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Exile Business Plan

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Exile Business Plan

  1. 1. BUSINESS PLAN 11.21.2007 Contact: Moe Charif 6039 Collins ave Suite 1430, Miami Beach, FL 33140 C: 954.579.2266, T: 305.767.4741, F: 305.867.4426 moe@exilemovie.com
  2. 2. Confidentiality Agreement The undersigned reader acknowledges that the information provided by Project Exile in this business plan is confidential. Therefore, the undersigned reader agrees not to disclose any of such information without the express written permission of Project Exile. It is hereby acknowledged by the undersigned that the information to be furnished in this business plan is in all respects confidential in nature (other than such information which is already in the public domain through other means) and that any disclosure or use of same by the undersigned may cause serious harm or damage to Project Exile. Upon request, this document is to be immediately returned to Impact Features, LLC. Signature Print Name Date
  3. 3. TABLE OF CONTENTS 1. EXECUTIVE SUMMARY 2. THE FILM 3. THE INDUSTRY 4. THE MARKET 5. THE COMPANY 6. DISTRIBUTION STRATEGY 7. RISK FACTORS 8. FINANCIAL PLAN AND PROJECTIONS
  4. 4. 1. EXECUTIVE SUMMARY Strategic Opportunity • The U.S. box office reached $9.49 billion in 2006. • The U.S. box office for independent films in 2006 exceeded one billion. The year 2004 was especially good for independent films as their share of box office revenue reached an estimated $3.4 billion. • The worldwide revenue for U.S. independent films is estimated at $ 7 billion per year. • Global box office revenues in 2006 exceeded $25 billion. Impact Features, LLC is a start-up enterprise engaged in the development and production of motion picture films for theatrical release. The company’s goal is the production of the feature film Exile, a heart wrenching story that takes place in Cuba. The main objective, however, is to produce a commercially viable film with mass audience appeal capable of garnering awards and recognition from major film festivals and film critics. The company plans on producing Exile with a $5 million budget, a low number when compared to the average budget of a studio film which is estimated to be around $100 million per movie. The Product In 2005, filmmakers Moe Charif and Omar Chavez Jr. set out to collaborate on a new feature film project that could command a strong emotional response while allowing for the kind of energy and drama that modern film audiences gravitate towards. A year and a half later, after several drafts and revisions, the screenplay of Exile was complete. Within a short time the duo were receiving excellent reviews for their efforts. ”Exile” is an action-drama based on true events. It’s an original story with all the elements to attract filmgoers nationally and internationally. The Industry The success of the independent films My Big Fat Greek Wedding in 2002, which has earned more than $400 million to date on a $5 million budget, and The Blair Witch Project, which earned over $300 million in worldwide revenues on a $60,000 budget, have revolutionized how studios and distributors look at the production and marketing of films. By definition, an independent film is one that is financed by any source other than a U.S. studio. Although Independent films can vary widely in budget, from as low as $30,000 to as high as $100 million, all have one important factor in common; Creative freedom from the homogeneity of studio production. With the benefit of increased time and with more meticulous planning than studios tend to give their big-budgeted films, smaller companies are able to focus greater attention on their lower-budgeted, but no less important, dramas. Unlike studios, the independent production companies are able to avoid substantial overhead.
  5. 5. The Market The market for action-drama films inspired by real life events, like Exile, has always been solid. Traditionally dramatic films with ties to historic events have had great success garnering nominations, and ultimately winning prestigious awards. Gladiator, Braveheart, The English Patient, Crash, Schindler’s List, and Blood Diamond are just few examples of such films. Although we are planning on releasing this film to mass audiences, Exile should be of great interest to the Hispanic market. Hispanics account for 15% of all moviegoers in the U.S. and that number is projected to go up to 18% by the year 2010. In addition, the international market grows bigger and hungrier for films every year. Because of the nature of the story told in “Exile”, the film should appeal to international audiences as well. Distribution The Company will seek distribution by either a studio, or an independent distributor. A truly exceptional film can become the source of a bidding war among distributors. Our goal is to make a quality motion picture that audiences will enjoy and that distributors will want to distribute, thereby increasing the chances of the film’s success. We will hold screenings in L.A. and/or New York specifically with companies that have experience in the distribution of films in the action-drama genre. In addition, we will take the film to markets and film festivals where appropriate. Over the past five years, the international market has been especially profitable for U.S. filmmakers. This substantiates our plan to focus attention on international distribution. Investment Opportunity The founders are seeking an equity investment of approximately $5 million for the production of the feature film Exile and overhead expenditures. Current projections indicate a pretax net profit of $32 million on the initial investment for the film.
  6. 6. 2. THE FILM In 2006, Directors Moe Charif and Omar Chavez Jr. agreed to collaborate on developing the concept for Exile. A year and a half later, the screenplay is complete and the project is ready for production. Since the owners of the Company own the screenplay, there will be no need for optioning a script property from another party. Both director/writers are South Florida residents, and are very familiar with the subject of Cuban rafters. This is especially true of Omar Chavez Jr., a Cuban-American born of Cuban immigrants. Exile - Synopsis Every year thousands of desperate Cuban citizens risk everything for a taste of freedom and a chance at a better life in the United States. Embarking on a treacherous 90 mile journey through a corridor of shark infested waters, these brave souls place all of their hopes on homemade rafts built with whatever raw materials they can get their hands on. Based on true events, Exile is a heart-wrenching action drama. The exhilarating story of a group of Cuban rafters, told from the perspective of 12 year-old Cuban boy, Tito Mendez, his father, Guillermo, and the rest of their family, Exile features moments of raw emotional impact, high tension, and pulse quickening action, weaving several strands of story together that culminate in the thrilling and dangerous crossing of the 90 mile gap between Cuba and the United States. The story highlights the family's plight when they are forced into extreme measures after the family's eldest son, in an attempt to ease his father's worsening asthma, is caught in possession of a stolen ventilating machine (a nebulizer) and arrested by the government. Tito's father, Guillermo, a proud ex-police officer, feels he is left with no choice but to free his imprisoned eldest son, build a makeshift raft for his family to flee Cuba and undertake the harrowing journey to the United States. With the help of some close friends, and using his knowledge, Guillermo plans his family's attempt to gain a better life. Tito wants to help, despite his father's resistance, and although his intentions are good, Tito's desire to impress Guillermo leads to more complications. However, the family manages to construct a raft by converting an old 50's era pick up truck into a floating platform, modifying the drive shaft to act as a propeller. Guillermo bides his time, and when the moment is ripe he springs into action setting into motion events that may befall the entire family. In a daring night time raid, with no real weapons except Molotov cocktails and household tools, Guillermo and friends free Tito's brother while he's being transferred to a government prison. Under the cover of darkness, the rafters converge on the beach. But something's gone wrong and the police have been alerted to the family's plans of escape. In a dramatic final push for the water, the rafters are forced to leave behind precious supplies lest they be caught and arrested. The rafters make it out to sea, but at what cost? Exile will lure the viewer into a deep emotional involvement focusing on the common human experience; a son's hope for his father's affection, a father's love for his family, a family's hope for happiness, and the desire for a better life.
  7. 7. 3. THE INDUSTRY Along with many corporations in the United States, the major studios began the radical process of restructuring or “downsizing” at the end of the 1990s. While in the past they all maintained expensive production facilities, staff, and significant overhead expenses, the impact of unions and guilds and runaway productions forced studios to follow new business models. They began releasing fewer films expecting greater gross per film. As a consequence, smaller production companies with lower budgeted films have began to command a bigger share of the market. Crash, Open Water, and My Big Fat Greek Wedding are examples of smaller films that have scored high grosses. The success of these and other low-budget films have hastened a change in the structure of the industry prompting major studios such as Warner Brothers and 20th Century Fox to plan and develop specialized internal divisions geared towards independent filmmaking. In 2006, the North American box office totaled over $9.49 billion. Due to the growth in international demand, American motion picture distributors generated more than $25.8 billion in worldwide revenues in 2006, an increase of 14% from the year before. Analysts project that the worldwide box office will keep increasing over the next 2 years. The year 2004 has shown that the independent filmmaker is becoming a major force in the box office market. Independents cashed in around $3.4 billion, an amazing 36% of $9.5 billion total box office sales. In addition, the most recent annual survey of overseas sales according to the American Film Marketing Association (AFMA) shows a total of $2.6 billion for U.S. independent films. When the AFMA total is added to U.S. box office, along with the U.S. ancillary revenues (estimated at more than $1 billion), the worldwide market for U.S. independent films is estimated at more than $7 billion. Independent films, by definition, are those financed by any source other than a U.S. studio. While U.S. theatrical distribution is still the first choice of any feature length film, international markets are gaining greater strength than they had before. U.S. feature film distributors project to raise their total worldwide revenue to $31 billion by 2010. Independent films can vary widely in budget, from as low as $30,000 to as high as $100 million, but they all have one important factor in common; Creative freedom from the homogeneity of studio production. With the ability to take more time and more carefully planed budgets, smaller companies, like ours, are able to give greater attention to their lower budgeted films. Unlike studios, Impact Features, LLC is able to avoid substantial overhead costs by hiring creative and other production personnel on a project-by- project basis. Due to our low budget, Exile can succeed in niche markets alone without the need to draw the entire body of film going audiences. Our goal is to finance our production activities from discrete sources, and to completely finance Exile before commencement of principal photography. Once a studio decides to produce a screenplay, lead actors are sought, budgets approved, and all directors and producers assigned. This process is called “development.” The next step is “preproduction”, the period before principal photography when commitments are sought for talent, budgets are finalized, the director and crew are hired, and most of the contracts are negotiated and signed. Producers try to have all contracts in place before filming has started. The filming of a motion picture is called “principal photography”. It takes from 8 to 12 weeks, although major cast members may not be used for the entire period.
  8. 8. During the post-production period that follows principal photography; the film is edited and synchronized with music and dialogue. In our case, special effects will be added. The post production period normally requires six to nine months. With a large corporate structure making production decisions and a large amount of corporate debt to service, the major studios, such as Paramount, Warner Bros. and Disney, aim the majority of their films at mass audiences. Producers and directors are forced to make films on a schedule and a budget imposed by studio executives, who are often influenced by factors other than a desire to make quality films, or even show a profit. Due in part to skyrocketing star salaries and costly special effects, the average studio film cost $100 million in 2006, according to the Motion Picture Association of America. In addition, studios often demand changes to the script that result in a loss of focus or direction, and adversely affect the overall appeal of the film to its intended audience. More money is being channeled into studio blockbusters, which typically cost upwards of $120 million. Industry figures indicate that a picture must generate 2.5 to 3 times its costs just to break even. Independent films have benefited from recent technological advancements. With the increase in cable channels and the use of digital satellites, the Internet and a wide variety of other new technologies, distributors and programmers are seeking more content to fill consumer demand. Since the major studios produce and distribute only an average of 190 films combined, a programming void exists that independent producers are able to fill. Theatrical Distribution The distribution of a motion picture involves the licensing of the film in the U.S., Canada and the foreign marketplace. After locking the picture, our plan is to negotiate with distributors to distribute and market Exile. With the film complete at that stage, Impact Features, LLC will be in an excellent position to negotiate a deal with a distributor that maximizes the profit potential for both the filmmakers and investors. Deals vary according to each situation, depending on how many bidders are willing to take on the project, but normally a distributor receives around 35% of total revenues. The distributor will license the following rights; theatrical exhibition, non-theatrical markets (where applicable, such as educational markets), home video (including laser disc, DVD, HD-DVD, and Blu ray), cable and pay-per view, video-on-demand, and television. Additional ancillary markets include merchandising. Foreign Exhibition Much of the projected growth in the worldwide industry comes from the international markets, which grew 14% in 2006. It is anticipated that international distributor revenues will keep increasing over the next 2 years. Distributors and exhibitors continue to find new ways to grow the box office revenue pool. The growth of multiplexes in Europe and an increase in the number of screens in Asia and Latin America have both contributed to this growth. The growth in Latin America specifically is an excellent advantage in the case of Exile. Part of our marketing strategy will be geared towards South America as the movie deals with a topic that is of importance to the region.
  9. 9. OTHER SOURCES OF REVENUE: Cable and Broadcast Television Television exhibition includes over-the-air reception for viewers either through a fee system (cable) or “free television” (national and independent broadcast stations). The proliferation of new cable networks in the last 15 years has made cable (both basic and premium stations) one of the most important outlets for feature films and documentaries. Whereas network and independent television stations were a substantial part of the revenue picture in the seventies and early eighties, cable has become a far more important ancillary outlet. The pay-per-view (PPV) business has continued to grow, thanks to continued DBS (direct broadcast satellite) growth and significant NVOD (near video on demand) rollouts by cable operators. Pay-per-view and pay television allow cable subscribers to purchase individual films or special events or subscribe to premium cable channels for a fee. Both acquire their film programming by purchasing the distribution rights from motion picture distributors. Home Video, DVD, Blu-Ray, and HD-DVD A large source of motion picture revenue continues to be the worldwide home video market. Home video companies promote and sell videocassettes, DVDs and most recently Blu-ray and HD-DVDs to local, regional, and national video retailers, which then rent or sell these cassettes and discs to consumers for private viewing. While Blu-Ray and HD-DVD are growing, DVD rentals are expected to remain a major source of home entertainment income in the near future.
  10. 10. 4. THE MARKET An independent film goes through the same process from development and preproduction through production and post production as a studio film. In the case of Exile, development and preproduction may involve only few key people. The founders of Impact Features, LLC, will maintain control over the final product. An independent film may be distributed by a studio, although its negative cost has been provided by other sources. Many of the large production companies started with the success of a single film. Carolco was built on the success of Rambo III and Terminator II; New line achieved prominence and clout with the Nightmare on Elm Street series and the list goes on and on. The smaller production company usually raises money for one film at a time, although there may be other films in different phases of development. Since the beginning of the 1990s, independent film has been going through one of it’s “up” cycles. Traditionally, the fortunes of independent filmmakers have always varied from year to year. The recent success of independent films has sent the independent segment into another growth spurt. The market for films inspired by or that deal with real life issues has been growing. Traditionally dramatic films with ties to historic events have had great success garnering nominations, and ultimately winning prestigious awards. In 2007 Blood Diamond, an action drama dealing with the struggles in the African nation of Sierra Leone was nominated for five Academy awards, one Golden Globe, and one Grammy. In 2006, Crash was nominated for six academy awards, winning three of them, and also went on to win two Golden Globes. Crash is a great example of how a low budget film can turn a high profit. Because of the recognition it gathered from awards, nominations, and good reviews the movie generated “good buzz” that later translated into success. Crash was produced on a $7.5 Million budget, but grossed over about $200 million in total revenue. As an independent production company, Impact Features, LLC has advantages over a studio system. The production team is in control of the screenplay, which means that any changes to the script do not need to be reviewed by committee, losing valuable time in the process, but can be implemented immediately. This quick response time is vital to a production, when every minute wasted costs money. Another significant advantage that the Company has is the lower risk involved in investing in a smaller firm. When the negative cost (actual price paid up to and through the completion of the film negative, which is then used in the process of creating release prints to be shown in theaters), overhead and P&A (prints and advertising) costs are factored in, a studio picture must gross 2.5 to 3 times the film’s budget to recoup the costs of making the film. Therefore, a film costing $50 million would have to make $125 - $150 million to just break even. By the same standard of comparison, a film budgeted at $5 million need only gross $12.5 - $15 million to recoup its costs. This figure is much more readily achieved in domestic and international distribution. Competitive Advantages: Impact Features, LLC has several market advantages
  11. 11. 1- The company is run by people who are devoted to the idea of producing a film, Exile, that is cost effective and entertaining at the same time. The devotion to quality will produce a low-budget film with much higher value on the screen than the budget would indicate. The high production values are evident in the trailer produced for Exile with a budget of under $15,000. 2- The company controls the rights to the screenplay of Exile, which received excellent reviews from critics and was ranked 2nd out of 2,750 screenplays on www.triggerstreet.com, and eventually nominated for “screenplay of the month” August 2007. 3- The company plans on marketing Exile to the masses. However, our niche will be the Hispanic and international markets. Fifteen percent (%15) of all U.S. movie goers are Hispanic and the number is expected to increase to 18% by 2010. Impact Feature, LLC plans to capitalize on this fact. 4- With obvious international appeal with regards to Exile’s subject matter, coupled with the fact that that U.S. filmmakers netted over $25 billion in global revenues in 2006, the international market is ready to be taken advantage of. 5- We plan on shooting a great deal of the film in the Dominican Republic. All necessary equipment will be shipped from the U.S. however; shooting in the D.R. provides financial advantages such as low costs for accommodation, catering, local below the line crew, locations, etc. In addition to the financial advantages, the D.R. will approximate the look of the Cuban backdrop. This adds authenticity and production value to the film. 6- Immigration has recently become a huge national debate. Our story tackles this subject in an indirect way. Curious audiences will be drawn to experience what Cuban immigrants must go through to achieve their ultimate goal of a better life. Referred to as a “time capsule” by many, the island of Cuba, under Communism, has remained essentially unchanged since the 1950s. This amazing Caribbean backdrop is one that will surely dazzle audiences throughout the world, revealing the struggles that our characters must go through to reach their ultimate goal.
  12. 12. 5. THE COMPANY Impact Features, LLC is a privately owned Florida company established in March 2008. The company’s principle purpose in business is the creation of the theatrical motion picture Exile. Our goal is to develop and produce a feature film that has all the elements necessary to be a box office hit and at the same time screen and garner awards at prestigious film festivals such as Sundance, Cannes, and Toronto. The past few years have shown that the public is ready for action/drama films that deal with real life issues. Big budget dramatic films with “based on true events” themes have opened up the market over the last five years with films such as Munich, Pursuit of Happiness, Michael Clayton, and Enemy at the Gates just to name a few. The objectives of Impact Features, LLC are as follows: 1- The production of a quality feature film that provides a high level of entertainment and enjoyment, while educating audiences to the realities that less fortunate people go through to get to the U.S. 2- The Development of a feature film that is appealing to all markets above the age of 13. 3- To exploit the international markets. American motion picture distributors generated more than $25.8 billion in worldwide revenues in 2006 as opposed to about $9.5 billion in North America. 4- To distribute our film through an Independent distribution company or through a major studio. Preferably through independent distribution channels, however, this decision will be based on opportunities as they arise throughout the process of making Exile. There is strong public desire for more action/drama films. We believe that we can make a very exciting film with great potential for $5 million without sacrificing quality. The struggle of Cuban rafters is a very interesting topic to tackle; especially that no feature film on the topic has ever been made. Although Cuba is one of our closest neighbors, it’s a country that traditionally, on a national level, we know very little about. Management and Organization Moe Charif - President, Founder Moe Charif brings a heightened understanding of the intricate workings behind the scenes of making projects successful. When viewing Moe’s work, one can’t help but notice the very high level of quality in his films. Graduating from the University of Florida with Honors and holding a Bachelor’s degree in Arts, Moe set out to pursue his dream of filmmaking. With an eye for photography, he started with small projects until 2005 when he directed and produced "Hunted," a short film action thriller that screened at over 18 film festivals worldwide. The short was nominated for a number of awards including "Best Short Drama", "Best Thriller", and "Best
  13. 13. of Festival" and ultimately won "Best Horror" and "Best Short Drama". Moe believes that a film is a harmonious equation bringing all factors together in a perfect fit, which is why he focuses a great deal on all aspects of filmmaking. His fastidious attention to detail, cutting edge visual style, strong story sense, savvy business mentality, and talent for utilizing stunning visual effects produce the kind of end result that you'd expect to see in big budget Hollywood films. It's often said that directors use a strong vision to create the movies they make. Moe’s vision never fails to deliver outstanding quality; the kind you’d expect to see in Hollywood films. Omar Chavez, Jr. - Vice President, Founder Omar Chavez Jr. was born and raised in Miami, FL of Cuban immigrants. As a child he always favored the arts spending almost all his free time drawing and typing out stories on an old derelict typewriter. It's no surprise then that when it came time to declare a major in college, Omar chose to pursue a degree in creative writing. Studying under a score of best selling authors at the vaunted Creative Writing program at Florida International University, Omar honed the craft of writing to go along with his natural talent for story telling. After college, as an avenue to his true passion of filmmaking, Omar pursued a career in production. Over the course of 10 years time in the South Florida production scene, Omar developed a considerable amount of experience in editing, motion-graphic design, music production, and directing. Eventually able to establish the contacts to make his first short film, Take Four, he and partner/friend Adrian Orozco saw the film through to completion in 2006. The short went on to achieve critical success and screened at 21 international film festivals, winning several awards. It was given the distinction of best South Florida narrative short film 2006 by the GenArt association. Adrian Orozco - Co-Producer As a child growing up, Adrian Orozco always had a creative itch expressly geared towards storytelling. Writing short stories became a hobby at a very early age. However, a desire to follow in his father's business footsteps led Adrian to seek a degree in finance, eventually utilizing that knowledge in a part time career selling real estate. Although successful, having sold and managed over 10 million dollars worth in real estate during his stint, he found himself ultimately unsatisfied. Adrian's true calling was film. Realizing he had a lot to learn about filmmaking, Adrian attached himself to good friend, Omar Chavez Jr. For the next few years Adrian learned everything he could; voraciously self studying, paying apt attention whenever he could, learning how to produce, edit and shoot films from those around him. Once confident enough in his abilities, Adrian began to seek work in the field and eventually grew a solid reputation in South Florida production circles. Since then, he has been involved in award-winning television shows, commercials, music videos, and documentaries. Able to apply the knowledge garnered from his finance degree, Adrian understands that film is a business, yet his strong story sense and visual style always shine through his work.
  14. 14. Ingrid Gonzalez – Line Producer A graduate of the American Academy of Dramatic Arts in New York, Ingrid Gonzalez, is a motivated and hard-working individual with over 10 years of administrative experience. Always ready for challenges and opportunities, Ingrid brings unequaled passion to everything she does. In 2006, she was hired on to work closely with the Producers of the feature film project "Spin" by director Dan Neira. Because of her multitasking and ability execute all assigned duties she was promoted within the first week of the film's production. On the strength of that experience, Ingrid was later hired by SiTV producers to participate in the planning and producing of the popular cable network series Styleyes staring Jay Rodriguez. Through the years, Ingrid, a Dominican-American, has a established a wealth of contacts in the Dominican Republic that she plans to take full advantage of during the filming of Exile.
  15. 15. 6. DISTRIBUTION STRATEGY Most of the marketing strategies commonly employed by independent distributors will be used to market our film. The actual marketing of the film itself is the distributor’s job. It involves the representation of the film in terms of genre, the placement of advertisements in various media, the selection of a sales approach for exhibitors and foreign buyers, and the “hype” (word of mouth, promotional events, alliances with special interest groups, and so on). All of these factors are critical to a film’s success. The plan for Exile is to realize sizable opening audiences (relative to the budget and theme of the film) and generate good reviews, and then use the money and reviews to keep releasing the film on additional screens. The distributor will fund the copying of more prints out of the revenues from the first week. Advertising will work in the same way. Each major studio has its own distribution division. All marketing and other distribution decisions are made in-house. This division sends out promotional and advertising materials, arranges screenings of films, and makes deals with domestic and foreign distributors. Each studio releases 15 to 25 films a year and they often acquire independent films to release. After the picture is locked, we will seek distribution for Exile by either an independent distributor or a studio. The high quality of the feature should attract interest from multiple parties. This creates an opportunity for our film to be the source of a bidding war among distributors, thereby increasing the chances of the film’s success. There are advantages to distribution through studios and independent distributors: Independent distributors have an advantage in releasing low-budgeted films, since they have the experience and patience necessary to handle the slower “platform” method of release. A platform release strategy involves opening a film in a select few cities, building on the film’s word-of-mouth, and gradually widening the release to add more cities and more screens to the release schedule. Positive buzz, festival success and strong reviews all add to a film’s platform. Movies such as “Sling Blade” benefited greatly from this type of release strategy. Miramax released the movie in a few cities and, as it gained in popularity, expanded the release to more cities and more theaters. What began as a small “art house” film became a mainstream hit. Studios, on the other hand, have extensive resources with which to finance a number of prints, and have guaranteed exhibition of their product. This means that a film can be seen by large numbers of people at any given time. A film’s success or failure at the box office can directly affect its success in all other venues. Another advantage to the studio distribution system is that, as the studios merge with larger corporate conglomerates, they often add arms of television stations and cable systems. Each system, whether studio or independent, offers advantages and disadvantages with respect to our distribution strategy. Whether or not the Company will negotiate with an independent distributor or a studio depends on which distributor offers Impact Feature, LLC the strongest release pattern, platform or wide, with as many people as possible seeing the film. This must be balanced with the film’s potential profitability, thereby ensuring the producers and investors a return on their investment. There is an active market for completed motion pictures, with virtually all studios and independent companies seeking to acquire completed films. These acquisitions are
  16. 16. influenced by the film’s elements, such as quality of screenplay, cast, production values and the number of other films in the same genre or theme currently being distributed by the distributor. Distributors license the film to both domestic and foreign exhibitors, for a percentage of the box office gross. The best possible initial release for Exile is a domestic release in theaters. Not all films earn the prestige that a theatrical release will garner. However, a theatrical release drives the price upward for the rest of the media releases, such as home video, pay TV, etc. For a picture in initial release, the exhibitor will pay a percentage of the revenues from ticket purchases to the distributor (the “film rentals”). Every distribution agreement is different, however, there are similarities common to all. The distributor receives a distribution fee, which is the percentage of the profits that the distributor will receive from the revenues. The distributor is then entitled to recoup its marketing costs and distribution expenses. The remaining sum is payable to the producers and investors, and is generally called the “producer’s gross” or the net sum. Other media releases for the film are calculated in a similar fashion. For instance, a home video company pays an amount to the distributor for the right to stock its video stores with the title. From these fees, the distributor will deduct its distribution fee, advertising costs and other distribution expenses in order to recoup its costs. The producers and investors then receive their agreed-upon revenues as set out in the distribution agreement. The same goes for television and ancillary rights. The sum total of the money received by the distributor from the exploitation of all rights that it is entitled to exploit under the agreement are called the “distributor’s gross.” It is in Impact Features, LLC’s and the investors’ best interest for the Company to seek a distribution advance against revenues, or to seek a “negative pick-up”, from a distribution company. An advance against revenues means that in exchange for the rights to the Project, the distributor would pay the Company a sum of money upfront. Portions of this advance can then be used to recoup those amounts expended in the production process. While some distributors do not pay advances on features, it is an important strategy that we will utilize when negotiating with distributors. A “negative pick- up” means that a distributor pays the actual costs of creating the negative of the film. This cost includes development, pre-production, production and post-production. Depending on the distribution agreement, the relationship can end there with the distributor buying the film out right, or Impact Features, LLC can share in net proceeds from the film after the distributor has recouped its distribution fee, negative pick-up costs, marketing and distribution expenses.
  17. 17. 7. RISK FACTORS Investment in the motion picture industry is highly speculative and inherently risky. There can be no assurance of the economic success of any motion picture since the revenues derived from the production and distribution of a motion picture depend primarily upon its acceptance by the public, which cannot be predicted. The commercial success of a motion picture also depends upon the quality and acceptance of other competing films released into the marketplace at or near the same time, general economic factors and other tangible and intangible factors, all of which can change and cannot be predicted with certainty. We believe that the screenplay for Exile is extremely high in quality. An interesting story has a much better chance of attracting name talent to the film project. Not every role in a script is played by actors who are well known to the public. But it does help an independent film’s chance of success if one or two actors in the picture are instantly recognizable to the viewing public. Another way we can increase the film’s chance of success is to ensure that the production values are high. In essence, the concept of production value is based on the principal that it takes money to make money. Our plan is to spend our budget wisely to ensure that the film’s final look is one of quality. The entertainment industry in general, and the motion picture industry in particular, are continuing to undergo significant changes, primarily due to technological developments. Although these developments have resulted in the availability of alternative and competing forms of leisure time entertainment, such technological developments have also resulted in the availability of additional revenue sources through licensing of rights to such new media, and potentially could lead to future reductions in the costs of producing and distributing motion pictures. In addition, the theatrical success of a motion picture remains a crucial factor in generating revenues in other media such as videocassettes, DVDs, and television. Due to the rapid growth of technology, shifting consumer tastes, and the popularity and availability of other forms of entertainment, it is impossible to predict the overall effect these factors will have on the potential revenue from and profitability of feature-length motion pictures. The Company itself is in the organizational stage and is subject to all the risks incident to the development of a new business, including the absence of a history of operations and minimal net worth. In order to prosper, the success of Exile will depend partly upon the ability of management to produce a film of exceptional quality at a lower cost, which can compete in appeal with higher-budgeted films of the same genre. In order to minimize this risk, management plans to participate as much as possible throughout the process and will aim to mitigate financial risks where possible. Fulfilling this goal depends on the timing of investor financing, the ability to obtain distribution contracts with satisfactory terms, the obtaining of completion bonding and the continued participation of the current management.
  18. 18. 8. FINANCIAL PLAN AND PROJECTIONS The financial projections for EXILE assume a conservative level of success for the film project. Potential investors must recognize that the projections are only estimates, and are not guaranteed. Financing Plan Impact Features, LLC proposes to secure all production financing from equity partners by means of a limited partnership investment. With production funding in place from independent investors, the Company will negotiate the most advantageous distribution deal. We will wait until principal photography has commenced before talking with distributors so that they will be able to view the professional quality of the film. This strategy will allow the maximum flexibility in a rapidly changing marketplace where the availability of product is in constant flux. Many factors affect the financial projections for a film. Its commercial appeal is the most important factor in determining financial success, followed closely by the agreement with the distributor. Being able to self-finance the production of a film puts the Company in the strongest position to control the quality and costs of the film, along with striking the best financial arrangements with the various distribution channels. We will attempt to secure the best distribution deal for Exile, with a distributor who will commit financial resources and secure a favorable distribution release pattern. This is key to our film’s success, because when a distributor commits funds to the prints and advertising budget of a film, it is signaling its desire to see the film become successful and make a profit. The distributor can accomplish this by securing enough screens for the film to ensure that sufficient numbers of the viewing public pay the admission price to see the film. As with any business, when revenue exceeds cost, profits are realized. Return on Investment The Company is confident that it will produce a motion picture which audiences will enjoy, thereby reaping the financial rewards from that success. We cannot guarantee that the film will be profitable, or that it will even earn back its budget, but will stand behind our commitment to ensure that the most reasonable distribution deal possible will be sought and executed. The Company proposes to pay back the limited partners who invest in Exile in the following manner: (a) From the Producer’s Gross Income, the Company will cover any and all outstanding production expenses not covered by the production budget, such as deferred pay of talent salaries and other such costs. After deducting any deferred fees or outstanding expenses, the Producer’s Gross Income will go directly to the limited partners proportionate to each partner’s investment. Money will be disbursed to all limited partners at the same time. Accounting statements from distribution companies are usually handled on a
  19. 19. quarterly basis for the first two years of the distribution agreement, and semi- annually thereafter for a period of two years. Accounting statements are then handled on an individual basis. Generally, the distribution company is responsible for providing statements and paying any sums due to the production company within sixty days of the end of each quarter. The Company will provide the limited partners with accounting statements and payments due and owing, if any, within sixty days of the receipt of those statements and money from the distributor. (b) 90% of the project’s Net Profits will be paid to investors, with the production company receiving the remaining 10%. After each limited partner has recouped his/her initial investment, any additional money earned will be divided between the producers and the limited partners on a 50/50 basis. Financial Assumptions For the purpose of the business plan, several assumptions have been included in the financial scenarios and are noted accordingly: 1- Box Office reflects gross dollars of ticket sales before the exhibitor splits the total with the distributor. Domestic Rentals reflect the distributor’s share of the box office split with the exhibitor in the United States and Canada, assuming the film has the same distributor in both countries. Domestic Other (also known as “ancillary”) includes home video (Cassette, DVD, Blu-Ray, HD-DVD), cable, network television, and television syndication. Foreign Revenue includes all monies returned to distributors from all venues outside the United States and Canada. 2- All funds flow from each revenue source to the distributor, whose expenses are deducted before any money goes to the producer/investor; therefore, profit is shown as the Gross Profit. This is the income before the distributor takes his fee. Depending on negotiations, after the distributor deducts the cost for prints and ads, the investor generally is paid back the budget cost. Then the distributor deducts his fees. The timing of disbursements, however, is always subject to negotiations. 3- The Budget, also known as the film’s “negative costs”, covers only the expenses that are needed to produce the master print for the film. All marketing costs are included under P&A (Prints and Advertising), often referred to as “releasing costs” or “distribution expenses”. These expenses also include the cost of making copies of the print from the master and advertising. 4- The films shown in table 1 are used as the basis for the projections. The rationale for the projections is explained in number (9) below. The films relate in genre, tone, and/or budget to our film. 5- Table 1, “Gross Profits of Selected Films with Similar Genres with Budgets $500,000 to $7.5 Million, years 2001-2006”, shows gross profit results for films before distributor fees have been deducted.
  20. 20. 6- Table 2 shows the projected income statement for Exile. The revenue scenario is a moderate projection based on the data shown in table 1. They are used for the cash flow in table 3. 7- Distributor’s Fees (the distributor’s share of the revenues as compared to his expenses, which represent out-of-pocket costs) are based on 35 percent of all gross revenue (note: the exhibitor portion is separate from this calculation), both domestic and foreign. 8- Net Producer/Investor Income represents the projected pre-tax profit after the distributor’s expenses and fees have been deducted and prior to negotiated distributions to investors. 9- The cash flow assumptions for table 3 are: a. Film production will take one year from development through post production, ending with the development of a master print. The actual release date depends on finalization of distribution arrangements, which may occur either before or after the film has been completed and is an unknown variable at this time. For purposes of the cash flow, we have assumed distribution will start within the first quarter after the completion of the film. b. The largest portion of print and advertising costs will be spent in the first quarter of the film’s opening. c. The majority of revenues will come back to the producers within two years after release of the film, although a smaller amount of ancillary revenues will take longer to occur and will be covered by the investor’s agreement. 10- Due to the timing of the cash requirements needed to produce the film, draw downs not immediately used will be deposited in an interest-baring account.
  21. 21. TABLE 8.1 GROSS PROFITS OF SELECTED FILMS WITH SIMILAR GENRES AND/OR BUDGET WITH BUDGETS OF $500,000 TO $7.5 MILLION YEARS 2001 - 2006 (Millions of Dollars) DOMESTIC REVENUE FOREIGN TOTAL COSTS GROSS PROFIT (f) FILMS BOX OFFICE RENTALS (a) OTHER (b) GROSS RENTALS (c) OTHER (d) REVENUE (e) BUDGET P&A TOTAL Whale Rider 20.7 11.1 16.7 20.7 9.3 15.0 52.0 3.5 12.2 15.7 36.3 Crash 54.5 29.1 46.2 43.8 19.7 34.1 129.0 7.5 22.8 30.3 98.7 Open Water 30.5 16.3 33.1 27.6 12.4 20.4 82.1 0.5 23.0 23.5 58.6 The Last King of 17.6 9.4 16.0 30.5 13.7 23.9 62.9 6.0 6.8 12.8 50.2 Scotland Monster 34.4 18.4 30.1 25.9 11.8 18.6 78.9 5.0 19.6 24.6 54.3 Garden State 26.7 14.3 29.1 9.0 4.1 7.4 54.9 5.0 16.2 21.2 33.7 Lost in Translation 44.5 23.8 30.1 74.1 33.3 47.8 134.9 4.0 22.9 26.9 108 Monster's Ball 31.2 16.7 22.5 7.7 3.5 6.9 49.6 4.0 12.0 16.0 33.6 Capote 28.7 15.4 19.9 20.5 9.2 17.1 61.5 7.0 12.4 19.4 42.1 TABLE 8.2 "EXILE" PROJECTED INCOME STATEMENT (Millions of Dollars) DOMESTIC REVENUE FOREIGN TOTAL COSTS EST. DIST. NET PRODUCER INVESTOR GROSS PROFIT (f) FILMS BOX OFFICE RENTALS (a) OTHER (b) GROSS RENTALS (c) OTHER (d) REVENUE (e) BUDGET P&A TOTAL FEES INCOME EXILE 32.1 17.2 27.1 28.9 13 21.2 78.4 5.0 14 19 59.4 27.5 32 (a) Rentals equal money made after paying the exhibitor, in this case 50% of Box Office Total. (b) Domestic Other Revenue includes television, cable, video, DVD, and all other non-theatrical sources of revenue. (c) Foreign Rentals equal money made after paying the exhibitor. (d) Foreign Revenue includes television, cable, home video, DVD and all other non-theatrical sources of revenue. (e) Total Revenue includes both theatrical and ancillary revenues. (f) Gross Profit before distributor's fee is removed. SOURCES: IMDB.com, The-numbers.com, boxofficemojo.com, Baseline Studio Systems (A division of the New York Times). Totals my not add due to rounding.
  22. 22. TABLE 8.3 "EXILE" CASH FLOW (Millions of Dollars) YEAR 1 YEAR 2 YEAR 3 Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Production Budget (0.75) (1.5) (1.5) (0.75) (0.5) Prints and Ads (6) (3) (4) (1) Domestic Rentals 9 5.2 3 Domestic Ancillary 15 12 Foreign Revenue 9.2 8 6 7 4 Distributor Fees (15.5) (12) TOTALS (0.8) (1.5) (1.5) (1) (0.5) 3.0 2.2 7.8 7.0 6 7 4.0 CUMULATIVE TOTAL (0.8) (2.3) (3.8) (4.5) (5) (2.0) 0.2 7.9 14.9 20.9 27.9 32 *Numbers between parenthesis depict negative cost. i.e. (1.25) = -1.25 Totals may not add due to rounding

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