Controlled Copy Burns Global LTD.: A Motion Picture Entertainment Company

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A Motion Picture Entertainment Company
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Bryan Burns Director and Chief Executive Officer Burns Global Ltd. This document and the information contained herein, is provided solely for the purpose of acquainting the reader with Operative Entertainment. It is proprietary to Business Strategies. This business plan does not constitute an offer to sell, or a solicitation of an offer to purchase securities. It has been submitted on a confidential basis solely for the benefit of selected individuals and is not for use by any other persons. By accepting delivery of this business plan, the recipient acknowledges and agrees that: 1) in the event the recipient does not wish to pursue this matter, the recipient will return this copy to the address listed as soon as practical; 2) the recipient will not print, forward, copy, fax, reproduce, or distribute this confidential business plan, in whole or in part, without permission; and 3) all the information contained herein will be treated as confidential material. Controlled Copy Issued to: Issued date: Copy: Burns Global Ltd. 21 Medway Penfold London, United Kingdom NW8 8BH
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The Table Of Contents EXECUTIVE SUMMARY MANAGEMENT AND ORGANIZATION Company Description Legal Description Background Management Bryan Burns Carlos Gallardo Getting Started Seed Money The Style of Company Different Styles of Production Companys Balanced Producing The Development Company Burns Global, Operative Entertainments and Deve Organizational Chart of Operative Entertain Organizational Chart of the Development Executive Staff of Operative Entertainment Producers Producers Requirements Development VP Development VPs Requirements Global Sales Rights VP Global Rights VPs Requirements Advertising PR VP Advertising PR VP Requirements Business Affairs VP Business Affairs VP Requirements Finance VP Finance VP Requirements Executive Staff of Development One Development Director Development Director Requirements Development Manager Development Manager Requirements Global Rights Manager Global Rights Manager Requirements Operations Manager Operations Manager Requirements Subordinate Staff of Operative Entertainment Subordinate Staff Story Director Requirements Foreign Manager Requirements Ancillary Manager Requirements Assistants Requirements Outside Contractors Script Reader Graphics Designer Presentations Crews Office UPM Anticipated difficulties and considerations of staffing The Board Anticipated difficulties and considerations of recruiti Board Compensation BUSINESS OPPORTUNITY The New Tax Break System The New Relief in Detail 5 6 6 6 6 6 6 7 8 8 8 8 8 9 10 10 11 11 11 13 13 13 13 13 13 14 14 14 14 14 14 14 14 15 15 15 15 15 15 15 15 15 16 16 16 16 16 16 16 16 17 18 19 19 20 20 20 2
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Anticipated difficulties and considerations of Tax Sys THE BUILDING OF THE COMPANY Anticipated Difficulties and considerations of securing Business Development PRODUCT Story Positioning The Success Budget Parameters Explained in Detail Production Financing Anticipated difficulties and considerations of Produc THE PRODUCTION COMPANYCOMPETITION The Business and Public Relations Process MARKET ANALYSIS U.S. Box Office Admissions Global and Foreign Box Office Top 20 Worldwide Grosses; % of Domestic vs. Ove Market Analysis UK Films The Box Office UK Admissions UK Films Internationally Country of Origin of Films in the US and Cana Top 10 UK film worldwide, 2004 U.S. Video and DVD Distribution Premium Cable and Television & Video-on-demand Network Television Television Syndication Supplementary Ancillary Rights Risk Statement FINANCIALS Cash Flow Cash Flow Year Two APPENDICES Appendix 1 Definitions Appendix 2 Production Stages Appendix 3 Draft Legislation for Film Relief: Chapter 1 Appendix 4 Cultural Test For British Films Appendix 5 Comparison of Film Tax Incentives Production Bud Appendix 6 UK Feature Film Production Activity, 2003-2004 Sn Appendix 7 Case Study: Pixar Films Appendix 8 Business Structure Appendix 9 Board Charter Appendix 10 Values, Morals and Ethics Appendix 11 Activity Schedule Appendix 12 Letter of Intent Carlos Gallardo -
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Neither the Securities or Exchange Commission in the United States of America nor any other regulatory body in any jurisdiction has approved or disapproved of this business plan or passed upon the adequacy or accuracy. Any representation to the contrary is a criminal offence. The information in the business plan is not complete and may be changed without notice. This business plan is not an offer to sell securities and it is not soliciting offers to buy securities in any jurisdiction where the offer or sale is not permitted This business plan and the information contained herein are confidential and is intended only for the use of qualified persons to whom it is distributed. Burns Global Ltd. expressly disclaims any and all liability for representations and warranties, expressed or implied, contained in or omitted from this business plan. Any reproduction or distribution of this information in whole or in part, or divulgence or any of its contents is prohibited without prior written consent of Burns Global Ltd. Upon request, the recipient agrees to return this document and any other material without retaining any copies thereof.
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EXECUTIVE SUMMARY Burns Global Ltd. is seeking to raise 1.1MM seed financing capital from private investor funds. This debt, as presently designed, will take the form of a subordinated loan, or an investment in convertible bonds or preferred stock in the start-up corporation. These funds will be used in the initial development stage of three motion picture productions. The companys founder Bryan Burnss diverse background and experience is brought to the position along with ten years of entertainment industry focus around, production, story and business development. Carlos Gallardo, producer and actor in such films as El Mariachi, Desperado, and Once Upon a Time in Mexico, has signed a letter of intent to join the company and will bring over 25,000,000 US domestic gross box office producing experience to the position. Using a fully financed development environment, bank production financing, co-production and studio distribution relationships management will utilize a highly creative, low-risk model of filmmaking. The type of entertainment Operative Entertainment is committed to distributing to the mainstream public focus its stories around truths of the world, characters, or ideals. Management will utilize a turnkey prototype model to build and impart an environment that nurtures creativity and productivity in a predictable and quantifiable manner. Through the creation of this environment and a dedication to performance Operative Entertainment will produce the highest possible quality pictures. The companys Producers will act as the companys CEOs. The companys Board of Directors will evaluate the performance of the CEO and key executives, as well as: review and approve major corporate objectives, policies, budgets and strategies, as initiated by the Producers; monitor the companys financial structure; monitor the companys performance; and concentrate on broad strategic issues. The motion picture industry is in transition in the United Kingdom. A new system of tax laws has been designed to stimulate the production of quality motion pictures for distribution. This plan is predicated on the supposition that a slate production company focused on the long-term, and built on a solid foundation, is the best method, in combination with the new tax laws, to achieve the goals of the Treasurer, Investors, the Producers and ultimately the public. The motion picture industry market, on a whole, is healthy and growing. Movie attendance worldwide is increasing, in the United States 157.4 million moviegoers attended cinemas growing the market by 27% in the last decade, in the UK 171.3 million cinema admissions were recorded in 2004. This is the second highest admissions figure for 32 years in the UK, after 2002. The number of tickets sold had increased by 2% on 2003, marking a 49% increase in ten years. Burns Global is scheduled to build a company that will initially produce three motion pictures with an anticipated domestic theatrical release date of the final picture by the thirty-sixth month. In order to target specific audiences into theatres, as well as, audience specific demographics marketing campaign components will be central to the filmmaking process from inception.
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MANAGEMENT AND ORGANIZATION Company Description Legal Description Burns Global Ltd. is the legal entity created by the principles of the company to engage in business, specifically the development of Operative Entertainment. The company is a privately held limited liability company formed in September of 2004, registered at the Companies House, United Kingdom. Iain Smith & Co. 18-20 Queens Road, Aberdeen, Scotland holds the registration for Burns Global Ltd. Gordon Inkson, a corporate law specialist, manages the file. The company operates its business from London, England. Background The company itself is in the organizational stage and has an absence of a history of operations and minimal new worth. In order to torque down the risk, management has planned extensively, this planning includes, among other things, how to engagement in strategic relationships, develop the necessary requirements listed in this business plan and the mitigation of financial risk through a slate structure and production style. Management Bryan Burns Bryan Burns has more than ten years of film industry experience. His interest in film began earlier in life with an interest in photography. At a young age he received a 35mm camera from his father and taught himself photography; a hobby he still enjoys to this day. His interest grew to the point that at the age of sixteen he was offered a small grant from the City of Calgary to purchase additional equipment to start a business as an animal photographer; the offer was short lived due to lack of clients, but armed with a Pentax M1 he continue to take photographs. As well as photography he wrote for this High School paper and brought ideas that rejuvenated the paper. At this time Bryan studied film analysis with his classmates under Dr. Dion Nittis, UCLA. While studying Hemingway in our Honors English class, we were watching and studying the storytelling techniques of film. Mario Araya, the owner of Premiere Parte Productions: a commercial and film company, and Bryan met socially at this time. Bryan joined Mario on shoots for national television ads and was considered by Mario to be a natural. Mario, a graduate of Vancouver Film School, recommended to Bryan that he attend film school to get his certification. Bryan moved to Vancouver and attended Vancouver Film Schools Foundation Film Program. While in the program Bryans short screenplay was selected for production and with the assistance of his friends the film was brought to life. I remember after the screening a woman stopped me to talk about the film telling me that she thought it was great, you never get over that feeling Bryan remembers. After film school Bryan worked at a production supply house and quickly moved through the ranks. His progress from the grip and electric department and into the camera department and to a desk performing administrative tasks was rapid. Not satisfied and still hungry to be more involved in the process of film-making he packed-up and moved to Los Angeles in 2000.
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In Los Angeles he utilized his experience and worked on dozens of independent films and local and national market commercials. In 2003 Bryan began writing and wrote a spec script that included over two hundred and fifty hours of research and a journey to the United Kingdom. He also began reviewing screenplays that he received from across the globe for their potential to be developed into films. In the process he developed a standardized system of story analysis to created coverage that achieves a consistent and measurable result. Bryan attended Trubys Great Screenwriting Master Class as well as master classes in Producing in 2004. After a chance meeting and some collaboration with Cult Director and Producer Drew Sky, Drew urged Bryan to write his business ideas into a complete plan. For a year he nurtured relationships with investors and facilitated business for other producers. After a year of self-study that included coaching securities industry practices for the Series Six financial exam Bryan moved to London to produce films. Carlos Gallardo When Carlos Gallardo was six years old, he fantasized about being involved in the world of cinema. He did not know he would do it, but his greatest desire was to enter that marvelous dream world. It came at no surprise, then, when at a young age he decided on a career as an Actor / filmmaker. From the day he made this decision on, he let his imagination run free. Carlos began by making home videos, but by the time he turned 13, he had become a fullfledged director: 'I made my first movie with an 8mmm camera loaned to me by a friend of my father', he reminisces about his early experiences in film. Now, at age 35, he has become an expert in his field. Inspired by well-known directors such as John Carpenter and George Miller, this lover of Mexican culture and tradition has never ceased to expand his creative vision behind and in front of the camera. Without a doubt, the project which brought him the most recognition from Hollywood was the incredibly successful film "EL MARIACHI" where he participated as an actor and producer. Together with his close friend Robert Rodriguez, the young adventurer took his work to Los Angeles. To his great surprise, the film gained the attention of several studios. Carlos Gallardo, the youngest of three from the Mexican state of Coahuila, was beginning to make a name for himself in the world of Hollywood filmmaking. After his success with 'El Mariachi' Carlos proceeded to work as an actor and co-producer on the film which would help to launch the English-language careers of Salma Hayek and Antonio Banderas; the film 'DESPERADO" to date has domestically grossed $25,405,445. This movie opened the door to many new projects, such as 'Bravo' and 'Single Action', in which Carlos filled the roles of producer, director and screenwriter. Having proved himself to the world, today Carlos Gallardo is fulfilling a promise he made to himself eight years ago - to make his film 'Bandido' a reality by bringing it to the big screen. Directed by award winning film director Roger Christian, Carlos plays Max Cruz man of the world, music lover and all around ladies man. BANDIDO 2 and the comic book are under development, under Carlos Gallardos control and ownership. Carlos has kept all right for this franchize.
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He was also one of the producers of "Once Upon a Time in Mexico", a film that opening weekend grossed $23,424,118 and has to date has a US domestic gross of $56,359,780. This film featured Johnny Deep, Willem Defoe, Enrique Iglesias, Eva Mendez, and of course Hayek and Banderas. In 2005 he played the lead role on the upcoming Robert Rodriguez production titled Curandero distributed by Disneys Miramax. Gallardo directed and produced the pilot for this project. The movie was directed for the big screen by Eduardo Rodriguez. Getting Started Burns Global Ltd. is a seed company incorporated for the purpose of the development of Operative Entertainment, a motion picture company. The first year will be an opportunity to sharpen the companys focus and build the foundation. When this process is completed and Operative Entertainment begins operations, Burns Global Ltd. will be dissolved and its debts repaid. Seed Money These early funds are required for the activities undertaken during the development stage of the business. It is projected that 1.1MM will be required to begin operations. All debt will take the form of a subordinated loan, or an investment in convertible bonds or preferred stock in the start-up corporation. The Style of Company This section is designed to acquaint the reader with Operative Entertainment, the corporation being developed by Burns Global Ltd. Different Styles of Production Companys Film production companies take many forms; the majority of production companies, more than nine hundred in New York, Los Angeles, and London, are creative protectionist. A small number are considered balanced, these companies include or have included Regency Enterprises, Icon Productions, Morgan Creek, and Beacon Films. Operative Entertainment will utilize this balanced producing approach as its style. Balanced Producing Balanced producing approaches film-making as a balance between the creative elements that make for a compelling screenplay and business elements that appeal to the marketplace and justify the enormous cost associated with film production. A main principle of balanced producing is that a budget parameter is determined and a minimum threshold ratio of 2:1 is reached. This ratio represents the net income compared to the financing, or, in other words, provides an accurate estimate of how much the picture will earn compared to how much it will cost to produce. When this threshold is reached it indicates that a property will be recommended to proceed towards production. Other key principles of balanced producing that will guide Operative Entertainment in its endeavors are: 1. Avoiding failure do to undercapitalization. Operative Entertainment will deploy a fully funded development environment and these funds will provide for the refining of the shooting script, the attachment of the right bondable names, the courting of
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the right distribution and marketing contacts and the creation of promotional materials specific to their media and territories. 2. Bank production financing will be utilized when possible. Other financing relationships: studio financing, and private investor funds are all viable means to support the production of motion pictures, but these options are not as attractive. In addition to increasing the costs of doing business, these options are not the best consideration for the types of films Operative Entertainment will produce. Bank production financing has the advantage of lower interest rates. Another benefit is that the collateral for the bank is raised through global distribution presales which focus the films development directly on the marketplace. Bank financing also ensures the retention of the copy write ownership of the pictures; copy write ownership provides for valuable future revenue streams. 3. An additional consequence of utilizing bank financing is that it requires the hiring of a completion guarantor. Operative Entertainment will utilize this important partnership to protect against over budget costs, massive schedule delays and deviation from the finalized script. The completion guarantor will also provide an objective review of the project before Operative Entertainment announces it and bank financing secured. This partnership between the production company and the completion guarantor is considered invaluable. A completion guarantor will be utilized even if bank production financing is not utilized. 4. The rights liquidations of the properties are planned for extensively, and are managed by Operative Entertainment; those that are not handled in-house are handled by experienced representatives hired by Operative Entertainment. This ability and awareness substantially increases the pictures potential profits and advances the pictures distribution power. 5. Operative Entertainment will review and interpret the pictures media campaign plan and buy to ensure that there is sufficient reach and frequency to the intended markets. Additionally, by participating in the pictures releases in the US market and international territories Operative Entertainment can better work with distributors to maximize the value of the property. The Development Company Operative Entertainment will raise a combined 6 million from three individuals or entities who will engage Operative Entertainment in a passive partnership for the development of three motion pictures in return for a securities offering or similar arrangement. Operative Entertainment will create a subsidiary development company along with the investors and together they will be fifty-fifty partners. This development company, for the purpose of the business plan, will be preliminarily called Development One. Development One will exist solely for the purpose of the development of three motion pictures, as previously mentioned. This is beneficial for accounting, transparency, and legal reasons. Also, the production of films is inherently risky and the three film slateproduction approach will allow the profits and losses from films will be pooled in order to reduce volatility. This company will be formed as a limited liability partnership. The three pictures will be developed into turnkey packages that will be purchased by Operative Entertainments producing company for 3 million before the twelfth (12) month or twenty9
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fourth month of total operations. (Please see financial projections). Another 3 million balance on the investment is scheduled to be returned to the investors by month fortyeight (48). Eighty percent (80%) of the first proceeds received are paid to the investors until they have recouped one hundred and twenty percent (120%) of their original investment; thereafter the equity investors receive a fifty-fifty (50/50) share of the partnerships earning in perpetuity. The growth of Development One will be metered and measured along with the growth of Operative Entertainment. This is further explained in the section titled The Building of the Company. Burns Global Limited, Operative Entertainments and Development Ones Relationships As already explained Burns Global Ltd. exists solely for the purpose of the development of Operative Entertainment. Operative Entertainment will purchase Burns Global Ltd when financing is secured, projected to be by the twelfth month of operations. The future operations of Operative Entertainment and Development One are intertwined in the following manner. Operative Entertainments executive team is made up of the following positions: Development VP, Global Rights Sales VP, Advertising PR VP, Business Affairs VP, Finance VP and Producers, Together, these positions define, develop and manage Operative Entertainments objectives; including the development and retention of the relationships with the studios, talent, banks, investors, completion guarantors and other entertainment organizations. Operative Entertainment will be the primary resource for the development company. It also reviews all literary properties that will be developed by Development One, receives all pitches, and receives and distributes all the advertising and public relations materials. Organizational Chart of Operative Entertainment
Board of Directors
Bank Executive-Entertainment Attorney-Public Relations Executive-Advertising ExecutivePhysical Production Specialist-Completion Bond Executive-Entertainment Executive or Entertainment Accountant
Producers
Development VP
Story Director
Global Rights Sales VP

Foreign Mgr
Advertising PR VP
Business Affairs VP
Finance VP
Ancillary Mgr
OperationsDir
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The same personnel of Operative Entertainment's executive team fill the following roles in Development One while manageable: Development Manager, Global Rights Manager, Operations Manager and Development Director Organizational Chart of the Development Company
Team of Advisors
Producer /Development Dir
Development Manager
Global Rights Manager
Operations Manager
Staff
These positions are responsible for turning the selected pictures into turnkey packages for production. Please note: the roles of the Advertising PR VP, Business Affairs VP, and Finance VP are exclusive to Operative Entertainment and have no significant role in Development One. The Operations Manager is exclusive to Development One and has no significant duties under the banner of Operative Entertainment. Operative Entertainment, the parent company, and Development One, the development company, share common infrastructure including office space. Executive Staff of Operative Entertainment Producers The best producing teams are partnerships. The delineation between the two partners is that one is distinctly more business orientated and one is distinctly more creatively oriented. By analyzing the best production companies in the industry a defining pattern of both a creative and a business producer is recognized. Operative Entertainment will engage in international co-production agreements, with foreign producers, in a manner to ensure that the requirements are met regarding the United Kingdoms cultural test, as explained in the Business Opportunity, The New Relief in Detail sub-section.
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On the corporate level, the level of Operative Entertainment, the duties of the Producers are: Strategic planning: including the development of the businesses long-term strategy. The strategy will establish the objectives and plans that will aim to meet the needs of the investors, the marketplace, and all other stakeholders, and ensures consistent and timely progress toward these objectives. The producers are also responsible for obtaining and allocating resources consistent with the companys strategic objectives and to report regularly to the Board on the progress made toward strategic plan milestones. Leadership: in a manner that develops and communicates in a clear and consistent way the vision of Operative Entertainments goals and values, and ensures that they are well understood, widely supported and effectively implemented within the organization. In turn fostering a corporate culture that encourages, recognizes, and rewards leadership, excellence and innovation. This ensures a culture that promotes ethical practices, individual integrity, and cooperation to build the companys value. Financial results that establish and achieve appropriate annual and longer-term financial performance goals. Ensure the development and maintenance of appropriate systems to protect the Companys assets and assure effective control of operations. Management of operations: to ensure high quality, cost effective operation of the day-today business affairs of the Company. This will promote the continuous improvement of the quality, value and competitiveness of Operative Entertainments films and encourage and reward creative solutions to business and management challenges. Management development and succession planning: to develop, attract, retain and motivate an effective and unified executive team and staff. This will ensures that programs for management development and succession planning have the required resources and direction to grow the future leaders of Operative Entertainment. More than anything else this insures that the focus is on building a company that will last. Human resources: to ensure the development of effective programs for the recruitment, training, compensation, retention and motivation of personnel, and the availability of human resources to achieve the Companys objectives. To establish and monitor programs to promote workplace diversity and provide for appropriate recognition of the achievements of individuals. Communications: as chief spokesperson for the Company the producers need to communicate effectively with shareholders, prospective investors, employees, suppliers and the marketplace. It is their duty to represents the Company effectively in relationships with the industry, the government and the investment community. Board relations: working closely with the Board of Directors to keep the directors informed on the state of the business, on crucial issues relating to the Company, and on the Companys progress towards the achievement of operating plans and strategic plan milestones Picture development: including acting in the capacity of Development Director. Duties include the acquisition of property rights for production and/or adaptation as recommended by the Development VP; dealing with the agents who represent the talent, collaborating
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with the director, and the retention of relationships with the studios, completion guarantors, banks, investors, and receiving and distributing all the advertising and public relations materials. Also, actively working with distributors and making presales. Picture production supervision as encompassed in the three stages of production (See Appendix 2) as well as collaborating with the director. Marketing and advertising: market research, supervising the motion pictures print advertising including publicity shots, trailers, posters, print ads, outdoor advertising, theatrical standees, special printing such as promotional books, banners, lenticulars and press booklets. The motion pictures home entertainment packaging, television spots, and internet ads. The producers are responsible to the board of directors and the producers are ultimately responsible for the success of the company on the whole. Producers Requirements They must possess original ideas regarding what the future should look like and could be like and possess the aptitude and skill to make or cause things to happen in order to bring these ideas forward into the world. They must have the ability or capacity to confront adversity and the resolute endurance to organize and operate the business while taking on greater than normal financial risk in order to do so. Development VP Primary duties are the Solicitation and discovery of stories: finding stories that meet with Operative Entertainment objectives. Additionally, the Development VP is to represent Operative Entertainments development department and to know writers, actors, and directors and their various abilities and skill sets. After films have been green-lit the Development VP manages the films development under the direction of the producer. They are also responsible for the direction of their staff: the story director and an assistant. Development VPs Requirements They should have 5+ yrs. experience in entertainment development, preferably as a Story Director. Project management experience, an understanding of current trends in the domestic and foreign marketplaces and have a history of devising creative solutions to development challenges are an asset. A BA or BS in literature is an asset. Global Sales Rights VP Responsibilities include preparing the initial liquidation breakdown for each picture that comes under the scrutiny of an internal green-light and the continual revaluing, sales strategy, presales, and all initial and continuing rights liquidation of the companys pictures. They also direct and are responsible for the activities of their staff including a foreign sales manager and an ancillary sales manager, as well as their assistant. Global Rights VPs Requirements They should have 5+ yrs experience in entertainment global rights sales preferably as a Global Rights Foreign Manager with project management experience. A general understanding of intellectual property law and experience arranging licensing agreements is highly valued; expert knowledge in sales techniques, the ability to travel and interpersonal skills a must.
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Advertising PR VP Responsible for establishing and sustaining the production companys brand to the entertainment globe trade and global consumers and establishing each motion pictures initial brand with the global entertainment trade and global consumers. The Global Rights VP also manages the continuing brand in conjunction with the various global distributors, reviews and manages the producers position relative to the media plans and media buys prior to and during the theatrical and videocassette releases, and audits the media and public relations expenses fulfilled by distributors on behalf of the producer. They are also responsible for the activities of their assistant, plus the activities performed by promotions/public relations firms, advertising agencies, and other related vendors. Advertising PR VP Requirements They should have 5+ yrs experience in advertising preferably with a leading entertainment agency or personal relations firm. A history of campaign experience and an understanding of the various devices utilized to market films to specific demographics as well as an understanding of key trends in the marketplace. A BA in public relations or communications is an asset. Business Affairs VP Directs the deal documentation preparation for development and production-related issues, along with sophisticated rights sales and distribution. The Business Affairs VP closely correlates their work with the companys attorney, as well as directs an assistant and usually participates in development and production negotiations. Business Affairs VP Requirements They should have 5+ yrs experience in Global Rights sales as a Foreign Manager or Ancillary Manager, project management experience, and a working knowledge in Quickbooks, and accrual/deferment accounting. A law degree preferred. Finance VP Manages the companys cash flow, accounting, tax management, government agency reporting, management reports, and the companys information systems. They also manage the relationship with the companys entertainment accountant and the efforts of the operations director and department assistant. Finance VP Requirements They should have 5+ yrs experience in entertainment operations as an Operations Director or as an Entertainment Accountant working for a leading entertainment accounting firm, expert knowledge in Microsoft Office, and Quickbooks. This individual should be a certified by the appropriate regulatory agency(s). Executive Staff of Development One Development Director A Producer acts in the capacity of Development Director under the development company. The Producer is the authority on every aspect of the development of the picture and responsible for directing the Development Manager. They are to ensure the pictures focus through development and to totally prepare the picture for production on time and schedule in collaboration with the Operation Manager.
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Development Director Requirements Development Director requirements same as Producer Development Manager Responsible for the story search, evaluation, recommendation, and all aspects of each of the motion pictures creative development and preparation. They are responsible for all aspects of each motion pictures creative development and preparation, in every respect, for physical production. Development Manager Requirements Development Manager requirements same as Development VP Global Rights Manager Responsible for establishing each picture-in-developments global value, by territory and right, and for preparing promotional, publicity, and marketing materials, meeting with global media and studios, negotiating and pre-selling some of these rights, and preparing all other rights for future sales. This person also manages all global film market activities. Some of the most critical liquidation relationships, for instance, those with U.S. studios, may be carried out by the producer. But even for these, the global rights manager is responsible for ensuring that they are accomplished. Global Rights Manager Requirements Global Rights Manager requirements same as Global Rights VP Operations Manager Responsible for keeping the development company on task and holding the entire team accountable in order to sustain the balance between the time allocated for developing the motion pictures and the budget the team has to achieve this task. This person also fulfills all day-to-day accounting functions, through the delivery of trial balances to the Finance VP for the purpose of adjusting entries and preparing interim, monthly, and quarterly reports. Operations Manager Requirements 5+ yrs experience accounting or controller experience. Experience in human resources an asset. Expert knowledge in Microsoft Office and Quickbooks. Accruel/Defferal accounting experience an asset. A BA or BS in Accounting required. Subordinate Staff of Operative Entertainment Subordinate Staff The subordinate staffs responsibilities will be outlined in their respective operations manuals; this is outlined in the Building The Company section. They are the responsibility of the Executive Staff who are accountabile for them. The qualifications for the positions are as follows. Story Director Requirements 2-3+ yrs experience as a reader or assistant. Strong story experience, good organizational skills, attention to detail, dependability, punctuality, and the ability to follow
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direction and manage others. A degree BA in literature, or communications, a film degree or a history of film-production is an asset. Foreign Manager Requirements 2-3+ yrs staff experience in the Global Rights Sales department or in entertainment sales. Outside sales experience an asset and general knowledge of sales techniques. The ability to travel, good organizational skills, communication skills, dependability and punctuality, and the ability to take direction and manage others are required. A bachelor degree is an asset. Ancillary Manager Requirements 2-3+ yrs staff experience in the Global Rights Sales department or in entertainment sales. Outside sales experience an asset and general knowledge of sales techniques. Good organizational skill, communication skills, dependability and punctuality, and the ability to take direction and manage others are required. A bachelor degree is an asset. Assistants Requirements No experience necessary. The ability to learn and operate in a fast-paced environment is critical. General telephone skills, the ability to communicate easily, organizational skills and the ability to sort invoices, prepare mail, file alpha-numerically and a genuine desire to be part of a team are required. Outside Contractors While Burns Global Ltd. conducts business, and later when Development One develops the turnkey packages, outside contractors will be necessary. These outside contractors are different from the outside firms: attorney, accountant, publicity, and excreta that will be mentioned later in the Building of the Company Section. Script Reader One of the first individuals that will be hired by Burns Global Ltd. the predecessor of Operative Entertainment will be a Script Reader. This person will be an outside contractor, a self-starter who will work from home and supply the company with the script coverage that will use to make story selection decisions from. Ideally this individual will be a screenwriter. Graphics Designer A graphics designer is continually necessary starting with the company logo and graphics and then with each pictures logo and graphics. This individual or firm should have reasonable experience working with motion pictures. Presentations Crews Part of the ongoing business will be to create presentation DVDs that draw attention to the property that we will be developing, and highlight accomplishments of the acting talent and directors of the motion pictures. These presentations are designed to have an impact on the distributors and others to attract them to the project. Additionally, because of the small scale of these projects it will be an appropriate setting to familiarize the necessary production staff with our company and our company with production staff.
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Office UPM An industry Unit Production Managers services will be utilized to prepare the budgets and schedules of the pictures during the development phase. Anticipated difficulties and considerations of staffing positions At this time no individuals are under consideration to fill positions previously mentioned and at this juncture it is unreasonable to staff these positions without a history of operations. The filling of the positions will be a result of the long-term metered and measured growth of the company as explained in the Building of the Company section of this business plan. The ability of Operative Entertainment to discover and recruit team members is going to depend on initial years of operations and the ability of management to meet its goals and build a reputable company. The primary means of recruitment, and the best approach, is to write a description of the person sought, their stewardship and compensation and circulate the description among the Executives and the Board. By calling on their experiences and relationships, along with their desire to do what is best for the company, an ideal candidate may be recruited in this manner. The secondary means of recruitment will be through industry personnel agencies and trade advertising, this approach should allow for the introduction of fresh ideas and to diversify the companys staff. Operative Entertainment may also look to Universities to recruit some positions. Part of the metered and measured approach to building the Company, as explained in the Building of the Company section, is to allow for growth through training and experience. Operative Entertainment will plan extensively to develop, attract, retain and motivate an effective and unified executive team and staff. Programs that ensure for management development and for succession planning will be presented yearly to the board for review and approval. The development of effective programs for the recruitment, training, compensation, retention and motivation of personnel, and the availability of human resources to achieve the Companys objectives are paramount. If management finds it difficult to keep an individual performing at a satisfactory productivity level, management will review its training programs and will try to find the best situation for the employee and the company. If it is determined that the employee no longer fits with the vision of the company management a contingency plan will be created whose aim is to satisfied the objectives of the company, the employee, and the laws of the land. This plan may ultimately move the individual thorough promotion to a more satisfactory position in which they can pursue the life philosophy they embraced, or by paying the legally required compensation to the employee we may ask the employee to leave the Company in the most extreme cases. Weaknesses in staffing, both the staffing of these positions and the requirements of these positions, will be overcome in by creating a Company that, as explained in the Building of the Company section, is a systems dependent business and not a people dependent
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business. This system in concert with adequate training and ensuring that management meets its staff development goals should reduce any weakness to a minimum. The Board The Producers report to the Company Board, the very top stratum of the corporation. The role of the board is extensive, acting as a governance council and as an advisory board. The Board exists as the representative of the stockholders. Operative Entertainment when formed will be unquoted therefore the primary stockholders are the investors and banks that finance the films that Operative Entertainment will be producing. The secondary purpose of the Board is to act as an advisory council. The Board will evaluate the performance of the Producers and key executives; review and approve major corporate objectives, policies, budgets and strategies as initiated by the Producers; monitor the companys financial structure; and monitor the companys performance among other duties. A specific criterion is utilized to strategically recruit the Board: the members of this council are entertainment industry professionals who are otherwise unaffordable for executive positions within the company. The primary criteria to recruit the members of the Board is they should be industry icons, and their advice, council, and relationships and influence should amplify the production companys industry position, broaden its reach, and sharpen its business and creative focus. The following points should reflect the nature of the individuals and the nature of the board as a whole: The individual directors of the board should be passionate about the performance of the company. This passion should manifest itself in productive debate about the future of the company. The individuals should have a record of making good business decisions, the ability to deal with crisis and the ability and time to dedicate to performing board duties. The board should have at least one member that holds specific expertise in financial accounting and corporate finance. The board needs to understand management and industry trends and should have appropriate and relevant motion picture industry-specific knowledge The board should be current on general management best practices and their application in complex, rapidly evolving business environments. The board should understand the importance of global business trends and individuals should have first hand knowledge of international business and experience in those markets. The board should understand and possess empowerment skills and have a history of motivating high performance talent. The board should have skills and capacity to provide strategic insight and direction by encouraging innovation, conceptualization, key trends, evaluating strategic decisions, and continuously challenging the organization to sharpen its vision. The individuals should have a background as one of the following; a bank executive, an entertainment attorney, a public relations executive, an advertising executive, a physical production specialist, a completion bond
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executive, an entertainment executive with a concentration on story development or an entertainment accountant. The individuals should have at least fifteen (15) years experience at their craft.
Attributes potential directors should share are integrity, competence, a dedication to excellence, and a sincere commitment to the future of the company. Regular scheduled meetings of the directors are a best boards practice. The meetings will be scheduled quarterly including an annual weekend retreat. The board will be urged to meet as often as required to promote independent thinking. Anticipated difficulties and considerations of recruiting Board members Most potential Board members have no natural business motivation to serve except that they are mature in their professional duties in the industry and may be persuaded to guide this organization. The key factors to win the support of these powerful people are the ethics and commitment to achievement of the Producers, the kind of pictures the Producers are committed to create, and the approach the Producers are taking to produce and distribute these pictures. The fact that the Producers are organized, focused, and determined to produce important, but not necessarily big or broadly commercial pictures could potentially be enough to cause these potential board members to champion the company. A single event such as the support and endorsement by an important organization could facilitate the ability to recruit potential board members. This event could an exaltation of the organization or its producers and recognition in the press. The truth is: the motivations for potential board members to support the organization will be personal to them and will probably come from a sense of good will and philanthropy. It is Operative Entertainments goal to recruit a board within the first year of operations, but if a suitable Board, or complete Board is not found within this period business will be conducted in a manner consistent with that of a fully functioning Board of Directors. If suitable candidates do not become apparent it will be of benefit for Operative Entertainment to pursuit the architecture of the business: the recruitment of employees; the engagement of outside support; and conduct its own internal analysis and governance: without a board, but with the intent to recruit these individuals when appropriate. Board compensation The boards compensation will be comparable to that given to the boards of companies of similar size. A yearly sum of 20,000 and 1500 per meeting plus incidentals is projected.
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BUSINESS OPPORTUNITY The New Tax Break System The United Kingdoms film industry is in transition. The treasury intervened in early 2004 to refocus the tax break system to promote the quality of films being produced in the UK and to promote distribution. Previously, some investors have backed films without regard to quality. Many of these films were unprofitable, such as, Re-inventing Eddie, which made 61. The backers of this film, and similar unprofitable films, could profitably reduce their tax bills if they invested in certain tax schemes; the new system has prohibited this practice. Under the old system, based on the Films Act of 1985 and more specifically Section 42 of 1997 (for films with budgets over 15 million) and Section 48 of 1997 (for films with smaller budgets), investors would effectively get a cheap loan from the Government. The problem occurred when grey middlemen, as the Chancellor of the United Kingdoms Treasury has called them, provided the funds through complicated sale and leaseback schemes (commonly known as the vanilla structure). Some schemes had allowed investors to claim more in tax relief than they invested by charging fees to the producers. Under the new system tax breaks can be claimed only by the producers, Film-makers spending 20 million in Britain get a tax-free allowance on profits worth up to 24% of their spending. If they make a loss, the tax credit will be worth up to 20%. For film-makers spending more the 20 million, the tax-free allowance shrinks to 19% and the tax credit to 16%. The New Relief In Detail The new relief is available to film production companies within the charge of Corporation Tax. It would apply to producers of eligible films that are genuinely intended for theatrical release. Unlike the current relief, the new relief would not be available to subsequent acquirers. These conditions are set out at paragraph 1 of the Schedule in the legislation. (See Appendix 3). The definition of the producer of a film (at paragraph 3 of the Schedule to the draft legislation) is the company that incurs all of the production expenditure on the film and owns the original master version, including all rights in it, at the time the film is completed. This is intended to ensure that the relief would be available only to the company that actually makes, and has the rights to exploit, the film. In order to be eligible films must fulfill the conditions of a new culture test. The new test is intended to better identify films that are culturally British. This term culturally British and the need for a culture test are in response to the EU Commissions guidance on State aid. Film tax incentives are a form of support granted by the State with the aim of favoring the production of certain goods for which there is a market. Where there is a threat to distorting competition or affecting intra-Community trade the European Commission must be notified and goods deemed cultural products. In November, at the United Nations, UNESCO voted 148 to 2 on a proposal that confirms, among other items listed, that film is a cultural product, thus supporting the incentives and the EUs position internationally. The department of Culture, Media and Sport published in November of 2005 the new cultural test that British films must pass to receive relief. (See Appendix 4).
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In consequence to the EU requirements on State aid in relation to cultural support, as set out in guidance issued in March 2004, it requires a large part of a films budget to be spent in a particular country for any aid to be given by that country. As set out in Chapter 2, a supporting objective of film tax incentives is to help maintain a critical mass of infrastructure, facilities and talent with the UK in a manner that supports the sustainable production of culturally British films. This means encouraging viable capacity across all the relevant sub-sectors involved at all stages of the production of a film. The new relief would therefore ensure that films pass the new cultural test and would only qualify for the new relief if a minimum proportion of the production expenditure was spent on UK goods and services. It is foreseen that the minimum proportion of the production expenditure in the UK will be set at a suitable level, but no higher than 40%. 40% represents the average Above the Line percentage split compared to 60% Below the Line expenditure on the average international motion picture. Taking into consideration the new system, each picture Operative Entertainment produces will undergo a Comparison of Film Tax Incentives Production Budget Analysis. To stay competitive in the world marketplace the best possible scenario, that does not compromise the creative integrity of the film, will be selected using a Comparison of Tax Incentives Production Budget Analysis. The aim of Operative Entertainment is to benefit from the infrastructure, tax incentives, and quality of craftsmanship in the United Kingdom, while looking to foreign jurisdictions for lower labor, material costs, and exchange savings in order to gain the most benefit. This analysis will be conducted by Operative Entertainments accounting firm. A short example of the Comparison of Film Tax Incentives Production Budget Analysis can be found in the appendix. (See Appendix 5). A study of the UK Film Council Statistical Yearbook, Annual Review 2004-05 (See Appendix 6) demonstrates that the most profitable pictures are inward financed films from a single country. This country is the significantly the United States and the pictures studio pictures. The major US studios or their affiliates who seek to benefit from the infrastructure and tax relief of the United Kingdom finance these pictures. Recently, this trend has been affected due to the strong pound. Domestic UK feature films and UK co-productions, both inward and other than inward financed, is the focus this business plan. With the new tax system it is unknown how the sector will react, but the intention of the new incentives is to increase the production of quality feature films that will then receive distribution and make a profit. The model explained here is the best route to achieve that end. Anticipated difficulties and considerations of Tax System It may be prudent to consider bringing foreign advisors on projects without credit to preserve the integrity of the film as British. Also, the design of the company as it is structured may require that the production company purchase the turnkey package from the development company at the earliest possible time to gain the most benefit from the incentives as they are designed. It is unclear, at this time, if the purchase of the turnkey packages will be a deductible expense for production companies. It is believed that they will be since the packages meet the definition of goods incurred as a production expense and since the tax benefit will not extend to the development company.
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THE BUILDING OF THE COMPANY From the very outset the business will be fashioned after a vision. This vision can be stated in one line: to create the very best entertainment company possible. This vision will be achieved through the model outlined in this business plan. Everyday the company will attempt to achieve this vision; at the end of each day a meeting of the management team is held to discuss how well the vision was executed. The difference between the vision and its execution are analyzed and the next day the intention is set to make up the difference. One of the first orders of business, once the physical infrastructure (office space, telephones, excreta) of the business has been completed, is the development of the systems that will run the business. The enterprise is being built from the ground up and this is where the building of these systems begins. Using the organizational chart a position contract for each position on the chart will be completed. The contract is a summary of the results of the company and the work the occupant of that position is accountable for to achieve these results. The contract is also a list of standards by which these results will be evaluated. It should be noted that a position contract is not a job description; it is a contract between the company, the team and the employees and the contract will have a line for the signature of the person who agrees to fulfill the positions accountabilities. Having created a picture of the business, as it will look when it is finally mature, it will be time to begin the prototyping process starting from the bottom. This focus on developing a business architecture that works - beginning with the foundation. The most basic position in the company is our entry level position of assistant. The Business Producer fills this position and creates an operations manual containing exact scripts for handling the responsibilities of the position as written in the position contract. The exact procedures are discussed, written, performed, quantified, compared and developed further in consultation with the Creative Producer, business mentors, investors and eventually the executive team. When the operations manual is completed for the position, the position is filled. The person who fills this position should have no previous experience but should be an apprentice. This person should be eager to learn how to do it right and not feel they know how to do it better. When the position is filled and he/she has memorized the operations manual and learned the system the employee takes over the position and goes to work. At that time the Business Producer moves into another position and begins the process again. As explained on the positions qualifications and responsibilities section, to learn and master each subordinate staff position requires two to three years. After this period it will be determined if the employee has received enough training and guidance to be able to move from, for example, the Assistant position to the Story Director position. Under the positions qualifications and responsibilities section it explains that the Story Director requires a minimum of five years experience to be considered for the Development VP. Therefore the anticipated time to grow the company to its maturity is a
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minimum of seven years; during these years the business must be fully operational, producing projects and remaining competitive. This will be achieved through the utilization of outside support. Operative Entertainment will meter and measure its growth from a small company, of three employees including the Producers, to a medium size company, of maximum twenty employees in a period of seven to ten years. At the nine year mark the mature Company will be evaluated by its founders and a plan for the next decade will be presented to the Board. The initial growth is indicated on the activity projection timeline in the appendix. In the first years Operative Entertainment will be contracting the responsibilities of the Executive Staff to outside specialty firms. This is an opportunity for the producers to surround themselves with people who are more able than them and the opportunity should be recognized. These relationships should be entered only after due examination. The relationships include the primary attorney, the public relations firm and executive and the primary accountant and their firm, these should be considered as important to the company as the Board. The Board, it should be mentioned, will be contacted to help facilitate these relationships for the company. These outside contracts will become the standards by which Operative Entertainment is judged (please see the Production Financing section) and a specific criterion should be used to seek the companies and individuals that will play these vital roles in the business. The criterions are: 1. Recognizable with a positive reputation in the entertainment industry who are able to communicate easily and clearly with the Producers. They should be individuals who understand the companys objectives and are committed to supporting the company in accomplishing them. 2. The firms must have a recognizable and positive reputation in the entertainment industry and the firms must be able to service the primary needs of Operative Entertainment. 3. The firms clients must have a business sociability that is an asset to Operative Entertainment. Regarding the Attorney, this affiliation is especially important because the first five years of operations will be spent in close relationship with them to prevent any damages that may occur do to unfamiliarity with certain practices. To this effect the attorney will be present during key negotiations and meetings and any meeting the attorney will not be attending will be reviewed with the attorney prior. Anything potentially litigious will be reported to the attorney and they will be kept informed of all ongoing business; they will also prepare most deal documentation and review all in-house documentation before it is released. Anticipated difficulties and considerations of securing outside firms The services of these firms are secured by paying a retainer and Operative Entertainment is then billed for services rendered. It is the intention of the Producers to surround themselves with those that are more astute than themselves and the contracting of outside firms is an opportunity to do so. These relationships should be engaged in one of three ways: 1) an introduction facilitated by a member of the board or another party with a sincere desire for the success of the company; 2) in a time of progress such as after a successful film launch or 3) immediately after securing financing. The difficulty with the second of these two options is that this relationship should be engaged previous to the
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release of any films. In any case Operative Entertainment will procure the services of the best possible firms and these relationships will be closely managed. Business Development A position contract will be developed for each position on the organizational chart as previously discussed. This is the first step towards developing the business so it becomes a system dependent business. Everything the business does will be written down clearly so that others understand it. This practice also creates ownership of the material. The components of the business are constructed based on the duties described in the position contracts. The result of building this construction is that this business system then may be replicated as well as measured and quantified. The purpose of building the business in this way is so that the system runs the business and the people run the system. This system should integrate all the elements required to make the business work. The business then functions as a machine, or more accurately an organism. This is familiarly known as the turnkey prototype model and it is the medium through which the companys vision takes place in the world. The following six basic points are the foundation for Operative Entertainments turnkey prototype model: 1. The model will provide consistent value to the production talent, subcontractors, employees, suppliers, and investors, beyond what they expect. 2. The model will be operated by people without previous experience. 3. The model will stand out as a place of impeccable order. 4. All the work in the model will be documented in the operations manuals. 5. The model will provide a uniformly predicable service to the customer. 6. The model will utilize a uniform color, dress, and facilities code. These points are further explored in the case study located in the appendix. (See Appendix 7) As previously mentioned in The Style of Company section, Balanced Producing subsection, each picture will be demographically specific, but the business that develops the pictures needs to attract very specific customers. These customers are the working professionals of the industry: the talent and subcontractors as well as investors. In the motion picture business the hierarchy of importance regarding industry participants is: audience, distributors, producers, retailers and licensed media, foreign territories, financing participants, distribution subcontractors, production talent and subcontractors, ancillary media and licenses, and, finally, major consumer brands. The motion pictures will appeal more to some of these participants and the business itself will appeal more to others, specifically the financing participants, and production talent and subcontractors. In this context a management system is designed into the prototype model to produce a marketing result. Management development therefore isnt a management tool; its a marketing tool and every element of the model is an orchestrated solution designed to produce a marketing result. The strategic objective is to produce a system that is designed as a set of simple and clearly stated standards that produce results. These standards are the apparatus for
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measuring the progress towards a specific end which is the success of the enterprise. The prototype is designed for implementation and the six basic foundation points ensure that the time invested produces exactly the right results. In relation the financing, the business philosophy and the business plan create the energy through which the company and the people will produce these results.
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PRODUCT The films that Operative Entertainment will produce and distribute are its product. As discussed previously Burns Global Ltd is a seed company incorporated for the purpose of the development of Operative Entertainment, a motion picture company. This motion picture company is the product of Burns Global Ltd, once financing is secured Burns Global Ltd will be dissolved and its debt repaid by the purchase of this new company. This process of building the company will be the ongoing focus of the Producers and the Board that were assembled during the year of development. Because of this fact this business plan encompasses not just Burns Global Ltd and the building of the motion picture company, but since the product of Burns Global Ltd is a film company this film company will need to be viable for next stage of financing to be successful and for the investors in Burns Global Ltd. to receive a return on their investment; therefore the entire spectrum is included in detail in this business plan. Operative Entertainment is in business to provide feature-length motion pictures to the public. As discussed in The Style of Company section, Balanced Producing sub-section, the approach to the product it supplies is that before proceeding on a picture, or even before a property has been acquired, research is conducted and Operative Entertainment is convinced that the pictures potential gross profits are sufficiently high compared with the pictures approximate production and distribution costs. By understanding and sustaining a balance between a pictures creative, audience, and income aspects and understanding the essential importance of preparing pictures for the international marketplace and the international marketplace for the pictures a balance is struck resulting in a highly creative, low-risk model of film-making. Story positioning In order for a screenplay to come under consideration it must contain one element more than any other, the element of truth. The film must have a powerful truth within it. By developing stories with unifying themes and a compelling truth Operative Entertainment will provide solid, if not necessarily big or broadly commercial entertainment to the public. While including cleaver plot, funny lines, as well as eye-popping special effects and cinematography, Operative Entertainment will constantly be focused on the truths of: human spirit, the world, a particular character or an ideal. This dedication to the types of storys Operative Entertainment develops and distributes will discern Operative Entertainment in both the marketplace and in the community. The Success Budget Parameters Explained in detail When an appropriate screenplay is brought to light, but before it is acquired, the script undergoes an internal green-light analysis in which the success budget parameters are determined. It should be mentioned that theyre is no absolute way to predict the success of a film. The following procedure is the best possible means producers have to understand the marketplace and accurately predict the internal rate of return from the liquidation of the product. The fact that the success of film can not be predicted also means that there is no correlation between the cost of a film and its potential earning power. This is evident in the fact that some of the highest grossing films of all time are not the most expensive to make and that every year a breakout film makes multiple times its project earnings. The ration of 2:1 is the accepted ratio to indicate that a picture justifies being produced.
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The following procedures are subcontracted out to a specialty firm: A campaign breakdown in which the scripts elements are gathered from the entire script onto a script campaign breakdown form. A creative campaign is drawn from the script campaign breakdown and a copywriter using the theatrical trailer form creates a thirty-second spot. A campaign beat analysis is recorded on a campaign beat analysis form where the campaigns emotional beats are tallied and a percentage allocated making up the campaign signature. Comparing the films campaign signature to other recently released films this profiles the film and evaluates the target audience. A preliminary picture summary of 40-70 films using the target audience, campaign signatures and above the line elements is produced. A preliminary comparable picture breakdown/company share analysis of the average global earnings of the proposed picture, in current USD value is formed. A final comparable picture summary of 4-8 films that through campaign beat analysis and above the line factors demonstrates their similarity to the proposed picture is arrived at. The final liquidation breakdown/companys share analysis, a breakdown average of the global earnings of the final comparable pictures, in current USD values, an estimate of the proposed pictures earnings and the relationship by ratio between the pictures negative costs and the distributors net. An analysis of the producers net in relation to production financing is drawn. A comparable campaign spending analysis reviewing the media buy for each of the comparable pictures including total advertising dollars spent and release patterns of the comparable pictures, supplying us with vital information for negotiating and designing both the US theatrical release pattern and advertising budget is completed. An effectiveness of target audience reach based on the prime target and secondary target audience for each of the comparable pictures is compiled. The gross income comparison of opening weekend grosses / historical grosses / theatrical / video / broadcast grosses for each of the comparable pictures in each of the eight major territories is made. Brand tie-ins of likely tie-in partners and total ad dollars spend by brand tie-in partnerships are revealed. An impact on grosses by talent adjustment using various combinations of the comparable pictures, tracking foreign and domestic influences called the talent adjustment analysis is determined. A comparison of campaigns similar to the proposed pictures campaign is compiled and evaluated. A final global business narrative, containing the pictures global business with the development, production and distribution recommendations, is provided. This analysis is the first stage of the development of the pictures. Upon completion of this analysis one of the most important elements revealed is a cost ratio. If this ratio reaches the threshold of 2:1 this indicates the picture should continue in development. If not the picture is sent into turnaround or shelved completely, and another property is sought. The next stage, if the ratio reaches the threshold, is the acquisition of the property; then the script is further refined and rewritten.
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Production financing Operative Entertainment plans to acquire a line of credit from one of the global banks that have and sustain a dedicated entertainment division. These institutions, whose mission is to lend money to entertainment companies at an interest rate to achieve a profit, employ experienced strong entertainment banking teams. Pledged motion picture licenses based on the licensees receipt of an access letter making the picture available to distributors by a certain date is sufficient proof for the bank of Operative Entertainments ability to service the loan. Loan approval is based on the collateral assurance that the loans principle and interest can be returned and that the loan can be serviced through the production companys regular course of doing business. The collateral consists of the license agreements for the yet-to-be-produced motion picture, whose pledge payments repay the loans principle and interest. Banking is engaged during the development process as indicated in the schedule. A loan memorandum is submitted to the bank consisting of the following documentation: 1. Cover letter presenting what the loan proceeds will be used for, the requested amount, the expected interest rate, the production timing, and the plan and timing for the loan processing. The payment plan, collateral, participating distributors, and a brief description of the motion picture included. 2. Table of contents. Indicating specific information within the memorandum to assist the ease of review. 3. Loan application form completely filled out, signed, as part of the package. 4. Activity and cash flow projections month-to-month for the first year, then quarterly, covering six months beyond the anticipated active loan period. These projections contain a narrative of notes describing important characteristics about the projections that are not self evident. The cash flow projections includes the loan proceeds and debt servicing, calculated at the rate characterized in the cover letter. 5. Distribution windows and liquidation breakdowns summary revealing the planned distribution windows and conservative version of liquidation breakdown estimates, including the producers gross receipts. 6. A description list of the license agreements, used as collateral, as expected they will be provided to the bank. This list indicates each specific licensee and each estimated license amount. 7. Conditional documents. The bank will not take any substantial risk. If the license agreements used as collateral specify any conditions in addition to picture delivery, which is satisfied with the completion bond, these further conditions must be specified. The most common additional condition in the license agreement is that the picture must be released in the US by one of the twelve major studio/distributors. A copy of the US distribution agreement or a binding commitment letter acceptable to the bank must be included in the loan package. 8. Completion bond commitment. In the initial loan memorandum, this may be in the form of a conditional commitment letter that will become an unconditional guarantee in the final loan documentation. 9. Loan calculations presented in general accounting practices indicating the collateral by total and in separate sections, the respective discounts for each form of collateral, the new subtotal, the loan interest amount, the new adjusted subtotal, the motion picture budget and the remaining amount, shown as a collateral contingency.
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10.The pictures creative information. This section should include the pictures title, a brief synopsis, a list of the pictures primary talent and their referenced credits, the pictures production dates and locations, and the projected US theatrical release date. 11. A narrative of the companys origins and progress. 12. Organizational chart that reveals the members of the production company team. Their position contracts indicating the responsibilities and relationships to one another in the team. 13. Principles biographies and balance sheets, the bank usually does not ask the owners to guarantee the loan, but the owners financial profiles demonstrates their combined experience and success in asset management. This information is presented in brief but specific biographical summaries and recent balance sheets of each individual. 14. Companys financials indicating the companys current balance sheet and, if applicable, a recent profit and loss statement. They are signed by the companys certified public accountant. 15. References. This is a list that points to the way in which a producer does business and with whom. This list typically includes the completion guarantor; the producers law firm and primary attorney; the producers current bank and the officer; the producers accounting firm and primary accountant; substantial trade references and contacts; and clients, studio/distributors and licensees with whom the producer has dealt, along with each of their contacts. Armed with this memorandum Operative Entertainment working in conjunction with the solicited banks loan officer engages in the following process: 1. Performs a preliminary review. 2. Presents the package to the banks loan committee. The bank loan committee then reviews the package and approves or declines the loan. 3. This decision is provided to Operative Entertainment. 4. If the loan is approved based on stable collateral, a stable management team, and predictable repayment then the loan documentation is prepared and processed. 5. Funding is then opened to Operative Entertainment. Operative Entertainment is dedicated to providing solid product to the public. Once financing has been secured the development stage is completed and the pre-production phase begins. Anticipated difficulties and considerations of Production Funding As previously mentioned one of the conditional documents needed for a bank to provide production financing is a US distribution deal and a US theatrical release. In the event that the management is unable to procure any US theatrical distribution deal and it has been determined, by the Board and management, that any further attempts will realistically be fruitless, then the success budget parameters will be reconsidered. In this case the management will approach banking institutions with this consideration fully disclosed. If banking institutions believe that the risk is too great and does not meet their criterion, then funding will be sought through private equity funds, and private investors at a slightly higher interest rate. Not having a US theatrical agreement is no grounds to prevent the manufacture of films that are good business decisions: that still meet the required success budget parameters.
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New trends in independent film distribution are allowing independent filmmakers to effectively reach their target audiences around the world. In todays marketplace filmmakers are successful reaching mass audiences using these techniques and accurate returns can be predicted that will dictate the budget parameters for our pictures if this becomes the case.
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THE PRODUCTION COMPANY A third stratum to the business is the Producing Company. (Please See Appendix 8). Once Operative Entertainment purchases the turnkey packages from the development company, Development One, each of the three developed films are incorporated as individual limited liability companies. This protects both Operative Entertainment and Development One financially, and, again, is beneficial for accounting, transparency, and legal reasons. The company purchases the turnkey packages and begins the production cycle. This occurs shortly after the bank production financing is secured. The production cycle, under the production company, is when the product is produced. This includes the preproduction, production and post-production. (See Appendix 2). Each picture is individual and, therefore, the talent, personnel, technologies, and schedules are individual for each project. The number of persons that come together to complete a film is substantial. The manufacturing of a film is a group of processes dependent on one another, making it a symbiotic progression.
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COMPETITION The motion picture business is probably the most competitive business in the world. The studios all have production arms that create product for distribution through their distribution departments; they review literally thousands of screenplays each year, hundreds make it into development and only dozens ever make it into production and gain distribution. This fact creates intense competition for hot properties, and the now packaging elements that make the films marketable. Although in Hollywood it can be considered a coup to purchase a hot property for mid six against seven figures, these properties seldom do better than properties of the same genre developed from original ideas, books or spec scripts others have passed on. Operative Entertainment will leave this process to the majors and seek compelling original ideas that have both the creative and business merits to justify production. Independent production companies, of which there are almost one thousand located in Los Angeles, New York and London, develop compelling screenplays into films that are then presented to distributors as finished product to gain distribution. This strategy is mounted with problems because often the elements that make for a compelling film in the eyes of the producers are not the same elements that drive the consumer into the seats of the theatres, which is the distributors priority. Many of these films never receive theatrical distribution. No more than a couple of dozen of companies consistently develop and produce motion pictures that receive distribution. These companies utilize the same or a similar balanced producing approach as outlined in this plan. It is a fact that the studios do not earn their monies producing films. The distribution of films is where the money is earned. It is much more lucrative. These couple of dozen companies are able to produce films that meet the studios requirements and liquidate the films through the distribution arms of the studios at a profit and the studios are able to earn their monies through the distribution of these films. This is a symbiotic relationship that benefits all the parties. The continual increase in demand for motion picture entertainment allows for new relationships to be engaged and these relationships to continue. A couple of the aforementioned companies have recognizable star talent as owners. This gives them an advantage because first they are independently wealthy and are able to leverage their name to produce their films and there is a recognizable benefit for them in marketing. But, if they produce films that are not successful, as many have not been in the past, their films although well publicized are not well received and do not receive distribution. In this event they would not be able to make the leap from successful stars to successful producers. For the first few years Operative Entertainment will have a financial advantage over more established companies due to of the measured growth of the company. Employees, as is explained in the Building the Company section of this business plan, are hired not because of their experience but because of they are willing to learn and apprentice. This system enables the company to begin at the base level rate or salary. The employees will be hired at the base rate, a rate comparative to that of other recent University graduates and those working in Londons entertainment industry, and the companies benefits will be phased in over a period of time as the business grows.
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Another financial advantage will be the use of technology to make the film. No corners will be cut when it comes to the creative integrity of the film, for example shooting a scene in a city park when the script demands a jungle rich in life. Technology will cut costs by bringing of the same innovation techniques Operative Entertainment will bring to the operations of the company to the production of the screenplay. Operative Entertainment will gain a competitive advantage as well though the way it structures it operations by reducing overhead and increasing productivity through innovations such as the utilization of the latest IT infrastructure and production technology. Microsofts gold certified partner InfoCorp. has been consulted regarding back-up and recovery systems, security strategies and network and systems management services. This system streamlines efficiency and promotes productivity by allowing those employees with access the ability to share and exchange information via the network seamlessly. The system also encompasses a quality control system that will monitor the computers creating statistics such as the computers idle time, and type stroke counts as well as record desktop activity. The office areas will be monitored for quality control and security reasons, the main purpose of which will be to gain maximum efficiency from the employees, not to ensure they work harder but allowing management continually review procedures and update the operations manuals. Benchmarks will be compared to determine the effectiveness of the systems and the systems will be innovated, quantified and orchestrated. Innovation, quantification and orchestration are three standards through which a competitive advantage will be sought. The innovation energies will be aimed at the way in which the business does business. It continually poses the question: what is standing in the way of the consumers, talent and subcontractors getting what they want from the business? And this innovation will be the mechanism through which the business identifies itself in the mind of the consumers, talent and subcontractors and establishes the companys individuality. It will be a result of scientifically generated and quantifiably verified profiles of the consumers, talent and subcontractors perceived needs and unconscious expectations. All innovations and everything related to how the business performs needs to be quantified. Eventually this will allow for everybody to think of the business in terms of the numbers, usually expressed as ratios, and it will be known which numbers are important and which are not. Without these numbers it would be impossible to know where the business is, let alone where it is going. The numbers allow the business to come alive. Orchestration is the elimination of discretion, or choice, at the operating level of the business. Everything should have order, standardization and quality. The entire process is dynamic and the business will be continually innovated, quantified, and orchestrated. A last note about competition is that modern business theory does not work off of the model of cut throat competition but off from more sophisticated theories based on cooperation. Cooperation is the best policy in most situations. If cooperation, or further cooperation with a person or company has been determined detrimental to Operative
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Entertainment the relationship will be documented and severed cordially. In order to protect the business of Operative Entertainment, Operative Entertainment will make strategic business decisions based on the best information available and will protect its interests through a series of checks and balances facilitated by the board, transparency and the tutelage of an entertainment attorney. The competitive advantage of the balanced producing approach and of the success budget parameters cannot be overstated. This system is what allows the films to become wise business decisions for the distributors. Having a film that will make a profit for the distributor trumps all other concerns. The competition then becomes for the elements, primarily the directors and stars, which make the films marketable and viable as outlined in the films global business narrative. The stars and their agents make these decisions based on several criterion. This criterion can be understood and fulfilled. In marketing, there is a term called the irrational decision maker and this is the base for the marketing strategy. This irrational decision maker science determines the business negotiations and public relations process of Operative Entertainment. The Business and Public Relations Process A public relations person is in actuality an applied social scientist. The public relations firm under retainer will advise Operative Entertainments Producers of the attitudes and the actions to take to win the support of those needed to create the pictures. This can be achieved through astro turf mobilization and the use of mutual friends. In a six degrees of separation world this is not as difficult as one would think, although notably easier for large corporations because of their scope and reach, a similar campaign can be utilized in a guerilla manner to bring the bondable stars and directors to projects. It can become quite obvious why the costs of making feature filmed entertainment are so considerable. Rules are necessary to guide these processes and balance the morals and ethics of the business with its corporate goals. (Please See Appendix 10.) The irrational decision maker comes from the science of marketing. It explains that the conscious mind gathers information needed for a decision and most of this information gathering is unconscious, automatic and habitual. The information people need to make a decisions comes in the form of sensory input from the conscious mind, if it is compatible with its expectations the unconscious mind says, Yes. By knowing the consumers, talents and subcontractors habits, interests and personalities, specifically or generally as in the case of markets, you can understand what those perceptions are, and then figure out what you must do to satisfy them and the expectations they produce. Armed with a set of perceptions a public relations campaign is executed that enhances the business negotiations.
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MARKET ANALYSIS The international motion picture business had over 18 billion in worldwide box office sales in 2004. The revenue generated from the theatrical release, sales of DVD & video, television syndication, novelization, soundtracks, toys & merchandising, video game sales and niche markets help make the entertainment and media business an industry in excess of an $1.3 trillion last year internationally. This being true, understanding the motion picture business as a trillion dollar plus industry and focusing this analysis on the industry as a whole would be as impractical. This plan centers on the markets for the types of films Operative Entertainment will be producing. Each film will have its own market comparison that will evaluate how that specific film should behave in the marketplace. This analysis is a general market analysis for the types of films Operative Entertainment will produce: English language, Hollywood style narratives. To ensure maximum revenue most of the following markets will be exploited, some such as toys and merchandising are audience specific and therefore would not fit the marketing profile of some films. As previously mentioned Operative Entertainment will not progress on a picture without a U.S. theatrical agreement with one of the twelve major distributor/studios. This agreement is important to establish the films international brand presence. Each film that reaches development will have individual profile target markets in terms of audience demographics. The profile includes the following data: genre, age, sex, personal preferences, and success budget parameters. These demographics are film specific, but no film will be developed past the initial green-light stage if the earnings to cost ratio does not reach a 2:1 threshold. Of the eight leading markets in the world the United States is the largest and most mature; the others are: Australia, Italy, France, Japan, Germany, Brazil, and the United Kingdom. An international picture makes, on average, 60% of its revenue overseas. Ten countries house about 80% of the global screen count. The United States, China and India account for 67% of the global screen count, but the Chinese and Asian markets can not be considered sophisticated due to ticket pricing, distribution and marketing practices, although, these markets are quickly becoming mature. The U.S. market leads the world and sets the trends; it is unusual for a picture that has had a successful run at the U.S. box office to flounder overseas. Pictures that historically do not perform well overseas are films that have American specific demographics. 2004 films such as Barbershop 3: Back in Business, and You Got Served fit this mold. Additionally comedies, due to the fact that humor is regionally specific, earn the majority of their revenue domestically. 2004 comedy films such as Anchorman: The Legend of Ron Burgundy, and Without a Paddle made, on average, 89% of their box office earnings at the U.S. box office. This phenomenon is compiled when the overseas marketing campaign is limited for these films. These few discrepancies not withstanding, by analyzing the U.S. market we have an excellent thermometer for the global marketplace as a whole.
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U.S. Box Office

Source:MPAA
According to the 2003 MPA Market statistics report the U.S. box office has grown at a steady rate over the last 20 years at 4.875% and 6.38% over the last 10 years. The domestic box office is down 8% in 2005 and has trended downward for the third straight year.
Admissions Admissions over the past 10 years have increased 26% and to over 330 million admissions in the U.S. for the past seven years. Additionally each U.S. resident has
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attended an average of at least 5 movies per year while the admissions prices have steadily increased. Year 2005 has seen a decline in theatrical attendance but reports are it isnt hurting the bottom line. What producers arent making at the local Cineplex theyre making back aftermarket. DVD sales according to the Digital Entertainment Group are up $12 billion in 2003 an increase of 29% in just twelve months. 2005 saw a slight downturn in home video sales for the first time in twenty-five years this is commonly attributed to the greater variety of entertainment choices available in 2005. Global and Foreign Box Office Hollywood style pictures dominate the foreign box office. Hollywood style refers to the English language fictional narrative films that cast Hollywood stars in the lead roles. The Fifth Element staring Bruce Willis was released internationally and has grossed over $263 MM; $17MM the opening weekend on over 2500 screens worldwide. This film was made in France and was listed on four of the six foreign territories top ten admissions list in 1997. The majority of the films that dominate the global box office are U.S. Hollywood style pictures. The following charts demonstrate the top ten grossing pictures in the six dominant global territories. It also illustrates that these Hollywood style pictures have earned 75% of the theatrical gross revenue in these territories. The films were in theatrical release from January to December unless otherwise noted. Australia ($ millions) Picture Finding Nemo The Matrix Reloaded The Two Towers Pirates of the Caribbean Bruce Almighty Terminator 3 Chicago LOTR: Return of the King Charlies Angels: Full Throttle The Matrix Revolutions Total Grosses Italy ($ millions) Picture Unexpected Paradise (Italy) LOTR: Return of the King Finding Nemo Passion of the Christ Christmas in India (Italy) The Last Samurai The Prisoner of Azcaban Troy Master and Commander The Day After Tomorrow ($), Euros, or Admissions % US 27.85 25.21 21.05 18.84 15.53 14.32 14.25 14.23 14.17 13.46 178.73 ($), Euros, or Admissions % US 30.1 27.6 26.4 24.1 23.2 21.9 18.4 18.2 14.5 12.1
100%
80%
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Total Grosses France (Admissions Millions) Picture Finding Nemo Taxi 3 (France) The Matrix Reloaded LOTR: Return of the King Chouchou (France) Pirates of the Caribbean Catch Me If You Can The Jungle Book 2 The Matrix Revolutions Terminator 3 Total Grosses Japan ($ millions) Picture Bayside Shakedown 2 (Japan) Harry Potter: The Chamber of Secrets The Matrix Reloaded Terminator 3 The Two Towers Pirates of the Caribbean The Matrix Revolutions Minority Report Hero (China) Pokemon 6: Advanced (Japan) Total Grosses Germany (Admissions millions) Picture Finding Nemo LOTR: Return of the Kings Good Bye, Lenin! (Germany) Pirates of the Caribbean The Two Towers The Matrix Reloaded Catch Me If You Can Johnny English (US/France/UK) Bruce Almighty The Miracle of Bern (Germany) Total Grosses
216.5 ($), Euros, or Admissions % US 7.46 6.06 5.60 4.76 3.80 3.61 3.57 3.28 3.20 3.03 44.37 ($), Euros, or Admissions % US 159.17 158.72 100.91 75.23 72.48 62.39 61.47 49.91 47.16 41.28 828.72 ($), Euros, or Admissions % US 7,656,947 6,594,748 6,439,777 5,897,793 4,989,928 4,773,455 3,473,003 3,460,394 3,450,067 3,253,216 53,462,783
80%
70%
70%
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United Kingdom ($ millions) Picture Finding Nemo LOTR: Return of the King Matrix Reloaded Love Actually (UK/US/France) Pirates of the Caribbean The Two Towers Bruce Almighty X2: X-men United Calendar Girls (UK/US) Johnny English (US/UK/France) Total Grosses
January 3, 2003 to January 1, 2004
($), Euros, or Admissions % US 67.51 63.96 60.25 54.80 50.98 45.19 42.78 37.28 36.76 35.53 495.07
70%
The following table, Top 20 Worldwide Grosses; % of Domestic vs. Overseas Grosses, reveals the audience that U.S. pictures draw globally and the percentage of that global gross earned overseas. Of the top 20 film of all time almost 58% of the gross revenue are earned in the foreign territories. Top 20 Worldwide Grosses; % of Domestic vs. Overseas Grosses Source: Box office Mojo November 12, 2005 Rank Title Studio Worldwide Domestic / % 1 Titanic Par. $1,845.0 $600.1 32.6 2 LOTR: Return of the NL $1,118.9 $377.0 33.7 3 Harry Potter: Sorcer WB $976.5 $317.6 32.5 4 LOTR: Two Towers NL $926.3 $341.8 36.9 5 Star Wars: Episode 1 Fox $924.3 $431.1 46.6 6 Shrek 2 DW $920.7 $441.2 47.9 7 Jurassic Park Uni $914.7 $357.1 39.0 8 Harry Potter: Chamb WB $876.7 $262.0 29.9 9 LOTR: The Felllowsh NL $871.4 $314.8 36.1 10 Finding Nemo BV $864.6 $339.7 39.3 11 Star Wars: Episode 3 Fox $848.4 $380.3 44.8 12 Spider-man Sony $821.7 $403.7 49.1 13 Independence Day Fox $817.0 $306.2 37.5 14 E.T.: The Uni $792.9 $435.1 54.9 Extraterrestr 15 Harry Potter and the WB $789.8 $249.5 31.6 P 16 Spider-man 2 Sony $784.0 $373.6 47.7 17 The Lion King BV $783.8 $328.5 41.9 18 Star Wars Fox $775.4 $461.0 59.5 19 The Matrix Reloaded WB $738.6 $281.6 38.1 20 Forrest Gump Par $677.4 $329.7 48.7
Overseas / % $1,244.2 67.4 $741.9 66.3 $658.9 67.5 $584.5 63.1 $493.2 53.4 $479.4 52..1 $557.6 61.0 $614.7 70.1 $556.6 63.9 $524.9 60.7 $468.2 55.2 $418.0 50.9 $510.8 62.5 $357.8 45.1 $540.3 $410.4 $455.3 $314.4 $457.0 $347.7
Year 1997 2003 2001 2002 1999 2004 1993 2002 2001 2003 2005 2002 1996 1982
68.4 2004 52.3 58.1 40.5 61.9 51.3 2004 1994 1977 2003 1994
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Market Analysis UK films The Box Office According to the CAA/Neilson EDI, the total UK box office for 2004 was 769.6 million, an increase of 3.7% on 2003 and 116% over the decade. This figure covers all box office earnings during the calendar year 2004 for all films exhibited in the UK.
900 800 700 600 500 400 300 200 100 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Box Office
UK Admissions The 171.3 million cinema admissions recorded in 2004 were the second highest admissions figure for 32 years, after 2002. The number of tickets sold increased by 2% on 2003, marking a 49% increase in ten years
180 170 160 150 140 130 120 110 100 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Admissions (m)
The Motion Picture Association (MPA) reports an increase of 11% in worldwide admissions in 2004, up to 9.6 billion cinema visits. In Europe, the UK continues to have the second largest admissions figure after France (194 million), the latter experiencing a 10% rise in admissions on 2003. Germany also experienced an increase in cinema going, up 5% to 157 million. UK Films Internationally According to the Motion Picture Association just over 40% of the $25.2 billion gross box office made worldwide in 2004 came from North America, which indicates its importance in the international film market. The following table shows country of origin of film released in the US and Canada in 2004. There were 18 more UK releases than in 2003, and their share of the gross box office rose from 5.7% in 2003 to 11% in 2004. The total revenue from these films stood at $1,016.8 million.
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Country of Origin of Films in the US and Canada, 2004 Country of Origin # of releases % of releases UK and UK co33 6.5 productions (non-USA) USA/UK 22 4.3 Sub total USA solo USA co-productions (other Sub total Total 55 262 30 292 508 10.8 51.6 5.9 57.5 100.0
B.O. share % 1.3 9.7 11.0 83.9 3.4 87.3 100.0
B.O. ($m) 124.2 892.6 1,016.8 7,718.7 313.0 8,031.7 9,200.3
The other notable characteristic of the US market was the decline in the release and market share of US films. In 2003 US films accounted for 61.5% of all releases and generated gross box office revenues of $8,362.3 million (a market share of 9.3%). In 2004 there was a smaller proportion of US releases (down to 57.5%), and their market share fell to 87.3% of the gross box office ($8,031.7 million). Top 10 UK films worldwide, 2004 Film 1 Harry Potter and the Prisoner of Az 2 Troy 3 Bridget Jones: The Edge of Reason 4 King Arthur 5 Alien vs. Predator 6 Cold Mountain 7 Resident Evil: Apocalypse 8 Alexander 9 Around the World in 80 Days 10 Love Actually Country of Origin UK/USA UK/USA/Mal UK/USA UK/USA/Ire UK/Cze/Can/Ger/USA UK/USA/Rom UK/Ger/Fra/Can UK/USA UK/USA UK/USA Worldwide Gross ($m) 789 497 228 201 162 131 128 79 62 60
U.S. Video and DVD Distribution The video and DVD distribution window is traditional six months following a pictures theatrical premiere. In 2004 DVD sales reached $15.5 billion and DVD rentals grossed $5.7 billion with video sales and rentals bringing in $3.2 billion. In 2006 consumer spending on home video dropped for the first time in a decade. It is not unusual for a picture to gross $40 million to $50 million at the box office and to do $50 to $60 million on DVD. The customary video/DVD gross revenue projection formula is three times a pictures theatrical film rental. This number is sufficient for a distant analysis of the films success. Often a film can have limited success at the box office yet be very successful on video and DVD. This is often due to several factors such as the picture being released during a
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picture release deluge, inclement weather, or a spectacular national news or sports event effecting the important opening weekend and negatively affecting the box office gross by as much as one-third. Video/DVD rental is the single largest revenue stream regardless of box office success but its video/DVD success is wholly dependent on the pictures branding during its theatrical release. A recent trend towards collapsing the theatrical-to-DVD-to-television release windows has occurred. This trend has met with stiff opposition from theatre chains whose policy is to not exhibit films that are already in the marketplace on DVD or pay-per-view. For the first time a recent film released by Warner Bros. was simultaneously distributed both theatrically and on DVD in the Chinese marketplace to curtail piracy. This practice is still experimental and it has been determined that for some property in some markets this practice can extract more revenue than the traditional distribution windows, but this should be determined on a picture-by-picture and market-by-market basis. Premium Cable Television & Video-on -demand Premium cable and video-on-demand networks distribute first-run movies via local cable operators into the homes of audiences. The combined audience of the premium cable networks HBO, Showtime, and Encore/Starz! tops 53.7 million viewers. The estimated business cash flow for each of these networks exceeds approximately $150 million per fiscal year. These networks are extremely competitive for pictures because research has shown that new hit movies drive the consumer to the pay television services. Video-on-demand (VOD) is a relative newcomer to the marketplace and subsidiary companies of Comcast and Cablevision are aggressively seeking content to drive audiences to their networks. As the marketplace matures their will be several advantages to VOD such as almost instantaneous demographics information and audience viewing habits making VOD a more refined market, but presently this is not the case and currently VOD is not as appealing to producers as premium cable. Both of these markets share the fact that content drives viewers and create branding for these networks. HBO is known as the leader in premium cable in no small part because it held the rights to 7 of the 12 films that grossed $100 million plus at the box office in the year 2000. Operative Entertainment will be utilizing either an independent producer sales representative; an experienced ancillary sales manager; or an industry attorney experienced in negotiating and managing licenses to directly liquidate to the premium cable networks. Network Television Network television broadcasters commonly known as the alphabet networks are licensees of motion pictures for broadcast. These television broadcasters are vast multinationals, sophisticated conglomerates, made up of international parent companies and their subsidiaries that are each multi-million dollar units. The alphabet networks dominate the airwaves but with the popularity of cable networks, in which there subsidiary channels are also leaders, competition has grown to more than twenty networks, although the majority of these are audience specific. An in-depth analysis of these broadcasters is impractical; the business of these networks is immense. The relevant area of interest is what types of
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films these networks purchase, the licensing fees paid for these films, and how this market is best engaged. The motion pictures are promoted as network premiere events and are edited for content and time allotment. CBS, ABC, FOX and NBC distribute these premiere events through a network of affiliates that reach 99% of all homes in the United States with television sets. The average ratings of these premiere events are 2.25 with a 6.5 share and 6 million viewers. The films broadcast during May 2005 ranged from fantasy, to action and to comedy. The MPAA ratings on these films were either PG or PG-13. And the films were between the 30-month to 48-month window from their theatrical premiere in the United States. Not all films produced by Operative Entertainment will match this marketing profile, but as long as the success budget parameters of the films reach the 2:1 threshold the films should be produced. Television Syndication Television syndication utilizes the independent television stations and television groups to reach audiences. These stations and groups are the very same utilized by the alphabet networks to reach into homes, but are approached individually by Operative Entertainment. After the network television premiere, normally around the 42 month to 54 month after the U.S. theatrical premiere, syndication opens and continues as long as the rating are sufficient enough to justify rebroadcast and agreements can be entered. This window is complex and will be managed by a television syndication organization compensated via the distribution fees plus expenses. The license fees are dependent upon packaging, the number of airings, the audience reach, the number of broadcast stations and the length of the license. Supplementary Ancillary Rights Value will be extracted from every available rights area; these areas are film specific and will be based on the individual pictures success strategy report. Many of the following right areas can earn seven or eight figure amounts substantially increasing income. These areas will be considered on a picture-by-picture basis. They are: novelization, product placement, premium tie-ins, soundtrack and music publishing, toys and merchandising, retail and video games, in-flight, hotels and motels, military, schools, Indian reservations, and ships-at-sea. Some of these areas will be handled in-house, others in conjunction with, and exclusively by, the qualified representatives and attorneys.
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Risk Statement Investment in the film industry is highly speculative and inherently risky. There can be no assurances of the economic success of any motion picture since the revenues derived from the production and distribution of a motion picture dependent primarily upon its acceptance by the public, which, although may be mitigated, cannot be predicted. The commercial success of a motion picture also depends upon the quality and acceptance of other factors and other tangible and intangible factors, all of which can change and cannot be predicted with certainty. The entertainment industry in general and the motion picture industry in particular, are continuing to undergo significant changes, primarily due to technical 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 creation of additional revenue sources through the 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 DVD, videocassettes, and television. Due to the rapid growth of technology shifting consumer tastes, and the popularity and availability of other forms of entertainment, although estimates are made and trends tracked, the overall effects these factors have on the potential revenue from and profitability of feature-length motion pictures is speculative. The company itself is in the organizational stage and is subject to all the risks incident to the creation and development of a new business, including the absence of a history of operations and minimal net worth. In order to prosper, the success of Operative Entertainments films will depend partly upon the ability of management to produce films that appeal to the marketplace. In order to minimize this risk, management plans extensively, will engage in strategic relationships, develop the necessary requirements and aim to mitigate financial risks where possible. Fulfillment of this goal depends on several factors that are outlined in the business plan. Unforeseen events may, and quite possibly will, occur that will amend this plan in execution but not in strategy.
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FINANCIALS Cash Flow
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Cash Flow Year Two
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APPENDICES Appendix 1: Definitions Above the Line: Those budget elements that represent the collaborative creators of the motion picture including the Producer(s), Lead Actors, Director, Production Designer, Director of Photography and Editor(s). Astro-turf mobilization: Grassroots expression that is manufactured by firms, or businesses that dedicate time and resources to the generation of extemporaneous public opposition or support. Balanced Producing: Understanding and sustaining a balance between pictures creative, audience, and income aspects. Understanding the essential importance of both preparing the pictures for the global marketplace and preparing the global marketplace for the pictures. Consequently the creation and production decisions are wholly knit together with the distribution and rights-sales decisions. Below the Line: Those budget elements that represent the support staff on the construction of a motion picture including support cast, extras and crew. Bondable: An adjective used in the film business to describe someone or something (producer, production company, director, actors, line producer, excreta) that when attached to a project, will enhance the ability of the producer to obtain a completion bond for a film. The assessment by which the completion guarantor will be partly based on the success of such individuals or entities on prior film projects. Creative Protectionist: The characteristic unique to these producers is their arms-length, creative protectionist attitude toward distributors. The producers are so focused on the creative aspects of their pictures and that distributors appear to represent a threat to the artistic integrity of their pictures and are commonly to blame if the picture financially underperforms. Internal Rate of Return: An investment appraisal technique, also know as discount cash flow yield, from which the profitability of a project or investment can be assessed. The internal rate of return (IRR) of an investment is the rate of return at which its anticipated future income and expenditure (cash flows) must be discounted to give a net present value of zero. If the IRR is greater than the project or investment, the project is likely to be profitable. Inward financing: Inward financing is defined as money from outside of a given country attracted to that country because of incentives or infrastructure. An inward feature is defined as a feature film more than 50% financed from outside the UK where the production is located non-specific or is attracted to the UK because of its infrastructure. An inward feature co-production is an official co-production that originates for outside the co-production treaty countries (usually from the USA) and which is attracted to the UK because of its infrastructure. Irrational decision maker: In marketing science it is believed that a consumer makes up his mind, based on prior information, to purchase or support a product or service before the product or service is even presented to them based on emotional and social conditions.
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These emotional and social conditions affect the unconscious mind and the conscious mind then rationalizes the decision with logic to then articulate it. Production financing: The monies deposited into a feature film production account to be used in the production of a motion picture. Property: The idea, script, or article that is purchased by a producer to be developed in to a motion picture is called the property. The term likely comes from architecture and the close correlation between the development of homes and buildings and the development of motion pictures. Seed funds: The earliest funds required for the activities undertaken during the development of a business or firm, more often referred to as preliminary or developmental monies in the context of feature films. The term seed money is typically associated with venture capital funds, namely, it is the contribution towards the financing or capital requirements of a start-up business. Turnkey package: A compilation of materials that is used to create a film. An assortment of resources that together include, the script, the script breakdowns, the day-by-days, talent contracts, schedules, storyboards, excreta, to outline the manufacture of a motion picture. Turnkey prototype model: A model of business developed in a manner than can be replicated and repeated. A system of order that allows for continual growth most commonly encountered in franchise business.
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Appendix 2: Production Stages The production cycle is the most familiar and includes pre-production, production, and post-production. Pre-production activities include the hiring of the creative personnel and principle cast, designing and story boarding the motion picture, shooting locations, shooting schedules and such other steps that are necessary to prepare for the actual commencement of photography, including hiring the crew and obtaining insurance. Approximately three months are scheduled for the pre-production stage of each picture. Principle photography consists of the actual filming of a screenplay with the members of the cast in order to produce the film negative. This photography phase may extend from several weeks to many months depending on the budget allowed and also such factors as actual locations and weather. Principle photography is usually carried out in consecutive weeks but, sometimes, there are one or more interruptions in the shooting schedule. During this phase, almost all of the film footage is shot, although additional scenes may be shot during post-production. This stage is the most visible of all the stages and the majority of the publicity and exposure is generated during it. The amount of individuals that come together to complete a film is substantial. The motion picture industry is unique in that it effectively incorporates many small industries to make a whole. A group of processes dependent on the other make it a symbiotic progression; each piece together goes beyond the simple process of filmmaking and each film becomes a whole industry unto itself with millions of dollars invested and international interests supporting it. The post-production stage is where the motion picture film is edited into its final form. Music is added, dialogue, soundtrack and special effects are synchronized and in general the film is brought to its complete form known as the answer print and the picture negative is readied for the production of release prints. While the post-production stage may extend for any period, depending upon editing difficulties or the addition of new materials, it is generally estimated that this stage last approximately three months on each picture. Each picture is individual and the talent, personnel, technologies, and schedules are individual for each project. The brief explanations of the stages are over-simplifications and many of the pre-production elements are started in the development stage and finalized while in pre-production. The detailed agendas of each picture are determined during the development stage as part of the turnkey packaging.
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Appendix 3: Draft Legislation for Film Relief : Chapter 1

Draft Part 1 Film Relief Chapter 1 Relief from corporation tax
Part 1 FILM RELIEF Chapter 1 RELIEF FROM CORPORATION TAX Meaning of Production expenditure 1 Meaning of production expenditure (1) For the purposes of this Chapter production expenditures incurred on the original master version of a film means expenditure which, in accordance with generally accepted accounting practices, is incurred on the production of that original master version. Production expenditure incurred on the original master version of a film also includes expenditures of a description prescribed as production expenditure: for the purposes of this Chapter But production expenditure incurred on the original master version of a film does not include(a) (b) (c) (4) (5) (6) any amount incurred on goods, services, or facilities to the extent that that amount exceeds the market value of the goods, services or facilities in question, any amount which is excluded by subsection (4) (reciprocal payments), or any amount of a description which is prescribed as not being production expenditures for the purpose of this Chapter.
(2)
(3)
[.reciprocal payments.] In this section prescribed means prescribed by regulations made by the Treasury. Regulations under this section may (a) (b) make such supplementary, incidental, consequential or transitional provisions as appears to the Treasury to be necessary or expedient; make different provision for different cases or different purposes.
(7)
The first regulations under this section (a) may make provision which has effect in relation to expenditure incurred before the regulations are made (whether incurred before or after the passing of this Act), and (b) may not be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.
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Appendix 4: Cultural Test For British Films A film qualifies if it scores 16 points or more out of 32. The Secretary of State will not have any discretion to waive or relax the test in a particular case. Notes Points Section A: Cultural Content A1 Set wholly/mainly in the UK 1 A2 Principle Characters British nationals or residence 1 A3 Based on British subject matter or underlying material 1 A4 Dialogue in the English Language (inc official regional or minority UK languages) 1 Total 4 Section B: Cultural Hubs Must be in the UK B1 Studio and/or location shooting 6 B2 Visual effects 4 B3 Special effects 1 B4 Music recording 2 B5 Audio post production 1 B6 Laboratory processing 1 Total 15 Section C: Cultural Practitioners Must be British or EEA nat/res C1 Director 2 C2 Scriptwriter 2 C3 Producer 1 C4 Composer 1 C5 Principle actors 2 C6 Majority of cast 1 C7 Key Staff 3 (cinematographer, production designer, costume designer, editor, sound designer, VFX supervisor, principle make/up hair) C8 Majority of crew 1 Total 13 Total points for Sections A,B,C 32
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Appendix 5: Comparison of Film Tax Incentives Production Budget Analysis: Sample The following sample was prepared by Moneypennny Business and Taxation Service Pty Ltd; June 2003 as a summary report of the Department of Information Technology and Atrs (DCITA); Titled: Final Destination: Comparison of Film Tax Incentives Australia and Canada. AUSTRALIA SHOOT SYDNEY AUSTRALIA TAX CREDIT ANALYSIS
Total Budget less Non Production Spend as per 12.5% legislation Development, Financing, Pre-existing Copyright ect Revised Total Budget as per legislation Less non qualifying Australian expenditure Various production items occurring outside Australia 50% airfares & US Producer/Director fees Total Non Qualifying Australian expenditure Qualifying Australian Production Expenditure *Qualifying Australian expenditure as a % of Revised total budget Add GST as rebate claimed on GST inc QAPE (assume GST % of 60% of QAPE) Total QAPE Eligible for 12.5% Offset Refundable tax offset calculated at 12.5% Rebate As a % of Total Budget Net Budget after Federal Tax Rebate from Aust Approx Value of NSWFTO Payroll tax rebate Net Budget after Federal/State Tax Rebates from Aust Total rebates As a % of Total Budget US$ 21,937,948 1,099,600 20,838,348 3,046,803 954,650 4,001,453 16,836,895 81% 1,010,214 17,847,109 2,230,889 10.17% 19,707,059 70,067 19,636,992 10.49% A$@.65 33,750,689 1,691,692 32,058,997 4,687,389 1,468,692 6,156,082 25,902,915 81% 1,554,175 27,457,090 3,432,136 10.17% 30,318,553 107,796 30,210,757 10.49%
CANADIAN SHOOT VANCOUVER BRITISH COLUMBIA TAX CREDIT ANALYSIS

Total Budget British Columbia Production Service Tax Credits Eligible BC labor Basic PSTC @ 11% Regional PSTC @ 6% Visual Effects PSTC @ 15% Federal Production Services Tax Credits Eligible Canadian labor Less BC Provincial rebates Net labor available for fed @ 16% Total Value of Rebate Claims Rebates as a % of Total Budget Net Budget after all Tax Rebates from Canada 6,457,824 6,457,824 US$ 22,857,064 CAN$@.73 31,311,047
710,361
973,097
6,457,824 710,361 5,747,463
919,594 1,629,955 7.13% 21,227,109
1,259,718 2,232,815 7.13% 29,078,232
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Appendix 6: UK Feature Film Production Activity, 2003-2004 Snapshot U.K. feature film production activity, 2003-2004 was split between 173 films total with a total value of 1,157.7 million for 2003, and 133 films total with a total market value of 811.9 million in 2004; the downturn between 2003 and 2004 has been the Chancellors announcement in early 2004 that the tax system will be altered without announcing a new system to replace it. The analysis is as follows: Number of Prod. Value 2003 (m) 2003 17 409.7 13 30 44 99 173 319.9 729.5 269.3 158.9 1,157.7 Number of Prod. Value 2004 (m) 2004 17 476.9 3 20 27 86 133 71.6 548.5 117.8 145.6 811.9
Inward feature films (single country) Inward feature films (coproductions) Total inward investment Domestic UK feature films UK co-productions (other than inward) Total Production investment
Source: UK Film Council International
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Appendix 7: Case Study: Pixar Films Pixar is arguably the best place to work in the industry. They have a reputation of creating top quality pictures, attracting the best talent, and never resting on their successes. When you enter Pixar, which is strategically located in Northern California, away from Los Angeles, you feel as if you are in an extraordinary place. The guard checks you into the lot and supplies you with an identification card or checks your employee identification. Once inside you will notice the employees are traveling around either via skateboard or scooter; the dcor is fun and characters from past films fill the grand entrance of the main building. On one side is a games room: a pool table, a foosball table, pinball machines, and arcade style videogames are available for the staffs pleasure. A cafeteria and snack shop balances the space. If you were to call the facility before you arrived you would reach a recording asking for an extension or allowing you to be put through to an operator who would answer your questions or patch you through to the appropriate person. As you walk the halls you notice the offices are decorated with toys that the employees are urged to use to relieve stress and boost creativity. They are all similar in their uniqueness, representing their positions within the company and background. The artists ride skateboards, some have dyed hair and most wear funky t-shirts; executives ride scooters and wear casual dress-shirts and slacks. A company policy that promotes healthy living is well publicized and a gym is on the premises. Events such as barbeques and volleyball tournaments are arranged to bond employees and allow differences to be worked out in a healthy manner. Another well-known policy is Pixars hiring procedure that allows for the hiring of all levels of employees, giving them the ability to develop towards their goals based on merit and education through the in-house Pixar University. Pixars focus is on animated features. They consistently win awards for their films and these films identify them to the public. Animation, today, is typically produced using computers and all the tools the employees need or want are available: a specially engineered room containing the largest computer in the United States; a full size theatre to watch music scoring sessions via satellite feed, dailies, or to screen the finished pictures; and boardroom spaces with state of the art media and monitors, a place to develop or present storyboards and characters and white boards to write down ideas; everything from pencils to film labs are available under one roof. You can see how the model provides consistent value to the talent, employees, suppliers, and investors beyond what they expect. How they hire people with the lowest possible level of skill, while allowing them to develop and excel, while still attracting top talent. A form of uniform color, attire, and facilities code is utilized. It is a place of impeccable order; the telephone system and gate procedures are likely documented in operations manuals that provide a uniformly predictable service. This predicable service was engineered to make an impression on the talent, employees, suppliers, and investor.
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Appendix 8: Business Structure
Burns Global Limited

Seed Company 1.1MM
Equity Investors Operative Entertainment

S-CORPORATION Corporate General Partner
First Stratum
Three Individuals or Entities 6 million
50% Partnership
50% Partnership
Development Company
LLC Partnership
Second Stratum
Future Companies
$$ BANK
Developed Picture Sales at 50% return
Third Stratum Producing Company

#1 LLC
Producing Company
#2 LLC
Producing Company
#3 LLC
Picture A
Picture B
Picture C
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Appendix 9: Board Charter

Operative Entertainment Board Charter
PREAMBLE
The Board of Directors has adopted the following corporate governance guidelines specifically tailored to the needs of the company. These guidelines reflect the Boards commitment to monitor the effectiveness of policy and decisionmaking both at the Board and management level, with a view to enhancing company value over the long term. The Board believes these guidelines should be an evolving set of corporate governance principles, subject to alteration, by majority vote, under the guidance of the Nominating and Governance Committee, as circumstances warrant.
Directors
Personal Characteristics and Core Competencies of Directors Directors should share in the thought that this company exists to enrich the lives of people by revealing cardinal truths of human spirit, the world, or an ideal. Directors should be passionate about the performances of the company, both in absolute terms and relative to its peers. That passion should manifest itself in engaged debate about the future of the company and an esprit de corps among the Board that both challenges and inspires the companys employees. Core Competencies of the Board as a Whole Among the most important missions of the Board is ensuring that the companys value is both enhanced through its performance and protected through adequate internal financial controls. The Board should have one or more directors with specific expertise in financial accounting and corporate finance. Directors are required to make clear and direct choices on behalf of the companys interest. The majority of directors should have a record of making good business decisions in the corporate sector. Organizations inevitably experience both short and long-term crises. The ability to deal with crises can minimize ramifications and limit the negative impact on firm performances. The directors should have the ability and time to perform during periods of both sort term and prolonged crises. To monitor corporate management, the Board needs to understand management trends in general and industry trends in particular. The Board should have one or more directors who understand and stay current on general management best practices and their application in complex, rapidly evolving business environments. Companies continually face new opportunities and threats that are unique to their industries. The Board members should have appropriate and relevant motion picture industry-specific knowledge. To succeed in an increasingly global economy, the Board should have one or more who appreciate the importance of global business trends and who have first-hand knowledge of international business and have experience in those markets. Ultimately, a companys performance will be determined by the directors and CEOs ability to attract, motivate and energize a high-performance leadership team. The Board should have one or more directors who understand and possess empowerment skills and have a history of motivating high performance talent. A key Board role is to approve and monitor company strategy to ensure the companys continued high performance. The board should have one or more directors with the skills and capacity to provide strategic insight and direction by encouraging innovation, conceptualizing key trends, evaluating strategic decisions, and continuously challenging the organization to sharpen its vision. The board is a diverse group of individuals that bring to the organization specific and varied viewpoints that serve wholly as a strategic entity. These individuals should have a background of at least one of the following: bank executive, entertainment attorney, personal relations or advertising executive, physical production specialist, completion bond executive, entertainment executive with a specialty in story, or entertainment accountant. Identification and Recruitment of Board Members One of the tasks of the Nominating and Governance Committee is to identify and recruit candidates to serve on the Board of Directors. A list of candidates shall be presented to the Board of Directors for nomination and to the 56
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shareholders for consideration. The committee may at its discretion seek third-party resources to assist in the process. The CEO will be included in the process on a nonvoting basis. The Nominating and Governance Committee will make the final recommendations to the Board. Outside Directorships The CEO and senior management of Operative Entertainment should limit outside directorships to one or two; nonemployee directors who are employed on a full time basis should limit other directorships to no more than four; and retired executives should limit other directorships to no more than six. Service Limitations of Directors The Board does not believe term limits are appropriate, but to encourage fresh approaches to managing the company, the recommended Board tenure shall be no more than 15 years. While mandatory turnover would provide fresh viewpoints to the Board, term limits have the compelling disadvantage of losing the contribution of directors who have a unique insight into the Companys business and its value through the premature termination of a director. The Board is presently satisfied with the current mandatory retirement age of 75. Upon termination of his or her primary occupation or other significant change in business/professional circumstances, a board member shall tender his or her resignation to the Board. The full Board shall decide whether of not to accept the resignation
Board Operations
Selection of Chairman And Chief Executive Officer

The Board believes the positions of Chief Executive Officer and Chairman of the Board should be combined to provide unified leadership and direction. The Board reserves the right to adopt a different policy should the circumstances change
Board Committees
The Board currently has four standing committees: Audit, Compensation, Nominating and Governance, and Public Policy. There may be occasions when the Board will wish to form a new standing or ad hoc committee, or disband a current committee depending upon the circumstances. The Board will adopt specific charters for all standing committees. The Board will approve committee assignments, including committee chairmanships. In so doing, the Board will consider the desires of individual directors and the recommendations of the Nominating and Governance Committee in consultation with the Chairman and Chief Executive Officer. The Board will rotate committee membership periodically, at about five-year intervals. Such rotation shall not be mandatory, however, since there may be persuasive reasons to maintain an individual directors committee membership for a longer period, Committee chairman will determine the frequency of meetings of their respective committees, and, in consultation with management, will set meeting times and develop committee agendas. Each committee will, at beginning of the year, enumerate the subjects to be discussed within that committee during the year. The committee chairman, in consultation with management, may alter this enumeration should circumstances so warrant. Only independent directors may serve on the Audit, Compensation, and Nominating and Governance Committees. Any director may attend and participate in discussions of any Board committee, although formal committee action will only be through the vote of appointed committee members. Board Access to Senior Management Board members have full access to senior management and to information about the corporations operations. Except in unusual circumstances, the CEO should be advised of significant contacts with senior management. Unusual circumstances are to be determined by a two-thirds majority vote of the Board. Board Ability to Retain Advisors The Board shall retain advisors, as it believes to be appropriate. If management is retaining advisors to the Board, such decision must be ratified by the Board. Individual directors should not retain their own advisors except in exceptional circumstances. These exceptional circumstances are to be ratified by a supermajority two-third vote of the Board. 57
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The Board encourages the Chief Executive Officer to bring into Board and committee meetings corporate executives: (a) to provide additional insight on items being discussed because of their personal involvement in such areas; and/or (b) to provide Board exposure to individuals with outstanding management potential. Material in Advance of Meetings The Board must be given sufficient information to fully exercise its governance functions. This information comes from a variety of sources including management reports, a comparison of performance to plans, security analysts reports, articles in various publications, ect. Board members should receive information no later than 10 days prior to Board meetings so they will have an opportunity to reflect properly on the items to be considered at the meeting. These materials shall be informative but concise. Board Meetings The Board Chairman will establish the agendas for board meetings. Any Board member may, however, recommend the inclusion of specific agenda items. Such recommendations will be accommodated to the extent practicable. The Board will ensure that adequate time is provided for full discussion of important items and that management presentations are scheduled in a manner that permits a substantial proportion of Board meeting time to be available for open discussion Members of the Executive Office who are not Board members may attend and participate in Board meetings at the invitation of the Chairman. Should the Chairman contemplate inviting any such person to attend and participate on a regular basis, Board concurrence will first be obtained.
Executive Sessions
Time will be allotted at the end of each board meeting for an executive session involving only the independent directors. The Board may meet periodically in executive sessions as circumstances warrant. Such executive sessions may be in one of three formats: (1) sessions involving only directors; (2) sessions involving only non-management directors and the Chief Executive Officer; and (3) sessions involving only non-management directors. Evaluation of CEO The evaluation of the chief executive officer and concurrence with the CEOs selection and evaluation of the corporations top management team is the most important function of the Board. In its broader sense, selection and evaluation includes considering compensation, evaluating the performance, and planning for the succession of the CEO or other inside directors and, when appropriate, replacing members of the top management team. The Chief Executive Officer will be expected to report annually to the Compensation Committee on his or her goals and objectives for the ensuing year, and also to report annually on the level of achievement of the preceding years goals and objectives. The Board should have an understanding with the CEO with respect to criteria on which he or she will be evaluated, and the results of the evaluation will be communicated to the CEO. All Board members shall be invited to those particular Compensation Committee meetings, and all shall have the opportunity to participate in any appropriate follow-up meeting or discussions. Management Development The CEO will report annually to the Board on the companys program for management development.
Compensation for Independent Directors

Compensation of independent directors shall be comparable to that offered by other companies of similar size and scope. Independent directors shall receive no additional remuneration, in the form of consulting fees or other special benefits, beyond that provided for service on the Board. Directors who are officers of the company shall receive no additional remuneration for serving as a director. Management will annually review with the Compensation Committee the status of independent director compensation relative to comparable companies. Any changes to Board compensation shall arise from recommendations of the Compensation Committee, with full discussion and concurrence by the Board. The Board is committed to fostering compensation programs based on merit. The Board is additionally committed to designing policies to encourage director and senior management success over the long-term. Such 58
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programs, in view of the Board, will never align the individual interests of directors and top management over the interests of the company.
Board Composition
The Board believes that is should generally have no less than 5 and no more than 11 directors. This range permits diversity of experience without hindering effective discussion of diminishing individual accountability. The Board is prepared, however, to increase its membership beyond 11 should that be necessary to accommodate an outstanding candidate. To ensure Board independence, no more than three non-independent directors shall serve on the Board at any point in time. All other directors shall be independent. A director shall be considered independent if he or she: (1) is not currently employed by the Company; (2) has not been employed by the Company during the last five years; or (3) has not received significant remuneration from the Company in any capacity other than as a director during the last five years. This policy may be modified temporarily if, due to unforeseen circumstances, strict adherence would be detrimental to the Boards performance. Any officer of the corporation, other than the Chief Executive Officer, serving as a director shall resign from the Board upon his resignation or retirement from the Company. When a Chief Executive Officer resigns or retires, he or she and all former Chief Executive Officers then serving as directors will offer former Chief Executive Officers then serving as directors their resignations from the Board. Remaining Board members, in conjunction with the incoming Chief Executive Officer, will determine whether any conditions shall apply to the continuation of such directorships, and/or whether any of the resignations are to be accepted. Board Evaluation The Board will engage in a self-evaluation annually. This evaluation will be of the Board as a collective body and not of directors on an individual basis. The evaluation process will be administered by the Nominating and Governance Committee and evaluation results shared with full Board for their discussion and deliberation.
Membership Criteria
The Nominating and Governance Committee shall solicit and receive recommendations, and review qualifications, of potential Operative Entertainment director candidates on ongoing bases. From its qualifications of, potential candidates, the Nominating and Governance Committee shall from time to time recommend to the full Board the election of new directors. The Chief Executive Officer will periodically review with the Nominating and Governance Committee and, if he or she wishes, with the full Board, the particular attributes that would be most beneficial to the company in the future Board nominees. This assessment will include, but not be limited to, issues such as integrity, competence, age and experience, commitment and dedication, collegiality, diversity, technical background, and international skills. Succession Plan In the event of the death, resignation or incapacity of the CEO, the Chairman of the Nominating and Governance Committee will immediately call a meeting of that committee to recommend to the full Board the selection of a temporary or permanent replacement. Although the current CEO has an important role to play in the recommendation of his successor the full Board must develop the plan for succession, with collaboration from the CEO, and ratify the final decision in such a case.
Implementation and Alteration of the Guidelines

Implementation of these guidelines shall be the first order of business upon the first meeting of the board. Alteration of these guidelines shall be the responsibility of the Nominating and Governance Committee, working in co-ordination with the Chairman and Chief Executive Officer.
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Appendix 10: Values, Morals and Ethics Our first responsibility is to the movie going public and those who consume our products and enjoy our stories. These stories must enrich the lives of those consumers by revealing cardinal truths of human spirit, the world, a particular character or an ideal. Our productions must always be of the highest quality that is possible. We must consistently strive to provide the best entertainment so that those who consume our product feel that they have received a real value for their entertainment dollars. Our second responsibility is to those who work with us. The men and women who work in our offices and on our sets are creative people, we must make sure that each of our employees operate in a stable and secure climate. We also must make sure that the employees have a long-range opportunity with the company and suitable projects on which to work. Additionally we are to make certain that they are adequately supervised so that they will be happy and productive to the maximum extent. Our third responsibility is to our management. The executives must be persons of talent, education, experience, and ability. They must possess common sense and a full understanding of the business. They must be able to discern between good ideas and bad ideas and not place the dividing line between those that are well off and those that are not. Incentives must be based on meritocracy with an eye on the successes of the people, products and then the business. The measure of ones success should be the desire to become more of what one is. The influences of management should move people toward self-actualization in this manner. We must understand that people are basically trustworthy, self-protecting, and self-governing and that they naturally tend towards development. The following values; truth, integrity, beauty, unity, vitality, uniqueness, perfection, justice, order and simplicity are the principles that should guide our management and any influence denying people their safety, affection, and esteem will be rebuked. Our fourth responsibility is to the communities in which we live. We must be good citizens support good works and charity, and bear our fair share of taxes. We must maintain in good order the properties we are privileged to use. We must participate in the promotion of civic improvement, health, education, and good government, and acquaint the community with our activities. Our fifth responsibility is to our stockholders. Business must make a sound profit. Reserves must be created; research must be conducted, adventurous agendas developed, and mistakes paid for. Adverse times must be provided for, adequate taxes paid, new equipment purchased, new facilities built, new technologies launched and new distribution markets explored. We must experiment with new ideas. When these things have been done the stockholders should receive a fair return. We are determined to fulfill these obligations to the best of our ability.
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Appendix 11: Activity Schedule
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Appendix 12: Letter of Intent- Carlos Gallardo
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U.S. Box Office

B.O. share % 1.3 9.7 11.0 83.9 3.4 87.3 100.0

B.O. ($m) 124.2 892.6 1,016.8 7,718.7 313.0 8,031.7 9,200.3

FINANCIALS Cash Flow

Cash Flow Year Two

Appendix 3: Draft Legislation for Film Relief : Chapter 1

CANADIAN SHOOT VANCOUVER BRITISH COLUMBIA TAX CREDIT ANALYSIS

6,457,824 710,361 5,747,463

919,594 1,629,955 7.13% 21,227,109

1,259,718 2,232,815 7.13% 29,078,232

Appendix 8: Business Structure

Burns Global Limited

Equity Investors Operative Entertainment

Three Individuals or Entities 6 million

Third Stratum Producing Company

Appendix 9: Board Charter

Selection of Chairman And Chief Executive Officer

Compensation for Independent Directors

Implementation and Alteration of the Guidelines

Appendix 11: Activity Schedule

Appendix 12: Letter of Intent- Carlos Gallardo

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