Cover

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pp. 1-1

Title page, Copyright Page

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pp. 2-7

Contents

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pp. 8-11

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Preface

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pp. xi-xiv

...This book is published with the understanding that the author is not herein engaged in rendering legal, accounting or other professional services. For those readers seeking legal advice or other expert assistance, the services of a professional should be engaged for that specific purpose...

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Introduction: No Single Best Way

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pp. 1-8

...This book has been written to meet a need within the American film industry for a balanced and objective overview of information relating to the numerous film-financing options and their respective advantages and disadvantages. The book is for those people, whether they are producers...

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Part One: Subsidies

...This first section of the book brings together several forms of film finance that are not generally considered stand-alone financing methods, in the sense that such methods are not likely to raise enough money to finance the entire production of a single motion picture, unless the budget is in...

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1. Gifts and Grants

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pp. 11-20

...Although it is not likely that a filmmaker will be able to successfully solicit one or more gifts adequate to fund the entire budget of a feature film (unless the budget is extremely low), the filmmaker may want to start his or her film-financing activities by soliciting one or more gifts...

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2. Domestic Government Subsidies and Tax Incentives

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pp. 21-38

...It may not be quite accurate to consider tax incentives as a stand-alone form of film finance. In all fairness, tax incentives function more as a supplement to investor financing, in the sense that they provide additional motivation for investors to invest. Many investors are partly motivated by...

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Part Two: Investor Financing

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pp. 39-46

...Investor financing of all or part of a film production or its distribution is distinctly different than the other common forms of film finance we will consider, such as gifts, grants or loans. With investments, the people or entities providing the money have an expectation of not only getting...

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Active Investor Vehicles

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pp. 47-48

...At least initially, active investor vehicles appear to be attractive because the money might be raised from one or two wealthy individuals. Occasionally, in fact, the Hollywood-based trade press will produce articles about film finance, but unfortunately such articles tend to focus...

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3. The Investor-Financing Agreement

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pp. 49-51

...The investor-financing agreement is one of several active investor-financing (nonsecurities) transactions that may be used to raise a limited amount of funds from one, two or a few active investors. The other three discussed in this book are the general partnership/joint venture...

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4. General Partnerships and Joint Ventures

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pp. 52-58

...Another of the active investor vehicles that may be initially considered by a filmmaker for starting a film production business is the general partnership. Whenever two or more persons associate for the purpose of carrying on a business for profit, regardless of whether they intend to...

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5. The Initial Incorporation

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pp. 59-63

...A third active investor vehicle possibility involves the creation of a new corporation. This transaction also provides an early opportunity to raise a limited amount of funds. As an example, if a producer brings together four or five close friends, family or business associates for the purpose...

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6. The Member-Managed LLC

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pp. 64-66

...A fourth active investor vehicle that may be considered by a film producer is the member-managed limited liability company. The LLC is a relatively new form of business entity available in most states. Its formation is based on state law and typically involves filing articles of organization with the...

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Passive Investor Vehicles

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pp. 67-70

...Once the producer decides to raise money from a large group of passive investors (as opposed to one, two or a few active investors), he or she needs to recognize that the sale of a security is being proposed (regardless of the choice of investment vehicle). In other words, even if a producer calls...

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7. The Manager-Managed LLC

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pp. 71-73

...The manager-managed LLC is one of the more popular passive investor vehicles for project financing of feature and documentary films. Its formation is similar to the creation of a member-managed LLC, in that articles of organization need to be prepared and filed with the office of...

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8. Limited Partnerships

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pp. 74-79

...Another investment vehicle (a form of passive investor financing) that has been around much longer than the manager-managed LLC is the limited partnership (LP). The two entities are very similar so far as their tax treatment is concerned and in the way that they are formed and operated. However, an individual serving as the general partner of a limited partnership...

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9. Corporate Finance

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pp. 80-94

...Another traditional passive investor vehicle is the existing corporation (as opposed to the newly formed “initial incorporation” scenario described in chapter 5). A corporation is a statutory entity created and regulated by state laws that has its own legal identity separate from any of the people...

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Securities Compliance

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pp. 95-95

...A filmmaker selling corporate shares, units in a limited partnership or interests in a manager-managed LLC (i.e., any of the three passive investor vehicles just discussed) would be selling securities. Thus, the filmmaker would be obligated to comply with the federal and state securities laws...

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10. Statutory Exemptions of the 1933 Securities Act, Section 4

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pp. 96-102

...One of the first nonpublic (private) exemptions a filmmaker may want to consider is Section 4(2) of the Securities Act of 1933. Federal legislation requires that all securities offered through the mail or other channels of interstate commerce be registered with the SEC. That requirement...

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11. Intrastate Offering Exemption

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pp. 103-104

...Occasionally, filmmakers want to conduct a so-called intrastate offering to raise money to produce a feature film, believing they can raise the money that is needed in just one state. There are actually two intrastate exemptions from the securities registration requirement. One is based...

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12. Regulation D

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pp. 105-114

...For many years, the most commonly used private placement exemption at the federal level has been the SEC’s Regulation D. It is an exemption from the securities registration requirement, but it is an SEC rule, not a statute passed by Congress. Congress did, however, provide the statutory...

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13. Public/Private (Hybrid) Exemptions

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pp. 115-127

...In the event that a filmmaker (or other small business entrepreneur) is concerned about there not being a sufficiently large pool of prospective investors with whom the production company’s upper-level management has preexisting relationships at the time of the offering to be able...

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14. Small Corporate Offering Registration

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pp. 128-130

...The Small Corporate Offering Registration (SCOR) form of corporate securities registration (public offering) is designed to reduce the costs and paperwork involved in public offerings, thus diminishing the burden on small businesses that seek to raise capital. The NASAA adopted the...

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15. Regulation A

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pp. 131-134

...Another of the small public offering opportunities is provided by the SEC’s Regulation A. Although the language of Regulation A describes the rule as an “exemption,” it is actually a small public (registered) offering that permits the feature film producer (or other issuer of securities...

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16. Regulation S-B

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pp. 135-137

...The SEC’s Regulation S-B is another form of public (registered) securities offering for small business issuers, including corporations, limited partnerships and manager-managed LLCs. For purposes of the regulation, the small business issuer is defined as a U.S. or Canadian company with...

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17. S-1 Public Offerings

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pp. 138-140

...The SEC’s Form S-1 is a form of public (registered) securities offering that can be used by feature film producers (and other securities issuers) when a public offering is preferred, as opposed to a private placement, and the issuing organization does not wish to use or does not qualify for the...

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18. Over-the-Counter, NASDAQ and Stock Exchanges

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pp. 141-146

...At some point, a well-established, publicly held film production company may arrange to trade its securities (i.e., arrange to have its securities bought and sold) on any one of the several existing markets, such as over-the-counter, NASDAQ or a stock exchange...

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Part Three: Lender Financing

...Another distinctive form of film finance that an independent film producer may want to consider is a loan (as opposed to a gift, grant or investment). Loans may be used to finance the development, production and distribution expenses associated with a feature film. Loans in the context...

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19. Lender Financing without Distributor Contracts

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pp. 149-156

...The loans discussed in this chapter are those not involving a preproduction distribution agreement and guarantee (see chapters 20–23). Instead, this discussion focuses on loans that may be provided by banks or other lenders, including individuals, that either require collateral in the form...

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20. Negative Pickups and the ArtificialVersion

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pp. 157-165

...made by a distributor to a producer to purchase or license feature film distribution rights from the producer and the distributor’s guarantee to pay an agreed-upon purchase price (pickup price) when the distributor picks up the film negative after delivery of the completed picture. The...

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21. Presale Financing

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pp. 166-176

...Another variation on lender financing involves the use of multiple distribution contracts as collateral for the production loan. Presale financing, in the broadest sense, refers to the funding of a film’s production costs through the granting of a license for film rights by a producer to a...

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22. Gap and Supergap Financing

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pp. 177-183

...Gap financing is a variation of lender financing on a film for which the presale of territorial rights has yet to cover the entire budget (i.e., funds are still needed to produce the film and there are also unsold territorial rights in some of the top ten markets). In that sense, gap financing is...

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23. Insurance-Backed Schemes

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pp. 184-187

...Bank lending practices for slates of feature films eventually took the presale technique and gap financing to their ultimate conclusion—obtaining insurance to help protect against the risk of loss. With these schemes, insurance was used to provide financial backing for gap financing. So, the...

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24. Securitization

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pp. 188-192

...Some independent film producers have expressed interest in a form of raising capital referred to as securitization. Unfortunately, this form of film finance is only available to a very few of the more established film production companies. Securitization is a process through which...

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Part Four: Studio/Industry Financing

...Many independent feature film and documentary film producers aspire to produce at least one major studio release at some point in their career. Some try to do that too soon. Others are committed independent producers for life. In any case, that is a judgment call for the individual producer...

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25. Studio Development and In-House Production

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pp. 195-198

...One of the ways a film producer might seek to get a film project onto the screen is to enter the so-called studio system at the earliest opportunity; that is, at the acquisition/development stage of a film project. Arguably, this approach might not be considered a form of film finance. The term...

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26. Studio Production-Financing/Distribution Agreements

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pp. 199-203

...In contrast to the studio in-house production, which is typically initiated with a pitch, the studio production-financing/distribution deal generally starts with the submission of a partially or fully packaged film project, including a fairly well developed screenplay. In other words, the development phase of the project is substantially complete. Thus...

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27. Studio-Based Production Companies

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pp. 204-206

...Studio spokespersons report that all of the major studio/distributor organizations (Warner Bros., Disney, SONY [Columbia, Tri-Star and now MGM], Universal, Paramount [now including DreamWorks] and 20th Century Fox) have relationships with independent producers and their...

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28. Independent Distributors

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pp. 207-209

...affiliated with a major studio/distributor. In the early 1990s, this group included such distributors as New Line Cinema, Miramax, Samuel Goldwyn, Concorde, Castle Hill, First Run, IFEX, Shapiro Glickenhaus, Expanded Entertainment, Taurus Releasing, Fries Entertainment, Triton...

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29. Domestic Studio Facilities

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pp. 210-212

...organizations of affiliated companies, most of which own a physical studio facility, one or more film production companies, one or more distribution companies and in some cases even interests in theatre chains; that is to say, they are vertically integrated. On the other hand, not all of...

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30. Film Laboratories

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pp. 213-214

...The lab’s goods and services may include negative raw stock, negative developing, dailies, sound transfers, editorial cutting rooms, film projection, film coding, opticals, titles, sound editorial, negative cutting, ADR and Foley, sound re-recording, optical transfers, color dupe...

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31. Talent Agencies

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pp. 215-216

...Talent agencies have traditionally limited their activities to finding employment for actors, directors, writers and sometimes producers. However, some of the more powerful agencies in recent decades have begun to realize that they could substantially increase their fees by attaching...

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32. Actor Financing

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pp. 217-220

...for a big-budget movie. Very few actors have the resources to finance the production costs of a major film or the commitment to the project that it would take. It may be fair to say that such an arrangement is more likely for lower budget films. An ensemble group of actors and actresses have...

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33. Product Placements

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pp. 221-224

...of a commercial product or logo in a motion picture in exchange for some form of compensation. The product manufacturer pays the production company to include its product in the film. The objective of the product manufacturer is to manipulate unsuspecting viewers to buy a product...

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34. End Users

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pp. 225-226

...Presales could conceivably be considered a form of end-user financing. However, end-user financing is more generally associated with a cash investment by the end user put up in exchange for an equity percentage participation in the film’s revenues in specified territories and media. In...

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35. Completion Funds

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pp. 227-230

...Feature film completion funds crop up from time to time. Examples include Cinema America, a $15 million film-and-video financing entity based in Houston and the New York Completion Fund based in Cold Spring, New York. Film Dallas also functioned as a completion fund for...

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Part Five: International Finance Options

...Many of the so-called foreign or international finance options discussed in this part of the book were created by local film industries in various countries for the purpose of countering the spending power and business practices of the Hollywood major studio/distributors. These countries...

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36. Foreign Equity

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pp. 233-243

...Foreign-equity financing is funding provided by foreign (non-U.S.) sources in exchange for an ownership interest or profit participation in the films financed or in the entity producing them. In addition to requiring an equity participation in the film’s receipts, foreign equity investors...

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37. International Coproductions

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pp. 244-255

...In the more general sense, feature film coproduction financing involves a sharing between two or more producers, production companies and/or other entities of the responsibilities for the creative decision making and financing of a film production. Numerous items relating to decision-making authority on various production questions must also be negotiated to...

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38. Foreign Tax Shelters and Tax Incentives

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pp. 256-274

...Once again, it is important to note that prospective film investors may need a bit more motivation to invest in a risky film production; thus, many foreign governments have provided tax incentives for the purpose of encouraging financial support for their local film industry. To take advantage of such tax incentives, however, one or more local taxpayers...

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39. Blocked Currency or Blocked Funds

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pp. 275-278

...Although not likely to be a source of significant financing, so-called blocked funds—monies that cannot leave a country because of currency restrictions—present another possible opportunity for an independent producer whose film could be shot in a foreign locale. Many developing...

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40. Foreign Currency

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pp. 279-280

...Another modest film finance benefit may be gained through a so-called foreign currency deal—a film-financing arrangement in which a foreign country will offer to provide goods and production services for belowthe- line costs for a small amount of “hard” currency (U.S. dollars). Currencies...

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41. Foreign Below-the-Line or FacilitiesDeals

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pp. 281-282

...Once again, if some or all of a feature film or documentary can be shot in a foreign locale, the producer may want to investigate the availability of so-called below-the-line or facilities deals. Some foreign governments from time to time have offered to provide...

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42. Foreign Government Subsidies

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pp. 283-288

...Another possible part of the film-financing puzzle for any given production may include foreign government grants. These are specific donations by foreign governments to filmmakers to assist in the production of a film that is deemed advantageous to the country or a given locale within the...

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43. Foreign Debt Capitalization Programs

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pp. 289-290

...Although of limited use to most filmmakers, foreign debt capitalization programs might be another component of a production budget for some independent producers. Quite a few third-world countries owe large amounts of money to foreign banks, and those countries have adopted...

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Conclusion: The Broader Film Finance Environment

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pp. 291-296

...A book about film finance is not complete nor entirely honest unless it also provides some perspective on the broader film finance environment. In truth, all factors that have an impact on the ability of an independent producer to finance a given film (i.e., make it easier or more difficult to...

Appendix A: Finding Investors

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pp. 297-298

Appendix B: Limited-Use Business Plans

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pp. 299-303

Appendix C: Financial Projections

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pp. 304-306

Appendix D: Securities Marketing Considerations

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pp. 307-330

Sources and Further Reading

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pp. 331-358

Index

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pp. 359-369

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Author Bio

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pp. 370-370

...John W. Cones is a securities and entertainment attorney who has practiced in Los Angeles for nearly twenty years, advising independent feature film producers and others on investor financing of entertainment projects. The author of fifteen books and a member of the California and Texas bar associations, Cones also hosts a Q&A Internet site on investor...

Back Cover

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pp. 386-386