[EXPORT-IMPORT BANK OF THE UNITED STATES]{.smallcaps}

**FILM PRODUCTION GUARANTEES**

> Why we support independent film production page 1
>
> Overview of independent film production lending page 2
>
> Comparison of our Working Capital & Film Production Guarantees page 4
>
> Benefits for producers (How Producers Can Utilize our Program) page 7
>
> Benefits for lenders page 8
>
> Key features page 10
>
> Documents and Procedures page15
>
> Notes page 19

WHY WE SUPPORT INDEPENDENT FILM PRODUCTION

Our Film Production Guarantee Program is designed to support the
financing of independent film[^1] production \-- a natural fit between
our capabilities (assuming the credit risk of foreign buyers) and our
mission (supporting U.S. jobs through exports.)

-   **Our Capabilities**: Independent film production lending relies
    primarily on foreign (and occasionally, U.S.) distribution
    contracts, executed prior to, or during, the production period, as
    the sole source of repayment. We typically assume foreign credit
    risk related to export sales through insurance and guarantees. Our
    Film Production Guarantee assumes a portion of the payment risks
    associated with distribution contracts, thus encouraging the lender
    financing of independent films.

-   **Our Mission:** By supporting more independent film production, our
    Film Production Guarantees support the entertainment jobs maintained
    and created by the independent film sector:

    -   According to one report[^2], the independent film industry
        directly creates or maintains about 150,000 U.S. jobs annually
        with a combined payroll of \$2.5 billion. Furthermore, according
        to a survey conducted by KPMG Peat Marwick, AFMA[^3] member
        companies generated over \$2.3 billion in foreign sales in 1998.

    -   The Film Production Guarantee Program also provides limited
        benefits in countering foreign government economic incentives
        designed to lure U.S. film production abroad ("runaway
        production".) Our guarantee is only available if at least half
        of the costs of production relate to U.S. content[^4]. In some
        cases, taking advantage of foreign incentives might mean that
        the film would not meet our U.S. content requirements. In such
        cases, the producer would need to weigh the advantages of our
        Guarantee against the advantages of the foreign incentives.

# OVERVIEW OF INDEPENDENT FILM PRODUCTION LENDING

Unlike the production of major studio films, independent film production
relies heavily on bank financing. This may be supplemented by equity
contributed by investors and by foreign government economic incentives.
Bank production loans rely primarily on payment of foreign distribution
contracts concluded prior to the loan due date for their repayment.
These distribution contracts give distributors the right to exploit the
film (in various media) in their geographic territory for a fixed period
of time. Such contracts stipulate a *minimum guaranteed amount* that the
distributor agrees to pay *unconditionally* for the distribution rights.
While there may be a down payment, most of the amount becomes due when
the film negative is made available to the distributor, usually by
delivery to a bonded laboratory in its country.

Producers use sales agents to obtain these distribution contracts, and
then assign the contracts to the lender as collateral for repayment of
the production loan. When the lender's determination of the collateral
value of contracts already concluded is sufficient, the lender may
commit to finance the film. In determining the collateral value, many
lenders value contracts with distributors in developed countries at (or
near) the *minimum guaranteed amounts* (less any down payments), while
valuing contracts with distributors in developing countries at deep
discounts to their *minimum guaranteed amounts*, or granting them no
collateral value at all.

In many cases, the amount of the loan required (including reserves for
interest accruals) will be greater than the collateral value of existing
contracts. Despite this collateral "gap", lenders will often commit to
the loan based on a sufficiently high estimate of *minimum guaranteed
amounts* related to expected contract sales of unsold geographic
territories. (Foreign sales agents are instrumental in providing these
estimates.) Lenders charge an additional "gap finance fee" (e.g., 10%
flat on the amount of the "gap") for assuming the risk that additional
contracts may not materialize or cumulate to an amount necessary to
close the collateral gap. Once the film is completed and delivered, the
distributors are obligated to pay the balances due on their contracts.
As a result of assignment of these contracts, payments will be made
directly to the lender to repay the loan.

The three major risks involved in this specialized form of lending are:

-   **Performance risk**: The risk that the film will not be completed
    on time or within budget and delivered to the distributors is
    usually assumed by a special entity known as a *completion
    guarantor*, which provides a completion guarantee for a fee based on
    the loan amount. The completion guarantor approves the budget,
    handles disbursements, and in case of potential delays or overruns,
    has the option of terminating production and paying off the loan, or
    paying the additional costs (including interest for completion
    delays) out-of-pocket.

-   **Marketing risk:** The risk that the gap will not be filled prior
    to the loan due date by concluding contracts of sufficient value on
    the unsold territories is usually borne by the lender. The lender
    may lay off some of this risk by purchasing specialized insurance,
    if available, although we require the lender to retain at least
    one-half of this risk for its own account (Minimum Lender Retention)
    in order to maintain prudent lending practices.

-   **Credit risk:** The risks that distributors will not pay the
    balances on their contracts once the film is made available to them
    due to commercial causes (e.g., bankruptcy or liquidity problems) or
    political events (e.g., inability to obtain U.S. dollars for
    payment) are risks that we are assume under our Film Production
    Guarantee.

COMPARISON OF OUR Working Capital & FILM PRODUCTION Guarantees

Although both our Working Capital Loan Guarantee Program and our Film
Production Guarantee Program support pre-export financing, the types of
lending are different, and so are our guarantees:

-   **Underwriting Differences**: Export working capital loans are
    usually repaid from the borrower's operating cash flows, including
    the collection of foreign accounts receivable, but can be also
    repaid from other balance-sheet related cash flows, such as the sale
    of assets or other sources of external finance. In contrast,
    repayment of film production loans, usually comes solely from
    amounts due under international distribution contracts once the film
    has been delivered (the borrower has no operating cash flows or
    other assets to which the lender can look for repayment.) Hence,
    underwriting for the two Programs is quite different:

    -   Working capital guarantees are underwritten with a focus on the
        borrower's financial statements and general credit-worthiness as
        well as the quality of the collateral. Underwriting is performed
        up-front, prior to approval of the guarantee.

    -   Film production guarantees are underwritten by focusing solely
        on the quality of the collateral (distribution contracts).
        Underwriting is approved up-front and periodically thereafter as
        new distribution contracts are executed.

-   **Collateral Differences:**

    -   [Unearned Receivables.]{.underline} Receivables under film
        distribution contracts are different than typical working
        capital accounts receivable in that the bulk of the receivable
        amounts are not earned until the film negative is delivered,
        usually to a bonded laboratory in the country of the
        distributor.

    -   [No Credit Extended.]{.underline} Generally, export sales
        financed under working capital loans involve credit terms,
        whereas the usual terms under film distribution contracts are
        cash against delivery of the film negative.

    -   [Limited Performance Risk.]{.underline} Working capital lending
        usually involves a degree of exporter performance risk, whereas
        in film financing, the completion and delivery of the film to
        the distributors is guaranteed by a completion guarantor.

    -   [Single Loan for Export & Domestic Sales]{.underline}. Under our
        Working Capital Program, lenders typically supplement the loan
        for which we are providing our guarantee, and which is secured
        by export-related collateral, with a second working capital
        loan, secured by collateral related to domestic sales. Each loan
        has a first priority lien on its primary collateral and is
        cross-collateralized with the other through a second priority
        lien on the non-primary collateral.

> In contrast, only a single loan structure is workable for film
> production lending, with security provided by a first priority lien on
> all distribution contracts --including any domestic contract,[^5]
> should there be one.

-   **Borrowing Bases v. Collateral Base**

    -   Under our Working Capital Guarantee Program, we use a borrowing
        base that lists eligible collateral and their associated
        discount factors (advance rates) to control disbursements. The
        amount outstanding under the loan should not exceed the
        borrowing base amount -- if it does, the borrower must repay an
        amount equal to the excess.

    -   Under our Film Production Guarantee Program, we use a "Coverage
        Base" that lists eligible collateral and their associated
        discount factors (Applicable Percentages). Rather than limiting
        disbursements, the Coverage Base determines our maximum
        liability under the Guarantee. \[Once the lender commits to
        finance production of a film, there is no sense in trying to tie
        disbursements to the amount of the collateral: unless the film
        is completed, the collateral will have no value --the
        distributors have no obligation to pay unless and until the film
        is delivered.\]

```{=html}
<!-- -->
```
-   **Differences in Loss Sharing and Lender Risk Retention**:

    -   Under our Working Capital Loan Guarantee Program, we cover 90%
        of the outstanding loan balance and the lender must remain at
        risk for the remaining 10% \[However, under the Delegated
        Authority Program, we allow lenders to separately collateralize
        the 10% retention.\]

    -   Under our Film Production Guarantee Program, both the amount
        that we guarantee and the amount of risk that the lender must
        retain for its own account (Minimum Lender Retention) depend
        upon both *our* valuation of the collateral (Coverage Base
        Amount) and the amount outstanding under the loan:

        -   If the Coverage Base Amount[^6] is equal to our greater than
            90% of the principal amount outstanding (i.e., the
            outstanding amount is at least 90% supported by the
            collateral), the guaranteed amount is 90% of the outstanding
            loan balance. The lender is required to remain at risk for
            the remaining 10%.

        -   If the Coverage Base Amount is less than 90% of the
            principal amount outstanding, the guaranteed amount is the
            Coverage Base Amount -- we do not cover the "gap" between
            our discounted valuation of the collateral (Collateral Base
            Amount) and the amount outstanding. In this case the Minimum
            Lender Retention is equal to one-half of the excess of the
            outstanding loan balance over the Coverage Base Amount
            (i.e., one-half of the collateral "gap"). In other words, we
            do not want more than one-half of the gap amount laid-off
            with third parties in order to ensure lender discipline.

```{=html}
<!-- -->
```
-   **Miscellaneous Differences**:

    -   **Eligible Lenders**: Participation in the Film Production
        Guarantee Program is limited to those lenders that can
        demonstrate substantial experience in film production lending,
        using foreign distribution contracts as collateral.

    -   **U.S. Content:** While both Programs require 50% U.S. content,
        this concept is defined somewhat differently under each Program.

    -   **Shipping from the U.S**.: While exports supported under the
        Working Capital Loan Guarantee Program must be shipped from the
        U.S., the Film Production Guarantee Program places no
        restrictions on where filming (production) occurs.

    -   **Capitalized Interest**: Since borrowers under the Film
        Production Guarantee Program have no operating cash flow to rely
        upon, interest accrued up to the due date is capitalized and
        financed from interest reserves included in the loan commitment
        amount.

# BENEFITS FOR PRODUCERS

-   **Improved Access to Lender Finance:** Through our Film Production
    Guarantee, we assume a portion of the credit risks relating to your
    distribution contracts, thereby encouraging lenders to:

    -   Finance films that they might otherwise refrain from financing
        due to concerns about receiving payment from overseas
        distributors or concerns about their exposure with certain
        distributors or geographic areas;

    -   Commit to finance films sooner, rather than waiting for
        additional distribution contracts to be executed; and

    -   Increase overall lending to the independent film sector, since
        the U.S. Government is effectively guaranteeing a portion of
        their exposure to international distributors.

-   **Affordability:** We charge a flat 0.5% fee on the amount of the
    loan commitment. To the extent that our Guarantee effectively
    enhances the overall value of the initial basket of distribution
    contracts at the time of loan commitment, the Guarantee may save you
    money in "gap" financing fees. If the amount of the "gap" is reduced
    by only ½ of 1% of the total loan amount as a result of enhancement,
    the Guarantee can essential pay for itself.

# HOW PRODUCERS CAN UTILIZE OUR PROGRAM

# 

# Independent film producers should contact an experienced film production lender. Only lenders can apply for a guarantee and they must first enter into a Master Guarantee Agreement with us. Many members of AFMA's ([www.afma.com](http://www.afma.com/)) Affiliated Financial Institutions may have the requisite experience to participate in this Program. So far, we have concluded (or are in the process of concluding) Master Guarantee Agreements with the following lenders:

# 

# The Lewis Horwitz Organization, a division of Southern Pacific Bank

1840 Century Park East, Ste. 1000

Los Angeles, CA 90067-2101

Phone: (310) 275-7171 Fax: (310) 275-8055

Comerica Entertainment Industries (Comerica Bank -- California)

9920 S. La Cienega Blvd., Ste. 1010

Inglewood, CA 90301

Phone: (310) 417-5449 Fax: (310) 417-5644

**BENEFITS FOR LENDERS**

-   **Protect Yourself Against Credit Risk:** Our Film Production
    Guarantee effectively protects you against defaults by foreign (and
    U.S.) distributors, whether the cause of the default is due to
    commercial reasons (such as bankruptcy and liquidity problems) or
    political events (including inability of a foreign distributor to
    legally obtain U.S. dollars to make payment). Our Guarantee
    effectively covers up to 90% of nonpayment risk, depending upon our
    risk classification of the distributor[^7].

-   **Exceed Exposure Limits, Leverage Your Capital:** Our Guarantee is
    backed by the full faith and credit of the U.S. Government. To the
    extent that we effectively assume a portion of the repayment risk on
    distribution contracts securing your loan, you are replacing
    distributor risk with U.S. Government risk. This may allow you to
    exceed (internal or external) exposure limits with respect to
    particular distributors, countries or geographic areas.

```{=html}
<!-- -->
```
-   **Reduce the "Gap" Element in Your Loans:** To the extent our
    Guarantee enhances the valuation of collateral backing your loan,
    you may be able to increase your valuation of the collateral,
    thereby reducing the need for "gap" finance. \[Gap usually refers to
    the shortfall in collateral value as compared to the loan commitment
    amount.\] In particular, we effectively cover 58.5% of the credit
    risks of our *secondary* distributor risk class. If you normally
    (without our Guarantee) value receivables from such distributors at
    a lesser amount, our Guarantee should enhance the value of this
    class of collateral. For illustration, we provide an example[^8] of
    the benefits of collateral enhancement.

-   **Letters-of-Credit:** In addition to straight production financing,
    our Guarantee documentation also allows for acquisition financing
    via letters-of-credit.

-   **No Minimum or Maximum Loan Amount**: We place no minimum or
    maximum on the amounts of the loans we guarantee, although loans in
    excess of \$10 million will take longer to process and will come
    under greater scrutiny as to why U.S. Government support is needed.

-   **No Limit on Overseas Filming:** We do not restrict where filming
    takes place, but require that at least half of the budgeted
    expenditures of production qualify as U.S. content[^9].

-   **Flexible Payment Terms:** Our Guarantees provide lenders with the
    flexibility to extend the loan's due date up to a maximum of 240
    days without our prior approval, but charge an additional fee for
    such extensions.

-   **No Restrictions on Use of Foreign Government Incentives:** So long
    as the film meets our U.S. content requirements, we have no
    restrictions on taking advantage of foreign government financial
    incentives, such as production credits and tax incentives.

-   **No Restriction on Gap Financing:** We place no restrictions on the
    use of "gap" financing, by which we mean the practice of making a
    loan commitment where the full commitment amount is greater than the
    value of the initial collateral. Our Guarantee coverage is limited
    to that portion of any loss that is fully supported by our valuation
    of the collateral (i.e., the guaranteed amount is the lesser of 90%
    of the outstanding loan balance or the Coverage Base Amount). Our
    requirement of Minimum Lender Retention, however, is designed to
    limit the imprudent use of "gap" financing.

-   **Affordability:** We charge a flat 0.5% of the amount of your loan
    commitment, regardless of term. To the extent that our Guarantee
    allows you to increase your valuation of the collateral, thereby
    decreasing any "gap" amount, your borrower may be able to save on
    fees[^10] related to "gap" finance.

-   **Quick Turnaround:** We anticipate a fairly rapid turnaround on
    requests for Guarantees on individual film production loans.

-   **Flexible U.S. Content Definition:** In order to qualify as U.S.
    content for meeting our 50% minimum requirement, expenditures for
    personal services, such as acting, set building, filming, directing,
    *must* be performed by U.S. citizens or permanent legal residents.
    However, expenditures certain "key talent" that does not meet the
    U.S. citizen/resident requirement may still qualify as U.S. content,
    provided that the amounts are subject to U.S. federal income tax.

**KEY FEATURES**

-   **Eligible Lenders:** Guaranteed lenders:

    -   Must be financially viable and able to perform;

    -   Must have substantial experience in lending secured primarily by
        international distribution contracts for the purpose of film
        and/or television programming production. Experience of
        management obtained at lenders other than the applicant can
        count towards this requirement;

    -   Should have a distinct division or business unit set up
        primarily for the financing of film and/or television
        programming production; and

    -   Can be U.S. or foreign, but must have at least a U.S. presence.

> We evaluate lenders' eligibility on the basis of information submitted
> in the *Lender Profile*.

### **Eligible Films:** Films must be: 

### **Feature-length theatrical motion pictures** (i.e., episodic television programs or non-feature length motion pictures do not qualify) intended for exploitation worldwide through various motion picture distributors. 

### **Independent in nature**, which means: 

### Not produced by a Major Studio[^11]; 

### For which less than 50% of the Production Budget is being furnished or guaranteed, directly or indirectly, by a Major Studio; 

### For which less than 50% of the aggregate receivables are due from Major Studios (so long as the 50% limit is not violated, the borrower can enter into contracts with Major Studios or distributors owned or controlled by Major Studios); 

### **Meet our U.S. Content Requirements**: At least 50% of the budgeted production expenditures should qualify as U.S. content[^12]. There is no restriction on the geographic (U.S. or overseas) location of film production or the duration of film production in any particular site. The borrower must fill out a *U.S. Content Certificate*. Provided that the film meets our U.S. content requirements, there are no restrictions limiting the borrower from taking advantage of foreign government incentives, such as production credits and tax incentives.

### **Export-Oriented**: At least 50% of the value of the film receivables are derived from the licensing and distribution of the film in territories outside the United States; 

-   **Eligible Borrowers** are single purpose, bankruptcy-remote
    entities organized to produce a single film.

-   **Type of Financing:** We will consider both:

    -   Direct disbursements loans involving a completion guarantee; and

    -   Film acquisition loans where the lender issues a
        letter-of-credit on behalf of the borrower for the benefit of a
        licensor or supplier of the borrower.

-   **Coverage Base Schedule/Coverage Base Amount:** The Coverage Base
    Schedule (Annex A to the Loan Authorization Agreement) is a document
    that lists all of the film's distribution contracts, the "eligible"
    receivable amount of each contract and the discount factor
    (Applicable Percentages) that we have agreed to apply in calculating
    the Coverage Base Amount.

    -   **Eligible Receivables** arise from distribution contracts:

        -   That are payable in the U. S. in U.S. Dollars;

        -   In which the lender has a perfected first priority lien; and

        -   For which the payment that is due (or which will become due)
            is not subject to any condition except delivery of the film
            and/or passage of time, less all taxes and any allowances,
            credits and offsets required, allowed or permitted to be
            deducted.

Receivables that do not meet the above qualifications are "ineligible"
and not used in determining the Coverage Base Amount (see next section)

> Receivables that will become due after the distributor picks-up the
> negative, will generally be excluded from the Coverage Base Amount
> (i.e., be assigned a "zero" Applicable Percentage).

-   **Applicable Percentages** are the discount factors applied to the
    Eligible Receivables of any distribution contract. The Applicable
    Percentage represents the maximum percentage of default coverage we
    are indirectly providing through our Guarantee. In general we
    determine the Applicable Percentage for receivables for a particular
    distributor when executing the Coverage Base Schedule:

    -   *Primary* distributors generally are those in low-risk
        countries. The Applicable Percentage for contracts of primary
        distributors is 90% (i.e., 10% discount). We use the best risk
        grade in an international country risk classification maintained
        by the Organization of Economic Cooperation and Development
        (OECD). While a distributor in a low-risk country may be given
        primary status, evidence of adverse credit information may
        demote the distributor's status to secondary (or even tertiary.)

    -   *Tertiary* distributors are generally those in high-risk
        countries. The Applicable Percentage for contracts with tertiary
        distributors is 0% (i.e., 100% discount). We define high-risk
        according to our Country Limitation Schedule which is available
        on our web site ([www.exim.gov](http://www.exim.gov/)) as those
        where we do not allow "discretionary credit limits" (a form of
        delegated authority) to exporters under our normal short-term
        export credit insurance program. However, it is possible for a
        distributor in a high-risk country to be promoted to secondary
        status, given the existence of sufficient positive credit
        information.

    -   *Secondary* distributors are generally those in countries that
        are not low risk or high risk as defined above, and where we
        have at least some positive credit information. The Applicable
        Percentage for contracts with secondary distributors is 65%
        (i.e., 35% discount). In the absence of any credit information
        (or existence of adverse credit information) about the
        distributor, we will lower the status of that distributor to
        secondary. However, if there is very significant positive credit
        information about a distributor in a "secondary country" we may
        treat the distributor as primary

    -   *U*.S. Distributors. We will not provide indirect (or direct)
        coverage of contracts with U.S.-based distributors since these
        are domestic sales, not exports. While any contracts with U.S.
        distributors will be listed on the Coverage Base Schedule, they
        will be assigned a "zero" Applicable Percentage.

-   **Modified Coverage Base Schedules:** From time-to-time the Coverage
    Base Schedule is updated to add new contracts that have been
    executed with respect to a film and/or to show changes in the
    receivable amounts.

-   **Coverage Base Amount:** Whereas in traditional asset-based
    lending, the lender uses a borrowing base to control disbursements
    and ensure that the outstanding loan balance is fully supported by
    the collateral, the Collateral Base Schedule serves neither of these
    purposes. On the contrary, the primary purpose of the Collateral
    Base Schedule is to calculate the Collateral Base Amount, which
    helps determine our principal liability under the Guarantee. This
    amount is simply the discounted value of the Eligible Receivable
    Amounts using the relevant Applicable Percentages. The Collateral
    Base Amount (and our Guarantee liability) grows as new contracts are
    executed and added to (new versions of) the Collateral Base
    Schedule.

```{=html}
<!-- -->
```
-   **Amount Guaranteed:** The principal amount we pay in case of claim
    will usually be the Coverage Base Amount, unless the loan is well
    collateralized and the Coverage Base Amount is greater than 90% of
    the amount of principal in default, in which case the guaranteed
    amount is 90% of the principal in default. Our interest liability is
    the unpaid interest on the principal liability amount calculated at
    the normal interest rate (excluding any penalty rate) to the date we
    pay your claim. In general, our principal liability is the lesser of
    the following:

    -   90% of the loan commitment amount -- this puts an absolute limit
        on our exposure;

    -   90% of the outstanding principal balance on the claim date --
        i.e., our maximum coverage of a loss is 90%; or

    -   Coverage Base Amount -- our discounted valuation valuation of
        the collateral.

-   **Gap Financing**: We place no restrictions on the usage of "gap"
    financing techniques, since our Guarantee does not cover outstanding
    loan balances in excess of the Coverage Base Amount. For example, if
    the borrower defaults on a \$1 million loan that has a \$500,000
    outstanding unpaid balance and a Collateral Base Amount at the time
    of default of \$300,000, we would pay a claim of \$300,000, plus
    covered interest, but would not pay any claim related to the
    \$200,000 excess of the outstanding balance over the Coverage Base
    Amount.

-   **Minimum Lender Retention (MLR**) is the amount that we require the
    lender to remain at-risk with respect to the loan amount
    outstanding.

    -   If 90% of the outstanding loan balance is less than or equal to
        the Collateral Base Amount (i.e., the amount outstanding is 90%
        supported by the collateral), the MLR is 10% of the outstanding
        loan balance.

    -   If 90% of the outstanding loan balance exceeds the Collateral
        Base Amount (i.e., there is insufficient collateral to
        completely support the amount outstanding), the MLR is:

        -   50% of the excess of the loan balance over the Coverage Base
            Amount (i.e., one-half of the collateral "gap").

-   **Maturity Date Extensions:** You can extend the loan maturity date
    without our approval, so long as:

    -   The total extensions cannot exceed 240 days;

    -   You pay the additional Facility Fee; and

    -   Extensions exceeding 120 days in the aggregate must be related
        to delivery date extensions requested by the Completion
        Guarantor and the Completion Guarantor must be obligated to pay
        the interest accruing during such extensions.

-   **Facility Fee:** Our compensation for providing a Guarantee is 0.5%
    of the Loan Commitment Amount and is payable up-front. If the loan
    maturity date is extended or the Commitment Amount is increased,
    additional Facility Fee is due as follows:

    -   Maturity date extension: 0.5% x Commitment Amount x Extension
        Period (as a fraction of a year)

    -   Commitment Amount Increase: 0.5% x Amount of Increase

-   **Participations:** You may participate, transfer, assign, or sell
    your interests in the loan to other lenders provided that you remain
    responsible for your obligations under the Program, including the
    filing of claims and remaining at-risk for the Minimum Lender
    Retention**.**

-   **Amount Limitations:** There are no minimum or maximum sized loan
    facilities, although requests for Guarantees of loan commitments in
    excess of \$10 million will take longer to process and be subject to
    greater scrutiny as to the need for U.S. Government support. At this
    time, there are no aggregate limits on Program activity or
    individual lender activity under the Program.

-   **Claims:** Only the guaranteed lender can file a claim. This must
    be done no earlier than 30 days after date of default and no later
    than 120 days after date of default. Claim documentation required
    includes such items as copies of:

    -   Written demand on the borrower and all distributors still owing;

    -   All loan documents including all lien perfection filings;

    -   Evidence that film was delivered to each distributor still
        owing;

    -   Certification that you have complied with all lender
        obligations;

    -   Executed copies of each contract with a balance owing;

    -   Records of disbursements and application of payments;

    -   Certification of retention the Minimum Lender Retention.

> We may request that you execute an Assignment Agreement to us as a
> condition of claim payment. In general, we pay properly-documented
> claims within 30 days of receipt.
>
> **Recoveries:** Should there be any recoveries from any source, we
> receive 90% (and you receive 10%) of recoveries (net of any recovery
> expenses) until we have fully recovered our claim payment. After being
> made whole with respect to our claim payment, any excess recoveries
> revert to the lender.

DOCUMENTS AND PROCEDURES (for lenders)

-   **Obtaining Participation in the Film Guarantee Program.** We limit
    participation in the Program to those lenders that, in our
    determination, satisfy the following eligibility criteria.

    -   Eligibility criteria include:

        -   Financial viability and ability to perform;

        -   Substantial experience in lending secured primarily by
            international distribution contracts for the purpose of film
            and/or television programming production. \[Experience of
            management obtained at lenders other than the applicant can
            count towards this requirement\];

        -   A distinct division or business unit set up primarily for
            the financing of film and/or television programming
            production; and

    -   **Lender Profile (Annex B to the MGA):** The Lender Profile sets
        forth information with respect to a lender including, among
        other things: experience, organizational structure, management,
        lending policies and financial statements. We will use the
        Lender Profile to determine if a lender is eligible for
        participation in the Program.

        -   If you wish to considered for participation, please send a
            completed Lender Profile to:

> Charles Goohs, Manager, Product Development
>
> Export-Import Bank of the United States
>
> 811 Vermont Avenue, NW, Washington, DC 20571
>
> Tel: (202) 565-3790; Fax: (202) 565-3930.

-   **Master Guarantee Agreement (MGA):** If we approve your
    organization as a lender under the Program, we will make and enter
    into the Master Guarantee Agreement with you. The MGA sets forth the
    general terms and conditions that govern our Guarantee with respect
    to all your loan facilities under the Program.

    -   We will send you two copies of the MGA

    -   Sign and return both copies (we will execute them both and
        return one to you)

    -   Submit to us evidence of the authority (including a specimen
        signatures) as required by Section 2.02 of the MGA.

```{=html}
<!-- -->
```
-   **Applying for Guarantees for Specific Loan Facilities:** Once the
    MGA has been executed, you need to submit the following documents to
    us with respect to each loan facility:

    -   A signed, completed, **Loan Authorization Agreement** (**Annex
        A** to the MGA) (LAA). The LAA identifies the eligible film and
        sets forth the specific terms and conditions of a loan facility
        made by you under the Program;

    -   A signed, completed, **Coverage Base Schedule** (**Schedule A**
        to the LAA) setting forth a complete and accurate schedule for
        all existing license and distribution agreements in respect of
        the eligible film. The Coverage Base Schedule is used in
        determining the amount of our guarantee. We will utilize the
        financial, credit and other information pertaining to the
        distributors that you provide (see Schedule C to the LAA below)
        to assist us in determining the Applicable Percentages[^13]
        (discount factors) to apply to Eligible Receivables[^14] from
        each distributor;

    -   A completed **U.S. Content Certificate (Schedule B** to the
        LAA**)** signed by the borrower, certifying that at least 50% of
        the aggregate amount of the production budget (exclusive of the
        fees, interest and other financing charges of lender) will be
        comprised of U.S. Content, as defined in the MGA;

    -   A copy of your **Loan Presentation and Credit Information
        (Schedule C** to the LAA) with respect to the loan facility as
        approved by your credit committee, together with all available
        financial, credit and other information pertaining to the
        distributors listed on the Coverage Base Schedule (Schedule A,
        see above); and

    -   **Certifications** with the respective sections completed and
        signed by the borrower and yourself. This document is necessary
        for to comply with certain U.S. Government rules and
        regulations.

-   **Approval Process of Individual Loan Facilities:** Upon receipt of
    the required documentation (Loan Authorization Agreement and
    Schedules, U.S. Content Certification and Certifications document)
    we will determine:

    -   If the film meets our eligibility criteria:

        -   A feature-length theatrical motion picture;

        -   Independent[^15] rather than major studio in nature;

        -   Export-oriented in nature; and

        -   Meets our U.S. content requirements;

    -   If there are any issues with respect to:

        -   The need for U.S. Government support due to the borrower's
            access to adequate, alternative sources of production
            financing (loan facilities of greater than \$10 million will
            receive more thorough scrutiny with respect to this issue)

        -   Any other issues, in our sole discretion.

    -   Upon satisfactory determinations on these issues, we will
        consider approval of the Film Production Guarantee and proceed
        to determine the appropriate Applicable Percentages related to
        each distributor listed on the Collateral Base Schedule.
        Determination of Applicable Percentages will be done on the
        basis of:

        -   The risk grade of the country of the distributor; and

        -   Credit and financial information we have in our possession,
            including all information provided by you with Schedule C of
            the signed Loan Authorization Agreement.

```{=html}
<!-- -->
```
-   **Making the Guarantee Effective:** Following approval of Film
    Production Guarantee:

    -   We will execute a final Loan Authorization Agreement, including
        calculation of the appropriate Facility Fee, together with a
        completed Coverage Base Schedule (Schedule A to the LAA),
        including Applicable Percentages for all distribution contracts,
        and calculation of the Coverage Base Amount. When executed by
        both parties, this Schedule A shall constitute the initial
        Coverage Base Schedule in respect of the Loan Facility. If
        warranted, we will also complete Special Conditions (Schedule D
        to the LAA).

    -   These documents will be forwarded in duplicate. You will need to
        sign both copies of each document and remit the required
        Facility Fee as detailed in Section 3.02 of the MGA, as well as
        fulfilling all other "Conditions Precedent to the Effectiveness
        of the Guarantee" as spelled out in Section 2.03 of the MGA.

```{=html}
<!-- -->
```
-   **Actions Subsequent to Guarantee Effectiveness:**

    -   You are required to comply with all required reporting and other
        obligations as required by the MGA.

    -   You may, from time to time, submit a modified Schedule "A"
        pursuant to Section 2.05 of the Master Guarantee Agreement,
        together with all available financial, credit and other
        information pertaining to any new distributors. Any modification
        of such Schedule "A" shall not be effective unless and until we
        have approved it and both parties have executed the modified
        Schedule A, at which time such modified Schedule A will be
        deemed to constitute the Coverage Base Schedule in respect of
        the Loan Facility.

**NOTES**

[^1]: **Independent Films:** The film industry is divided between
    recognized major studios and the independent sector. Whereas major
    studios are multinational, mass marketing, corporate groups, which
    own their distribution channels around the world, the independent
    sector consists of individually-financed projects with ownership
    retained by the producers, who license the film rights to
    independent distributors throughout the world.

[^2]: *The Economic Consequences of Independent Film Making*, Arthur
    Anderen Economic Consulting, 1999.

[^3]: **AFMA** ([www.afma.com](http://www.afma.com/)), formerly known as
    the American Film Marketing Association, is an association that
    represents the interests of the independent film sector; the Motion
    Picture Association of America (MPAA) represents the interests of
    the major studios. AFMA hosts the American Film Market (AFM) which
    is the largest motion picture trade event in the world -- over \$500
    million in production and distribution deals are closed annually at
    the AFM.

[^4]: **U.S. Content.** Most film production expenditures relate to
    personal services, such as acting, producing, directing and filming.
    To the extent that such services are performed by U.S. citizens or
    by permanent U.S. residents, they are deemed U.S. content for
    purposes of meeting the 50% U.S. content eligibility requirement.

[^5]: **U.S. Distribution contracts:** Independent producers often
    conclude U.S. distribution contracts, but due to the size and
    importance of the U.S. market, U.S. distributors often have more
    clout and will typically wait until film footage is available for
    viewing or until the film is completed prior to executing a
    contract. U.S. distribution contracts are therefore generally
    unavailable to help gain a financing commitment.

[^6]: **The Coverage Base Amount** is the sum of the discounted
    receivables listed on the Coverage Base Schedule. The discounted
    value of any particular receivable is determined by multiplying the
    receivable amount by its applicable discount factor (Applicable
    Percentage) as determined by us in accordance with our
    classification of the related distributor as "primary", "secondary"
    or "tertiary". The Applicable Percentages are: 90% (primary), 65%
    (secondary) and 0% (tertiary). Contracts with U.S. distributors
    (U.S. companies) are not covered and assigned a 0% Applicable
    Percentage.

[^7]: **Credit Risks:** Under our Guarantee coverage, we *effectively*
    assume distributor credit risk. The amount that we assume with
    respect to individual distribution contracts depends upon our risk
    classification of the distributor as:

    "Primary" distributors generally are those in developed countries.
    In this case we apply a 10% discount and thus provide effective
    coverage of up to 90%;

    "Secondary" distributors generally are those in developing
    countries, for which we are in possession of favorable credit
    information. In this case we apply a 35% discount and thus provide
    effective coverage of up to 65%; and

    "Tertiary" distributors generally are those in developing countries,
    for which we have insufficient or adverse credit information. In
    this case we effectively provide no coverage -- i.e., we completely
    discount the amounts due under contracts with "tertiary"
    distributors.

[^8]: **Guarantee Fee v. Gap Fee Example:**

    Loan Commitment: \$4,000,000

    Our Guarantee Fee: **\$ 20,000** (\$4,000,000 x 0.5%)

    Distribution Contracts: \$3,458,000

    [Face Amount]{.underline} [Lender Valuation]{.underline} [Amt
    Covered by Guarantee]{.underline}

    Primary contracts \$3,000,000 \@100% = \$3,000,000 @ 90% =
    \$2,700,000

    Secondary contracts \$ 308,000 @ 0% = nil @ 65% = \$ 200,000

    Tertiary contracts \$ 150,000 @ 0% = nil @ 0% = nil

    ## Case 1: No Guarantee

    Total Collateral Value (\$3,000,000 + 0 + 0) \$3,000,000

    Gap Amount (\$4,000,000 - \$3,000,000) \$1,000,000

    Gap Fee @ 10% (assumed) **\$ 100,000**

    ## Case 2: With Guarantee

    Total Collateral Value (\$3,000,000\* + 200,000) \$3,200,000

    Gap Amount (\$4,000,000 - \$3,200,000) \$ 800,000

    Gap Fee @ 10% (assumed) **\$ 80,000**

    **Reduction in Gap Fee (\$20,000) completely offsets our Guarantee
    Fee (\$20,000)**

    Note, the lender valuation of the primary collateral does not fall
    from \$3 million to the effective guaranteed value of \$2.7 million
    as this would make no sense. Coverage of collateral by a guarantee
    can only enhance the value, not detract from it.

[^9]: **U.S. Content.** Most film production expenditures relate to
    personal services, such as acting, producing, directing and filming.
    To the extent that such services are performed by U.S. citizens or
    by permanent U.S. residents, they are deemed U.S. content for
    purposes of meeting the 50% U.S. content eligibility requirement.

[^10]: See footnote #8, supra.

[^11]: **Major Studio** means a so-called "major" (as such term is
    commonly understood in the Los Angeles, California motion picture
    and television industry) producer or distributor of motion pictures
    and/or television programs or any other Person who directly or
    indirectly controls, is controlled by, or is under common control
    with such "major" producer or distributor.

[^12]:
    ###  **U.S. Content** is defined as: 

    ### 

    ### All budgeted expenditures for the purchase or rental of products, materials, supplies and other goods which are of U.S. origin and manufacture; 

    ### All budgeted expenditures for personal services (such as services of writers, directors, cast, producers, special effects personnel, administrative personnel, animators, cameramen, consultants, attorneys or accountants): 

    ### To the extent such services are to be performed by an individual who is a U.S. citizen or lawful permanent resident, or 

    ### In the case of key talent (i.e., lead actor, director, writer, music composer or director of photography) services performed by an individual who is not a U.S. citizen or lawful permanent resident, to the extent such expenditures when paid to such individual are subject to U.S. federal income taxation; and 

    ### All budgeted expenditures for services other than personal services (such as insurance, completion guarantee, transportation and payroll services) payable to a Person (excluding natural persons) legally organized and domiciled in the U.S.

[^13]: **Applicable Percentages** are the discount factors applied to
    the Eligible Receivables of any distribution contract. In general we
    determine the Applicable Percentage for receivables for a particular
    distributor when executing the Coverage Base Schedule. The
    determination depends upon our judgment of the risk category of the
    distributor:

    *Primary* distributors generally are those in developed countries
    and the Applicable Percentage is 90% (i.e., 10% discount);

    *Secondary* distributors generally are those in developing
    countries, for which we are in possession of favorable credit
    information and the Applicable Percentage is 65% (i.e., 35%
    discount); and

    *Tertiary* distributors generally are those in developing countries,
    for which we have insufficient or adverse credit information and the
    Applicable Percentage is 0% (i.e., 100% discount).

[^14]: **Eligible Receivables** are receivable arising from distribution
    contracts:

    That are payable in the U. S. in U.S. Dollars;

    In which the lender has a perfected first priority lien; and

    For which the payment that is due (or which will become due) is not
    subject to any condition except delivery of the film and/or passage
    of time, less all taxes and any allowances, credits and offsets
    required, allowed or permitted to be deducted;

    Receivables that don't meet the above qualifications are
    "ineligible" and not used in determining the Coverage Base Amount.
    Receivables that will become due after the distributor picks-up the
    negative, will generally not be used in determining the Coverage
    Base Amount.

[^15]: **Independent Film Criteria:** Our test for an independent film
    is one that is one:

    ### Not produced by a Major Studio; 

    ### For which less than 50% of the Production Budget is being furnished or guaranteed, directly or indirectly, by a Major Studio; and

    ### For which less than 50% of the aggregate receivables are due from Major Studios (so long as the 35% limit is not violated, the borrower can enter into contracts with Major Studios or distributors owned or controlled by Major Studios); 

    ### **Major Studio** means a so-called "major" (as such term is commonly understood in the Los Angeles, California motion picture and television industry) producer or distributor of motion pictures and/or television programs or any other Person who directly or indirectly controls, is controlled by, or is under common control with such "major" producer or distributor.