Sycamore Entertainment Group

SEGI
Highlights
Minimum Investment:
$1,000,000 CDN
Legal:
Ronald K. Sittler
ron@sittlerlawgroup.com
Tax Treatment:
Interest & Capital Gains
Returns:
15-20% preferred return
Term:
18-24 months

The investment will earn interest,

capital premiums, distribution fees
and ongoing cash flow from the
revenues of each S.P.V. . . .

What Does Sycamore Entertainment Do

Sycamore Entertainment is an independent film 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 finance the prints and advertising ("P&A") for
completed motion pictures.
P&A financing is structured as a senior secured loan. With this type of
financing, the risk to produce the motion picture has been assumed by the
films producers. They now require financing to advertise their film to the
North American market. Due to studios no longer purchasing independently
produced films it has become necessary for these producers to obtain this
type of advertising financing from independent P&A firms.
P&A financing is generally collateralized by a first priority security interest in
the domestic distribution proceeds from all media rights and gross cash
flows in the film. The financing provides the necessary funding for a
domestic theatrical release which includes the following primary theatrical
costs and expenses:
P: theatrical release and digital prints
A: 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 financing is structured as a first out financing investment, whereby the
P&A financier is typically the last party to advance funds for a theatrical
feature film release and thereafter the first party to be repaid from all
domestic exploitation revenues.
Generally, P&A financing provides the financier with an interest rate on the
loan amounts advanced, as well as ongoing cash flow from the revenues of
each portfolio investment.

AN OPPORTUNITY
CREATED BY AN INDUSTRY
& AN ECONOMY IN FLUX
The global credit crisis and amendments in US accounting laws have
resulted in significant changes to film financing structures, creating an
industry void and an unprecedented opportunity.
The film industry is traditionally inversely related to economic decline. In
other words, the industry grows during recessionary periods. As such,
many private equity firms, hedge funds and institutions continue to invest
billions of dollars in the production of quality independent feature films.
At the same time, a change in the generally accepted accounting principles
("GAAP") for P&A expenses has prompted the major studios to drastically
reduce or eliminate P&A budgets for independent movies.
This unique convergence of events (global recession and GAAP accounting
changes) has created a significant demand for P&A financing for independent
films. At present, many high quality independently financed films are awaiting
release due to inadequate P&A funding.

an industry voidand an
unprecedented opportunity.

Converging Events Create a New Investment Opportunity

Historically, Hollywood studios used their own funds to make P&A loans to
independent producers. Since P&A loans represented a profitable and
secure aspect of their industry, studios rarely invited third-party investment
companies to participate.
Under prior GAAP rules, studios could amortize their P&A loans over the life
of a film, even though P&A loans are almost always repaid in full within 12
-18 months. P&A loans therefore represented a very valuable tool for
improving the studio's balance sheet.
However, in 2010, a GAAP revision dramatically changed this situation. The
revision requires P&A loans to be booked by the studios in the quarter they
were made, as opposed to amortizing them over the life of the film. This
drastically reduced their value to the studios, which forced their exit from the
P&A loan sector. Although the demand for P&A loans for independent films
continues to increase, the amount of capital available from studios has
disappeared. This situation created an opportunity for SEGI, its
investors and the Limited Partnerships in which SEGI invests.
SEGI has taken on similar deal flow that was previously available
to the major studios; and through its strict due diligence and underwriting
criteria, SEGI is investing in secured P&A loans for independent
motion pictures in North America.

OBJECTIVES, STRATEGY
DUE DILIGENCE
AND SECURITY
Investment Objective
SEGI is a corporation that provides financing for marketing,
advertising and distribution costs of print and advertising for motion
pictures released by major studios and distributors. P&A loans provide
the funding required to create digital film projection reels and the
advertising necessary to attract viewers to theatres. Within this asset
class, P&A loans are generally structured as 'senior secured debt', a
class of debt that takes priority with respect to interest and principal
repayment over other classes of debt and/or equity.
Investment Strategy
SEGI provides financing 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 first liens on the territorialcopyright and cash flows of the films they help finance. SEGI structures
its investments to indirectly earn loan interest, capital premiums, distribution fees
and ongoing interest in the revenues of each motion picture, creating a diversified
portfolio of revenue-generating media assets.

The Subsidiary LP's/ S.P.Vs Revenue Streams

The Subsidiary LPs will structure their investments in film and media products
as debt and/or equity investments. Subsidiary LPs P&A loans are typically made
at an interest rate of between 15% and 20% per annum and the Subsidiary LPs
generally negotiate additional distribution fees and ongoing interest in all
negotiated revenue streams for a film for up to 25 years.
P&A funding is required only after a film is completed in full, audience-tested and
has committed to domestic distribution. P&A capital is typically needed a
few months prior to the film's theatrical release, and it is generally repaid within 12
months after a film's release. The window of the funding being deployed is
approximately 1218 months though the right to royalties and/or participation in
the film's future revenue streams may last much longer.

First Priority Repayment

P&A loans are the first money repaid from a film's revenues. Outside of any
hired service providers only the P&A lender and the distributor receive
proceeds from a film's receipts following its release. From the first dollars
earned following the release of a film, the P&A lender receives the return of all
invested loan capital and accumulated interest before any other lenders are
repaid. SEGI will only invest in films where the bank lenders, financiers, gap loans or
other lenders receive their capital subsequent to the P&A loan having been repaid.
First out Financing is a significant riskmitigating factor for P&A loans.

Loan Security
The P&A loans are generally secured by the film's revenues and all film rights
(theatrical, DVD, TV, pay TV, unsold territories, etc.) The P&A lender will be
entitled to all revenues until repaid in full with interest. Until the loan and
interest are repaid, the producers of the film will not realize any profit. Once
the loan is retired with interest, the producers begin to share in the profit, and
SEGI expects to receive ongoing royalty participation from the film's
total revenue for up to 25 years.

Due Diligence
SEGIs business model is driven by the performance of P&A loans and
the fees generated for the distribution commitments. SEGI aims to
finance domestic P&A costs once each film has been underwritten in
accordance with our disciplined investment process. Our rigorous approach to
project selection is based largely on audience testing, analytics created from
track records of all essential elements in any given film genre, in addition to
proprietary metrics based on opening weekends and competitive analysis. The
due diligence on each film will identify whether or not the film can garner box
office and downstream revenues that are capable of repaying the entire P&A
loan, interest and fees. The due diligence also takes into account the film's
ability to generate ongoing royalties once out of the theaters through DVD sales,
home video (VOD) and any other forms of distribution.

KEY INVESTOR BENEFITS

OF PRINT & ADVERTISING
LOANS
1. The P&A loan is classified as senior secured debt and has priority
over all other debts, obligations and production costs.
2. Loans are generally cross-collateralized against all film
revenues (theatrical, DVD, TV, pay TV, etc.).
3.P&A loans are historically repaid and profitable even in extremely low
domestic box office performance scenarios. The P&A loan has a risk
profile 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
profitability of the investment loan.