Horwath Bastow Charleton
Information Memorandum Investment Opportunity for Personal Investors Benbow Films Limited - “Treasure Island� Series Section 481 Taxes Consolidation Act 1997 November 2010
Audit | Tax | Advisory
INVESTMENT OPPORTUNITY FOR PERSONAL INVESTORS IN BENBOW FILMS LIMITED SERIES ENTITLED “TREASURE ISLAND” PROPOSED PRIVATE PLACING UNDER SECTION 481 TAXES CONSOLIDATION ACT 1997 (AS AMENDED)(RELIEF FOR INVESTMENT IN A „QUALIFYING FILM‟) UP TO 4,452,195 NON-VOTING ORDINARY SHARES OF €1 EACH AT €2 PER SHARE PAYABLE IN FULL ON SUBSCRIPTION
INTRODUCED BY HORWATH BASTOW CHARLETON This document is for the attention of the addressee only. This document is not a prospectus. Please note that this, as with all Section 481 film investments, is a risk investment. Investment returns are not guaranteed. Section 481 of the Taxes Consolidation Act 1997, (as amended) (“Section 481”) is designed to promote investment in film production companies and provides tax relief for qualifying individuals and corporates making relevant investments in qualifying film production companies. Section 481 allows individuals to invest up to €50,000 in a tax year by means of share acquisition in a qualifying production company and to deduct this investment from their taxable income for that year. Potential investors should be aware that tax relief is subject to compliance with a certificate issued by the Revenue Commissioners to Benbow Films Limited (the “qualifying company”). Section 481(2D) TCA 1997 provides that where Benbow Films Limited fails to comply with any provision governing the relief or any of the conditions to which a certificate is subject, then the relief may be withdrawn and the Revenue Commissioners may revoke the certificate. The decision as to whether or not a film is a “qualifying film” is made by the Revenue Commissioners. The conclusion of a successful application to the Revenue Commissioners is the issuance of a Certificate. This Certificate forms the basis of the application to the Revenue Commissioners to approve the investment as a “relevant investment” on which investors may qualify for tax relief. Investment funds will be held under the control of Horwath Bastow Charleton and will not be released to the production company until such time as all agreements in respect of the project are signed and in place. In the unlikely event that the project does not proceed, investors will receive an immediate refund of their monies. None of Horwath Bastow Charleton, Benbow Films Limited, MNG Films Limited, Parallel Films Limited, Messina Investments Limited, nor any of the advisors mentioned in the body of this investment memorandum or any of their corporate parents, subsidiaries or affiliates, associates, partners, directors, officers, employees or agents make any express or implied representation or warranty, and no responsibility or liability is accepted by any of them with respect to the accuracy or completeness of the information or opinions set forth in this information memorandum. Any such information shall not be relied upon as a promise or a representation regarding the current position or further performance of Benbow Films Limited. Only those representations and warranties which are included in any executed Subscription Agreement shall have legal effect in accordance with their terms.
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Contents
1.
Company Information ..............................................................................3
2.
Film Information ......................................................................................4
3.
Investment Proposal ................................................................................5
4.
Financing Structure ..................................................................................6
5.
Section 481 Tax Relief ..............................................................................7
6.
Illustrative Cashflows ..............................................................................8
7.
Risk Factors .............................................................................................9
8.
Forms to be Completed ..........................................................................10
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1.
Company Information Benbow Films Limited (“the qualifying company”) (Company Number 486484)
Company Directors
Alan Moloney Eamonn Maloney
Company Secretary
Parallel Holdings Limited
Company Registered Office
Suite 29, The Mall Beacon Court Sandyford Dublin 16
Company Solicitors
Matheson Ormsby Prentice 70 Sir John Rogerson Quay Dublin 2
Company Auditors
Brophy Gillespie Milltown Dublin 14
Investors‟ Solicitors
Philip Lee Solicitors 7/8 Wilton Terrace Dublin 2
Section 481 Agents
Horwath Bastow Charleton Marine House Clanwilliam Court Dublin 2
Section 481 Nominee Company
Messina Investments Limited 49 Beechpark Foxrock Dublin 18
Bank
Permanent TSB Finance Limited 56/59 St. Stephen’s Green Dublin 2
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2.
Film Information
2.1.
The Film - “Treasure Island”
Treasure Island is a two by two hour part television series (“Series”) for broadcast by Sky in the UK and Telecinco in Spain. The Series will be directed by Steve Barron, Laurie Borg is engaged as the individual producer and Eddie Izzard will star as Long John Silver. The Series is being shot in Ireland and Puerto Rico. The Series is pre-sold to Sky and Telecinco in Spain. MNG Films has a sales agency agreement in place with RHI Entertainment Distribution LLC in respect of other World rights. Treasure Island is a swashbuckling adventure and coming of age story on the high seas as Jim Hawkins battles with pirates, friends who become foes and his own morality. Captain Flint buries his treasure on Treasure Island marking the position on a map. Young Jim Hawkins finds the map in pirate Billy Bones sea chest. Jim is welcomed on board The Hispaniola by Squire Trelawney where he meets the ships cook John Silver. They voyage to Treasure Island. Jim is dismissed as a boy and put to work alongside Silver in the kitchen. Jim becomes fond of Silver who treats him with respect. When Jim overhears Silver’s plot to get the treasure and Silver agreeing to murder them all including Jim, he knows he has to act fast.
2.2
The Producers – Parallel Films/MNG Films
Established in 1993 by Alan Moloney, Parallel Film Productions Limited (“Parallel Films”) has illustrated consistent growth in film and television, producing projects that have been highly acclaimed internationally as well as in Ireland. MNG Films is an Irish incorporated company which has acquired the rights to make the Series. Alan Maloney is a director of MNG Films and it is co-owned by Parallel Films. In 2006 Parallel produced the feature documentary “The Future is Unwritten - Joe Strummer”, directed by Julien Temple which recently screened at the Sundance Film Festival and also a television adaptation of Harold Pinter’s play “Celebration” for Channel 4, directed by John Crowley and starring Michael Gambon, Colin Firth and Stephen Rea. Last year also saw Parallel produce a further series of “The Clinic” for RTE, and “Kingdom” a six part drama series for ITV starring Stephen Fry. Other productions include the feature film “Breakfast on Pluto” starring Cillian Murphy and Stephen Rea, “The Clinic” series 1-4, “Showbands” 1&2, the feature film “Intermission” starring Colin Farrell,Kelly MacDonald and Colm Meaney, “Sinners”, “Beckett on Film” with Michael Colgan, “A Love Divided” and “Amongst Women”.
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3.
Investment Proposal
Horwath Bastow Charleton has been invited to raise financing from personal investors, comprising units of up to 25,000 non-voting ordinary shares of €1 each at a premium of €1 in The qualifying company. It is intended that: (a) the investment will be for a period of twelve months and (b) 100% of the investment will qualify for tax relief related to the production of Treasure Island Series – see Section 5. The qualifying company has applied for a Certificate from the Revenue Commissioners (“Revenue Certificate”) authorising it to raise Section 481 financing in the amount of up to €8,904,391 towards the costs of production of the Treasure Island Series. Permanent TSB Finance Limited (“PTSB”) has confirmed that it will provide personal loans of €33,400 to fund the investment at an approximate loan interest rate of 3.8%, subject to their usual loan conditions and approval procedures. The loan arrangements do not allow for early repayment of investment loans by investors. The proceeds from sale of the Series should be sufficient to clear investment loan balances. Each investor’s share of the consideration will be paid directly to PTSB to reduce their loan.
Return Available on Investment (based on Standard Financing - see Section 6) Currently, personal income tax relief on 100% of the amount of the investment for the tax year 2010 will provide a tax saving in this tax year of €20,500 for a top-rate taxpayer (€50,000 @ 41%). The production company will repay €34,669 (approximate estimate), in twelve months time, subject to satisfactory delivery and acceptance of the Series. This will be paid to PTSB to clear investment loan balances including interest.
The loan arrangements do not allow for
early repayment of loans by investors. The loan repayment aspect of this return should not give rise to any taxable gain/allowable loss. Therefore the net gain on a standard investment of €50,000 is anticipated to be €3,900:
Date
Option 1
Option 2
Option 3
Option 4
Nov-10
Equity
€16,600
€12,450
€8,300
€4,150
Nov-10
Loan
€33,400
€25,050
€16,700
€8,350
€50,000
€37,500
€25,000
€12,500
Total Investment Nov-10
Equity
€16,600
€12,450
€8,300
€4,150
Jan 10
Tax Relief @ 41%
€20,500
€15,375
€10,250
€5,125
Jan 10
Anticipated Return
€3,900
€2,925
€1,950
€975
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4.
Financing Structure
Prior to completion of the Section 481 investment by the investors, Parallel/MNG Films (“Producers”) will have entered into a production agreement regarding the production, financing and delivery of the Irish Part of the Series on terms and conditions more particularly set out therein. The Producers will commission the qualifying company to produce and deliver the Series pursuant to and in accordance with a production agreement (“Production Agreement”). The total budget for the Series will be in the region of €14,619,822. The qualifying company will contribute up to €8,904,391 from Section 481 funding towards the budgeted cost of the Series and the Producers will procure the balance of the costs of production for the Irish Part of the Series in accordance with the terms of the Production Agreement.
The qualifying
company will be entitled to a payment of an amount detailed in the Production Agreement not earlier than 12 months after the subscription date, provided the completed Series has been delivered in accordance with the arrangements contained in the Production Agreement. Under the terms of the Production Agreement, the Producers will procure a payment to PTSB of a pre-sale/distribution advance in return for which PTSB will assume the obligations of the Producers to make the payment to the qualifying company of an amount detailed in the Production Agreement not earlier than 12 months after the subscription date. This payment to the qualifying company under the Production Agreement is subject to receipt of the pre-sale/distribution advance and delivery and acceptance of the completed Series in accordance with the arrangements contained in the Production Agreement. It is anticipated that this payment will be sufficient to clear the standard loans taken out by investors (i.e. not the equity loans).
Provided the completed Series is delivered and accepted in accordance
with the arrangements set out in the Production Agreement, the qualifying company will be entitled to a payment equivalent to circa 69.55% of the Section 481 investor funds (as outlined in the previous sections), no earlier than 12 months after the non-voting ordinary shares are issued.
Arrangements will be made to have a liquidator appointed to the
qualifying company and a distribution made to the Section 481 investors at that time. However, the right to use an alternative exit mechanism is reserved if considered prudent. A reputable media and entertainment law firm, Philip Lee Solicitors, has been retained to represent the interests of the Investors. The subscription in the qualifying company will not close until the pre-sale/distribution advance has been received in full by PTSB and Philip Lee Solicitors have reviewed and approved the following documentation: Production Agreement between the Producers and the qualifying company. Subscription Agreement between the qualifying company, Messina Investments Limited, the Section 481 investors, Alan Moloney and Eamon Maloney.
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5.
Section 481 Tax Relief
The following is a summary of the key tax issues for an investor in relation to the Proposed Investment. This is general in nature and is intended as a guide only and not as a substitute for professional advice.
Prospective Investors are advised to
seek independent taxation advice prior to investing.
5.1.
Film Relief
Section 481 of the Taxes Consolidation Act 1997, (as amended) (“Section 481”) is designed to promote investment in film production companies and provides tax relief for qualifying individuals and corporates making relevant investments in qualifying film production companies. Section 481 allows individuals to invest up to €50,000 in a tax year by means of share acquisition in a qualifying production company and to deduct this investment from their taxable income for that year.
5.2.
High Income Taxpayers
Chapter 2A Part 15 TCA 1997 provides for a limit on the use of tax relief’s by certain highincome individuals for the tax years 2007 and following years. High-income earners are restricted in the use of “specified reliefs” in reducing his/her tax bill. The “specified reliefs” used in any one year are limited to 20% of the individuals’ “adjusted income”. An individual’s “adjusted income” consists of his/her taxable income (computed on the basis of the normal income tax computation rules) but adding back the aggregate amount of the specified reliefs claimed by the individual in that year and subtracting “ring-fenced income” (e.g., Irish and European deposit interest taxable at 20%). Only individuals whose adjusted income is over €125,000 per annum are affected. In addition, a tapering relief (that is, a graduated application of the restriction) will apply for incomes between €125,000 and €400,000. The increased taxable income amount arrived at by this computation will be taxed in accordance with the normal income tax rates. Broadly, the reliefs to be restricted are the various property-based tax incentives and certain other reliefs such as the Business Expansion Scheme, Section 481 film relief and charitable donations. Also to be restricted are certain tax exemptions including artistic income, stallion fees and patent royalties. The normal deductible items available to the broad range of taxpayers, such as medical expenses, trade union subscriptions, pension contributions, the personal tax credits and exemptions such as that for child benefit, will not be restricted. Any prospective investor whose income before tax reliefs is in excess of €125,000, or an investor who avails of tax relief or exemptions of more than €80,000 in a tax year, should seek professional advice on the suitability of the section 481 investment.
5.3.
Capital Gains Tax
Under the proposed structure, it is anticipated that the investors’ shares will be bought back by the qualifying company, for less than was originally subscribed for them by the investors. The loss on this disposal is not an allowable loss for Capital Gains Tax purposes.
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6.
Illustrative Cashflows
STANDARD FINANCING ALTERNATIVE Financed by:
€
PTSB Finance Loan Facility
33,400
Investor own funds
16,600
Total Investment
50,000
Application of Return for Investment: Sales Proceeds (min. 366 days later) Loan Repayment (€33,400 @ 3.80% @ 366 days) Balance outstanding
34,669 (34,669) Nil
Investor Return: Own funding Income tax refund (€50,000 @ 41%) Net Gain
(16,600) 20,500 3,900
100% EQUITY FINANCE ALTERNATIVE Investment - Own Funds Income Tax Refund (€50,000 @ 41%) Net After Tax Cost Sales Proceeds (min. 366 days later) Net Gain
(50,000) 20,500 (29,500) 34,669 5,169
100% FINANCE FROM PTSB ALTERNATIVE Financed by: PTSB Finance Loan Facility
33,400
PTSB Finance Personal Loan Facility*
16,600 50,000
Application of Return for Investment: Sales Proceeds (min. 366 days later) Loan Repayment (€33,600 @ 3.80% @ 366 days) Balance outstanding
34,669 (34,669) Nil
Investor Return: Repay Personal Loan - est € 16,600 @ 8.76% @ 150 days* Income tax refund (€50,000 @ 41%) Net Gain
(17,206) 20,500 3,294
* Early repayment is permitted subject to the terms of the Facility Letter
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7.
Risk Factors
7.1.
Risk of tax relief being withdrawn
If the money subscribed by investors for shares is not spent by the producer in accordance with the Section 481 certificate, there is a risk that the Revenue Commissioners would withdraw tax relief. This risk is mitigated by: Dealing with reputable producers. Alan Maloney and Eamonn Moloney are experienced producers and have successfully completed and delivered a number of section 481 productions. Alan Maloney and Eamonn Moloney, of Parallel Films/MNG Films, will enter into a covenant with the investors in the subscription agreement to produce the series in accordance with the Section 481 certificate issued by the Revenue Commissioners.
7.2.
Risk of PTSB loan not being repaid
It is anticipated that the Investors’ loans will be repaid from the pre-sale/distribution advance in accordance with the arrangements contained in the Production Agreement. Under this agreement, PTSB are instructed to release the presale monies subject to satisfactory delivery of the Series. This risk is mitigated by the following: Dealing with reputable producers with a track record of delivering film and television projects. The qualifying company will engage MNG Films to produce the Irish Part of the Series. MNG Films will give warranties to the qualifying company that they will produce in accordance with the Production Agreement.
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8.
Forms to be Completed
If you wish to avail of this investment opportunity, then please enclose the following documentation as applicable:
1.
(a)
Standard Financing - Submit a cheque for equity contribution made payable to Benbow Films Limited based on investment option.
(b)
100% Equity Finance - Submit a cheque for your 100% full equity contribution made payable to Benbow Films Limited based on investment option.
(c)
100% Finance from PTSB - Apply for credit from PTSB for your equity contribution based on investment option.
2.
Sign the attached forms: Application for shares (Option 1, 2, 3 or 4) Power of Attorney/Deed of Indemnity Sign the Independent Tax Advice Confirmation Letter.
3.
Credit agreement for Permanent TSB signed in both places - for standard financing.
4.
Film Finance Proposal Form (Permanent TSB) to be completed in full.
5.
Enclose a copy of your current passport and driving license and a copy of two household utility bills showing your residential address and your name dated within the last THREE months.
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NOTES
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Horwath Bastow Charleton
Horwath Bastow Charleton Chartered Accountants Marine House Clanwilliam Court Dublin 2 Telephone: +353 1 676 0951 Facsimile: + 353 1 662 5105 Website: www.hbc.ie Authorised by the Institute of Chartered Accountants in Ireland (“ICAI�) to carry on Investment Business. Chartered Accountants Ireland is the operating name of ICAI.
Audit | Tax | Advisory