Blue Heron Press Industry: Type: Exploiting a niche to create success. Leveraging the value of untapped content libraries in entertainment, publishing, and the arts to create Powerful, In-Demand High-Margin Products. “Personal Expressions Communications,” including Greetings & Stationery, Gifts, Party Goods, etc. Marketing driven, takes exclusive licenses from owners of marquee image content and develops products. Seeking: Up to $20mm Company: Address: City, St, Zip: Blue Heron Press LLC A Nevada LLC PO Box 123 Beverly Hills, CA 90210 Marketing: Wholesale and direct to consumer. Creates custom marketing programs for key accounts. Brand equity-leveraged integrated promotional marketing programs with major consumer products companies. “Alternative” sales channels. Chairman Xxxx Xxxxxxx Man. Dir. Xxxxx Xxxxxx Man. Dir. Xxxxxx Xxxxxx Web site: Blueheronpress.com Inception: July 2005 BUSINESS SUMMARY OVERVIEW Blue Heron Press LLC (“Blue Heron”) is a unique branding and marketing company that was founded to leverage the brand equity of major entertainment and publishing businesses, famous persons, and not-for-profit organizations--such as museums and broadcasters--by identifying and exploiting untapped value in their “content libraries” through the design, production and marketing of high-margin, low-capital-requirement, consumer and business-to-business products. PRODUCTS “Personal expressions communications” products include greeting cards, note cards, holiday cards, invitations, social stationery, scrap books, journals, gift wrap paper, party goods such as napkins and table cloths, and other paper and board-based products. KEY STRATEGIC DRIVER Management’s specific combination of experience and capabilities allowed it to identify this “hole” in the marketplace: highly valuable content libraries--attached to significant brand equities--that are too small to attract major players (Hallmark, American Greetings) but that require greater marketing savvy and creative capabilities than exists in all but a handful of the almost 3000 companies in the greeting card and related businesses. INITIAL IMPLEMENTATION As a first step, Blue Heron obtained five exclusive license agreements, including a 3 year license (with a 2 year extension at Blue Heron’s option) with Disney for a “Shrek” product line; a 3 year license with the Discovery Channel for the “Visions” series of travel programs, the most successful series in cable history; a 3 year license and Licensing Agency agreement with Ward Egan, an iconic, worldwide photographer of classic cars; and licenses with renowned artist Roddy Smith; and Children’s Healing Network, a nationally recognized not-for-profit associated with the Red Cross and the National Education Association. GROWTH PROSPECTS The Company has specifically identified, and believes that it will be able to obtain additional exclusive licenses from major newspapers and magazines and other media, leading museums, and other key “content libraries” that have high commercial value but are currently under-utilized due to the specific nature of the personal expressions communications product marketplace. KEY STRATEGIC PARTNERSHIP Blue Heron has entered into a strategic partnership with WWP, the worldwide communications and marketing agency, whose printing and publishing division will produce all of Blue Heron’s domestically produced product at favored nation pricing, with the attention to quality and detail for which their operation is well known. WWP is providing, as a contribution, $700,000 in wholesale opening product inventory and marketing materials, to allow a full scale retail product launch for all five licenses beginning first quarter, 2007. The strategic partnership with WWP will bring several additional, highly substantial benefits to the Company. FUNDING Blue Heron seeks up to $20 million to ramp up and expand operations, and to acquire additional licenses from major licensors. Note that the licenses acquired so far require royalty payments based on actual sales, and the Company is not required to make any guaranteed royalty payments except a low five figure guarantee to Wiley. ORGANICALLY DRIVEN GROWTH Because of the cash flow provided by personal expressions communications products, which enjoy gross margins in excess of 80% and pretax net income margins in excess of 40%, the Company should be able to fund additional growth organically. DISTRIBUTION OF INCOME The cash flow generated by the business model provides the opportunity to distribute LLC profits on a regular basis, with substantial distributions beginning in the second full year of operations. STRATEGIC IMPLEMENTATION Blue Heron converts the value of a “content library” from a particular “licensor” into an initial “licensed” product line. Then, based on the success of that product line, Blue Heron expands into additional product lines that use the same sales and distribution channels, benefiting from real-world synergies that lower costs and increase impact in the marketplace. A “content library” is a collection of images, writings or other “intellectual property.” It might be paintings or objects from a museum, photographic images owned by a newspaper, artwork produced by a well-known artist, classic images from a legacy magazine, cartoons and comic images, nostalgic sheet music covers, logos from brand name products applied to advertisements or other printed formats, or “quotable” sayings from a well-known writer or personality. What Makes Blue Heron’s Approach Unique and Powerful? Blue Heron has analyzed the licensed product marketplace, and has discovered a significant “hole” that translates into opportunity. This opportunity is the function of four key factors: The Nature of Today’s Large “Licensees” Large “licensees” (e.g., American Greetings, Harper Collins, Mattel) are primarily focused on chain store sales. Thus: it is not worth their while to enter into a license agreement unless they are confident that the licensed product can gain considerable shelf space in chain retailers. The result: Many content libraries that have substantial potential do not fit their business models. These licensees also have issues regarding conflicts between major licensed properties, cannibalizing existing shelf space that they have in chain retailers, and the extent to which resources are already devoted to licensed products. The Limitations of “Smaller Players” There is a substantial gap, in key product categories, between a handful of large players, and everyone else. That is: most smaller potential licensees lack marketing and creative expertise, and financial resources. The result: Parties with content libraries that don’t attract the biggest licensees often don’t take on any licensees, or take on only a few licensees, because they don’t have confidence in the kinds of “small” licensees who approach them. The Nature of Content Libraries That Do No Attract The Biggest Licensees Many of the content libraries that the big licensees pass by are not themselves savvy licensors. They do not possess the in-house resources or expertise to manage an aggressive licensing program. While some of these organizations hire a licensing agency to perform this function, the better licensing agencies won’t take on a licensor unless they believe that there is big-player licensee potential, so many licensors opt out of a licensing agency relationship. The result: Many excellent content libraries have few or no licensees. Blue Heron Management’s Knowledge, Experience and Proven Creative Excellence When Blue Heron approaches the owner of a content library that is untapped or under-utilized, we demonstrate that we have “big player” expertise, experience and creativity. We quickly establish a comfort level that makes them ready to enter into an initial license with us, and that comfort stretches to allowing Blue Heron to act as a de facto licensing consultant and/or become their licensing agency of record. This sets the stage for Blue Heron to produce income from acting as licensing agent, and to gain licenses for additional products without typically higher royalty guarantees. The Bottom Line: There are several major content libraries with content that is well suited to the marketplace that have few, if any, licensees. Blue Heron is positioned to become a predominant “multiple licensee” for these content libraries through a low cost, low risk entry strategy. What Else Separates Blue Heron From Other “Licensees”? Blue Heron management is not “product driven.” We’re “marketing driven.” Although we have spent the past six years actively involved in the personal communications expressions marketplace, we don’t come from a particular “product” business. We’re expert in applying integrated marketing techniques that tie together merchandising, media and “third party” marketing, so we’re not restricted to “the usual” in marketing our products. We know how to get into retail and we know a variety of other marketing and distribution channels. We know how to use different product lines to drive each other’s sales. We know how to put millions of dollars in media muscle behind our products at little or no expense. Are we magicians? No. We’re experienced marketers. Choosing An Initial Product Category Blue Heron’s strategy dictates that for each content library for which we take a license, we need to start with a “firststep” product category with a high probability of success and a low cost of entry. In analyzing possible products, management considered:MarginsCapital ExpenseBarriers to Entry/CompetitionProduct Visibility in the Marketplace Ease of Product Development, Production and Distribution. Our analysis led us to “personal communications expressions,” i.e.: Greeting Cards, Note Cards and Stationery Products. The “next step” categories include party goods, certain gift items, and increasingly popular items such as scrapbooks and journals, which are trending up sharply. Other product categories that can be sublicensed, a no-risk proposition for the Company, include a wide array of image-based items such as linens and framed art. FUTURE ACQUISITION OF LICENSES Company management is highly experienced in creating extensively surveyed the marketplace and LICENSES IDENTIFIED BY BLUE HERON The Company has third party marketing and merchandising has programs. identified a number of content libraries that are currently unutilized or underutilized, and for which no licenses have been issued by the content owner in the Company’s product categories. These licenses can be broadly divided into two categories: marquee-value brand equity, and high value but lesser brand equity. Included in the marquee-value category are newspapers, magazines, television programs and premiere museums. These organizations have well known and respected “household word” brands. Although these organizations have not issued licenses in the Company’s product category, most have issued some licenses, and in order to obtain an exclusive license, the Company will sometimes have to agree to five-figure annual royalty guarantees. Company management is highly experienced in negotiating such agreements. Included in the high value but lesser brand equity category are artists, photographers, designers, organizations that have rights to considerable content but do not have a well-known brand, and lesser-known museums. The Company analyzes each of these to ensure that there is some exploitable brand equity associated with the content. The Company will not assemble content for content’s sake, but only take license to content that it believes can create excitement in the media and the marketplace, and that will attain broad acceptance by retailers. In most cases, the Company can obtain exclusive licenses in this category without a royalty guarantee. KEY MARKET-BY-MARKET STRATEGY Many retailers are increasingly desirous of merchandise that is produced in or specifically relates to a particular geographic market area because “local” sells so well, appealing to both locals and tourists. Many of the content libraries that Blue Heron has identified are “local” and have content that fits this geographic preference. Thus, the Company believes that, for example, rather than take a license from a nationally known newspaper, it can create greater marketplace impact and greater resultant revenue by taking licenses from several major market newspapers, effectively covering most of the country. This strategy is also likely to require lower (if any) total royalty guarantees, thus lessening the Company’s overall financial exposure. Large licensees do not seek this local content because market-by-market execution is cumbersome for them. Blue Heron, on the other hand, can efficiently merchandise on a market-by-market basis. The Company can thus obtain these “local marqueevalue” licenses on highly favorable terms and, in sum, create revenue that exceeds that of a “national” license for similar content. The market-by-market strategy coexists with the Company’s national impact licenses. THE MARKETPLACE AND COMPETITION The key initial product category for the Company is the greetings marketplace. Hallmark and American Greetings control 40% of the $7.5 billion domestic greeting card marketplace, and there are almost 3,000 companies, mostly of the mom-and-pop variety, that vie for the remaining $4.5 billion. Only about 100 of these companies gross more than $1 million annually, and most are family-owned companies that are less than aggressive players. The note card/personal stationery segment is a $1 billion business and no company--not even Hallmark and America Greetings--has established a dominant position. The marketplace for products such as the rapidly growing scrapbooking and journals sector, as well as party goods, is highly fragmented. The greeting card industry itself has been sleepy--especially if one excludes the two industry giants from consideration--and the industry’s potential remains all but untapped: There are a number of market forces that strongly suggest that consumer interest in the industry's products is growing rapidly, across a broad range of demographic sectors. The industry has been largely content to serve virtually a single demographic segment (baby-boomer women), although there are clear signs that many consumer demographic segments--and business-to-business opportunities-are ripe for development with the prospect for quick and continuous sales increases. And although outlets for personal expressions communications have been growing steadily, and number in excess of 100,000 locations, there are many retail sectors--perhaps most notably specialty retail chains--that have been virtually untouched by the industry, yet which afford significant sales potential. Thus: there is no barrier to the Company’s entry into the marketplace, and in fact, properly financed, marketing-and-content-driven entities such as Blue Heron are a rarity in the industry. The Company’s demonstrated expertise has caused the Greeting Card Association to refer three recent inquiries to the Company, including Godiva Chocolate, Children’s Healing Project and the organization planning the 400th anniversary of the founding of Jamestown. MARKETING OVERVIEW MARKETING OVERVIEW Distribution Patterns Blue Heron management is experienced in selling into several marketing channels. Retail will always be the key channel, and is projected to provide 80%-85% of revenue. Management will address several retail channels, including: mass market chains, department stores, specialty retail chains, and a variety of independent retailers, ranging from card & gift stores to apparel stores to flower shops and several other retailers not normally associated with greeting cards and other personal expression communications products, but which, based on experience and research, will merchandise the Company’s product line. The “For Dummies” license also opens major chain retail doors. In addition, Blue Heron will address other sales channels, including: Direct Response--Catalogs, Magazines, TV Home Shopping, Internet Special Sales--Corporate (Internal Communications, Client Communications), Event Related, Education Marketplace, Not-For-Profits, Place-Based (e.g., fairs, athletic events, amusement parks) Premium-Promotional--Both consumer and business-to-business, including premium promotions, club programs, and boutique departments in retailers. Sales Sales to independent retailers are through a national network of commission-only sales reps. The Company calls directly on major accounts and solicits businesses directly for custom products sales and/or the use of the Company’s licensed product for promotional and corporate communications purposes. All product sales are “guaranteed,” i.e., there are no product returns from retailers or from business accounts. Technology The Company will maintain both on-line and off-line transaction capabilities. Its Web site will be designed to provide order servicing for retailers and other accounts, in addition to consumer and media functions. In addition, the Company will maintain in-house facilities for producing sales presentations. Strategic Alliances/Third-Party Marketing Management is highly experienced in creating promotional programs in which third parties provide substantial measured media at their expense in exchange for on-pack, in-pack and pointof-purchase promotional consideration, and as part of multidimensional premium promotions. The result is that Blue Heron does not need to support substantial expense to enjoy the benefits of literally millions of dollars of consumer advertising. Public Relations/Publicity Management is highly experienced in creating and implementing high-visibility campaigns in support of new product introductions and ongoing brand merchandising. Horizontal and Vertical Product Growth After introducing the first product line for each license and gaining acceptance from retailers, we will both expand the existing product line and then introduce additional products. Categories will vary depending on the specific content and demographic targeting, and will include categories such as party goods, framed art prints, scrapbooks and journals, giftwrap, playing cards, and other gift items that do not include the production of dies or molds. Blue Heron will continuously analyze the marketplace to assess possible product categories. REVENUE MODEL Blue Heron projects Revenue of $4.0 in Year 1, growing to $45.4 in Year 3. Growth is a function of increased market penetration, broadening of retail lines horizontally and vertically, acquisition of additional content library licenses, and revenue from licensing agency activities on behalf of licensors. Retail sales projections are based on only the top 50 markets, and on conservative assumptions regarding number of retail stores per market area, sales per store, and an especially conservative estimate regarding chain stores. Note that the retail projections only assume penetration into 8500 total retail locations. The Company believes that it will in fact be in at least 10,000 retail locations by Year 3. Sales from sources other than retail are assumed to be approximately 20% of total revenue. Conservative market penetration assumptions are used, similar to the methods applied to retail. USE OF PROCEEDS USE OF PROCEEDS The company is seeking up to $20 million, of which $15 million will be applied immediately to implement the business model that will be used for sales & marketing, acquisition of marquee-value licenses, website enhancement, office IT & communication, traditional startup expenses, employee salaries, legal & accounting. The balance will be a reserve fund to use for advertising, marketing and slotting allowances, as needed, to accelerate the company’s penetration into mass-market and chain retail, as a fund for obtaining additional marquee licenses, and for contingencies. Use of $10 Million Proceeds (assumes Heron Cove turns cash positive in month 9) Salaries and benefits $2,000,000 Office, equipment, utilities $450,000 Marketing (retail co-op advertising, PR, events) $3,500,000 Production $3,500,000 Professional Fees & Insurance $550,000 BLUE HERON PRESS LLC VALUATION Blue Heron Press LLC Valuation American Greetings and CSS Industries are the best comparables. AM’s P/E is somewhat depressed by its retail stores and expansion into lower margin products. CSS is in the business of marketing seasonal greetings and gift accessory products (e.g., wrapping paper, ribbons, Halloween masks, etc.). It’s P/E reflects a product mix with lower margins than HC’s core business. AM’s recent trailing P/E is 24.8. CSS’ recent trailing P/E is 16.8. Assuming that Blue Heron’s P/E, as a private company, would be half that of the average of the two public companies, implies a P/E of 10.4. YEAR 1 $ 4,006,875 $ 15,372,369 $ 1,478,112 YEAR 2 $ 21,787,875 $ 109,161,070 $ 10,496,257 YEAR 3 $ 45,463,875 $242,264,579 $ 23,294,671 REVENUE MARKET VALUATION INCOME OVERVIEW OF CURRENT LICENSES OVERVIEW OF CURRENT LICENSES The “XXXXXXX” license includes not only the Company’s core products, but also a packaged “how-to” product, “XXXXX XX X and X For XXXXX” The “XXX” brand is one of the most successful merchandise franchises in the marketplace. Not only books, but also For Dummies licensed products, have met with huge and ongoing success. The leading players in key product categories have taken For Dummies licenses, over a broad range of products. Mead Westvaco, for example, has the license for stationery organizing products and how-to products dealing with note taking and public speaking. Wiley will accompany Blue Heron on sales calls to key retail chains. For Dummies products are currently in virtually every major retail chain, from Borders to Bed Bath and Beyond, from Costco to Lowes and Target, from CVS to Wal-Mart. The Company is the exclusive licensee for Greeting Cards, Note Cards and Stationery, and for the how-to products associated with them. The “Writing Personal Notes…” product will contain several elements, including guides, workbooks, practice pads, a CD, wipe-off work boards, etc. (www.xxxx.com) The company has entered into an exclusive product license and Agency agreement with Xxxxxx Xxxxxx, an iconic, world-renowned photographer of classic motor cars and other automobile photography. Xxxxx’s first two books, Xxxxx of the Xxxx Xxxxx and Xxxxxxx of the Xxxx Xxxxxx were released to critical and public acclaim. XXXXX, Xxxxx XXX Xxxxxx Xxxx was produced for the Museum of Xxxx Xxx, Xxxxx, to coincide with their exhibition in the Spring of 2005. Latest titles include Xxx Xxxxxx Xxx of the Xxxxx Xxxx which serves as the catalog for the XXXx Xxxx Xxxx Museum, and Xxxx Xxxx and Xxxxx which was produced for the 2006 Xxx Xxxx Xxxxx Xxxx. The Company is the exclusive licensing agency of record for Mr. Xxxxxx, for all product categories except books. In addition, the Company is itself the exclusive licensee for Greeting Cards, Note Cards, Invitations, Stationery, Post Cards, Partyware (e.g., napkins, table cloths, favors), Journals, Scrapbooks, Diaries. (www.xxxx.com) The Blue Heron “Xxxxx” Project Under an exclusive license from XXXX, Blue Heron is producing Greeting Cards, Note Cards, Invitations and Stationery, using images from the series. Xxxxx is an increasingly popular aerial travel series beloved by XXXX audiences across the nation, the most widely viewed series in XXXXXX history, with 14 productions “in the can” and more in the way. A February 13 event at The Xxxxxx Xxxx XXXX will both honor Xxxxx for its creation of the Visions series and serve to introduce the Visions product line to the media. (www.xxxx.com) The company has entered into an exclusive license with Xxxxx XXXXXXX, who is a highly regarded artist, and who acts as the Xxxxxxx family historian, and has access to many wonderful historic images and an image bank. Mr. Xxxxxxx’s art has been featured at major galleries in New York, has appeared on PBS several times in regard to Xxxxxx family history, and is a noted lecturer on the history of the New York theatre district. His high visibility will help to support the product line. The license includes Greeting Cards, Note Cards, Posters, Journals, Scrapbooks, Diaries, Calendars, Napkins, Coasters, Playing Cards. (some of Mr. Xxxxxxx’s art can be found at www.xxxx.com). The company has entered into an exclusive license with Xxxxx Xxxxxxx Xxxxxx (XXX) to market products using images created by Xxxxxxx Xxxxxxxx Xxxxx XXXXXX. XXX has been featured on CNN, ABC’s World News Tonight, and in the LA Times, among other media coverage. XXX is partnering with the American Red Cross and the Xxx XXXXXXX Xxxxxxx in furthering its mission of using art therapy techniques to assist children in crisis. XXX management asked the Xxxxxxx Xxxxxx Xxxxxx to recommend a company that would provide first-rate products and proper marketing, and Blue Heron was the single company recommended, based on management’s history of developing and marketing a Xxxxxx Xxxxxx product line. Last March, the Company organized an event at Xxx Xxxxxxx XXXXX Xxxx honoring XXX, which was covered on both the Today Show and NBC nightly news, as a result of the Company’s publicity efforts. (www.xxxxx.com) SUMMARY SUMMARY ♦ Leading with the Xxx Xxxxxx license, which will help drive the Company’s other licensed product through distribution channels, the revenue potential of the Xxxxxx Xxxxxxx Licensing Agency agreement and product license, and with three additional key licenses on board, including two that bring national media attention and a broad consumer audience that already knows and supports the brands, and backed by the WWP strategic partnership that provides inventory, high quality printing expertise, and additional communications resources, Blue Heron Press is positioned to run quickly and to keep accelerating for the foreseeable future. ♦ Blue Heron Press has identified a niche with virtually unlimited growth potential, high margin products, low capital expense requirements, low risk, and no barriers to entry. ♦ Management has demonstrated proficiency in all key operations requirements. ♦ The company is already operating, and is poised to ramp up operations to meet projections immediately upon funding. HERON COVE KEY MANAGEMENT company as Management Blue Heron Keyno other in the marketplace. ♦ Experience, extraordinary creativity, hands-on knowledge, key existing relationships, all combine to position the Blue Heron’s marketing efforts are led by Managing Director Xxxxx X. Xxxxxxx, former president of Xxxxxx & Xxxxx Xxxxxxx, a highly seasoned business executive with some 25 years of experience in retail merchandising, new product introduction, integrated marketing, promotional marketing, public relations, and the development and sale of licensed products. Xxxxxxx led agency initiatives with major Xxxxx clients involving strategic integrated entertainment-based marketing, and also operated the Entertainment division as its own profit center, developing new client relationships and entertainment projects. Xxxxx was recruited by Xxxxxxx from his position as President, Xxx Xxxxxx Xxxxx, Inc., Xxxxx Xxxxxx, NY, which served major entertainment companies such as Warner Bros. and Columbia Pictures, as well as major independent producers such as Children's Television Workshop, in creating entertainment-based marketing programs, working on projects such as Superman movies, Steven Spielberg movies, network television series and mini-series, and other special projects. For a decade after leaving Xxxxxx, Xxxxxxx led his own consultancy/strategic marketing agency, Xxxxx Xxxxx Xxxxx, LLC, serving a diverse range of clients, including Bankers Trust, MCI, Avis Rent A Car, Metromedia Communications, Warner Bros., and Verizon. Xxxxxxx X. Xxxx, Managing Director, has for more than 25 years, throughout a career in international finance, created strong ties to the not-for-profit world, where he has served on several boards of distinguished organizations, and that experience guides Blue Heron in establishing cause-related programs in support of its products. Xxxxx started with The Xxxxxxx National Bank in Xxxxxxand became the Treasurer (International) of Xxxx Financial Corporation, the financial arm of Xxxx Xxxx, Inc. At Xxxxx Xxxxx International Banking, he managed the global group responsible for trade and commodity finance. He has served on the Board of Managers of The Xxxxx Xxxx XXXX of The State of Xxx Xxx and as President of the Board of The Xxxxx XXxxx Xxxxx. Mr. Xxxxx was President of the parents’ committee at XXXX Xxx Xxxx and a member of the Board of the XXXX Xxx Xxxx Foundation. Xxxxx X. XXXXX, Chairman, brings more than 20 years of hands-on experience in financial operations and management for both not-for-profit and Fortune 500 companies. He is the Vice President of Finance and Administration of the Xxxxx Xxxxx Xxxx. Prior to this he was the Executive Vice President of the Xxxx Xxxx. He has been a Vice President in the International Leasing Division of XXXXXX Xxxxxxx Leasing where he had credit responsibility for its credit operations in London, Spain, Italy, Hong Kong, Korea and Indonesia; Manager at Xxxxxx Xxxx & Xx. in its management consulting practice; and a Director in the Corporate Management Audit Group at Xxxxxx Corporation. X. Xxxxxx Xxxxxx Senior Advisor, is the President of the Xxxxx Xxxxx Xxxxx. Mr. Xxxxx has been instrumental in combining the organization’s illustrious past accomplishments with its present capabilities and establishing challenging goals for the future. The recipient of numerous awards for his work in promoting the broad spectrum of artistic endeavor, he serves on the Boards of the Xxx Xxxxx Xxxxx Xxxxx and XXX Cxxxx Xxx Xxxxx Xxxxx, the Xxx Xxxx City Xxxxx Xxxxx of Xxxxxxx, Xxxxx Xxxxxx/Xxxx Center of Xxx Xxxx, and Advisory Board of the Xxx Xxxx Xxxxxx Xxxxx for XXXXXX. His relationships nationally and internationally throughout the art and performing arts community are legendary.