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Clarius Capital Film Financing Overview

Clarius Capital provides subordinated debt (mezzanine) financing for experienced producers of feature
length motion pictures, with production budgets in the $10 million to $20 million range. Clarius also
provides $18 million of marketing financing (prints and advertising--P&A). This holistic approach to film
production and marketing financing allows independent producers to secure wide-release domestic
distribution agreements on favorable terms. Further, we structure each transaction so that our respective
interests are aligned. This fair and transparent approach, rare with studio financed productions, assures
that any profit participation is shared proportionately.

Subordinated Debt (Mezzanine) Financing Collateral Enhancement


In collaboration with Imperial Capital Banks Entertainment Finance group, in Los Angeles, Clarius can
provide collateral assets to the bank on behalf of the Producer/Borrower, which will facilitate a super gap
loan of up to 50% of the production budget. This is in addition to the standard gap loan that the bank is
able to provide, which is limited to 20% of the production budget. Hence, producers can secure as much
as 70% of the production budget through a combination of bank and Clarius mezzanine (or gap)
financing. The bank will also lend against government tax inducements and foreign territory minimum
guarantee licensing contracts, bringing the bank loan up to 100% of the production budget in most cases.

P&A Funding
Clarius Capital can contribute a substantial portion of the films P&A budget, typically as much as $18
million. As a result, Clarius is able to secure favorable distribution agreements on behalf of the
production, with a guaranteed release on at least 1,500 screens domestically. Essential to our marketing
strategy is the seamless integration into the story of global brands, which are willing to contribute
additional co-marketing resources to further promote awareness of the film. Clarius works closely with the
producers, director, and writer to selectively include appropriate global brands into the script. Clarius
handles these inputs with the utmost sensitivity. It would be self-defeating for the brand elements to
interfere overtly with the creative integrity of the story; modern audiences are sophisticated and highly
literate to subversive marketing. To secure for the production the optimum brand support, Clarius requires
of the producer an exclusive mandate for all brand integration for the film.

Production Budget Financing Summary:


Example $20 million Production Budget
SOURCES

AMOUNT

Government Tax Incentives

$ 3,600,000

18%

Bank Financed Pre-Sales Contracts

$ 2,400,000

12%

Bank Gap

$ 4,000,000

20%

Clarius Mezzanine Super Gap

$ 8,000,000

50%

Total Production Budget

$20,000,000

100%

Total P&A Expenditure (Clarius)

$18,000,000

100%

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Clarius Capital Mezzanine Financing Overview


Clarius Capital manages collateral assets that help facilitate production financing for experienced
independent filmmakers seeking a production loan from a commercial film-lending bank.
HERES HOW IT WORKS: Clarius pledges, on behalf of the film producer (the Borrower), cash collateral to
a film production lender, such as Imperial Capital Bank, for up to 50% of the film production budget. By so
doing, the bank is able to reduce its dependence on minimum guarantee pre-sales contracts as a form of
collateral since Clarius will have provided substitute collateral acceptable to the bank.
WHY THIS IS BENEFICIAL FOR THE PRODUCER: There are two primary benefits: First, if there are insufficient
pre-sales contracts to qualify for a loan that covers the entire production budget, then the producer must
either reduce the budget, contribute equity to cover the shortfall (the gap), or delay the production until
adequate pre-sales contracts have been secured. This frequently presents a problem when talent has
committed to a specific but limited time schedule. Second, a producer can usually negotiate more
lucrative terms for territorial pre-sale contracts if the film is already shooting. To begin principal
photography, however, a producer needs a bank loan secured by collateral, which are usually the presales contracts. This Catch-22 is solved by Clarius. The producer can delay selling most of the territory
rights until the film has secured a domestic distribution deal and has generated public awareness through
its marketing and publicity efforts.
The silo on the left in the graph below illustrates the collateralized assets against which the bank will
make a production loan. The other silos are the respective sources of collateral. The marketing budget is
sourced by Clarius, from its cadre of global brand relationships and private investors.

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CLARIUS ASSUMES THE SALES RISK. Clarius relies on the integrity of the sales estimates in unsold
territories when assessing the risk associated with pledging its resources to the bank, on behalf of the
Borrower. Clarius requires that the unsold territory sales estimates be at least 150% of the combined gap
loan amount, as a safety margin.
For example, if the production budget were $20 million, the Borrower could qualify for a total gap loan
(bank and Clarius combined) of $12,000,000, but only if there are unsold territory sales estimates of at
least $18,000,000 million (12 x 1.5). As the hired sales company converts these sales estimates to actual
territory license agreements, Clarius Capitals collateral exposure is reduced accordingly. If the actual
sales results are less than estimated, including the required safety margin, then the Bank applies Clarius
Capitals pledged collateral against payment of the production loan.
THE TERMS AND CONDITIONS OF A SUPER GAP LOAN. All production loans, including the Clarius-supported
super gap component, are originated and administered by the film lending bank, typically Imperial Capital
Bank. The Borrower must negotiate standard production loan terms directly with the Bank. For providing
additional collateral, Clarius is compensated by the Borrower for its risk as follows:

Clarius Commitment Amount: Up to 50% of the production loan, but typically not more than about
$10 million per transaction.
Clarius Gap Fee:

A fee equal to twelve percent (12%) of the Clarius Commitment


Amount, included in the production budget, payable on the closing
date of the Loan and may be paid with the proceeds of the initial Loan
advance.

Clarius Back-End Fee:

A quarterly fee equal to two percent (2%) of the Clarius Commitment


Amount at risk, accruing at the beginning of each quarter, which shall
be payable after all obligations owing to the Bank.

Legal and Due Diligence Fee:

Actual legal expenses, but capped at $45,000, of which half is


payable upon execution of the Bank Commitment Letter and the
balance payable on the closing date of the Loan and may be paid with
the proceeds of the initial Loan advance, and included in the
production budget.

Profit Sharing:

Clarius will be entitled to participate in the films profits, if any,


calculated on the same basis as the producers profit interest. Clarius
caps its profit participation at 50%, including its interest from an
investment in the marketing financing.

Other Provisions:

The Borrower will also contract with Clarius Pictures for purposes of
monitoring its collateral contribution, the international sales efforts,
production, marketing, (including research, positioning, and publicity),
and domestic distribution. The agreement will include reimbursement
for travel, lodging, and per diem during principal photography, at the
producers budgeted rate. Terms of the production credit are
negotiable, but typically include one Producer credit and two
Executive Producer credits on a shared card, and an animated
production company credit in the opening credits. Clarius will be
entitled to a reasonable number of invitations to all screenings,
premieres, ceremonies, film festivals, as well as promotional film
posters and DVDs when commercially available.

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INSTRUCTIONS TO PRODUCERS
THE PROCESS OF QUALIFYING AND SECURING PRODUCTION AND MARKETING FINANCING FROM CLARIUS
To qualify for production and marketing financing, with credit enhancement provided by Clarius Capital,
you must first assemble the following materials to be submitted to Clarius and a second set of materials to
be submitted by Clarius Capital to Imperial Capital Bank, or such other bank as mutually agreed:

Final Production Budget


Story Synopsis
Screenplay and the related chain of title documents
Location information and documents supporting any government tax inducements
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Copies of existing pre-sale contracts and signed Notice of Assignments by the distributors
Sales estimates for unsold territories and info on Sales Agent, who will also need the following:
o Principal Cast list and related resumes
o Director and related resume
o Producers and related resumes
Info on selected Completion Bond company

The completion bond company, which the bank requires as a condition to making a production loan,
requires similar documentation. You should familiarize yourself with these requirements in advance by
exploring: Documents & Info We Require From You, http://www.ffi-web.com/documents/index.html
After direct discussions with the bank, assuming the materials submitted conform to the banks lending
guidelines, the bank will issue a term sheet, a copy of which should be provided to Clarius Capital. The
banks term sheet will include a Conditions Precedent clause that will set forth the general terms of the
Clarius collateral pledge.
Concurrently with your discussions with the bank, Clarius will review its copy of the submitted materials
and begin preparing its own term sheet, setting forth the general terms of its collateral pledge. Clarius will
leverage the banks own due diligence procedures and concentrate its independent analysis on the
integrity of the sales agent and the validity of the sales estimates for unsold territory rights.
Upon approval of the loan by the banks credit committee, the bank will issue a commitment letter.
Subject to successful completion of due diligence and review of the transaction documentation, Clarius
will provide directly to the bank the collateral, in the form of a cash deposit, required to secure the super
gap loan and equity. The Borrower and Clarius will execute a mezzanine financing agreement, along with
any other documents required to memorialize the agreement between the parties.
From the time the producer submits the completed package of materials to the bank and the time the loan
is approved and actually funded is typically about three to four weeks. The velocity of the process is
largely dependent on the producers ability to be responsive to all data requests.
For further information about a super gap loan enhanced by Clarius Capital, along with P&A funding
support, please contact:
William Sadleir
Clarius Capital, LLC
310-360-7000
bill@clariuscapital.com
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A minimum guarantee pre-sales contract from at least three primary territories is required. Primary territories include
United Kingdom, Germany, France, Italy, Japan, Australia, Spain, Benelux, Scandinavia, Canada, and the United
States.