Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 286

                                       - 53 -                                         
          $33,111,856.98 aggregate principal amount of the Carolco                    
          subordinated notes.29                                                       
               3.  SMP LLC Agreement                                                  
               On December 10, 1996, Rockport Capital and Mr. Lerner formed           
          SMP pursuant to a limited liability company agreement (the SMP              
          LLC agreement).  The SMP LLC agreement indicated that among the             
          purposes for which SMP was formed was “to produce and distribute            
          filmed entertainment products and to own interests in entities              
          engaged in such activities”.                                                
               The SMP LLC agreement provided that the members of SMP would           
          have the following membership interests:                                    
                                             Common         Preferred                 
                    Common         Preferred       capital     capital                
                    interest       interest        account      account               
          Rockport    50%          50%          $50,000      $50,000                  
          Lerner       50          50            50,000       50,000                  

          The agreement provided for 3 types of interests--Common I, Common           
          II, and Preferred.  Members holding Common I interests had                  
          exclusive voting rights in SMP.  Members holding preferred                  
          interests had no voting rights; however, they had the right to              
          convert all their preferred interests into Common II interests on           




               29 The exchange and contribution agreement (including its              
          attached schedules) did not define the term “U.S. Video Film                
          Rights”.                                                                    





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