Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 330

                                       - 97 -                                         
               At some point thereafter, the TroMetro distribution                    
          agreement and the Troma distribution agreement were terminated.             
          Both TroMetro and SMHC waived any rights under those agreements             
          to all royalties that had accrued between December 23, 1997, and            
          September 2, 1999.                                                          
               E.  Letter Agreement With TroMetro                                     
               On March 29, 2001, Mr. van Merkensteijn, on behalf of                  
          TroMetro, and Mr. Lerner, on behalf of SMP, entered into a letter           
          agreement.  Pursuant to this letter agreement, TroMetro deferred            
          its right to exercise the TroMetro stock option for no more than            
          6 months.                                                                   
               F.  Troma Finance, LLC                                                 
               As of December 12, 2001, Troma Finance, LLC (Troma Finance),           
          SMP, and TroMetro entered into an “Operating Agreement of Troma             
          Finance LLC”.  Pursuant to this agreement, Troma Finance was                
          formed and TroMetro was designated as its manager.68                        
               As of December 12, 2001, Troma Finance and TroMetro executed           
          a document entitled “Capital Contribution and Assignment and                




               68 Mr. Lerner testified that Troma Finance was formed with a           
          view of consolidating all the ownership interests in Troma into             
          one entity for purposes of making a sale of the company.                    
          According to Mr. Lerner, Mr. van Merkensteijn was negotiating               
          with a certain party for the sale of Troma, and “he wanted to               
          make sure that all of the ownership interests were in one entity            
          so he wouldn’t have to keep going back around”.                             





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