settlement-term-sheet.docx

1035-00004 · Client 1035 · Settlement Documents

settlement-term-sheet.docx DOCUMENT Litigation

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CALDERWOOD & HARKNESS LLP 725 South Flower Street, Suite 4200 Los Angeles, California 90017 Telephone: (213) 688-7400 Facsimile: (213) 688-7401

CONFIDENTIAL SETTLEMENT COMMUNICATION CAL. EVID. CODE § 1152

This document constitutes a confidential settlement communication within the meaning of California Evidence Code Section 1152 and Federal Rule of Evidence 408. It is inadmissible in any proceeding, except as necessary to enforce the terms set forth herein or in the Definitive Documents referenced below.

SETTLEMENT TERM SHEET

FONSECA v. RENNICK Los Angeles Superior Court, Case No. 23STCV01897

Following Mediation on May 19, 2023 Before Hon. Patricia Villareal (Ret.) Apex Mediation Services 633 West 5th Street, Suite 2600 Los Angeles, CA 90071

June 8, 2023

RECITALS

The following terms have been agreed upon by Marguerite D. Fonseca ("Fonseca") and Desmond R. Rennick ("Rennick," and together with Fonseca, the "Parties"), following a full-day mediation session conducted on May 19, 2023, before the Honorable Patricia Villareal (Ret.), serving as mediator through Apex Mediation Services, 633 West 5th Street, Suite 2600, Los Angeles, California 90071. The terms set forth in this Settlement Term Sheet (this "Term Sheet") are subject to the negotiation, finalization, and mutual execution of a definitive Settlement Agreement and Mutual Release, and a Restated Distribution Waterfall Agreement (collectively, the "Definitive Documents"), as more fully described in Section 11 below.

This Term Sheet addresses the Parties' dispute arising from Rennick's management of the financial affairs of Coastal Meridian Productions LLP ("CMP"), a California limited liability partnership, Employer Identification Number 83-2197644, formed on March 8, 2017. The dispute encompasses, without limitation, claims relating to excess management fees paid by CMP to Rennick Slate Ventures LLC ("RSV"), a California limited liability company, Employer Identification Number 84-3056178, an entity owned and controlled by Rennick, as well as claims relating to the improper reclassification of domestic distribution revenues generated by CMP-produced film properties from distributable revenue to advance recoupment categories.

The underlying litigation, Fonseca v. Rennick, Los Angeles Superior Court, Case No. 23STCV01897, was filed by Fonseca on January 24, 2023. Rennick filed his Answer and Counterclaim on March 6, 2023. A court-ordered stay of all proceedings was entered on April 11, 2023, pending the outcome of mediation. The Parties now wish to memorialize the material terms of their agreement to resolve all claims and counterclaims in the litigation, as well as all related disputes concerning CMP's financial affairs, on the terms and subject to the conditions set forth below.

1. SETTLEMENT PAYMENT

Rennick shall pay to Fonseca the aggregate sum of $975,000.00 (Nine Hundred Seventy-Five Thousand Dollars) (the "Settlement Amount"), payable in two installments as follows:

(a) First Installment. The sum of $600,000.00 (Six Hundred Thousand Dollars) shall be due and payable within fifteen (15) business days following the date on which both Parties have fully executed the Definitive Documents. For the avoidance of doubt, the date of execution shall be determined by reference to the later of the two signatures affixed to the Definitive Documents.

(b) Second Installment. The sum of $375,000.00 (Three Hundred Seventy-Five Thousand Dollars) shall be due and payable on or before October 15, 2023. In the event that October 15, 2023 falls on a day that is not a business day, the Second Installment shall be due on the next succeeding business day.

All payments of the Settlement Amount shall be made by wire transfer of immediately available funds to an account designated in writing by Fonseca (or her counsel, Calderwood & Harkness LLP, on her behalf) no later than five (5) business days prior to the applicable payment due date. Fonseca shall provide complete and accurate wire transfer instructions, including the name of the receiving financial institution, ABA routing number, account number, and beneficiary name, in a timely manner to facilitate payment.

In the event that any installment of the Settlement Amount is not received by Fonseca on or before the applicable due date, the unpaid amount shall bear interest at the rate of ten percent (10%) per annum, calculated on a simple interest basis from the due date until such amount is paid in full. The accrual of interest under this provision shall not constitute a waiver of any other right or remedy available to Fonseca under the Definitive Documents or applicable law, including, without limitation, the right to seek enforcement of the settlement pursuant to California Code of Civil Procedure Section 664.6 as provided in Section 6 below.

The Settlement Amount is and shall remain the personal obligation of Desmond R. Rennick, individually. Under no circumstances shall the Settlement Amount, or any portion thereof, be paid from or charged against the partnership funds, accounts, revenues, or assets of CMP. Rennick shall not seek reimbursement or indemnification from CMP for any portion of the Settlement Amount, and any attempt to do so shall constitute a material breach of the Definitive Documents.

2. RESTATED REVENUE WATERFALL

Effective as of January 1, 2023, the CMP revenue waterfall, as established in the CMP Limited Liability Partnership Agreement dated March 8, 2017, and as amended from time to time, shall be restated and amended in the Definitive Documents as follows:

(a) Management-Fee Cap Reduction. The management fee payable by CMP to RSV (or any successor, affiliate, or assignee of RSV) shall be permanently reduced from five percent (5%) to three percent (3%) of gross receipts for all current and future CMP-produced film properties. The current CMP film library consists of the following four properties: Iron Lullaby (2018), The Perdition Room (2019), Salt Wind (2020), and Nightjars (2021). The reduced 3% management-fee cap shall apply with equal force to any and all film properties produced, co-produced, acquired, or otherwise exploited by CMP after the date of execution of the Definitive Documents. For purposes of this provision, "gross receipts" shall have the meaning ascribed to such term in the CMP Limited Liability Partnership Agreement, as restated in the Definitive Documents.

(b) Restoration of Reclassified Domestic Distribution Revenues. The sum of $847,200.00 in domestic distribution revenues that were previously reclassified by Rennick (or at his direction) from "distributable revenue" to "advance recoupments" shall be restored in full to the distributable profit pool of CMP, with such restoration applied retroactively to the quarters in which the revenues were originally received, as follows:

(i) Q3 2020 — $538,200.00, attributable to domestic distribution revenues from the film Salt Wind (2020); and

(ii) Q1 2021 — $309,000.00, attributable to domestic distribution revenues from the film Iron Lullaby (2018).

The independent accountant referenced in Section 3 below shall recalculate all quarterly distributions owed to each partner for the affected periods and all subsequent periods through December 31, 2022, giving effect to the restoration of these amounts. Any net distributable amounts owed to Fonseca as a result of the recalculation shall be deemed satisfied by the Settlement Amount and shall not give rise to any additional payment obligation, and any net distributable amounts owed to Rennick as a result of the recalculation shall similarly be deemed satisfied and shall not give rise to any additional payment obligation.

(c) Consent Requirement for Future Reclassifications. From and after the date of execution of the Definitive Documents, any reclassification of any revenue of CMP from the category of "distributable revenue" to any other accounting category — including, without limitation, advance recoupments, reserves, deferred revenue, promotional credits, or any other classification — shall require the prior written consent of both Fonseca and Rennick. Any reclassification made without such prior written consent shall be void and of no effect.

(d) Satisfaction of Excess Management-Fee Claims. The Parties acknowledge and agree that total management fees invoiced by RSV to CMP from inception through December 31, 2022 amount to $2,694,500.00, and that the amount permissible under the original 5% management-fee cap applied to CMP's aggregate gross receipts of $23,220,000.00 over the same period was $1,161,000.00, resulting in excess management fees of $1,533,500.00. All claims for clawback, restitution, disgorgement, or repayment of such excess management fees shall be deemed fully and finally satisfied by the payment of the Settlement Amount set forth in Section 1 above. No further clawback, restitution, offset, credit, or other recovery shall be sought or required from Rennick, RSV, or any affiliate of either of them in connection with such excess management fees.

3. INDEPENDENT ACCOUNTANT

All waterfall calculations, partnership distributions, and related financial computations for CMP shall be administered on a quarterly basis by an independent certified public accountant mutually selected by Fonseca and Rennick in their capacities as partners of CMP.

For the initial period following execution of the Definitive Documents, Clearfield & Moss CPAs (Howard Moss, CPA, Partner-in-Charge; office located at 9100 Sunset Boulevard, Suite 220, West Hollywood, California 90069) shall continue to serve as the partnership accountant of CMP. Clearfield & Moss CPAs has served as CMP's accountant since the partnership's formation and is familiar with CMP's books, records, and financial operations. Nothing herein shall preclude the Parties from jointly agreeing to replace Clearfield & Moss CPAs with another qualified independent accounting firm at any time, provided such replacement is made by mutual written consent.

Notwithstanding the foregoing, the work of Clearfield & Moss CPAs shall be subject to the oversight and review of Tillerman Forensic Advisory LLC (Greta Sørensen, CPA, CFF, Principal; office located at 350 South Grand Avenue, Suite 1480, Los Angeles, California 90071) for the first two annual audit cycles following the effective date of the Restated Distribution Waterfall — namely, calendar year 2023 and calendar year 2024. Tillerman Forensic Advisory LLC shall have the authority to review all waterfall calculations, supporting documentation, general ledger entries, bank statements, distribution schedules, and other financial records of CMP as reasonably necessary to perform its oversight function. Tillerman's oversight role shall be limited to the two audit cycles specified above, unless the Parties mutually agree in writing to extend such oversight for additional periods.

The professional fees and expenses of Tillerman Forensic Advisory LLC incurred in connection with its oversight function shall be treated as a partnership expense of CMP and shall be capped at $40,000.00 per audit cycle (i.e., a maximum of $40,000.00 for the calendar year 2023 audit cycle and a maximum of $40,000.00 for the calendar year 2024 audit cycle, for an aggregate maximum of $80,000.00). Any fees in excess of such cap shall be borne equally by Fonseca and Rennick in their individual capacities, unless otherwise agreed in writing.

4. GOVERNANCE REFORMS

The Definitive Documents shall incorporate the following governance reforms applicable to CMP, effective immediately upon execution:

(a) Dual-Signature Requirement. Any single expenditure, disbursement, payment, or financial commitment by or on behalf of CMP in an amount exceeding $25,000.00 shall require the prior written approval of both Fonseca and Rennick before the expenditure is made or the commitment is incurred. For purposes of this provision, related or contemporaneous expenditures arising from a single transaction or series of related transactions shall be aggregated. Written approval may be given by email, provided such email is sent from the approving partner's email address of record as designated in the Definitive Documents. In the event of a time-sensitive expenditure where one partner is unavailable despite commercially reasonable efforts to reach such partner, the expenditure may be made with the approval of only one partner, provided that (i) the unavailable partner is notified in writing within twenty-four (24) hours, and (ii) the expenditure is ratified at the next quarterly review or within thirty (30) days, whichever is sooner.

(b) Quarterly Financial Reporting. CMP's independent accountant (initially, Clearfield & Moss CPAs) shall prepare and distribute to both Fonseca and Rennick a comprehensive quarterly financial-reporting package within forty-five (45) days following the end of each fiscal quarter of CMP. Each quarterly financial-reporting package shall include, at a minimum: (i) a statement of revenues and expenses for the quarter; (ii) a balance sheet as of quarter-end; (iii) a detailed waterfall calculation showing the computation of each partner's distributable share; (iv) a schedule of all management fees paid or accrued to RSV (or any successor or affiliate); and (v) a reconciliation of all bank accounts held by or on behalf of CMP.

(c) Annual Audit. CMP's books and records shall be subject to a comprehensive annual audit conducted by the independent accountant (initially, Clearfield & Moss CPAs, subject to Tillerman oversight as set forth in Section 3). The audit shall be conducted in accordance with generally accepted auditing standards, and a written audit report shall be issued and delivered to both Fonseca and Rennick within ninety (90) days following the end of each fiscal year of CMP. The cost of each annual audit shall be a partnership expense of CMP.

5. MUTUAL RELEASE

As part of the Definitive Documents, each Party shall execute a mutual general release, releasing the other Party — and each Party's respective agents, employees, attorneys, affiliates, successors, assigns, heirs, executors, and administrators — from any and all claims, demands, actions, causes of action, suits, debts, liabilities, obligations, damages, losses, costs, expenses, and attorneys' fees, whether known or unknown, suspected or unsuspected, fixed or contingent, at law or in equity, arising from or in any way related to CMP's financial affairs for the period from the inception of CMP on March 8, 2017 through and including December 31, 2022.

The mutual general release shall include an express waiver by each Party of the provisions of California Civil Code Section 1542, which provides as follows:

"A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party."

Each Party acknowledges and agrees that he or she may discover facts in addition to or different from those that he or she now knows or believes to be true with respect to the subject matter of the release, and each Party agrees that the release shall be and remain effective in all respects notwithstanding such additional or different facts, or the discovery thereof. The Parties intend that the mutual release shall be construed as broadly as possible to effectuate a full and final resolution of all disputes between them for the period specified above.

Notwithstanding the foregoing, the mutual release shall not release or discharge any obligations arising under the Definitive Documents themselves, including, without limitation, the obligation to make the Settlement Amount payments set forth in Section 1, the obligations relating to the Restated Revenue Waterfall set forth in Section 2, the governance reforms set forth in Section 4, and the confidentiality and non-disparagement obligations set forth in Sections 8 and 9.

6. DISMISSAL

Upon execution of the Definitive Documents and receipt by Fonseca of the First Installment of the Settlement Amount as set forth in Section 1(a), the Parties shall jointly file with the Los Angeles Superior Court a stipulation to dismiss LASC Case No. 23STCV01897 in its entirety, with prejudice, including Fonseca's complaint and all claims asserted therein, as well as Rennick's counterclaim as provided in Section 7 below.

Each Party shall bear his or her own attorney's fees and costs incurred in connection with the litigation, the mediation, and the negotiation and execution of this Term Sheet and the Definitive Documents. Neither Party shall seek an award of attorney's fees or costs against the other Party in connection with the dismissed action.

The stipulation of dismissal shall include a request that the Court retain jurisdiction pursuant to California Code of Civil Procedure Section 664.6 to enforce the terms of the settlement as set forth in the Definitive Documents. In the event of any dispute regarding the performance or interpretation of the Definitive Documents, either Party may apply to the Court for enforcement without the necessity of filing a new action.

7. RENNICK COUNTERCLAIM

Rennick shall dismiss his counterclaim, which was filed on March 6, 2023, and which alleges that Fonseca breached her obligations of good faith and fair dealing under the CMP partnership agreement by unilaterally retaining Tillerman Forensic Advisory LLC to conduct a forensic review of CMP's financial records without obtaining Rennick's prior consent. Such dismissal shall be with prejudice and shall be effected simultaneously with the dismissal of Fonseca's complaint as described in Section 6 above, as part of the same joint stipulation filed with the Court. The mutual release set forth in Section 5 shall encompass all claims asserted in Rennick's counterclaim.

8. NON-DISPARAGEMENT

Neither Fonseca nor Rennick shall, directly or indirectly, make, publish, or cause to be made or published any disparaging, defamatory, or derogatory statements — whether oral, written, or electronic — about the other Party in connection with CMP, the management or financial affairs of CMP, the underlying litigation (LASC Case No. 23STCV01897), the mediation, or the settlement reflected in this Term Sheet and the Definitive Documents. This non-disparagement obligation shall extend to statements made to industry participants, media representatives, investors, lenders, business associates, social media platforms, and any other third parties. Nothing in this Section 8 shall prevent either Party from making truthful statements in response to a lawful subpoena, court order, or governmental inquiry, or from providing truthful testimony in any judicial, arbitral, or administrative proceeding.

9. CONFIDENTIALITY

The terms and conditions of this Term Sheet and of the Definitive Documents, including, without limitation, the existence and amount of the Settlement Amount, shall be kept strictly confidential by both Parties. Neither Fonseca nor Rennick shall disclose any such terms to any third party, except as follows:

(a) Each Party may disclose the terms to his or her respective legal counsel, accountants, financial advisors, and tax advisors, provided that such advisors are informed of and agree to be bound by the confidentiality obligations set forth in this Section 9.

(b) Either Party may disclose the terms to the extent required by applicable law, regulation, court order, or valid subpoena, provided that the disclosing Party shall give the other Party reasonable advance written notice of such required disclosure (to the extent not prohibited by law) and shall cooperate with any efforts by the non-disclosing Party to obtain a protective order or other appropriate remedy to limit the scope of such disclosure.

(c) Either Party may disclose the terms to Ridgeline Commercial Bank (555 West 7th Street, 18th Floor, Los Angeles, California 90014), solely in connection with CMP's existing $1,400,000.00 revolving credit facility, which is personally guaranteed by Fonseca, and solely to the extent reasonably necessary to comply with Fonseca's obligations under such guaranty or to provide the bank with information regarding CMP's financial condition.

Any breach of this confidentiality provision shall entitle the non-breaching Party to seek equitable relief, including injunctive relief, without the necessity of demonstrating irreparable harm or posting a bond, in addition to any other remedies available at law or in equity.

10. RSV GOING FORWARD

RSV may continue to provide management services to CMP following the execution of the Definitive Documents, subject to the following conditions:

(a) All future invoices submitted by RSV to CMP for management services shall be subject to the reduced management-fee cap of 3% of gross receipts as set forth in Section 2(a) above. No invoice in excess of such cap shall be valid or payable.

(b) All future invoices submitted by RSV to CMP, regardless of amount, shall be subject to the dual-signature approval requirement set forth in Section 4(a) above to the extent such invoices individually or in the aggregate exceed $25,000.00 within a given quarter. For invoices of $25,000.00 or less, the standard approval processes set forth in the Restated Distribution Waterfall shall apply.

RSV shall provide a detailed description of services rendered on each invoice, including the time period covered, the applicable film properties, the gross receipts against which the management fee is calculated, and the computation of the fee amount. CMP's independent accountant shall verify that each RSV invoice conforms to the restated management-fee cap before any payment is made.

11. DEFINITIVE DOCUMENTS

Calderwood & Harkness LLP (Jeffrey Park, Esq., lead counsel for Fonseca) shall prepare the initial drafts of the Definitive Documents, consisting of: (i) the Settlement Agreement and Mutual Release; and (ii) the Restated Distribution Waterfall Agreement reflecting the terms set forth in this Term Sheet and any additional terms reasonably necessary to implement the agreements reflected herein.

Initial drafts of the Definitive Documents shall be circulated to Hargrove, Pettit & Sun LLP (Elaine Chow, Esq., lead counsel for Rennick; 800 South Figueroa Street, Suite 3100, Los Angeles, California 90017) within fourteen (14) days of the date of this Term Sheet — that is, on or before June 22, 2023.

Following circulation of the initial drafts, the Parties and their respective counsel shall negotiate in good faith to resolve any open issues, and the Parties shall use their best good-faith efforts to finalize and mutually execute the Definitive Documents on or before July 14, 2023. In the event that the Parties are unable to reach agreement on the Definitive Documents by such date, either Party may request the assistance of the Honorable Patricia Villareal (Ret.) to resolve any outstanding issues, with the costs of such further mediation to be shared equally between the Parties.

12. BINDING EFFECT

This Term Sheet reflects the material terms agreed upon by the Parties at and following the mediation on May 19, 2023. This Term Sheet is not itself a binding agreement and does not create enforceable obligations between the Parties. The Parties' rights and obligations with respect to the settlement shall arise only upon the execution and delivery of the Definitive Documents by all Parties thereto.

Notwithstanding the foregoing, the Parties acknowledge their mutual intention to proceed in good faith toward the execution of the Definitive Documents and to refrain from any action inconsistent with the terms set forth herein during the period between the date of this Term Sheet and the execution of the Definitive Documents. This Term Sheet may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.

ACKNOWLEDGED AND AGREED AS TO MATERIAL TERMS

MARGUERITE D. FONSECA

By: ________

Marguerite D. Fonseca, Individually and as Partner of Coastal Meridian Productions LLP

Date: June 8, 2023

DESMOND R. RENNICK

By: ________

Desmond R. Rennick, Individually and as Partner of Coastal Meridian Productions LLP

Date: June 8, 2023

CALDERWOOD & HARKNESS LLP Counsel for Fonseca

By: ________

Jeffrey Park, Esq. 725 South Flower Street, Suite 4200 Los Angeles, California 90017

Date: June 8, 2023

HARGROVE, PETTIT & SUN LLP Counsel for Rennick

By: ________

Elaine Chow, Esq. 800 South Figueroa Street, Suite 3100 Los Angeles, California 90017

Date: June 8, 2023

CONFIDENTIAL SETTLEMENT COMMUNICATION — CAL. EVID. CODE § 1152 This document is not admissible in evidence in any proceeding except to enforce the settlement. Prepared by Calderwood & Harkness LLP.

CALDERWOOD & HARKNESS LLP 725 South Flower Street, Suite 4200 Los Angeles, California 90017 Telephone: (213) 688-7400 Facsimile: (213) 688-7401
CONFIDENTIAL SETTLEMENT COMMUNICATION CAL. EVID. CODE § 1152
This document constitutes a confidential settlement communication within the meaning of California Evidence Code Section 1152 and Federal Rule of Evidence 408. It is inadmissible in any proceeding, except as necessary to enforce the terms set forth herein or in the Definitive Documents referenced below.
SETTLEMENT TERM SHEET
FONSECA v. RENNICK Los Angeles Superior Court, Case No. 23STCV01897
Following Mediation on May 19, 2023 Before Hon. Patricia Villareal (Ret.) Apex Mediation Services 633 West 5th Street, Suite 2600 Los Angeles, CA 90071
June 8, 2023
RECITALS
The following terms have been agreed upon by Marguerite D. Fonseca ("Fonseca") and Desmond R. Rennick ("Rennick," and together with Fonseca, the "Parties"), following a full-day mediation session conducted on May 19, 2023, before the Honorable Patricia Villareal (Ret.), serving as mediator through Apex Mediation Services, 633 West 5th Street, Suite 2600, Los Angeles, California 90071. The terms set forth in this Settlement Term Sheet (this "Term Sheet") are subject to the negotiation, finalization, and mutual execution of a definitive Settlement Agreement and Mutual Release, and a Restated Distribution Waterfall Agreement (collectively, the "Definitive Documents"), as more fully described in Section 11 below.
This Term Sheet addresses the Parties' dispute arising from Rennick's management of the financial affairs of Coastal Meridian Productions LLP ("CMP"), a California limited liability partnership, Employer Identification Number 83-2197644, formed on March 8, 2017. The dispute encompasses, without limitation, claims relating to excess management fees paid by CMP to Rennick Slate Ventures LLC ("RSV"), a California limited liability company, Employer Identification Number 84-3056178, an entity owned and controlled by Rennick, as well as claims relating to the improper reclassification of domestic distribution revenues generated by CMP-produced film properties from distributable revenue to advance recoupment categories.
The underlying litigation, Fonseca v. Rennick, Los Angeles Superior Court, Case No. 23STCV01897, was filed by Fonseca on January 24, 2023. Rennick filed his Answer and Counterclaim on March 6, 2023. A court-ordered stay of all proceedings was entered on April 11, 2023, pending the outcome of mediation. The Parties now wish to memorialize the material terms of their agreement to resolve all claims and counterclaims in the litigation, as well as all related disputes concerning CMP's financial affairs, on the terms and subject to the conditions set forth below.
1. SETTLEMENT PAYMENT
Rennick shall pay to Fonseca the aggregate sum of $975,000.00 (Nine Hundred Seventy-Five Thousand Dollars) (the "Settlement Amount"), payable in two installments as follows:
(a) First Installment. The sum of $600,000.00 (Six Hundred Thousand Dollars) shall be due and payable within fifteen (15) business days following the date on which both Parties have fully executed the Definitive Documents. For the avoidance of doubt, the date of execution shall be determined by reference to the later of the two signatures affixed to the Definitive Documents.
(b) Second Installment. The sum of $375,000.00 (Three Hundred Seventy-Five Thousand Dollars) shall be due and payable on or before October 15, 2023. In the event that October 15, 2023 falls on a day that is not a business day, the Second Installment shall be due on the next succeeding business day.
All payments of the Settlement Amount shall be made by wire transfer of immediately available funds to an account designated in writing by Fonseca (or her counsel, Calderwood & Harkness LLP, on her behalf) no later than five (5) business days prior to the applicable payment due date. Fonseca shall provide complete and accurate wire transfer instructions, including the name of the receiving financial institution, ABA routing number, account number, and beneficiary name, in a timely manner to facilitate payment.
In the event that any installment of the Settlement Amount is not received by Fonseca on or before the applicable due date, the unpaid amount shall bear interest at the rate of ten percent (10%) per annum, calculated on a simple interest basis from the due date until such amount is paid in full. The accrual of interest under this provision shall not constitute a waiver of any other right or remedy available to Fonseca under the Definitive Documents or applicable law, including, without limitation, the right to seek enforcement of the settlement pursuant to California Code of Civil Procedure Section 664.6 as provided in Section 6 below.
The Settlement Amount is and shall remain the personal obligation of Desmond R. Rennick, individually. Under no circumstances shall the Settlement Amount, or any portion thereof, be paid from or charged against the partnership funds, accounts, revenues, or assets of CMP. Rennick shall not seek reimbursement or indemnification from CMP for any portion of the Settlement Amount, and any attempt to do so shall constitute a material breach of the Definitive Documents.
2. RESTATED REVENUE WATERFALL
Effective as of January 1, 2023, the CMP revenue waterfall, as established in the CMP Limited Liability Partnership Agreement dated March 8, 2017, and as amended from time to time, shall be restated and amended in the Definitive Documents as follows:
(a) Management-Fee Cap Reduction. The management fee payable by CMP to RSV (or any successor, affiliate, or assignee of RSV) shall be permanently reduced from five percent (5%) to three percent (3%) of gross receipts for all current and future CMP-produced film properties. The current CMP film library consists of the following four properties: Iron Lullaby (2018), The Perdition Room (2019), Salt Wind (2020), and Nightjars (2021). The reduced 3% management-fee cap shall apply with equal force to any and all film properties produced, co-produced, acquired, or otherwise exploited by CMP after the date of execution of the Definitive Documents. For purposes of this provision, "gross receipts" shall have the meaning ascribed to such term in the CMP Limited Liability Partnership Agreement, as restated in the Definitive Documents.
(b) Restoration of Reclassified Domestic Distribution Revenues. The sum of $847,200.00 in domestic distribution revenues that were previously reclassified by Rennick (or at his direction) from "distributable revenue" to "advance recoupments" shall be restored in full to the distributable profit pool of CMP, with such restoration applied retroactively to the quarters in which the revenues were originally received, as follows:
(i) Q3 2020 — $538,200.00, attributable to domestic distribution revenues from the film Salt Wind (2020); and
(ii) Q1 2021 — $309,000.00, attributable to domestic distribution revenues from the film Iron Lullaby (2018).
The independent accountant referenced in Section 3 below shall recalculate all quarterly distributions owed to each partner for the affected periods and all subsequent periods through December 31, 2022, giving effect to the restoration of these amounts. Any net distributable amounts owed to Fonseca as a result of the recalculation shall be deemed satisfied by the Settlement Amount and shall not give rise to any additional payment obligation, and any net distributable amounts owed to Rennick as a result of the recalculation shall similarly be deemed satisfied and shall not give rise to any additional payment obligation.
(c) Consent Requirement for Future Reclassifications. From and after the date of execution of the Definitive Documents, any reclassification of any revenue of CMP from the category of "distributable revenue" to any other accounting category — including, without limitation, advance recoupments, reserves, deferred revenue, promotional credits, or any other classification — shall require the prior written consent of both Fonseca and Rennick. Any reclassification made without such prior written consent shall be void and of no effect.
(d) Satisfaction of Excess Management-Fee Claims. The Parties acknowledge and agree that total management fees invoiced by RSV to CMP from inception through December 31, 2022 amount to $2,694,500.00, and that the amount permissible under the original 5% management-fee cap applied to CMP's aggregate gross receipts of $23,220,000.00 over the same period was $1,161,000.00, resulting in excess management fees of $1,533,500.00. All claims for clawback, restitution, disgorgement, or repayment of such excess management fees shall be deemed fully and finally satisfied by the payment of the Settlement Amount set forth in Section 1 above. No further clawback, restitution, offset, credit, or other recovery shall be sought or required from Rennick, RSV, or any affiliate of either of them in connection with such excess management fees.
3. INDEPENDENT ACCOUNTANT
All waterfall calculations, partnership distributions, and related financial computations for CMP shall be administered on a quarterly basis by an independent certified public accountant mutually selected by Fonseca and Rennick in their capacities as partners of CMP.
For the initial period following execution of the Definitive Documents, Clearfield & Moss CPAs (Howard Moss, CPA, Partner-in-Charge; office located at 9100 Sunset Boulevard, Suite 220, West Hollywood, California 90069) shall continue to serve as the partnership accountant of CMP. Clearfield & Moss CPAs has served as CMP's accountant since the partnership's formation and is familiar with CMP's books, records, and financial operations. Nothing herein shall preclude the Parties from jointly agreeing to replace Clearfield & Moss CPAs with another qualified independent accounting firm at any time, provided such replacement is made by mutual written consent.
Notwithstanding the foregoing, the work of Clearfield & Moss CPAs shall be subject to the oversight and review of Tillerman Forensic Advisory LLC (Greta Sørensen, CPA, CFF, Principal; office located at 350 South Grand Avenue, Suite 1480, Los Angeles, California 90071) for the first two annual audit cycles following the effective date of the Restated Distribution Waterfall — namely, calendar year 2023 and calendar year 2024. Tillerman Forensic Advisory LLC shall have the authority to review all waterfall calculations, supporting documentation, general ledger entries, bank statements, distribution schedules, and other financial records of CMP as reasonably necessary to perform its oversight function. Tillerman's oversight role shall be limited to the two audit cycles specified above, unless the Parties mutually agree in writing to extend such oversight for additional periods.
The professional fees and expenses of Tillerman Forensic Advisory LLC incurred in connection with its oversight function shall be treated as a partnership expense of CMP and shall be capped at $40,000.00 per audit cycle (i.e., a maximum of $40,000.00 for the calendar year 2023 audit cycle and a maximum of $40,000.00 for the calendar year 2024 audit cycle, for an aggregate maximum of $80,000.00). Any fees in excess of such cap shall be borne equally by Fonseca and Rennick in their individual capacities, unless otherwise agreed in writing.
4. GOVERNANCE REFORMS
The Definitive Documents shall incorporate the following governance reforms applicable to CMP, effective immediately upon execution:
(a) Dual-Signature Requirement. Any single expenditure, disbursement, payment, or financial commitment by or on behalf of CMP in an amount exceeding $25,000.00 shall require the prior written approval of both Fonseca and Rennick before the expenditure is made or the commitment is incurred. For purposes of this provision, related or contemporaneous expenditures arising from a single transaction or series of related transactions shall be aggregated. Written approval may be given by email, provided such email is sent from the approving partner's email address of record as designated in the Definitive Documents. In the event of a time-sensitive expenditure where one partner is unavailable despite commercially reasonable efforts to reach such partner, the expenditure may be made with the approval of only one partner, provided that (i) the unavailable partner is notified in writing within twenty-four (24) hours, and (ii) the expenditure is ratified at the next quarterly review or within thirty (30) days, whichever is sooner.
(b) Quarterly Financial Reporting. CMP's independent accountant (initially, Clearfield & Moss CPAs) shall prepare and distribute to both Fonseca and Rennick a comprehensive quarterly financial-reporting package within forty-five (45) days following the end of each fiscal quarter of CMP. Each quarterly financial-reporting package shall include, at a minimum: (i) a statement of revenues and expenses for the quarter; (ii) a balance sheet as of quarter-end; (iii) a detailed waterfall calculation showing the computation of each partner's distributable share; (iv) a schedule of all management fees paid or accrued to RSV (or any successor or affiliate); and (v) a reconciliation of all bank accounts held by or on behalf of CMP.
(c) Annual Audit. CMP's books and records shall be subject to a comprehensive annual audit conducted by the independent accountant (initially, Clearfield & Moss CPAs, subject to Tillerman oversight as set forth in Section 3). The audit shall be conducted in accordance with generally accepted auditing standards, and a written audit report shall be issued and delivered to both Fonseca and Rennick within ninety (90) days following the end of each fiscal year of CMP. The cost of each annual audit shall be a partnership expense of CMP.
5. MUTUAL RELEASE
As part of the Definitive Documents, each Party shall execute a mutual general release, releasing the other Party — and each Party's respective agents, employees, attorneys, affiliates, successors, assigns, heirs, executors, and administrators — from any and all claims, demands, actions, causes of action, suits, debts, liabilities, obligations, damages, losses, costs, expenses, and attorneys' fees, whether known or unknown, suspected or unsuspected, fixed or contingent, at law or in equity, arising from or in any way related to CMP's financial affairs for the period from the inception of CMP on March 8, 2017 through and including December 31, 2022.
The mutual general release shall include an express waiver by each Party of the provisions of California Civil Code Section 1542, which provides as follows:
"A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party."
Each Party acknowledges and agrees that he or she may discover facts in addition to or different from those that he or she now knows or believes to be true with respect to the subject matter of the release, and each Party agrees that the release shall be and remain effective in all respects notwithstanding such additional or different facts, or the discovery thereof. The Parties intend that the mutual release shall be construed as broadly as possible to effectuate a full and final resolution of all disputes between them for the period specified above.
Notwithstanding the foregoing, the mutual release shall not release or discharge any obligations arising under the Definitive Documents themselves, including, without limitation, the obligation to make the Settlement Amount payments set forth in Section 1, the obligations relating to the Restated Revenue Waterfall set forth in Section 2, the governance reforms set forth in Section 4, and the confidentiality and non-disparagement obligations set forth in Sections 8 and 9.
6. DISMISSAL
Upon execution of the Definitive Documents and receipt by Fonseca of the First Installment of the Settlement Amount as set forth in Section 1(a), the Parties shall jointly file with the Los Angeles Superior Court a stipulation to dismiss LASC Case No. 23STCV01897 in its entirety, with prejudice, including Fonseca's complaint and all claims asserted therein, as well as Rennick's counterclaim as provided in Section 7 below.
Each Party shall bear his or her own attorney's fees and costs incurred in connection with the litigation, the mediation, and the negotiation and execution of this Term Sheet and the Definitive Documents. Neither Party shall seek an award of attorney's fees or costs against the other Party in connection with the dismissed action.
The stipulation of dismissal shall include a request that the Court retain jurisdiction pursuant to California Code of Civil Procedure Section 664.6 to enforce the terms of the settlement as set forth in the Definitive Documents. In the event of any dispute regarding the performance or interpretation of the Definitive Documents, either Party may apply to the Court for enforcement without the necessity of filing a new action.
7. RENNICK COUNTERCLAIM
Rennick shall dismiss his counterclaim, which was filed on March 6, 2023, and which alleges that Fonseca breached her obligations of good faith and fair dealing under the CMP partnership agreement by unilaterally retaining Tillerman Forensic Advisory LLC to conduct a forensic review of CMP's financial records without obtaining Rennick's prior consent. Such dismissal shall be with prejudice and shall be effected simultaneously with the dismissal of Fonseca's complaint as described in Section 6 above, as part of the same joint stipulation filed with the Court. The mutual release set forth in Section 5 shall encompass all claims asserted in Rennick's counterclaim.
8. NON-DISPARAGEMENT
Neither Fonseca nor Rennick shall, directly or indirectly, make, publish, or cause to be made or published any disparaging, defamatory, or derogatory statements — whether oral, written, or electronic — about the other Party in connection with CMP, the management or financial affairs of CMP, the underlying litigation (LASC Case No. 23STCV01897), the mediation, or the settlement reflected in this Term Sheet and the Definitive Documents. This non-disparagement obligation shall extend to statements made to industry participants, media representatives, investors, lenders, business associates, social media platforms, and any other third parties. Nothing in this Section 8 shall prevent either Party from making truthful statements in response to a lawful subpoena, court order, or governmental inquiry, or from providing truthful testimony in any judicial, arbitral, or administrative proceeding.
9. CONFIDENTIALITY
The terms and conditions of this Term Sheet and of the Definitive Documents, including, without limitation, the existence and amount of the Settlement Amount, shall be kept strictly confidential by both Parties. Neither Fonseca nor Rennick shall disclose any such terms to any third party, except as follows:
(a) Each Party may disclose the terms to his or her respective legal counsel, accountants, financial advisors, and tax advisors, provided that such advisors are informed of and agree to be bound by the confidentiality obligations set forth in this Section 9.
(b) Either Party may disclose the terms to the extent required by applicable law, regulation, court order, or valid subpoena, provided that the disclosing Party shall give the other Party reasonable advance written notice of such required disclosure (to the extent not prohibited by law) and shall cooperate with any efforts by the non-disclosing Party to obtain a protective order or other appropriate remedy to limit the scope of such disclosure.
(c) Either Party may disclose the terms to Ridgeline Commercial Bank (555 West 7th Street, 18th Floor, Los Angeles, California 90014), solely in connection with CMP's existing $1,400,000.00 revolving credit facility, which is personally guaranteed by Fonseca, and solely to the extent reasonably necessary to comply with Fonseca's obligations under such guaranty or to provide the bank with information regarding CMP's financial condition.
Any breach of this confidentiality provision shall entitle the non-breaching Party to seek equitable relief, including injunctive relief, without the necessity of demonstrating irreparable harm or posting a bond, in addition to any other remedies available at law or in equity.
10. RSV GOING FORWARD
RSV may continue to provide management services to CMP following the execution of the Definitive Documents, subject to the following conditions:
(a) All future invoices submitted by RSV to CMP for management services shall be subject to the reduced management-fee cap of 3% of gross receipts as set forth in Section 2(a) above. No invoice in excess of such cap shall be valid or payable.
(b) All future invoices submitted by RSV to CMP, regardless of amount, shall be subject to the dual-signature approval requirement set forth in Section 4(a) above to the extent such invoices individually or in the aggregate exceed $25,000.00 within a given quarter. For invoices of $25,000.00 or less, the standard approval processes set forth in the Restated Distribution Waterfall shall apply.
RSV shall provide a detailed description of services rendered on each invoice, including the time period covered, the applicable film properties, the gross receipts against which the management fee is calculated, and the computation of the fee amount. CMP's independent accountant shall verify that each RSV invoice conforms to the restated management-fee cap before any payment is made.
11. DEFINITIVE DOCUMENTS
Calderwood & Harkness LLP (Jeffrey Park, Esq., lead counsel for Fonseca) shall prepare the initial drafts of the Definitive Documents, consisting of: (i) the Settlement Agreement and Mutual Release; and (ii) the Restated Distribution Waterfall Agreement reflecting the terms set forth in this Term Sheet and any additional terms reasonably necessary to implement the agreements reflected herein.
Initial drafts of the Definitive Documents shall be circulated to Hargrove, Pettit & Sun LLP (Elaine Chow, Esq., lead counsel for Rennick; 800 South Figueroa Street, Suite 3100, Los Angeles, California 90017) within fourteen (14) days of the date of this Term Sheet — that is, on or before June 22, 2023.
Following circulation of the initial drafts, the Parties and their respective counsel shall negotiate in good faith to resolve any open issues, and the Parties shall use their best good-faith efforts to finalize and mutually execute the Definitive Documents on or before July 14, 2023. In the event that the Parties are unable to reach agreement on the Definitive Documents by such date, either Party may request the assistance of the Honorable Patricia Villareal (Ret.) to resolve any outstanding issues, with the costs of such further mediation to be shared equally between the Parties.
12. BINDING EFFECT
This Term Sheet reflects the material terms agreed upon by the Parties at and following the mediation on May 19, 2023. This Term Sheet is not itself a binding agreement and does not create enforceable obligations between the Parties. The Parties' rights and obligations with respect to the settlement shall arise only upon the execution and delivery of the Definitive Documents by all Parties thereto.
Notwithstanding the foregoing, the Parties acknowledge their mutual intention to proceed in good faith toward the execution of the Definitive Documents and to refrain from any action inconsistent with the terms set forth herein during the period between the date of this Term Sheet and the execution of the Definitive Documents. This Term Sheet may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.
ACKNOWLEDGED AND AGREED AS TO MATERIAL TERMS
MARGUERITE D. FONSECA
By: ________
Marguerite D. Fonseca, Individually and as Partner of Coastal Meridian Productions LLP
Date: June 8, 2023
DESMOND R. RENNICK
By: ________
Desmond R. Rennick, Individually and as Partner of Coastal Meridian Productions LLP
Date: June 8, 2023
CALDERWOOD & HARKNESS LLP Counsel for Fonseca
By: ________
Jeffrey Park, Esq. 725 South Flower Street, Suite 4200 Los Angeles, California 90017
Date: June 8, 2023
HARGROVE, PETTIT & SUN LLP Counsel for Rennick
By: ________
Elaine Chow, Esq. 800 South Figueroa Street, Suite 3100 Los Angeles, California 90017
Date: June 8, 2023
CONFIDENTIAL SETTLEMENT COMMUNICATION — CAL. EVID. CODE § 1152 This document is not admissible in evidence in any proceeding except to enforce the settlement. Prepared by Calderwood & Harkness LLP.

SETTLEMENT TERM SHEET

RECITALS

ACKNOWLEDGED AND AGREED AS TO MATERIAL TERMS

MARGUERITE D. FONSECA

DESMOND R. RENNICK

Record

Parties

Dates

Amounts