain in other comprehensive income in the unaudited condensed consolidated statement of shareholder’s equity as of June 30, 2007. At March 31, 2007 equity securities were comprised of 592,156 common shares of Magna purchased at an average cost per share of $0.21.

In July 2007, the Company purchased 3,111,625 additional common shares of Magna for approximately $1.2 million, at an average price of $0.39 per share. On July 23, 2007 the Company sold 16,129,740 of Magna’s common shares for total proceeds of approximately $7.4 million, resulting in a gain of approximately $2.7 million. At July 23, 2007 the Company continued to own 452,410 Magna common shares.


3.	Investment in Films and Television Programs


	June 30,		March 31,
	2007		2007
	(Amounts in thousands)

Motion Picture Segment — Theatrical and Non-Theatrical Films
Released, net of accumulated amortization	$	150,661	$	144,302
Acquired libraries, net of accumulated amortization		88,532		90,980
Completed and not released		15,374		19,424
In progress		135,238		107,105
In development		7,058		5,205
Product inventory		28,180		30,330

		425,043		397,346

Television Segment — Direct-to-Television Programs
Released, net of accumulated amortization		61,359		70,949
In progress		92,592		24,083
In development		763		762

		154,714		95,794

	$	579,757	$	493,140

The following table sets forth acquired libraries that represent titles released three years prior to the date of acquisition, and amortized over its expected revenue stream from acquisition date up to 20 years:


						Unamortized Costs		Unamortized Costs
		Total		Remaining		Three Months Ended		Year Ended
Acquired	Acquisition	Amortization		Amortization		June 30,		March 31,
Library	Date	Period		Period		2007		2007
		(In years)				(Amounts in thousands)

Trimark	October 2000		20.00		13.25	$	14,221	$	14,854
Artisan	December 2003		20.00		16.50		67,726		69,402
Modern	August 2005		20.00		18.00		4,651		4,753
LGUK	October 2005		20.00		18.25		1,934		1,971

Total Acquired Libraries						$	88,532	$	90,980

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company expects approximately 40% of completed films and television programs, net of accumulated amortization, will be amortized during the one-year period ending June 30, 2008. Additionally, the Company expects approximately 80% of completed and released films and television programs, net of accumulated amortization and excluding acquired libraries, will be amortized during the three-year period ending June 30, 2010.


4.	Other Assets


	June 30,		March 31,
	2007		2007
	(Amounts in thousands)

Deferred financing costs, net of accumulated amortization	$	9,405	$	10,038
Prepaid expenses and other		5,738		3,553
Equity method investments		26,026		5,366

	$	41,169	$	18,957

Deferred Financing Costs

Deferred financing costs primarily include costs incurred in connection with the credit facility (see note 5) and the issuance of the 2.9375% Notes and the 3.625% Notes (see note 7) that are deferred and amortized to interest expense.

Prepaid expenses and other

Prepaid expenses and other primarily include prepaid expenses, security deposits and intangible assets.

Equity Method Investments

The carrying amount of equity method investments at June 30, 2007 and March 31, 2007 was as follows:


	June 30,		March 31,
	2007		2007
	(Amounts in thousands)

Maple	$	1,976	$	1,764
CinemaNow		—		—
Horror Entertainment, LLC		2,680		3,602
NextPoint, Inc.		21,370		—

	$	26,026	$	5,366

Equity interest in equity method investments on our unaudited condensed consolidated statements of operations represent our portion of the income or loss of our equity method investment based on our percentage ownership of the investee. Equity interests in equity method investments for the three months ended June 30, 2007 and 2006 were as follows (income (loss)):


	Three Months			Three Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Amounts in thousands)

Maple	$	61		$	58
Horror Entertainment, LLC		(868	)		—

	$	(807	)	$	58

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Maple. On April 8, 2005, Maple Pictures Corp., a Canadian corporation, (“Maple Pictures”) was formed by two former Lionsgate executives and a third-party equity investor. Lionsgate entered into library and output agreements with Maple Pictures, for the distribution of Lionsgate’s motion picture, television and home video product in Canada. Lionsgate also acquired and as of June 30, 2007 owns a 10% minority interest in Maple Pictures. The Company is accounting for the investment in Maple Pictures using the equity method.

CinemaNow. At March 31, 2006, the Company had a 30% equity interest on an undiluted basis in CinemaNow, Inc. (“CinemaNow”). The investment in CinemaNow was accounted for using the equity method. In June 2006, the Company purchased $1.0 million Series E Preferred Stock as part of a $20.3 million round of financing secured by CinemaNow. At June 30, 2007, the Company’s equity interest in CinemaNow is 18.7% on a fully diluted basis and 21.1% on an undiluted basis.

Horror Entertainment, LLC. On October 10, 2006, the Company purchased 300 membership interests in Horror Entertainment, LLC (“FEARnet”), a multiplatform programming and content service provider of horror genre films operating under the branding of “FEARnet.” In addition, the Company entered into a five-year license agreement with FEARnet for the U.S. territories and possessions whereby the Company will license content to FEARnet for video-on-demand and broadband exhibition. The Company has agreed not to compete in the area of a channel within the horror genre and the Company cannot license to a horror genre competitor more than 25 titles in any year during the term of the license agreement. The Company made a capital contribution to FEARnet of $5.1 million at the date of acquisition, which includes direct transaction costs of $0.1 million, and has committed to a total capital contribution of $13.3 million, which is expected to be fully funded over the next two-year period. Under certain circumstances, if the Company defaults on any of its funding obligations, then the Company could forfeit its equity and its license agreement with FEARnet could be terminated. The Company is accounting for the investment in FEARnet using the equity method because of the Company’s ownership percentage of 33.33%. Due to the timing in availability of financial statements from FEARnet, the Company is recording its share of the FEARnet results on a one quarter lag.

NextPoint, Inc. On June 29, 2007, the Company purchased a 42% equity interest or 21,000,000 shares of the Series B Preferred Stock of NextPoint, Inc. (“Break.com”), an online video entertainment service provider operating under the branding of “Break.com”, for an aggregate purchase price of $21.4 million which includes $0.5 million of transaction costs, by issuing 1,890,189 of its common shares. The Company is accounting for the investment in Break.com using the equity method. The Company has a call option which is exercisable at any time from June 29, 2007 until the earlier of 30 months after June 29, 2007 or one year after a change of control, as narrowly defined, to purchase all, but not less than all, of the remaining 58% equity interests, including in-the-money stock options, warrants and other rights, of Break.com for $58 million in cash or common stock, at the Company’s option. Due to the timing in availability of financial statements from Break.com the Company is recording its share of the Break.com results on a one quarter lag.


5.	Bank Loans

At June 30, 2007, the Company had a $215 million revolving line of credit, of which $10 million is available for borrowing by Lionsgate UK in either U.S. dollars or British pounds sterling. At June 30, 2007, the Company had no borrowings (March 31, 2007 — nil) under the credit facility. The credit facility expires December 31, 2008 and bears interest at 2.75% over the “Adjusted LIBOR” or the “Canadian Bankers Acceptance” rate (as defined in the credit facility), or 1.75% over the U.S. or Canadian prime rates. The availability of funds under the credit facility is limited by the borrowing base. Amounts available under the credit facility are also limited by outstanding letters of credit, which amounted to $15.2 million at June 30, 2007. At June 30, 2007 there was $199.8 million available under the credit facility. The Company is required to pay a monthly commitment fee based upon 0.50% per annum on the total credit facility of $215 million less the amount drawn. Right, title and interest in and to all personal property of Lions Gate Entertainment Corp. and Lions Gate Entertainment Inc., the Company’s wholly owned U.S. subsidiary

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

is pledged as security for the credit facility. The credit facility is senior to the Company’s film obligations and subordinated notes. The credit facility restricts the Company from paying cash dividends on its common shares.


6.	Film Obligations and Participation and Residuals


	June 30,			March 31,
	2007			2007
	(Amounts in thousands)

Minimum guarantees(1)	$	24,455		$	19,286
Theatrical marketing obligations(2)		3,474			4,482
Production obligations(3)		119,561			144,116

Total film obligations		147,490			167,884
Less film obligations expected to be paid within one year		(58,554	)		(82,350	)

Production obligations expected to be paid after one year	$	88,936		$	85,534

Participation and residuals	$	186,729		$	171,156

The Company expects approximately 63% of accrued participants’ shares will be paid during the one-year period ending June 30, 2008.


(1)		Minimum guarantees represent amounts payable for film rights which the Company has acquired.

(2)		Theatrical marketing obligations represent amounts received which are contractually committed for theatrical marketing expenditures associated with specific titles.

(3)		Production obligations represent amounts payable for the cost incurred for the production of film and television programs that the Company produces, which in some cases are financed over periods exceeding one year. Production obligations have contractual repayment dates either at or near the expected completion date, with the exception of certain obligations containing repayment dates on a longer term basis. Production obligations incur interest at rates ranging from 7.32% to 7.76%, with the exception of approximately $91.4 million of production obligations which are non-interest bearing.

Theatrical Slate Financing

On May 25, 2007, the Company, through a series of agreements, closed a theatrical slate funding arrangement. Under this arrangement Pride Pictures LLC (“Pride”), an unrelated entity, will fund, generally, 50% of the Company’s production, acquisition, marketing and distribution costs of theatrical feature films up to an aggregate of approximately $196 million net of transaction costs. The funds available from Pride are generated from the issuance by Pride of $35 million of subordinated debt instruments, $35 million of equity and $134 million from a senior credit facility, which is subject to a borrowing base. The Company is not a party to the Pride debt obligations or their senior credit facility, and provides no guarantee of repayment of these obligations. The percentage of the contribution may vary on certain pictures. The slate of films covered by the arrangement is expected to be comprised of 23 films over the next three years. Pride will participate in a pro rata portion of the pictures’ net profits or losses similar to a co-production arrangement based on the portion of costs funded. The Company continues to distribute the pictures covered by the arrangement with a portion of net profits after all costs and the Company’s distribution fee being distributed to Pride based on their pro rata contribution to the applicable costs similar to a back-end participation on a film.

The $134 million senior credit facility is a revolving facility for print and advertising costs, other releasing costs, and direct production and acquisition costs. Borrowings for direct production and acquisition cost are subject

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

to a borrowing base calculation generally based on 90% of the estimated ultimate amounts due to Pride on previously released films, as defined.

Amounts funded from Pride are reflected as a participation liability. The ultimate participation expected to be paid to Pride in excess of or less than the amount funded by Pride is amortized to expense under the individual film forecast method. At June 30, 2007, $175.3 million was available to be funded by Pride under the terms of the arrangement.


7.	Subordinated Notes and Other Financing Obligations

The following table sets forth the subordinated notes and other financing obligations outstanding at June 30, 2007 and March 31, 2007:


	June 30,		March 31,
	2007		2007
	(Amounts in thousands)

2.9375% Convertible Senior Subordinated Notes	$	150,000	$	150,000
3.625% Convertible Senior Subordinated Notes		175,000		175,000
Other Financing Obligations		3,718		—

	$	328,718	$	325,000

Subordinated Notes

3.625% Notes. In February 2005, Lions Gate Entertainment Inc. sold $150.0 million of 3.625% Convertible Senior Subordinated Notes (the “3.625% Notes”). In connection with this sale, Lions Gate Entertainment Inc. granted the initial purchasers of the 3.625% Notes an option to purchase up to an additional $25.0 million of the 3.625% Notes for 13 days. The fair value of this option was not significant. The initial purchasers exercised this option in February 2005 and purchased an additional $25 million of the 3.625% Notes. The Company received $170.2 million of net proceeds after paying placement agents’ fees from the sale of $175.0 million of the 3.625% Notes. The Company also paid $0.6 million of offering expenses incurred in connection with the 3.625% Notes. Interest on the 3.625% Notes is payable semi-annually on March 15 and September 15, which commenced on September 15, 2005. After March 15, 2012, interest will be 3.125% per annum on the principal amount of the 3.625% Notes, payable semi-annually on March 15 and September 15 of each year. The 3.625% Notes mature on March 15, 2025. Lions Gate Entertainment Inc. may redeem all or a portion of the 3.625% Notes at its option on or after March 15, 2012 at 100% of their principal amount, together with accrued and unpaid interest through the date of redemption.

The holder may require Lions Gate Entertainment Inc. to repurchase the 3.625% Notes on March 15, 2012, 2015 and 2020 or upon a change in control at a price equal to 100% of the principal amount, together with accrued and unpaid interest through the date of repurchase. Under certain circumstances, if the holder requires Lions Gate Entertainment Inc. to repurchase all or a portion of their notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of our common shares on the effective date of the change in control. No make whole premium will be paid if the price of our common shares is less than $10.35 per share or if the price of the common shares of the Company exceeds $75.00 per share.

The 3.625% Notes are convertible, at the option of the holder, at any time before the close of business on or prior to the trading day immediately before the maturity date, if the notes have not been previously redeemed or repurchased, at a conversion rate of 70.0133 shares per $1,000 principal amount of the 3.625% Notes, subject to adjustment in certain circumstances, which is equal to a conversion price of approximately $14.28 per share. Upon conversion of the 3.625% Notes, the Company has the option to deliver, in lieu of common shares, cash or a

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

combination of cash and common shares of the Company. The holder may convert the 3.625% Notes into common shares of the Company prior to maturity if the notes have been called for redemption, a change in control occurs or certain corporate transactions occur.

2.9375% Notes. In October 2004, Lions Gate Entertainment Inc. sold $150.0 million of 2.9375% Convertible Senior Subordinated Notes (the “2.9375% Notes”). The Company received $146.0 million of net proceeds after paying placement agents’ fees from the sale of $150.0 million of the 2.9375% Notes. The Company also paid $0.7 million of offering expenses incurred in connection with the 2.9375% Notes. Interest on the 2.9375% Notes is payable semi-annually on April 15 and October 15, which commenced on April 15, 2005, and the 2.9375% Notes mature on October 15, 2024. From October 15, 2009 to October 14, 2010, Lions Gate Entertainment Inc. may redeem the 2.9375% Notes at 100.839%; from October 15, 2010 to October 14, 2011, Lions Gate Entertainment Inc. may redeem the 2.9375% Notes at 100.420%; thereafter, Lions Gate Entertainment Inc. may redeem the notes at 100%.

The holder may require Lions Gate Entertainment Inc. to repurchase the 2.9375% Notes on October 15, 2011, 2014 and 2019 or upon a change in control at a price equal to 100% of the principal amount, together with accrued and unpaid interest through the date of repurchase. Under certain circumstances, if the holder requires Lions Gate Entertainment Inc. to repurchase all or a portion of their notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of the common shares of the Company on the effective date of the change in control. No make whole premium will be paid if the price of our common shares is less than $8.79 per share or if the price of the common shares of the Company exceeds $50.00 per share.

The holder may convert the 2.9375% Notes into our common shares prior to maturity only if the price of the common shares of the Company issuable upon conversion of a note reaches a specified threshold over a specified period, the trading price of the notes falls below certain thresholds, the notes have been called for redemption, a change in control occurs or certain corporate transactions occur. In addition, under certain circumstances, if the holder converts their notes upon a change in control, they will be entitled to receive a make whole premium. Before the close of business on or prior to the trading day immediately before the maturity date, if the notes have not been previously redeemed or repurchased, the holder may convert the notes into our common shares at a conversion rate of 86.9565 shares per $1,000 principal amount of the 2.9375% Notes, subject to adjustment in certain circumstances, which is equal to a conversion price of approximately $11.50 per share.

Other Financing Obligations

On June 1, 2007, the Company entered into a bank financing agreement for $3.7 million to fund the acquisition of certain capital assets. Interest is payable in monthly payments totaling $0.3 million per year for five years at an interest rate of 8.02%, with the entire principal due June 2012.


8.	Direct Operating Expenses


	Three Months			Three Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Amounts in thousands)

Amortization of films and television programs	$	49,862		$	33,193
Participation and residual expense		38,011			37,198
Amortization of acquired intangible assets		162			244
Other expenses		(977	)		(2,090	)

	$	87,058		$	68,545

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other expenses primarily consist of the provision for doubtful accounts and foreign exchange gains and losses. The provision for doubtful accounts for the three months ended June 30, 2007 and 2006 were benefits of $0.5 million and $2.2 million, respectively. The benefit in the provision for doubtful accounts for the three months ended June 30, 2006 is due to a reversal of the provision for doubtful accounts of $2.2 million, primarily due to collection of a portion of accounts receivables related to a large retail customer that had declared bankruptcy and was previously reserved. Other expenses for the three months ended June 30, 2007 also includes foreign exchange gains of $0.5 million.


9.	Comprehensive Loss


	Three Months			Three Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Amounts in thousands)

Net loss	$	(53,118	)	$	(3,604	)
Add: Foreign currency translation adjustments		2,434			1,550
Add (Deduct): Net unrealized gain (loss) on foreign exchange contracts		(12	)		17
Add (Deduct): Unrealized gain (loss) on investments — available for sale		1,280			(363	)

Comprehensive loss	$	(49,416	)	$	(2,400	)


10.	Loss Per Share

The Company calculates loss per share in accordance with SFAS No. 128, “Earnings Per Share.” Basic loss per share is calculated based on the weighted average common shares outstanding for the period. Basic loss per share for the three months ended June 30, 2007 and 2006 are presented below:


	Three Months			Three Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Amounts in thousands)

Basic and Diluted Net Loss Per Share:
Numerator:
Net loss	$	(53,118	)	$	(3,604	)

Denominator:
Weighted average common shares outstanding		117,107			103,319

Basic and Diluted Net Loss Per Common Share	$	(0.45	)	$	(0.03	)

Basic loss per common share is calculated using the weighted average number of common shares outstanding during the three months ended June 30, 2007 and 2006 of 117,106,524 shares and 103,318,955 shares, respectively. The exercise of common share equivalents including stock options, the conversion features of the 2.9375% Notes, and the 3.625% Notes and restricted share units could potentially dilute income (loss) per share in the future, but were not reflected in diluted loss per share during the periods presented because their effect is anti-dilutive.

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company had 500,000,000 authorized shares of common stock at June 30, 2007 and March 31, 2007. The table below outlines common shares reserved for future issuance:


	June 30,		March 31,
	2007		2007
	(Amounts in thousands)

Stock options outstanding		6,356		5,933
Restricted share units — unvested		2,178		1,872
Share purchase options and restricted share units available for future issuance		53		1,026
Shares issuable upon conversion of 2.9375% Notes		13,043		13,043
Shares issuable upon conversion of 3.625% Notes		12,252		12,252

Shares reserved for future issuance		33,882		34,126


11.	Accounting for Stock-Based Compensation

Share-Based Compensation

The Company accounts for stock-based compensation in accordance with the provisions of SFAS No. 123(R). SFAS No. 123(R) requires the measurement of all stock-based awards using a fair value method and the recognition of the related stock-based compensation expense in the consolidated financial statements over the requisite service period. Further, as required under SFAS No. 123(R), the Company estimates forfeitures for share-based awards that are not expected to vest. As stock-based compensation expense recognized in the Company’s consolidated financial statements is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

The fair value of each option award is estimated on the date of grant using a closed-form option valuation model (Black-Scholes) based on the assumptions noted in the following table. Expected volatilities are based on implied volatilities from traded options on the Company’s stock, historical volatility of the Company’s stock and other factors. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The following table represents the assumptions used in the Black-Scholes option-pricing model for options granted during the three months ended June 30, 2007 (no options were granted during the three months ended June 30, 2006):


		Three Months
		Ended
		June 30,
		2007

Risk-free interest rate		4.7% - 4.8%
Expected option lives (in years)		5.6 to 6.3 years
Expected volatility for options		31%
Expected dividend yield		0.0%

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The weighted-average grant-date fair values for options granted during the three months ended June 30, 2007 was $4.75. The Company recognized the following share-based compensation expense during the three months ended June 30, 2007 and 2006:


	Three Months Ended
	June 30,
	2007			2006
	(Amounts in thousands)

Compensation Expense (Benefit):
Stock Options	$	785		$	458
Restricted Share Units		2,061			516
Stock Appreciation Rights		(380	)		(1,384	)

Total	$	2,466		$	(410	)

There was no income tax benefit recognized in the statements of operations for share-based compensation arrangements during the three months ended June 30, 2007 and 2006.

Stock Options

A summary of option activity under our long-term incentive plans as of June 30, 2007 and changes during the three months then ended is presented below:


						Weighted		Aggregate
				Weighted-		Average		Intrinsic
				Average		Remaining		Value as of
	Number of			Exercise		Contractual		June 30,
Options:	Shares			Price		Term in Years		2007

Outstanding at March 31, 2007		5,933,289		$	4.18
Granted		490,000			11.70
Exercised		(61,807	)		6.31
Forfeited or expired		(5,665	)		8.75

Outstanding at June 30, 2007		6,355,817		$	6.71		4.41	$	27,762,266

Outstanding Options as of June 30, 2007, vested or expected to vest in the future		6,348,834		$	6.71		4.41	$	27,755,902

Exercisable at June 30, 2007		3,557,816		$	4.13		0.93	$	24,555,490

The total intrinsic value of options exercised as of each exercise date during the three months ended June 30, 2007 was $0.3 million (2006 — $0.8 million).

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted Share Units

A summary of the status of the Company’s restricted share units as of June 30, 2007, and changes during the three months then ended is presented below:


				Weighted Average
	Number of			Grant Date Fair
Restricted Share Units:	Shares			Value

Outstanding at March 31, 2007		1,872,243		$	9.78
Granted		505,833			11.69
Vested		(195,257	)		9.86
Forfeited		(5,206	)		10.01

Outstanding at June 30, 2007		2,177,613		$	10.22

The fair values of restricted share units are determined based on the market value of the shares on the date of grant.

The following table summarizes the total remaining unrecognized compensation related to nonvested stock options and restricted share units and the weighted average remaining years over which the cost will be recognized:


	Total		Weighted
	Unrecognized		Average
	Compensation		Remaining
	Cost		Years
	(Amounts in thousands)

Stock Options	$	9,177		2.8
Restricted Share Units		17,796		2.5

Total	$	26,973

Under the Company’s two stock option and long term incentive plans, the Company withholds shares to satisfy minimum statutory federal, state and local tax withholding obligations arising from the vesting of restricted share units. During the three months ended June 30, 2007, 20,889 shares were withheld upon the vesting of restricted share units.

The Company becomes entitled to an income tax deduction in an amount equal to the taxable income reported by the holders of the stock options and restricted share units when vesting or exercise occurs, the restrictions are released and the shares are issued. Restricted share units are forfeited if the employees terminate prior to vesting.

Stock Appreciation Rights

On February 2, 2004, an officer of the Company was granted 1,000,000 stock appreciation rights (“SARs”), which entitles the officer to receive cash only, and not common shares. The amount of cash received will be equal to the amount by which the trading price of common shares on the exercise notice date exceeds the SARs’ price of $5.20 multiplied by the number of SARs exercised. The SARs vested one quarter immediately on the award date and one quarter on each of the first, second and third anniversaries of the award date. These SARs are not considered part of the Company’s Employees’ and Directors’ Equity Incentive Plan. Applying FIN No. 28 “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans,” the Company is accruing compensation expense over the service period, which is assumed to be the three-year vesting period, using a graded approach. Through March 31, 2006, the Company measured compensation expense as the amount by which the market value of common shares exceeded the SARs’ price at each reporting date. Effective April 1, 2006, upon the adoption of SFAS No. 123(R), the Company measures compensation expense based on the fair value of the SARs which is determined by using the Black-Scholes option-pricing model at each reporting date. For the three months

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

ended June 30, 2007, the following assumptions were used in the Black-Scholes option-pricing model: Volatility of 36.7%, Risk Free Rate of 4.9%, Expected Term of 1.6 years, and Dividend of 0%. At June 30, 2007, the market price of our common shares was $11.03, the weighted average fair value of the SARs was $6.27, and all 1,000,000 of the SARs had vested. Due to the decrease in the market price of its common shares, the Company recorded a reduction in stock-based compensation expense in the amount of $0.4 million in general and administration expenses in the unaudited condensed consolidated statements of operations for the three months ended June 30, 2007 (2006 — $0.4 million). During the year ended March 31, 2005 the officer exercised 150,000 of the vested SARs and the Company paid $0.9 million. The compensation expense amount in the period is calculated by using the fair value of the SARs, multiplied by the remaining 1,000,000 SARs assumed to have vested under the graded methodology less the 150,000 SARs exercised less the amount previously recorded. At June 30, 2007, the Company has a stock-based compensation liability accrual in the amount of $5.3 million (March 31, 2007 — $5.7 million) included in accounts payable and accrued liabilities on the unaudited condensed consolidated balance sheets relating to these SARs.


12.	Segment Information

SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information” requires the Company to make certain disclosures about each reportable segment. The Company’s reportable segments are determined based on the distinct nature of their operations and each segment is a strategic business unit that offers different products and services and is managed separately. The Company evaluates performance of each segment using segment profit (loss) as defined below. The Company has two reportable business segments: Motion Pictures and Television.

Motion Pictures consists of the development and production of feature films, acquisition of North American and worldwide distribution rights, North American theatrical, video and television distribution of feature films produced and acquired and worldwide licensing of distribution rights to feature films produced and acquired.

Television consists of the development, production and worldwide distribution of television productions, including television series, television movies and mini-series and non-fiction programming.

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Segmented information by business unit is as follows:


	Three Months			Three Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Amounts in thousands)

Segment revenues
Motion Pictures	$	170,322		$	165,186
Television		28,420			7,270

	$	198,742		$	172,456

Direct operating expenses
Motion Pictures	$	59,630		$	61,953
Television		27,428			6,592

	$	87,058		$	68,545

Distribution and marketing
Motion Pictures	$	132,859		$	85,261
Television		2,642			1,785

	$	135,501		$	87,046

General and administration
Motion Pictures	$	7,415		$	6,814
Television		1,826			150

	$	9,241		$	6,964

Segment profit (loss)
Motion Pictures	$	(29,582	)	$	11,158
Television		(3,476	)		(1,257	)

	$	(33,058	)	$	9,901

Acquisition of investment in films and television programs
Motion Pictures	$	56,073		$	39,281
Television		80,066			21,158

	$	136,139		$	60,439

Purchases of property and equipment amounted to $2.0 million and $1.8 million for the three months ending June 30, 2007 and 2006, respectively, all primarily pertaining to the corporate headquarters.

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Segment profit (loss) is defined as segment revenue less segment direct operating, distribution and marketing, and general and administration expenses. The reconciliation of total segment profit (loss) to the Company’s loss before income taxes is as follows:


	Three Months			Three Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Amounts in thousands)

Company’s total segment profit (loss)	$	(33,058	)	$	9,901
Less:
Corporate general and administration		(17,599	)		(12,269	)
Depreciation		(908	)		(544	)
Interest expense		(3,860	)		(4,676	)
Interest and other income		3,803			2,561
Equity interests income (loss)		(807	)		58

Loss before income taxes	$	(52,429	)	$	(4,969	)

The following table sets forth significant assets as broken down by segment and other unallocated assets as of June 30, 2007 and March 31, 2007:


	June 30, 2007						March 31, 2007
	Motion						Motion
	Pictures		Television		Total		Pictures		Television		Total
	(Amounts in thousands)

Significant assets by segment
Accounts receivable	$	64,505	$	40,729	$	105,234	$	85,294	$	45,202	$	130,496
Investment in films and television programs		425,043		154,714		579,757		397,346		95,794		493,140
Goodwill		173,530		13,961		187,491		173,530		13,961		187,491

	$	663,078	$	209,404	$	872,482	$	656,170	$	154,957	$	811,127

Other unallocated assets (primarily cash and available-for-sale investments)						289,846						325,968

Total assets					$	1,162,328					$	1,137,095


13.	Contingencies

The Company is from time to time involved in various claims, legal proceedings and complaints arising in the ordinary course of business. The Company does not believe that adverse decisions in any such pending or threatened proceedings, or any amount which the Company might be required to pay by reason thereof, would have a material adverse effect on the financial condition or future results of the Company. The Company has provided an accrual for estimated losses under the above matters as of June 30, 2007, in accordance with SFAS No. 5, “Accounting for Contingencies.”


14.	Consolidating Financial Information

In October 2004, the Company sold $150.0 million of the 2.9375% Notes, through its wholly owned U.S. subsidiary Lions Gate Entertainment Inc. (the “Issuer”). The 2.9375% Notes, by their terms, are fully and

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

unconditionally guaranteed by the Company. On February 4, 2005, the Company filed a registration statement on Form S-3 to register the resale of the 2.9375% Notes and common shares issuable on conversion of the 2.9375% Notes. On March 3, 2005, the registration statement was declared effective by the SEC.

In February 2005, the Company sold $175.0 million of the 3.625% Notes through the Issuer. The 3.625% Notes, by their terms, are fully and unconditionally guaranteed by the Company. On March 29, 2005, and as amended April 6, 2005, the Company filed a registration statement on Form S-3 to register the resale of the 3.625% Notes and common shares issuable on conversion of the 3.625% Notes. On April 13, 2005, the registration statement was declared effective by the SEC.

The following tables present unaudited condensed consolidating financial information as of June 30, 2007 and March 31, 2007 and for the three months ended June 30, 2007 and 2006 for (1) the Company, on a stand-alone basis, (2) the Issuer, on a stand-alone basis, (3) the non-guarantor subsidiaries of the Company (including the subsidiaries of the Issuer), on a combined basis (collectively, the “Other Subsidiaries”) and (4) the Company, on a consolidated basis.

BALANCE SHEET


	As of June 30, 2007
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated
	(Amounts in thousands)

BALANCE SHEET
Assets
Cash and cash equivalents	$	2,127		$	45,921		$	10,532		$	—		$	58,580
Restricted cash		—			3,256			1,388			—			4,644
Investments — auction rate securities		—			166,330			—			—			166,330
Investments — equity securities		—			—			4,916			—			4,916
Accounts receivable, net		638			880			103,716			—			105,234
Investment in films and television programs		262			6,651			572,903			(59	)		579,757
Property and equipment		—			12,951			1,256			—			14,207
Goodwill		10,173			—			177,318			—			187,491
Other assets		2,132			58,176			30,234			(49,373	)		41,169
Investment in subsidiaries		285,483			572,062			(64,900	)		(792,645	)		—

	$	300,815		$	866,227		$	837,363		$	(842,077	)	$	1,162,328


Liabilities and Shareholders’ Equity (Deficiency)
Accounts payable and accrued liabilities	$	851		$	22,905		$	151,216		$	—		$	174,972
Participation and residuals		180			1,623			184,926			—			186,729
Film obligations		75			5,500			141,915			—			147,490
Subordinated notes		—			325,000			3,718			—			328,718
Deferred revenue		—			—			101,066			—			101,066
Intercompany payables (receivables)		(243,629	)		428,562			54,011			(238,944	)		—
Intercompany equity		319,985			93,217			270,983			(684,185	)		—
Shareholders’ equity (deficiency)		223,353			(10,580	)		(70,472	)		81,052			223,353

	$	300,815		$	866,227		$	837,363		$	(842,077	)	$	1,162,328

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

STATEMENT OF OPERATIONS


	Three Months Ended June 30, 2007
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated
	(Amounts in thousands)

Revenues	$	47		$	2,207		$	197,881		$	(1,393	)	$	198,742
EXPENSES:
Direct operating		—			93			86,965			—			87,058
Distribution and marketing		—			—			135,501			—			135,501
General and administration		452			16,235			10,153			—			26,840
Depreciation		—			1			907			—			908

Total expenses		452			16,329			233,526			—			250,307

OPERATING LOSS		(405	)		(14,122	)		(35,645	)		(1,393	)		(51,565	)

Other Expense (Income):
Interest expense		—			3,855			5			—			3,860
Interest income		(14	)		(3,790	)		1			—			(3,803	)

Total other expenses (income)		(14	)		65			6			—			57

INCOME (LOSS) BEFORE EQUITY INTERESTS AND INCOME TAXES		(391	)		(14,187	)		(35,651	)		(1,393	)		(51,622	)
Equity interests income (loss)		(52,727	)		(37,288	)		(867	)		90,075			(807	)

INCOME (LOSS) BEFORE INCOME TAXES		(53,118	)		(51,475	)		(36,518	)		88,682			(52,429	)
Income tax provision (benefit)		—			48			641			—			689

NET INCOME (LOSS)	$	(53,118	)	$	(51,523	)	$	(37,159	)	$	88,682		$	(53,118	)

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

STATEMENT OF CASH FLOWS


	Three Months Ended June 30, 2007
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating		Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments		Consolidated
	(Amounts in thousands)

NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	(333	)	$	(69,241	)	$	(10,797	)	$	—	$	(80,371	)

INVESTING ACTIVITIES:
Purchases of investments — auction rate securities		—			(172,442	)		—			—		(172,442	)
Sales of investments — auction rate securities		—			243,491			—			—		243,491
Purchases of equity securities		—			—			(3,432	)		—		(3,432	)
Proceeds from sale of equity securities		—			16,343			—			—		16,343
Purchases of property and equipment		—			(1,746	)		(271	)		—		(2,017	)

NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES		—			85,646			(3,703	)		—		81,943

FINANCING ACTIVITIES:
Exercise of stock options		390			—			—			—		390
Borrowings from financing obligation		—			—			3,718			—		3,718

NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES		390			—			3,718			—		4,108

NET CHANGE IN CASH AND CASH EQUIVALENTS		57			16,405			(10,782	)		—		5,680

FOREIGN EXCHANGE EFFECT ON CASH		162			(689	)		1,930			—		1,403
CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD		1,908			28,347			21,242			—		51,497

CASH AND CASH EQUIVALENTS — END OF PERIOD	$	2,127		$	44,063		$	12,390		$	—	$	58,580

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

BALANCE SHEET


	As of March 31, 2007
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated
	(Amounts in thousands)

Assets
Cash and cash equivalents	$	1,908		$	28,347		$	21,242		$	—		$	51,497
Restricted cash		—			2,475			2,440			—			4,915
Investments — auction rate securities		—			237,379			—			—			237,379
Investments — equity securities		—			—			125			—			125
Accounts receivable, net		281			17,261			112,954			—			130,496
Investment in films and television programs		—			6,632			486,508			—			493,140
Property and equipment		—			11,230			1,865			—			13,095
Goodwill		—			—			187,491			—			187,491
Other assets		59			10,675			8,223			—			18,957
Investment in subsidiaries		361,898			639,289			—			(1,001,187	)		—

	$	364,146		$	953,288		$	820,848		$	(1,001,187	)	$	1,137,095


Liabilities and Shareholders’ Equity (Deficiency)
Accounts payable and accrued liabilities	$	390		$	28,313		$	126,914		$	—		$	155,617
Participation and residuals		—			229			170,927			—			171,156
Film obligations		—			5,500			162,384			—			167,884
Subordinated notes		—			325,000			—			—			325,000
Deferred revenue		—			—			69,548			—			69,548
Intercompany payables (receivables)		(204,119	)		555,762			(126,108	)		(225,535	)		—
Intercompany equity		319,985			93,217			364,536			(777,738	)		—
Shareholders’ equity (deficiency)		247,890			(54,733	)		52,647			2,086			247,890

	$	364,146		$	953,288		$	820,848		$	(1,001,187	)	$	1,137,095

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

STATEMENT OF OPERATIONS


	Three Months Ended June 30, 2006
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated
	(Amounts in thousands)

Revenues	$	—		$	3,618		$	168,838		$	—		$	172,456
EXPENSES:
Direct operating		—			—			68,545			—			68,545
Distribution and marketing		—			346			86,700			—			87,046
General and administration		391			11,860			6,982			—			19,233
Depreciation		—			13			531			—			544

Total expenses		391			12,219			162,758			—			175,368

OPERATING INCOME (LOSS)		(391	)		(8,601	)		6,080			—			(2,912	)

Other Expenses (Income):
Interest expense		100			4,497			278			(199	)		4,676
Interest income		(27	)		(2,497	)		(236	)		199			(2,561	)

Total other expenses (income), net		73			2,000			42			—			2,115

INCOME (LOSS) BEFORE EQUITY INTERESTS AND INCOME TAXES		(464	)		(10,601	)		6,038			—			(5,027	)
Equity interests income (loss)		(3,419	)		6,728			58			(3,309	)		58

INCOME (LOSS) BEFORE INCOME TAXES		(3,883	)		(3,873	)		6,096			(3,309	)		(4,969	)
Income tax provision (benefit)		(279	)		399			(1,485	)		—			(1,365	)

NET INCOME (LOSS)	$	(3,604	)	$	(4,272	)	$	7,581		$	(3,309	)	$	(3,604	)

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

STATEMENT OF CASH FLOWS


	Three Months Ended June 30, 2006
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating		Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments		Consolidated
	(Amounts in thousands)

NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	3,591		$	(24,882	)	$	6,267		$	—	$	(15,024	)

INVESTING ACTIVITIES:
Purchases of investments — auction rate securities		—			(165,620	)		—			—		(165,620	)
Sales of investments — auction rate securities		—			190,594			—			—		190,594
Purchases of property and equipment		—			(153	)		(1,678	)		—		(1,831	)

NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES		—			24,821			(1,678	)		—		23,143

FINANCING ACTIVITIES:
Exercise of stock options		353			—			—			—		353

NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES		353			—			—			—		353

NET CHANGE IN CASH AND CASH EQUIVALENTS		3,944			(61	)		4,589			—		8,472

FOREIGN EXCHANGE EFFECT ON CASH		(5,748	)		72			5,084			—		(592	)
CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD		6,541			—			40,437			—		46,978

CASH AND CASH EQUIVALENTS — END OF PERIOD	$	4,737		$	11		$	50,110		$	—	$	54,858


15.	Subsequent Events

Société Générale de Financement du Québec Filmed Entertainment Financing Deal

On July 30, 2007, the Company entered into a four-year filmed entertainment slate financing agreement with Société Générale de Financement du Québec (“SGF”), the Québec provincial government’s investment arm. SGF will finance up to 35% of production costs of television and feature film productions produced in Québec for a four year period for an aggregate investment of up to $140 million and the Company will advance all amounts necessary to fund the remaining budgeted costs. The maximum aggregate of budgeted costs over the four-year period will be $400 million, including the Company’s portion, but no more than $100 million per year. In connection with this agreement the Company and SGF will proportionally share in the proceeds derived from the funded productions after the Company deducts a distribution fee, recoups all distribution expenses and releasing costs, and pays all applicable participations and residuals.


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations.*

Overview

Lions Gate Entertainment Corp. (“Lionsgate,” the “Company,” “we,” “us” or “our”) is a diversified independent producer and distributor of motion pictures, television programming, home entertainment, family entertainment, video-on-demand and music content. We release approximately 18 to 22 motion pictures theatrically per year. Our theatrical releases include films we produce in-house and films we acquire from third parties. We also have produced approximately 77 hours of television programming on average each of the last three years. Our disciplined approach to acquisition, production, and distribution is designed to maximize our profit by balancing our financial risks against the probability of commercial success of each project. We currently distribute our library of more than 10,000 motion picture titles and television episodes and programs directly to retailers, video rental stores, and pay and free television channels in the U.S., UK and Ireland and indirectly to other international markets through third parties. We own a minority interest in CinemaNow, Inc. (“CinemaNow”), an internet video-on-demand provider, Horror Entertainment, LLC (“FEARnet”), a multiplatform programming and content service provider, and in NextPoint, Inc. (“Break.com”), an online video entertainment service provider. We also own a minority interest in Maple Pictures Corp. (“Maple Pictures”), a Canadian film and television distributor based in Toronto, Canada. We have distribution agreements with Maple Pictures through which we distribute our library and other titles in Canada.

Our revenues are derived from the following business segments:


	•	Motion Pictures, which includes Theatrical, Home Entertainment, Television and International Distribution. Theatrical revenues are derived from the theatrical release of motion pictures in the U.S. which are distributed to theatrical exhibitors on a picture by picture basis. The financial terms that we negotiate with our theatrical exhibitors generally provide that we receive a percentage of the box office results and are negotiated on a picture by picture basis. Home entertainment revenues are derived primarily from the sale of video and DVD releases of our own productions and acquired films, including theatrical releases and direct-to-video releases, to retail stores. In addition, we have revenue sharing arrangements with certain rental stores which generally provide that in exchange for a nominal or no upfront sales price we share in the rental revenues generated by each such store on a title by title basis. Television revenues are primarily derived from the licensing of our productions and acquired films to the domestic cable, free and pay television markets. International revenues include revenues from our UK subsidiary and from the licensing of our productions and acquired films to international markets on a territory-by-territory basis. Our revenues are derived from the U.S., Canada and other foreign countries; none of the foreign countries individually comprised greater than 10% of total revenue.

	•	Television Productions, which includes the licensing to domestic and international markets of one-hour and half-hour drama series, television movies and mini-series and non-fiction programming and revenues from the sale of television production movies or series in other media including home entertainment.

Our primary operating expenses include the following:


	•	Direct Operating Expenses, which include amortization of production or acquisition costs, participation and residual expenses and provision for doubtful accounts. Participation costs represent contingent consideration payable based on the performance of the film to parties associated with the film, including producers, writers, directors or actors, etc. Residuals represent amounts payable to various unions or “guilds” such as the Screen Actors Guild, Directors Guild of America, Writers Guild of America, based on the performance of the film in certain ancillary markets or based on the individual’s (i.e. actor, director, writer) salary level in the television market.

	•	Distribution and Marketing Expenses, which primarily include the costs of theatrical “prints and advertising” and of video and DVD duplication and marketing. Theatrical print and advertising represent the costs of the theatrical prints delivered to theatrical exhibitors and advertising includes the advertising and marketing cost associated with the theatrical release of the picture. Video and DVD duplication represent the cost of the video and DVD product and the manufacturing costs associated with creating the physical products. Video and DVD marketing costs represent the cost of advertising the product at or near the time of its release or special promotional advertising.

	•	General and Administration Expenses, which include salaries and other overhead.

Recent Developments

NextPoint, Inc. On June 29, 2007, the Company purchased a 42% equity interest or 21,000,000 shares of the Series B Preferred Stock of NextPoint, Inc. (“Break.com”), an online video entertainment service provider operating under the branding of “Break.com”, for an aggregate purchase price of $21.4 million which includes $0.5 million of transaction costs, by issuing 1,890,189 of its common shares in exchange for the 21,000,000 shares of the Series B Preferred Stock in Break.com. The Company is accounting for the investment in Break.com using the equity method. The Company has a call option which is exercisable at any time from June 29, 2007 until the earlier of 30 months after June 29, 2007 or a year after a change of control, as narrowly defined, to purchase all, but not less than all, of the remaining 58% equity interests, including in-the-money stock options, warrants and other rights, of Break.com for $58 million in cash or common stock, at the Company’s option. Due to the timing in availability of financial statements from Break.com the Company is recording its share of the Break.com results on a one quarter lag.

Theatrical Slate Financing. On May 25, 2007, the Company, through a series of agreements, closed a theatrical slate funding arrangement. Under this arrangement Pride Pictures LLC (“Pride”), an unrelated entity, will fund, generally, 50% of the Company’s production, acquisition, marketing and distribution costs of theatrical feature films up to an aggregate of approximately $196 million net of transaction costs. The funds available from Pride are generated from the issuance by Pride of $35 million of subordinated debt instruments, $35 million of equity and $134 million from a senior credit facility, which is subject to a borrowing base. The Company is not a party to the Pride debt obligations or their senior credit facility, and provides no guarantee of repayment of these obligations. The percentage of the contribution may vary on certain pictures. The slate of films covered by the arrangement is expected to be comprised of 23 films over the next three years. Pride will participate in a pro rata portion of the pictures net profits or losses similar to a co-production arrangement based on the portion of costs funded. The Company continues to distribute the pictures covered by the arrangement with a portion of net profits after all costs and the Company’s distribution fee being distributed to Pride based on their pro rata contribution to the applicable costs similar to a back-end participation on a film.

Horror Entertainment, LLC. On October 10, 2006, the Company purchased 300 membership interests in Horror Entertainment, LLC (“FEARnet”), a multiplatform programming and content service provider of horror genre films operating under the branding of “FEARnet.” In addition, the Company entered into a five-year license agreement with FEARnet for the US territories and possessions whereby the Company will license content to FEARnet for video-on-demand and broadband exhibition. The Company has agreed not to compete in the area of a channel within the horror genre and the Company cannot license to a horror genre competitor more than 25 titles in any year during the term of the license agreement. The Company made a capital contribution to FEARnet of $5.1 million at the date of acquisition, which includes direct transaction costs of $0.1 million, and has committed to a total capital contribution of $13.3 million, which is expected to be fully funded over the next two-year period. Under certain circumstances, if the Company defaults on any of its funding obligations, then the Company could forfeit its equity and its license agreement with FEARnet could be terminated. The Company is accounting for the investment in FEARnet using the equity method because of the Company’s ownership percentage of 33.33%. Due to the timing in availability of financial statements from FEARnet, the Company is recording its share of the FEARnet results on a one quarter lag. The Company recorded a $0.9 million loss in its equity interests associated with FEARnet’s operations through March 31, 2007 in the consolidated statement of operations for the three months ended June 30, 2007. The investment in FEARnet is $2.7 million as of June 30, 2007 (March 31, 2007 — $3.6 million).

4.875% Notes Conversion. On December 15, 2006, in response to our optional redemption notice, all of the noteholders of the 4.875% Notes voluntarily elected to convert their notes into the Company’s common shares. A total of $60 million of principal was converted into 11,111,108 common shares at a conversion price of $5.40 per share. In connection with this conversion, the principal amount net of the unamortized portion of the financing costs associated with the original conversion of the 4.875% Notes of approximately $2.1 million was recorded as an increase to common shares. The shares issued pursuant to the conversion were previously reserved for such issuance pursuant to the conversion.

Debmar. On July 3, 2006, the Company acquired all of the capital stock of Debmar-Mercury LLC (“Debmar”), an independent distributor of film and television packages. Consideration for the Debmar acquisition was $27.0 million, comprised of a combination of $24.5 million in cash paid on July 3, 2006 and up to $2.5 million in common shares of the Company to be issued on January 1, 2008 if there are no breaches requiring indemnification by the seller of certain representations and warranties made by the seller. An additional $0.2 million has been incurred in acquisition costs. In addition, the Company assumed other obligations (including accounts payable and accrued liabilities and film obligations) of $10.5 million. The $2.5 million of shares to be issued has been recorded as part of the purchase consideration and reflected as a liability. If no incremental liabilities become known by January 1, 2008 then the shares will be issued and the $2.5 million will be reclassified to equity. The purchase price may be adjusted for the payment of additional consideration contingent on the financial performance of Debmar for the five-year period ending June 30, 2011. The Debmar acquisition provides the Company with the rights to distribute certain television properties, such as the television series South Park, and provides the Company with an experienced management team to further enhance its capacity to syndicate its own and others television programming and feature film packages.

The Debmar acquisition was accounted for as a purchase, with the results of operations of Debmar consolidated from July 3, 2006. Goodwill of $8.7 million represents the excess of purchase price over the fair value of the net identifiable tangible and intangible assets acquired.

SGF. On July 30, 2007, the Company entered into a four-year filmed entertainment slate financing agreement with Société Générale de Financement du Québec (“SGF”), the Québec provincial government’s investment arm. SGF will finance up to 35% of production costs of television and feature film productions produced in Québec for a four year period for an aggregate investment of up to $140 million and the Company will advance all amounts necessary to fund the remaining budgeted costs. The maximum aggregate of budgeted costs over the four-year period will be $400 million, including the Company’s portion, but no more than $100 million per year. In connection with this agreement the Company and SGF will proportionally share in the proceeds derived from the funded productions after the Company deducts a distribution fee, recoups all distribution expenses and releasing costs, and pays all applicable participations and residuals.

CRITICAL ACCOUNTING POLICIES

The application of the following accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. As described more fully below, these estimates bear the risk of change due to the inherent uncertainty attached to the estimate. For example, accounting for films and television programs requires the Company to estimate future revenue and expense amounts which, due to the inherent uncertainties involved in making such estimates, are likely to differ to some extent from actual results. For a summary of all of our accounting policies, including the accounting policies discussed below, see note 2 to our March 31, 2007 audited consolidated financial statements.

Generally Accepted Accounting Principles (“GAAP”). Our consolidated financial statements have been prepared in accordance with U.S. GAAP.

Accounting for Films and Television Programs. In June 2000, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 00-2 “Accounting by Producers or Distributors of Films” (“SoP 00-2”). SoP 00-2 establishes accounting standards for producers or distributors of films, including changes in revenue recognition, capitalization and amortization of costs of acquiring films and television programs and accounting for exploitation costs, including advertising and marketing expenses.

We capitalize costs of production and acquisition, including financing costs and production overhead, to investment in films and television programs. These costs are amortized to direct operating expenses in accordance with SoP 00-2. These costs are stated at the lower of unamortized films or television program costs or estimated fair value. These costs for an individual film or television program are amortized and participation and residual costs are accrued in the proportion that current year’s revenues bear to management’s estimates of the ultimate revenue at the beginning of the year expected to be recognized from exploitation, exhibition or sale of such film or television program over a period not to exceed ten years from the date of initial release. For previously released film or

television programs acquired as part of a library, ultimate revenue includes estimates over a period not to exceed twenty years from the date of acquisition.

The Company’s management regularly reviews and revises when necessary its ultimate revenue and cost estimates, which may result in a change in the rate of amortization of film costs and participations and residuals and/or write-down of all or a portion of the unamortized costs of the film or television program to its estimated fair value. The Company’s management estimates the ultimate revenue based on experience with similar titles or title genre, the general public appeal of the cast, actual performance (when available) at the box office or in markets currently being exploited, and other factors such as the quality and acceptance of motion pictures or programs that our competitors release into the marketplace at or near the same time, critical reviews, general economic conditions and other tangible and intangible factors, many of which we do not control and which may change. In the normal course of our business, some films and titles are more successful than anticipated and some are less successful. Accordingly, we update our estimates of ultimate revenue and participation costs based upon the actual results achieved or new information as to anticipated revenue performance such as (for home video revenues) initial orders and demand from retail stores when it becomes available. An increase in the ultimate revenue will generally result in a lower amortization rate while a decrease in the ultimate revenue will generally result in a higher amortization rate and periodically results in an impairment requiring a write down of the film cost to the title’s fair value. These write downs are included in amortization expense within direct operating expenses in our consolidated statements of operations.

Revenue Recognition. Revenue from the sale or licensing of films and television programs is recognized upon meeting all recognition requirements of SoP 00-2. Revenue from the theatrical release of feature films is recognized at the time of exhibition based on the Company’s participation in box office receipts. Revenue from the sale of videocassettes and DVDs in the retail market, net of an allowance for estimated returns and other allowances, is recognized on the later of receipt by the customer or “street date” (when it is available for sale by the customer). Under revenue sharing arrangements, rental revenue is recognized when the Company is entitled to receipts and such receipts are determinable. Revenues from television licensing are recognized when the feature film or television program is available to the licensee for telecast. For television licenses that include separate availability “windows” during the license period, revenue is allocated over the “windows.” Revenue from sales to international territories are recognized when access to the feature film or television program has been granted or delivery has occurred, as required under the sales contract, and the right to exploit the feature film or television program has commenced. For multiple media rights contracts with a fee for a single film or television program where the contract provides for media holdbacks (defined as contractual media release restrictions), the fee is allocated to the various media based on management’s assessment of the relative fair value of the rights to exploit each media and is recognized as each holdback is released. For multiple-title contracts with a fee, the fee is allocated on a title-by-title basis, based on management’s assessment of the relative fair value of each title.

Cash payments received are recorded as deferred revenue until all the conditions of revenue recognition have been met. Long-term, non-interest bearing receivables are discounted to present value.

Reserves. Revenues are recorded net of estimated returns and other allowances. We estimate reserves for video returns based on previous returns and our estimated expected future returns related to current period sales on a title-by-title basis in each of the video businesses. Factors affecting actual returns include limited retail shelf space at various times of the year, success of advertising or other sales promotions, the near term release of competing titles, among other factors. We believe that our estimates have been materially accurate in the past; however, due to the judgment involved in establishing reserves, we may have adjustments to our historical estimates in the future.

We estimate provisions for accounts receivable based on historical experience and relevant facts and information regarding the collectability of the accounts receivable. In performing this evaluation, significant judgments and estimates are involved, including an analysis of specific risks on a customer-by-customer basis for our larger customers and an analysis of the length of time receivables have been past due. The financial condition of a given customer and its ability to pay may change over time and could result in an increase or decrease to our allowance for doubtful accounts, which, when the impact of such change is material, is disclosed in our discussion on direct operating expenses elsewhere in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Income Taxes. The Company is subject to federal and state income taxes in the U.S., and in several foreign jurisdictions in which we operate. We account for income taxes according to SFAS No. 109, “Accounting for Income Taxes” (SFAS No. 109). SFAS No. 109 requires the recognition of deferred tax assets, net of applicable reserves, related to net operating loss carryforwards and certain temporary differences. The standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not or a valuation allowance is applied. Because of our historical operating losses, we have provided a valuation allowance against our net deferred tax assets. When we have a history of profitable operations sufficient to demonstrate that it is more likely than not that our deferred tax assets will be realized, the valuation allowance will be reversed. However, this assessment of our planned use of our deferred tax assets is an estimate which could change in the future depending upon the generation of taxable income in amounts sufficient to realize our deferred tax assets.

Goodwill. On April 1, 2001, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” Goodwill is reviewed annually for impairment within each fiscal year or between the annual tests if an event occurs or circumstances change that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. The Company performs its annual impairment test as of December 31 in each fiscal year. The Company performed its annual impairment test on its goodwill as of December 31, 2006. No goodwill impairment was identified in any of the Company’s reporting units. Determining the fair value of reporting units requires various assumptions and estimates. The estimates of fair value include consideration of the future projected operating results and cash flows of the reporting unit. Such projections could be different than actual results. Should actual results be significantly less than estimates, the value of our goodwill could be impaired in the future.

Business Acquisitions. The Company accounts for its business acquisitions as a purchase, whereby the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair value. The excess of the purchase price over estimated fair value of the net identifiable assets is allocated to goodwill. Determining the fair value of assets and liabilities requires various assumptions and estimates. These estimates and assumptions are refined with adjustments recorded to goodwill as information is gathered and final appraisals are completed over the allocation period allowed under SFAS No. 141. The changes in these estimates could impact the amount of assets, including goodwill and liabilities, ultimately recorded on our balance sheet as a result of an acquisition and could impact our operating results subsequent to such acquisition. We believe that our estimates have been materially accurate in the past.

Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 123(R). In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)). SFAS No. 123(R) revises SFAS No. 123 and eliminates the alternative to use the intrinsic value method of accounting under APB No. 25. SFAS No. 123(R) requires accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments, to account for these types of transactions using a fair-value-based method. Effective April 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), “Share-Based Payment,” (SFAS No. 123(R)) using the modified-prospective transition method. Under such transition method, compensation cost recognized in the three months ended June 30, 2007 and 2006 includes: (a) compensation cost for all stock options granted prior to, but not yet vested as of, April 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all share-based payments granted on or after April 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). See note 12 for further discussion of the Company’s stock-based compensation in accordance with SFAS No. 123(R).

income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FIN No. 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006.

The Company adopted the provisions of FIN No. 48 on April 1, 2007. The total amount of unrecognized tax benefits as of the date of adoption was $0.5 million that, if recognized, would affect the effective tax rate. The Company expects it is reasonably possible that the unrecognized tax benefits will decrease by $0.5 million within 12 months of this reporting date due to the resolution of audits.

Results of Operations

Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006

Consolidated revenues this quarter of $198.7 million increased $26.2 million, or 15.2%, compared to $172.5 million in the prior year’s quarter. Motion pictures revenue of $170.3 million this quarter increased $5.1 million, or 3.1%, compared to $165.2 million in the prior year’s quarter. Television revenues of $28.4 million this quarter increased $21.1 million, or 289.0%, compared to $7.3 million in the prior year’s quarter.

Motion Pictures Revenue

The increase in motion pictures revenue this quarter was mainly attributable to increases in television and international revenue, offset by decreases in video revenue. The following table sets forth the components of revenue for the motion pictures reporting segment for the three-month periods ended June 30, 2007 and 2006:


	Three Months		Three Months
	Ended		Ended
	June 30,		June 30,		Increase (Decrease)
	2007		2006		Amount			Percent
	(Amounts in millions)

Motion Pictures
Theatrical	$	19.0	$	18.5	$	0.5			2.7	%
Video		103.8		114.8		(11.0	)		(9.6	)%
Television		22.4		14.8		7.6			51.4	%
International		22.7		15.5		7.2			46.5	%
Other		2.4		1.6		0.8			50.0	%

	$	170.3	$	165.2	$	5.1			3.1	%

The following table sets forth the titles contributing significant motion pictures revenue for the three-month periods ended June 30, 2007 and 2006:


Three Months Ended June 30,
2007		2006
	Theatrical and Video		Theatrical and Video
Title	Release Date	Title	Release Date

Theatrical:		Theatrical:
Away From Her	May 2007	Akeelah and the Bee	April 2006
Bug	May 2007	La Mujer De Mi Hermano	April 2006
Delta Farce	May 2007	Larry the Cable Guy: Health Inspector	February 2006
Hostel 2	June 2007	See No Evil	May 2006
The Condemned	April 2007
Video:		Video:
Daddy’s Little Girls	June 2007	Barbie Diaries	May 2006
Employee of the Month	January 2007	Crash	September 2005
Happily N’Ever After	May 2007	Lord of War	January 2006
Pride	June 2007	Madea Goes to Jail	June 2006
Saw 3	January 2007	Madea’s Family Reunion	June 2006
		Saw 2	February 2006
		Waiting	February 2006
		Why Did I Get Married	June 2006
Television:
		Television:
Crank
		Crash
Employee of the Month
		The Devil’s Rejects
Saw 3
The Descent
International:
		International:
Dirty Dancing — Stage Play
		Fierce People
Right at Your Door
		Hard Candy
Saw 3
		Saw 2
The Punisher

Theatrical revenue of $19.0 million increased $0.5 million or 2.7% in this quarter as compared to the prior year’s quarter due to an increase in the number of theatrical releases in the current quarter. In this quarter, the titles listed in the above table as contributing significant theatrical revenue in the current quarter represented individually between 7% and 36% of total theatrical revenue and in the aggregate approximately 90% of total theatrical revenue. In the prior year’s quarter, the titles listed in the above table as contributing significant theatrical revenue represented individually between 6% and 39% of total theatrical revenue and in the aggregate approximately 92% of total theatrical revenue.

Video revenue of $103.8 million decreased $11.0 million or 9.6% in this quarter as compared to the prior year’s quarter. The decrease is due to a decrease in revenues generated from the significant titles listed in the above table as compared to the prior year’s quarter. The titles listed above as contributing significant video revenue in the current quarter represented individually between 2% to 19% of total video revenue and in the aggregate 44% or $45.6 million of total video revenue for the quarter. In the prior year’s quarter, the titles listed above as contributing significant video revenue represented individually between 2% to 27% of total video revenue and in the aggregate 57% or $65.0 million of total video revenue for the quarter. In the current quarter $58.3 million, or 56%, of total video revenue was contributed by titles that individually make up less than 2% of total video revenue, and in the prior year’s quarter this amounted to $49.8 million or 43% of total video revenue.

Television revenue included in motion pictures revenue of $22.4 million in this quarter increased $7.6 million, or 51.4%, compared to the prior year’s quarter. The increase is due to more theatrical titles with television windows opening in the current quarter as compared to the prior year’s quarter. In this quarter, the titles listed above as contributing significant television revenue represented individually between 7% to 31% of total television revenue and in the aggregate 59% of total television revenue for the quarter. In the prior year’s quarter the titles listed above as contributing significant television revenue represented individually between 14% to 29% of total television revenue and in the aggregate 44% of total television revenue for the quarter.

International revenue of $22.7 million increased $7.2 million or 46.5% in this quarter as compared to the prior year’s quarter. Lionsgate UK, established from the acquisition of Redbus in fiscal 2006, contributed $8.0 million, or 35.2% of international revenue in the current quarter, which included revenues from Employee of the Month, Saw III, The Lives of Others, and An American Haunting, compared to $6.2 million, or 40.0%, of total international revenue in the prior year’s quarter. In this quarter, the titles listed in the table above as contributing significant international revenue, which does not include revenue generated from Lionsgate UK, represented individually between 5% to 10% of total international revenue and in the aggregate 27% of total international revenue for the quarter. In the prior year’s quarter the titles listed in the table above as contributing significant revenue represented individually between 3% to 19% of total international revenue and in the aggregate 28% of total international revenue for the quarter.

Television Revenue

The following table sets forth the components of revenue that make up television production revenue for the three-month periods ended June 30, 2007 and 2006:


	Three Months		Three Months
	Ended		Ended
	June 30,		June 30,		Increase (Decrease)
	2007		2006		Amount			Percent
	(Amounts in millions)

Television Production
Domestic series licensing	$	20.0	$	6.1	$	13.9			227.9	%
International		6.1		0.3		5.8			1,933.3	%
Video releases of television production		2.3		0.7		1.6			228.6	%
Other		—		0.2		(0.2	)		100.0	%

	$	28.4	$	7.3	$	21.1			289.0	%

The following table sets forth the number of television episodes delivered in the three months ended June 30, 2007 and 2006, respectively:


	Three Months Ended				Three Months Ended
	June 30, 2007				June 30, 2006
	Episodes		Hours		Episodes		Hours

Domestic Series Licensing
One Hour Series		9		9.0		1		1.0
Half Hour Series		1		0.5		6		3.0

		10		9.5		7		4.0

Television revenue of $28.4 million in this quarter increased by $21.1 million, or 289.0%, compared to $7.3 million in the prior year’s quarter, due primarily to higher revenue from domestic series licensing, international revenue and video releases of television production. Domestic series licensing increased partially due to an increase in episodes delivered of Wildfire, The Dead Zone and The Dresden Files in the three months ended June 30, 2007 as compared to the three months ended June 30, 2006. Domestic series licensing for the current quarter also increased due to $8.6 million of revenue contributed in the current quarter from the July 3, 2006 acquisition of Debmar on television series such as House of Payne and South Park, as compared to nil in the prior year’s quarter. Domestic

series deliveries of one-hour series in this quarter included three one-hour episodes of The Dead Zone, four one-hour episodes of Wildfire Season 4, and two one-hour episodes of The Dresden Files, and of half-hour series included one half-hour episode of Weeds Season 3. In the prior year’s quarter, domestic series deliveries of one-hour series included Wildfire Season 2,and of half-hour series included Weeds Season 2 and Lovespring International.

International revenue of $6.1 million increased by $5.8 million in the current quarter mainly due to international revenue from Hidden Palms, Lovespring International, The Dresden Files and The Dead Zone, compared to international revenue of $0.3 million in the prior year’s quarter from Weeds and Wildfire.

Direct Operating Expenses

The following table sets forth direct operating expenses by segment for the three months ended June 30, 2007 and 2006:


	Three Months Ended									Three Months Ended
	June 30, 2007									June 30, 2006
	Motion									Motion
	Pictures			Television			Total			Pictures			Television			Total
	(Amounts in millions)

Direct operating expenses
Amortization of films and television programs	$	29.2		$	20.7		$	49.9		$	27.0		$	6.2		$	33.2
Participation and residual expense		31.2			6.8			38.0			36.4			0.8			37.2
Amortization of acquired intangible assets		0.2			—			0.2			0.2			—			0.2
Other expenses		(1.0	)		—			(1.0	)		(1.7	)		(0.4	)		(2.1	)

	$	59.6		$	27.5		$	87.1		$	61.9		$	6.6		$	68.5

Direct operating expenses as a percentage of segment revenues		35.0	%		96.8	%		43.8	%		37.5	%		90.4	%		39.7	%

Direct operating expenses include amortization, participation and residual expenses and other expenses. Direct operating expenses of the motion pictures segment of $59.6 million for this quarter were 35.0% of motion pictures revenue, compared to $61.9 million, or 37.5% of motion pictures revenue for the prior year’s quarter. The decrease in direct operating expense of the motion pictures segment in the quarter as a percent of revenue is due to the change in the mix of titles generating revenue compared to the prior year’s quarter. The benefit in other expense in the current quarter resulted primarily from foreign exchange gains of approximately $0.5 million and adjustments to the provision for bad debts due to collection of accounts previously reserved. The benefit in other expense for the prior quarter resulted primarily from the reversal of the provision for doubtful accounts of $2.2 million associated with the collection of a portion of accounts receivable that was previously reserved, related to a large retail customer that declared bankruptcy. Direct operating expenses of the motion pictures segment included charges for write downs of investment in film costs of $2.4 million and $0.3 million in the current quarter and prior year quarter, respectively, due to the lower than anticipated actual performance or previously expected performance of certain titles. In the current quarter, approximately $1.5 million of the write down related to the unanticipated poor performance at the box office on one motion picture.

Direct operating expenses of the television segment of $27.5 million for this quarter were 96.8% of television revenue, compared to $6.6 million, or 90.4% of television revenue for the prior year’s quarter. The increase in direct operating expense of the television segment in the quarter is due to the increase in television production revenue in this quarter compared to prior year’s quarter, and to the write off of film costs associated with a television pilot of approximately $1.2 million.

Distribution and Marketing Expenses

The following table sets forth distribution and marketing expenses by segment for the three months ended June 30, 2007 and 2006:


	Three Months Ended						Three Months Ended
	June 30, 2007						June 30, 2006
	Motion						Motion
	Pictures		Television		Total		Pictures			Television		Total
	(Amounts in millions)

Distribution and marketing expenses
Theatrical	$	83.3	$	—	$	83.3	$	36.0		$	0.7	$	36.7
Home Entertainment		42.5		1.2		43.7		39.7			0.6		40.3
Television		0.3		0.7		1.0		0.4			0.1		0.5
International		6.7		0.7		7.4		9.7			0.4		10.1
Other		0.1		—		0.1		(0.6	)		—		(0.6	)

	$	132.9	$	2.6	$	135.5		85.2			1.8		87.0

The majority of distribution and marketing expenses relate to the motion pictures segment. Theatrical prints and advertising (“P&A”) in the motion pictures segment in this quarter of $83.3 million increased $47.3 million, or 131.4%, compared to $36.0 million in the prior year’s quarter. Domestic theatrical P&A from the motion pictures segment in this quarter included P&A incurred on the release of titles such as Hostel 2, Bug, Delta Farce, The Condemned, and Slow Burn, which individually represented between 12% and 25% of total theatrical P&A and in the aggregate accounted for 86% of the total theatrical P&A. Theatrical P&A in the prior year’s quarter included P&A incurred on the release of titles such as Akeelah and the Bee, See No Evil, Hard Candy and La Mujer De Mi Hermano domestically, which individually represented between 5% and 56% of total theatrical P&A and in the aggregate accounted for 92% of total theatrical P&A. Hard Candy, released theatrically during the three months ended June 30, 2006 individually contributed less than 3% of total theatrical revenue in the prior year’s quarter. Slow Burn, released theatrically during the three months ended June 30, 2007 individually contributed less than 3% of total theatrical revenue in the current quarter.

Video distribution and marketing costs on motion pictures and television product in this quarter of $43.7 million increased $3.4 million, or 8.4%, compared to $40.3 million in the prior year’s quarter. Video distribution and marketing costs as a percentage of video revenues was 41.2% and 34.9% in the current quarter and prior year’s quarter, respectively. This increase is mainly due to the decline in video revenue from the significant releases in the quarter noted in the table above and partially due to higher video marketing costs in relation to revenues generated in the current quarter in comparison to the prior year’s quarter.

International distribution and marketing expenses in this quarter includes $4.9 million of distribution and marketing costs from Lionsgate UK, compared to $7.3 million in the prior year’s quarter. Current quarter distribution and marketing expenses of the television segment include $0.7 million from the July 3, 2006 acquisition of Debmar.

General and Administrative Expenses

The following table sets forth general and administrative expenses by segment for the three months ended June 30, 2007 and 2006:


	Three Months		Three Months
	Ended		Ended
	June 30,		June 30,		Increase (Decrease)
	2007		2006		Amount		Percent
	(Amounts in millions)

General and Administrative Expenses
Motion Pictures	$	7.4	$	6.8	$	0.6		8.8	%
Television		1.8		0.1		1.7		NM
Corporate		17.6		12.3		5.3		43.1	%

	$	26.8	$	19.2	$	7.6		39.6	%


(NM)		Percentage not meaningful.

The increase in general and administrative expenses is primarily due to corporate general and administration expenses of $17.6 million which increased by $5.3 million or 43.1% compared to $12.3 million in the prior year’s quarter. The increase in corporate general and administrative expenses is primarily due to an increase in stock-based compensation of approximately $2.8 million (see table below), an increase in salaries and related expenses of approximately $1.7 million and an increase of $0.8 million in other general overhead costs. The increase in salaries and related expenses of $1.7 million includes a $1.5 million special bonus related to the closing of the Company’s theatrical slate financing agreement on May 25, 2007. In this quarter, $1.8 million of production overhead was capitalized compared to $1.4 million in the prior year’s quarter.

The following table sets forth corporate stock based compensation expense (benefit) for the three months ended June 30, 2007 and 2006:


	Three Months			Three Months
	Ended			Ended
	June 30,			June 30,			Increase (Decrease)
	2007			2006			Amount		Percent
	(Amounts in millions)

Corporate Stock Based Compensation Expense (Benefit):*
Stock options	$	0.8		$	0.5		$	0.3		71.4	%
Restricted share units		2.0			0.5			1.5		NM
Stock appreciation rights		(0.4	)		(1.4	)		1.0		(72.5	)%

	$	2.4		$	(0.4	)	$	2.8		NM


(NM)		Percentage not meaningful.

(*)		The above table reflects only corporate stock based compensation expense (benefit) and not motion picture or television stock based compensation expense (benefit), which amounted to $0.1 million and nil, respectively.

At June 30, 2007, as disclosed in note 11 to the unaudited condensed consolidated financial statements, there were unrecognized compensation costs of approximately $27.0 million related to stock options and restricted stock units previously granted, including the first annual installment of share grants that were subject to performance targets, which will be expensed over the remaining vesting periods. In addition, in fiscal 2007 and the three months ended June 30, 2007 the Company agreed to issue 702,500 shares of restricted stock units also subject to performance targets to three key executive officers. These restricted stock units will vest in three and four annual installments assuming annual performance targets to be set by the Company’s compensation committee have been met. The fair value of the 702,500 shares whose performance targets have not been set was $7.7 million, based on the market price of the Company’s common stock as of June 30, 2007. The market value will be remeasured when

the performance criteria are set and the value will be expensed over the remaining vesting periods once it becomes probable that the performance targets will be satisfied.

The increase in general and administrative expenses of the motion pictures segment of $0.6 million or 8.8% is primarily due to general and administrative costs associated with Lionsgate UK. The increase in general and administrative expenses of the television segment is primarily due to the July 3, 2006 acquisition of Debmar.

Depreciation and Other Expenses (Income)

Depreciation of $0.9 million this quarter increased $0.4 million, or 80.0% from $0.5 million in the prior year’s quarter.

Interest expense of $3.9 million this quarter decreased $0.8 million, or 17.0%, from prior year’s quarter of $4.7 million.

Interest and other income of $3.8 million for the quarter ended June 30, 2007, compared to $2.6 million in the prior year’s quarter. Interest and other income this quarter was earned on the cash balance and available-for-sale investments held during the three months ended June 30, 2007 which were higher than in the prior year’s quarter.

The equity interests in this quarter included a $0.9 million loss from the Company’s 33.33% equity interests in Horror Entertainment, LLC and a $0.1 million gain from the Company’s 10% equity interest in Maple. For the three months ended June 30, 2006, the equity interests consisted of a gain that was less than $0.1 million from the Company’s equity interest in Maple.

The Company had an income tax expense of $0.7 million or (1.3%) of loss before income taxes in the three months ended June 30, 2007, compared to a benefit of $1.4 million in the three months ended June 30, 2006. The tax expense reflected in the current quarter is primarily attributable to U.S. state taxes. The Company’s actual annual effective tax rate will differ from the statutory federal rate as a result of several factors, including changes in the valuation allowance against net deferred tax assets, non-temporary differences, foreign income taxed at different rates, and state and local income taxes. Income tax loss carryforwards amount to approximately $116.4 million for U.S. federal income tax purposes available to reduce income taxes over twenty years, $80.4 million for U.S. state income tax purposes available to reduce income taxes over future years with varying expirations, $29.2 million for Canadian income tax purposes available to reduce income taxes over eight years, $13.7 million for UK income tax purposes available indefinitely to reduce future income taxes and $0.9 million for Australian income tax purposes available indefinitely to reduce future income taxes.

Net loss for the three months ended June 30, 2007 was $53.1 million, or basic and diluted net loss per common share of $0.45 on 117.1 million weighted average shares outstanding. This compares to net loss for the three months ended June 30, 2006 of $3.6 million or basic and diluted net loss per common share of $0.03 on 103.3 million weighted average common shares outstanding.

Liquidity and Capital Resources

Our liquidity and capital resources are provided principally through cash generated from operations, issuance of subordinated notes and our credit facility.

In October 2004, Lions Gate Entertainment Inc. sold $150.0 million of the 2.9375% Notes that mature on October 15, 2024. We received $146.0 million of net proceeds after paying placement agents’ fees. Offering expenses were $0.7 million. The 2.9375% Notes are convertible at the option of the holder, at any time prior to maturity, upon satisfaction of certain conversion contingencies, into common shares of the Company at a conversion rate of 86.9565 shares per $1,000 principal amount of the 2.9375% Notes, which is equal to a conversion price of approximately $11.50 per share, subject to adjustment upon certain events. From October 15, 2009 to October 14, 2010, Lions Gate Entertainment Inc. may redeem the 2.9375% Notes at 100.839%; from October 15, 2010 to October 14, 2011, Lions Gate Entertainment Inc. may redeem the 2.9375% Notes at 100.420%; and thereafter, Lions Gate Entertainment Inc. may redeem the notes at 100%.

In February 2005, Lions Gate Entertainment Inc. sold $175.0 million of the 3.625% Notes that mature on March 15, 2025. We received $170.2 million of net proceeds after paying placement agents’ fees. Offering expenses

were approximately $0.6 million. The 3.625% Notes are convertible at the option of the holder, at any time prior to maturity into common shares of the Company at a conversion rate of 70.0133 shares per $1,000 principal amount of the 3.625% Notes, which is equal to a conversion price of approximately $14.28 per share, subject to adjustment upon certain events. Lions Gate Entertainment Inc. may redeem the 3.625% Notes at its option on or after March 15, 2012 at 100% of their principal amount plus accrued and unpaid interest.

Credit Facility. At June 30, 2007, the Company had a $215 million revolving line of credit, of which $10 million is available for borrowing by Lionsgate UK in either U.S. dollars or British pounds sterling. At June 30, 2007, the Company had no borrowings (March 31, 2007 — nil) under the credit facility. The credit facility expires December 31, 2008 and bears interest at 2.75% over the “Adjusted LIBOR” or the “Canadian Bankers Acceptance” rate, or 1.75% over the U.S. or Canadian prime rates. The availability of funds under the credit facility is limited by the borrowing base. Amounts available under the credit facility are also limited by outstanding letters of credit which amounted to $15.2 million at June 30, 2007. At June 30, 2007 there was $199.8 million available under the credit facility. The Company is required to pay a monthly commitment fee of 0.50% per annum on the total credit facility of $215 million less the amount drawn. Right, title and interest in and to all personal property of Lions Gate Entertainment Corp. and Lions Gate Entertainment Inc. is pledged as security for the credit facility. The credit facility is senior to the Company’s film obligations and senior subordinated notes. The credit facility restricts the Company from paying cash dividends on its common shares.

Filmed Entertainment Backlog. Backlog represents the amount of future revenue not yet recorded from executed contracts for the licensing of films and television product for television exhibition and in international markets. Backlog at June 30, 2007 and March 31, 2007 is $304.0 million and $320.2 million, respectively.

Cash Flows Used in Operating Activities. Cash flows used in operating activities for the three months ended June 30, 2007 were $80.4 million compared to cash flows used in operating activities in the three months ended June 30, 2006 of $15.0 million. The increase in cash used in operating activities was primarily due to the increase in the net loss incurred in the three months ended June 30, 2007 and increase in investment in film, decreases in film obligations and less cash provided on the decrease in accounts receivable than in prior period. The above increased use of cash in the three months ended June 30, 2007 was offset by sources of cash provided by increases in deferred revenue and accounts payable.

Cash Flows Provided by Investing Activities. Cash flows provided by investing activities of $81.9 million for the three months ended June 30, 2007 consisted of net proceeds from the sale of $71.0 million of auction rate securities, $12.9 million in net proceeds from the sale of equity securities and $2.0 million for purchases of property and equipment. Cash flows provided by investing activities of $23.1 million in the three months ended June 30, 2006 included the net proceeds of $24.9 million of investments available-for-sale, offset by $1.8 million for purchases of property and equipment.

Cash Flows Provided by Financing Activities. Cash flows provided by financing activities of $4.1 million in the three months ended June 30, 2007 consisted of cash received from borrowings and the issuance of common shares. Cash flows provided by financing activities of $0.4 million in the three months ended June 30, 2006 consisted of cash received from the issuance of common shares.

Anticipated Cash Requirements. The nature of our business is such that significant initial expenditures are required to produce, acquire, distribute and market films and television programs, while revenues from these films and television programs are earned over an extended period of time after their completion or acquisition. We believe that cash flow from operations, cash on hand, investments available-for-sale, credit facility availability, tax-efficient financing and production financing available will be adequate to meet known operational cash requirements for the foreseeable future, including the funding of future film and television production, film rights acquisitions and theatrical and video release schedules. We monitor our cash flow liquidity, availability, fixed charge coverage, capital base, film spending and leverage ratios with the long-term goal of maintaining our credit worthiness.

Our current financing strategy is to fund operations and to leverage investment in films and television programs through our cash flow from operations, our credit facility, single-purpose production financing, government incentive programs, film funds, and distribution commitments. In addition, we may acquire businesses or assets, including individual films or libraries, that are complementary to our business. Any such transaction could be financed through our cash flow from operations, credit facilities, equity or debt financing.

Future commitments under contractual obligations as of June 30, 2007 are as follows:


	Year Ended June 30,
	2008		2009		2010		2011		2012		Thereafter		Total
	(Amounts in thousands)

Future annual repayment of debt and other film obligations recorded as of June 30, 2007
Film obligations(1)	$	58,554	$	25,268	$	3,706	$	29,975	$	29,987	$	—	$	147,490
Subordinated notes and other financing obligations		—		—		—		—		—		328,718		328,718

	$	58,554	$	25,268	$	3,706	$	29,975	$	29,987	$	328,718	$	476,208
Contractual commitments by expected repayment date
Distribution and marketing commitments(2)	$	60,397	$	94,186	$	—	$	—	$	—	$	—	$	154,583
Minimum guarantee commitments(3)		61,071		36,001		3,095		2,900		—		—		103,067
Production obligation commitments(3)		2,789		7,457		—		—		—		—		10,246
Operating lease commitments		3,432		4,748		4,438		4,118		1,841		710		19,287
Other contractual obligations		12,869		4,752		256		256		256		—		18,389
Employment and consulting contracts		18,886		13,757		8,188		5,114		512		—		46,457
Interest payments on subordinated notes and other financing obligations		8,285		11,046		11,046		11,046		11,046		135,394		187,863

	$	167,729	$	171,947	$	27,023	$	23,434	$	13,655	$	136,104	$	539,892

Total future commitments under contractual obligations	$	226,283	$	197,215	$	30,729	$	53,409	$	43,642	$	464,822	$	1,016,100


(1)		Film obligations include minimum guarantees, theatrical marketing obligations and production obligations as disclosed in note 6 of our unaudited condensed consolidated financial statements. Repayment dates are based on anticipated delivery or release date of the related film or contractual due dates of the obligation.

(2)		Distribution and marketing commitments represent contractual commitments for future expenditures associated with distribution and marketing of films which the Company will distribute. The payment dates of these amounts are primarily based on the anticipated release date of the film.


(3)		Minimum guarantee commitments represent contractual commitments related to the purchase of film rights for future delivery. Production obligation commitments represent amounts committed for future film production and development to be funded through production financing and recorded as a production obligation liability. Future payments under these obligations are based on anticipated delivery or release dates of the related film or contractual due dates of the obligation. The amounts include future interest payments associated with the obligations.


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk.*

Currency and Interest Rate Risk Management

Market risks relating to our operations result primarily from changes in interest rates and changes in foreign currency exchange rates. Our exposure to interest rate risk results from the financial debt instruments that arise from transactions entered into during the normal course of business. As part of our overall risk management program, we evaluate and manage our exposure to changes in interest rates and currency exchange risks on an ongoing basis. Hedges and derivative financial instruments will be used in the future in order to manage our interest rate and currency exposure. We have no intention of entering into financial derivative contracts, other than to hedge a specific financial risk.

Currency Rate Risk. We incur certain operating and production costs in foreign currencies and are subject to market risks resulting from fluctuations in foreign currency exchange rates. Our principal currency exposure is between Canadian and U.S. dollars. The Company enters into forward foreign exchange contracts to hedge its foreign currency exposures on future production expenses denominated in Canadian dollars. As of June 30, 2007, we had outstanding contracts to sell US$1.7 million in exchange for CDN$2.0 million over a period of five weeks at a weighted average exchange rate of CDN$1.1887. Changes in the fair value representing an unrealized fair value loss on foreign exchange contracts outstanding during the three months ended June 30, 2007 amounted to less than $0.1 million, and are included in accumulated other comprehensive loss, a separate component of shareholders’ equity. During the three months ended June 30, 2007, we completed foreign exchange contracts denominated in Canadian dollars. The net gains resulting from the completed contracts were $0.8 million. These contracts are entered into with a major financial institution as counterparty. We are exposed to credit loss in the event of nonperformance by the counterparty, which is limited to the cost of replacing the contracts, at current market rates. We do not require collateral or other security to support these contracts.

Interest Rate Risk. Our principal risk with respect to our debt is interest rate risk. We currently have minimal exposure to cash flow risk due to changes in market interest rates related to our outstanding debt and other financing obligations. Our credit facility has a nil balance at June 30, 2007. Other financing obligations subject to variable interest rates include $28.2 million owed to film production entities on delivery of titles.

The table below presents repayments and related weighted average interest rates for our interest-bearing debt and production obligations and subordinate notes and other financing obligations as of June 30, 2007.


	Year Ended March 31,
	2008		2009		2010		2011		2012		Thereafter		Total
	(Amounts in thousands)

Revolving Credit Facility:
Variable(1)	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Production Obligations:
Variable(2)		16,093		12,058		—		—		—		—		28,151
Subordinated Notes and Other Financing Obligations:
Fixed(3)		—		—		—		—		—		150,000		150,000
Fixed(4)		—		—		—		—		—		175,000		175,000
Fixed(5)		222		296		296		296		296		3,768		5,174

	$	16,315	$	12,354	$	296	$	296	$	296	$	328,768	$	358,325


(1)		Revolving credit facility, which expires December 31, 2008. At June 30, 2007, the Company had no borrowings under this facility.

(2)		Amounts owed to film production entities on anticipated delivery date or release date of the titles or the contractual due dates of the obligation. Production obligations incur interest at rates ranging from 7.32% to 7.76%. Not included in the table above are approximately $91.4 million of production obligations which are non-interest bearing.

(3)		2.9375% Notes with fixed interest rate equal to 2.9375%.

(4)		3.625% Notes with fixed interest rate equal to 3.625%.

(5)		Other financing obligation with fixed interest rate equal to 8.02%.


Item 4.	*Controls and Procedures.*

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods.

As of June 30, 2007, the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of our disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures were effective as of June 30, 2007.

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) of the Exchange Act, the Company, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, also evaluated whether any changes occurred to the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, such control. Based on that evaluation, there has been no such change during the period covered by this report.

PART II — OTHER INFORMATION


Item 1.	*Legal Proceedings.*

None


Item 1A.	*Risk Factors.*

None


Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds.*

None


Item 3.	*Defaults Upon Senior Securities.*

None


Item 4.	*Submission of Matters to a Vote of Security Holders.*

None


Item 5.	*Other Information.*

None


Item 6.	*Exhibits.*


Exhibit
Number			Description of Documents

	3	.1(1)	Articles
	3	.2(2)	Notice of Articles
	3	.3(2)	Vertical Short Form Amalgamation Application
	3	.4(2)	Certificate of Amalgamation
	10	.40(3)	Revenue Participation Purchase Agreement dated as of July 25, 2007 among Lions Gate Entertainment Inc., Lions Gate Films Inc., Lions Gate Television Inc., MQP, LLC and SGF Entertainment, Inc.
	10	.41(3)	Master Distribution Agreement (Film Productions) dated as of July 25, 2007 between MQP LLC and Lions Gate Films Inc.
	10	.42(3)	Master Distribution Agreement (Television Productions) dated as of July 25, 2007 between MQP LLC and Lions Gate Television Inc.
	31	.1	Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	.1	Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


(1)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2005 as filed on June 29, 2005.

(2)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007 as filed on May 30, 2007.

(3)		Confidential treatment has been requested for portions of this exhibit. Portions of this document have been omitted and submitted separately to the Securities and Exchange Commission.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LIONS GATE ENTERTAINMENT CORP.


	By:	/s/ James Keegan

Name: James Keegan


	Title:	Duly Authorized Officer and Chief Financial Officer

Date: August 9, 2007

EX-10.40 2 v32671exv10w40.htm EXHIBIT 10.40 Exhibit 10.40

Exhibit 10.40

CONFIDENTIAL TREATMENT REQUESTED: INFORMATION FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED IS OMITTED AND IS NOTED WITH “*****.” AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

REVENUE PARTICIPATION PURCHASE AGREEMENT

Dated as of July 25, 2007

among

MQP, LLC
as Issuer,

SGF ENTERTAINMENT INC.
as a Revenue Participation Holder,

and

LIONS GATE ENTERTAINMENT INC.
as a Revenue Participation Holder,

and

LIONS GATE FILMS INC.
as Distributor for Film Productions

and

LIONS GATE TELEVISION INC.
as Distributor for Television Productions

REVENUE PARTICIPATION PURCHASE AGREEMENT, dated as of July 25, 2007, among MQP, LLC, a Delaware limited liability company, as “Issuer” and SGF ENTERTAINMENT INC., a Delaware corporation (“SGF”), LIONS GATE ENTERTAINMENT INC. (“LGEI”), LIONS GATE FILMS INC., a Delaware corporation (“LGF”), and LIONS GATE TELEVISION INC., a Delaware corporation (“LGTV”).

INTRODUCTORY STATEMENT

Terms in this Agreement are used as defined in Article 1 or as defined elsewhere herein.

Whereas on the Initial Closing Date Issuer wishes to issue and sell, and the Revenue Participation Holders wish to purchase, the Initial Revenue Participations subject to the terms hereof in accordance herewith.

Accordingly, the parties hereto hereby agree as follows:

1. DEFINITIONS

For the purposes hereof, unless the context otherwise requires, the following terms shall have the meanings indicated, all accounting terms not otherwise defined herein shall have the respective meanings accorded to them under GAAP. Unless the context otherwise requires, any of the following terms may be used in the singular or the plural, depending on the reference:

“Accounting Period” shall mean, with respect to a Funded Qualifying Project, (i) each ***** during the ***** following the Release Date for such Funded Qualifying Project; and (ii) thereafter, each quarterly period during the Term; provided, however, that the first Accounting Period for each Funded Qualifying Project shall commence on the date of receipt of the first Gross Receipts for such Funded Qualifying Project.

“Adjusted Receipts” has the meaning attributed thereto in the Master Distribution Agreement.

“Affiliate” shall mean any Person, which, directly or indirectly, is in control of, is controlled by, or is under common control with another Person. For purposes of this definition, a Person shall be deemed to be “controlled by” another Person if such latter Person possesses, directly or indirectly, the power either to direct or cause the direction of the management and policies of such controlled Person whether by contract or otherwise.

“Affiliate Payment” shall mean, with respect to a Qualifying Project, an amount payable to (i) Issuer, LGEI, Distributor or any of their respective Affiliates, (ii) any officer, director or management of Issuer, LGEI or Distributor or any entity in which officer, director or management of Issuer, LGEI or Distributor has any interest or (iii) any officer, director or management of any affiliate of Issuer, LGEI or Distributor or any entity in which any officer, director or management of any affiliate of Issuer, LGEI or Distributor has any interest, excluding in each case payments expressly permitted hereunder; provided, however, that each Executive Producer Fee shall not be considered an Affiliate Payment.

“Agreement” means this Revenue Participation Purchase Agreement, as amended, supplemented or otherwise modified, renewed or replaced from time to time, and references to “Articles”, “Schedules” and “Sections” refer to Articles, Schedules and Sections of this Agreement.

“Ancillary Rights” means and includes the right to exploit all ancillary, incidental and subsidiary rights in and to any Qualifying Project, including, without limitation, all Merchandising, commercial tie-ins, music, music publishing, soundtrack, photonovel, novelization, screenplay publication, interactive media, multi-media, and theme park (or other “themed” or location-based attraction) rights.

“Applicable Law” shall mean all provisions of statutes, rules, regulations and orders of the United States of America, any state thereof or municipality therein or of any foreign governmental body or of any regulatory agency applicable to the Person in question, and all orders and decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party.

“Board” shall mean the Board of Governors of the Federal Reserve System.

“Business Day” shall mean any day other than a Saturday, Sunday or other day on which banks are required or permitted to close in either the Province of Quebec or the State of California.

“CIPO” shall mean the Canadian Intellectual Property Office.

“Code” shall mean the Internal Revenue Code of 1986 and the rules and regulations issued thereunder, as now and hereafter in effect, as codified at 26 U.S.C. § 1 et seq. or any successor provision thereto.

“Co-Financier” means a Person that is not an Affiliate of LGEI, the Issuer or the Distributor who makes an investment in a Qualifying Project pursuant to a Co-Financing Transaction.

“Co-Financing Amount” means, with respect to a Qualifying Project, all amounts actually received by Issuer or its Affiliates on a non-refundable basis from any Co-Financing Transaction; provided, however, that Co-Financing Amounts shall exclude any Co-Financing Participations.

“Co-Financing Participation” means any amount payable to any Person that is not an Affiliate of LGEI in connection with a Co-Financing Transaction, including pass through and defeasance amounts.

“Co-Financing Transaction” means, with respect to a Funded Qualifying Project, (i) tax advantaged financing transactions, including, without limitation, tax credits, government incentives, labor credits, sale/leaseback transactions, governmental subsidy/rebate programs or similar transactions and other so-called “soft money” transactions, in each case, that are contemplated to create a so-called “soft money” benefit, or (ii) a transaction pursuant to which a Co-Financier provides a Co-Financing Amount.

“Co-Producer” means, with respect to a Qualifying Project, any co-producer, co-venturer, joint venturer or other production participant that is not an Affiliate of LGEI.

“Copyright” means, with respect to a Qualifying Project, all Canadian, United States and other copyrights, whether registered or unregistered, and pending applications to register the same, for or pertaining to such Qualifying Project.

“Copyright Owner” means the owner of the Copyright in any Qualifying Project.

“Direct Competitor” means a direct competitor of LGEI listed in Schedule 9.2.

“Direct Costs” shall mean, with respect to a Qualifying Project, the aggregate of the following costs: all actual and verifiable out-of-pocket costs, charges and expenses incurred by Issuer or an Affiliate in connection with the acquisition (including payments made with respect to guarantees, advances and other payments made to rights holders), development, preparation, production, completion and/or delivery of such Qualifying Project, including, without limitation, Executive Producer Fees, payments for the acquisition of underlying rights, development costs and expenses, pre-production costs and expenses (including development fees attributable to such Qualifying Project), outside legal charges, reasonable and customary outside accounting charges, insurance costs, in each case incurred with respect to such Qualifying Project, reduced by the amount of any Co-Financing Amounts actually received on a non-refundable basis in respect of such Qualifying Project; provided, however, that Direct Costs shall not include (i) any Affiliate Payments; or (ii) any allocation of overhead administrative charges or indirect charges or expenses among pictures (for clarity, the foregoing shall not prevent the single purpose vehicle producing the picture from having a line item in the budget for its own overhead, but such amount will not be considered a Direct Cost, except to the extent used for third party costs and expenses).

“Distribution Expenses” shall have the meaning attributed thereto in the Master Distribution Agreement.

“Distribution Records” shall mean, collectively, books of account in respect of the distribution of each Funded Qualifying Project.

“Distribution Rights” means, with respect to each Funded Qualifying Project, the sole, exclusive and irrevocable right, under copyright, throughout the Term, to (and to license others to) exhibit, distribute, market, display, project, transmit, broadcast, perform, advertise, publicize, exploit, sell copies of, dispose of and otherwise communicate publicly or privately and/or turn to account such Funded Qualifying Project, in whole or in part (and its plot, themes and other elements), and trailers and clips and excerpts therefrom, in any and all languages and versions, in the Territory, on any and all kinds, sizes, gauges and/or widths of film, tape, computer, electronic, digital, on-line transmission by any and every means, method, process or device or other delivery systems now known or hereafter developed, and in all markets and media now known and exploited, now known and hereafter exploited, and not yet known or devised, including, without limitation, Ancillary Rights, Theatrical Rights, Non-Theatrical Rights, Television Rights and Home Video Rights.

“Distributor” shall mean (a) with respect to each Qualifying Project that is a Television Production, Lions Gate Television Inc., a Delaware corporation and (b) with respect to all other Qualifying Projects, Lions Gate Films Inc., a Delaware corporation.

“Dollars” and “$” shall mean lawful money of the United States of America.

“Eligible Project” shall mean any Production that LGEI elects, in its sole discretion, to produce in the Province of Quebec, Canada, and which shall have an MPAA rating no more restrictive than “R”.

“Encumbrance” means any lien (statutory or other), claim, charge, security interest, mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale or other title retention agreement, preference, priority or other security agreement or preferential arrangement of any kind, and any easement, encroachment, covenant, restriction, right of way, defect in title or other encumbrance of any kind.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as heretofore and hereafter amended, as codified at 29 U.S.C. § 1001 et seq. and the regulations promulgated thereunder.

“ERISA Affiliate” shall mean each “Person” (as defined in Section 3(9) of ERISA) which is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code.

“Estimated Tax Credit Amounts” shall mean, for each Qualifying Project, Issuer’s estimate of the Tax Credit Amounts for such Qualifying Project, as accepted by the Revenue Participation Holders.

“Executive Producer Fee” shall mean, for any Qualifying Project, the executive producer fee payable to LGEI being an amount equal to ***** of the Production Budget for such Qualifying Project; provided, however, that LGEI’s Executive Producer Fee shall not be calculated on amounts allocated to actors and actresses in excess of an aggregate amount of ***** in the Production Budget for any Qualifying Project.

“Film Production” means a Production that is intended to be exploited theatrically and specifically excludes a Television Production.

“Free Television” means (a) exhibition over television broadcast stations, whether network stations or independent stations, where no charge is made to the viewer and/or (b) exhibition by means of satellite or cable television for which subscribing members of the public may pay for the transmission service provided by the satellite or cable system, but do not otherwise pay a premium for the programming transmitted by the satellite or cable system.

“Funded Qualifying Project” shall mean any Qualifying Project in which the Revenue Participation Holders have purchased a Revenue Participation.

“GAAP” shall mean generally accepted accounting principles in the United States of America in effect from time to time consistently applied (except for accounting changes in response to FASB releases, or other authoritative pronouncements).

“Governmental Authority” shall mean any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States of America or any foreign jurisdiction.

“Gross Receipts” shall have the meaning ascribed thereto in Schedule “GR”.

“Home Video Rights” means and includes the sole and exclusive right (1) to manufacture, advertise, promote, exploit and distribute a Qualifying Project on a sale, lease or rental basis directly or through licensees, in all languages, versions, and sizes, on all formats of video devices now known or hereafter known or devised, including (a) any and all forms of videocassettes, cartridges, phonograms, tape, video discs, laser discs, 8mm recordings and any other visual or optical recording, (b) any and all forms of DVD (including, without limitation, HD-DVD and Blu-Ray), DVD-ROM, and Internet access-ready DVDs, CD-I and CD-ROM, Video Compact Discs, or (c) on Videograms, and (2) the right to exploit such Qualifying Project by means of Video-On-Demand or Near Video-On-Demand, and all forms of digital or on-line exploitation, distribution and/or transmission (including, without limitation, Internet transmission) and computerized or computer-assisted media.

“Initial Closing Date” shall mean, in connection with the sale of the Initial Revenue Participations, the date on which the conditions precedent set forth in Section 4.1 have been satisfied or waived.

“Initial Revenue Participations” means the Revenue Participations to be purchased on the Initial Closing Date in respect of Qualifying Projects determined by the Revenue Participation Holders as of the Initial Closing Date.

“Intellectual Property Rights” means, with respect to a Qualifying Project, all rights necessary to develop, produce, and exploit such Qualifying Project, including, without limitation, all Copyrights, and all national, foreign, state and common-law registrations, applications for registration, renewals and extensions of the foregoing for such Qualifying Project, regardless of whether any such rights arise under the laws of Canada, the United States or any other state, country or jurisdiction, and all rights and remedies against infringement or other violation thereof.

“Issuer” shall mean MQP, LLC, a Delaware limited liability company.

“Issuer’s Organizational Documents” shall mean collectively, (a) the Certificate of Formation for the Issuer and (b) the Limited Liability Company Operating Agreement for the Issuer, which can only be amended, supplemented or modified with the prior written consent of the Revenue Participation Holders.

“LIBOR” shall mean (a) the rate per annum (expressed on the basis of a 360 day year) determined by National Bank of Canada as being the rate shown on Telerate page 3750 (as defined in the International Swaps and Derivatives Association, Inc. definitions, as modified and amended from time to time) as of 11:00 a.m. (London, England time) on the interest determination date for United States Dollars deposits for a period comparable to the period of the loan upon which interest is to be paid on the basis of LIBOR (the “LIBOR Period”), and if different rates are quoted for United States Dollars deposits in varying amounts, in an amount

which is comparable to the Purchase Price during such LIBOR Period, or (b) if for any reason the Telerate rates are unavailable to determine the rate applicable to LIBOR advances in United States Dollars, “LIBOR” for such LIBOR advances in United States Dollars during the relevant LIBOR Period shall mean the rate of interest per annum (expressed on the basis of a 360 day year) determined by National Bank of Canada by reference to the rates quoted on the Reuters Monitor Screen, page LIBOR (or any successor source from time to time) as being the arithmetic average (rounded upwards, if necessary, to the nearest whole multiple of 1/16th of 1%) of the rates offered in London, England by reference banks shown on such screen as of 11:00 a.m. (London, England time) on the interest determination date to make deposits in United States Dollars with leading banks in the London Inter Bank Eurodollar market for a period comparable to such LIBOR Period, and if different rates are quoted for United States Dollars deposits in varying amounts, in an amount which is comparable to the Purchase Price during such LIBOR Period, or (c) if for any reason neither the Telerate rates nor the Reuters Monitor Screen rates are available in respect of the relevant LIBOR Period, “LIBOR” for such LIBOR advances in United States Dollars during the relevant LIBOR Period shall mean the annual rate of interest (expressed on the basis of a year of 360 days and rounded upwards, if necessary, to the nearest whole multiple of 1/16th of 1%) determined by National Bank of Canada as being the rate of interest at which National Bank of Canada, in accordance with its normal practices, would be prepared to offer to leading banks in the London Inter Bank Eurodollar market for delivery on the first day of the relative LIBOR Period for a period equal to such LIBOR Period based on the number of days comprised therein, deposits in United States Dollars of amounts comparable to the Purchase Price during such LIBOR Period, at or about 11:00 a.m. (London, England time) on the applicable interest determination date.

“LGEI Contribution” shall mean the amount indicated for LGEI under the column “Contribution” in Schedule 2.1, which shall not surpass in any event the Maximum LGEI Funding Amount.

“Margin Stock” shall be as defined in Regulation U.

“Master Distribution Agreement” shall mean collectively, the master distribution agreements between Issuer and Distributor in connection with all Funded Qualifying Projects, which agreements shall not be amended or modified without the Revenue Participation Holders’ prior written consent and which are attached hereto as Schedule “MDA”.

“Material Adverse Effect” shall mean any change or effect that (a) has a materially adverse effect on the business, assets, properties, prospects, operations or financial condition of Issuer, (b) materially impairs the legal right, power or authority of Issuer to perform its obligations hereunder or (c) materially impairs the validity or enforceability of, or materially impairs the rights, remedies or benefits available to the Revenue Participation Holders hereunder.

“Maximum Funding Amount” shall mean the sum of the Maximum LGEI Funding Amount and the Maximum SGF Funding Amount.

“Maximum LGEI Funding Amount” shall mean subject to the terms and conditions hereof $260,000,000, or such greater amount as LGEI may agree to in writing from time to time;

“Maximum SGF Funding Amount” shall mean subject to the terms and conditions hereof $140,000,000 or such greater amount as SGF may agree to in writing from time to time

“Merchandising” includes the right to create and exploit computer, video and other electronic games based upon a Qualifying Project or any element thereof, including the sole and exclusive right to create or license the creation of interactive programs, whether in CD-ROM, DVD (including, without limitation, HD-DVD and Blu-Ray), set-top or arcade formats; and the right to create and exploit toys, comic books and so-called “making of books,” apparel, food and beverages, posters, and any and all other commodities, services or items based upon such Qualifying Project or any element thereof.

“Modified SGF Pro Rata Amount” has the meaning ascribed thereto in Section 2.4.

“Multiemployer Plan” shall mean a plan described in Section 4001(a)(3) of ERISA.

“Near Video-On-Demand” incorporates the definition of Video-On-Demand, except that, instead of the consumer determining the starting time for viewing a Qualifying Project, the consumer is able to select the starting time from viewing times determined by the provider, where the provider permits a selection of starting times not more than 15 minutes apart.

“Nonpublic Information” means information which has not been disseminated in a manner making it available to investors generally, within the meaning of Regulation FD.

“Non-Theatrical Markets” means and includes airlines, schools, libraries, hospitals, hotels, Army, Navy, Air Force and other military or armed services installations, and ships at sea flying the flag of a country in the Territory or which are serviced from within the country of such flag, and other institutions that typically license recorded entertainment materials from programming suppliers.

“Non-Theatrical Rights” means and includes the sole and exclusive right to exploit a Qualifying Project in Non-Theatrical Markets by any and all means, whether now known or hereafter known or devised.

“Other Releasing Costs” shall mean, with respect to a Funded Qualifying Project, the aggregate of the following costs and expenses, which costs and expenses shall be actual out-of-pocket costs and expenses paid or payable within *****: home video/DVD manufacturing, duplication, shipping and marketing costs for such Funded Qualifying Project and all other actual out-of-pocket distribution, manufacturing or other costs and expenses paid to an unaffiliated third party (other than participations, residuals, or as otherwise included in P&A Costs, Direct Costs, or otherwise duplicated costs) with respect to such Funded Qualifying Project.

“P&A Costs” shall mean, with respect to a Funded Qualifying Project that is a motion picture, the aggregate of the following costs, which costs shall be actual out-of-pocket costs paid or payable within ***** or incurred not later than ***** after the date of the first theatrical release: all prints, marketing, advertising, promotion and publicity costs incurred in the exercise by Distributor of the theatrical distribution rights in such Funded Qualifying Project (i) in the United States; and (ii) for any other territory in which Distributor directly distributes such Funded Qualifying Project.

“Pay-Per-View” means exhibition over a service for which subscribers pay a premium on a per-program basis for each program which they choose to receive.

“Pay Television” means exhibition over a service for which subscribers pay a premium for the programming transmitted (e.g., HBO).

“PBGC” shall mean the Pension Benefit Guaranty Corporation or any successor thereto.

“Permitted Encumbrances” means: (a) Encumbrances for taxes not yet due and payable; (b) Encumbrances arising from and pursuant to the Transaction Documents; (c) Encumbrances arising in the ordinary course of production of a Production, including, without limitation, those arising out of or with respect to or pursuant to any collective bargaining agreement (e.g., guild liens, possessory liens of laboratories, transfer facilities and other post-production facilities); (d) Encumbrances created under any distribution agreement entered into with a Subdistributor in the ordinary course of business in connection with the distribution or exploitation of any Funded Qualifying Project; (e) Encumbrances created pursuant to the terms of any Co-Financing Transaction; (f) Encumbrances in favour of any completion guarantor providing a completion guarantee for any Funded Qualifying Project; (g) Encumbrances in favour of any interim financier of the production costs for a Funded Qualifying Project; and (h) the Senior Lender Encumbrances.

“Person” shall mean any natural person, corporation, division of a corporation, limited liability company, partnership, trust, joint venture, association, company, estate, unincorporated organization or government or any agency or political subdivision thereof.

“Plan” shall mean an employee benefit plan within the meaning of Section 3(3) of ERISA, other than a Multiemployer Plan, maintained or contributed to by any party hereto, or any ERISA Affiliate, or any other plan covered by Title IV of ERISA that covers employees of the Revenue Participation Holders.

“Pro Rata Amount” shall mean, for each Revenue Participation Holder, the percentage set out beside such Revenue Participation Holder’s name under the column “Pro Rata Amount” at Schedule 2.1, or such other amount agreed to by both Revenue Participation Holders in respect of any Funded Qualifying Project, provided, however, that SGF shall only be entitled to request a reduction of its Pro Rata Amount where (a) the Maximum SGF Funding Amount has been (or would be) reached and/or (b) Co-Financing Participations are payable to a Co-Financier in respect of such Funded Qualifying Project.

“Production” means any motion picture or television production of every kind and character whatsoever, including, without limitation, all present and future technological developments, whether produced by means of any photographic, electrical, electronic, optical, mechanical or other processes or devices now known or hereafter devised, and their accompanying devices and processes whereby pictures, images, visual and aural representations are recorded or otherwise preserved for projection, reproduction, exhibition, or transmission by any means or media now known or hereafter devised in such manner as to appear to be in motion or sequence, including, without limitation, computer generated pictures and graphics other than video games.

“Production Budget” means the production budget for an Eligible Project.

“Production Services Agreement” shall mean, for each Funded Qualifying Project, a production services agreement, to be entered into between Issuer and a Services Company in the form of the agreement attached hereto as Schedule “PSA” , which agreement may only be amended, restated, supplemented or otherwise modified from time to time with the prior written consent of the Revenue Participation Holders.

“Production Specifications” shall mean, in respect of each Funded Qualifying Project, the documents, information or items listed in Schedule 1, which shall be in form and content satisfactory to the Revenue Participation Holders in their sole discretion, as accepted in writing by the Revenue Participation Holders in respect of each Funded Qualifying Project, which Production Specifications may only be amended, restated or modified with the prior written consent of the Revenue Participation Holders, subject to Section 3.19.

“Projected Budget” shall mean, in respect of each Qualifying Project, the Production Budget for such Qualifying Project, as accepted in writing by the Revenue Participation Holders.

“Purchase Price” shall mean, for each Qualifying Project, each Revenue Participation Holder’s Pro Rata Amount of the actual Direct Costs of such Qualifying Project, less any Tax Credit Amounts for such Qualifying Project provided, however, that (i) prior to confirmation of the actual Direct Costs of such Qualifying Project, the Projected Budget for such Qualifying Project shall be used in lieu of such actual Direct Costs above; (ii) prior to confirmation of the actual Tax Credit Amounts for such Qualifying Project, the Estimated Tax Credit Amounts for such Qualifying Project shall be used above; and (iii) the amount payable by SGF on account of the Purchase Price shall at all times be subject to the Maximum SGF Funding Amount.

“Qualifying Project” shall mean any Eligible Project that is accepted in writing by the Revenue Participation Holders and which shall be based on the Production Specifications.

“Regulation FD” means Regulation FD as promulgated by the US Securities and Exchange Commission under the Securities Act and Exchange Act as in effect from time to time.

“Regulation U” shall mean Regulation U of the Board as it is from time to time in effect and all official rulings and interpretations thereunder or thereof.

“Related Rights” means the right to use the names, photographs, likenesses, acts, poses, sound effects and voices of all artists appearing in each Funded Qualifying Project, the director thereof, and others appearing in or connected with each Funded Qualifying Project in connection with the exploitation of the Distribution Rights in any and all parts of the Territory and to do any and all of the foregoing for promotional purposes on the Internet, and to write and publish articles concerning each Funded Qualifying Project in connection with the exploitation, publicizing, advertising and licensing of each such Funded Qualifying Project, subject only to contractual restrictions of such use in Merchandising, commercial tie-ins or other endorsements, provided, however, that such restrictions shall be customary in the motion picture industry, the television industry, or the video industry, as applicable, including, without limitation, not having any restrictions on the use of any name in the billing block on any item of Merchandising or commercial tie-in.

“Release Date” shall mean, for any Funded Qualifying Project, the date of the initial public exhibition of such Funded Qualifying Project (which, for clarity, shall exclude any festival screenings or test screenings) or, in the case of Television Productions, the date of the initial public broadcast of such Funded Qualifying Project.

“Reportable Event” shall mean any reportable event as defined in Section 4043(c) of ERISA, other than a reportable event as to which provision for 30-day notice to the PBGC has been waived under applicable regulations.

“Repurchase Date” has the meaning ascribed thereto in Section 9.

“Revenue Participation Holders” shall mean SGF and LGEI and each of their respective permitted successors and assigns, and “Revenue Participation Holder” means any one of them.

“Revenue Participation(s)” shall mean collectively, the rights and interests of the Revenue Participation Holders under this Agreement, including, without limitation, the right to receive the amounts described in Section 8; provided, however, that no Revenue Participation shall confer on any Revenue Participation Holder (a) any ownership interest in or to any Funded Qualifying Project, including, without limitation, any copyright therein, (b) any right to make any creative or financial decisions relating to any Funded Qualifying Project (except to the extent required by this Agreement) or (c) any right to develop, produce, distribute or otherwise exploit any Funded Qualifying Project or any rights therein.

“Rights” means, with respect to each Qualifying Project, the Distribution Rights and the Intellectual Property Rights for such Qualifying Project, to the extent owned or controlled by Issuer.

“RP Closing Date” shall mean, in connection with the sale of any Revenue Participation other than the Initial Revenue Participations, the date on which the conditions precedent in Section 4.2 have been satisfied or waived in connection with such Revenue Participation.

“RPMRR” shall mean the Register of Personal Movable Real Rights (Quebec).

“Senior Lender Encumbrances” shall mean the Encumbrances in favour of the Senior Lenders and the Senior Loan Administrative Agent.

“Senior Lender InterCreditor” shall mean the intercreditor agreement to be entered into by SGF and the Senior Loan Administrative Agent.

“Senior Lenders” shall mean the lenders in the Senior Loan Syndicate.

“Senior Loan Administrative Agent” shall mean JPMorgan Chase Bank, National Association.

“Senior Loan Syndicate” shall mean the senior credit facilities in favour of Lions Gate Entertainment Corp. and LGEI administered by the Senior Loan Administrative Agent.

“Services Company” shall mean, for each Funded Qualifying Project, a corporation having a permanent establishment in Quebec which provides production services for such Qualifying Project.

“Settlement Date” shall mean the *****following the end of an Accounting Period.

“Settlement Report” shall have the meaning ascribed thereto in Article 8.

“SGF Contribution” shall mean the amount indicated for SGF under the heading “Contribution” in Schedule 2.1, which shall not surpass in any event the Maximum SGF Funding Amount.

“Subdistributor” shall mean any third party that is not an Affiliate of Distributor to which all or part of the Distribution Rights are licensed or sublicensed to by the Distributor in respect of a Funded Qualifying Project.

“Subsidiary” shall mean with respect to any Person, any corporation, association, joint venture, partnership or other business entity (whether now existing or hereafter organized) of which at least a majority of the voting stock or other ownership interests having ordinary voting power for the election of directors (or the equivalent) is, at the time as of which any determination is being made, owned or controlled by such Person or one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person.

“Tax Credit Amounts” shall mean, for each Funded Qualifying Project, the amounts received by Issuer, a Services Company or any other Person on account of Canadian federal or provincial tax credits and other incentives relating to the production of such Funded Qualifying Project.

“Taxes” shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

“Television Production” means a Production that is intended to be exploited on any form of television including Free Television, Pay Television and Pay-Per-View and specifically excludes a Production exploited theatrically.

“Television Rights” means and includes the sole and exclusive right to exploit a Qualifying Project by means of television signal, without regard as to how such signal is distributed (e.g., broadcast over the air, or via satellite, fiberoptic cable, telephone wire, or any and all forms of Internet, wireless or other computer or digital technology, or any other form of technology, now known or hereafter known or devised. Television Rights includes, the right to exploit such Qualifying Project via Pay Television, Pay-Per-View and Free Television.

“Term” shall mean four (4) years commencing on the date of the first day of principal photography of the first Funded Qualifying Project.

“Territory” means, with respect to a Funded Qualifying Project, those countries and territories for which Issuer controls all or a portion of the Distribution Rights.

“Theatrical Rights” means and includes the sole and exclusive right to rent, lease, license, exhibit, distribute and otherwise deal in and with a Qualifying Project for viewing by the public in theatres, in any and all languages or versions, and including, without limitation, the right to enter into rentals, leases and licenses respecting all theaters or other places of public viewing, without regard as to how such Qualifying Project is distributed to theatres (e.g., on any and all sizes and gauges of film, tape or disc or distribution to theatres by any other means, whether now known or hereafter known or devised, including, without limitation, satellite, cable or other electronic transmission).

“Third Party Participation” means, with respect to a Funded Qualifying Project, any amount payable to any Person other than (i) LGEI, Issuer, Distributor or any Affiliate thereof or (ii) any officer, director, management employee of any of LGEI, Issuer, Distributor or any Affiliate thereof, whether characterized as a deferment, gross participation, net participation, profit participation, contingent compensation, box office bonus, award or credit bonus, or otherwise which amount is based, dependent, computed, or payable, in whole or in part, on the net or gross receipts, earnings, or proceeds derived from such Funded Qualifying Project or any percentage of the foregoing or is payable at such time as any such receipts, earnings, or proceeds equal a specified amount whether such receipts, earnings, or proceeds are computed in the same manner as provided in the Distribution Agreement or are otherwise computed or any similar type of payment or the economic equivalent thereof. For the avoidance of doubt, (a) a “Third Party Participation” shall include “deferments” payable in connection with a Funded Qualifying Project which are fixed obligations in a definite amount whether or not the receipts, earnings, or proceeds of such Funded Qualifying Project equal a specified amount, and (b) a “Third Party Participation” shall not include Co-Financing Participations unless (i) the contractual arrangements with a Co-Financier require such Co-Financier’s Co-Financing Participation to be paid from Gross Receipts in the same position in the Waterfall as Third Party Participations and (ii) such contractual arrangements have been disclosed to the Revenue Participation Holders in the Production Specifications.

“Transaction Documents” means this Agreement, the Master Distribution Agreement, the Production Services Agreements for the Funded Qualifying Projects and all certificates, documents and instruments entered into the Revenue Participation Holders, the Issuer, the Distributor and any applicable Services Company in connection therewith.

“UCC” shall mean the Uniform Commercial Code, as applicable in the State of Delaware.

“USCO” shall mean the United States Copyright Office.

“Videograms” means and includes any and all forms of computer software, or any configuration of computer software and technology, for private use by consumers by any means, whether now known or hereafter known or devised.

“Video-On-Demand” means and includes the transmission of a Qualifying Project through any method now known or hereafter devised, including, without limitation, broadcast television signal, whether analog or digital, or via satellite, cable, telephone wire, fiberoptics, cyberspace, Internet or other computerized or digital technology, on-line transmission, every sort

of electronic transmission or any and all other delivery systems, to a television receiver, computer monitor or other comparable display, whereby the consumer can select such Qualifying Project from a central library and whereby the consumer determines the starting time of such Qualifying Project.

“Waterfall” shall mean the order of disbursement of Gross Receipts for each Funded Qualifying Project, as more particularly described in Section 8.3.

2. PURCHASE AND SALE OF THE REVENUE PARTICIPATIONS

Section 2.1 Revenue Participations.

(a) Notwithstanding anything to the contrary herein, no Revenue Participation Holder shall be liable for any other Revenue Participation Holder’s obligations to purchase Revenue Participations hereunder.

(b) No Revenue Participations may be sold to a Person other than the Revenue Participation Holders without the prior written consent of each of the Revenue Participation Holders.

(c) Notwithstanding the foregoing, LGEI may assign this Agreement or its rights hereunder, including, without limitation, its Revenue Participations, without the need to obtain the prior written consent of Issuer or SGF, (i) in connection with its corporate credit facilities , including, without limitation, the Senior Loan Syndicate, in the form of a grant of a security interest, (ii) in connection with any financing or interim financing of a Funded Qualifying Project in the form of a grant of a security interest, or (iii) to any of its Affiliates, provided, however, that any such assignment hereunder shall be subject to the rights of Issuer and SGF hereunder.

Section 2.2 Purchase and Sale of the Initial Revenue Participations.

(a) Subject to the terms and conditions set forth herein, each Revenue Participation Holder severally (and not jointly) agrees to purchase from Issuer, and Issuer agrees to sell to such Revenue Participation Holder, an Initial Revenue Participation on the Initial Closing Date for an amount equal to the Purchase Price for such Initial Revenue Participations.

Section 2.3 Closing and Closing Deliveries for the Initial Revenue Participations.

(a) The closing of the purchase of the Initial Revenue Participations contemplated by this Agreement shall take place at the offices of LGEI or such other place as the parties agree, upon the satisfaction or waiver of all conditions to closing set forth in Section 4.1.

(b) Subject to the terms and conditions of this Agreement, the parties agree to consummate the following transactions on the Initial Closing Date:

(i) Issuer shall deliver to each of the Revenue Participation Holders the items specified in Section 4.1 relating to those Qualifying Projects that are the subject of the Initial Revenue Participations;

(ii) SGF shall, upon receipt of a copy of the items deliverable to it pursuant to Section 2.3(b)(i), pay to Issuer, to an account designated by Issuer, the aggregate Purchase Price payable for SGF’s Initial Revenue Participations (x) in instalments based upon the schedule of disbursements attached hereto as Schedule 2.3(b)(ii) or (y) in such other instalments as may be agreed by Issuer and SGF; provided, however, that SGF shall not be entitled to receive its Pro Rata Amount of Gross Receipts for such Qualifying Projects under the Waterfall until such time as such Purchase Price is paid in full; and

(iii) LGEI shall, upon receipt of a copy of the items deliverable to it pursuant to Section 2.3(b)(i), pay to Issuer, to an account designated by Issuer, the aggregate Purchase Price payable for LGEI’s Initial Revenue Participations (x) in instalments based upon the schedule of disbursements attached hereto as Schedule 2.3(b)(ii), (y) in instalments based upon the schedule of advances to be made by the financiers or interim financiers of such Qualifying Projects engaged by LGEI or (z) in such other instalments as may be agreed by Issuer and LGEI; provided, however, that LGEI shall not be entitled to receive its Pro Rata Amount of Gross Receipts for such Qualifying Projects under the Waterfall until such time as such Purchase Price is paid in full.

(c) In the event that Issuer or any of its Affiliates finances or interim finances the Direct Costs of any Qualifying Project that is the subject of the Initial Revenue Participations, Issuer shall be entitled to use all or any part of the proceeds of the Purchase Price payable by a Revenue Participation Holder in respect of such Qualifying Project to repay such financing or interim financing and Issuer shall be entitled to direct such Revenue Participation Holder to pay all or any part of such Purchase Price to such financier or interim financier. For greater certainty, the repayment of such financing or interim financing shall exclude any costs, interests and fees associated with such financings or interim financings.

Section 2.4 Purchase and Sale of the Additional Revenue Participations.

(a) Subject to the terms and conditions set forth herein, each Revenue Participation Holder severally (and not jointly) agrees to purchase from Issuer, and Issuer agrees to sell to such Revenue Participation Holder, from time to time throughout the Term, additional Revenue Participations for an amount equal to the applicable Purchase Price for each such Revenue Participation until such time as the Revenue Participation Holders have advanced the Maximum Funding Amount to Issuer on account of Revenue Participations. If the purchase of any Revenue Participation by SGF would result in SGF exceeding the Maximum SGF Funding Amount, SGF may purchase such Revenue Participation (and only such Revenue Participation) for an amount that is less than its ordinary Pro Rata Amount (the “Modified SGF Pro Rata Amount”).

Section 2.5 Closing and Closing Deliveries for the Additional Revenue Participations.

(a) The closing of the purchase of each Revenue Participation (other than the Initial Revenue Participations) contemplated by this Agreement shall take place at the offices of LGEI or such other place as the parties agree, upon the satisfaction or waiver of all conditions to closing set forth in Section 4.2.

(b) Subject to the terms and conditions of this Agreement, the parties agree to consummate the following transactions on the applicable RP Closing Date:

(i) Issuer shall deliver to each of the Revenue Participation Holders the items specified in Section 4.2 relating to the Qualifying Project that is the subject of the applicable Revenue Participation;

(ii) SGF shall, upon receipt of a copy of the items deliverable to it pursuant to Section 2.5(b)(i), pay to Issuer, to an account designated by Issuer, the aggregate Purchase Price payable for SGF’s Revenue Participation in such Qualifying Project (x) in instalments based upon the production cashflow schedule for such Qualifying Project as approved in writing by the Revenue Participation Holders or (y) in such other instalments as may be agreed by Issuer and SGF; provided, however, that SGF shall not be entitled to receive its Pro Rata Amount of Gross Receipts for such Qualifying Project under the Waterfall until such time as such Purchase Price is paid in full; and

(iii) LGEI shall, upon receipt of a copy of the items deliverable to it pursuant to Section 2.5(b)(ii), pay to Issuer, to an account designated by Issuer, the aggregate Purchase Price payable for LGEI’s Revenue Participation for such Qualifying Project (x) in instalments based upon the production cashflow schedule for such Qualifying Project, as approved in writing by the Revenue Participation Holders (y) in instalments based upon the schedule of advances to be made by the financiers or interim financiers of such Qualifying Projects engaged by LGEI or (z) in such other instalments as may be agreed by Issuer and LGEI; provided, however, that LGEI shall not be entitled to receive its Pro Rata Amount of Gross Receipts for such Qualifying Project under the Waterfall until such time as such Purchase Price is paid in full.

(c) In the event that Issuer or any of its Affiliates finances or interim finances the Direct Costs of the Qualifying Project that is the subject of the foregoing Revenue Participation, Issuer shall be entitled to use all or any part of the proceeds of the Purchase Price payable by a Revenue Participation Holder in respect of such Qualifying Project to repay such financing or interim financing and Issuer shall be entitled to direct such Revenue Participation Holder to pay all or any part of such Purchase Price to such financier or interim financier. For greater certainty, the repayment of such financings or interim financings shall exclude any costs, interests and fees associated with such financings or interim financings.

Section 2.6 Failure of SGF to Fund any Purchase Price.

(a) If SGF fails to fund any instalment of the Purchase Price for any Revenue Participation as and when required by Section 2.3 or Section 2.5, as applicable, then Issuer shall provide SGF with a written notice thereof (the “Cure Notice”) and SGF shall have ***** from receipt of the Cure Notice to fund such installment of the Purchase Price. If SGF fails to fund an installment of the Purchase Price following a Cure Notice, then Issuer shall have the option, exercisable upon prior written notice to SGF, to require SGF to sell such Revenue Participation to Issuer. If Issuer exercises such option, then (a) Issuer shall pay to SGF an amount equal to that portion of the Purchase Price paid by SGF up to the date of the exercise of such option in connection with such Revenue Participation, less any amounts paid to SGF on

account of such Revenue Participation prior to such exercise date and (b) upon payment of such amount to SGF, (1) all of SGF’s rights, title and interest in and to the Funded Qualifying Project relating to such Revenue Participation, including, without limitation, any Gross Receipts related thereto, shall automatically revert to Issuer, (2) all Gross Receipts and Rights in and to such Funded Qualifying Project shall be released from any hypothec or security interest granted in favour of SGF and (3) SGF shall execute and deliver to Issuer and Distributor all such documents and instruments as may be reasonably necessary to give effect to such reversion and release, including, without limitation, UCC financing change statements, documents to be filed in the RPMRR and an assignment and quitclaim to be registered in the CIPO and the USCO. Nothing contained herein shall limit the rights or remedies of Issuer available at law or in equity, including, without limitation, for breach of contract, arising from a Revenue Participation Holder’s failure to fund any instalment of the Purchase Price for any Revenue Participation as and when required by Section 2.3 or Section 2.5, as applicable.

Section 2.7 No Obligation to Produce in Quebec.

(a) There shall be no requirement on Issuer, LGEI or any of their Affiliates to produce any Production in the Province of Quebec, Canada other then Funded Qualifying Projects or Eligible Projects for which the Production Specifications have been approved by SGF.

Section 2.8 Submission of Eligible Projects.

(a) Once Issuer has, pursuant to Sections 4.1(b) or 4.2(a), as applicable, submitted the Production Specifications for any Eligible Project to SGF and SGF has confirmed in writing that it has accepted such Eligible Project as a Qualifying Project, then each Revenue Participation Holder shall, subject to the terms and conditions of this Agreement, including without limitation, Section 3.19 hereof, purchase a Revenue Participation in such Qualifying Project in accordance with the terms and conditions hereof.

3. REPRESENTATIONS AND WARRANTIES OF ISSUER

In order to induce the Revenue Participation Holders to enter into this Agreement and purchase the Revenue Participations as provided herein, Issuer makes the following representations and warranties to, and agreements with, the Revenue Participation Holders, all of which shall survive the execution and delivery of this Agreement and the issuance and sale of the Revenue Participations.

Section 3.1 Existence and Power.

(a) Issuer is a limited liability company duly organized and validly existing in jurisdictions in which it is applicable, in good standing under the laws of its jurisdiction of organization and where applicable, in good standing as a foreign entity in all jurisdictions where the nature of its properties or business so requires, or the failure to be so qualified or be in good standing could, individually or in the aggregate, be expected to have a Material Adverse Effect. A list of such jurisdictions as of the date hereof is attached hereto as Schedule 3.1.

(b) Issuer has the power and authority to (i) own its property and carry on its business as now being conducted and as intended to be conducted, (ii) execute, deliver and perform, as applicable, its obligations under this Agreement and any other documents contemplated hereby to which it is a party.

Section 3.2 Authority and No Violation. The execution, delivery and performance of this Agreement by Issuer and the issuance and sale hereunder of the Revenue Participations, (i) have been duly authorized by all necessary corporate action (or similar action) on the part of Issuer, (ii) will not constitute a violation of any provision of Applicable Law in any material respect or any order of any Governmental Authority applicable to Issuer, or any properties or assets in any material respect, (iii) will not violate any provision of Issuer’s Organizational Documents, (iv) will not violate any provision of any indenture, agreement, bond, note or other similar instrument to which Issuer is a party or by which Issuer or any of its properties or assets are bound, other than where any such violation could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and (v) will not be in conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under, or create any right to terminate, any such indenture, agreement, bond, note or other similar instrument, other than where any such violation could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 3.3 Governmental Approval. All authorizations, approvals, licenses, registrations or filings from or with any Governmental Authority required for the consummation of the execution, delivery and performance by Issuer of this Agreement have been duly obtained or made or duly applied for, and are in full force and effect, except those which, if not obtained, could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and if any further authorizations, approvals, registrations or filings should hereafter become necessary, Issuer shall obtain or make all such authorizations, approvals, registrations or filings; provided, however, that any failure to make any such authorization, approval, registration or filing will not be a breach of this Agreement if such failure could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 3.4 Binding Agreement. This Agreement, when executed, will constitute a legal, valid and binding obligation of Issuer, enforceable against Issuer in accordance with its terms, subject, as to the enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

Section 3.5 Places of Business. The chief executive office of Issuer is located at 2700 Colorado Avenue, Suite 200, Santa Monica, CA 90404.

Section 3.6 Federal Reserve Regulations. Issuer is not engaged principally or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Revenue Participations will be used, directly or indirectly, whether immediately, incidentally or ultimately (i) to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, or (ii) for any other purpose, in each case, violative of or inconsistent with any of the

provisions of any regulation of the Board, including, without limitation, Regulations T, U and X thereto.

Section 3.7 Investment Company Act. Issuer is not, or will not during the term of this Agreement be, (i) an “investment company”, within the meaning of the Investment Company Act of 1940, as amended, or (ii) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or any foreign, federal or local statute or any other Applicable Law of the United States of America or any other jurisdiction, in each case limiting its ability to incur indebtedness for money borrowed.

Section 3.8 Compliance with ERISA. Issuer’s Plans, each of which has been maintained and operated in all material respects in accordance with all Applicable Laws, including, without limitation, ERISA and the Code, and each Plan intended to qualify under Section 401(a) of the Code satisfies the requirements of this Section 3.8 in all material respects. No Reportable Event has occurred in the last five years as to any Plan, and the present value of all benefits under all Plans subject to Title IV of ERISA (based on those assumptions used to fund such Plans) did not, in the aggregate, as of the last annual valuation date applicable thereto, exceed the actuarial value of the assets of such Plans allocable to such benefits by more than $100,000. No material liability has been, and no circumstances exist pursuant to which any material liability is reasonably likely to be, imposed upon Issuer or any ERISA Affiliate (i) under Sections 4971 through 4980E of the Code, Sections 502(i) or 502(l) of ERISA, or Title IV of ERISA with respect to any Plan or Multiemployer Plan, or with respect to any plan heretofore maintained by Issuer or any ERISA Affiliate, or any entity that heretofore was an ERISA Affiliate, (ii) for the failure to fulfill any obligation to contribute to any Multiemployer Plan, or (iii) with respect to any Plan that provides post-retirement welfare coverage (other than as required pursuant to Section 4980B of the Code). Neither Issuer nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization or has been terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated.

Section 3.9 Compliance with Laws. Issuer is not in violation of any Applicable Law except for such violations in the aggregate which could not reasonably be expected to have a Material Adverse Effect. The issuance and sale of the Revenue Participations hereunder, the intended use of the proceeds of the Revenue Participations and any other transactions contemplated hereby will not violate any Applicable Law.

Section 3.10 Use of Proceeds. Proceeds from sale of the Revenue Participations will be used exclusively for payment of the Direct Costs of Funded Qualifying Projects, or to repay any financing or interim financing of such Direct Costs. For greater certainty, the repayment of such financings or interim financings shall exclude any costs, interests and fees associated with such financings or interim financings.

Section 3.11 Ownership or Control of Rights. Except as otherwise provided herein, Issuer will own or control a sufficient interest in the Rights for each Funded Qualifying Project to enable it to produce (or co-produce, if applicable) such Funded Qualifying Project and to exploit the Distribution Rights in the Territory and to be entitled to Gross Receipts in such

Funded Qualifying Project relating to the Territory, unless and to the extent otherwise disclosed to the Revenue Participation Holders by Issuer in writing.

Section 3.12 No-Impairment of Agreement. Issuer has no agreement with or obligations to any third party with respect to any Funded Qualifying Project which might materially conflict or interfere with any of the provisions of this Agreement.

Section 3.13 Copyright. Each Funded Qualifying Project for which Issuer or an Affiliate of Issuer is the Copyright Owner shall be duly and properly registered (and, if appropriate, renewed) for copyright in the United States, and, to the best of the knowledge of Issuer and its Affiliates, the Copyrights in each Funded Qualifying Project and the literary, dramatic and musical materials upon which such Funded Qualifying Project is based, or which are contained in such Funded Qualifying Project, are and will be valid and subsisting during the Term throughout the Territory.

Section 3.14 No Infringement. Neither any Funded Qualifying Project, nor any part thereof, nor any materials contained therein or synchronized therewith, nor the title thereof, nor the exercise of any right, license or privilege granted to the other party hereunder, violates or will violate, or infringes or will infringe, any trademark, trade name, service mark, patent, copyright (whether common law or statutory), or, the literary, dramatic, musical, artistic, personal, private, civil, “droit moral”, moral rights or property right or rights of privacy or any other right of any person or entity whatsoever, or unfairly competes with or slanders or libels (or constitutes a trade disparagement of) any Person or entity whatsoever.

Section 3.15 No Litigation. There is no litigation, arbitration, claim, demand, or investigation pending or, to the knowledge of Issuer, threatened with respect to any Funded Qualifying Project, or the literary, dramatic or musical material upon which such Funded Qualifying Project is based or which is contained therein, or concerning the physical properties thereof.

Section 3.16 Production. Except as permitted by this Agreement, including, without limitation, Section 3.19, Issuer shall ensure that the Qualifying Projects are produced in accordance with the Production Specifications.

Section 3.17 Private Offering.

(a) Neither Issuer nor any Person acting on its behalf has directly or indirectly offered or sold the Revenue Participations by any form of general solicitation or general advertising (including, without limitation, any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or any broadcast over television or radio or any seminar or meeting whose attendees have been invited by any form of general solicitation or general advertising).

(b) Neither Issuer nor any Person acting on its behalf has, either directly or indirectly, sold or offered for sale to, or otherwise approached or negotiated in respect thereof with, any Person any of the Revenue Participations except as contemplated by this Agreement, and neither Issuer nor any Person acting on its behalf (other than the Revenue Participation Holders and their Affiliates) will sell or offer for sale to any Person any such Revenue

Participation to, or solicit any offers to buy any such Revenue Participation from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to bring the issuance or sale of any of the Revenue Participations within the registration provisions of Section 5 of the Securities Act of 1933. The offer and sale of the Revenue Participations pursuant to this Agreement is exempt from the registration and prospectus delivery requirements of the Securities Act.

Section 3.18 No Violation of Laws. Issuer shall not take any action (or omit to take any action) otherwise permitted under this Agreement which would cause the performance of this Agreement to violate any law, rule or regulation or require an order, consent, permit or approval to be obtained from any Governmental Authority, except where such violation or such failure to obtain such order, consent, permit or approval could not reasonably be expected to result in a Material Adverse Effect.

Section 3.19 Production Specifications. If, after submission of the Production Specifications for a Qualifying Project, such Production Specifications change either prior to or following a written acceptance thereof by the Revenue Participation Holders, then Issuer shall: (i) for the Production Specifications listed as items (i) to (xii) inclusively resubmit the amended Production Specifications for acceptance and written approval by the Revenue Participation Holders; (ii) for the Production Specifications listed as items (xiii) to (xvi) inclusively be entitled to make changes without approval if such changes result from force majeure, production exigencies and other matters beyond the reasonable control of Issuer, the Copyright Owner of such Funded Qualifying Project, if applicable, any Co-Producer of such Funded Qualifying Project, if applicable, and the Services Company providing services in connection with such Funded Qualifying Project; and (iii) for the Production Specifications listed as items (xvii) to (xix) inclusively resubmit the amended Production Specifications for acceptance and written approval by the Revenue Participation Holders if such change results in a fluctuation which is *****. In the event SGF does not approve any change to the Production Specifications for a Funded Qualifying Project requiring approval of the Revenue Participation Holders, then (a) Issuer shall pay to SGF an amount equal to the Purchase Price paid by SGF in connection with such Funded Qualifying Project, less any amounts paid to SGF on account of its Revenue Participation for such Funded Qualifying Project prior to the date of such payment, plus LIBOR (calculated from the date of each advance of funds by SGF) and (b) upon payment of such amount to SGF, (1) all of SGF’s rights, title and interest in and to such Funded Qualifying Project, including, without limitation, any Gross Receipts related thereto, shall automatically revert to Issuer, (2) all Gross Receipts and Rights in and to such Funded Qualifying Project shall be released from any hypothec or security interest granted in favour of SGF and (3) SGF shall execute and deliver to Issuer and Distributor all such documents and instruments as may be reasonably necessary to give effect to such reversion and release, including, without limitation, UCC financing change statements, documents to be filed in the RPMRR and an assignment and quitclaim to be registered in the CIPO and the USCO.

4. CONDITIONS OF PURCHASE

Section 4.1 Conditions Precedent to Purchase of Initial Revenue Participations. The obligation of each Revenue Participation Holder to purchase the Initial Revenue Participations

on the Initial Closing Date is subject to the satisfaction in full at each Revenue Participation Holder’s sole discretion, of the following conditions precedent:

(a) Corporate Documents. The Revenue Participation Holders each shall have received:

(i) a copy of a Certificate of Incorporation for Issuer, certified as of a recent date by the Secretary of State of Delaware;

(ii) a copy of a certificate of the Secretary of State of Delaware (or other applicable jurisdiction) and of the franchise tax agency of such State, dated as of a recent date as to the good standing of, and payment of taxes by, Issuer which certificate lists (if available) the charter documents on file in the office of such Secretary of State; and

(iii) from each jurisdiction in which it is available, a copy of a certificate dated as of a recent date as to the good standing and/or authority to conduct business of Issuer issued by the Secretary of State or other relevant office of each jurisdiction in which Issuer is qualified as a foreign organization as listed in Schedule 3.1.

(iv) such additional supporting documents that are materially related to those items submitted pursuant to Sections 4.1(a)(i), (ii) and (iii), as any Revenue Participation Holder may reasonably request.

(b) Documents. The Revenue Participation Holders each shall have received and accepted (each in its sole discretion) the Production Specifications for the Qualifying Projects that are the subject of the Initial Revenue Participations.

(c) Representations and Warranties Correct. The representations and warranties made by Issuer in Section 3 shall be true and correct in all respects as of the Initial Closing Date.

(d) Agreement. Each Revenue Participation Holder shall have received executed counterparts of this Agreement, which, when taken together, bear the signatures of all of the Revenue Participation Holders.

(e) Required Consents and Approvals. The Revenue Participation Holders shall be satisfied that all required consents and approvals have been obtained with respect to the transactions contemplated hereby from all Governmental Authorities with jurisdiction over the business and activities of Issuer and from any other entity whose consent or approval the Revenue Participation Holders in their reasonable discretion deem necessary to the transactions contemplated hereby.

(f) Minimum Qualifying Projects. No fewer than three (3) Eligible Projects shall have been submitted to the Revenue Participation Holders for acceptance as Qualifying Projects prior to the Initial Closing Date.

(g) Security. The Revenue Participation Holders shall have received the security described in Section 7.1(d).

Section 4.2 Conditions Precedent to Purchase of Additional Revenue Participations. The obligation of each Revenue Participation Holder to purchase any Revenue Participation (other than the Initial Revenue Participations) on any RP Closing Date is subject to the satisfaction in full at each Revenue Participation Holder’s sole discretion, of the following conditions precedent:

(a) Documents. No later than 15 days prior to the proposed RP Closing Date, the Revenue Participation Holders each shall have received and accepted (each in its sole discretion) the Production Specifications for the Qualifying Projects that are the subject of such additional Revenue Participations.

(b) Representations and Warranties Correct. The representations and warranties made by Issuer in Section 3 shall be true and correct in all respects as of the applicable RP Closing Date.

5. ACCOUNTING, RECORDS AND REPORTING

Section 5.1 Books and Records. Books and records of Issuer shall be kept, and the financial position and the results of its operations recorded, in accordance with the accounting methods required for federal income tax purposes, provided however, that Issuer also may be required to keep financial records in accordance with GAAP. The books and records of Issuer shall reflect all Issuer transactions and shall be appropriate and adequate for Issuer’s business.

Section 5.2 Access to Information. The Revenue Participation Holders may jointly or severally at their own expense, audit the applicable books cost reports in respect of each Qualifying Project, contracts and records at the place where Issuer maintains the same in order to verify the Revenue Participations payable to the Revenue Participation Holders hereunder; provided, however, that, so long as no Event of Default has occurred and is continuing, no Revenue Participation Holder shall be entitled to require any such audit more than *****. Any such audit shall be conducted only by one of the so-called “Big Four” accounting firms, provided that the appointment of such party to conduct such audit shall not create any conflicts of interest (and if all of the “Big Four” accounting firms have such conflicts, then such other public accountant reasonably acceptable to the Revenue Participation Holder requesting the audit). Any such audit shall be conducted during reasonable business hours in such manner as not to interfere with Issuer’s normal business activities.

Section 5.3 Filings. Issuer, at Issuer’s expense, shall cause the income tax returns for Issuer to be prepared and timely filed with the appropriate authorities and any taxes owed in respect of such returns to be paid in a timely manner. Issuer, at Issuer’s expense, shall also cause to be prepared and timely filed, with appropriate federal and state regulatory and administrative bodies, amendments to, or restatements of, Issuer’s Organizational Documents and all reports required to be filed by Issuer with those entities under then current applicable laws, rules, and regulations.

Section 5.4 Accounting Decisions and Reliance on Others. All decisions as to accounting matters, except as otherwise specifically set forth herein, shall be made by Issuer. Notwithstanding the foregoing, in respect of all accounting matters or positions taken in respect

of tax returns of the Issuer which may have a tax implication for the Revenue Participation Holders, such decision shall be made in consultation with the Revenue Participation Holders.

Section 5.5 Settlement Reports. On each Settlement Date, Distributor shall render to Issuer (with a copy to each Revenue Participation Holder, provided that Distributor’s inadvertent failure to provide such copy to any Revenue Participation Holder shall be a breach of this Agreement) a settlement report for each Funded Qualifying Project. Each Settlement Report shall be delivered by Distributor to Issuer on each Settlement Date together with any sums being shown due to Issuer. Settlement Reports rendered by Distributor may be changed from time to time to give effect to year-end adjustments made by Distributor’s accounting department or public accountants, to items overlooked, to correct errors, or to reflect any indebtedness which may become uncollectible for any similar purposes. Should Distributor make any overpayment to Issuer for any reason, Distributor shall have the right to deduct and retain for its own account an amount equal to any such overpayment from any sums that may thereafter become due or payable by Distributor to Issuer or for Issuer’s account. Should Distributor make any underpayment to Issuer for any reason, Distributor shall on the next succeeding Settlement Date pay to Issuer an amount equal to any such underpayment; provided, however, that all amounts payable to Issuer hereunder shall be subject to all laws and regulations now or hereafter in existence requiring the deduction or withholding of payments for income or other taxes payable by or assessable against Issuer arising out of or in connection with this Agreement. Distributor shall have the right to make such deductions and withholdings, and the payment thereof to the governmental agency concerned in accordance with its interpretation in good faith of such laws and regulations shall constitute payment hereunder to Issuer, and Distributor shall not be liable to Issuer for the making of such deductions or withholdings or the payment thereof to the governmental agency concerned. In any such event, Issuer shall make and prosecute any and all claims which it may have (and which it desires to make and prosecute) with respect to the same directly with the governmental agency having jurisdiction in the premises.

Section 5.6 Accounting Records. Books of account in respect of the distribution of each Funded Qualifying Project (which books of account are hereinafter referred to collectively as the “Distribution Records”), shall be kept at Distributor’s or its Affiliates’ various offices (both in the United States and abroad) where generated or customarily kept, for as long as such Distribution Records are customarily retained by such office (provided, however, that the foregoing obligation shall not apply to any Subdistributors of a Funded Qualifying Project) and in the form customarily maintained by Distributor or such Affiliates.

Section 5.7 Audits. Issuer and each Revenue Participation Holder shall each have the right, at its own expense, but not more than ***** each, to audit the Distribution Records at the aforesaid office in order to verify the Settlement Reports rendered hereunder in connection with each Funded Qualifying Project. Any such audit shall be conducted only by a certified public accountant during reasonable business hours and in such manner as not to interfere with Distributor’s normal business activities, shall not continue for more than ***** and be conducted by a third party accounting firm approved by the Revenue Participation Holders (Sills & Adelmann, Hacker, Douglas & Company, and any of the so-called “Big-Four” accounting firms are hereby pre-approved), provided that no such firm is compensated on a “percentage of recovery” basis, it being understood that Distributor shall have the right to approve any “percentage of recovery” retainer), provided, however, that such third party accounting firm shall

agree in writing, for the benefit of Distributor, to be bound by the same duties of confidentiality arising under this Agreement. The Issuer and each Revenue Participation Holder shall be entitled to conduct the audit within ***** of the Issuer or each Revenue Participation Holder’s notice to conduct the audit. Issuer shall not have the right to examine or inquire into any matters or items which are contained in any such Settlement Report after the expiration of ***** from and after the date of receipt of such Settlement Report, and such Settlement Report shall be final and conclusive upon Issuer upon the expiration of such ***** period notwithstanding that the matters or items embraced by or contained therein may later be contained or referred to in a cumulative statement pertaining to more than one Accounting Period. Except in the context of litigation, such cumulative statement shall not be subject to audit by Issuer to the extent the material contained therein was first reflected on a Settlement Report submitted more than ***** prior to the date of mailing of such cumulative statement. Issuer shall be forever barred from maintaining or instituting any action or proceeding based upon, or in any way relating to, any transactions had by Distributor, its Affiliates, or its licensees, in connection with the Funded Qualifying Projects which are reflected on any Settlement Report rendered hereunder, or the accuracy of any item appearing therein, unless written objection thereto stating with specificity the particular transaction(s) or item(s) to which Issuer objects shall have been delivered by Issuer to Distributor prior to the expiration of the ***** period with respect to such Settlement Report unless such action or proceeding is commenced within such period. Notwithstanding the foregoing, a notice of intention to conduct an audit or to institute litigation shall interrupt each aforementioned ***** period. In the event the audit is not conducted or litigation instituted within a reasonable delay from the date of such notice, the right to conduct such audit or institute litigation shall terminate ***** from a written notice thereof by the Distributor. The Issuer and each Revenue Participation Holder shall be entitled to examine: all licensing, distribution and sub-distribution agreements relating to Funded Qualifying Projects. If a Funded Qualifying Project has been distributed, licensed, sub-distributed or packaged with Productions which are not Funded Qualifying Projects (“Packaged Projects”), the Issuer and each Revenue Participation Holder shall be entitled to examine all licensing, distribution and sub-distribution agreements in connection with such Funded Qualifying Project and such Packaged Projects, as well as all accounts, records, Distribution Records, Settlement Reports and documents which set forth, inter alia, the price allocation for such Funded Qualifying Project and such Packaged Projects. In connection with the delivery of each Settlement Report, Distributor shall provide an officer’s certificate that (i) sets forth the amount of all rebates, advances and credits allocated to one or more Funded Qualifying Projects pursuant to agreements with film processing laboratories or other home video replication entities (e.g., film duplication advances) for such Accounting Period (collectively, “Rebates”) (on a Production by Production basis), (ii) the aggregate amount, if any, of any out-of-pocket third party costs (“Rebate Costs”) incurred in acquiring such Rebates allocated to one or more Funded Qualifying Projects (on a Production by Production basis), and (iii) certifies that, taking into account all of the facts and circumstances, the Rebates and Rebate Costs were allocated to the Funded Qualifying Projects in a fair and reasonable manner. To the extent that the results of an audit of the Distribution Records reveals that additional Adjusted Receipts are due to Issuer, Distributor agrees to pay such sums to Issuer together with interest thereon at LIBOR, accruing from the date such amount should have been paid to Issuer.

Section 5.8 Statements and Payments. All statements and payments contemplated by this Agreement shall be sent to the respective parties address as set forth in Section 13.1.

6. REPRESENTATIONS AND WARRANTIES OF REVENUE PARTICIPATION HOLDERS

Each Revenue Participation Holder hereby represents and warrants to Issuer and each other Revenue Participation Holder as follows:

Section 6.1 No Representations of Profits, etc. Neither Issuer, nor any other Person has at any time expressly or implicitly represented, guaranteed, or warranted to it that (a) a percentage of profit and/or amount or type of consideration will be realized as a result of the purchase of the Revenue Participations, (b) past performance or experience on the part of Issuer, its Affiliates or any other Person in any way indicates the predictable results of the ownership of Revenue Participations or of the overall business of Issuer, or (c) any cash distributions from Issuer’s operations or otherwise will be made to the Revenue Participation Holders by any specific date or will be made at all.

Section 6.2 Authority. It has the full right, power and authority to execute and deliver this Agreement and to perform each of its obligations hereunder; that the execution, delivery and performance of this Agreement does not violate any law or regulation to which it is subject, and does not constitute a breach or default under any contract or undertaking to which it is a party; and that this Agreement and all other documents required to be executed and delivered hereunder by it, when so executed and delivered, will constitute legal, valid and binding obligations of it, enforceable against it in accordance with their respective terms, subject, as to the enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

Section 6.3 Access to Information. It acknowledges that all documents and other materials pertaining to a purchase of a Revenue Participation that it has requested to examine have been made available for inspection by it. It, or a Person or Persons acting on its behalf, has had a reasonable opportunity to ask questions of and receive answers from Issuer concerning the issuance of the Revenue Participations and Issuer, including, without limitation, Issuer’s prospective business plans, and all such questions have been answered to its full satisfaction. The foregoing, however, does not limit or modify the representations and warranties of Issuer in Section 3 and the Production Specifications, or the right of any Revenue Participation Holder to rely thereon.

Section 6.4 Contingent Nature of Projections. It acknowledges, recognizes and understands that: (a) Issuer is a start-up with no financial and operating history and that a purchase of a Revenue Participation involves substantial risks; (b) any financial projections that may have been provided to it are based upon assumptions of future operating results developed in good faith by Issuer, (c) such financial projections merely represent an estimate by Issuer of future results that Issuer hopes can be achieved based upon assumptions as to certain events (many of which are beyond Issuer’s control); and (d) no assurances or representations can be given that the actual results of the operations will conform to the projected results.

Section 6.5 Reliance. It has carefully considered and has, to the extent it believes such discussion necessary, discussed with its professional legal, tax and financial advisors, the

suitability of investing in the Revenue Participations for its particular tax and financial situation, and it has determined that the Revenue Participations are a suitable investment for it. In making its investment decision, it has relied solely on its own advisors, and not on the advice of Issuer, LGEI, Distributor, any of their Affiliates or their respective legal counsel or financial advisors. It acknowledges that it is not relying upon any person, firm, limited liability company or corporation in making its decision to purchase a Revenue Participation and that it has not received any general solicitation or general advertising concerning Issuer, LGEI, Distributor, any of their Affiliates or the Revenue Participation, nor is such Revenue Participation Holder aware that any such solicitation or advertising was received by anyone else.

Section 6.6 Information Provided. Notwithstanding the foregoing, LGEI represents and warrants to SGF that the financial and operating history and financial results provided to SGF and the Salter Group are true and accurate in all material respects consistent with what LGEI utilizes in its own financial projections supplied to its auditors, except that LGEI has also added a terminal value required because Salter Group required information on ultimate values for a period of time different from that used by such auditors to calculate such ultimate values. Nothing contained herein, in any other Transaction Document or in any information previously or in future provided to SGF or the Salter Group, neither LGEI nor its Affiliates shall be construed as providing any representation or warranty regarding the future performance of any Eligible Project.

7. PRODUCTION AND DISTRIBUTION

Section 7.1 Production.

(a) For each Funded Qualifying Project, Issuer (and, if Issuer is not the Copyright Owner of such Funded Qualifying Project, such Copyright Owner) shall enter into a Production Services Agreement with a Services Company (and such Copyright Owner, if applicable). Subject to the terms of this Agreement, including, without limitation, Section 3.19, Issuer shall ensure that each Funded Qualifying Project is produced in accordance with the Production Specifications, subject to changes resulting from force majeure, production exigencies and other matters beyond the reasonable control of Issuer, the Copyright Owner of such Funded Qualifying Project, if applicable, any Co-Producer of such Funded Qualifying Project, if applicable, and the Services Company providing services in connection with such Funded Qualifying Project, which changes shall be subject to the approval of the Revenue Participation Holders, acting reasonably.

(b) The Revenue Participation Holders acknowledge and agree that, subject to the Revenue Participations purchased by the Revenue Participation Holders, except as otherwise provided herein, Issuer will own or control a sufficient interest in the Rights for each Funded Qualifying Project to enable it to produce (or co-produce, if applicable) such Funded Qualifying Project and to exploit the Distribution Rights in the Territory and to be entitled to Gross Receipts in such Funded Qualifying Project relating to the Territory, unless and to the extent otherwise disclosed to the Revenue Participation Holders by Issuer in writing

(c) Subject to the terms of this Agreement, Issuer shall have sole and exclusive control of all decisions relating to the development, production, distribution, exhibition

and other exploitation of each Funded Qualifying Project, subject to the rights of (i) if Issuer is not the Copyright Owner of such Funded Qualifying Project, such Copyright Owner, and (ii) any Co-Producer of such Funded Qualifying Project, if applicable.

(d) Each of Issuer and Distributor, shall grant in favour of each Revenue Participation Holder, pari passu, a security interest, in and to (i) the Gross Receipts for each Funded Qualifying Project, and (ii) the Rights, the Ancillary Rights, the Related Rights and including without limitation the tangible and intangible assets for each Funded Qualifying Project, solely to the extent required to distribute and exploit such Funded Qualifying Project, which security interest shall be in a form registrable in the State of Delaware and the Province of Quebec. The Revenue Participation Holders acknowledge and agree that the security interests granted to them by Issuer and Distributor shall be subject to Permitted Encumbrances, provided, however, that, with respect to the Senior Lender Encumbrances, the Senior Lender InterCreditor Agreement shall provide that SGF shall have a first priority security interest in its Pro Rata Amount of the Gross Receipts for each Funded Qualifying Project, subject to the terms of the Senior Lender InterCreditor Agreement.

Section 7.2 Distribution. On or before the Initial Closing Date, Issuer and Distributor shall enter into the Master Distribution Agreement, which shall provide for the following:

(a) Subject to the terms and conditions hereof, Distributor shall be the sole and exclusive distributor for the Funded Qualifying Projects, in any language, in any and all media and formats now known or hereafter devised, in perpetuity in the Territory. The parties acknowledge that Distributor and its Affiliates only distribute the Funded Qualifying Projects directly in the United Kingdom and the United States of America, and that for all other territories, the Distribution Rights for the Funded Qualifying Projects will be licensed to a Subdistributor.

(b) Distributor shall use diligent efforts and skill (consistent with the quality standards of first-class distributors and with its theatrical release pattern for films of a similar genre and budget) in the distribution and exploitation of the Funded Qualifying Projects in all media throughout the Territory to maximize Gross Receipts, including, without limitation, obtaining any permits permissions and/or clearances necessary to exploit the Funded Qualifying Projects throughout the Territory.

(c) Distributor shall distribute each Funded Qualifying Project in a manner consistent with the manner in which it distributes films, videos and television series that are not Funded Qualifying Projects, and shall include, without limitation, all Funded Qualifying Projects in output agreements (or other similar type arrangements) on a non-discriminatory basis with other films, videos and television series distributed by which it distributes that are not Funded Qualifying Projects.

(d) For each Funded Qualifying Project, Distributor shall be entitled to receive a distribution fee, on an uncrossed basis with all other Funded Qualifying Projects (the “Distribution Fee”), in an amount equal to ***** for such Funded Qualifying Project, escalating on a prospective basis only to ***** for such Funded Qualifying Project at such time, if ever, as the sum of the aggregate amount actually paid to SGF hereunder on account of its Revenue

Participation for such Funded Qualifying Project shall equal ***** paid by SGF for such Revenue Participation and further escalating on a prospective basis only to ***** for such Funded Qualifying Project at such time, if ever, as the sum of the aggregate amount actually paid to SGF hereunder on account of its Revenue Participation for such Funded Qualifying Project shall equal ***** paid by SGF for such Revenue Participation; provided, however, that, for any Funded Qualifying Project that is a Television Production, the Distributor shall not be entitled to a Distribution Fee on any Gross Receipts relating to the principal license fee payable by a U.S. licensee that orders such Funded Qualifying Project that is a Television Production. Any escalation in the Distribution Fee for a Funded Qualifying Project, and the date of such escalation, shall be indicated in the Settlement Report for such Funded Qualifying Project for the Accounting Period in which such escalation occurred. In the event that SGF contests the amount actually paid to SGF pursuant to the RP Purchase Agreement on account of its Revenue Participation for such Funded Qualifying Project, then the Distribution Fee shall not escalate to ***** (as the case may be), until such time as the parties hereto have had the opportunity to review and agree on such amount, and the date upon which such amount was actually paid to SGF, and any overpayment of such Distribution Fee shall be corrected in the Settlement Report for the next Accounting Period (or Accounting Periods, if Gross Receipts are not sufficient to correct such overpayment in such next Accounting Period).

(e) If Distributor licenses a Funded Qualifying Project as part of a package with any other motion picture or television series, then Distributor shall allocate the proceeds and expenses in respect of such Funded Qualifying Project on a good faith, arm’s length and non-discriminatory basis.

(f) Distributor shall not use such Funded Qualifying Project to obtain more favorable terms on other motion pictures or television series, licensed by Distributor or its Affiliates.

(g) On each Settlement Date, Distributor shall provide Issuer, as part of the applicable Settlement Report, and Issuer shall provide the Revenue Participation Holders, with copies of all license agreements entered into by Distributor in connection with any Funded Qualifying Project or any rights therein, during the Accounting Period relating to such Settlement Report, if any.

(h) All Gross Receipts relating to the Funded Qualifying Projects shall be paid directly to Distributor. In the event that any party hereto receives any Gross Receipts directly or indirectly, such party agrees to hold such monies in trust for Distributor and to pay to Distributor, upon receipt, all such Gross Receipts, without any deductions or withholdings whatsoever.

(i) LGEI agrees, on behalf of it and its Affiliates, including, without limitation, Issuer and Distributor, that notwithstanding any provision to the contrary in any other agreement, it and they will not deduct any fees or expenses whatsoever from the Gross Receipts prior to or contemporaneously with the paying of the Gross Receipts to the Revenue Participation Holders except as contemplated in the Master Distribution Agreement.

(j) For each Funded Qualifying Project that is a Film Production and which has been identified as a theatrical release pursuant to the Production Specifications, Distributor shall release such Funded Qualifying Project theatrically within ***** of delivery of such Funded Qualifying Project to Distributor. Subject to the terms hereof, the size, date, cost and scope of such theatrical release shall be determined in the sole discretion of Distributor in accordance with its theatrical release pattern for films of a similar genre and budget. In the event Distributor fails to release a Funded Qualifying Project that is a Film Production and which has been identified as a theatrical release pursuant to the Production Specifications as provided above, then (a) Issuer shall pay to SGF an amount equal to the Purchase Price paid by SGF in connection with such Funded Qualifying Project, less any amounts paid to SGF on account of its Revenue Participation for such Funded Qualifying Project prior to the date of such payment, plus LIBOR (calculated from the date of each advance of funds by SGF) and (b) upon payment of such amount to SGF, (1) all of SGF’s rights, title and interest in and to such Funded Qualifying Project, including, without limitation, any Gross Receipts related thereto, shall automatically revert to Issuer, (2) all Gross Receipts and Rights in and to such Funded Qualifying Project shall be released from any hypothec or security interest granted in favour of SGF and (3) SGF shall execute and deliver to Issuer and Distributor all such documents and instruments as may be reasonably necessary to give effect to such reversion and release, including, without limitation, UCC financing change statements, documents to be filed in the RPMRR and an assignment and quitclaim to be registered in the CIPO and the USCO.

(k) For each Funded Qualifying Project which is not completed and delivered within ***** of its anticipated completion and delivery date as specified in the Production Specifications (Production Schedule), SGF shall have the option, exercisable within ***** following such *****, to require Issuer to pay to SGF an amount equal to the Purchase Price paid by SGF in connection with such Funded Qualifying Project plus LIBOR (calculated from the date of each advance of funds by SGF). If SGF exercises such option, then (a) Issuer shall pay to SGF an amount equal to the Purchase Price paid by SGF in connection with such Funded Qualifying Project, less any amounts paid to SGF on account of its Revenue Participation for such Funded Qualifying Project prior to the date of such payment, plus LIBOR (calculated from the date of each advance of funds by SGF) and (b) upon payment of such amount to SGF, (1) all of SGF’s rights, title and interest in and to such Funded Qualifying Project, including, without limitation, any Gross Receipts related thereto, shall automatically revert to Issuer, (2) all Gross Receipts and Rights in and to such Funded Qualifying Project shall be released from any hypothec or security interest granted in favour of SGF and (3) SGF shall execute and deliver to Issuer and Distributor all such documents and instruments as may be reasonably necessary to give effect to such reversion and release, including, without limitation, UCC financing change statements, documents to be filed in the RPMRR and an assignment and quitclaim to be registered in the CIPO and the USCO.

8. TERMS OF REVENUE PARTICIPATIONS

Section 8.1 In General. Each Revenue Participation shall consist solely of the right to receive distributions from Issuer or Distributor on account of Gross Receipts for a specific Funded Qualifying Project as provided in this Article 8 and those other rights specified in this Agreement. No Revenue Participation Holder (a) is or shall be an owner of any stock in the capital of, or any other equity interest in, Issuer, except for LGEI, which owns, directly or

indirectly, 100% of the capital stock of Issuer, (b) is or shall be an assignee of any ownership interest in Issuer, (c) is or shall be an assignee or owner of any of the assets or property of Issuer, except to the extent of the Revenue Participations purchased pursuant to this Agreement, or (d) shall have any liability for any of the debts, liabilities or other obligations of Issuer. Nothing herein contained shall constitute a partnership among or joint venture by any party hereto or constitute either party the agent of the other. No party shall hold itself out contrary to the terms of this Section 8.1 and no party shall become liable by reason of any representation, act or omission of the other contrary to the provisions hereof.

Section 8.2 Adjustments to Pro Rata Amounts. The Revenue Participation Holders acknowledge that their Pro Rata Amounts have been determined based on Projected Budgets rather than actual Direct Costs and Estimated Tax Credit Amounts and that once the actual Direct Costs and Tax Credit Amounts are known, such Pro Rata Amounts may be subject to change and adjustment. If the actual Direct Costs for a Funded Qualifying Project are greater or less than the Projected Budget used to calculate the Purchase Price for the Revenue Participations for such Funded Qualifying Project, and/or the actual Tax Credit Amounts for such Funded Qualifying Project are greater or less than the Estimated Tax Credit Amounts for such Funded Qualifying Project, then (a) the Pro Rata Amount for such Funded Qualifying Project for SGF shall be calculated as the ratio between (i) the Purchase Price paid by SGF for its Revenue Participation for such Funded Qualifying Project and (ii) the difference between (1) the actual Direct Costs for such Funded Qualifying Project and (2) the actual Tax Credit Amounts for such Funded Qualifying Project and (b) the Pro Rata Amount for such Funded Qualifying Project for LGEI shall be calculated as 100% less the adjusted SGF Pro Rata Amount for such Funded Qualifying Project determined in accordance with Section 8.2(a). If Gross Receipts are paid to a Revenue Participation Holder prior to an adjustment to such Revenue Participation Holder’s Pro Rata Amount, then the immediately subsequent payment or payments of Gross Receipts to such Revenue Participation Holder shall be increased or decreased until such time as for any deficit or surplus resulting from the calculation of the original Pro Rata Amount has been corrected.

Section 8.3 Distributions to the Revenue Participation Holders; Waterfall. Issuer shall disburse, or shall cause Distributor to disburse, the Gross Receipts for each Funded Qualifying Project, (together with any accrued interest thereon and/or any net income or gain on the investment of such Gross Receipts, if applicable) in the following order of priority (the “Waterfall”):

(a) first, to the payment of any Third Party Participations (including, without limitation, any Co-Financing Participations that are included in the Third Party Participations) and residuals relating to such Funded Qualifying Project;

(b) second, to Distributor, for the payment of the Distribution Fee relating to such Gross Receipts;

(d) fourth, one hundred percent (100%) to (i) each Revenue Participation Holder based on its Pro Rata Amount then in effect for such Funded Qualifying Project, subject to any adjustments required by the final sentence of Section 8.2 and (ii) the payment of Co-Financing Participations that are not included in the Third Party Participations, pari passu and pro rata.

Section 8.4 Settlement Reports. On each Settlement Date, Issuer or LGEI shall cause Distributor to submit to the Revenue Participation Holders a settlement report (“Settlement Report”) detailing (i) Gross Receipts received by Issuer, LGEI, Distributor or any affiliate thereof for each Funded Qualifying Project for and through the most recently concluded Accounting Period; (ii) the Distribution Expenses incurred with respect to each Funded Qualifying Project for and through such Accounting Period or payable within ***** after such Accounting Period; and (iii) any change or adjustment in the Pro Rata Amounts required due to (1) any change in the Direct Costs for such Funded Qualifying Project that may have occurred in such Accounting Period and/or (2) any difference between the Estimated Tax Credit Amount for such Funded Qualifying Project and the actual Tax Credit Amount for such Funded Qualifying Project, as may be determined in such Accounting Period.

Section 8.5 Payments to the Revenue Participation Holders. Each Settlement Report shall be accompanied by payment, if any, of amounts payable to each Revenue Participation Holder.

Section 8.6 Gross Receipts Not Crossed. Gross Receipts shall be disbursed through the Waterfall on a Funded Qualifying Project-by-Funded Qualifying Project basis and Gross Receipts from one Funded Qualifying Project will not be crossed with Gross Receipts from any other Funded Qualifying Project.

9. LGEI REPURCHASE OBLIGATION

Section 9.1 LGEI shall have the obligation (the “Repurchase Obligation”) to make a reasonable good faith written offer (each an “LGEI Offer”) to purchase, at fair market value (based on the net present value of expected future cash flows for the Funded Qualifying Projects) (the “Repurchase Price”), (a) all Revenue Participations of SGF and (b) all other interests of SGF in the Funded Qualifying Projects (collectively, the “SGF Interest”), on the date that is (a) for Funded Qualifying Projects for which production was completed in the first three (3) years of the Term, six (6) years following the actual Release Date of the first such Funded Qualifying Project and (b) for Funded Qualifying Projects for which production was completed in the fourth (4^th) year of the Term, three (3) years from the actual Release Date of each such Funded Qualifying Project.

Section 9.2 SGF and LGEI shall negotiate in good faith for ***** after presentation of the LGEI Offer. If SGF and LGEI fail to reach an agreement on the Repurchase Price within such period, SGF may, either; (i) for ***** following such period negotiate with third parties for the sale of the SGF Interest to third parties, provided that SGF shall provide a minimum of ***** notice to LGEI of its intention to sell such SGF Interest to a third party on terms satisfactory to SGF (the “Third Party Offer”), which notice shall disclose all material terms of the Third Party Offer; or (ii) opt to submit the evaluation of the Repurchase Price to (x) a mutually acceptable

“Big Four” accounting firms with an expertise in business valuations or (y) a mutually acceptable valuator, such as Houlihan Lokey Howard & Zukin, Salem Partners LLC or The Salter Group LLC, each of which are pre-approved. The valuation of the Repurchase Price determined by such accounting firm or valuator shall, in the absence of fraud, be final and binding and no appeal shall lie therefrom. If SGF elects to proceed with a valuation of the Repurchase Price pursuant to Section 9.2(ii), then the purchase of the SGF Interest shall occur within ***** of the date of such valuation, or such later date as LGEI and SGF may mutually agree. Notwithstanding anything contained herein, SGF shall not be permitted to sell the SGF Interest to any Direct Competitor.

Section 9.3 Upon LGEI’s receipt of notice from SGF of its intention to sell the SGF Interest pursuant to a Third Party Offer, LGEI shall have ***** within which LGEI shall have the right and option (its “Matching Right”) to purchase such SGF Interest upon the terms of the Third Party Offer. If LGEI elects to exercise its Matching Right, then the purchase of the SGF Interest shall occur within ***** of the date of such election, or such later date as LGEI and SGF may mutually agree.

Section 9.4 If LGEI opts not to exercise its Matching Right, SGF shall have the right to sell the SGF Interest pursuant to the Third Party Offer, provided that any sale of such SGF Interest shall be subject to this Agreement, including, without limitation, the requirement that SGF shall not be permitted to sell the SGF Interest to any Direct Competitor.

Section 9.5 Notwithstanding the foregoing, in the event SGF does not secure a Third Party Offer, within the ***** period described in Section 9.2(i), it shall be entitled to accept the LGEI Offer upon written notice thereof, provided that such acceptance occurs within ***** of the expiry of the ***** period described in Section 9.2(i).

Section 9.6 Upon payment of the Repurchase Price, or such other amount payable pursuant to the Matching Right, to SGF by LGEI, (1) all of SGF’s rights, title and interest in and to the Funded Qualifying Projects, including, without limitation, any Gross Receipts related thereto, shall be transferred to LGEI, (2) the hypothec and security interests granted in favour of SGF by Issuer and Distributor shall be released and (3) SGF shall execute and deliver to LGEI, Issuer and Distributor all such documents and instruments as may be reasonably necessary to give effect to such transfer and release, including, without limitation, UCC financing change statements, documents to be filed in the RPMRR and an assignment and quitclaim to be registered in the CIPO and the USCO.

10. SEQUELS, PREQUELS AND REMAKES

Section 10.1 SGF shall have the right of first negotiation to have submitted and have included as a Funded Qualifying Project hereunder any Production that is a sequel, series, new season, prequel, spin-off, remake, based on or derived from any Funded Qualifying Project (in each case, a “Sequel”) in accordance with and pursuant to the terms and conditions of this Agreement, to the extent that LGEI or its Affiliates owns or controls sufficient rights to develop, produce (or co-produce, as applicable) and exploit such Sequel.

Section 10.2 Notwithstanding the foregoing, SGF’s rights under this Article 10 shall

not extend to (a) any Production that is based on or derived from any Production that is not a Funded Qualifying Project, or (b) any Production that is a Sequel of any Production that has had a release, public exhibition or public broadcast prior to the Closing Date, including, without limitation, prior seasons of any Television Production (each a “Franchise Project”), regardless of whether any other Sequel of a Franchise Project is produced as a Funded Qualifying Project.

Section 10.3 SGF’s rights under this Article 10 shall be subject to third party contractual restrictions. LGEI agrees to inform SGF in writing of all such contractual restrictions prior to SGF agreeing to purchase a Revenue Participation in a project submitted to the Revenue Participation Holders for acceptance as a Funded Qualifying Project, as contemplated by the provisions of this Agreement relating to the acceptance of any Production Specifications.

Section 10.4 There shall be no requirement on Issuer, LGEI or any of their Affiliates to produce any Sequel in the Province of Quebec, Canada.

Section 10.5 SGF’s rights to acquire Revenue Participations in Sequels shall automatically terminate if SGF has not accepted as Qualifying Projects ***** successive Eligible Projects submitted by Issuer or LGEI hereunder, which are subsequently produced by Issuer, LGEI or their Affiliates and which, as submitted, would have resulted in not less than 65% of the Direct Costs being incurred in the Province of Quebec, Canada.

11. EVENT OF DEFAULT; REMEDIES

(a) The occurrence of any of the following events shall be considered an “Event of Default”:

(i) Issuer fails to make a payment due to a Revenue Participation Holder more than ***** after its receipt of notice of such failure (an “Issuer Payment Default”).

(ii) Any representation or warranty by Issuer made or deemed made herein or in the Production Specifications is incorrect in any respect on or as of the date made or deemed made and shall remain unremedied for ***** after the date upon which written notice thereof shall have been given.

(iii) Issuer or Distributor fails to perform or observe any term, covenant or agreement contained hereunder or the Transaction Documents and shall remain unremedied for ***** after the date upon which written notice thereof shall have been given.

(iv) Issuer or Distributor shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors, (i) voluntarily cease to conduct its business in the ordinary course, or (ii) any proceeding shall be instituted by or against Issuer seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order to relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property, or (iii) shall take any action to authorize any of the actions set forth hereinabove, an “Insolvency Event”.

(b) If an Issuer Payment Default or an Insolvency Event occurs and is continuing, each Revenue Participation Holder shall have the right, but not the obligation, to terminate this Agreement, provided, however, that with respect to any Funded Qualifying Project that has been produced, all rights and obligations of such Revenue Participation Holder with respect to such Funded Qualifying Project shall survive such termination subject to the terms and conditions of this Agreement.

(c) All rights and remedies set forth herein, are cumulative in nature and are not intended to be exclusive of any other rights and remedies any party may have under this Agreement or under applicable law for any Event of Default or other breach of this Agreement.

12. TERMINATION

Section 12.1 Unless otherwise provided herein, this Agreement shall terminate upon expiration of the Term except that all of SGF’s rights to receive Revenue Participations shall continue until such time as LGEI has executed its Repurchase Obligation.

13. MISCELLANEOUS

Section 13.1 Notices.

(a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

(i) if to Issuer, to it at 2700 Colorado Avenue, Suite 200, Santa Monica, CA 90404, Attention: General Counsel, Facsimile: (310) 255-3860.

(ii) if to any Revenue Participation Holder, to it at its address (or telecopy number) set forth on Schedule 2.1.

(b) Notices and other communications to the Revenue Participation Holders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by such Revenue Participation Holder. Issuer may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided, that approval of such procedures may be limited to particular notices or communications.

(c) Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to all of the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

Section 13.2 Successors and Assigns.

(a) This Agreement shall enure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. Each Revenue Participation Holder may

assign all, but not less than all, of its rights and obligations in and to this Agreement and its Revenue Participations to any one of its Affiliates without the prior written consent of Issuer or any other Revenue Participation Holder, provided that such assignment shall not relieve the assignor of its obligations to fund Purchase Prices under this Agreement. Subject to the provisions of this Section 13.2, such transfer shall be effective upon receipt by Issuer of an assignment and assumption agreement with respect to such Revenue Participations in a form reasonably acceptable to Issuer. Notwithstanding the foregoing, no Revenue Participation Holder may assign any of its rights or obligations in and to this Agreement or its Revenue Participation to any Direct Competitor.

(b) No Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.

(c) By its acceptance of the Revenue Participations, each Revenue Participation Holder acknowledges that the Revenue Participations have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, and that Issuer is not required to register the Revenue Participations. Each Revenue Participation Holder represents that it is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act, and is acquiring the Revenue Participations for investment for its own account, with no present intention of dividing its participation with others (except for a potential transfer or transfers of the Revenue Participations to Affiliates of such Revenue Participation Holder) or reselling or otherwise distributing the same in violation of the Securities Act or any applicable state securities laws.

Section 13.3 Indemnity. Issuer agrees (a) to indemnify and hold harmless the Revenue Participation Holders and their respective Affiliates and their Affiliates’ respective directors, officers, employees, consultants and agents (each an “Indemnified Party”) (to the full extent permitted by Applicable Law) from and against any and all claims, demands, losses, judgments, damages and liabilities (including, without limitation, liabilities for penalties) incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, any investigation, litigation or other proceeding (whether or not any Revenue Participation Holder is a party thereto) related to the entering into and/or performance this Revenue Participation Agreement, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding (i) any such losses, liabilities, claims, damages or expenses of an Indemnified Party to the extent they are found in a final judgment of a court of competent jurisdiction to have been incurred by reason of the gross negligence or willful misconduct of such Indemnified Party and (ii) litigation solely between Issuer, on the one hand, and the Revenue Participation Holders, on the other hand, in connection with this Agreement or the transactions contemplated hereby if, after final non-appealable judgment of a court of competent jurisdiction, Issuer is the prevailing party or parties in such litigation). If any proceeding, including, without limitation, any governmental investigation, shall be instituted involving any Indemnified Party, in respect of which indemnity may be sought against Issuer, such Indemnified Party shall promptly notify Issuer in writing. The foregoing indemnity agreement includes, without limitation, any costs incurred by an Indemnified Party in connection with any action or proceeding in connection with which any officer or employee of the Revenue Participation Holders is called as a witness or deponent,

including, without limitation, the reasonable fees and disbursements of the Revenue Participation Holders in appearing as a witness or in otherwise complying with legal process served upon them. The obligations of Issuer under this Section 13.3 shall survive the termination of this Agreement and shall inure to the benefit of any Person who was a Revenue Participation Holder notwithstanding such Person’s assignment of all its Revenue Participations in accordance herewith.

Section 13.4 Press Release. The Revenue Participation Holders shall issue a mutually approved press release announcing the transaction contemplated hereby.

Section 13.5 Screen Credits. Subject to contractual restrictions, Issuer shall accord SGF an “In Association With” credit in the main titles of a Qualifying Project on screen and in the billing block advertising (subject to customary exclusions) of each Funded Qualifying Project, on a separate card following the production company’s credit.

Section 13.6 Entire Agreement. This Agreement cannot be amended, modified or changed except by a written instrument duly executed by authorized officers of the parties hereto. This Agreement cancels and supersedes all prior negotiations and understandings between the parties relating to the production, financing and distribution of the Qualifying Projects and contains all of the terms, covenants, conditions, representations and warranties of the parties hereto. This Agreement may be signed in counterpart, each of which shall be deemed an original, but all of which together shall constitute the Agreement.

Section 13.7 CHOICE OF LAW. THIS AGREEMENT SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF CALIFORNIA WHICH ARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.

Section 13.8 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE SUBJECT MATTER HEREOF, ANY OTHER FUNDAMENTAL DOCUMENT OR THE SUBJECT MATTER THEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE. EACH PARTY ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES HERETO THAT THE PROVISIONS OF THIS SECTION 13.8 CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH SUCH OTHER PARTIES HAVE RELIED, ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT AND ANY OTHER FUNDAMENTAL DOCUMENT. ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 13.8 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ANY PARTY TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.

Section 13.9 Judicial Reference. The parties to this Agreement prefer that any dispute between or among them be resolved in litigation subject to a jury trial waiver as set forth in Section 13.8. If, and only if, a pre-dispute jury trial waiver of the type provided for in Section 13.8 is unenforceable in litigation to resolve any dispute, claim, cause of action or controversy under this Agreement (each, a “Claim”) in the venue where the Claim is being brought pursuant to the terms of this Agreement, then, upon the written request of any party, such Claim, including, without limitation, any and all questions of law or fact relating thereto, shall be determined exclusively by a judicial reference proceeding. Except as otherwise provided in Section 13.12, venue for any such reference proceeding shall be in the state or federal court in the County or District where venue is appropriate under applicable law (the “Court”). The parties shall select a single neutral referee, who shall be a retired state or federal judge. If the parties cannot agree upon a referee within *****, the Court shall appoint the referee. The referee shall report a statement of decision to the Court. Notwithstanding the foregoing, nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral or obtain provisional remedies (including, without limitation, requests for temporary restraining orders, preliminary injunctions, writs of possession, writs of attachment, appointment of a receiver, or any orders that a court may issue to preserve the status quo, to prevent irreparable injury). The parties shall bear the fees and expenses of the referee equally unless the referee orders otherwise. The referee also shall determine all issues relating to the applicability, interpretation, and enforceability of this Section 13.9. The parties acknowledge that any Claim determined by reference pursuant to this Section 13.9 shall not be adjudicated by a jury.

Section 13.10 WAIVER WITH RESPECT TO DAMAGES. EACH PARTY ACKNOWLEDGES THAT NO PARTY HAS ANY FIDUCIARY RELATIONSHIP WITH, OR FIDUCIARY DUTY TO, ANY OTHER PARTY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER FUNDAMENTAL DOCUMENT AND THE RELATIONSHIP BETWEEN THE PARTIES IN CONNECTION HEREWITH IS SOLELY THAT OF INDEPENDENT CONTRACTORS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, NO PARTY SHALL ASSERT, AND EACH PARTY HEREBY WAIVES, ANY CLAIMS AGAINST ANY OTHER PARTY ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED TO DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF, THIS REVENUE PARTICIPATION PURCHASE AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 13.11 Severability. Any provision of this Agreement or of the Revenue Participations which is invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without invalidating the remaining provisions hereof, and any such invalidity, illegality or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 13.12 SERVICE OF PROCESS. EACH PARTY (EACH A “SUBMITTING PARTY”) HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF THE STATE OF CALIFORNIA IN LOS ANGELES COUNTY AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL

DISTRICT OF CALIFORNIA, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT AND THE SUBJECT MATTER HEREOF. EACH SUBMITTING PARTY TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN THE ABOVE-NAMED COURTS, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF SUCH COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS AGREEMENT, THE SUBJECT MATTER HEREOF, MAY NOT BE ENFORCED IN OR BY SUCH COURT, (B) HEREBY WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED BY ANY SUBMITTING PARTY IN STATE COURT TO FEDERAL COURT, AND (C) HEREBY WAIVES THE RIGHT TO ASSERT IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE ARISE FROM THE SAME SUBJECT MATTER. EACH SUBMITTING PARTY HEREBY CONSENTS TO SERVICE OF PROCESS BY MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN TO IT PURSUANT TO SECTION 9.1. EACH SUBMITTING PARTY AGREES THAT ITS SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF EACH OF THE OTHER SUBMITTING PARTIES. FINAL JUDGMENT AGAINST ANY SUBMITTING PARTY IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER JURISDICTION (X) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF INDEBTEDNESS OR LIABILITY OF THE SUBMITTING PARTY THEREIN DESCRIBED, OR (Y) IN ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION.

Section 13.13 Headings. Section headings used herein and the Table of Contents are for convenience only and are not to affect the construction of or be taken into consideration in interpreting this Agreement.

Section 13.14 Execution in Counterparts. This Agreement may be executed by facsimile and in any number of counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same instrument.

Section 13.15 Entire Agreement. This Agreement (including, without limitation, the Schedules hereto) represents the entire agreement of the parties with regard to the subject matter hereof and the terms of any letters and other documentation entered into between any of the parties hereto prior to the execution of this Agreement which relate to the Revenue Participations shall be replaced by the terms of this Agreement. To the extent that there are any inconsistencies or conflicting provisions contained in this Agreement and any other Agreement, including without limitation the Master Distribution Agreement, the terms and conditions of this Agreement shall prevail.

Section 13.16 Confidentiality. Each of the Revenue Participation Holders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to it and its Affiliates’ directors, officers, employees and agents, including, without limitation, accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by Applicable Laws or by any subpoena or similar legal process, or pursuant to requirements of internal document retention and disclosure policies of general application promulgated pursuant to applicable law, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) with the consent of the Revenue Participation Holders, or (g) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section 13.16, or (y) becomes available to the Revenue Participation Holder on a non-confidential basis from a source other than Issuer. For the purposes of this Section 13.16, “Information” means all information received from Issuer relating to Issuer or its business, including, without limitation, Nonpublic Information, other than any such information that is available to Issuer or any Revenue Participation Holder on a non-confidential basis prior to disclosure by Issuer; provided, that in the case of information received from Issuer after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section 13.16 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. The obligations of the Revenue Participation Holders under this Section 13.16 shall survive the termination of this Agreement and shall remain an obligation, in accordance with the terms hereof, of any Person who ceases for whatever reason to be a Revenue Participation Holder hereunder. SGF acknowledges that it may, from time to time, come into possession of material Nonpublic Information regarding LGEI and its Affiliates and that U.S. securities laws prohibit any person or entity in possession of such material Nonpublic Information from purchasing or selling securities of LGEI or any of its Affiliates. SGF agrees that it will use any material Nonpublic Information regarding LGEI and its Affiliates in accordance with LGEI’s compliance policies and applicable law, including, without limitation, federal, provincial and state securities laws.

Section 13.17 Waiver of Equitable Remedies. The sole and exclusive remedy of any Revenue Participation Holder for any breach or default by Issuer or Distributor, as applicable, hereof shall be to bring an action at law to recover damages, and no Revenue Participation Holder shall be entitled to any form of equitable relief, and in no event shall any Revenue Participation Holder be entitled to terminate or rescind this Agreement or Issuer’s or Distributor’s rights with respect to a Funded Qualifying Project or enjoin or restrain or otherwise interfere with Issuer’s or Distributor’s distribution, exhibition or other exploitation of any Funded Qualifying Project or Issuer’s or Distributor’s use, publication or dissemination of any advertising issued in connection with the Funded Qualifying Project. In furtherance of and without limiting the foregoing, each Revenue Participation Holder agrees that it shall not interfere or authorize or cause any other party to interfere with the rights of Issuer or Distributor to quietly and peacefully enjoy and possess all rights in the Funded Qualifying Projects,

including, without limitation, all rights under copyright, to the extent owned or controlled by Issuer or Distributor, as applicable.

[Signature Pages Follow]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and the year first written.


		MQP, LLC,
		as Issuer

		By:		/s/ Wayne Levin

		Name: Title:		Wayne Levin Director

		LIONS GATE ENTERTAINMENT INC.,
		as Revenue Participation Holder

		By:		/s/ Wayne Levin

		Name: Title:		Wayne Levin General Counsel

		LIONS GATE FILMS INC. ,
		as a Distributor

		By:		/s/ Wayne Levin

		Name: Title:		Wayne Levin General Counsel

		LIONS GATE TELEVISION INC. ,
		as a Distributor

		By:		/s/ Wayne Levin

		Name: Title:		Wayne Levin General Counsel

		SGF ENTERTAINMENT INC.,
		as a Revenue Participation Holder

		By:		/s/ Peter Shiroky

		Name:		Peter Shiroky
		Title:		Mandataire et Fondé de Pouvoir

SCHEDULE 1

Schedule 1 to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as a Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate Television Inc. (the “Agreement”).

Production Specifications

(i)		List of proposed financing partners;

(ii)		Chain of title documents including a description of the Rights owned or controlled by Issuer or Distributor;

(iii)		Details regarding third party contractual restrictions in respect of prequels, sequels, remakes and other derivative works, if applicable;

(iv)		Insurance policies;

(v)		Existing license agreements or deal memos (excluding any agreements entered into by LGEI or its Affiliates that are of an ongoing or multiple Production nature or that are subject to confidentiality obligations of LGEI or any of its Affiliates (e.g. output agreements);

(vi)		Territory;

(vii)		Financing Plan;

(viii)		Third Party Participations (and their required position in the Waterfall);

(ix)		Lead cast;

(x)		Contractual restriction regarding Screen Credit;

(xi)		Designation as a theatrical or non-theatrical release;

(xii)		Co-Financing Participations (and their required position in the Waterfall);

(xiii)		Screenplay or synopsis;

(xiv)		Director;

(xv)		Production Schedule;

(xvi)		Services Company;

(xvii)		Estimated Tax Credit Amounts;

(xviii)		Production Budget;

(xix)		Estimated Quebec spend.

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SCHEDULE 2.1

Schedule 2.1 to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as a Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate Television Inc. (the “Agreement”).

Schedule of Contributions


			Pro Rata
Revenue Participation Holder	Notice Address	Contribution	Amount
	2700 Colorado Avenue
	Suite 200
Lions Gate Entertainment Inc.	Santa Monica, CA 90404	$260,000,000	65%
	Attention: General Counsel
	Facsimile: (310) 255-3860

	c/o Société générale de
	financement du Québec
	600 de la Gauchetière Street West
SGF Entertainment Inc.	Suite 1500	$140,000,000	35%
	Montreal, Quebec H3B 4L8
	Attention: Vice President Legal
	Affairs and Secretary
	Facsimile: (514) 876-9306

TOTAL:		$400,000,000	100%

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SCHEDULE 2.3(b)(ii)

Schedule 2.3(b)(ii) to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as a Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate Television Inc. (the “Agreement”).

Cashflow Schedules for the Initial Revenue Participations

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SCHEDULE 3.1

Schedule 3.1 to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as a Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate Television Inc. (the “Agreement”).

List of Jurisdictions

1. State of Delaware.

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SCHEDULE 9.2

Schedule 9.2 to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as a Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate Television Inc. (the “Agreement”).

Direct Competitors

*****

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SCHEDULE “GR”

Schedule “GR” to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as a Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate Television Inc. (the “Agreement”).

Definition of “Gross Receipts”

1. Definitions. As used in this Schedule “GR”, all defined terms shall have the meanings as defined in the Agreement, unless specifically defined herein, and all references to “Paragraphs” shall refer to paragraphs of this Schedule “GR”.

2. Gross Receipts. For the purposes of this Agreement, “Gross Receipts” shall mean, for each Funded Qualifying Project, one hundred percent (100%) of all amounts, other than Co-Financing Amounts, actually received by Issuer, LGEI, Distributor or any of their Affiliates, net of applicable withholding taxes, in respect of the exhibition, distribution, sale, licensing, sub-licensing and exploitation of such Funded Qualifying Project in all gauges, formats, media (now known or hereafter devised) and languages (except as otherwise provided herein) throughout the universe and for greater certainty, including, without limitation, the Rights, all right, title and interest to any associated rights, Merchandising, Ancillary Rights, secondary or publishing rights, including, without limitation, pre-sales, advances, bonuses, prizes and similar proceeds regardless of when such amounts are received (i.e., whether they are received prior to or after the purchase of Revenue Participations in the applicable Funded Qualifying Project, provided the Revenue Participation Holders purchase Revenue Participations in the applicable Funded Qualifying Project and provided further that such amounts are generated prior to the Repurchase Date), but excluding advances, etc. taken into account in the definition of P&A Costs and Other Releasing Costs and Affiliate Payments, including, without limitation, the following:

All non-refundable sums actually received by Distributor from the following sources:

	(i)		Licenses by Distributor directly to exhibitors of the right to exhibit the Funded Qualifying Project by means of Theatrical, Non-Theatrical or Television;

	(ii)		Licenses by Distributor to Subdistributors, net of any fees and expenses charged by such Subdistributor;

	(iii)		The sale or lease of souvenir Funded Qualifying Projects and booklets;

	(iv)		Recoveries by Distributor from actions based on unfair competition, piracy and/or infringements of copyrights and trademarks of the Funded Qualifying Project, which recoveries are intended to compensate Distributor for losses sustained in respect of the Funded Qualifying Project and shall be fairly and reasonably allocated among all Productions involved therein; provided, that no Distribution Fee shall be charged on any portion of such recovery included in the Gross Receipts that represents punitive, rather than actual or statutory, damages;

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	(v)		The net receipts from so-called “four-wall” deals on a collective basis, i.e., the sums received by Distributor from theater(s) where Distributor has taken over the operation of such theater(s) specifically for the exhibition of the Funded Qualifying Project, less all out-of-pocket costs of operating the theater(s) and those advertising costs that would normally and actually be paid by theaters and which are paid by Distributor;

	(vi)		Monies received from the Copyright Royalty Tribunal (or similar agencies established under the laws of any jurisdiction);

	(vii)		Exploitation of the Ancillary Rights;

	(viii)		Monies received by Distributor from the distribution, sale or other exploitation of Home Video Rights and any Video Levies (as defined below) collected by Distributor, less local taxes, rebates, discounts, credit adjustments for defective Videograms, customs duties, import charges, shipping, mailing and insurance charges, dubbing and subtitling costs, and mastering and submastering costs; provided, however, that Distributor shall have the right to deduct up to *** of all such monies as a reserve for returns and credits of any nature, including, without limitation, those on account of one hundred percent (100%) or a lesser return privilege, defective merchandise, exchange privilege, promotional credits, errors in billing, unusual overstock, bad debts and errors in shipping, which reserves shall be liquidated within ***, pursuant to Distributor’s customs and practices. “Video Levies” shall mean levies or other charges collected under operation of law with respect to the Funded Qualifying Project in the Territory on the sale of video recorders, blank video cassettes or video discs or similar items or the rental of Videograms which become payable to the Copyright Owner or the distributor of the Funded Qualifying Project. Distributor shall be entitled to collect all revenue from Video Levies.

Gross Receipts shall be determined after all reserves, refunds, credits, discounts, allowances and adjustments granted to exhibitors and Subdistributors, whether occasioned by condemnation by boards of censorship, settlement of disputes or otherwise. advance payments and guarantees shall not be included in Gross Receipts until earned by the exhibition of the Funded Qualifying Project or forfeited.

Gross Receipts shall not include (a) any portion thereof which is contributed to charitable organizations in connection with or related to premieres of the Funded Qualifying Project; (b) the receipts which are the contractually acquired property of the following parties, whether or not Subsidiaries or divisions of Distributor: (i) exhibitors or others who may use or actually exhibit the Funded Qualifying Project, (ii) radio or television broadcasters (including, without limitation, pay, cable, and closed circuit systems), (iii) book or music publishers, (iv) phonograph record producers or distributors and (v) merchandisers, manufacturers and the like.

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Amounts charged back to Distributor or its Affiliates in any Accounting Period for damaged goods and returns of home video units shall reduce Gross Receipts in such Accounting Period.

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SCHEDULE “MDA”

Schedule “MDA” to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as a Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate Television Inc. (the “Agreement”).

Master Distribution Agreement

Part 1 – Lions Gate Films Inc.

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SCHEDULE “MDA”

Master Distribution Agreement

Part 2 – Lions Gate Television Inc.

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SCHEDULE “PSA”

Schedule “PSA” to Revenue Participation Purchase Agreement dated July 25, 2007 between MQP, LLC, as Issuer, SGF Entertainment Inc., as a Revenue Participation Holder, Lions Gate Entertainment Inc., as a Revenue Participation Holder, Lions Gate Films, Inc. and Lions Gate Television Inc. (the “Agreement”).

Form of Production Services Agreement

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EX-10.41 3 v32671exv10w41.htm EXHIBIT 10.41 Exhibit 10.41

Exhibit 10.41

CONFIDENTIAL TREATMENT REQUESTED: INFORMATION FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED IS OMITTED AND IS NOTED WITH “*****.” AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

MASTER DISTRIBUTION AGREEMENT
(FILM PRODUCTIONS)

Dated as of July 25, 2007

between

MQP, LLC
as Issuer,

and

LIONS GATE FILMS, INC.
as Distributor,

MASTER DISTRIBUTION AGREEMENT (FILM PRODUCTIONS), dated as of July 25, 2007, between MQP, LLC, a Delaware limited liability company, as “Issuer” and LIONS GATE FILMS, INC. as “Distributor”.

INTRODUCTORY STATEMENT

WHEREAS, Issuer, Distributor and the Revenue Participation Holders (as defined in the RP Purchase Agreement) have entered into that certain Revenue Participation Purchase Agreement (the “RP Purchase Agreement”) pursuant to which Issuer has agreed to sell, and each of the Revenue Participation Holders has agreed to purchase, Revenue Participations (as defined in the RP Purchase Agreement) in each Funded Qualifying Project on the terms set forth therein; and

WHEREAS, Issuer and the Revenue Participation Holders each desire to have Distributor distribute each Funded Qualifying Project on the terms set forth herein;

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement and the RP Purchase Agreement and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by each of the parties hereto), the parties hereby agree as follows:

1. DEFINITIONS AND ACCOUNTING TERMS.

1.1 Defined Terms. As used in this Agreement the following terms shall have the respective meanings set forth in this Section 1.1. Unless otherwise defined herein, all defined terms shall have the meanings ascribed thereto in the RP Purchase Agreement.

“Accounting Period” shall mean, with respect to a Funded Qualifying Project, (i) each ***** period during the ***** following the Release Date for such Funded Qualifying Project and (ii) thereafter, each quarterly period during the Term; provided, however, that the first Accounting Period for each Funded Qualifying Project shall commence on the date of receipt of the first Gross Receipts for such Funded Qualifying Project.

“Adjusted Receipts” has the meaning set forth in Section 6.3.4.

excluding in each case payments expressly permitted hereunder; provided, however, that each Executive Producer Fee shall not be considered an Affiliate Payment.

“Agreement” means this Master Distribution Agreement, as amended, supplemented or otherwise modified, renewed or replaced from time to time, and references to “Schedules” and “Sections” refer to Schedules and Sections of this Agreement.

“Ancillary Rights” means and includes, without limitation, the right to exploit all ancillary, incidental and subsidiary rights in and to any Funded Qualifying Project, including, without limitation, all Merchandising, commercial tie-ins, music, music publishing, soundtrack, photonovel, novelization, screenplay publication, interactive media, multi-media, and theme park (or other “themed” or location-based attraction) rights.

“Appellate Arbitrators” has the meaning set forth in Section 13.2.

“Arbitral Board” has the meaning set forth in Section 13.1.

“Business Day” shall mean any day other than a Saturday, Sunday or other day on which banks are required or permitted to close in either the Province of Quebec or the State of California.

“CIPO” shall mean the Canadian Intellectual Property Office.

“Co-Financier” means a Person that is not an Affiliate of LGEI, the Issuer or the Distributor who makes an investment in a Qualifying Project pursuant to a Co-Financing Transaction.

“Co-Financing Participation” means any amount payable to any Person that is not an Affiliate of LGEI in connection with a Co-Financing Transaction, including pass through and defeasance amounts.

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which a Person that is not an Affiliate of LGEI makes an equity investment in such Funded Qualifying Project.

“Defect Notice” has the meaning set forth in Section 8.1.

“Delivery” has the meaning set forth in Section 8.1.

“Delivery Materials” means (a) for any Funded Qualifying Project that is a Film Production, those materials listed on Schedule “DM” and (b) for any Funded Qualifying Project that is neither a Film Production nor a Television Production (e.g. a “direct-to-video” Production), such materials as Distributor shall notify Issuer in writing no less than ***** prior to Delivery of such Funded Qualifying Project.

“Distribution Expenses” has the meaning set forth in Schedule “GR”.

“Distribution Fee” has the meaning set forth in Section 4.

“Distribution Records” has the meaning set forth in Section 7.3.

“Distribution Rights” means with respect to each Funded Qualifying Project the sole, exclusive and irrevocable right, under copyright, throughout the Term, to (and to license others to) exhibit, distribute, market, display, project, transmit, broadcast, perform, advertise, publicize, exploit, sell copies of, dispose of and otherwise communicate publicly or privately and/or turn to account such Funded Qualifying Project, in whole or in part (and its plot, themes and other elements), and trailers and clips and excerpts therefrom, in any and all languages and versions, in the Territory, on any and all kinds, sizes, gauges and/or widths of film, tape, computer, electronic, digital, on-line transmission by any and every means, method, process or device or other delivery systems now known or hereafter developed, and in all markets and media now known and exploited, now known and hereafter exploited, and not yet known or devised, including, without limitation, Ancillary Rights, Theatrical Rights, Non-Theatrical Rights, Television Rights and Home Video Rights.

“Distributor Collateral” has the meaning set forth in Section 19.

“Distributor Security Agreement” has the meaning set forth in Section 19.

“Distributor Security Interest” has the meaning set forth in Section 19.

“Encumbrance” means any lien (statutory or other), claim, charge, security, interest, mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale or other title retention agreement, preference, priority or other security agreement or preferential arrangement of any kind, and any easement, encroachment, covenant, restriction, right of way, defect in title or other encumbrance of any kind.

“Film Production” means a Production that is intended to be exploited theatrically and specifically excludes a Television Production.

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“Force Majeure” has the meaning set forth in Section 17.

“Funded Qualifying Project” shall mean any Qualifying Project in which the Revenue Participation Holders have purchased a Revenue Participation, and, for the purposes of this Agreement only, in which Distributor has been granted Distribution Rights, the Related Rights and other rights pursuant to Section 2.

“Gross Receipts” has the meaning set forth in Schedule “GR”.

“Home Video Rights” means and includes, without limitation, the sole and exclusive right (1) to manufacture, advertise, promote, exploit and distribute the Funded Qualifying Projects on a sale, lease or rental basis directly or through licensees, in all languages, versions, and sizes, on all formats of video devices now known or hereafter known or devised, including, without limitation, (a) any and all forms of videocassettes, cartridges, phonograms, tape, video discs, laser discs, 8mm recordings and any other visual or optical recording, (b) any and all forms of DVD (including, without limitation, HD-DVD and Blu-Ray), DVD-ROM, and Internet access-ready DVDs, CD-I and CD-ROM, Video Compact Discs, or (c) on Videograms, and (2) the right to exploit the Funded Qualifying Projects by means of Video-On-Demand or Near Video-On-Demand, and all forms of digital or on-line exploitation, distribution and/or transmission (including, without limitation, Internet transmission) and computerized or computer-assisted media.

“Indemnified Party” has the meaning set forth in Section 12.1.

“Indemnifying Party” has the meaning set forth in Section 12.1.

“Issuer Collateral” has the meaning set forth in Section 20.

“Issuer Event of Default” has the meaning set forth in Section 11.2.

“Issuer Obligations” has the meaning set forth in Section 6.2.

“Issuer Security Agreement” has the meaning set forth in Section 20.

“Issuer Security Interest” has the meaning set forth in Section 20.

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“JAMS” has the meaning set forth in Section 13.

“LGEI” means Lions Gate Entertainment Inc., a Delaware corporation.

“Merchandising” includes, without limitation, the right to create and exploit computer, video and other electronic games based upon a Funded Qualifying Project or any element thereof, including, without limitation, the sole and exclusive right to create or license the creation of interactive programs, whether in CD-ROM, DVD (including, without limitation, HD-DVD and Blu-Ray), set-top or arcade formats; and the right to create and exploit toys, comic books and so-called “making of books,” apparel, food and beverages, posters, and any and all other commodities, services or items based upon a Funded Qualifying Project or any element thereof.

“Near Video-On-Demand” incorporates the definition of Video-On-Demand, except that, instead of the consumer determining the starting time for viewing the Funded Qualifying Project, the consumer is able to select the starting time from viewing times determined by the provider, where the provider permits a selection of starting times not more than 15 minutes apart.

“Nonpublic Information” means information which has not been disseminated in a manner making it available to investors generally, within the meaning of Regulation FD.

“Non-Theatrical Markets” means and includes, without limitation, airlines, schools, libraries, hospitals, hotels, Army, Navy, Air Force and other military or armed services installations, and ships at sea flying the flag of a country in the Territory or which are serviced from within the country of such flag, and other institutions that typically license recorded entertainment materials from programming suppliers.

“Non-Theatrical Rights” means and includes, without limitation, the sole and exclusive right to exploit the Funded Qualifying Projects in Non-Theatrical Markets by any and all means, whether now known or hereafter known or devised.

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Project (i) in the United States; and (ii) for any other territory in which Distributor directly distributes such Funded Qualifying Project.

“Pay-Per-View” means exhibition over a service for which subscribers pay a premium on a per-program basis for each program which they choose to receive.

“Pay Television” means exhibition over a service for which subscribers pay a premium for the programming transmitted (e.g., HBO).

“Proceedings” has the meaning set forth in Section 13.

“Production Specifications” shall mean, in respect of each Funded Qualifying Project, the documents or items pre-approved in writing by the Revenue Participation Holders in respect of such Funded Qualifying Project pursuant to the RP Purchase Agreement.

“Rebate Costs” has the meaning set forth in Section 7.4.

“Rebates” has the meaning set forth in Section 7.4.

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“Regulation FD” means Regulation FD as promulgated by the US Securities and Exchange Commission under the Securities Act and Exchange Act as in effect from time to time.

“Residuals” shall mean the costs incurred and payments required under applicable collective bargaining agreements (in all applicable jurisdictions) by reason of or as a condition to use or exhibition of a Funded Qualifying Project in any media.

“Revenue Participation Holders” shall mean SGF and LGEI and each of their respective permitted successors and assigns, and “Revenue Participation Holder” means any one of them.

“RPMRR” shall mean the Register of Personal Movable Real Rights (Quebec).

“Rules” has the meaning set forth in Section 13.

“Senior Lender Encumbrances” shall mean the Encumbrances in favour of the Senior Lenders and the Senior Loan Administrative Agent.

“Senior Lender InterCreditor” shall mean the intercreditor agreement to be entered into by SGF and the Senior Loan Administrative Agent.

“Senior Lenders” shall mean the lenders in the Senior Loan Syndicate.

“Senior Loan Administrative Agent” shall mean JP Morgan Chase Bank, National Association.

“Senior Loan Syndicate” shall mean the senior credit facilities in favour of Lions Gate Entertainment Corp. and LGEI administered by the Senior Loan Administrative Agent.

“Settlement Date” means, the ***** following the end of an Accounting Period.

“Settlement Report” has the meaning set forth in Section 7.2.

“SGF” means SGF Entertainment Inc. and its successors and assigns.

“Short Form License Agreement” has the meaning set forth in Section 10.2.3.

“Subdistributor” has the meaning set forth in Section 4.2.

“Television Production” means a Production that is intended to be exploited on any form of television including, without limitation, Free Television, Pay Television and Pay-Per-View and specifically excludes a Production exploited theatrically.

“Television Rights” means and includes, without limitation, the sole and exclusive right to exploit the Funded Qualifying Projects by means of television signal, without regard as to how such signal is distributed (e.g., broadcast over the air, or via satellite, fiberoptic cable, telephone wire, or any and all forms of Internet, wireless or other computer or digital

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technology, or any other form of technology, now known or hereafter known or devised. Television Rights includes, without limitation, the right to exploit the Funded Qualifying Projects via Pay Television, Pay-Per-View and Free Television.

“Term” means, with respect to a Funded Qualifying Project, the duration of time that Issuer owns and/or controls the Distribution Rights for such Funded Qualifying Project.

“Territory” means, with respect to a Funded Qualifying Project, those countries and territories for which Issuer owns and/or controls all or a portion of the Distribution Rights.

“Theatrical Rights” means and includes, without limitation, the sole and exclusive right to rent, lease, license, exhibit, distribute and otherwise deal in and with the Funded Qualifying Projects for viewing by the public in theatres, in any and all languages or versions, and including, without limitation, the right to enter into rentals, leases and licenses respecting all theaters or other places of public viewing, without regard as to how the Funded Qualifying Projects are distributed to theatres (e.g., on any and all sizes and gauges of film, tape or disc or distribution to theatres by any other means, whether now known or hereafter known or devised, including, without limitation, satellite, cable or other electronic transmission).

“Third Party Participation” means, with respect to a Funded Qualifying Project, any amount payable to any Person other than (i) LGEI, Issuer, Distributor or any Affiliate thereof or (ii) any officer, director, management employee of any of LGEI, Issuer, Distributor or any Affiliate thereof, whether characterized as a deferment, gross participation, net participation, profit participation, contingent compensation, box office bonus, award or credit bonus, or otherwise which amount is based, dependent, computed, or payable, in whole or in part, on the net or gross receipts, earnings, or proceeds derived from such Funded Qualifying Project or any percentage of the foregoing or is payable at such time as any such receipts, earnings, or proceeds equal a specified amount whether such receipts, earnings, or proceeds are computed in the same manner as provided in the Distribution Agreement or are otherwise computed or any similar type of payment or the economic equivalent thereof. For the avoidance of doubt, (a) a “Third Party Participation” shall include, “deferments” payable in connection with a Funded Qualifying Project which are fixed obligations in a definite amount whether or not the receipts, earnings, or proceeds of such Funded Qualifying Project equal a specified amount, and (b) a “Third Party Participation” shall not include Co-Financing Participations unless (i) the contractual arrangements with a Co-Financier require such Co-Financier’s Co-Financing Participation to be paid from Gross Receipts in the same position in the Waterfall as Third Party Participations and (ii) such contractual arrangements have been disclosed to the Revenue Participation Holders in the Production Specifications.

“Third Party Payments” has the meaning set forth in Section 6.1.

“UCC” shall mean the Uniform Commercial Code, as applicable in the State of Delaware.

“USCO” shall mean the United States Copyright Office.

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“Videograms” means and includes, without limitation, any and all forms of computer software, or any configuration of computer software and technology, for private use by consumers by any means, whether now known or hereafter known or devised.

“Video-On-Demand” means and includes, without limitation, the transmission of a Funded Qualifying Project through any method now known or hereafter devised, including, without limitation, broadcast television signal, whether analog or digital, or via satellite, cable, telephone wire, fiberoptics, cyberspace, Internet or other computerized or digital technology, on-line transmission, every sort of electronic transmission or any and all other delivery systems, to a television receiver, computer monitor or other comparable display, whereby the consumer can select the Funded Qualifying Project from a central library and whereby the consumer determines the starting time of the Funded Qualifying Project.

“Waterfall” has the meaning set forth in Section 6.3.

1.2 Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including”, the word “through” means “to and including”, and the words “to” and “until” each mean “to but excluding”.

1.3 Accounting Terms / Ratios.

1.3.1 Except as otherwise expressly provided herein or in the RP Purchase Agreement, all accounting terms not defined herein or in the RP Purchase Agreement shall be construed in accordance with GAAP.

1.3.2 All calculations of financial ratios hereunder shall be calculated to the same number of decimal places as the relevant ratios are expressed in and shall be rounded upward if the number in the decimal place immediately following the last calculated decimal place is five or greater, and rounded down if otherwise.

1.4 Rules of Construction. Unless the context otherwise clearly requires:

1.4.1 whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms;

1.4.2 the word “will” shall be construed to have the same meaning and effect as the word “shall”;

1.4.3 any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modification set forth herein);

1.4.4 any reference to any law herein shall be construed as referring to such law as from time to time amended;

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1.4.5 any reference herein to any Person, or to any Person in a specified capacity, shall be construed to include such Person’s successors and assigns or such Person’s successors in such capacity, as the case may be;

1.4.6		the words “herein,” “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Schedule, Section, or other subdivision;

1.4.7		to the extent that there are any inconsistencies with the terms and conditions of this Agreement and the terms and conditions of the RP Purchase Agreement, the terms and conditions of the RP Purchase Agreement shall prevail; and

1.4.8		all capitalized terms not otherwise defined herein shall have the meaning attributed thereto in the RP Purchase Agreement and shall be incorporated herein as if herein recited at length.

2. GRANT OF RIGHTS.

2.1 Issuer hereby grants and conveys the Distribution Rights to Distributor, to the extent owned or controlled by Issuer.

2.2 Issuer hereby grants the Related Rights to Distributor, to the extent owned or controlled by Issuer.

2.3 Distributor shall have the sole and exclusive right to advertise, publicize, promote and market each Funded Qualifying Project by any means in the Territory and over the Internet.

2.4 Issuer shall not release or disclose any information, advertising or publicity relating to any Funded Qualifying Project in the Territory without Distributor’s prior written approval.

3. EXPLOITATION DECISIONS.

3.1 Subject to the terms of the RP Purchase Agreement and the terms and conditions of this Agreement, Distributor shall have absolute discretion concerning the exploitation of each Funded Qualifying Project, including the right to release and distribute (and/or refrain from releasing and distributing) each Funded Qualifying Project in such manner and media, and through such releasing or distribution entity or entities (and/or to engage such Subdistributors or licensees). Issuer agrees that any such determination on the part of Distributor and its sublicensees regarding any matter affecting the exploitation of a Funded Qualifying Project shall be binding and conclusive upon Issuer. Without limiting the foregoing:

3.1.1 Distributor may, at its discretion, prepare closed-captioned versions of the Funded Qualifying Projects and use excerpts, clips and trailers thereof for advertising and promotional purposes.

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3.1.2 Distributor may incorporate onto Videograms of a Funded Qualifying Project (A) preceding and/or following the main and end titles of such Funded Qualifying Project, Distributor’s or any of Distributor’s, sublicensees’, Affiliates’ and affiliated licensees’ names, trademarks, logos, trailers, clips, (B) excerpts of other Funded Qualifying Projects, (C) Distributor’s standard “opening” and “closing” sequences, including, without limitation, an introductory visual “logo” with or without music, (D) any legal notices or other information which Distributor determines is necessary, (E) paid advertising (provided monies received from such paid advertising shall be included in Gross Receipts) and (F) any so-called “making of” or “behind the scenes” documentary footage or programming, including, without limitation, any part of the electronic press kits, featurettes, interviews, television specials and publicity clips prepared in connection with such Funded Qualifying Project.

3.1.3 Distributor may incorporate trailers, clips or excerpts of a Funded Qualifying Project on Videograms of other Productions and may incorporate trailers, clips or excerpts of other Productions on Videograms of a Funded Qualifying Project.

3.1.4 Distributor shall have the right, at its discretion, to either make any and all changes and modifications in a Funded Qualifying Project (including, without limitation, its title) which Distributor shall determine to be necessary or desirable by reason of censorship, registration (i.e. ratings) or other requirements of governmental or other authorities or law, all at Issuer’s sole cost and expense as part of the Distribution Expenses of such Funded Qualifying Project. Issuer agrees to cooperate with Distributor to clear customs, registrations and censorship or similar authorities and any fees associated therewith may be deductible from any amounts payable to Issuer. Distributor shall have the right to select, designate or change the title of a Funded Qualifying Project in its discretion and to release such Funded Qualifying Project in any or all parts of the Territory under such title or titles as Distributor may designate.

3.1.5 Distributor may include Distributor’s (or one or more of Distributor’s or any of Distributor’s sublicensees’, affiliates’ and affiliated licensees’ names) name, logo, trademark or emblem in such manner, position, form and substance as Distributor may elect on the prints of the Funded Qualifying Projects, and on all advertising and publicity materials for the Funded Qualifying Projects (including, without limitation, any trailers of the Funded Qualifying Projects), together with such words as Distributor may elect indicating that such Funded Qualifying Projects are being distributed by Distributor or any of Distributor’s sublicensees’, affiliates’ and affiliated licensees’ names.

3.2 Maximizing Gross Receipts. Distributor shall use diligent efforts and skill (consistent with the quality standards of first-class distributors of Productions) in the distribution and exploitation of the Funded Qualifying Projects in all media throughout the Territory to maximize Gross Receipts, including, without limitation, obtaining any permits permissions and/or clearances necessary to exploit the Funded Qualifying Projects in all territories throughout the Territory.

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3.3 Copies of License Agreements. Distributor shall provide Issuer with copies of all license agreements entered into by the Distributor in connection with any Funded Qualifying Project or any rights therein, promptly upon execution thereof.

3.4 Theatrical Release of Film Productions. For each Funded Qualifying Project that is a Film Production, Distributor shall release such Funded Qualifying Project theatrically. The size, date, cost and scope of such theatrical release shall be determined in the sole discretion of Distributor and in accordance with the standards of first-class distributors of Productions taking into account its theatrical release pattern for films of a similar genre and budget.

4. DISTRIBUTION FEE

4.1 Distribution Fee. For each Funded Qualifying Project, Distributor shall be entitled to receive a distribution fee, on an uncrossed basis with all other Funded Qualifying Projects (the “Distribution Fee”), in an amount equal to ***** for such Funded Qualifying Project, escalating on a prospective basis only to ***** for such Funded Qualifying Project at such time, if ever, as the sum of the aggregate amount actually paid to SGF pursuant to the RP Purchase Agreement on account of its Revenue Participation for such Funded Qualifying Project shall equal ***** paid by SGF for such Revenue Participation, and further escalating on a prospective basis only to ***** for such Funded Qualifying Project at such time, if ever, as the sum of the aggregate amount actually paid to SGF pursuant to the RP Purchase Agreement on account of its Revenue Participation such Funded Qualifying Project shall equal ***** paid by SGF for such Revenue Participation; provided, however, that the Distributor shall not be entitled to a Distribution Fee on any Gross Receipts relating to the principal license fee payable by a U.S. licensee for any Funded Qualifying Project that is a Television Production. Any escalation in the Distribution Fee for a Funded Qualifying Project, and the date of such escalation, shall be indicated in the Settlement Report for such Funded Qualifying Project for the Accounting Period in which such escalation occurred. In the event that SGF contests the amount actually paid to SGF pursuant to the RP Purchase Agreement on account of its Revenue Participation for such Funded Qualifying Project, then the Distribution Fee shall not escalate to ***** (as the case may be), until such time as the parties hereto have had the opportunity to review and agree on such amount, and the date upon which such amount was actually paid to SGF, and any overpayment of such Distribution Fee shall be corrected in the Settlement Report for the next Accounting Period (or Accounting Periods, if Gross Receipts are not sufficient to correct such overpayment in such next Accounting Period).

4.2 Subdistribution. Distributor shall be entitled to the Distribution Fees set forth above, in any part of the Territory where Distributor exploits each Funded Qualifying Project either directly or through a third party that is not an Affiliate of Distributor to which all or part of the Distribution Rights are licensed or sublicensed (“Subdistributor”), regardless of the amounts retained by any such Subdistributor.

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5. DISTRIBUTION EXPENSES.

All Distribution Expenses incurred in connection with the Distribution of each Funded Qualifying Project in the Territory shall be advanced by Distributor and recouped as provided in Section 6.

6. ALLOCATION OF GROSS RECEIPTS.

6.1 Third Party Payments. All Third Party Participations, Residuals, music synchronization, performance and other mechanical fees, and any other license fees (including, without limitation, all literary, all EU copyright directives, artistic, musical, technological and/or intellectual property rights fees) in connection with each Funded Qualifying Project shall be the obligation of Issuer and shall not be the obligation of Distributor (collectively, “Third Party Payments”). Issuer shall deliver each Funded Qualifying Project free and clear of any Encumbrances, other than Permitted Encumbrances. Upon Delivery of a Funded Qualifying Project to Distributor in accordance with the terms of this Agreement, Distributor shall assume any applicable union and/or guild payment obligation(s) due to such union(s) and/or guild(s) as a result of Distributor’s exploitation of the Distribution Rights for such Funded Qualifying Project in the Territory and each payment made by Distributor in respect of such obligations shall be considered a Third Party Payment.

6.2 Paymaster Services. So long as Distributor controls the Distribution Rights with respect to a Funded Qualifying Project, then with respect to each such Funded Qualifying Project during the Term, Distributor agrees to (i) provide to Issuer paymaster services in connection with the payment of Third Party Payments and other Distribution Expenses for such Funded Qualifying Project and (ii) advance, on behalf of Issuer the Third Party Payments and other Distribution Expenses (the “Issuer Obligations”). Distributor’s agreement to pay Issuer Obligations in its capacity as paymaster pursuant to the immediately preceding sentence is subject to Distributor’s timely receipt from Issuer of all contractual provisions and cost and participation information relating to the Funded Qualifying Projects which Issuer hereby agrees to provide on a timely basis. Distributor shall be entitled to fully recoup, as a Distribution Expense, any amount advanced in respect of Issuer Obligations, including any amount paid by Distributor on account of Third Party Payments, out of Gross Receipts.

6.3 Allocation of Gross Receipts. Subject to any rights and remedies of Distributor as set forth in this Agreement, Distributor shall, on an ongoing and continuing basis, deduct and allocate the following items from Gross Receipts from each Funded Qualifying Project, on a continuing basis in the following order of priority (the “Waterfall”):

6.3.1 First, to the payment of any required Third Party Payments, including, without limitation, any Co-Financing Participations that are included in such Third Party Payments; provided however, that all unreimbursed Third Party Payments and Co-Financing Participations paid or earned prior to or during such Accounting Period shall be retained by Distributor; provided further, however, that if a Co-Financing Transaction

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requires that such Co-Financing Participation be paid at a higher or lower level of the Waterfall, then such Co-Financing Participation shall, with respect to the Gross Receipts received in connection with such applicable Funded Qualifying Project, be deducted and paid to such co-financing participant at such applicable level of the Waterfall; provided further, however, that if the contractual arrangements relating to a Third Party Payment require that such Third Party Payment be paid at a higher or lower level of the Waterfall, then such Third Party Payment shall, with respect to the Gross Receipts received in connection with such applicable Funded Qualifying Project, be deducted and paid to such the applicable third party participant at such applicable level of the Waterfall.

6.3.2 Second, to Distributor on account of the Distribution Fee for such Accounting Period;

6.3.3 Third, To Distributor on account of all unreimbursed Distribution Expenses paid or incurred during or prior to such Accounting Period shall be retained by Distributor (for purposes of the foregoing, “incurred” shall mean Distribution Expenses that Distributor is obligated to pay to third parties prior to or during the applicable Accounting Period), which amounts shall include all unreimbursed Third Party Payments paid or earned prior to or during such Accounting Period (for purposes of the foregoing, “earned” shall mean with respect to third parties the amount that Distributor is contractually obligated to pay to such third parties as a result of the calculation of revenues and expenses recognized, or events occurring, during the Accounting Period in question, and, with respect to Residuals, amounts that Distributor is contractually obligated to pay pursuant to collective bargaining agreements with all applicable guilds as a result of the calculation of revenues and expenses recognized during the Accounting Period in question); and

6.3.4 Fourth, all remaining amounts (“Adjusted Receipts”) shall be distributed to the Revenue Participation Holders (and, if applicable, (a) any Co-Financier, on account of Co-Financing Participations and (b) any third party recipient of a Third Party Payment), as set forth in the RP Purchase Agreement.

6.4 Gross Receipts Not Crossed. Gross Receipts shall be disbursed through the Waterfall on a Funded Qualifying Project-by-Funded Qualifying Project and Gross Receipts from one Funded Qualifying Project will not be crossed with Gross Receipts from any other Funded Qualifying Project.

7. ACCOUNTING / SETTLEMENT REPORTS / AUDIT.

7.1 Accounting Period. Distributor shall account to Issuer with respect to each Funded Qualifying Project distributed by Distributor hereunder for each Accounting Period.

7.2 Settlement Reports. On each Settlement Date, Distributor shall render to Issuer (with a copy to each Revenue Participation Holder, provided that Distributor’s inadvertent failure to provide such copy to any Revenue Participation Holder shall be a breach of this Agreement) a settlement report for each Funded Qualifying Project (each, a “Settlement Report”). Each Settlement Report shall be delivered by Distributor to Issuer on each Settlement Date together with any sums being shown due to Issuer. Settlement Reports

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rendered by Distributor may be changed from time to time to give effect to year-end adjustments made by Distributor’s accounting department or public accountants, to items overlooked, to correct errors, or to reflect any indebtedness which may become uncollectible for any similar purposes. Should Distributor make any overpayment to Issuer hereunder for any reason, Distributor shall have the right to deduct and retain for its own account an amount equal to any such overpayment from any sums that may thereafter become due or payable by Distributor to Issuer or for Issuer’s account. Should Distributor make any underpayment to Issuer hereunder for any reason, Distributor shall on the next succeeding Settlement Date pay to Issuer an amount equal to any such underpayment; provided, however, that all amounts payable to Issuer hereunder shall be subject to all laws and regulations now or hereafter in existence requiring the deduction or withholding of payments for income or other taxes payable by or assessable against Issuer arising out of or in connection with this Agreement. Distributor shall have the right to make such deductions and withholdings, and the payment thereof to the governmental agency concerned in accordance with its interpretation in good faith of such laws and regulations shall constitute payment hereunder to Issuer, and Distributor shall not be liable to Issuer for the making of such deductions or withholdings or the payment thereof to the governmental agency concerned. In any such event Issuer shall make and prosecute any and all claims which it may have (and which it desires to make and prosecute) with respect to the same directly with the governmental agency having jurisdiction in the premises.

7.3 Accounting Records. Books of account in respect of the distribution of each Funded Qualifying Project (which books of account are hereinafter referred to collectively as the “Distribution Records”), shall be kept at Distributor’s or its Affiliates’ various offices (both in the United States and abroad) where generated or customarily kept, for as long as such Distribution Records are customarily retained by such office (provided, however, that the foregoing obligation shall not apply to any Subdistributors of a Funded Qualifying Project) and in the form customarily maintained by Distributor or such Affiliates.

7.4 Audits. Issuer and each Revenue Participation Holder shall each have the right, at its own expense, but not more than *****, to audit the Distribution Records at the aforesaid office in order to verify the Settlement Reports rendered hereunder in connection with each Funded Qualifying Project. Any such audit shall be conducted only by a certified public accountant during reasonable business hours and in such manner as not to interfere with Distributor’s normal business activities, shall not continue for more than ***** and be conducted by a third party accounting firm approved by the Revenue Participation Holders (Sills & Adelmann, Hacker, Douglas & Company, and any of the so-called “Big-Four” accounting firms are hereby pre-approved), provided that no such firm is compensated on a “percentage of recovery” basis, it being understood that Distributor shall have the right to approve any “percentage of recovery” retainer), provided, however, that such third party accounting firm shall agree in writing, for the benefit of Distributor, to be bound by the same duties of confidentiality arising under this Agreement and the RP Purchase Agreement. The Issuer and each Revenue Participation Holder shall be entitled to conduct the audit within ***** of the Issuer or each Revenue Participation Holder’s notice to conduct the audit. Issuer shall not have the right to examine or inquire into any matters or items which are contained in any such Settlement Report after the expiration of ***** from and after the date

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of receipt of such Settlement Report, and such Settlement Report shall be final and conclusive upon Issuer upon the expiration of such ***** period notwithstanding that the matters or items embraced by or contained therein may later be contained or referred to in a cumulative statement pertaining to more than one Accounting Period. Except in the context of litigation, such cumulative statement shall not be subject to audit by Issuer to the extent the material contained therein was first reflected on a Settlement Report submitted more than ***** prior to the date of mailing of such cumulative statement. Issuer shall be forever barred from maintaining or instituting any action or proceeding based upon, or in any way relating to, any transactions had by Distributor, its Affiliates, or its licensees, in connection with the Funded Qualifying Projects which are reflected on any Settlement Report rendered hereunder, or the accuracy of any item appearing therein, unless written objection thereto stating with specificity the particular transaction(s) or item(s) to which Issuer objects shall have been delivered by Issuer to Distributor prior to the expiration of the ***** period with respect to such Settlement Report unless such action or proceeding is commenced within such period. Notwithstanding the foregoing, a notice of intention to conduct an audit or to institute litigation shall interrupt each aforementioned ***** period. In the event the audit is not conducted or litigation instituted within a reasonable delay from the date of such notice, the right to conduct such audit or institute litigation shall terminate ***** from a written notice thereof by the Distributor. The Issuer and each Revenue Participation Holder shall be entitled to examine: all licensing, distribution and sub-distribution agreements relating to Funded Qualifying Projects. If a Funded Qualifying Project has been distributed, licensed, sub-distributed or packaged with Productions which are not Funded Qualifying Projects (“Packaged Projects”), the Issuer and each Revenue Participation Holder shall be entitled to examine all licensing, distribution and sub-distribution agreements in connection with such Funded Qualifying Project and such Packaged Projects, as well as all accounts, records, Distribution Records, Settlement Reports and documents which set forth, inter alia, the price allocation for such Funded Qualifying Project and such Packaged Projects. In connection with the delivery of each Settlement Report, Distributor shall provide an officer’s certificate that (i) sets forth the amount of all rebates, advances and credits allocated to one or more Funded Qualifying Projects pursuant to agreements with film processing laboratories or other home video replication entities (e.g., film duplication advances) for such Accounting Period (collectively, “Rebates”) (on a Production by Production basis), (ii) the aggregate amount, if any, of any out-of-pocket third party costs (“Rebate Costs”) incurred in acquiring such Rebates allocated to one or more Funded Qualifying Projects (on a Production by Production basis), and (iii) certifies that, taking into account all of the facts and circumstances, the Rebates and Rebate Costs were allocated to the Funded Qualifying Projects in a fair and reasonable manner. To the extent that the results of an audit of the Distribution Records reveals that additional Adjusted Receipts are due to Issuer, Distributor agrees to pay such sums to Issuer together with interest thereon at LIBOR, accruing from the date such amount should have been paid to Issuer.

7.5 Statements and Payments. All statements and payments contemplated by this Agreement shall be sent to the respective parties address as set forth in Section 16.

8. DELIVERY.

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8.1 Definition and Procedures. Issuer shall deliver each Funded Qualifying Project in strict conformity with the Production Specifications applicable to such Funded Qualifying Project. “Delivery” shall mean Distributor’s receipt, at Issuer’s sole cost and expense, of all Delivery Materials applicable to each Funded Qualifying Project. If all the Delivery Materials are not timely delivered to Distributor, or if any of the Delivery Materials are incomplete or technically unacceptable, or if the Funded Qualifying Project does not conform to the Production Specifications, Distributor shall notify Issuer in writing specifying the defects (“Defect Notice”). Such Defect Notice shall be delivered within ***** of receipt by Distributor of the last item required for Delivery sent by Issuer. If Issuer fails to cure the specified defects within ***** from the date such Defect Notice was sent, or if Issuer fails to timely deliver the Funded Qualifying Project, Distributor may secure acceptable replacements and withhold from Adjusted Receipts or any other amounts due to Issuer Distributor’s reasonable estimate of the cost of conforming the Funded Qualifying Project and or delivery of the Funded Qualifying Project to the requirements of this Agreement. Notwithstanding the foregoing, approval by Distributor of less than all Delivery Materials or any release of the Funded Qualifying Project shall not be deemed a waiver by Distributor of Issuer’s obligation of complete Delivery of the Funded Qualifying Project hereunder. Under no circumstances shall Issuer be relieved of the obligation to complete Delivery of all of the Materials required hereunder, unless Distributor shall so notify Issuer in writing designating the particular Materials which need not be delivered by Issuer to Distributor.

9. REPRESENTATIONS AND WARRANTIES.

9.1 Representations and Warranties by each Party. Each party hereby severally represents, warrants and agrees as follows:

9.1.1 Organization and Related Matters. Such party (i) is duly organized, validly existing and in good standing under the laws of the applicable state and/or country in which it is organized; (ii) has all necessary power and authority to carry on its business as now being conducted; and (iii) has the necessary power and authority to execute, deliver and perform this Agreement and any related agreements to which it is a party.

9.1.2 Authorization. The execution, delivery and performance of this Agreement and any related agreements by such party has been duly and validly authorized by all necessary action on the part of such party. This Agreement constitutes the legal, valid and binding obligation of such party, enforceable against such party in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditors’ rights generally.

9.1.3 No Conflicts. The execution, delivery and performance of this Agreement and any related agreements by such party will not violate or constitute a breach or default (whether upon lapse of time and/or the occurrence of any act or event or otherwise) under (i) the charter documents of such party; (ii) any law to which such party is subject; or (iii) any contract to which such party is a party that is material to the financial condition, results of operations or conduct of the business of such party.

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9.2 Representations and Warranties of Issuer. With respect to each Funded Qualifying Project, Issuer represents and warrants to Distributor as of the date of the Short Form License Agreement with respect to each Funded Qualifying Project (except with respect to the representations and warranties in Section 9.2.1 which are made as of the date hereof):

9.2.1 Clear Title. Issuer has not entered into any agreement with or made any Obligations to any third party with respect to such Funded Qualifying Project which might conflict or interfere with or adversely affect any of the provisions of this Agreement or the use or enjoyment by Distributor of any of the Distribution Rights granted to it hereunder. Issuer has not sold, assigned, transferred or conveyed, and will not sell, assign, transfer or convey, to any party any right, title or interest in and to such Funded Qualifying Project or any part thereof, or in and to the dramatic or literary material upon which it is based, adverse to or in derogation of the Distribution Rights granted to Distributor.

9.2.2 Litigation. Such Funded Qualifying Project and the Distribution Rights granted to Distributor as contemplated hereunder will not, and there has been no claim that the Funded Qualifying Project does, infringe upon, violate or conflict with any rights whatsoever of any Person. There is not now outstanding any litigation or threatened litigation, or any claims, demands, investigations or threats of claims, with respect to the Funded Qualifying Project, the literary, dramatic or musical material upon which the Funded Qualifying Project is based, or which is used therein, or the physical properties thereof.

9.2.3 Funded Qualifying Project.

9.2.3.1. Copyright. The Funded Qualifying Project has been duly and properly registered (and, if appropriate, renewed) for copyright in the United States by or on behalf of the owner of such copyright, or can be so registered (and, if appropriate, renewed), and the copyrights in the Funded Qualifying Project and the literary, dramatic and musical materials upon which the Funded Qualifying Project is based, or which are contained in the Funded Qualifying Project, are and will be valid and subsisting during the Term throughout the Territory.

9.2.3.2. Compliance. The Funded Qualifying Project, and all parts thereof, will be, or has been produced in compliance with any and all relevant laws, rules and regulations, whether state, federal, international or local (i.e., those imposed by any union, guild or labor organization), applicable to the production and completion of Productions.

9.2.3.3. Accurate Delivery. All deliverables required to be delivered by Issuer pursuant to the Delivery Schedule, including, without limitation, cast lists, credits, “paid ad” and talent restrictions statements, and copies of documents, are complete and accurate and Distributor will incur no liability to any third party from its reliance thereon and/or compliance therewith.

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10. COVENANTS.

10.1 Covenants Applicable to Each Party. Each Party to this Agreement hereby covenants to the other that it will at all times:

10.1.1 Compliance with Laws, Etc. Comply in all material respects with all Applicable Law.

10.1.2 Payment of Taxes, Etc. Pay and discharge or otherwise satisfy, before the same shall become delinquent or subjected to penalty, all taxes imposed upon it or its property which are due, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings, if any, and reserves in conformity with GAAP with respect thereto have been provided on the books and records of such Party or any consolidated group to which such Party is a party.

10.1.3 Preservation of Existence, Etc. (i) Preserve and maintain its corporate existence, and (ii) qualify and remain qualified in good standing as a foreign corporation under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, and (iii) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business.

10.2 Covenants of Issuer. Issuer hereby covenants to Distributor that it will at all times:

10.2.1 Keeping of Books. Implement and maintain administrative and operating procedures, and keep and maintain at such place or places as may from time to time be customary pursuant to its ordinary business practices, all documents, books, records and other information, reasonably necessary in connection with the activities of such party contemplated by the Transaction Documents.

10.2.2 Performance of Documents. Timely and fully (A) perform, observe and comply in all material respects with all of the provisions, covenants and other terms required to be performed or observed by it under each Transaction Document to it is a party in accordance with its terms, (B) maintain each such Transaction Document in full force and effect, and (C) make to each other party to each such Transaction Document such demands and requests for information and reports or for action as such party is entitled to make under such Transaction Document.

10.2.3 Short Form License Agreement. Execute and deliver to Distributor a short form license agreement, in form satisfactory to Distributor, (each, a “Short Form License Agreement”) with respect to each Funded Qualifying Project.

10.3 Covenants of Distributor. Distributor will at all times, unless consented to in writing by Issuer:

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10.3.1 Allocated Costs. Whenever Distributor (i) makes any expenditures or incurs any liability in respect of a group of Productions which includes one or more of the Funded Qualifying Projects, or (ii) receives from any licensee either a flat sum or a percentage of the receipts, or both, for any right to a group of Productions which includes any of the Funded Qualifying Projects, under any agreement (whether or not the same shall provide for the exhibition, sale, lease or delivery of positive prints of any of said Productions) which does not specify what portion of the license payments apply to the respective Productions in the group (or to such prints or other material, if any, as may be supplied), then, in any and all such situations, Distributor shall, in good faith, include in, or deduct from, the Gross Receipts for any such Funded Qualifying Projects, as the case may be, such sums in a non-discriminatory manner.

10.3.2 Manner of Distribution. Notwithstanding anything to the contrary contained herein, Distributor will distribute each Funded Qualifying Project (including, without limitation, expending amounts for prints and advertising for each Funded Qualifying Project) in accordance with the standards of first-class distributors of Productions and in a non-discriminatory manner commensurate with the treatment of Productions owned solely by Distributor or an Affiliate thereof, taking into account the genre, budget, marketplace, strength of competition, time of the year, the director, the rating and NRG index scores of such Funded Qualifying Project; provided, however, Distributor is making no representation, warranty or guaranty that any receipts received with respect to any Funded Qualifying Project from any media or territory will be comparable to the receipts received for any other Production distributed by Distributor in such media or territory. The determination whether a Funded Qualifying Project has been distributed in a non-discriminatory manner will be made based upon the overall treatment of the applicable Funded Qualifying Project over all media and territories, rather than on a transaction-by-transaction basis. Subject to the terms and conditions hereof and the RP Purchased Agreement, Distributor shall have complete and exclusive discretion and control (which it shall exercise in a manner consistent with the standards of first-class distributors of Productions of similar genre and budget) as to the time, manner, terms and extent of distribution, exhibition and exploitation of each Funded Qualifying Project, in accordance with such policies, terms and conditions and through such Persons as Distributor in its business judgment (which it shall make in a manner consistent with the standards of first-class distributors of Productions of similar genre and budget) may determine proper or expedient. Except as permitted under or as contemplated by the Transaction Documents, to the extent that Distributor enters into any transactions under this Agreement with Affiliates, Distributor shall do so and shall perform its obligations and enforce its rights thereunder upon terms consistent with those upon which Distributor customarily conducts business at such time, applied on a non-discriminatory basis as if such Funded Qualifying Projects were not subject to this Agreement.

10.4 Subdistribution. Distributor shall have the sole discretion to sell, subdistribute or license any Distribution Rights and/or Related Rights with respect to any Funded Qualifying Project in a non-discriminatory manner commensurate with the treatment of Productions owned solely by Distributor or an Affiliate thereof. With respect to such subdistribution agreements entered into by Distributor, Distributor shall exercise the same degree of diligence and skill in the performance of its duties in connection therewith as it

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applies to its or its Affiliates own Productions not subject to this Agreement, and shall take or cause to be taken all such actions as may be necessary or desirable to collect Gross Receipts from time to time, all in accordance with Applicable Law.

11. EVENT OF DEFAULT / REMEDIES.

11.1 By Distributor; Limitation of Issuer’s Remedies. Upon the occurrence and continuance of a breach by Distributor of any of its agreements, representations, warranties, obligations and covenants set forth herein or the Transaction Documents (each a “Distributor Event of Default”), the sole and exclusive remedy of Issuer or any Revenue Participation Holder for such Distributor Event of Default shall be to bring an action at law to recover damages, and neither Issuer nor any Revenue Participation Holder shall be entitled to any form of equitable relief. In no event shall Issuer, any Revenue Participation Holder or any party transferring rights or rendering services in connection with a Funded Qualifying Project be entitled to terminate or rescind this Agreement or Distributor’s rights with respect to a Funded Qualifying Project or enjoin or restrain or otherwise interfere with Distributor’s distribution, exhibition or other exploitation of any Funded Qualifying Project or Distributor’s use, publication or dissemination of any advertising issued in connection with the Funded Qualifying Project. In furtherance of and without limiting the foregoing, Issuer agrees that it shall not interfere or authorize or cause any other party to interfere with the rights of Distributor and its Subdistributors to quietly and peacefully enjoy and possess all rights in the Funded Qualifying Projects, including, without limitation, all rights under copyright, to the extent owned or controlled by Issuer.

11.2 By Issuer. Upon the occurrence and during the continuance of a breach by Issuer of any of its agreements, representations, warranties or covenants set forth herein (each a “Issuer Event of Default”), then Distributor shall have the right to terminate this Agreement and to seek any and all remedies available at law and in equity. Notwithstanding the foregoing, Distributor shall not have the right to withhold and reserve from any monies whatsoever payable to Issuer or its designee hereunder, other than amounts relating to any Issuer Obligations.

12. INDEMNIFICATION.

12.1 Mutual Indemnity. Each party (“Indemnifying Party”) hereby indemnifies, defends and holds harmless the other party and its successors, licensees, assigns, and employees, officers and directors (collectively for the purposes of this Section “Indemnified Party”) from and against any and all liability, loss, damage, cost and expense, including, reasonable attorney’s fees (but excluding lost profits or consequential damages) arising out of any breach or claim by a third party with respect to any warranty, representation or agreement made by the Indemnifying Party herein. The Indemnified Party shall promptly notify the Indemnifying Party of any claim to which the foregoing indemnification applies and the Indemnifying Party shall undertake, at its own cost and expense, the defense thereof. The Indemnified Party may, at its option and expense, engage its own counsel. If the Indemnifying Party fails to promptly appoint competent and experienced counsel, the Indemnified Party may engage its own counsel and the reasonable charges in connection

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therewith shall promptly be paid by the Indemnifying Party. If the Indemnified Party settles or compromises any such suit, claim or proceeding, the amount thereof shall be charged to the Indemnifying Party, provided that the Indemnifying Party’s reasonable prior approval has been secured.

12.2 Control of Litigation. Distributor shall have the right to assume the defense of any claim made by a third party and arising from a breach or alleged breach of any representation, warranty or agreement of Issuer hereunder or that otherwise may be subject to the indemnity set forth in Section 12.1. Issuer shall have the right as well as the obligation to consult and cooperate with Distributor in connection with any such claim and, upon Distributor’s request, to furnish Distributor with any and all evidence, materials or other information relevant thereto. Issuer shall have the right (at Issuer’s sole expense) to have Issuer’s own counsel present in connection with the defense of any such claim, provided that such counsel fully cooperates with Distributor’s counsel and in no way interferes with the handling of the case by Distributor’s counsel. Issuer understands and agrees that all aspects of the defense of any such claim, whether as part of any litigation, negotiations or otherwise (including any decision regarding any settlement), shall be controlled by Distributor, Distributor shall be free to use counsel of Distributor’s choice in connection therewith, and such control shall in no way abrogate or diminish Issuer’s obligations under Section 12.1.

13. ARBITRATION.

All actions or proceedings arising in connection with, touching upon or relating to this Agreement between the parties, the breach thereof and/or the scope of the provisions of this Section 13 (a “Proceeding”) shall be submitted to the Judicial Arbitration and Mediation Service or its successor (“JAMS”) for binding arbitration under its Comprehensive Arbitration Rules and Procedures if the matter in dispute is over ***** or under its Streamlined Arbitration Rules and Procedures if the matter in dispute is ***** (as applicable, the “Rules”) to be held solely in Los Angeles, California, U.S.A., in the English language in accordance with the provisions below.

13.1 Each arbitration shall be conducted by an arbitral tribunal (the “Arbitral Board”) consisting of a single arbitrator who shall be an attorney or a retired judge with at least ten (10) years experience in commercial matters and the motion picture industry or the television industry, as applicable. The arbitrator shall be mutually agreed upon by the parties. If the parties are unable to agree on an arbitrator, the arbitrator shall be appointed by JAMS. The Arbitral Board shall assess the cost, fees and expenses of the arbitration against the losing party, and the prevailing party in any arbitration or legal proceeding relating to this letter agreement shall be entitled to all reasonable expenses (including reasonable attorney’s fees). Notwithstanding the foregoing, the Arbitral Board may require that such fees be borne in such other manner as the Arbitral Board determines is required in order for this arbitration clause to be enforceable under Applicable Law. The parties shall be entitled to conduct discovery in accordance with Section 1283.05 of the California Code of Civil Procedure; provided that (i) the Arbitral Board must authorize all such discovery in advance based on findings that the material sought is relevant to the issues in dispute and that the nature and scope of such discovery is reasonable under the circumstances; and (ii) discovery shall be

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limited to depositions and production of documents unless the Arbitral Board finds that another method of discovery (e.g., interrogatories) is the most reasonable and cost efficient method of obtaining the information sought.

13.2 There shall be a record of the proceedings at the arbitration hearing and the Arbitral Board shall issue a Statement of Decision setting forth the factual and legal basis for the Arbitral Board’s decision. If neither party gives written notice requesting an appeal within ***** after the issuance of the Statement of Decision, the Arbitral Board’s decision shall be final and binding as to all matters of substance and procedure, and may be enforced by a petition to the Los Angeles County Superior Court or such other court having jurisdiction over the parties for confirmation and enforcement of the award. If either party gives written notice requesting an appeal within ***** after the issuance of the Statement of Decision, the award of the Arbitral Board shall be appealed to three neutral arbitrators (the “Appellate Arbitrators”), each of whom shall have the same qualifications and be selected through the same procedure as the Arbitral Board. The appealing party shall file its appellate brief within ***** after its written notice requesting the appeal and the other party shall file its brief within ***** thereafter. The Appellate Arbitrators shall thereupon review the decision of the Arbitral Board (applying the same standards of review and all of the same presumptions) as if the Appellate Arbitrators were a California Court of Appeals reviewing a judgment of the Los Angeles County Superior Court, except that the Appellate Arbitrators shall in all cases issue a final award and shall not remand the matter to the Arbitral Board. The decision of the Appellate Arbitrators shall be final and binding as to all matters of substance and procedure, and may be enforced by a petition to the Los Angeles County Superior Court or such other court having jurisdiction over the parties, which may be made ex parte, for confirmation and enforcement of the award. The party appealing the decision of the Arbitral Board shall pay all costs and expenses of the appeal, including the fees of the Appellate Arbitrators and the reasonable outside attorneys’ fees of the opposing party, unless the decision of the Arbitral Board is reversed, in which event the costs, fees and expenses of the appeal shall be borne as determined by the Appellate Arbitrators.

13.3 Subject to a party’s right to appeal pursuant to the above, neither party shall challenge or resist any enforcement action taken by the party in whose favor the Arbitral Board, or if appealed, the Appellate Arbitrators, decided. The Arbitral Board (or the Appellate Arbitrators, if applicable) shall have the power to enter temporary restraining orders, preliminary and permanent injunctions. Neither party shall be entitled or permitted to commence or maintain any action in a court of law with respect to any matter in dispute until such matter shall have been submitted to arbitration as herein provided and then only for the enforcement of the Arbitral Board’s award (or if appealed, the Appellate Arbitrators’ award); provided, however, that prior to the appointment of the Arbitral Board (or if appealed, the Appellate Arbitrators) or for remedies beyond the jurisdiction of an arbitrator, at any time, either party may seek pendente lite relief in a court of competent jurisdiction in Los Angeles County, California or such other court that may have jurisdiction over the parties, without thereby waiving its right to arbitration of the dispute or controversy under this section. All arbitration proceedings (including, without limitation, proceedings before the Appellate Arbitrators) shall be closed to the public and confidential and all records relating thereto shall be permanently sealed, except as necessary to obtain court confirmation of the

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arbitration award. The provisions of this Section 13.3 shall supersede any inconsistent provisions of any prior agreement between the parties. Nothing in this Section 13.3 shall prevent either party from seeking interlocutory and/or injunctive relief from a court of competent jurisdiction pursuant to the preceding paragraph, subject to the terms of this Section 13.3.

14. WAIVER/ GOVERNING LAW / PROCEEDINGS.

14.1 No Waiver. No waiver of any default or breach of this Agreement by either party shall be deemed a continuing waiver or a waiver of any other breach or default, no matter how similar.

14.2 Governing Law. The laws of the State of California and the United States of America applicable to contracts made and performed entirely in California shall govern (i) the validity and interpretation of this agreement, (ii) the performance by the parties of their respective obligations hereunder, and (iii) all other causes of action (whether sounding in contract or in tort) arising out of or relating to this Agreement, or the termination of this Agreement.

14.3 Legal Proceedings. Distributor, its successors and assigns, are hereby empowered to bring, prosecute, defend and appear in suits, actions and proceedings of any nature under or concerning infringement of or interference with any of the Distribution Rights granted. Distributor will notify Issuer in writing ***** prior to commencement of any suit, action or proceedings. Issuer may participate in any suit, action or proceeding using counsel of its choice. Issuer’s expenses will be reimbursed from any recovery in equal proportion with Distributor’s expenses. If Distributor fails to take necessary action, Issuer may, but will not be obligated to, take such action in Issuer’s or Distributor’s name with all recoveries belonging to Issuer. If Issuer elects not to participate, all recoveries in connection therewith shall belong solely to Distributor. If both parties participate, all recoveries shall be deemed to be part of Gross Receipts.

15. INSURANCE.

Distributor shall on behalf of Issuer for the benefit of Distributor, with respect to each Funded Qualifying Project for which Distributor has the Distribution Rights, procure and maintain in full force and effect standard producer’s liability (errors and omissions) insurance issued by a nationally recognized insurance carrier covering the Funded Qualifying Project with minimum limits of at least ***** for any claim arising out of a single occurrence and ***** for all claims in the aggregate. Such insurance:

15.1 shall be written on either (i) an occurrence basis, in which event it shall remain in full force and effect until the end of the term thereof and may not be permitted to lapse, or (ii) a claims-made basis, in which event it shall remain in full force and effect until the end of the term thereof, shall cover any claims made at any time during the term thereof and may not be permitted to lapse;

15.2 may not be canceled without ***** prior written notice to Distributor;

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15.3 shall not carry a deductible larger than *****;

15.4 shall name Distributor its parent, subsidiaries and related companies, its licensees and affiliates and its officers, directors, agents and employees, as additional insureds and such addition shall be endorsed by the insurance carrier and acknowledged by the underwriter;

15.5 shall provide coverage for the Funded Qualifying Project, and advertising and promotion materials with respect thereto, and shall be primary and not contributing to or in excess of any such insurance maintained by Distributor with regard to all of the Rights.

15.6 All costs and expenses of such insurance shall be a Distribution Expense.

16. NOTICE.

Any notice or demand which any party is required, or may desire, to give to the other parties shall be in writing and shall be given by addressing the same to the other parties at the address hereinafter set forth, or at such other address as may be designated in writing by any such party by notice given to the other in the manner prescribed in this Section 16 and shall be deemed effective (i) when delivered personally during normal business hours, (ii) on the date of receipt specified in any return receipt if it shall have been deposited postage prepaid in the United States mail (certified or registered with return receipt requested), (iii) on the second Business Day after dispatch by Federal Express, DHL, Airborne or other recognized international courier service, or (iv) when sent by facsimile transmission, if, and only if, such facsimile transmission is followed within two (2) Business Days by a written notice sent in accordance with clauses (i), (ii) or (iii) above, whichever of the foregoing shall first occur; provided, however, that any notice alleging a default must be given by the means set forth in clauses (i), (iii) or (iv) above.

Any notice or demand to Distributor shall be addressed as follows:

Lions Gate Films, Inc.
2700 Colorado Avenue, Suite 200
Santa Monica, California 90404
Attn: General Counsel
Telephone: (310) 449-9200
Facsimile: (310) 255-3840

Any notice or demand to Issuer shall be addressed as follows:

MQP, LLC
2700 Colorado Avenue, Suite 200
Santa Monica, California 90404
Attn: Chief Executive Officer
Telephone: (310) 449-9200
Facsimile: (310) 255-3840

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17. FORCE MAJEURE.

If either party’s performance hereunder is prevented by reason of an event of Force Majeure, then during the existence of such event, the effected party shall not be liable for its failure to timely perform its obligations hereunder and this Agreement shall be extended for a period equal to the delay caused by the occurrence of the Force Majeure. “Force Majeure” as used herein shall mean fire, flood, epidemic, earthquake, explosion, accident, labor dispute or strike, Act of God or public enemy, riot or civil disturbance, invasion, war (whether declared) or armed conflict, inability to obtain personnel or facilities, failure of common carriers, any municipal ordinance, any state or federal law, governmental order or regulation, order of any court of competent jurisdiction, restriction imposed by the Motion Picture Export Association of America, Inc. or any other similar thing or occurrence not within the control of that party.

18. HOLDING OF MONIES.

Distributor shall not be obligated to segregate Gross Receipts from other funds held or received by it, and Distributor shall not be deemed a trustee, pledgeholder or fiduciary of Issuer or any Revenue Participation Holder in respect of Gross Receipts that may be or become payable to such parties.

19. SECURITY INTEREST IN FAVOR OF DISTRIBUTOR.

Subject to Distributor not being in breach of this Agreement and the RP Purchase Agreement, Issuer hereby grants to Distributor a security interest (“Distributor Security Interest”) in all rights granted to Distributor in connection with each Funded Qualifying Project, including the Distribution Rights, the Related Rights, the right of access to the Materials and all proceeds of the foregoing, including proceeds of proceeds (the “Distributor Collateral”), as collateral security for Issuer’s timely performance of its obligations hereunder, for the right of Distributor to receive the Distribution Fee and for the right of Distributor to recoup all amounts expended on account of Issuer Obligations, including Distribution Expenses and Third Party Participations, which security interest shall be in a form registrable in the State of Delaware, the Province of Quebec, the CIPO and the USCO. Other than as provided in the RP Purchase Agreement, Issuer warrants and represents that it has not previously assigned, granted or transferred an interest in the Distributor Collateral to any party which would conflict, interfere or be inconsistent with the Distributor Security Interest granted to Distributor herein. Issuer agrees to execute UCC-1 financing statements, copyright mortgages, laboratory access letters, the security agreement delivered herewith (the “Distributor Security Agreement”), other security documentation required by Distributor and any such other document as Distributor may require to perfect, protect, publish, record, register or evidence the foregoing Security Interest. If Issuer fails to deliver such security documents within 30 days after Distributor’s request therefor, Issuer irrevocably appoints Distributor to execute such security documents as Issuer’s attorney-in-fact, coupled with an interest.

20. SECURITY INTEREST IN FAVOR OF ISSUER.

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Subject to Issuer not being in breach of this Agreement and subject to Issuer and each Revenue Participation Holder not being in breach of the RP Purchase Agreement, Distributor hereby grants to Issuer and each Revenue Participation Holder, a security interest (“Issuer Security Interest”) in and to (i) the Gross Receipts for each Funded Qualifying Project, and (ii) the Rights, the Ancillary Rights, the Related Rights and the tangible and intangible assets for each Funded Qualifying Project, solely to the extent required to distribute and exploit such Funded Qualifying Project (“Issuer Collateral”), which security interest shall be in a form registrable in the State of Delaware, the Province of Quebec, the CIPO and the USCO. Issuer acknowledges and agrees that the security interest granted to it by Distributor shall be subject to Permitted Encumbrances and the Senior Lender Encumbrances, provided, however, that the Senior Lender InterCreditor Agreement shall provide that Issuer shall have a first priority security interest in its share of Gross Receipts for each Funded Qualifying Project, subject to the terms of the Senior Lender InterCreditor Agreement. Other than as provided in the RP Purchase Agreement, Distributor warrants and represents that it has not previously assigned, granted or transferred an interest in the Issuer Collateral to any party which would conflict, interfere or be inconsistent with the Issuer Security Interest granted to Issuer herein. Distributor agrees to execute UCC-1 financing statements, copyright mortgages, laboratory access letters, the security agreement delivered herewith (“Issuer Security Agreement”), other security documentation required by Issuer and any such other document as Issuer may require to perfect, protect, publish, record, register or evidence the foregoing Issuer Security Interest. If Distributor fails to deliver such security documents within 30 days after Issuer’s request therefor, Distributor irrevocably appoints Issuer to execute such security documents as Distributor’s attorney-in-fact, coupled with an interest.

21. ASSIGNMENT.

21.1 Distributor shall have the right, at any time, to sell, transfer, assign or hypothecate any or all of its right, title and interest, in and to the Funded Qualifying Project and the negative and copyright thereof to any party which is acquiring all or a substantial part of Distributor’s business in a sale or as a result of a consolidation or merger; provided, however, that any such sale, transfer, assignment or hypothecation shall be subject to the rights of Issuer hereunder. Upon the purchaser, transferee or assignee assuming in writing the performance of Distributor’s executory obligations hereunder in place and stead of Distributor, Distributor shall be released and discharged of and from any further liability or obligation hereunder and none of the monies or other consideration received by, or paid or payable to, Distributor shall constitute Gross Receipts hereunder, and Issuer shall have no rights in respect of any thereof. In addition, Distributor may assign this Agreement or its rights hereunder, without the need to obtain the prior written consent of Issuer, (i) in connection with its corporate credit facilities, (ii) in connection with any financing or interim financing of a Funded Qualifying Project, or (iii) to any of its Affiliates or Subsidiaries, provided, however, that any such assignment shall be subject to the rights of Issuer hereunder.

21.2 Issuer may assign Issuer’s right to receive the monies payable to Issuer hereunder, provided, however, that (i) any such assignment shall be in writing and in form and substance satisfactory to Distributor; (ii) Distributor shall not be required to accept or honor any

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assignment or assignments which would result in requiring Distributor to make payments to an aggregate of more than two (2) parties unless a single party is designated to receive and disburse all monies payable to Issuer and all other parties entitled to share therein; (iii) in no event shall any party other than Issuer have the right to audit Distributor’s records by reason of such assignment; and (iv) any such assignment shall at all times be subject to all pertinent laws and governmental regulations and to all of the rights of Distributor hereunder.

21.3 Notwithstanding anything contained in this Agreement, neither the Issuer nor any Revenue Participation Holder may assign its rights under this Agreement to any Direct Competitor.

22. AMENDMENTS AND WAIVERS. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally or in writing, without the prior written consent of the parties hereto and each Revenue Participation Holder. Notwithstanding the foregoing, any term of this Agreement may be amended and the observance of any such term may be waived (either generally or in a particular instance and either retroactively or prospectively) with (but only with) the written consent of all of the parties hereto and each Revenue Participation Holder; provided, however, that no such amendment or waiver shall extend to or affect any obligation not expressly waived or impair any right consequent therein. No delay or omission to exercise any right, power or remedy accruing to any party hereto or each Revenue Participation Holder shall impair any such right, power or remedy of such party nor be construed to be a waiver of any such right, power or remedy nor constitute any course of dealing or performance hereunder.

23. MISCELLANEOUS.

23.1 This Agreement consists of these provisions, the attached exhibits and schedules all of which exhibits and schedules are herein incorporated by this reference and made a part hereof. Nothing contained herein shall be deemed to create a relationship of partnership, joint venture, agency, fiduciary or employment between the parties.

23.2 This Agreement sets forth the entire understanding of the parties regarding the subject matter hereof and supersedes all prior oral or written agreements between them.

23.3 This Agreement may not be changed, modified, amended or supplemented, except in a writing signed by both parties and the Revenue Participation Holder.

23.4 Section headings are inserted herein for convenience only and do not constitute a part of this Agreement.

23.5 Neither Issuer nor Distributor shall disclose to any third party (other than its respective employees, directors and officers, in their capacity as such on a need-to-know basis), any information with respect to the financial terms and provisions of this Agreement except: (i) to the extent necessary to comply with the law or the valid order of a court of competent jurisdiction, in which event(s) the party making such disclosure shall so notify the other as promptly as practicable (if possible, prior to making such disclosure) and shall seek confidential treatment of such information, (ii) to the extent necessary to comply with S.E.C.

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or similar disclosure requirements, (iii) to its parent and affiliated companies, their banks (and their respective advisors and attorneys), prospective financiers and investors (and such persons’ investment bankers, agents, attorneys, accountants and necessary experts), auditors, investment bankers, attorneys and similar professionals, provided that such companies, banks, advisors, financiers, investors, investment bankers, experts, auditors, accountants, attorneys and similar professionals agree to be bound by the provisions of this subparagraph, and (iv) in order to enforce its rights pursuant to this Agreement. Issuer acknowledges that it may, from time to time, come into possession of material Nonpublic Information regarding Distributor and its Affiliates and that U.S. securities laws prohibit any person or entity in possession of such material Nonpublic Information from purchasing or selling securities of Distributor or any of its Affiliates. Issuer agrees that it will use any material Nonpublic Information regarding Distributor and its Affiliates in accordance with Issuer’s compliance policies and Applicable Law, including, without limitation, federal, provincial and state securities laws

23.6 Issuer and Distributor shall each execute, acknowledge and deliver any and all further documents that are necessary, expedient or proper to implement, administer and effectuate the purpose and intent of this Agreement. If Issuer fails to deliver such additional documents within ***** after Distributor’s request therefor, including, without limitation, a Short Form License Agreement with respect to each Funded Qualifying Project, Issuer irrevocably appoints Distributor to execute such additional documents as Issuer’s attorney-in-fact, coupled with an interest.

23.7 The invalidity, illegality or unenforceability of any provision of this Agreement, pursuant to judicial decree, shall not affect the validity or enforceability of any other provision of the Agreement, all of which shall remain in full force and effect.

23.8 Nothing in this Agreement shall confer any rights or remedies under or by reason of this Agreement on any Persons other than Issuer and its successors and assigns nor shall anything in this Agreement relieve or discharge the obligation or liability of any third person to any party to this Agreement, nor shall any provision give any third person any right of subrogation or action over or against any party to this Agreement. Notwithstanding the foregoing and anything to the contrary contained in this Agreement, the parties expressly acknowledge and agree that each Revenue Participation Holder is an intended third party beneficiary with respect to Section 6, Section 7, Section 10, Section 11, Section 12 and Section 13 of this Agreement and as such, each Revenue Participation Holder shall be entitled to directly exercise its rights or the rights of Issuer under this Agreement without the concurrence of Issuer.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the parties have executed this Master Distribution Agreement as of the date first above written.


LIONS GATE FILMS INC.
By:	/s/ Wayne Levin
	Name:	Wayne Levin
	Title:	General Counsel


MQP, LLC
By:	/s/ Wayne Levin
	Name:	Wayne Levin
	Title:	Director

[Signature Page]

SCHEDULE “GR”

Schedule “GR” to Master Distribution Agreement (Film Productions) dated July 25, 2007 between MQP, LLC, as Issuer, and Lions Gate Films, Inc., as Distributor (the “Agreement”).

GROSS RECEIPTS — DISTRIBUTION EXPENSES

All non-refundable sums actually received by Distributor from the following sources:

	(i)		Licenses by Distributor directly to exhibitors of the right to exhibit the Funded Qualifying Project by means of Theatrical, Non-Theatrical or Television;

	(ii)		Licenses by Distributor to Subdistributors, net of any fees and expenses charged by such Subdistributor;

	(iii)		The sale or lease of souvenir Funded Qualifying Projects and booklets;

	(iv)		Recoveries by Distributor from actions based on unfair competition, piracy and/or infringements of copyrights and trademarks of the Funded Qualifying Project, which recoveries are intended to compensate Distributor for losses sustained in respect of the Funded Qualifying Project and shall be fairly and reasonably allocated among all

			Productions involved therein; provided, that no Distribution Fee shall be charged on any portion of such recovery included in the Gross Receipts that represents punitive, rather than actual or statutory, damages;

	(v)		The net receipts from so-called “four-wall” deals on a collective basis, i.e., the sums received by Distributor from theater(s) where Distributor has taken over the operation of such theater(s) specifically for the exhibition of the Funded Qualifying Project, less all out-of-pocket costs of operating the theater(s) and those advertising costs that would normally and actually be paid by theaters and which are paid by Distributor;

	(vi)		Monies received from the Copyright Royalty Tribunal (or similar agencies established under the laws of any jurisdiction);

	(vii)		Exploitation of the Ancillary Rights;

	(viii)		Monies received by Distributor from the distribution, sale or other exploitation of Home Video Rights and any Video Levies (as defined below) collected by Distributor, less local taxes, rebates, discounts, credit adjustments for defective Videograms, customs duties, import charges, shipping, mailing and insurance charges, dubbing and subtitling costs, and mastering and submastering costs; provided, however, that Distributor shall have the right to deduct up to *** of all such monies as a reserve for returns and credits of any nature, including, without limitation, those on account of one hundred percent (100%) or a lesser return privilege, defective merchandise, exchange privilege, promotional credits, errors in billing, unusual overstock, bad debts and errors in shipping, which reserves shall be liquidated within ***, pursuant to Distributor’s customs and practices. “Video Levies” shall mean levies or other charges collected under operation of law with respect to the Funded Qualifying Project in the Territory on the sale of video recorders, blank video cassettes or video discs or similar items or the rental of Videograms which become payable to the Copyright Owner or the distributor of the Funded Qualifying Project. Distributor shall be entitled to collect all revenue from Video Levies.

-Schedule“GR” Page 2 -

Amounts charged back to Distributor or its Affiliates in any Accounting Period for damaged goods and returns of home video units shall reduce Gross Receipts in such Accounting Period.

3. Distribution Fees. Distribution fees of Distributor shall be computed as provided in Section 4.

4. Distribution Expenses. “Distribution Expenses” shall mean, on an uncrossed basis, Distributor’s actual, direct, verifiable, out-of-pocket third party expenses incurred in connection with the distribution and exploitation of a Funded Qualifying Project, which shall exclude, for sake of clarity, any finance and interest charges in connection therewith but which shall include, without limitation, all P&A Costs and Other Releasing Costs. The Distribution Expenses shall include, without limitation, all costs, charges and expenses actually incurred by Distributor, or a Subdistributor accounting to Distributor, in connection with the distribution, exhibition, advertising, exploitation and turning to account of the Funded Qualifying Project, or in the exercise of any of Distributor’s other rights (including, without limitation, Ancillary Rights) in the Funded Qualifying Project, of whatever kind or nature, including, without limitation, all costs, charges and expenses incurred for or in connection with any of the following (provided, that (i) no item of cost shall be charged more than once and (ii) if any item of cost shall have been deducted from the Gross Receipts in any prior accounting period and any such cost is thereafter reimbursed to Distributor, an appropriate adjustment shall be made without any Distribution Fee charged in respect of the amount so reimbursed):

	A.		All negatives, sound tracks, prints, and other physical properties utilized in connection with the distribution of the Funded Qualifying Project (“Physical Properties”).

	B.		All services and facilities rendered or utilized in connection with the transportation, preparation, checking and servicing of the Physical Properties or other properties used in rendering distribution services, including, without limitation, any cost of cutting, editing, dubbing or subtitling the Funded Qualifying Project or other services or facilities used in preparing the Funded Qualifying Project for exhibition including, without limitation, costs of shipping containers and cans, laboratory and warehouse storage, insurance packaging, freight, transportation, shipping and handling charges.

-Schedule “GR” Page 3 -

	B.		Advertising, promoting, marketing, exploiting and publicizing (collectively, “Advertising”) the Funded Qualifying Project in any way, including without limitation, all costs associated with Videograms including without limitation the creation of bonus material, and new artwork, of cooperative, theater or joint Advertising in connection with exhibition of the Funded Qualifying Project in theaters or other places where an admission is charged, which Distributor pays or is charged with; costs of publicity materials; tours and personal appearances; salaries, living costs and traveling expenses of regular employees of Distributor, where such employees are assigned to render services in the Territory in connection with the Advertising of the Funded Qualifying Project, appropriately allocated to the Funded Qualifying Project; trailers, including without limitation, the cost of production thereof.

	C.		All costs and expenditures in connection with so-called four-wall deals not recouped pursuant to Paragraph 2.A.(v).

	D.		All costs of preparing and delivering the Funded Qualifying Project for distribution, including without limitation, all costs incurred in connection with the following: Screenings and audience testing and market studies; the production of foreign language versions of the Funded Qualifying Project, whether dubbed, superimposed or otherwise; changing the title of the Funded Qualifying Project for release in any part of the Territory or for exhibition on television or other media, or in order to conform to the particular national or political prejudices likely to be encountered in any part of the Territory or for any other purpose or reason; censorship costs including, without limitation, the legal costs of censorship proceedings; and producing and delivering trailers of the Funded Qualifying Project.

	E.		All sales, use, receipts, excise, remittance, value added and other taxes (however denominated) to any governmental or taxing authority assessed upon, or with respect to, the negatives, duplicate negatives, prints or sound records of the Funded Qualifying Project, or upon the use, distribution or other exploitation of the Funded Qualifying Project, or upon the revenues derived therefrom, or any part thereof and any and all sums paid or accrued on account of duties, customs and imports, costs of acquiring permits, and any similar authority to secure the entry, licensing, exhibition, performance, use or televising of the Funded Qualifying Project in any country or part thereof, regardless of whether such payments or accruals are assessed against the Funded Qualifying Project or the proceeds thereof or against a group of Productions in which the Funded Qualifying Project may be included or the proceeds thereof (in the latter case with an allocation being made to the Funded Qualifying Project that is fair and reasonable). In no event shall the recoupable amount of any such tax (however denominated) imposed upon Distributor be decreased (nor the Gross Receipts increased) because of the manner in which such taxes are elected to be treated by

-Schedule “GR” Page 4 -

			Distributor in filing net income, corporate franchise, excess profits or similar tax returns. There shall be no deduction from the Gross Receipts, and Issuer shall not be required to pay or participate in, (x) Distributor’s or any Subdistributor’s United States Federal and State income taxes and franchise taxes based on Distributor’s or such Subdistributor’s net income, or (y) any income tax payable to any country or Territory by Distributor or any Subdistributor based on the net earnings of Distributor or such Subdistributor in such country or Territory. Expenses of transmitting to the United States any funds accruing to Distributor from the Funded Qualifying Project in foreign countries, such as cable expenses, or any discounts from such funds taken to convert such funds directly or indirectly into U.S. dollars and the cost of contesting or settling any of the matters described above, with a view to reducing the same, shall similarly be deducted. If any taxes deducted pursuant hereto are subsequently refunded to Distributor by the taxing authority to which such taxes were initially paid, the Distribution Expenses previously deducted pursuant to this Paragraph shall be readjusted by crediting thereto an amount equal to so much of such refund received by Distributor as shall represent a refund of taxes in respect of the Funded Qualifying Project previously deducted.

	F.		Copyright, patent and trademark expenses; royalties payable to manufacturers of sound recording and reproducing equipment; reasonable legal fees to other than Distributor’s regularly employed legal department; and any and all other expenses in addition to those referred to herein incurred by Distributor in connection with the licensing of the Funded Qualifying Project for exhibition or for other uses of the Funded Qualifying Project including, without limitation, any exploitation of the rights granted to Distributor.

	G.		Dues and assessments from the MPAA or any similar associations or bodies, including, without limitation, payments for the support of the Academy of Motion Picture Arts and Sciences.

	H.		Costs and expenses (including, without limitation, reasonable attorneys’ fees) incurred by Distributor in connection with the following: All costs incurred in securing any amounts included in Gross Receipts, any action taken by Distributor (whether by litigation or otherwise) in enforcing collection of Gross Receipts including, without limitation, costs of collection from the Copyright Royalty Tribunal (or similar agencies established under the laws of any jurisdiction); or (on a pro rata basis) for checking attendance and exhibitors’ receipts; or to prevent unauthorized exhibition or distribution of the Funded Qualifying Project; or to prosecute or defend actions under the anti-trust laws; or to prevent any impairment of, encumbrance on or infringement upon, the rights of Distributor in and to the Funded Qualifying Project; or to audit the books and records of any exhibitor, Subdistributor or licensee; or to recover monies due pursuant to any agreement relating to the distribution or exhibition of the Funded

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Qualifying Project; provided, that no deduction shall be made for the fees or salaries of Distributor’s regularly employed staff attorneys and accountants.

	J.		All monies paid or payable pursuant to applicable collective bargaining agreements by reason of any exhibition or other exploitation of the Funded Qualifying Project or by reason of, or as a condition for, any use, re-use or re-run thereof for any purpose or in any manner whatsoever (herein called “Residuals”), and all taxes, pension fund contributions, and other costs and payments computed on or payable in respect of any such residuals or participations in the net profits or Gross Receipts of the Funded Qualifying Project to any Person, including, without limitation, any firm, corporation, guild, union, trustee or fund (other than Distributor); provided, however, that if Issuer or any principal stockholder of Issuer, or any heirs, executors, administrators, successors or assigns of Issuer or any such stockholder, is entitled, either directly or by way of participation in any pension fund, to any such Residuals, the amount payable shall be treated as an advance against Issuer’s share of the receipts hereunder, and conversely, any share of the receipts paid to Issuer hereunder shall constitute an advance against such Residuals payable to or for the benefit of Issuer or any principal stockholder or member of Issuer, or any such heirs, executors, administrators, successors or assigns; provided further that this Paragraph shall not be interpreted to require Distributor to make any payments that it is not required under the Agreement to make.

	K.		Participations including without limitation Third Party Participations;

	L.		All costs associated with the exploitation of the Home Video Right including without limitation, all manufacturing, reproduction, shipping, packaging, storage, boxing, sorting and delivery of Videograms.

	M.		All insurance covering or relating to the distribution of the Funded Qualifying Project, including, without limitation, errors and omissions insurance (to the extent not provided by Issuer); provided, that Distributor shall not be obligated to take out or maintain any such insurance. The net receipts of any insurance policy maintained by Distributor in respect of the Funded Qualifying Project actually received by Distributor by way of reimbursement for any cost or expense previously deducted as a Distribution Expense shall be applied in reduction of such cost or expense to the extent that the same was reimbursed by such proceeds.

	N.		All discounts, rebates, or credits actually received by Distributor or any Subdistributor shall be taken into account in computing Distribution Expenses in the Accounting Period in which such discount, rebate or credit is actually received, with the exception of those based upon either (i) the volume or quantity of Advertising, prints, negatives, Videograms or other materials ordered annually, or

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	(ii)		the manner or time of payment of any Distribution Cost and Expense which shall not be taken into account.

	O.		Any and all other expenses in addition to those referred to herein incurred by Distributor in connection with the exercise of the Rights in the Funded Qualifying Project.

5. Allocations. Wherever Distributor (i) makes any expenditures or incurs any liability in respect of a group of Productions that includes a Funded Qualifying Project, or (ii) receives from any licensee either a flat sum or a percentage of the receipts, or both, for any right to a group of Productions that includes the Funded Qualifying Project, under any agreement (whether or not the same shall provide for the exhibition, sale, lease or delivery of positive prints of any of the said Productions) which does not specify what portion of the license payments apply to the respective Productions in the group (or to such prints or other material, if any, as may be supplied), then in any and all such situations, Distributor shall, reasonably and in good faith, include in, or deduct from (as the case may be), the Gross Receipts such sums in a non-discriminatory manner.

6. Reserves. In addition to the reserves mentioned above in Paragraph 4, if Distributor reasonably anticipates taxes, residuals, or other reasonably anticipated costs, expenses or losses relating to the Funded Qualifying Project, which, if and when incurred, will be properly deductible hereunder, Distributor may set up appropriate reserves therefor. If Distributor establishes a reserve for retroactive wage adjustments, taxes, residuals, uncollectible accounts, or other reasonably anticipated costs, expenses, or losses relating to the Funded Qualifying Project, and after ***** from the establishment of such reserve, such reserve is not liquidated or collected and no proceeding is pending protesting any such cost, expense, or loss, or no tax audit is pending, Distributor shall liquidate such reserve (or remaining portion thereof) and make a corresponding adjustment in the Gross Receipts of the Funded Qualifying Project or in the Distribution Expenses, subject to the right of Distributor to thereafter deduct any such cost, expense, or loss if a proceeding is thereafter instituted protesting such cost, expense, or loss, or if a tax audit is thereafter commenced, or, if any such cost, expense, or loss is thereafter otherwise incurred, sustained, or paid for by Distributor. The foregoing shall be subject to, and without prejudice to, the right of Distributor to make corrections and adjustments from time to time.

7. Foreign Receipts. No sums received by Distributor in respect of the Funded Qualifying Project shall be included in Gross Receipts or in Settlement Reports hereunder for the purpose of determining Issuer’s share payable to Issuer, unless such sums are freely remittable to Distributor in U.S. dollars in the United States, or used by Distributor. Sums derived from territories outside of the United States which are not remittable to Distributor in the United States in U.S. dollars by reason of currency or other restrictions may be reflected on statements rendered hereunder for informational purposes only, and Distributor shall, at the request and expense of Issuer (subject to any and all limitations, restrictions, laws, rules, and regulations affecting such transactions), deposit into a bank designated by Issuer in the country involved, or pay to any other party designated by Issuer in such territory, such part thereof, if any, as would have been payable to Issuer hereunder. Such deposits or payments to or for Issuer shall

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constitute remittance to Issuer, and Distributor shall have no further responsibility therefor. Distributor makes no warranties or representations that any part of any such foreign currencies may be converted into U.S. dollars or transferred to the account of Issuer in any foreign country. Costs incurred in a territory during a period when all receipts are blocked shall be charged only against blocked receipts from such territory. Costs incurred in a territory during a period when part of the receipts is blocked and part is remittable to the United States shall be charged proportionately against the blocked and dollar receipts from said territory. However, if costs charged against blocked receipts, in either of the foregoing instances, have not been recovered therefrom within ***** after such costs were incurred, the deficit shall be computed in dollars at the official rate or such rate of exchange as may be announced from time to time by Bank of America, as Distributor may elect.

8. Settlement Reports. Distributor shall render to Issuer (with a copy to each Revenue Participation Holder, provided that Distributor’s inadvertent failure to provide such copy to any Revenue Participation Holder shall be a breach of this Agreement) the Settlement Reports as set forth in Section 7.2. Such Settlement Report shall show, in as much detail as Distributor usually furnishes in such statements rendered to other parties, the appropriate calculations pursuant to this Schedule. Statements and any sums due with respect to the Funded Qualifying Project shall be prepared in U.S. dollars and provided to Issuer on each Settlement Date; provided that no statement shall be rendered for any period in which no receipts are received or charges incurred. Statements rendered by Distributor may be changed from time to time to give effect to year-end adjustments made by Distributor’s accounting department or public accountants, to items overlooked, to correct errors, or to reflect any indebtedness which may become uncollectible for any similar purposes. Should Distributor make any overpayment to Issuer hereunder for any reason, Distributor shall have the right to deduct and retain for its own account an amount equal to any such overpayment from any sums that may thereafter become due or payable by Distributor to Issuer or for Issuer’s account, or may demand repayment from Issuer in which event Issuer shall repay the same when such demand is made. Any U.S. dollars due and payable to Issuer by Distributor pursuant to any such statement shall be paid to Issuer simultaneously with the rendering of such statement; provided, that all amounts payable to Issuer hereunder shall be subject to all laws and regulations now or hereafter in existence requiring the deduction or withholding of payments for income or other taxes payable by or assessable against Issuer. Distributor shall have the right to make such deductions and withholdings, and the payment thereof to the governmental agency concerned in accordance with its interpretation in good faith of such laws and regulations shall constitute payment hereunder to Issuer, and Distributor shall not be liable to Issuer for the making of such deductions or withholdings or the payment thereof to the governmental agency concerned. In any such event Issuer shall make and prosecute any and all claims which it may have (and which it desires to make and prosecute) with respect to the same directly with the governmental agency having jurisdiction in the premises.

9. Ownership. Issuer shall not have any lien or other rights in or to any of the receipts of the Funded Qualifying Project, it being understood that the references herein thereto are intended solely for the purpose of determining the time, manner and amount of payments, if any, due to Issuer hereunder.

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10. No Warranties. Distributor has not made any express or implied representation, warranty, guarantee or agreement (i) as to the amount of Gross Receipts which will be derived from the distribution of the Funded Qualifying Project, or (ii) that there will be any sums payable to Issuer hereunder, or (iii) that the Funded Qualifying Project will be favorably received by exhibitors or by the public, or will be distributed or that any such distribution will be continuous, or (iv) that it now has or will have or control any theaters or other facility in the United States or elsewhere, or (v) that any non-subsidiary licensee will make payment of any sums payable pursuant to any agreement between such licensee and Distributor, Distributor’s obligation hereunder being limited to accounting only for such license fees as may be actually received by Distributor from such licensee. In no event shall Issuer make any claim that Distributor has failed to realize receipts or revenues which should or could have been realized in connection with the Funded Qualifying Project or any of Distributor’s rights therein.

11. Excess of Permitted Payments. In the event the proceeds payable to Issuer hereunder shall exceed that permitted by any law or governmental regulation, Distributor shall (at Issuer’s cost) use its reasonable efforts to assist Issuer in the application to the appropriate authority for the right to pay Issuer all of the Gross Receipts payable to Issuer pursuant to the Agreement and shall pay the difference between the proceeds payable pursuant to the Agreement and the proceeds permitted to be paid at such time, if ever, as it may be legally permissible to Distributor to pay the difference.

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SCHEDULE “DM”

Schedule “DM” to Master Distribution Agreement (Film Productions) dated July 25, 2007 between MQP, LLC, as Issuer, and Lions Gate Films, Inc., as Distributor (the “Agreement”).

DELIVERY MATERIALS

QUALITY CONTROL REQUIREMENTS:

All film, sound and video materials shall be in accordance with the custom and standard of the local film industries throughout the Territory.

ASPECT RATIOS:

The Picture shall not be in an aspect ratio other than the standard theatrical 1:85 to 1 without Lions Gates prior written consent. No elements shall be “letter boxed” without Lions Gates prior written consent.

DELIVERY PROVISIONS:

All materials to be delivered on an “if available” basis shall not be considered part of Delivery for purposes of deeming delivery complete if such materials are not available. In the event the original Legal and Publicity Documents are in a language other than English, the documents shall be provided along with the English translation. All Film and Video Materials, unless indicated otherwise, shall be vaulted in a reputable laboratory. The Original Negative (or, if applicable, the Digital Intermediate Negative) and the Color Interpositive Protection Master shall be vaulted in separate laboratories (or in separate film vaults if vaulted at the same laboratory). All Film and Video Materials shall be of first class technical quality. The Picture shall be shot and delivered on 35mm film stock. The Picture shall be shot and delivered in the English language. The Picture shall have an M.P.A.A. rating of no more restrictive than “___”. The Picture shall have a total run time of no less than ___minutes. If the Picture has been submitted to any Film Festival, a list of such festivals shall be delivered on or before the Delivery Date. This schedule of Delivery Requirements is on a non-precedential basis.

If the Picture contains any English subtitles, the Delivery Requirements shall be revised to incorporate the necessary Film Materials and Video Materials.

A. Delivery Locations:

1. “Vice-President of Post Production Services; Attn: Valoen Power”: Lions Gate Entertainment Corp., 2700 Colorado Avenue, Suite 200, Santa Monica, CA 90404.

2. Vice President, Legal & Business Affairs; Attn: Charlyn Adkins”: Lions Gate Entertainment Corp., 2700 Colorado Avenue, Suite 200, Santa Monica, CA 90404.

B. Film Materials:

1. Original Negative: The original 35mm picture negative (without scratches or defects) fully cut, edited and assembled complete with credits and main, narrative (if any), end and all descriptive titles, and conforming to the final edited version of the action work print of the Picture approved by Lions Gate and in all respects ready and suitable for the manufacture of a protection interpositive. (Deliver to “Vice-President of Post Production Services”).

1. Digital Intermediate Negative: The original Digital Intermediate Negative (without scratches or defects) fully cut, edited and assembled complete with credits and main, narrative (if any), end and all descriptive titles, and conforming to the final edited version of the action work print of the Picture approved by Lions Gate and in all respects ready and suitable for the manufacture of a protection interpositive. (Deliver to “Vice-President of Post Production Services”).

2. Quad Optical Sound Track Negative: One (1) fully mixed and recorded original 35mm optical sound track negative of the Picture, of technically acceptable quality prepared for printing in perfect synchronization with the Original Negative and conforming in all respects to the Answer Print approved by Lions Gate. The Optical Sound Track Negative shall contain Dolby SR, Dolby SRD, SDDS and D.T.S. digital information. Note: All digital information must be contained on the optical soundtrack negative in order to playback the applicable digital formats. All proper licenses for Dolby SR, Dolby SRD, SDDS and D.T.S. must be paid in full for a worldwide theatrical release including, a U.S. national theatrical release, without limitations or restrictions and copies of said licenses shall be delivered. (Deliver to “Vice-President of Post Production Services”).

3. Printmaster (2-Track LT RT and 6-Track 5.1): One (1) 2-Track and one (1) 6-Track stereo master of the dubbed soundtrack of the Picture along with the corresponding M.O. disk, CD ROM drives, etc. The Printmaster shall be in perfect synchronization and shall conform in all respects to the final delivered version(s) of the Picture. With respect to format, the Protool Files on DVD shall be delivered. Note: Lions Gate shall provide Grantor with a copy of its technical specifications. (Deliver to “Vice-President of Post Production Services”).

4. Answer Print: One (1) first class (pristine or new) composite 35mm positive print of the Picture fully timed or color corrected, manufactured from the Original Negative or, if applicable, the Digital Intermediate Negative (item #1 above) and the Optical Sound Track Negative (item #2 above), fully titled, with the sound track printed thereon in perfect synchronization with photographic action and conformed to the final edited version of the

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action work print of the Picture approved by Lions Gate and in all respects ready and suitable for distribution and exhibition. (Deliver to “Vice-President of Post Production Services”).

5. Color Interpositive Protection Master: One (1) 35mm color corrected and complete interpositive master of the Picture, conformed in all respects to the Answer Print for protection purposes without scratches or defects. If the Picture is in black and white, one (1) graded or timed protection master of the Picture, conformed in all respects to the Answer Print unless otherwise requested by the “Executive Vice-President of Physical Operations”. If applicable, the Color Interpositive Protection Master shall be manufactured from the pristine (new) Digital Intermediate Negative. (Deliver to “Vice-President of Post Production Services”).

6. Color Internegative/Dupe Negative: One (1) 35mm Internegative manufactured from the color interpositive protection master suitable for the manufacturing of worldwide commercially acceptable 35mm composite release prints without scratches or defects, of any kind, including but not limited to acceptable focus, manufactured on polyester based stock. (Deliver to “Vice-President of Post Production Services”).

7. Check Print: One (1) first class (pristine or new) composite 35mm positive print of the Picture fully timed or color corrected, manufactured from the Color Internegative/Dupe Negative (item #6 above) and Optical Sound Track Negative (item #2 above), fully titled, with the sound track printed thereon in perfect synchronization with photographic action and conformed to the final edited version of the action work print of the Picture approved by Lions Gate and in all respects ready and suitable for distribution and exhibition. (Deliver to “Vice-President of Post Production Services”).

8. Titles/Textless Backgrounds: One (1) original 35mm textless (i.e. without any superimposed lettering) main and end title background optical negative and one (1) 35mm textless (i.e. without any superimposed lettering) main and end title background interpositive protection master (which includes all in-show scenes, narrative and all descriptive titles with textless backgrounds) conformed in all respects to the background of the Original Negative or, if applicable, to the background of the Digital Intermediate Negative. (Deliver to “Vice-President of Post Production Services”).

9. Sound Tracks (Stems): The separate stereo discrete dialogue tracks, stereo discrete sound effects tracks and stereo discrete music effects from which the original composite sound track master was made. A separate dialogue track for each language into which the Picture has been dubbed by Producer shall be provided. With respect to format, the Protool Files on DVD shall be delivered. Note: If the original language of the Picture (or any part thereof) is other than English, an English dub is also required. (Deliver to “Vice-President of Post Production Services”).

10. Music Tracks (Source): One (1) copy of the original licensed music (with each song in its entirety and assembled in the order that they appear in the Picture) which Lions Gate can utilize in connection with creating trailers for the Picture, and if soundtrack album rights

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are granted to Lions Gate, from which Lions Gate can produce a soundtrack album. The Music Tracks shall be delivered to Lions Gate on a Compact Disc (CD). An inventory of the tracks shall also be provided. (Deliver to “Vice-President of Post Production Services”).

11. Music Tracks (Score): One (1) copy of the original score (with each song in its entirety and assembled in the order that they appear in the Picture) which Lions Gate can utilize in connection with creating trailers for the Picture, and if soundtrack album rights are granted to Lions Gate, from which Lions Gate can produce a soundtrack album. The Music Tracks shall be delivered to Lions Gate on a Compact Disc (CD). An inventory of the tracks shall also be provided. (Deliver to “Vice-President of Post Production Services”).

12. Spanish Dialogue Track: If currently available or subsequently created by Grantor (or by any other distributor of the Picture), one (1) Spanish dialogue track in perfect synchronization with the music and effects track of the feature. The Spanish Dialogue Track may be delivered to Lions Gate in its available format. (Deliver to “Vice-President of Post Production Services”).

13. French Dialogue Track: If currently available or subsequently created by Grantor (or by any other distributor of the Picture), one (1) French dialogue track in perfect synchronization with the music and effects track of the feature. The French Dialogue Track may be delivered to Lions Gate in its available format. (Deliver to “Vice-President of Post Production Services”).

14. Foreign Language Dialogue Track: If currently available or subsequently created by Grantor (or by any other distributor of the Picture), one (1) dialogue track for each language respective to the Territory granted Lions Gate under the Agreement in perfect synchronization with the music and effects track of the feature. The Dialogue Track may be delivered to Lions Gate in its available format. (Deliver to “Vice-President of Post Production Services”).

15. M&E Track/6+2 (5.1 and 2.0): The combined mixed music tracks and the 100% fully filled effects track where the effects track contains all effects including any effects recorded on the dialogue track. This M&E Track shall also include a separate dialogue guide track. There shall be no English dialogue in the M&E tracks. If any dialogue is treated or used as a sound effect, an additional sweetner channel is to be used containing said dialogue. If the Picture is to be released with digital sound, an additional multi-channel 100% fully filled M&E Track, minus any English dialogue or narration, shall be delivered in order to recreate the appropriate digital format. The stereo audio configuration shall be left/center/right/left surround/right surround/subwoofer. With respect to format, the Protool Files on DVD shall be delivered. Note: Lions Gate shall provide Grantor with a copy of its technical specifications. (Deliver to “Vice-President of Post Production Services”).

16. M&E Track/4+2: The combined mixed music tracks and the 100% fully filled effects track where the effects track contains all effects including any effects recorded on the dialogue track. This M&E Track shall also include a separate dialogue guide track. There

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shall be no English dialogue in the M&E tracks. If any dialogue is treated or used as a sound effect, an additional sweetner channel is to be used containing said dialogue. If the Picture is to be released with digital sound, an additional multi-channel 100% fully filled M&E Track, minus any English dialogue or narration, shall be delivered in order to recreate the appropriate digital format. The stereo audio configuration shall be left/center/right/surround/optional material/dialogue guide track. With respect to format, the Protool Files on DVD shall be delivered. Note: Lions Gate shall provide Grantor with a copy of its technical specifications. (Deliver to “Vice-President of Post Production Services”).

17. D,M&E Track: The discrete stereo dialogue, discrete stereo music and discrete stereo effects. With respect to format, the Protool Files on DVD shall be delivered. Note: Lions Gate shall provide Grantor with a copy of its technical specifications. (Deliver to “Vice-President of Post Production Services”).

18(a). Trims and Outs: All unused takes and trims, and all other film, video and soundtrack materials produced for or used in the process of preparing the Picture (e.g. all original camera negative and/or digital camera media with the corresponding original production sound, and all first generation video dailies made directly from the production camera source and the production mixers recorded sound). (Deliver to “Vice-President of Post Production Services”).

18(b). Editorial Paperwork/Files: Copies of the code books/flex files, the final line script from the production, the negative cutters inventory (if applicable), the final non-linear editing project files and/or EDL’s, the camera reports, the sound reports, the re-recording sound reports (including all ADR and TV lines) and all other paperwork used in connection with the post production of the Picture. (Deliver to “Vice-President of Post Production Services”).

19. Closed Captioned Version: To the extent created, all closed captioned elements. In addition, Grantor shall provide Lions Gate with the name of the vendor (including the phone number and contact name) used for the creation of the Closed Captioned Materials, if any, in connection with the television exhibition of the Picture. (Deliver to “Vice-President of Post Production Services”).

20. Television “Cover Shots”: If required in order to enable the Picture to be exhibited on network television, the necessary television elements, as applicable, including “cover shots” (for content) and dialogue coverage (for language) shall be provided. TV coverage shall be compiled by an editor in chronological order in accordance with the sequence of events in which scenes occurred in the feature. Coverage will be compiled on one or two reels of 35mm negative (accompanied with the matching video and flex file) on one or two additional reels on a newly created video tape with window burn-ins to be used for video editing. The negative reel will be cut together by the feature negative cutters in accordance with the editors work print reel or reels and/or video tape. Also, the matching production track shall be supplied on one or two reels and/or DAT, along with access to the original production

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sound. Enough TV coverage shall be supplied to create a TV version with a running time of no less than 85 minutes for domestic distribution purposes and no less than 94 minutes for international distribution purposes. A clearly noted, marked up final line script of all TV coverage will be supplied along with the TV coverage elements, as well as all other applicable paperwork and/or files noted in item 18(b) above. (Deliver to “Vice-President of Post Production Services”).

C. Video Materials:

1. Digital High Definition Video Masters (HDCam SR): Two (2) HDCam SR video masters in the 24P format, in a 4:4:4 color space, as follows: (i) one (1) video master in the 4X3 (1.33:1 full frame) format and one (1) video master in the 16X9 (1.78:1 full frame) format. Each video master shall contain proper head slates (which include, without limitation, the title, running time, aspect ratio, audio configuration, name of the record vendor, the date of creation, etc.). Channels 1 & 2 shall contain stereo audio. Channels 3 & 4 shall contain 100% fully filled stereo M&E. Channels 5 & 6 shall contain Dolby E. All textless backgrounds shall be attached to the tail of each video master. The textless backgrounds shall be in the proper aspect ratio and shall be color timed. (Deliver to “Vice-President of Post Production Services”).

2. Digital Standard Definition Video Masters: Three (3) Digital Beta video masters individually manufactured (conversions not acceptable unless it is a down conversion from the Digital High Definition Video Master referenced above (HDCam SR)) in the NTSC format as follows: one (1) video master (panned and scanned in the 4X3 (1.33:1 aspect ratio) if the Picture is in 1.85 ratio or in anamorphic), one (1) video master in the 16X9 (1.78 full frame) format and one (1) video master in the 4X3 (1.85 letterbox) format, and three (3) Digital Beta video masters individually manufactured (conversions not acceptable unless it is a down conversion from the Digital High Definition Video Master referenced above (HDCam SR)) in the PAL format as follows: one (1) video master (panned and scanned in the 4X3 (1.33:1 aspect ratio) if the Picture is in 1.85 ratio or in anamorphic), one (1) video master in the 16X9 (1.78 full frame) format and one (1) video master in the 4X3 (1.85 letterbox) format. Each video master shall contain proper head slates (which include, without limitation, the title, running time, aspect ratio, audio configuration, name of the record vendor, the date of creation, etc.). Channels 1 & 2 shall contain stereo audio. Channels 3 & 4 shall contain 100% fully filled stereo M&E. All textless backgrounds shall be attached to the tail of each video master. The textless backgrounds shall be in the proper aspect ratio and shall be color timed. The inclusion of textless backgrounds shall be noted in the head slate of each video master. (Deliver to “Vice-President of Post Production Services”).

(a) The transfer process from film to videotape shall not cause any coloration when a pure white, gray or black scene is reproduced.

(b) For full frame or panned and scanned versions, all transfers done from widescreen or anamorphic film elements to tape must be panned and scanned so as to make them acceptable for television framing. In the case of 1.85:1 or 1.66:1 elements, framelines

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in the picture (letter boxing) are not acceptable except in the case of titles. If necessary, for title safety, the main and/or end title sequences may be transferred with a slight or minimal letterbox format so long as the framelines are wiped with a complimentary color to the picture behind the credits. (White or colored titles in a black field need not be wiped). Additionally, no manipulation of the video master(s), except with respect to standard color correction, will be acceptable (i.e. speed ups, slow downs, squeezes, etc.) without the prior written approval of Lions Gate.

3. DLT: If available, one (1) fully built DLT. The DLT shall be accompanied by a DLT Specifications Form. All material (including any music embodied therein) shall be fully cleared for Lions Gates exploitation thereof in all media granted Lions Gate under the Agreement throughout the Territory during the Term without any additional clearance costs (or other supplemental payments) required to be paid in connection therewith. (Deliver to “Vice-President of Post Production Services”).

4. Digital High Definition Television Video Masters (HDCam SR): Two (2) HDCam SR video masters in the 24P format, in a 4:4:4 color space, individually manufactured from the original film element as follows: (i) one (1) video master in the 4X3 (1.33:1 full frame) format and one (1) video master in the 16X9 (1.78:1 full frame) format with a running time of no less than 85 minutes for domestic distribution purposes and no less than 94 minutes for purposes of international distribution purposes. Each video master shall contain proper head slates (which include, without limitation, the title, running time, aspect ratio, audio configuration, name of the record vendor, the date of creation, etc.). Channels 1 & 2 shall contain stereo audio. Channels 3 & 4 shall contain 100% fully filled stereo M&E. The Digital High-Definition Television Masters shall be free of excessive and/or graphic violence, grotesque scenes, profanity, obscene language, nudity, sexual activity, etc. that are not reasonably expected to be seen on free broadcast television and/or on ships and airplanes. In the event that the music in the television version of the Picture varies from the music in the original delivered version of the Picture, a Music Cue Sheet and the Music Licenses shall be delivered. Note: If the Picture, as delivered, is free of excessive and/or graphic violence, grotesque scenes, profanity, obscene language, nudity, sexual activity, etc., the Digital Television Master shall be deemed deleted. (Deliver to “Vice-President of Post Production Services”).

(a) The transfer process from film to videotape shall not cause any coloration when a pure white, gray or black scene is reproduced.

(b) All transfers done from widescreen or anamorphic film elements to tape must be panned and scanned so as to make them acceptable for television framing. In the case of 1.85:1 or 1.66:1 elements, framelines in the picture (letter boxing) are not acceptable except in the case of titles. If necessary, for title safety, the main and/or end title sequences may be transferred in the letterbox format so long as the framelines are wiped with a complimentary color to the picture behind the credits. (White or colored titles in a black field need not be wiped). Additionally, no manipulation of the video master(s),

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except with respect to standard color correction, will be acceptable (i.e. speed ups, slow downs, squeezes, etc.) without the prior written approval of Lions Gate.

5. Digital Trailer Video Master: If available, one (1) High Definition Video Master and/or one (1) Digital Beta video master individually manufactured (conversions not acceptable unless it is a down conversion from the Digital High Definition Video Master referenced above (HDCam SR)) Trailer Video Master in the NTSC format (panned and scanned if the Picture is in 1.85 ratio or in scope) made from the interpositive of the feature. Channels 1 & 2 shall contain stereo audio. Channels 3 & 4 shall contains 100% fully filled stereo M&E. All textless backgrounds shall be attached to the tail of the trailer video master. All music embodied therein shall be fully cleared for Lions Gates exploitation thereof in all media granted Lions Gate under the Agreement throughout the Territory during the Term without any additional clearance costs (or other supplemental payments) required to be paid in connection therewith. (Deliver to “Vice-President of Post Production Services”).

6. Digital High Definition Unrated Video Masters: To the extent applicable, two (2) HDCam SR video masters in the 24P format, in a 4:4:4 color space, as follows: (i) one (1) video master in the 4X3 (1.33:1 full frame) format and one (1) video master in the 16X9 (1.78:1 full frame) format. Each video master shall contain proper head slates (which include, without limitation, the title, running time, aspect ratio, audio configuration, name of the record vendor, the date of creation, etc.). Channels 1 & 2 shall contain stereo audio. Channels 3 & 4 shall contain 100% fully filled stereo M&E. The Digital Unrated High Definition Masters shall contain such outtakes, scenes and footage that would result in a rating of “NC-17” if the Picture were rated by the M.P.A.A. All textless backgrounds shall be attached to the tail of the unrated masters. In the event that the music, footage, dialogue, etc. in the unrated version of the Picture varies from the music, footage, dialogue, etc. in the original (rated) version of the Picture, a Music Cue Sheet, the Music Licenses, a Dialogue Continuity and Sporting List and all other respective documentation shall be delivered. In the event that the audio in the unrated version of the Picture varies from the audio in the original (rated) version of the Picture, all respective audio materials shall be delivered (i.e. Printmaster (5.1), M&E Track and Sound Track (5.1 Stems)). NOTE: A list (or similar documentation) identifying the footage (and the placement of the footage by means of accurate time codes) that has been added to the unrated version of the Picture shall be delivered. (Deliver to “Vice-President of Post Production Services”).

(a) The transfer process from film to videotape shall not cause any coloration when a pure white, gray or black scene is reproduced.

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color to the picture behind the credits. (White or colored titles in a black field need not be wiped). Additionally, no manipulation of the video master(s), except with respect to standard color correction, will be acceptable (i.e. speed ups, slow downs, squeezes, etc.) without the prior written approval of Lions Gate.

D. Publicity / Promotional Materials:

1. Color Photography: A minimum of three hundred (300) different (approved) production color digital photographs depicting scenes in the Picture with members of the cast (including principals) appearing therein. The photography shall be delivered digitally in the highest resolution format possible (a minimum of 300dpi) and saved as a Tiff File. The Contact Sheets and a photo identification caption list shall be provided. The distinction between “kill shots” and “approved shots” shall be clearly made (either directly on the contact sheets or on a separate list). Note: Any and all talent approvals or other authorizations that are required in connection with the use of the delivered photography shall be secured and delivered. (Deliver to “Vice President, Legal & Business Affairs”).

2. Advertising Materials: One (1) copy of all advertisements, paper accessories and other advertising materials, if any, prepared by Grantor, the Producer or by any other party affiliated with the Picture, including, without limitation, press clippings, newspaper ads (including, the artwork, billing and title treatment for the newspaper ad), cast and crew interviews, commentaries, one-sheet posters, flyers, behind-the-scene footage, key art elements and transparencies, television spots, etc. Note: If key art is available, it shall be delivered in a layered Photoshop file in the highest resolution format possible. All materials (including any music) shall be fully cleared for Lions Gates exploitation thereof in all media granted Lions Gate under the Agreement throughout the Territory during the Term without any additional clearance costs (or other supplemental payments) required to be paid in connection therewith. Any and all talent approvals or other authorizations that are required in connection with the use of the materials shall be secured and delivered. In the event that any material is not fully cleared as set forth above, a written statement outlining in detail the material that has not been cleared shall be provided. In the event that a written statement outlining in detail the material that has not been cleared is not provided, the material(s) will be considered approved for all purposes. (Deliver to “Vice President, Legal & Business Affairs”).

3. Electronic Press Kit: One (1) Electronic Press Kit (“EPK”) created using 35mm film or broadcast quality video tape suitable in all respects for exploitation. The EPK shall contain interviews with the principal cast, interviews with the principal crew (e.g. director and producer), behind-the-scenes footage, “bloopers”, outtakes, “making of” footage, production footage, etc. The EPK shall have four track discrete audio with the voice-over and/or narration on one track, the dialogue on a separate track, the music on a separate track and the effects on a separate track. All footage (including the music embodied therein, behind-the-scene footage, etc.) shall be fully cleared for Lions Gates exploitation thereof in all media granted Lions Gate under the Agreement throughout the Territory during the Term (and all

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releases with respect thereto shall be delivered) without any additional clearance costs (or other supplemental payments) required to be paid in connection therewith. Any and all talent approvals or other authorizations that are required in connection with the use of the materials shall be secured and delivered. In the event that any material is not fully cleared as set forth above, a written statement outlining in detail the material that has not been cleared shall be provided. In the event that a written statement outlining in detail the material that has not been cleared is not provided, the EPK will be considered approved for all purposes. Note: It is understood and agreed that the use of the materials is subject to those third party contractual restrictions, which restrictions shall be delivered to Lions Gate in writing on or before the Delivery Date. (Deliver to “Vice President, Legal & Business Affairs”).

6. Screening Copy: One (1) DVD copy of the Picture. (Deliver to “Vice President, Legal & Business Affairs”).

7(a). Ancillary Materials (DVD “Bonus” Materials): One (1) Digital Beta video master in the NTSC format containing all material created by Grantor (or by any other party affiliated with the Picture) for the inclusion in the DVD master. Channels 1 & 2 shall contain stereo audio. Channels 3 & 4 shall contain 100% fully filled stereo M&E. Textless background shall be attached to the tail of the video master. All material (including any music embodied therein, behind-the-scene footage, etc. ) shall be fully cleared for the exploitation thereof in all media granted Lions Gate under the Agreement throughout the Territory during the Term (and all releases with respect thereto shall be delivered). In the event that any material is not fully cleared as set forth above, a written statement outlining in detail the material that has not been cleared shall be provided. In the event that a written statement outlining in detail the material that has not been cleared is not provided, the Ancillary Materials will be considered approved for all purposes. (Deliver to “Vice President, Legal & Business Affairs”).

7(b). Ancillary Audio Materials (DVD “Bonus” Materials): The discrete stereo audio, discrete stereo dialogue, discrete stereo music and discrete stereo effects. With respect to format, the Protool Files on DVD shall be delivered. (Deliver to “Vice President, Legal & Business Affairs”).

E. Legal and Publicity Documents:

1. Laboratory Access Letter: Three (3) original copies of the Laboratory Access Letter granting Lions Gate irrevocable access during the Term to all Film and Video Materials, as applicable. The Laboratory Access Letter shall be signed by Grantor and the laboratory. Lions Gate shall provide Grantor with a copy of its standard Laboratory Access Letter. (Deliver to “Vice President, Legal & Business Affairs”).

2. Press Books: Five (5) Press Books, including (approved) biographies (one to three typewritten pages in length) of the principal cast and crew members, a complete cast and crew list, the running time, production notes (item #3 below), synopsis (item #6 below), etc. (Deliver to “Vice President, Legal & Business Affairs”).

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3. Production Notes: One (1) copy of the (approved) production notes of the Picture prepared by the Unit Publicist, including items relating to: underlying work (original screenplay, book, etc.), places where the Picture was photographed, anecdotes about the production of background of the Picture. The Production Notes shall be approved by all respective parties and/or individuals. (Deliver to “Vice President, Legal & Business Affairs”).

4. Feature Dialogue Continuity and Spotting List: One (1) copy in the English language of a detailed, final dialogue and action continuity, in an acceptable format, of the completed Picture and one (1) copy in the English language of a detailed, final spotting list, in an acceptable format, of the Picture. Note: If the original language of the Picture (or any part thereof) is other than English, the English subtitles shall be included. (Deliver to “Vice President, Legal & Business Affairs”).

5. Trailer Dialogue Continuity and Spotting List: If a Trailer is delivered, if available, one (1) copy in the English language of a detailed, final dialogue and action continuity, in an acceptable format, of the completed trailer and one (1) copy in the English language of a detailed, final spotting list, in an acceptable format, of the trailer. (Deliver to “Vice President, Legal & Business Affairs”).

6. Synopsis: One (1) full synopsis of the Picture. (Deliver to “Vice President, Legal & Business Affairs”).

7. Screen Credit Obligations: One (1) summary of the Screen Credit Obligations (main titles) for all individuals and entities affiliated with the Picture, and one (1) copy of the main titles and the end titles as they exactly appear on screen. In addition to a hard copy, the screen credits shall be delivered to Lions Gate electronically. If the Picture is under the jurisdiction of any guild/union, Grantor shall deliver the documentation evidencing the credits (main and end titles) have been approved by the respective guild/union. All respective waivers, if any, shall be provided. (Deliver to “Vice President, Legal & Business Affairs”).

8. Advertising Credit Provisions: Two (2) copies of the Advertising Credit Obligations (including all obligations, restrictions, approval and/or consultation rights pertaining to paid advertising, excluded ads, audio ads, trailers, TV spots, artwork, billing block, commercial tie-ins, merchandising, bloopers, trims and outtakes, “making of” films, behind-the-scene footage, etc.) for all individuals and entities affiliated with the Picture. If there are no advertising credit provisions, a written statement on which Lions Gate can rely on indicating such shall be provided. If the Picture is under the jurisdiction of any domestic and/or foreign guild/union, Grantor shall deliver the documentation evidencing the credits have been approved by the respective guild/union (including, without limitation, a copy of the Notice Of Tentative Writing Credit form as required by the WGA, the final determination of the writing credits as determined by the WGA and, if applicable, proof of payment of the Script Publication Fee). All respective waivers, if any, shall be provided. If the Picture is not under the jurisdiction of any union/guild, a written statement indicating such shall be provided. (Deliver to “Vice President, Legal & Business Affairs”).

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9. Billing Block: Two (2) copies of the approved and final billing block. The billing block shall include all required logos and the Copyright Notice for the motion picture. The camera-ready artwork for all logos required to be included shall be delivered on a disc and electronically. Each logo shall be delivered as an EPS file and as a jpeg and/or pdf file and shall be delivered independent of the billing block. In addition to a hard copy, the billing block shall be delivered to Lions Gate electronically. (Deliver to “Vice President, Legal & Business Affairs”).

10. Name and Likeness Provisions: Two (2) copies of all name and likeness restrictions and/or obligations pertaining to all individuals and entities affiliated with the Picture (including any still, likeness and/or artistic rendering approval rights). If there are no name and likeness restrictions and/or obligations, a written statement on which Lions Gate can rely on indicating such shall be provided. (Deliver to “Vice President, Legal & Business Affairs”)

11. Talent Agreements (executed): Copies of the agreements for the principal cast (inclusive of any featured voices and cameo appearances), key personnel (e.g. director, director of photography, costume designer, production designer, editor, screenwriters (inclusive of all agreements for all rewrites), author of any underlying work, (or other owner of the underlying material, if applicable), producer(s), unit production manager, 1^st assistant director, 2^nd assistant director, music producers (if applicable), etc.) and all Releases for all individuals appearing in the Picture. The respective Agent’s name, address, fax and phone number shall be provided. All Nudity Riders, if any, shall be provided. All agreements for all minors appearing in the Picture shall be provided. The Work Permits and Guardian Release Forms shall accompany all agreements for all minors. All Agreements and Releases shall include work-for-hire language and language that prevents injunctive relief. If applicable, and to the extent required by applicable law, all Talent Agreements for all minors shall be confirmed by the court. In the event that court confirmation is not applicable, a letter from an attorney in the jurisdiction in which principal production took place stating that the agreements are valid, binding and enforceable under the laws of said jurisdiction shall be provided. (Deliver to “Vice President, Legal & Business Affairs”).

12. Music Cue Sheet: Two (2) copies of the Music Cue Sheet of the Picture. The music cue sheet shall include the title of each composition (inclusive of any “samples”), the composers, publishers, copyright owners, form of usage (e.g. background, instrumental, etc.), performing rights society (e.g. BMI, ASCAP, etc.), as well as film footage and running time. (Deliver to “Vice President, Legal & Business Affairs”).

13. Music Cue Sheet (Trailer): If a Trailer is delivered, one (1) copy of the Music Cue Sheet of the Trailer. The music cue sheet shall include the title of each composition (inclusive of any “samples”), the composers, publishers, copyright owners, form of usage (e.g. background, instrumental, etc.), performing rights society (e.g. BMI, ASACAP, etc.), as well as film footage and running time. (Deliver to “Vice President, Legal & Business Affairs”).

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14. Certificates of Origin: Ten (10) original notarized Certificates of Origin issued by an authorized agent in the country of origin (or Certificates of Nationality certified by the official applicable government agency) and, if applicable, the Canadian Content Certificate. (Deliver to “Vice President, Legal & Business Affairs”).

15. Assignment of Rights (notarized): Three (3) original notarized assignments of the rights granted Lions Gate in and to the Picture under the Agreement. Lions Gate will prepare the document for Grantor’s review, approval and execution. (Deliver to “Vice President, Legal & Business Affairs”).

16. Copyright Registration Certificates: One (1) U.S. Copyright Registration Certificate / Form PA (stamped by the Library of Congress) for the screenplay and one (1) U.S. Copyright Registration Certificate / Form PA (stamped by the Library of Congress) for the motion picture. If the certificates (Form PA) have not yet been returned from the Library of Congress, Grantor shall deliver a copy of each certificate (Form PA) along with a copy of the cover letter and check that accompanied each certificate (Form PA) to the Copyright Office. Grantor agrees to immediately deliver one (1) copy of the Copyright Registration Certificates to Lions Gate when received from the Library of Congress. Note: If the screenplay and/or motion picture has been recorded with the Canadian Copyright Office, the Certificate of Registration of Copyright shall be provided. (Deliver to “Vice President, Legal & Business Affairs”).

17. Producer’s Errors and Omissions Insurance Policy: One (1) copy of the Insurance Application (executed), one (1) copy of the Insurance Policy, and an original Certificate of Errors & Omissions Insurance (and the Endorsement) naming each (i) Lions Gate Entertainment Corp., each partner therein and division thereof, and its respective parents, subsidiary and related entities, distributors, licensees and assigns, and the respective officers, directors, shareholders, employees and agents of the foregoing, 2700 Colorado Avenue, Suite 200, Santa Monica, CA 90404 (ii) Maple Pictures Corporation, 2 Bloor Street West, Suite 1001, Toronto, ON M4W 3E2 and (iii) JP Morgan Chase Bank, 1111 Fannin, 10^TH Floor, Houston, Texas 77002 as an additional insured. The minimum coverage shall be ***** for a single occurrence and ***** for aggregate claims with a deductible of no more than ***** for a minimum term of ***** from the Delivery Date but, no less than ***** from Lions Gates initial commercial release date. Grantor shall be responsible for all deductibles and retentions under the policy. The policy shall cover all aspects of the Picture and any and all materials relating thereto (including all underlying material with respect thereto, the release of a soundtrack album, if applicable, and all behind-the-scene footage, “making of” documentaries, bloopers, and all trims and outtakes, as well as the title thereof, the music therein, and the distribution/release of the motion picture on video cassettes, tapes, discs and future technology) and the endorsements to this effect shall be delivered. Documentation evidencing that the premium has been paid in full for the entire ***** term and a guarantee of at least ***** written notice of cancellation or other material change to the policy shall be provided. The policy shall include a provision that the policy shall be primary and not contributory to any other insurance provided for the benefit of or by any additional insured. The insurance carrier shall agree to name any other person and/or entity as an additional

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insured, at no additional cost, and provide a Certificate of Insurance with respect thereto, as requested by Lions Gate throughout the policy term. Note: A Rights Period Endorsement Policy is not acceptable and coverage under a blanket policy is not acceptable. (Deliver to “Vice President, Legal & Business Affairs”).

18. Music Licenses (executed): Copies of the Music Licenses (synchronization, master and mechanical) for all music (inclusive of “samples”) used in the Picture and proof of payment of the licensing fees. All licenses shall provide for all media (on a full buy-out basis) necessary to effect the terms of the Agreement (including, but not limited to, Internet (without limitations) and future media as devised throughout the Term) throughout the Territory during the Term without any future payment obligations (e.g. “step” payments, video bonuses, box office bonuses, etc.). All licenses and agreements shall include language that prevents injunctive relief and shall preclude the licensor from terminating the license. (Deliver to “Vice President, Legal & Business Affairs”).

19. Music Licenses (Trailer): If a Trailer is delivered, copies of the Music Licenses (master, synchronization and mechanical) for all music (inclusive of “samples”) used in the Trailer and proof of payment of the licensing fees. All licenses shall provide for all media necessary to effect the terms of the Agreement (including, but not limited to, Internet and future media as devised throughout the Term) throughout the Territory during the Term. All licenses and agreements shall include language that prevents injunctive relief and shall preclude the licensor from terminating the license. (Deliver to “Vice President, Legal & Business Affairs”).

20. Composer Agreement (executed): One (1) copy of the Composer Agreement (inclusive of a Certificate of Authorship) and all other agreements for all other music personnel (including, without limitation, the Music Supervisor and any co-publishing or administration agreements). All Agreements shall include language that prevents injunctive relief. (Deliver to “Vice President, Legal & Business Affairs”).

21. Music Lyrics: One (1) copy of all song lyrics used in the Picture. (Deliver to “Vice President, Legal & Business Affairs”).

22. Chain of Title: Complete chain of title materials (including, without limitation, a copy of Grantor’s Articles of Incorporation, an original Certificate of Authorship executed by each Writer, an original Author’s Attestation executed by each Writer and, to the extent applicable, the executed Publisher’s Release) suitable for filing with the United States Copyright Office and reasonably suitable to Lions Gates primary lender and insurance carrier indicating that Grantor has full right, title and interest in and to the Picture and all underlying property with respect thereto (including, without limitation, proof of payment of all fees due in connection with the purchase of the screenplay and all underlying materials, if any, upon which the screenplay is based (e.g. Option Payment(s), Purchase Price, Fixed Compensation, Passive Payments, etc.)). All Chain of Title documents shall include language that prevents injunctive relief. (Deliver to “Vice President, Legal & Business Affairs”).

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23. UCC Search: One (1) current UCC Search of Grantor, Production Company and all other respective entities (from a reputable service) from the following states: (i) California; (ii) the state of Grantor’s principal place of business; and, (iii) the state of producer’s principal place of business. Each search report must show that the Picture is free and clear of any and all liens. Each report must include copies of the referenced filings, if any, and shall identify the collateral. (Deliver to “Vice President, Legal & Business Affairs”).

24. M.P.A.A. Rating Certificate: One (1) M.P.A.A. Certificate of Approval and Rating. (Deliver to “Vice President, Legal & Business Affairs”).

25. Title Report: One (1) current (within sixty (60) days of the Delivery Date) Title Report showing that the title of the Picture is available for use without infringing any other person or entity’s rights. If the title of the Picture has insurance coverage under the Errors and Omissions Insurance Policy, a copy of the Title Report submitted to the insurance carrier will suffice. (Deliver to “Vice President, Legal & Business Affairs”).

26. Copyright Report: One (1) current (within sixty (60) days of the Delivery Date) Copyright Report (from a reputable service; i.e. Thomson & Thomson) showing that Grantor has good clear title to the Picture and all underlying rights. The Copyright Report must include the specifics of the referenced filings, if any. (Deliver to “Vice President, Legal & Business Affairs”).

27. Copyright Mortgage and Assignment (notarized): Three (3) original agreements, fully executed by Grantor, granting Lions Gate a first position security interest in and to the rights granted Lions Gate in and to the Picture under the Agreement. Lions Gate will prepare the document for Grantor’s review, approval and execution. (Deliver to “Vice President, Legal & Business Affairs”).

28. UCC Financing Statement: One (1) UCC-1 Financing Statement granting Lions Gate a first position security interest in and to the rights granted Lions Gate in and to the Picture under the Agreement. Lions Gate will prepare the document for Grantor’s review and approval. (Deliver to “Vice President, Legal & Business Affairs”).

29. Stock Footage Licenses / Clip Licenses / Legal Clearances/Releases: If the Picture contains any stock footage, film clips, TV clips, news clips, media clips, radio clips, print media, paintings, posters, logos, artwork, copyrighted and/or trademarked materials, any materials which includes a trademark (registered or pending), photographs, portraits, books, publications, any third party likeness, etc., copies of all licenses (and proof of payment of the licensing fee) shall be provided. All licenses shall provide for all media granted Lions Gate under the Agreement throughout the Territory during the Term (including the use of any music embodied therein). In the event that the Picture contains any stock footage, a Stock Footage Cue Sheet shall be provided. All licenses and releases shall include language that prevents injunctive relief and shall preclude the licensor from terminating the license. Note: In the event that there is any music in any clip (whether score and/or source), the Music Cue

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Sheet delivered for the motion picture shall include such music. (Deliver to “Vice President, Legal & Business Affairs”).

30. Shooting Script: One (1) copy of the final shooting script.
(Deliver to “Vice President, Legal & Business Affairs”).

31. Fact Sheet (executed): One (1) completed Fact Sheet. Lions Gate shall provide Grantor with a copy of its standard Fact Sheet. (Deliver to “Vice President, Legal & Business Affairs”).

32. Dolby (Dolby SR and Dolby SRD) License Agreements: One (1) copy of the fully executed license agreements in full force and effect for unlimited distribution of the Picture throughout the Territory during the Term and proof of payment of the fees. (Deliver to “Vice President, Legal & Business Affairs”).

32. SDDS License Agreement: One (1) copy of the fully executed license agreement in full force and effect for unlimited distribution of the Picture throughout the Territory during the Term and proof of payment of the fee. (Deliver to “Vice President, Legal & Business Affairs”).

34. Digital Theater Systems License Agreement (DTS): One (1) copy of the fully executed license agreement in full force and effect for unlimited distribution of the Picture throughout the Territory during the Term and proof of payment of the fee. (Deliver to “Vice President, Legal & Business Affairs”).

35. IRS Tax Forms: The original executed IRS Forms (as applicable) shall be provided. (Deliver to “Vice President, Legal & Business Affairs”).

36. Dubbing/Subtitling Restrictions: One (1) statement of all dubbing and subtitling restrictions relating to the replacement of any voice, including the dubbing of dialogue in a language other than the language in which the Picture was originally recorded. If there are no Dubbing/Subtitling Restrictions, a written statement on which Lions Gate can rely on indicating such shall be provided. (Deliver to “Vice President, Legal & Business Affairs”).

37. Cutting/Editing Restrictions: One (1) statement of all third party cutting/editing restrictions including, without limitations, any and all consultation rights accorded to any individual including, without limitation, the Director (whether by contract or by union affiliation). If there are no Cutting/Editing Restrictions, a written statement on which Lions Gate can rely on indicating such shall be provided. (Deliver to “Vice President, Legal & Business Affairs”).

38. Cast and Crew List: One (1) complete list of all cast and all crew members. The list shall include the names of all cast and crew members, their contact information (agent name, address, fax and phone number), their affiliation to the Picture and union affiliation, if any. (Deliver to “Vice President, Legal & Business Affairs”).

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F. Complete 35MM Trailer Materials: All available, if any, Trailer Materials. (Deliver to “Vice-President of Post Production Services”).

1. Trailer Picture Negative: If available, one (1) 35mm negative (without scratches or defects), fully cut, edited and assembled, of the completed trailer.

2. Trailer Optical Sound Track Negative: If available, one (1) fully mixed and recorded original 35mm optical sound track negative of the Completed Trailer prepared for printing in perfect synchronization with the Trailer Picture negative.

3. Trailer Magnetic Sound Track: If available, one (1) 35mm original magnetic three-track, consisting of separate dialogue, music and 100% filled sound effects, fully recorded and equalized in perfect synchronization with the Trailer Picture Negative.

4. Trailer Answer Print: If available, one (1) first class sample composite 35mm positive print of the Completed Trailer, fully timed and color corrected, manufacture from the Trailer Picture Negative and Trailer Sound Track Negative, with the sound track printed thereon in perfect synchronization with photographic action and with Lions Gate identification symbols as Lions Gate shall determine, in all respects ready and suitable for distribution and exhibition.

5. Trailer Overlay Text: If available, one (1) 35mm negative of the text used for superimposing the lettering of the Completed Trailer fully cut to match the trailer picture negative.

6. Trailer Sound Track: If available, the separate dialogue tracks, sound effect tracks, narration tracks and music tracks, each in 35mm magnetic tracks from which the original Trailer Magnetic Sound Track was made.

7. Trailer Textless Background: If available, one (1) 35mm textless (i.e. without any superimposed lettering) background negative of the Completed Trailer conformed in all respects to the background of the Trailer Negative.

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EX-10.42 4 v32671exv10w42.htm EXHIBIT 10.42 Exhibit 10.42

Exhibit 10.42

CONFIDENTIAL TREATMENT REQUESTED: INFORMATION FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED IS OMITTED AND IS NOTED WITH “*****.” AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

MASTER DISTRIBUTION AGREEMENT
(TELEVISION PRODUCTIONS)

Dated as of July 25, 2007

between

MQP, LLC
as Issuer,
and

LIONS GATE TELEVISION, INC.
as Distributor,

MASTER DISTRIBUTION AGREEMENT (TELEVISION PRODUCTIONS), dated as of July 25, 2007, between MQP, LLC, a Delaware limited liability company, as “Issuer” and LIONS GATE TELEVISION, INC. as “Distributor”.