Sycamore Entertainment GroupSEGI

Highlights

Minimum Investment:$1,000,000 CDNLegal:Ronald K. Sittler ron@sittlerlawgroup.comTax Treatment:Interest & Capital GainsReturns:15-20% preferred returnTerm:18-24 months

The investment will earn interest, capital premiums, distribution fees and ongoing cash � ow from the revenues of each S.P.V. . . .

“

What Does Sycamore Entertainment Do

Sycamore Entertainment is an independent � lm marketing and distribution company focused on acquiring and marketing quality theatrical releases in the North American marketplace. Through its Limited Partnerships/ Special Purpose Vehicles (S.P.V.’s), we � nance the prints and advertising ("P&A") for completed motion pictures.

P&A � nancing is structured as a senior secured loan. With this type of� nancing, the risk to produce the motion picture has been assumed by the� lm’s producers. They now require � nancing to advertise their � lm to theNorth American market. Due to studios no longer purchasing independentlyproduced � lms it has become necessary for these producers to obtain thistype of advertising � nancing from independent P&A � rms.

P&A � nancing is generally collateralized by a � rst priority security interest inthe domestic distribution proceeds from all media rights and gross cash� ows in the � lm. The � nancing provides the necessary funding for adomestic theatrical release which includes the following primary theatricalcosts and expenses:

P: theatrical release and digital printsA: media advertising (i.e., radio, television, internet, outdoor advertising,etc.), production of creative marketing and sales materials (i.e., trailers,promotional reels, TV and video spots, one-sheets, standees, banners, etc.),and promotional publicity support for principal cast, press junkets, etc.

P&A � nancing is structured as a � rst out � nancing investment, whereby theP&A � nancier is typically the last party to advance funds for a theatricalfeature � lm release and thereafter the � rst party to be repaid from alldomestic exploitation revenues.Generally, P&A � nancing provides the � nancier with an interest rate on theloan amounts advanced, as well as ongoing cash � ow from the revenues ofeach portfolio investment.

AN OPPORTUNITYCREATED BY AN INDUSTRY& AN ECONOMY IN FLUX

The global credit crisis and amendments in US accounting laws haveresulted in signi� cant changes to � lm � nancing structures, creating anindustry void and an unprecedented opportunity.

The � lm industry is traditionally inversely related to economic decline. Inother words, the industry grows during recessionary periods. As such,many private equity � rms, hedge funds and institutions continue to investbillions of dollars in the production of quality independent feature � lms.

At the same time, a change in the generally accepted accounting principles("GAAP") for P&A expenses has prompted the major studios to drasticallyreduce or eliminate P&A budgets for independent movies.

This unique convergence of events (global recession and GAAP accountingchanges) has created a signi� cant demand for P&A � nancing for independent� lms. At present, many high quality independently � nanced � lms are awaitingrelease due to inadequate P&A funding.

…an industry void…and an unprecedented opportunity.“

Converging Events Create a New Investment Opportunity

Historically, Hollywood studios used their own funds to make P&A loans toindependent producers. Since P&A loans represented a pro� table andsecure aspect of their industry, studios rarely invited third-party investmentcompanies to participate.

Under prior GAAP rules, studios could amortize their P&A loans over the lifeof a � lm, even though P&A loans are almost always repaid in full within 12-18 months. P&A loans therefore represented a very valuable tool forimproving the studio's balance sheet.

However, in 2010, a GAAP revision dramatically changed this situation. Therevision requires P&A loans to be booked by the studios in the quarter theywere made, as opposed to amortizing them over the life of the � lm. Thisdrastically reduced their value to the studios, which forced their exit from theP&A loan sector. Although the demand for P&A loans for independent � lmscontinues to increase, the amount of capital available from studios hasdisappeared. This situation created an opportunity for SEGI, itsinvestors and the Limited Partnerships in which SEGI invests.

SEGI has taken on similar deal � ow that was previously availableto the major studios; and through its strict due diligence and underwritingcriteria, SEGI is investing in secured P&A loans for independentmotion pictures in North America.

OBJECTIVES, STRATEGYDUE DILIGENCEAND SECURITY

Investment Objective

SEGI is a corporation that provides � nancing for marketing,advertising and distribution costs of print and advertising for motionpictures released by major studios and distributors. P&A loans providethe funding required to create digital � lm projection reels and theadvertising necessary to attract viewers to theatres. Within this assetclass, P&A loans are generally structured as 'senior secured debt', aclass of debt that takes priority with respect to interest and principalrepayment over other classes of debt and/or equity.

Investment Strategy

SEGI provides � nancing for P&A for motion pictures in the North American marketplace,released independently or in partnership with major studios and distributors. In return, SEGI, through the respective Limited Partnerships/ S.P.V.’s, receives � rst liens on the territo-rialcopyright and cash � ows of the � lms they help � nance. SEGI structuresits investments to indirectly earn loan interest, capital premiums, distribution feesand ongoing interest in the revenues of each motion picture, creating a diversi� edportfolio of revenue-generating media assets.

The Subsidiary LP's/ S.P.V’s Revenue Streams

The Subsidiary LPs will structure their investments in � lm and media productsas debt and/or equity investments. Subsidiary LPs P&A loans are typically madeat an interest rate of between 15% and 20% per annum and the Subsidiary LPsgenerally negotiate additional distribution fees and ongoing interest in allnegotiated revenue streams for a � lm for up to 25 years.

P&A funding is required only after a � lm is completed in full, audience-tested andhas committed to domestic distribution. P&A capital is typically needed afew months prior to the � lm's theatrical release, and it is generally repaid within 12months after a � lm's release. The window of the funding being deployed isapproximately 12–18 months though the right to royalties and/or participation inthe � lm's future revenue streams may last much longer.

First Priority Repayment

P&A loans are the � rst money repaid from a � lm's revenues. Outside of anyhired service providers only the P&A lender and the distributor receiveproceeds from a � lm's receipts following its release. From the � rst dollarsearned following the release of a � lm, the P&A lender receives the return of allinvested loan capital and accumulated interest before any other lenders arerepaid. SEGI will only invest in � lms where the bank lenders, � nanciers, gap loans or other lenders receive their capital subsequent to the P&A loan having been repaid.First out Financing is a signi� cant riskmitigating factor for P&A loans.

Loan Security

The P&A loans are generally secured by the � lm's revenues and all � lm rights(theatrical, DVD, TV, pay TV, unsold territories, etc.) The P&A lender will beentitled to all revenues until repaid in full with interest. Until the loan andinterest are repaid, the producers of the � lm will not realize any pro� t. Oncethe loan is retired with interest, the producers begin to share in the pro� t, andSEGI expects to receive ongoing royalty participation from the � lm'stotal revenue for up to 25 years.

Due Diligence

SEGI’s business model is driven by the performance of P&A loans andthe fees generated for the distribution commitments. SEGI aims to� nance domestic P&A costs once each � lm has been underwritten inaccordance with our disciplined investment process. Our rigorous approach toproject selection is based largely on audience testing, analytics created fromtrack records of all essential elements in any given � lm genre, in addition toproprietary metrics based on opening weekends and competitive analysis. Thedue diligence on each � lm will identify whether or not the � lm can garner boxo� ce and downstream revenues that are capable of repaying the entire P&Aloan, interest and fees. The due diligence also takes into account the � lm'sability to generate ongoing royalties once out of the theaters through DVD sales,home video (VOD) and any other forms of distribution.

KEY INVESTOR BENEFITSOF PRINT & ADVERTISINGLOANS

1. The P&A loan is classi� ed as senior secured debt and has priority over all other debts, obligations and production costs.

2. Loans are generally cross-collateralized against all � lm revenues (theatrical, DVD, TV, pay TV, etc.).

3.P&A loans are historically repaid and pro� table even in extremely low domestic box o� ce performance scenarios. The P&A loan has a risk pro� le that allows it to recoup costs plus interest even when production costs are not fully recouped or when the production takes a substantial loss.

4. Rapid recoupment: P&A loans are historically repaid within 12 to 18 months.

5. Films that receive P&A loans, will be completed and tested with audiences. P&A loans will then be adjusted to appropriate levels of spend and screen distribution prior to disbursements.

6.Once a P&A loan has been recouped and the interest realized, SEGI's ongoing royalty participation from distribution fees will continue to provide revenues to the P&A investor and add to the overall and ongoing pro� tability of the investment loan.