Tax Efficient Review. Review of Enterprise Investment Scheme fund seeking growth without track record - media - marketing. Select Media Marketing EIS

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1 Editor Martin Churchill BSc (Econ) FCA March 2017 Tax Efficient Review Review of Enterprise Investment Scheme fund seeking growth without track record - media - marketing Select Media Marketing EIS Reprinted for the use of Great Point Media Limited Tax Efficient Review reviews are completely independent and providers do not pay for inclusion in Tax Efficient Review Providers who wish to distribute their review as part of their marketing can do so for a standard fee This communication is provided for informational purposes only. This information does not constitute advice on investments within the meaning of Article 53 of the Financial Services and Markets Act (Regulated Activities) Order Should investment advice be required this should be sought from a FCA authorised person

2 RISK WARNINGS AND This communication is provided for informational purposes only. This information does not constitute advice on investments within the meaning of Article 53 of DISCLAIMERS the Financial Services and Markets Act (Regulated Activities) Order Should investment advice be required this should be sought from a FCA authorised person. GENERAL RISK WARNINGS Fluctuations in Value of-investments Suitability The information and opinions expressed and contained in Tax Efficient Review ( TER ) are proprietary to TER and are not intended to represent investment advice or recommendation to buy or sell any security. TER is not responsible for any damages or losses arising from any use of this information. Your attention is drawn to the following risk warnings which identify some of the risks associated with the investments which are mentioned in the Review: The value of investments and the income from them can go down as well as up and you may not get back the amount invested. The investments may not be suitable for all investors and you should only invest if you understand the nature of and risks inherent in such investments and, if in doubt, you should seek professional advice before effecting any such investment. Past performance Legislation Past performance is not a guide to future performance. Changes in legislation may adversely affect the value of the investments. Taxation The levels and the bases of the reliefs from taxation may change in the future. You should seek your own professional advice on the taxation consequences of any investment. 2 ADDITIONAL RISK WARNINGS Tax Efficient Review is published by Tax Efficient Review Ltd 35 The Park London NW11 7ST Tel: +44 (0) Enterprise Investment Schemes 1. EIS companies are unquoted 2. The value of EIS Shares can fluctuate and Investors may not get back their investment; 3. There is no market for EIS Shares and Shareholders may not be able to realise their shareholding unless the EIS company is sold or floated on a recognised Stock Exchange. Dividends may not be paid. 4. Potential Investors should consider that past performance of the EIS Manager is no indication of future performance and there can be no guarantees that the EIS Company will meet its objectives. 5. Investment in unquoted companies can offer good investment returns, but, by its uncertain nature involves a much higher degree of risk than investment in a quoted portfolio. 6. Whilst it is the intention of the EIS Directors that the EIS Company will be managed so as to qualify as an EIS, there can be no guarantee that it will maintain such status. A failure to qualify could result in the Company losing the tax reliefs previously obtained, resulting in adverse tax consequences for Investors, including a requirement to repay the 30 per cent. income tax relief. 7. Levels and bases of, and relief from, taxation are subject to change. Such changes could be retrospective. 8. Fees charged by the EIS. Usually there is an initial cost of around 5%-10% to cover issuing the prospectus and paying a commission to introducers. This is paid out of the initial investment paid by the investor and the effect is that the EIS company receives around 90%-95%. Thereafter annual running costs of about 3%-3.5% are incurred by the EIS and met out of EIS income. On top of these, the EIS management usually have a performance incentive which pays a proportion of the return made usually after meeting some hurdle. A typical incentive might be that the management receives 20% of any uplift in net asset value over a return of original capital. Copyright 2017 Tax Efficient Review Ltd. All Rights Reserved. The information, data and opinions ( Information ) expressed and contained herein: (1) are proprietary to Tax Efficient Review Ltd and/or its content providers and are not intended to represent investment advice or recommendation to buy or sell any security; (2) may not normally be copied or distributed without express license to do so; and (3) are not warranted to be accurate, complete or timely. Tax Efficient Review Ltd reserves its rights to charge for access to these reports. Tax Efficient Review Ltd is not responsible for any damages or losses arising from any use of the reports or the Information contained therein. The copyright in this publication belongs to Martin Churchill, all rights reserved, and for a fee the author has granted Great Point Media Limited an unlimited non-exclusive and royalty free licence to use the publication.

3 Select Media Marketing EIS Scheme Type: Alternative Investment Fund Business: Marketing of film and television content Size: Up to 12m Promoter: RAM Capital Partners LLP Manager: Great Point Investments Limited Media Adviser: Great Point Media Limited ( GPM refers to the Great Point Media Group) Minimum Subscription: 10,000 Minimum raise to proceed: 0.9m Closing Date: 29 September 2017 Facilitation Payment: The Manager will facilitate payment of adviser charges from the investor to their adviser on an upfront only basis (applicable to Advised Retail Clients) Table 1: Tax Efficient Review summary of offering Pros and Cons PROS CONS Unique opportunity to benefit from explosion in market demand for new media content at the front of the value chain. A commercially driven model targeting strong returns with some downside protection The GPM team is a specialist in media and EIS and has a very strong track record in managing EIS qualifying media businesses Investment in the Fund involves a high degree of risk. Great Point Media have no track record in this area Should deals be concluded with no minimum revenue through output deals then investors could find 100% of their investment at risk No advice given Based upon Alternative Investment Fund This communication is provided for informational purposes only. This information does not constitute advice on investments within the meaning of Article 53 of the Financial Services and Markets Act (Regulated Activities) Order Should investment advice be required this should be sought from a FCA authorised person. This review is based upon a meeting with Jim Reeve of Great Point Media Limited, the Select Media Marketing EIS Information Memorandum and Fund Management Agreement and Project data shown to Tax Efficient Review in a presentation (but data not made available in hard copy form) on a confidential basis. This offering is classified by the provider as a non-ucis (Unregulated Collective Investment Scheme) Alternative Investment Fund ("AIF"). The Alternative Investment Fund Managers Directive (AIFMD) is an EU Directive regulation which came into force on 22 July 2013 although there was a transition period until the following year. AIFMD introduces a new regulatory regime for non- UCITS (Undertakings for Collective Investment in Transferable Securities) fund organisations with the aim to better regulate managers of these types of funds. The key aim is to prevent systemic risk and to enhance transparency and efficiency and is very much focused on the AIFMs (the AIF managers) rather than the AIFs themselves. AIFs are defined as collective investment undertakings including investment compartments thereof, which: raise capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors; and do not require authorisation pursuant to Article 5 of Directive 2009/65/EC (the UCITS Directive). GPM tells us that Select Media Marketing EIS falls under this definition and the Manager is an AIFM (who is managing one or more AIFs). Reporting requirements for AIFMs depend on their Assets Under Management ("AUM"). There is a lighter regime for AIFMs with funds of less than 100m AUM or less than 500m in cases where the AIFM is unleveraged or doesn t allow redemp- 3

4 Offer classification HMRC Advance Assurance Comparison to other offers tions for 5 years. These smaller AIFMs are only required to register and do not need to undertake the authorisations and transparency reporting that the larger AIFMs must. Some of the bigger EIS providers with more than 500m will fall under a stricter regime with some additional requirements (like having a depository as well as a custodian etc). The Manager of Select Media Marketing EIS tells us that they fall under the lower regime. We review business opportunities offering potential EIS benefits split between: Companies and funds/services - this offer is a discretionary service and investors will end up owning shares in a small number of companies all carrying on the same trade Those seeking growth returns or those seeking lower returns - with a target 120p to 180p (no prediction is made or implied) this is an offer seeking growth returns but which in our view is high risk. Those with or without a relevant track record - Great Point Media have no track record in this area. Those with single or multi sector strategy - this is a single sector offering in the media sector which we sub-divide into production, sales agent and marketing sub-sectors. At present this offer is the only one based on a marketing trade. Overall therefore we classify this as "EIS fund seeking growth without track record - media focus - marketing". Companies that are hoping to attract subscriptions under the EIS can seek an assurance from HMRC, in advance of inviting applications for shares, to the effect that it is accepted that the conditions of the scheme will be satisfied. The response to a request for an assurance will take the form of a statement as to whether, on the basis of the information provided, HMRC would be able to authorise the company to issue certificates under ICTA/S306 (2) or ITA/S204 in respect of the shares to be issued, following receipt of a form EIS1 satisfactorily completed. We always ask to have sight of any Advance Assurance letters and we have seen the Advance Assurance letter for three companies. For this Fund, we are told that no investment will be made into a company unless advance assurance has been received prior to the date of investment. At present, the main EIS media sector comprises offers (not all currently open and not all reviewed by TER) from Ingenious (Ingenious Broadcasting, Ingenious Shelley and Ingenious Greenlight), Great Point Media (Select Television Production EIS 5), Hindsight Media EIS Fund, Silver Lining Film Developments and Oxford Capital. In our view the really key question to ask about film/television offerings, in addition to counterparty risk, is what level of additional commercial and performance risk are they taking (an area which HMRC is looking at increasingly closely). This is indicated by the percentage of funds exposed to "deficit funding", where the revenues already contracted do not entirely cover the amount deployed. This may take the form of equity or other financing which puts investors at risk if future revenues, usually from unsold sales, do not materialise but also could provide, if the deal is correctly structured to do so, some potential for more upside if sales income exceeds the amount of "deficit funding". Here is how we see the offerings covering this important area: INGENIOUS BROADCASTING In each production, EIS investors may put up a maximum of 15% of the production as deficit funding. "Deficit funding" is a term not to be found in the Ingenious Broadcasting 2016/17 Brochure but we consider that prospective investors need to carefully consider the risks involved in "deficit funding". The reality is that any potential upside from share of net is also difficult to forecast and investors should not rely on it. Ingenious provided the following extra information: "As part of the deal negotiation we will agree a waterfall with all the interested parties (usually 4

5 the broadcaster, rights holder and international distributor) which will govern the allocation of international sales revenue. Typically gross sales will be disbursed as follows: International distributor sales commission (typically 25%) International distributor distribution expenses (typically capped at 5%) Other agreed costs: eg launch cost, dubbing costs (foreign language), clearance costs not covered in budget (to actors/writers under guild agreements and music) Repayment of amounts advanced to fund the budget and spent in the production of the programme/series (if any): eg distributor minimum guarantee, Ingenious Broadcasting investee company deficit funding plus premium The balance is then net receipts which is split 15% to the commissioning broadcaster and 85% to the rights holder Ingenious Broadcasting investee company is then entitled to a small share of rights holder s share of net Most TV productions don t involve significant (or any) presales (unlike film) so most international territory sales will feed into the waterfall" How much upside might come from unsold territory sales is very difficult to quantify, but Ingenious do analyse forecasts from the distributors selling the programme internationally, and the range of potential outcomes mentioned in the Brochure on page 13 goes from 90p to 109p. This limited range of returns indicates that the potential for upside from this investment is not really that high. INGENIOUS SHELLEY The maximum amount of "deficit funding" is limited to 25% of the Service INGENIOUS GREENLIGHT The maximum amount of "deficit funding" is limited to 40% of the Service HINDSIGHT MEDIA EIS FUND The manager tells us that in each production, the EIS investors will be putting up an average of no more than 15%-20% of the funds raised (although there is a potential maximum of 40%) as so called "deficit funding", which is pure risk money not backed by already acquired presales. In order to recoup this risk money, the EIS company will need to see the production sold into a number of the remaining un-sold territories. However, this could drive a potential higher return. "Deficit funding" is a term not to be found in the Information Memorandum and is only indirectly referred to on page 9 as "Availability of sufficient asset-backing for a debt/security ratio acceptable to the Manager" although there is no indication of what ratio is acceptable. The ratio is key to understanding potential risk in the offer. Again page 9 says "Invest in companies that produce projects with visibility on or potential production collateral of at least 60% of production costs". This ties in with the potential maximum of 40% referred to above. The potential maximum of 40% is the highest of the three offers and in our view indicates a higher level of risk could be present in this offer, but commensurately targeting a higher return. Hindsight commented: "We would require a minimum of 200% coverage on the low sales estimates and only work with a handful of reputable and well-established sales companies; the 40% is an absolute maximum (and the exception), the average across the whole portfolio being in the 15-20% range, however if there was a suitably compelling commercial case we would want to have the flexibility to be able to do that deal, but if we did advance 40% the average within the portfolio would be substantially less bringing it to max 15-20%. We view this as being the most commercially pragmatic view we want to protect the downside but also generate a return for investors and the reality is that in order to generate a return there needs to be some risk taken. OXFORD CAPITAL MEDIA EIS FUND The two EIS companies will be purchasing the right to act as sales agent where typically there are already signed pre-sales in place with good counterparties for at least 20% of the film's 5

6 budget and which no other source of finance has a claim upon. This is to help minimise the risk involved in the sales agent model where investors will suffer high losses should unsold territories not be bought by distributors. Therefore the majority of the investor's funds are at risk and in the theoretically possible outcome that all films make no further sales at all worldwide, investors will lose the majority of their investment. In our view, no other media offer matches this in having such a high risk profile. In response Oxford Capital highlighted that amongst other factors, the diversification of this offering across an expected 16 films helped to significantly mitigate the risk. "Deficit funding" is a term not to be found in the Oxford Capital Media EIS Information Memorandum. Oxford Capital state that "within the Film EIS world, the term deficit finance is sometimes used to refer to any type of film investing that is not collateralised lending. As such, it s important to note that the phrase encompasses a number of funding models with distinct risk profiles. For example, both equity investment and our sales agent model could be defined as deficit finance, even though they operate in different ways and offering very different risk profiles. SELECT TELEVISION PRODUCTION EIS 5 In each production, the EIS investors will be putting up 25% (maximum) of the production budget as so called "deficit funding", which is pure risk money not backed by already acquired pre-sales. In order to recoup this risk money, the EIS company will need to see the production sold into a number of the remaining un-sold territories. The average level of pre-contracted income across EIS projects undertaken to date is 83% demonstrating that the full 25% gap risk won t be taken on every single project an underlying EIS investee company undertakes due diligence on. "Deficit funding" is a term not to be found in the Select Television Production EIS /2017 Information Memorandum. Page 7 of the IM does refer to "uncapped upside potential" ("Retained Rights do offer the potential to generate significant, uncapped long term upside for the business if the Production proves popular with viewers"). Whilst technically this might be correct, the reality is that without knowing how net profits are calculated on the productions involved and what share the EIS companies might receive, we believe that investors are best served by considering that there is little to no upside potential from investing in this offer. In response, Great Point state that "broadly speaking, the net profit share an EIS company should be entitled to on any given project is commensurate to the level of deficit risk it took upfront. As an example, were an EIS company to take 25% deficit risk on a project, it could expect to have a 25% share in perpetuity of producer s profits after it has recouped 100% of its production budget including the deficit portion in first position. As per the minimum investment criteria laid out on page 7 of the IM, a project is only ever selected when the Great Point team and therefore the Manager are happy that the programme has sufficient sales estimates at least equal to two times its deficit. As such, it is the belief of the Great Point team that the chance of upside is very real and in some cases, potentially quite sizeable. SELECT MEDIA MARKETING EIS Each investee company within the Fund will provide marketing, advisory and operational services to support the release and launch of feature film and television Projects in English speaking territories. It will obtain the rights to market a project, fund the marketing costs of doing so and in return be entitled to recover its costs from revenues generated by the Project in first position, earn a fee (of around 10% of the marketing costs) for its services and be entitled to an ongoing share of revenues. The manager tells us that it will only undertake Projects where it has visibility on deals and therefore revenues to a value of at least 50% of its total marketing spend, meaning it would therefore be fully exposed to the remaining 50% against the performance of the Project. As we cover below this extremely important area is not covered anywhere in the Information Memorandum. Its importance is that without it the amount at risk is 100% against unknown 6

7 future performance, a very high risk undertaking for investors. How much upside might come from ongoing revenue shares is very difficult to quantify, but GPM have analysed historic data of similar projects to those being sought by the Fund, and the range of potential outcomes mentioned in the Brochure goes from 50p to 180p. This extended range of returns indicates that the potential for upside from this investment is certainly higher than other media investment opportunities currently available in the market. Select offering differences Summary The differences between the two Select offerings are summarised in Table 2. It shows clearly the extra risk involved in this marketing offer compared to the Select Television Production EIS and this is due to the higher level of risk in the marketing trade. In the production trade undertaken by Select Television Production EIS, the EIS puts up a larger amount into each production but has a higher level of pre-contracted return leaving a smaller amount of investment not covered. In the marketing model used by this offer, smaller amounts are expended in each project but there is a much higher level of risk which could be restricted to 80% if the Manager can find deals where they can earn a 20% fee. The intention of the Select Media Marketing EIS ( Fund ) is to raise between 900,000 and 12,000,000. The Fund closes for investment on 29 September The Great Point Media team entered the EIS arena approximately four years ago and EIS funds under management currently stand at 166.1m. All of these funds are focussed on their core trade of television production and exploitation which has a much lower risk profile than this offer Each EIS Company ( Company ) will provide marketing, advisory and operational services to support the release of feature films and televisual content in English speaking territories. It will be engaged by a Project Owner and obtain the rights to market a feature film or television property (each a Project ), fund the marketing costs of doing so and in return seek to try to recover its marketing costs from revenues generated by the Project in first position, earn a profit through a marketing fee (which GPM tell us is typically 5% up to 20%) and be entitled to an ongoing share of revenues (which we consider to be most unlikely to be of value). Marketing spend on Project will typically range from 250,000 to 4,000,000 depending on the Table 2: Select offerings comparison Source Great Point Media Select Television Production EIS Select Media Marketing EIS Offer Structure Offer Type EIS EIS Legal Structure Alternative Investment Fund Alternative Investment Fund Expected Number of Investee Companies in Portfolio 4 to 12 3 Anticipated Minimum Lifecycle 3.5 to 4 years 3.5 to 4 years The Trade Production of television content with minimum Provision of marketing, advisory and operational Trade level of pre-contracted sales to leading services to support the release of feature film broadcasters content in English speaking territories Investment Objective Capital Preservation & Growth Growth Earnings Model Production fee plus share of profits in perpetuity Marketing fee plus revenue share for a limited (globally) period in specific markets Minimum Revenues? (not guaranteed) Minimum 75% Minimum 55% Note 1 Relative Risk Level Low Medium Geographical Focus Global Primarily UK and North America Indicative Range of Project Length 6 months to 18 months 3 months to 6 months Potential Returns (no prediction is made or implied) Range of Returns 70p to 120p 50p to 180p Mid-case 108p 118p Fees Initial Fee 1.95% 1.95% Annual Management Fee 1% + 7,500 per Company 1% + 7,500 per Company Performance Fee 35% 35% Hurdle Rate 1.10 per 1 invested 1.20 per 1 invested Performance Fee basis Fund level Fund level Note 1: Assumes that projects can be signed where there are minimum contracted returns of 50% and a fee of 5% which may not be achievable 7

8 Trading Strategy scale of the release of the Project and the levels of media and advertising spend required to promote it. So how does the EIS plan to make a profit? Great Point tell us that: "Typically, minimum revenue through output deals in various media will mechanically generate at least 50% of the marketing spend on any Project. The sources of revenues will vary from Project to Project depending on which rights have been acquired by the Company but will typically include theatrical receipts, video on demand, subscription video on demand, a range of digital media, DVD, pay per view, pay television". This "mechanically generate at least 50%" is a key component of downside protection for investors but is not mentioned in any place in the Information Memorandum. Great Point tell us that they expect to sign output deals where this level of minimum returns are typical but they have no experience to date of obtaining such agreements. The Company will hope to typically earn a marketing fee equal to between 5% and 20% of its total marketing spend on any Project and be entitled to an ongoing revenue share from all receipts (note these are not Box Office receipts) generated from the rights it manages of between 10% and 20%, providing it with the opportunity to potentially recoup its investment and potentially go on to earn a profit. The Company will be entitled to recover all of its costs on the Project in first position. To reiterate, Great Point have no experience to date in this area so we think that potential investors should treat the offer as high risk. So what does the IM say about the trade and its potential earnings? Page 4: "Companies will be carefully selected for their ability to deliver an attractive risk/ return profile, benefitting from a priority position in the value chain together with the opportunity for significant upside from a hit-driven business" Page 5: "Attractive commercial returns will be targeted through negotiating a fixed fee as well as a percentage share of ongoing revenues from the exploitation of the Project." Page 5: "each Company seeking to generate a base level of revenues, by charging a fixed fee for its services alongside the scope for further returns through receiving a percentage fee (typically up to 20%) of ongoing revenues from the exploitation of those Projects" Page 6: "Cost Recoupment -Each Company will be entitled to recoup its costs in priority first position from all local sources of revenue from the Project. Fixed Project Fee -Each Company will look to earn income through negotiating a fixed fee (Fixed Project Fee) (typically up to 20% of its total marketing and promotion contribution and costs). Ongoing Participation -In addition to this the Company will seek to negotiate a percentage share of ongoing participations in the Projects (Ongoing Participation). While the business models of the Companies present an attractive model for generating lucrative fixed and ongoing revenue, ultimately, the Companies ability to fulfill this model depends on the film revenue being strong enough to support these fees and the recovery of capital outlay" Page 7: "The business model of each Company must be designed to select Projects for marketing that follow the follow criteria: Estimated gross revenues of at least twice the anticipated marketing costs of the Project." We asked GPM to see the dataset upon which the Media Marketing EIS business model has been built. Whilst commercially sensitive data was shown in a presentation to Tax Efficient Review for the purposes of this report, GPM did not provide a copy to TER. The Fund will focus on EIS qualifying media marketing companies that will provide marketing services and manage the theatrical release strategy for films and promotion of certain television shows. Each Company will focus on marketing and promoting content with a primary focus on theatrical films for English speaking markets. Commercial returns will be targeted through negotiating a fixed upfront fee, plus an ongoing percentage share of revenues from the exploitation of the Project. 8

9 Each Company will engage staff on an employed and/or contract basis to undertake the various roles and tasks required to execute the marketing and promotion of its Project. Whilst the exact engagements required by the Company (or any subsidiary) will be largely Project specific, the Company anticipates engaging marketing consultants, a PR agency or individual PR consultants budgeted at up to 200,000 per annum, an advertising agency, as well as creative design staff and technical deliverables staff ( Marketing Team ) either individually or through agencies. As is usual in the industry, the Company expects that it will engage such staff individually on a Project-by- Project basis with each of the Marketing Team on a self-employed basis or work made for hire basis if in the US. This better enables enterprise of this nature to tailor the relevant creative talent and technicians for the particular Project in question. The Company may also engage and manage various specialist third parties to assist with elements of the Project. The marketplace for theatrical films is extremely crowded and competitive and is dominated by US studios and large distributors. Nonetheless, independent filmmakers will always strive for a theatrical release as the medium of cinematic exhibition is still considered the premium method of exhibition and the best shop window for any film. In addition, the exposure of a film to theatrical audiences (if successful) will typically attract a premium value for subsequent television, video and digital rights and drive a longer tail of income for the film. Therefore, there exists a strong creative and commercial need to get media exposure and theatrical coverage. The decision to release an independent film theatrically is critical to its commercial success. A well-executed and financially supported theatrical release can drive not only significant box office income, but more importantly enhanced value for the film in physical and digital release as well as television value. Expenses involved in a theatrical release (which are additional to the production budget of any film) typically include costs for the creation of artwork, posters and trailers, PR fees, screening costs, event and premieres, talent touring, advertising and media spend, creation of cinematic materials, cinema booking fees, classification fees and exhibition fees. Depending on the scale and ambition of a film, the release costs can range from tens of thousands to tens of millions. Once the decision has been to taken to release a film theatrically, the filmmakers will require advice on the very delicate strategy of how much to spend, how widely to release and when and how to make best use of those resources. Key considerations will include: The scale of release: Specialised films can sometimes be released in fewer than 10 cinemas. On the other hand, bigger mainstream films could be released initially on over 500 prints, simultaneously screening in all major towns and cities. The decision involves a careful assessment of the anticipated scale of the film Press materials, clips reels, images, press previews, screener tapes: For the majority of releases, favourable press response is a key factor in developing the profile and desirability of a film. Potential exhibitors consider both the quality and breadth of coverage, and this is often inscribed into the nature and scale of a press campaign. The design and printing of posters and other promotional artwork: The cinema poster is still the cornerstone of theatrical release campaigns. Numerous recent examples indicate that the poster design is highly effective in 'packaging' the key attributes of a film for potential audiences. As part of the release strategy, it is important to consider other poster campaigns, ranging from Underground advertising to billboards. Advertising campaign - locations, ad size and frequency: Advertising in magazines, national and local newspapers work in tandem with press editorial coverage to raise awareness of a release. Press advertising campaigns for specialised films will judiciously select publications and spaces close to relevant editorial. For mainstream films, scale and high visibility is the key. In order to extend the reach of advertising and develop more effective communication with audiences at low cost, distributors are looking increasingly to 'Viral Marketing' - different forms of electronic word-of-mouth via the internet, and mobile phones. Press campaign / contracting a PR agency: Many independent filmmakers and their distributors will not have press departments, and will consequently hire a press agency to run a pre-release campaign. This is especially the case if the film brings over key talent for press 9

10 Table 3: Target returns (no prediction is made or implied) Source Great Point Media Low case Note 1 Mid case Note 2 High case Note 3 Cost of investment 100, , ,000 Less Income Tax Relief at 30% ( 30,000) ( 30,000) ( 30,000) Net Investment 70,000 70,000 70,000 Investment Proceeds (over a simple 42 month investment period) 50, , ,000 Loss relief 9, Total Return on Net Investment (70p) ( 11,000) 48, ,000 Total return on Net Investment (70p) (16%) 69% 157% Average Annual Return Note 5 (4%) 20% 45% Average Gross Equivalent Annual Return N/A 30% 82% Target Return 1.20 Note 4 Performance fees payable at 35% on returns over 1.20 hurdle The above returns are set out for illustrative purposes only and are not a reliable indicator of future performance. No warranty as to future outcome is implied or should be inferred. Changes to the bases of taxation, tax relief, rates of tax or an investor s tax position may affect the availability of tax reliefs available. The value of investments can go down as well as up and you could lose part or all of your capital invested. Your attention is drawn to the Information Memorandum for the Fund and the specific risk factors referenced in Risks on page 17 therein. Model assumptions: 1. Low Case assumes that all share proceeds are expended and each EIS company undertakes a project and earns an upfront fee of 5% and the project achieves aggregate returns of 50% of project cost. Assumes an investor can claim share loss relief against income tax at the top rate of 45%. 2. Mid Case assumes that all share proceeds are expended and each EIS company undertakes one project per year for three cycles and earns an upfront fee of 10% per project. Each project achieves aggregate returns sufficient to recover 100% of project costs. 3. High Case assumes that all share proceeds are expended and each EIS company undertakes one project per year for three cycles and earns an upfront fee of 10% per project. Each project achieves aggregate (gross) returns of 1.8x the project costs with each EIS company earning a 20% share of revenue. 4. Target Return is the level of return required before the Manager is entitled to a performance fee. 5. Amounts are shown net of all anticipated fees, taxes and costs and calculated over a simple 42-month investment period. The calculations assume that an investor can fully avail themselves of relevant tax reliefs. Potential returns interviews to support the release. Arranging visits by talent from the film: The use of talent - usually the director and/or lead actors - wins significant editorial coverage to support a release. The volume of coverage can far outweigh the cost of talent visits. Other preview screenings: A distributor will consider the use of advance public screenings to create word-of-mouth and advance 'buzz' around a film. As a media marketing company, the EIS will select Projects for marketing that follow the criteria below: English speaking market Rights to market available for a minimum of 5 years Target marketing budget ranges of 250,000 to 4,000,000 Fulfil criteria for output deals Estimated revenues of at least 1.5x proposed marketing budget Errors and Omissions insurance in place Note that this list does not include any requirement for projects to have in place agreements with distributors to generate "... minimum revenue through output deals in various media will mechanically generate at least 50% of the marketing spend on any Project". Through being a well-capitalised marketing business with access to broadcasters and media buyers, GPM believe that the EIS Companies will have a competitive advantage amongst other marketing companies in the marketplace. Unlike other marketing businesses, it will have access to already completed projects through GPM s extensive network and industry relationships. 10

11 Track Record Directors of GPML (the Media Adviser) Illustrative target returns are in a range between 120p and 180p (this return does not include the 30p initial income tax relief) over a year initial period. The illustrative case for zero performance from underlying projects is 50p (excluding the 30p initial income tax relief). (Returns are set out for illustrative purposes only and are not a reliable indicator of future performance. No warranty as to future outcome is implied or should be inferred. Actual results will be different). Key drivers in this potential return scenario are: Initial costs and fees are 1.95% for Advised Retail Clients (4.95% for Professional investors which includes introducer commission of 3.0%) so (assuming an Advised Retail Client is charged the equivalent of 3% on their investment) 95.05p (or 98.05p) is effectively available to apply to the marketing of content. Annual costs and fees are 1% p.a. plus an administration fee of 7,500 per EIS Company and a Custodian fee of 0.125% p.a. VAT is added to the initial charge of 1.95% and the annual charge of 1%. However, the EIS companies are all VAT registered, and as such any VAT added will be reclaimable by the companies in full The EIS will earn upfront marketing service fees of between 5% and 20% of total marketing spend from each Project and will be entitled to an additional percentage share of on-going participations from each of its Projects of between 10% and 20% of such revenues Table 3 summarises how the potential returns could possibly look under certain assumptions (no prediction is made or implied, future results will vary). The possible reasons why investors might receive a negative return (i.e. receive back less than the 100p invested) include (the list is not intended to be exhaustive): it takes too long to deploy in the first and subsequent marketing Project, a function of the ability of the GPM team to secure completed content to market. Investors need to remember that the GPM business model requires continuous reinvestment. the marketing servicing fees are low. GPM tells us that no Project will be undertaken unless marketing fees are at least 5% of marketing costs budget. Projects do not return their marketing costs and this will impact the subsequent amount invested. The absence of any directly equivalent track record of the new business means that we cannot examine any real marketing numbers in order to assess the risk of not recouping the risk funding. Based on proprietary data shared with Tax Efficient Review, GPM says that the strategy to underpin 50% of revenues through qualifying output deals (should these be forthcoming), and the senior position whereby it recoups 100% of revenue in first position, makes the business a compelling investment opportunity. In addition, the base case range of returns for some 350 historical Projects marketed at the level which the Select Marketing EIS is planning to operate would produce an outcome above the 1.20 targeted return. However, past returns are no real indicator that a new team in this new area can obtain output deals that offer any downside protection. The GPM team, while formed only four years ago, offers experience in managing EIS-qualifying television production businesses, with four of the team having been responsible for managing the Ingenious Broadcasting EIS fund between 2008 and In that time, the team oversaw the successful exit of over 50 public EIS companies, and managed the production of over 100 television shows and series on a conservative risk model. Robert Halmi has over 30 years experience in managing TV production and distribution businesses and television networks, and Jim Reeve has further EIS television experience going back some 15 years, having managed EIS-based television companies since Robert Halmi - who is a director of GPM, has been the Chief Executive Officer of four publicly traded entertainment companies. In addition, he served as Chairman of Crown Media, Inc. where he founded and ran the television network Hallmark Channel, one of the largest net- 11

12 works in the USA now in some 80 million homes. Robert is an Emmy Award and Golden Globe Award winning film producer, and has produced and distributed more than 250 movies and mini-series for television. His best known work is Lonesome Dove (Robert Duvall, Tommy Lee Jones, Angelica Houston, Danny Glover, Diane Lane), which earned seven Emmy Awards and a Golden Globe Award for Best Mini-series. Jim Reeve who is a director of GPM, has extensive experience of EIS. Starting with Close Bros some 10 years ago, he also managed the Ingenious Broadcasting EIS at Ingenious Media for some 4 ½ years from 2008, with responsibility for sourcing TV Projects, managing the funds raised (some 300m) and organising successful exits for investors from more than 50 EIS companies. He also has more than 25 years experience in the development, production, financing and distribution of television programmes and films. He has produced commercials, television programmes and films. An Emmy award winning producer, his credits include Ken Follett s Red Eagle (starring Timothy Dalton, Omar Sharif for Sky), Jack Higgins On Dangerous Ground (starring Rob Lowe, for Showtime) and Shiner starring Michael Caine. In addition to the Directors, GPM s other key employees are Commercial Directors, Kok-Yee Yau, Fergus Haycock, Dan Perkins, Commercial Managers Laura Macara and MBA graduate Matt Stevens and Head of Legal and Business Affairs, Ellen Fraser. The Fund will benefit from the direct experience of other key GPM employees, John Alexander, Paul Howell and Hashim Alsaraf, all of whom have career experience in film sales and distribution with companies including Sonar Entertainment, Protagonist Pictures, and Park Entertainment. Each investee company will be served by an independent director with career experience in film sales and distribution and companies will engage specialist film distribution and marketing consultants for each project to evaluate and execute the project opportunity. Kok-yee Yau - prior to GPM she spent three years as an Investment Manager at Ingenious Media, sourcing, evaluating and overseeing over 75 EIS qualifying television productions, and managing exits for investors from the Ingenious Broadcasting EIS funds. Kok-yee qualified as a Chartered Accountant in 2006, starting her career at Grant Thornton in the assurance team specialising in the audit of companies in the media and financial services sectors. In addition, she spent 3 years to 2009 on the structured products valuations team at the global alternative hedge fund manager, Man Investments. Fergus Haycock - a qualified solicitor, Fergus spent nearly 6 years at Ingenious Media before joining GPM in April He specialises in television production and media Project financing, having managed the 300m Ingenious Broadcasting EIS fund, GPM s existing EIS offers (over 150m) and over 100 television productions. Previously he was Fund Managing Director of Ingenious Broadcasting EIS, Ingenious Broadcasting LLPs and Ingenious Estate Planning. Dan Perkins Dan qualified as a chartered accountant with Deloitte and specialises in the management and capital raising for alternative investment opportunities, including EIS, SEIS and BPR investments. Prior to joining GPM, Dan was an Investment Director at Ingenious Media responsible for investment and distribution strategy. Laura Macara - Laura has four years experience in sourcing and evaluating suitable EIS opportunities within the television sector and managing over 350m of EIS funds for Ingenious Media. Laura is a chartered secretary and previously managed the corporate governance and company secretarial matters for over 200 EIS companies. Matt Stevens Matt is a qualified accountant and MBA graduate of London Business School. Matt brings audit and accountancy experience in entertainment media as well as his specialised focus on the business of the film and television industry during his MBA year. Ellen Fraser Ellen qualified as a barrister in July 2000 and later as a solicitor and was previously a senior lawyer at Ingenious Media. Ellen has over ten years experience in media legal and business affairs, specialising in advising content producers and financiers on all matter relating to the development, production and exploitation of films and television programmes. John Alexander - John has over 25 years sales and co-production experience working in both the international and North American theatrical, home entertainment and television business. 12

13 Sourcing of productions Exit strategy Fees/Costs Conclusion Previously John worked as Head of Sales for a major independent television studio for eleven years and prior to that he worked at various independent feature film studios. Hashim Alsaraf - Prior to joining Great Point Media, Hashim was Operations Manager at an international film sales company, overseeing worldwide delivery of such films as The Lobster, American Honey and Free Fire. Hashim has a Bachelor's degree in Film Studies Paul Howell - Paul has over seven years experience working in independent film and television. With his early entertainment career focusing on sales and distribution he has latterly worked across areas including development, finance and production. In addition, GPM have bolstered support staff adding another 12 staff including 6 in commercial and operational roles and 3 in financial roles. GPM believe that their extensive network of industry contacts will provide the EIS Companies with access to a high standard of marketable, completed media content. GPM are confident of sourcing appropriate Project opportunities from their wide range of industry relationships with developers, producers, distributors and broadcasters worldwide. The Manager intends to approach shareholders after the first three years' trading to obtain their views for the future of each company. All costs incurred in relation to the Offer will be paid by the companies out of the proceeds of the Offer. The upfront fees are 1.95% of funds raised for Advised Retail Clients (4.95% for Professional Clients including intermediaries' commission of up to 3.0%). For Professional Clients, commissions can be rebated reducing the total upfront cost to 1.95%. Annual fees are 1% p.a. plus an administration fee of 7,500 per company. The custodian fee is 0.125% p.a. Great Point tell us that estimated annual running costs of each EIS company outside of project specific budgets (which might include such items as accounting, audit, legal costs) will be in the region of 10,000 comprising accountancy and non-project specific advice. A Performance Fee is payable once the Fund has returned to investors aggregate distributions (or value) in excess of 1.20 per 1.00 invested. GPM and the directors will between them be entitled to the equivalent of 35% of any incremental value. The Fund plans to invest in at least three EIS companies providing marketing, advisory and operational services to support the release and launch of feature film and television Projects in English speaking territories. It will obtain the rights to market a project, fund the marketing costs of doing so and in return be entitled to recover its costs from revenues generated by the Project in first position, earn a fee (of around 10% of the marketing costs) for its services and be entitled to an ongoing share of revenues. The manager tells us that it will only undertake Projects where it has visibility on deals and therefore revenues to a value of at least 50% of its total marketing spend, meaning it would therefore be fully exposed to the remaining 50% against the performance of the Project. However, this extremely important area is not covered anywhere in the Information Memorandum. Its importance is that without it the amount at risk is 100% against unknown future performance, a very high risk undertaking for investors particularly as the Great Point team have no previous experience in this area. For this reason, we think that potential investors should treat the offer as very high risk and consider carefully whether the potential returns compensate adequately for the risk involved. Tax Efficient Review Total rating: 84 out of 100 (for fund seeking growth without track record - media - marketing) 13

14 Risk factors reproduced from the Information Memorandum Investors must carefully consider all of the information contained in the Information Memorandum and whether an investment in the Fund constitutes a suitable investment for them in light of their personal circumstances, tax position and the financial resources available to them. The Fund will be investing in unquoted companies and may not be suitable for all types of Investor. Potential investors are, therefore, strongly recommended to seek independent financial and tax advice from a suitably qualified professional adviser before undertaking an investment in the Fund. If in any doubt whatsoever, an Investor should not proceed. This section details the material risk factors that the Manager believes could adversely impact an investment in the Fund or the availability of tax reliefs to Investors and should be considered in detail before deciding to invest. If any of the following circumstances or events arise, the financial position and/or results of the Fund could be materially and adversely affected; as could the availability of tax reliefs to Investors. In such circumstances, Investors could lose all or part of their investment. Additional risks and uncertainties not presently known, or that are deemed to be immaterial, may also have an adverse effect on the Fund and the risks described below do not represent an exhaustive list of risks factors. 1. Investment Risk The value of EIS Qualifying Shares and income from them can go down as well as up. An Investor may not get back the full amount invested and may, therefore, lose some or all of their investment. Assumptions, projections, intentions, illustrations or targets included within the Information Memorandum cannot and do not constitute a definitive forecast of how the Fund and/or its investments will perform, but have been prepared on assumptions that the Manager and Media Adviser consider to be commercially reasonable. All investments of the Fund will be in unquoted media marketing companies. Such companies operate in a competitive market and may not produce the anticipated returns, which could affect an Investor s ability to realise his/her initial investment. Investments made by the Fund are unlikely to be readily realisable and due to their unquoted nature, may be difficult to value. Investor returns will be reliant on the commercial performance of the Companies, the contractual terms entered into with transaction counterparties and Projects, the financial health and performance of such contractual parties and Projects and changes in media trends. The performance of the Fund is contingent on the Manager being able to identify suitable Companies which carry on, and continue to carry on, an EIS Qualifying Trade for the Expected Minimum Period of Trade. There is no guarantee that the objectives of the Fund will be met. The Manager intends to invest the Fund across a portfolio of Companies following consultation with the Media Adviser. However, there is a risk that the Fund s investments will be relatively concentrated and the total return to Investors may therefore be adversely affected by the unfavourable performance of a small number of Companies. The Companies will typically have small management teams and therefore will be dependent to a large degree on the abilities and experience of a small number of people. In the event that the maximum size of the Fund is not raised, there will be less opportunity to diversify investments across a range of different projects, which may increase the volatility of returns. If the 900,000 minimum size of the Fund is not reached by the Closing Date, the Fund may not proceed and Investors monies may be returned without interest. Each Investor should note that it is possible that other taxes or costs may arise for the Investor in connection with its investment in the Fund that are not paid via, or imposed by, the Manager. It may not be possible to meet the investment timetable, which would delay the availability of EIS Relief and the financial year in respect of which a claim for EIS Relief could be made. This could result in funds being returned to Investors, such that EIS Relief would not be obtained in respect of all or part of the Investor s subscription. The returns accruing to the Fund by way of holdings of cash deposits or money market funds will principally be affected by fluctuations of interest rates. 14