**Exhibit 10.3**

 

May 30, 2005

 

**VIA EMAIL**

 

Gray Fredrickson

John Simonelli

Graymark Productions, Inc.

 

**Re:  “FirstLook” Production and Distribution Partnership/Joint Venture**

 

Dear Gray and John

 

Pursuant to your conversations with BarryGordon and myself, and pending final review, the following are the terms andconditions under which Image Entertainment would enter into a “First Look”Production and Distribution partnership with Graymark Productions Inc. for thedevelopment of various types of Graymark branded properties to be produced oracquired by the venture:

 

**First Look:**Image will have afirst look on all projects up to $2,000,000 from Graymark Productions Inc.  The parties anticipate the initial projectshereunder will have budgets up to $500,000. If Image passes on any projects, Graymark shall have the right toproduct the projects with another partner and/or distributor without anyfurther obligation to Image.

 

**Newly Produced Features (up to 50% in Image guarantees):**  Image would provide up to50% of each production budget for mutually agreed upon projects.  Graymark will finance the remaining balanceof each production budget for the mutually agreed upon projects.  Graymark shall be the primary creative driveron all projects.

 

**Prequel – Sequel Rights:**  Image retains the right of first and lastnegotiation for any remake, prequel or sequel project derived from any projectcontained herein.  Should the project(s)be of a larger scope and budget than Image is comfortable partnering on, theparties agree to provide an equitable profit participation for Image regardlessof who is financing or distributing.

 

**Output Term:* ***Three (3) years selection term, beginning on the complete Deliveryof the 1st program hereunder, Image will have the exclusive optionto select any projects from Graymark.  Atthe end of the 2nd year of the Output Term the paties shallnegotiate in good faith to extend the Output Term for an additional 2 years.

 

**Distribution Term:**  20years

 

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**Territory:**  The world.

 

**Exclusive Distribution Territory and Rights: **Imagewill be entitled to exclusively distribute and exploit throughout the world allforms of home video and audio (including soundtracks) currently available orhereinafter invented, all forms of Digital exploitation (as defined below), allnon-theatrical and airline passenger rights (as defined below).  Graymark and Image shall mutually agree onthe method of distribution outside of North America for all rights in all othermedia.  Image and Graymark will retaintheir profit participation for all distribution, less any third partydistribution fee.  For Domestictheatrical exploitation please see below.

 

**Home Video and Audio Formats Distribution Fee:**  All formats of home videoand audio currently available or hereinafter invented; Image will receive a 25%distribution fee from gross domestic sales and a back end profit participationfrom all sales worldwide after a distribution fee (as detailed herein). Theactual back-end profit participation percentage shall be equal to thepercentage Image funds said project after mutually approved expenses.  For example, if Image guarantees 50% of abudget, Image will be entitled to its 25% distribution fee (for domestic sales)and 50% of back –end home video profits (for all sales worldwide; subject tothe cross recoupment as defined herein). For revenue share units, Image and Graymark will split profits 50/50after recoupment and expenses.  Allinternational revenue shall be split according to the profit participationabove.

 

**Digital Content Distribution:**Image, through its subsidiary Egami, shall have worldwide distribution rightsfor secure digital downloading or streaming of still photos, clips or completeprograms to computers, portable devices, mobile phones or other similar devicesthat utilize industry standard transmission technologies currently available orhereinafter invented.  The parties willsplit profits 50/50 after expenses and subject to the cross-recoupmentprovision herein.

 

**Broadcast Formats Distribution Fee: **The parties shall mutuallyagree on exploitation of the broadcast rights. The parties shall receive profitparticipation equal to the same percentage of the budget guarantee.  Such profit participation shall be from revenue,less any third party fee and all expenses. For example if Image and Graymark each guarantee 50% of a budget, Imageand Graymark will split the profits, after expenses, 50/50.  This shall be subject to the cross-recoupmentprovision herein.

 

**International Exploitation Distribution Fee: **Theparties shall mutually agree to the exploitation of all rights not otherwisegranted to Image hereunder.  The partiesshall receive profit participation equal to the same percentage of the budgetguarantee.  Such profit participationshall be from revenue, less any third party fee and all expenses.  For example if Image and Graymark eachguarantee 50% of a budget, Image and Graymark will split the profits, afterexpenses, 50/50.  This shall be subjectto the cross-recoupment provision herein.

 

**Theatrical Exploitation: **Distribution of the programs theatrically outside of North Americashall fall under the International Exploitation paragraph above. In the eventthat international theatrical distribution requires home video rights to bebundled with theatrical rights for a specific territory, the home video rightsfor that specific territory shall fall under the International 

 

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Exploitation paragraph.  If the parties mutually agree to a NorthAmerican theatrical release, the parties shall share equally in all expensesand in all profits after expenses for theatrical distribution in North America.

 

**Non-Theatrical: **All non-theatrical including hotels, institutions, military establishments,embassies, inflight and other vessel entertainment.  Unless serviced via standard packaged mediadistribution, Image and Graymark will split all revenues, after expenses, 50/50subject to the cross-recoupment provision herein.

 

**Airline Passenger Rights:* ***Image will have the right to license airlines for passenger use onportable DVD players aboard commercial flights. Image and Graymark will split all revenue, after expenses, 50/50 subjectto the cross-recoupment provision herein.

 

**Delivery:**  Delivery will be a Digibeta, high definitionvideo master and film elements (if theatrical); all necessary artwork to createpackaging and a two-channel stereo and if applicable, a 24 bit 5.1 surroundaudio mix.  Delivery for audio will be aCD-R for compact disc release.  Deliveryfor new audio formats (SACD, DVD-A ect.) will be mutually determined.

 

**Sponsorship, Subsidies, Tax Benefits: **Along with Graymark, Imagewill have the right to seek sponsorship, subsidy, and tax benefit opportunitiesfor the products hereunder.  Image andGraymark will use 100% of sponsorship, subsidy, and tax benefit monies receivedto recoup production expenses.  Firstsponsorship, subsidy, and tax benefit monies received will be allocated andrecouped pro-rata against each partner’s percentage of commitment to theoverall production budget.  Once theventure has recouped its production expenses, the monies received fromsponsorship, subsidy, or tax benefit will be split 50/50.

 

**E&O Insurance:**  Graymark will be responsible for obtainingE&O insurance for all projects.  Thecost will be considered in the production budget.

 

**Returns: **Image will maintain reasonable reserve for returns.

 

**Cross-Recoupment: **Image and Graymark will earn 25% distribution fees in theirterritories and respective rights (except the distribution fee shall only be20% for broadcast in North America), recoup mutually approved directdistribution expenses related thereto and then recoup their respective share ofeach film’s budget.  If one party isunrecouped, i.e. has not recovered its share of the production budget afterfees and expenses, and the other party is recouped, then the unrecouped partywill have the right to a full distribution of proceeds, after mutually approvedfees and expenses, from all territories and rights until both are completelyrecouped.

 

**Pictures Uncrossed:**  The pictures hereunder will not be crossedagainst each other for purposes of cross recoupment.

 

**Copyright:**  Image and Graymark will share the copyrighton all newly produced programs according to the percentage guarantee of eachparty.  . For example if Image and Graymark each guarantee 50% of a budget, Imageand Graymark will share the copyright 50/50.

 

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**Merchandising: **Image will be entitled to merchandising profits for each project;Image will receive its pro-rata profits equal to the same percentage budgetguarantee.  For example, if Imageguarantees 50% of a budget, Image will be entitled to 50% of merchandisingprofits.  The parties shall mutuallyagree upon a strategy for the merchandising exploitation.

 

**Guarantee/Project Funding:**  Image will fund all newly produced projectsas follows: 20% of guarantee on approved production budget throughpre-production, 60% of guarantee through the physical shooting schedule, and20% through the post production process.

 

**Graymark Branding/Image Corporate Recognition:** All projects will be “branded”, marketed, and packaged with theGraymark imprint and will also include the Image logo on all packaging,collateral materials, ect.  All projectswill be produced by Graymark and Image will have a mutually agreed upon “Producer”credit in the completed projects.

 

**Buy/Sell Provision:**  In the event that either party decides tosell their rights to the programs hereunder, the other party shall have a “firstlook” right as well as a “last/matching right” to the purchase of such rights.

 

In the event the foregoing meets with yourapproval, please sign below.  **Please note that by doing so, you are entering into a binding,short-form agreement with Image, which will govern the relationship between theparties until such time (if ever) that a long-form agreement between theparties is fully negotiated and executed, which the parties agree to use goodfaith efforts to conclude within a reasonable time period after full executionhereof.**

 

We look forward to creating an excitingbusiness venture with you and your group.

 

 
|   | Best Regards,                         |
|--------|---------------------------------------|
|   |                                  |
|   |                                  |
|   | Dennis H. Cho,                        |
|   | SVP Business Affairs, General Counsel |

 

 

**THE ABOVE IS ACKNOWLEDGED AND AGREED**

 

**GRAYMARK PRODUCTIONS , INC.**

 

 
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