Noble Executive Summary

• 1. Loud Family Inc.Confidential Information OverviewJanuary, 2010 ContactElias Kelley 404-694-3019 [email protected] Legal Disclaimer 1|Page

2. This Confidential Information Overview (this CIO) contains confidential information regarding LOUD FAMILY INCORPORATED (the Company). By accepting this CIO the recipient agrees that it will cause its directors, officers, employees, advisors and other representatives to, use this CIO and any other information supplied by or on behalf of the Company only to evaluate a possible transaction with the Company (the Transaction) and for no other purpose, will not divulge any such information to any other person and will not copy or reproduce in whole or in part this CIO. The recipient, by acceptance hereof, acknowledges its duty to comply with this certain Confidentiality Agreement between the recipient and the Company.The information contained in this CIO was obtained from the Company and other sources believed by the Company to be reliable. No assurance is given as to the accuracy or completeness of such information. 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This CIO does not purport to be all- inclusive or to contain all the information that the recipient may require. Recipients are advised of the need to conduct their own thorough investigation of the Company and its industry.Table of Contents 2|Page 3. Executive Summary..4Risk Management Overview..5Project Synopsis..6Box Office & marketing/Distribution6Production Plan/Timeline.7Appendix A Projected Investment Return.8Appendix B Bios/Resumes.9Cinedigm Digital Cinema Corp.12Appendix C Film Industry Overview...13Appendix D Tax Legislation.20Appendix E Risk Management Details21Appendix F Contact Information.22 The Noble Executive Summary Loud Family Inc. is seeking $10 million to complete full production of the film The Noble in 2010.3|Page 4. $10 million investment is backed by a Risk Management Procedure, allowing for a possible risk of only 10 cents on the dollar. Loud Family Inc. will be using its subsidiary Loud Studios and partner studio (To be decided) to finish the Pre-Production and Production of the film. Cinedigm Digital Cinema Corp. is a digital distribution company that owns 70% of the digital screens in the United States. It is calculated that there is a minimum of 18% profit every 1000 theaters. Cinedigm Digital Cinema Corp. has an LOI with Loud Family Inc. for 1000 theaters.Recoupment Investor will have priority in being re-imbursed in an amount equal to one hundred and twenty five (125%) percent of his/her entire capital contribution to the Company. At this point the investor will own 100% of his/her side of The Noble for the life of the project.There is an Option that will allow the Company to buyout the investor at a 200% the equity investment after the recoupment percentage of 125% is re-imbursed.The Noble is structured on the Federal Tax Credits, Tax Reliefs, and Tax Incentives of its full production processes. This structure allows for a 100+% percentage of the investment before distribution and revenues. There is also revolving equitable exit strategies structured as part of the Risk Management Procedure.4|Page 5. Risk Management Overview This is a breakdown of how the risk of investing $10 million into The Noble is managed: $10,000,000 The Noble At the end of the two year period, if there is no profit, the following monies are projected to be returned to the investor even before domestic sale!:$10,000,000 (Production in Georgia warrants 30% in tax credit) $10,000,000 (Post-Production in Michigan warrants 42% tax credits)$ 1,800,000 (Minimum distribution sales based on Cinedigm projections of 18%) In addition, Accredited Investors are eligible for a 35% percent tax relief in accordance with Section 181 of the American Jobs Creation Act of 2004. Accumulation of the percentages above (30, 42, 18, 35) there is a coverage of 125% on the investment. Again, this is not predicated on any domestic distribution or revenues. Project Synopsis5|Page 6. The Noble is a gripping action thriller about Quin Kemet; A corporate spy for an insurance company.After a delivery goes horribly wrong, a package shows up at Quins door.The contents of the package send Quin into a frenzy of events leadinghim to the truth about the company he works for. In the meantime a vicious delinquent is setting up a coup dtat using anunlikely tool of the surreptitious criminal organization; the Syndicate. Choosing to confront his company, Quin leads himself into a life ofdeceit, deception, manipulation, and danger that will connect him to themalicious world of the Syndicate, and tear him apart as he uncovers thetruth about who he really is. Heavy lies the crown Box Office & Marketing/Distribution The Noble, upon its completion, will be immediately shopped around the Major Studios, including Universal, Paramount, The Weinstein Company, Lionsgate, Sony, and Warner Brothers. Producer Elias Kelley has access to the executives at most of these companies.The primary goal of the Companys marketing efforts will be to achieve domestic theatrical release for the film, since this is the single most important determinant of the pictures performance in the subsequent markets of home video, cable, and broadcast television, and foreign markets. The Noble has the potential has the potential for a huge sale because the budget is low, and the script is excellent.The NobleAction, Suspense, Thriller, TrilogyFilmBudget Worldwide GrossROI Star Wars: A New Hope$11,000,000$797,900,000 720% Rocky$ 1,000,000$225,000,000 11,150% Good Will Hunting$10,000,000$225,933,435 226% Harsh Times$ 2,000,000$ 5,963,96129% Further information can be found ton the-numbers.com6|Page 7. Production Plan The following plan of production will commence once The Noble has been funded.Packaging: During this stage, the Company will package the film (attaching actors, directors,key production personnel and other talent) Preproduction: During this period (this period is eight weeks before the start of production), theCompany will open a production office; hire the crew, engage a location scout to secure thelocations were shooting will take place, secure rentals or purchase of camera and lightingpackages; preparation of shooting schedules; etc. At this time all the actors will be cast andfinalized. Production: The production period (less than 45 days) will be the time that the principalphotography will be shot. After this time, all of the scenes for the movie will be finished, or inthe can. Postproduction: During the postproduction period (approximately three to four months), thedirector and editor will select the best takes of the various scenes and edit those takes into anassembly of the entire film. Also, music will be acquired or composed, recorded and added tothe film; an optical facility will create fades and dissolves between scenes, and shoot thetitles sequences. The director may also do looping sessions (re-recording the actors voicesin a sound studio) and Foley sessions (creating sound effects)TIMELINE Preproduction - 8 Weeks Production - 45 Days Postproduction 2-3 Months Picture Lock (Total Time for Finished Product) 6 Months Sellable Film in 6 Months Goal: The Noble is sold and profitable within 8 Months.Appendix A7|Page 8. Projected Investment ReturnFirst payout goes to investors until 125% of the investment is recouped. After 125% recoupment the profit is split 30/70 between the investors and the production company. The 70% production company split consists of percentages given to the director, producers, actors, actresses, writers, etc. On the investment side, your individual investment reflects the percentage of the film you own, in the case of The Noble 100% of the investors side of the film for the life of the project. The Noble Total Budget: $10,000,000 Sales of the Film: $18,500,000 First Payout: $12,500,000 Remaining money to be split: $6,000,000$1,800,000 to Investor$4,200,000 to ProductionTotal Investment = $10,000,000Example of Investor Payout = $14,300,000 Return on Investment over 2 Years (Excluding TV, Pay-Per View and Ancilliary Markets) = 55.06%8|Page 9. Appendix B Bios/ Resumes CEO, Elias KelleyElias Kelley is the Founder and CEO of Loud Family Incorporated, an Entertainment Media Content company. He began the company at the age of 17, after graduating Cambridge Rindge and Latin, the same high school of the film stars Matt Damon, and Ben Affleck. For the next 5 years Elias would network and structure his business and content to a bankable perfection.Elias Kelley has the hard work and dedication of any success. His leadership skills have put lost Civil Rights artifacts in museums. His speaking skills have helped him in becoming a spokesperson for Laureate Sports at the age of 13, granting a $100,000 plus investment from the Optimist Club of Lincoln, NE. Elias has been engaged in the focus programs of iMac, Pandora, Photoshop and Maya receiving the certificate of excellence in the area of content and presentation.The only child to a Communications professor, Elias has had 22 years of education and crafting of his ability to interact with the individual, micro and macro audiences. He has a natural business savvy and a deep passion to succeed at any endeavor he sets his mind to, as he demonstrates clearly in his role as the CEO of Loud Family Inc.President, Venita Kelley Venita Kelley, Ph.D., is the founder and CEO of Kelley Communications and Consulting, a Cultural competence, leadership development, and media consulting firm. Her expertise is in Media, intercultural communication, and leadership development.She was recently named as Ohio Governor Ted Stricklands official representative for Closing the Achievement Gap, an initiative to improve the educational progress of at-risk students. Dr. Kelley previously served as urban scholar for the cultural competency professional development training segment of the initiative, based in the Institute of Urban Education at Central State University.Dr. Kelleys experience includes fellowships at Harvard University and Cornell University; positions as an Associate Dean of leadership development; as a professor of Communication and Ethnic Studies with affiliated status in Film and Womens Studies; and intercultural communication consultation and training with local and federal government, K-12 and university systems, medical schools, and foundations.Her scholarly foci include intercultural and inter/intragender competency, images of culture and gender in media, African American rhetoric and culture, and African American womens communication strategies, and leadership development.She is a popular speaker, noted as a master teacher, and has an award-winning local and national service background. Dr. Kelley holds a B.A. in Social Science with a concentration in Mass Communication, Cinema & Literature from the University of California in Berkeley. She received her M.A. in Mass Communication and Public Policy from Howard University, followed by a Ph.D. in Intercultural and Public Communication from the University of Kansas.CFO, Lillian Holliday (Tentatively) COO, Anthony Kelley 9|Page 10. Anthony Kelley started managing businesses before he went back to working his way through college at San FranciscoState. During college he took three different businesses to profitability. After twelve plus years he managed to get adegree in Broadcasting and Film, Business management and marketing, Psychology and Sociology, and Humanities.He also has an Associate degree in Live Sound Engineering. An MBA was added some years later.Anthony has worked for small and large (international) organizations. Working in many capacities, technicalservice, technical service training, customer support management, ect... All these responsibilities made him ready forhigher executive duties. Managing, overall performance of organizations, and stepping into roles, such asmanufacturing, marketing, sales, purchasing, finance, personnel, training, administrative services, computer andinformation systems, property management, and transportation. In a consulting role, (his own business) these skillswere tested and honed again and again. Anthony has highly developed personal skills. An analytical mind able to quickly assess large amounts ofinformation and data, has the ability to consider and evaluate the relationships between numerous factors, and isable to communicate clearly and persuasively. His successful qualities include leadership, self-confidence, motivation,decisiveness, flexibility, sound business judgment, and determination.Senior Vice President, Rogelio Landin Born in Detroit, first generation Mexican-American, educated in public schools, Rogelio Landin has committed his lifeto directly and indirectly improving the quality of life for the disadvantaged. He continues to strive for excellence inall that he endeavors, consistently applying this commitment to the areas of Education, Employment and EconomicDevelopment. In each of these disciplines he has amassed a series of firsts, creating, initiating and generatingsystems, policy, process and procedures that have served to advance paradigm shifts effectively promoting change. In the area of Economic Development, he was a pioneering advocate for inclusion of historically disadvantageddiversity groups seeking access and parity to contracting opportunities, allowing them to contribute to theircommunitys self-determination. During his career in the private sector his experience in international trade provideda global perspective to our economic interdependency as relates to the manufacturing and energy sectors. In the area of Workforce, recapturing and cultivating our greatest resource, human capital, he applied his privatesector skills to developing market driven, true engagement, performance based placement systems creating the firstreal business services model. His macro approach is recognized for its efficiencies and effectiveness and was asked tobe modeled in a Technical Assistance Guide (TAG) for the U.S. Department of Labor and was subsequently showcasedat two national workforce conferences. In Education, he has responded to a call from educators to identify and make available to urban districtssupplemental educational materials capable of contributing to increasing literacy and math proficiencies while alsobeing reflective of the diversity found in urban communities. These types of materials have a profound relevance inproviding a culturally competent context to the educational experience. His company Performance Books is the firstminority owned enterprise to be granted a national partnership with the National Head Start Association and is thefirst to be approved for membership in the Educational Book and Media Association. Throughout, he has maintained a relentless, unwavering involvement in politics that spans from local to international,whenever possible, working through, with and for affinity groups. This experience produced an astute, top-downskilled negotiator, allowing him to engage the system and successfully move seamlessly within politicalinfrastructures. Rogelio Landin is foremost analytical and strategic, providing for the formulation of solutions. Precision in execution,followed with applied statistics focused toward Return on Resource, Objective and Investment performanceevaluation metrics completes a comprehensive skill set.10 | P a g e 11. An effective communicator, he utilizes his ability to articulate with eloquence, to make things make sense and to make things make cents bridging bias, leveling playing fields where double-standards once existed, improving the human condition.11 | P a g e 12. Cinedigm Digital Cinema Corp. Cinedigm integrates all the parties in the Digital Cinema supply chain with management software, services and secure delivery; end-to-end, plug-and-play. The company provides three, key, fully integrated solutions: management software and services for distributors (TDS) and exhibitors (EMS); fully managed electronic delivery of movies and other content, using satellite or fiber interchangeably, with proactive, notification to all parties throughout the process; and vendor-agnostic, in-theatre application software (TCC) to serve as the single point of operations and storage for all of the POS, projection systems and content in a multiplex. Our platform enables different types of hardware to work together seamlessly. In the summer of 2005, Cinedigm, using hardware from Christie Digital Systems, announced a major studio-backed plan to deploy up to 2,500 DCI-compliant digital projection systems throughout the United States by the fall of 2007. This plan expanded to more than 3,700 systems and represents by far the largest such deployment in the world. In addition to its major impact on Cinedigms performance for years to come, the plan is expected to provide a template for the conversion of all 107,000 screens worldwide. As the universe of digitally equipped theatres increases, so does the opportunity for Cinedigm to grow its business. Cinedigm, in recognizing this growth potential, has already begun to expand current products for the domestic and international marketplace.12 | P a g e 13. Appendix C Overview of Film Industry The Movie Industry is one of most exciting and informative businesses in the world, a business where therevenue of a single feature film (such as Titanic), can approach or exceed $1 billion. In 2001, worldwide gross revenues generated by motion pictures in all territories and media (includingmusic and ancillaries) amounted to over $40 billion. Over 70% of the population rents or goes to moviesregularly, thus accounting for over 1.5 billion movie attendances each year in the U.S. Prior to 1985, feature motion pictures had one major source of revenue in the United States and abroad:the movie theater. Today much of the world is undergoing a mass communications revolution; hence, newmovie markets (such as home video, cable and pay-per-view) have been growing so rapidly that they areno longer just Ancilliary markets to the basic theatrical market but have become basic markets inthemselves. Industry statistics reveal that the past ten years have marked an overall increase of at least 30% in many"Ancilliary markets" and, over 200%, as in the case of home video. The ability to exploit a movie in manymarkets diminishes investment risk and increases earning potential. In many instances, low budgetmovies have lost money theatrically and still earned profits overall from Ancilliary sales. With the advent of the new computer-based technologies, "cable" markets and direct digital-delivery ofmotion pictures via satellite and the Internet are expected to increase dramatically over the next fiveyears, creating an accelerated demand for original and re-run motion pictures. The worldwide market for the sale and exploitation of feature motion pictures is divided into "territories"and "media." The territories are divided into two major regions known as "foreign territories" and"domestic territories." The broad foreign territories are Europe, "Australasia," Latin America, EasternEurope and Others (that include Israel, the Middle East, South Africa and Turkey). The United States andCanada are usually grouped together and referred to as the "domestic territory," from the point of view ofthe United States. The current "media" by which feature motion pictures are delivered to the territories includes movietheaters, home video cassettes, cable TV (monthly subscription and pay-per-view), direct broadcastsatellite TV, free broadcast TV (Network and Syndication), and ancillaries (such as airlines and libraries). According to a study conducted by Monitor Co., the movie and television industries contributed over $16billion to the State of California's economy, directly employing 164,000 and indirectly employing another184,000. The study also found that the vast majority of feature films and television programs areproduced by independent producers. Independent production is becoming more prevalent in other areas ofthe United States, especially Nevada, North Carolina and the Tri-State Area (of New York, New Jersey andPennsylvania). Competition There are thousands of screenplays in development at any given time, however each year only 450 to 500of these are produced into 35mm motion pictures. Although the majorities undergo principal photographyin the United States, approximately 60 to 80 are shot offshore (including Mexico and Canada). Of theseapproximately one-third come from the major studios (also known as the MPAA companies), andapproximately two-thirds from the "independents." "Independents" are those companies engaged in theproduction and/or distribution worldwide in all media of all motion picture and television programs that arenot generated by the recognized major studios. It includes those independent productions, even thosedistributed by a major studio, in which the producer retains a significant ownership interest and is at riskfor a significant portion of the production cost. Of the 450 to 500 features produced each year, less than half receive a theatrical release. Thus asignificant number of features do not get a theatrical release but are released directly to home video and 13 | P a g e 14. other media. There were over 350 features released in 1998 by major and mini-major studios as compared to about 290 in 1997.Producing and/or financing the above product are approximately 7 major studios (8 if you count DreamWorks SKG), 16 mini-major studios, 50 to 80 major independent production companies and over 1,750 smaller independent production companies, many of which may never produce even one feature or produce only one feature every two or more years.Including the major studios, there are over 600 entities that directly or indirectly distribute feature motion pictures to the various worldwide markets (with approximately 350 specializing in foreign territories and approximately 250 specializing in domestic territories). Of these, approximately 225 companies distribute motion pictures to the theatrical markets, 250 to home video, 310 to television, 70 to pay-per-view and 95 to the syndication markets.Exhibiting the above feature output are 4 major television networks, 37 cable channels (of which 6 or 7 are major cable networks) and hundreds of independent stations in the United States.The Theatrical MarketTheatrical exhibition is the traditional market for the initial presentation of "feature" motion pictures. Despite intense competition with other forms of entertainment (such as music and sports), movie attendance has exceeded one billion paid-admissions annually since 1976. According to statistics provided by the Motion Picture Association of America (MPAA), U.S. box office hit $8.4 billion in 2001, a 9.8% increase over the previous year. Worldwide box office receipts for feature motion pictures have grown from $1.2 billion in 1970 and $2.8 billion in 1980 to over 15 billion in 2001. This increase is all the more remarkable because Ancilliary markets such as home video, cable and (foreign) television markets have undergone explosive growth during this same period.Despite these burgeoning statistics, the fact remains that motion pictures with high production and marketing costs, often entail greater risks with less likelihood of return than lower-cost pictures released in the non-theatrical markets. The reasons: marketing and promotional costs (combined with substantial fees paid to exhibitors, usually 40% to 65% of box office gross), distribution fees (usually 33%), overhead, interest and expenses (paid usually to studio distributors) and gross participations, greatly reduce the revenue stream flowing to the producer and net profit participants. According to the MPAA the average negative cost of a studio feature motion picture (which includes production cost, studio over head and capitalized interest) as of 2001 was $47.7 million. As of 2001 the average initial marketing costs (prints and advertising) as of the feature is in excess of $20 million. Five years ago the average negative costs of a feature was $39.8 million. These statistics alone make the task of recouping production and marketing costs for MPAA pictures formidable. Low and medium budget pictures produced by the independents (typically for less than $1.5 million and $10 million, respectively), have less difficulty recouping, however low budget pictures often go direct to home video in lieu of a release in the theatrical market.Theatrical exposure, no matter what the projection medium, is often a major method of enhancing the value of the Ancilliary markets (home video, cable and free TV), as these ancillaries benefit directly from word-of-mouth advertising and ad campaigns created by the theatrical release. Thus, any increase in the value of Ancilliary rights decreases the reliance on theatrical exhibition as a source of revenue. On the other hand, a successful theatrical release has proven time and again to be extremely valuable for exhibitors, distributors and producers alike.As of 2001 there were approximately 6,596 theaters with 36,110 indoor "screens" and 474 drive in theaters with 654 drive-ins "screens" in the United States. As of 1996 there were approximately 7,215 theaters with only 28,864 indoor "screens" and 583 drive in theaters with 826 drive-ins "screens" so clearly the average number of screens per theater has been going up, while the number drive in screens and theaters have been dropping steadily.As of 1998, there were approximately 32 theater circuits in the U.S. with more than 100 screens each. The top three circuits at that time were United Artists (2,398 screens), Cineplex Odeon (1,715 screens) and American Multi-Cinema (1,623 screens).14 | P a g e 15. The average studio feature ("A-Picture") is in first-run release for approximately 8 weeks garnering between 1,000 and 2,700 screens and grossing $10 to $40 million over such period. The same picture is in second-run theaters for the balance of its theatrical life, such being approximately 6 months. Independent pictures gross much more modest sums, but, as mentioned, their production and marketing budgets are considerably less as well. The top 10 grossing limited release films of 1995, for instance, grossed between $9.4 million (The Brothers Mc Mullen) and $3.7 million (Bad Company).About 16 new major features are introduced to the theatrical marketplace each month, playing 800 to 2,500 screens, or an average of about 1,650 screens. Since first-run is usually 8 weeks, this means that between 12,800 and virtually all of the existing 26,500 screens (during the peak times of Summer and Christmas holidays), are booked with major studio product, leaving, at best, between 6,850 and 13,700 screens available for independent productions for limited periods of time or during off-season periods. Each independent production plays on about 5 to 75 screens (or an average of approximately 40 screens) making it possible for about 260 pictures to be absorbed by the market in each 6-month period.Home Video MarketAccording to the Television Bureau of Advertising, as of 1994, 79% of all TV households (such numbering 211 million, excluding Alaska and Hawaii) had a VCR, such number of VCR being approximately 70 million. According to Neilson Media Research as of 2001 there are now 96.2 million VCR households and 105.5 million TV households.Although growth in the worldwide home video market as of 2001 seems to be rebounding, this market, once considered an Ancilliary market, out-paced even the most optimistic growth projections over the past decade and has emerged as a "basic" market. While theatrical exhibition will never be replaced (any more than television replaced radio or movies), home video can be key to a picture's success in other markets.According to the U.S. Bureau of Census, there are over 22,000 establishments in the United States dedicated to renting and selling home video cassettes. When one considers the thousands of other outlets (such as super markets, department/convenience stores, gas stations and increasingly ubiquitous vending machines), this figure is considerably higher.Video stores usually purchase between 5 and 25 video cassettes of each major studio release for as much as $79 per cassette. It is not uncommon for such an outlet to purchase 100 copies of a blockbuster release and discounted prices can be expected for such quantities, as well as lesser quantities, especially to large chains, such as a Blockbuster Video chain. Of the total universe of video outlets, including dedicated video establishments, only about 5,000 tend to regularly purchase features made by independent production companies. In such case, each outlet typically purchases at least two video cassettes (in case one breaks) for as much as $40 to $65 a cassette. Each cassette rents approximately 2 to 10 times a week, depending on how many copies of a particular title the video store has on display and other factors.According to Investor's Business Daily, Paul Kagan Associates project that by 1999 revenues generated by the domestic home video market will be approximately 185% of the domestic theatrical market.Cable TV MarketsOf the 108 million TV households in the U.S., (such representing a 97.5% penetration), 60.5 million subscribe to cable TV.There are two kinds of cable TV. The first is regular cable TV known as "pay TV" the second is "pay-per- view." Pay TV, which is subscribed to and paid on a monthly basis, includes basic service and is available with premium channels such as HBO and Cinemax. Pay-per-view is paid for upon the user's demand - currently by calling an 800 number or ordering it on a hotel television set. Consumers only pay for what they purchase directly.Pay TV has grown steadily over the past ten years, accelerating somewhat during the past five years with the addition of new pay TV subscriber services. According to the U.S. Bureau of Census, 45% of all television households currently subscribe to basic cable services. Of these, many subscribers pay a premium for additional services such as HBO, Showtime and Cinemax. Often cable companies compete vigorously with the home video window for a prior run option.15 | P a g e 16. The main staple for most pay television services is feature motion pictures which have been released theatrically. Home Box Office has a 400 film appetite annually and Cinemax, its sister service, has a 200 film appetite. These services combined represent approximately 50% of the market. Showtime/The Movie Channel has approximately 30% of the market, while the other smaller services make up the remainder.Pay-per-view on cable is gaining market share rapidly and may eventually replace both subscription cable and home video by the turn of the century. The number of pay-per-view customers is over 20 million, up from 6 million in 1989. Combined cable sales total approximately 20% of theatrical revenues.Network TelevisionIt is not anticipated that there is a market for independently produced low-budget features on network television except in the case of extremely successful pictures, or in the event pictures are made-for- television (such as movies-of-the-week, also known as MOWs).SyndicationSyndication, the act of selling features to each of the thousands of local independent television stations across domestic U.S., Canada and abroad, may proceed for 5 years or longer for each film.Independent television stations (stations not affiliated with a network) have recently become another source of revenue for theatrical motion pictures and the importance of local independent television stations is a relatively recent phenomenon, in foreign markets as well.With the major networks producing movies exclusively for broadcast on their own stations, independent television stations have become increasingly important outlets for theatrical features produced by independent producers. Typically, independent television rights are sold to a syndicator who in turn sells to individual stations or small networks across the country.While terrible films cannot be syndicated no matter how good the marketing and great films often sell themselves, the vast majority of films in between can generate significant revenues, equaling or well exceeding theatrical revenues, given an ample marketing campaign and the long window of time typical of syndication.The New "Ancilliary" MarketsStar Wars was one of the first motion pictures to demonstrate, on a major scale, how valuable Ancilliary markets (consisting of such spin-offs as toys, games, T-shirts and novelty items) can be. In a continuing trend to present day, Jurassic Park, for instance, continues to generate spin-off sales which may eventually be as significant as revenues the picture has already earned in various other markets.Typically, independently produced features do not generate significant Ancilliary revenues of this nature, although this trend has been changing in the recent past.Interactive video and computer games are another huge new market that is rapidly expanding. At this time it is difficult to predict how significant this new Ancilliary market will become, but it could represent a major segment of the future motion picture industry.With the advent of DVD's ("digital video discs," also known as "digital versatile discs"), VHS tape, as the predominant delivery system for home video, will most likely go the way of 78rpm, 45rmp and 33rpm vinyl records. In fact, due to DVD's huge storage capacity (4.7 gigabytes per layer, with up to 4 layers possible within the next five years), light weight and relatively low cost of production, this new medium may give birth to an entirely new direct-sale, retail market, replacing the current video cassette rental market of today and modifying the doctrine of first sale.Direct broadcast satellite, which in essence delivers a cable-quality (or better) image directly to the home by satellite, has become increasingly popular in recent years due to a wide variety of programming and reduced costs. It is uncertain at this date as to whether direct broadcast satellite will eventually replace cable delivery systems or work in tandem with them, as a significant cable infrastructure is already in 16 | P a g e 17. place. It is conceivable that many foreign and third-world territories will base their infrastructure on wireless delivery systems and in such case Direct broadcast satellite, as well as direct, high-bandwidth, Internet delivery, may be the norm in the future.The Foreign MarketExport sales to foreign markets from independent producers hit an all time high of $1.8 billion (up 22% from 1996). The European foreign market accounts for 56% of global revenues (all media) generated by English-language, independently produced films. Television sales (which include pay and free TV), account for 44% of all foreign revenues and were up 11% over the last year, for the third consecutive year. The largest single improvement in sales for fiscal 1996, however, was theatrical (up 37%). Home video remained flat, at 25% of all revenues, as it has the past several years.As of February of 2000, the most important foreign territories are: Japan, Germany (including Austria), Italy, the United Kingdom (including Ireland), Spain, France (including French Belgium), Korea, Australia/ New Zealand, Brazil, Mexico.According to The Hollywood Reporter AFM 1997 Special Edition: Japan is the largest foreign market even though it is fighting a dilapidated theater infrastructure and declining attendance records. Nevertheless, consumers spend more than $6 Billion in the home video market (majors and independents), and significant new markets are opening up with respect to satellite, TV, cable, pay-per-view and DTH services. Germany, the number one European market, is television-driven; however there are signs of a leveling out. With a record theatrical year, the country is building multiplexes and will have approximately 5,000 by 2002. Italy is the only major European country without cable. The television market is hindered by political strife over proposed new communications legislation and the video industry is hampered by serious piracy. Nevertheless, even though there is a major shortage of theaters, Italy is the top market for independently produced features. The United Kingdom/Ireland market is steady but highly selective about theatrical product due to a paucity of local distributors. Nevertheless, it could strengthen due to a new cable infrastructure going into place. With the lifting of certain quotas on Spain's imports, this territory is expected to grow with new co-production opportunities for independents. Currently, massive joint efforts between Spanish and American exhibition entities will provide more multiplex theaters to offset the decline of the home video market here. France is having problems with theater construction even though such market is strong for films other than B-pictures due to television quotas and the decline of home video market. Second only to Japan as Asia's top market for buying motion pictures, South Korea is the world's fastest growing market. Although the country lacks screens, there are extensive programs to remedy the situation as the country becomes more open to foreign competition and global markets. Australia's theatrical market is growing rapidly due to an expansion of its 1,200 screens with additional multiplexes. Although direct-to-video sales are off and satellite services are precarious, the territory has a strong market for television and home video which will usher in a dynamically maturing major market over the next decade. Latin America, long in the doldrums, is experiencing a multiplex boom. The fact that there is essentially only one distributor-buyer for the entire country makes it relatively easy to sell TV rights, even though buying power will remain poor until the country's exchange rates improve. There is now positive indication that this is happening today.Generally speaking, if an English-language film made for U.S. release does well domestically, it becomes popular in foreign markets, particularly in Europe.DemographicsOf the total U.S. population (which is about 265 million), the two largest groups that go to the movies are 16 to 20 years of age and 30 to 39 years of age. Each group makes up approximately 19% of the theatrical, movie-going population. Attendees under 30 years old are, and have been, the dominant force in the movie-going public. Of the total population, 21% go to the movies at least once a month, 34% go once in 2 to 6 months and 12% go less than once in 6 months. 32% never go to the movies. The national average price paid for a movie ticket is approximately $7.45. Box Office Gross Sales - B Pictures17 | P a g e 18. Although it should not be construed that it is easy to generate returns as stated below, the figures represented have been obtained by many independent producers.Quality B-Pictures produced by independent production companies in the past have been able to routinely generate revenues in excess of $2 million when one considers not only theatrical, but home video, foreign and Ancilliary revenues. Using data on the top 253 "low budget," independently produced B-Pictures covered by The Hollywood Reporter, the average 10-year gross for each feature (adjusted for 1996 dollars), was in the neighborhood of $9 million. The top 8 pictures grossed more than $30 million each and the top picture earned just over $70 million. The lowest picture in the sample earned $1.6 million.A feature film "costs" what a producer can't obtain for free, or what costs he or she has deferred for payment at a later date from the proceeds of the film's exploitation. When one hears of a feature costing under $50,000 to produce, yet it is making a million dollars at the box office, several facts have usually been omitted. Among the omitted facts are: (a) most of the cast, crew and equipment costs have been deferred but are payable out of the sale proceeds. This amounts to $50,000 to $100,000. (b) $10,000 to $40,000 must be spent in editing to clean up flawed production sound tracks, ADR to improve poor acting delivery and a host of photographic problems that are routine, must be addressed. (c) $30,000 must be spent to blow up the 16mm negative to 35mm. (d) better music must be purchased or a score written. These costs anywhere from $10,000 to $30,000 for a low budget project. Thus the real cost of the "$7,000 feature" is at least $150,000 to $200,000.Very occasionally, features made for less than $50,000 will gross hundreds of thousands or even break the multi-million dollar mark, but more times than not, the low initial production budget is used as "hype" to promote the picture, or the director of the picture. Return Of The Secaucus 7 and Clerks are examples of features that were made for under $50,000 and grossed over a million dollars, and they are very rare. Films costing between $200,000 and $700,000 which gross several million are more realistic examples of what can be expected from super low budget pictures. She's Gotta Have It, Night Of The Living Dead, The Blob, Eating Raoul and Grizzly are examples.Of course, many pictures have earned much less and many have not recouped their production costs at all, especially if not completed, produced for too high of a budget or present an unengaging story.The fact that THE BLAIR WITCH PROJECT, which was shot in digital video at a production cost of about $25,000 (with a post production cost of $230,000) has grossed over $120,000,000 - will change the dynamics of the movie industry and may contribute to the demise of the "brick and mortar" major studio/ distributors within the next decade.Box Office Gross Sales - A PicturesThe Hollywood Reporter, Variety and other trade publications publish, on a weekly basis, the national and international box office grosses of all MPAA (studio) and Independently-produced features that do significant business. Ultimately, most A-Pictures have been able to generate receipts of at least $30 million, especially when all media and territories have been exploited.Many A-Pictures routinely generate $30 million within even 14 weeks of theatrical release. For example, in the combined last quarter of 1996 and the first quarter of 1997, over 40 pictures took in revenues in excess of $30 million. When one considers home video, foreign and Ancilliary revenues, such returns may increase by a factor of two or more. In fact, from October, 1996 through April, 1997, for instance, 12 of the features in release grossed more than $100 million in the U.S. theatrical market alone. Independence Day, released in 1996, grossed over $280,000,000 in 10 weeks.Adjusted for inflation, Gone With The Wind is the top grossing movie of all time. In terms of raw 1993 dollars, (and not considering the recent re-release of the Star Wars trilogy), Jurassic Park is the largest- grossing movie in history, earning over $900 million in the worldwide theatrical markets alone. Given this exposure, there is a strong possibility that when Jurassic Park has been exploited in all Ancilliary worldwide markets (home video, cable, TV, spin-offs, etc.); gross revenues may exceed 2 billion dollars, especially if it is re-released at some future date.Usually, the largest, most impressive grosses, are generated by high-budget A-Pictures, financed and/or released by the MPAA companies; however, such pictures do not always create the optimum rate of 18 | P a g e 19. return, especially for net profit participants, who, unfortunately, only see profit participation in 5% of the pictures. 19 | P a g e 20. Appendix DNew Federal Tax Legislation Immediate Write-Off of ExpendituresFrequently Asked QuestionsQ: When do the productions need to commence to qualify for the new incentive? A: The incentive is available for qualified productions commencing after October 22, 2004, and before January 1, 2009. This incentive has recently been extended for one year.Q: Can the immediate write-offs be taken in more than one year? A: Yes, if an election is made to use the incentive, the immediate deduction takes place in the year the expenditure is incurred. Therefore, if production expenditures are incurred in more than one year, the immediate tax deduction will be taken in more than one year.Q: When, where, and how does the election to immediately deduct the qualifying expenditures apply? A: The election is to be made on the tax return for the taxable year in which the production costs are first incurred. The election must be made by the due date (including extensions of time) of such return. The manner and form of the election will be determined by the IRS at a later date.Q: What is the real benefit of this incentive? A: This is a significant new federal tax incentive that allows producers to take a tax deduction for the full costs of a production in the year the cost is incurred (as opposed to having the spread or amortize those costs over a period of years). Deducting the costs up front, while deferring the income from the films until the later years when it is incurred, will significantly reduce or eliminate the investors taxable income for the film in the early years of exploitation.Q: Is the incentive transferable? A: No. However; different entity structures such as limited liability corporations, partnerships, and others, should be considered to properly allocate costs that could immediately be expensed.Q: Can this incentive, if extinguished in the coming years, be created through other federal tax credits, tax reliefs, or incentives? A: Yes. There are mixtures of state film incentives that can yield the same amount percentage as the federal legislations tax incentives. These can also be used to increase the amount percentage that can be accumulated from the federal film sections of the tax code. However this is not as effective unless slate funding for multiple projects is optioned.20 | P a g e 21. Appendix ERisk Management Details Georgias Current Film Incentives 20% Tax Credit 20% cash rebate, across the board on Georgia expenditures, with a spending threshold of$50,000. Georgia adds an extra 10% if the company shows the GA logo for a period of five seconds, oradds the logo to the credits of the film. There is no cap on the amount that can be spent on productions in Georgia.Michigans Current Film Incentives 40% Tax Credit 40% cash rebate, across the board on Michigan expenditures, with a spending threshold of$50,000. Michigan adds an extra 2% films in one of the 103 Core Communities (over 85% of the state,including Detroit) in Michigan. This incentive can also be used in postproduction including distribution and P&A (prints andadvertising). Labor and Crew: 40-42% Resident and Above the Line. 30% Non-resident Below the Line. The only cap will be a maximum of $2 million salary per employee. There is no other cap and does not terminate. 21 | P a g e 22. Appendix FContact Information Loud Family Inc.Ohio Headquarters 1523 US Rte. 42 East Box. 647 Wilberforce, OH, 45384 Elias Kelley 404-694-3019 [email protected] 22 | P a g e