You are on page 1of 55

Private Placement Memorandum Confidential LIONHEART HOLDING, INC.

Copy # Issued to:

____________ ____________

Corporate Interests
This Private Placement Memorandum (Memorandum) is furnished to prospective investors on a confidential basis in consideration of an investment interest in Lionheart Holding, Inc (the Company, Corporation), and may not be used for any other purpose. The information contained in this Memorandum has been compiled from sources believed to be reliable, primarily the management of the Corporation, Lionheart Holding, Inc., a Texas Corporation. Statements in this Memorandum are made as of the date of the initial distribution of this Memorandum unless stated otherwise. Neither the delivery of this Memorandum at any time, nor any sale hereunder, will under any circumstances create an implication that the information contained herein is correct as of any time subsequent to such date. In making an investment decision, investors must rely on his or her own examination of the Corporation and terms of the offering, including the merits and risks involved. Prospective investors should not construe the contents of this Memorandum as legal, tax, investment or other advice. Each investor should make his or her own inquiries and consult his or her advisors as to the Corporation and this offering and as to legal, tax and related matters concerning this investment. This offering is not a security offering and/or assets offered hereby have not been, and will not be registered under the Securities Act of 1933, as amended, or the securities laws of any of the states of the United States. NO GUARANTEES ARE MADE BY THE CORPORATION OF ANY KIND IN REGARDS TOWARDS THE INVESTMENT. The investment and/or assets offered hereby have not been approved or disapproved by the securities regulatory authority of any state or by the United States Securities and Exchange Commission, nor has any authority or commission passed upon the accuracy or adequacy of this Memorandum. This Memorandum does not constitute an offer or solicitation in any state or in any other jurisdiction where such offer or solicitation would be unlawful. Any representation to the contrary is unlawful. The assets being offered hereby are being offered under Rule 506, Regulation (D), under the United States Securities and Exchange Commission, which is considered a safe harbor for the private offering exemption of Section 4(2) of the Securities Act. Companies using the Rule 506 exemption can raise an unlimited amount of money. This Memorandum is qualified in its entirety by reference to the Corporate Agreement amongst its Officers and the subscription agreement related thereto, copies of which will be made available upon request and should be reviewed prior to purchasing an interest. If descriptions or

Page 1 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

terms in this Memorandum are inconsistent with or contrary to descriptions or terms in the Corporate Officers Agreement, the Corporate Officers Agreement shall control. No person has been authorized to give any information or to make any representation other than what is contained in this Memorandum and, if given or made, such information or representation must not be relied upon as having been authorized. Information contained in this Memorandum is as of April 2013. The delivery of this Memorandum does not imply that the information herein is correct as of any time other than April 2013. The Corporation and its affiliates reserve the right to modify any of the terms of the offering and the interests described herein. Each potential investor, by accepting delivery of this Memorandum, agrees not to make a photocopy or other copy or to divulge the contents hereof to any person other than a legal, business, investment or tax advisor in connection with obtaining the advice of such person with respect to this offering. Notwithstanding the foregoing, the investor (and each employee, representative or other agent of such investor) may disclose to any and all persons, without limitation of any kind, the discussion of U.S. tax treatment and U.S. tax structure of: (i) the Corporation, and (ii) any transactions described herein, and all materials of any kind (including opinions or other U.S. tax analyses) that are provided to the investor relating to such U.S. tax treatment and U.S. tax structure. Each prospective investor is invited to meet with a representative of the Board of Directors and/ or Corporate Officers to discuss with, ask questions of, and receive answers from, the Corporation concerning the terms and conditions of this offering of interests, and to obtain any additional information, to the extent the Corporation possesses such information or can acquire it without unreasonable effort or expense, necessary to verify the information contained herein. Investment in Corporate Interests will involve significant risks due to, among other things, the nature of the Corporations investments. Investors should have the financial ability and willingness to accept the risks and lack of liquidity that are characteristic of the investment described herein. The Corporation makes no guarantee of any results and or returns to be realized by investing the offering. There will be no public market for the Corporate Interests, and they will not be transferable without the consent of the Corporation. Each purchaser of the Corporate Interests offered hereby must be both an accredited investor within the meaning of Regulation D promulgated by the United States Securities and Exchange Commission under the Securities Act of 1933, as amended, and a qualified purchaser, as defined under the Investment Company Act of 1940, as amended, unless otherwise agreed to by the Corporation. April 2013

Page 2 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Http://Lionheartholding.com

Page 3 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

LIONHEART HOLDING, INC. 2013

TABLE OF CONTENTS
I. EXECUTIVE SUMMARY....................................................................................8 The Corporation ..............................................................................................................8 Investment Approach .......................................................................................................9 Corporate Structure........................................................................................................10 Limited Liability ............................................................................................................10 Raising Capital...............................................................................................................11 Taxation .........................................................................................................................11 Owners & Employees ....................................................................................................11 Public Perception ...........................................................................................................11 II. FIRM AND INVESTMENT PHILOSOPHY.......................................................13 Overview........................................................................................................................13 Geographical Focus .......................................................................................................13 Competitive Advantage .................................................................................................13 Buying Advantage .........................................................................................................14 Sales Advantage ............................................................................................................14 Ability to service a Non-Digitalized Market .................................................................15 Investment Process ........................................................................................................16 Transaction Flow............................................................................................................16 Liquidation Model .........................................................................................................16 Exit Strategy ..................................................................................................................17 Investment Analysis ......................................................................................................18 Small-to-Middle Market Bankruptcy Sales and Non-Performing Assets .....................19 The Domestic Market for Non-performing Investments ...............................................19 III. CORPORATE INVESTMENT PROFESSIONALS AND PARTNERS .............20 The Corporation and Management Company Managed by its officers .....................20 Stacy R. Sutter , Broker / Chief Executive Officer....................................................20 Wayne Lohmeyer, Chief Information Officer............................................................21 Laura L. Sangiri-Kellogg, Chief Real Estate Officer ................................................23 Douglas R. Williamson, Chief Investment Officer / Chief Financial Officer............24 Bernadette M. Canero, VP Operations ......................................................................25 Corporate Partners .........................................................................................................27 First American Title Company ..................................................................................27 Hudson and Marshall Auction House ........................................................................27 Jack OBoyle & Associates .......................................................................................27 Page 4 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Hodgson CPA ............................................................................................................27 Memberships and Affiliations .......................................................................................28 IV. CORPORATE TERMS AND AGREEMENTS ......................................................29 Investment Objective .....................................................................................................29 Corporate Investment Size ............................................................................................29 Profit Distributions ........................................................................................................30 Transfer of Interests .......................................................................................................30 Unrelated Business Taxable Income ..............................................................................30 V. LEGAL AND TAX MATTERS ...........................................................................32 Erisa Investors ...............................................................................................................32 Certain ERISA Considerations: Employee Benefit Plan Regulations ...........................32 Certain Income Tax Considerations ..............................................................................33 Taxation of the Investors ...............................................................................................33 VI. INHERENT FUND RELATED INVESTMENT RISKS ....................................34 Risk Factors ...................................................................................................................34 Investment Risks ...........................................................................................................34 The Corporations Investments May Be Volatile...........................................................34 Government-Entity Risk ................................................................................................34 Management Risks ........................................................................................................35 Liquidity Risks ..............................................................................................................35 Geopolitical Risk ...........................................................................................................36 Distressed and Defaulted Assets Risks ..........................................................................36 Small Company Risk .....................................................................................................37 General Real Estate Risks .............................................................................................37 Risks of Litigation .........................................................................................................38 VII. ACCOUNTING AND REPORTING SECTION .................................................39 Securities Law Matters ..................................................................................................39 In General ......................................................................................................................40 Deductibility of Corporate Investment Expenditures by Non-Corporate Investors. .....41 Application of Rules for Income and Losses from Passive Activities...........................41 Taxation of Tax-Exempt Investors.................................................................................41 Special Considerations for Foreign Investors ................................................................43 U.S. Trade or Business. .............................................................................................43 Withholding Taxes .....................................................................................................43 United States Real Property Interests. .......................................................................44 Other Potential Taxes ................................................................................................44 Tax Audits and Related Matters ....................................................................................45 Page 5 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Tax Shelter Reporting Requirements ............................................................................45 State and Local Income Tax Aspects .............................................................................46 VIII. BUDGET & PROJECTED RETURNS ...............................................................47 Projected Budget (1st Year) ...........................................................................................47 Forecast Projection 2013 - $10MM ...............................................................................49 Forecast Projection 2013 - $20MM ...............................................................................50 Forecast Projection 2014 - $10MM ...............................................................................51 Forecast Projection 2014 - $20MM ...............................................................................52 Forecast Projection 2015 - $10MM ...............................................................................54 Forecast Projection 2015 - $20MM ...............................................................................55

Page 6 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Page 7 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

LIONHEART HOLDING, INC. (2013)

I.

EXECUTIVE SUMMARY

The Corporation
Lionheart Holding, Inc is a commercial real estate company created to buy and sell residential properties at an institutional level given the efficiencies in bank purchasing, computerized sales, and the ability to bundle and sell real estate commercially. The investment objective of the Corporation is to maximize total return on capital by seeking capital appreciation and through the development and management of a diversified portfolio of non-performing, underperforming, or distressed residential assets. The Corporation buys non-performing assets solely from Hedge Funds, Banks, and Financial Institutions, seeking to achieve its objectives primarily through acquiring, then liquidating the assets at a profit using a highly automated sales system. The Corporations liquidation model uses a trifurcated approach to expedite turnarounds and maximize profits; namely bulk, Single Property, and Auction Sales. Lionheart Holding, Incs President and Chief Executive Officer (CEO), Stacy R. Sutter, closed over 395 transactions in 2012 by raising over $39 Million Dollars of real estate for resale. Over the course of the last ten years, Mr. Sutter has raised and sold in excess of $250 Million Dollars of real estate for transactions of this type, evidence of the empirical results and strategic alliances forged during this last decade. Affiliates of the Corporation have owned a controlling interest in several diverse property types for over 15 years. The Corporation invests only in control positions, where it has complete control of the management of the investment, from acquisition to sale. The portfolio is diversified according to the types of organizations from which The Corporation acquires non-performing assets. Track record, proven solution-mechanisms, and strong following notwithstanding, the Corporation intends to maintain its focus on real estate acquisitions in the distressed and nonperforming sector because tightened credit in the real estate market and the volume of foreclosures forecast from purchases by over-leveraged buyers early in the decade provide attractive opportunities for acquisition in 2013.

Page 8 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Investment Approach
Lionheart Holdings, Inc. pursues opportunities judiciously, with discipline, data, and careful analyses. The mid- and long-term opportunities presented by todays avalanche of nonperforming assets, however, are clear. Banks are currently carrying too many non-performing assets forcing banks to buy back these non-performing assets through the foreclosure process. Both Freddie Mac and Fannie Mae institutions have announced bulk sales opportunities for such non-performing assets. According to a recent CoreLogic Report, the residential shadow inventory, as of January 2013, is at 4.2 million units, a supply of 24+ months. The Corporation knows of more than 5,200 banks that are holding non-performing/distressed assets immediately available for purchase. Because these are historically undervalued by the marketplace, such assets offer the prospect of greater appreciation than the assets of more financially stable companies. Market undervaluation in relation to fundamental value results from the difficulties conducting thorough financial analysis of a non-performing asset. If an asset is not producing for the entity that owns it, they are unable to assign a definitive value. Holders of these non-performing assets are aware of the market value before acquiring the underlying property. The Corporation focuses on assets experiencing absolutely no success and profitability. However the entities that will acquire these non-performing assets from the Corporation understand the mandatory need for purchasing these assets in bulk, in order to obtain a financial profit. The Corporations track record over time in the industry offers it other avenues of sale, when one of the entities above is unable to buy a portion of its purchased non-performing assets. Partnering with entities whose goal is to ensure the sale of these assets provides a greater likelihood of profitability for all involved. The Corporation, based on its collective 100 plus years of industry experience, is confident that its investment approach minimizes downside risk while ensuring profitability. Further, for ease of its Partners, closing for these assets is openended while projections to close the acquisition-to-sale process fall within a 90 day time frame of acquisition period. The non-performing assets in which the Corporation invests shall be sold through a trifurcated approach, as described. Lionheart Holding, Inc is a commercial real estate company created to acquire and dispose of residential property at an institutional level utilizing efficiencies in bank purchasing, computerized sales and the ability to bundle and sell on a commercial scale due to the Officers established relationships and growing network of industry strategists. While some risk is necessarily inherent in such investments, the Corporations disciplined approach capitalizes on underlying value.

Page 9 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Corporate Structure
A Texas corporation is created by filing the Articles of Incorporation with the Texas Secretary of State. The Secretary of State provides a form that meets minimum state law requirements. A corporation is a legal person with the characteristics of limited liability, centralization of management, perpetual duration, and ease of transferability of ownership interests. The owners of a corporation can be characterized as shareholders, and/or investors based on their agreement with the corporation. However, state corporate law does provide for shareholders to enter into shareholders agreements to eliminate the directors and provide for shareholder management. The persons who manage the business and affairs of a corporation are referred to as directors and/or Officers depending on how the corporation is structured. When a corporation is originally chartered by Texas, it exists as a C Corporation. If you do nothing more after forming your Texas Corporation, it will remain a C Corporation. Under Federal Taxation a C Corporation is taxed as a separate entity and must report profits and losses on a corporate tax return. The C Corp pays corporate taxes on its profits while the shareholders are not taxed on the corporations profits. C Corp shareholders report and pay income taxes only on what they are paid by the corporation. When the corporation chooses to pass along any of its after-tax profits to shareholders in the form of dividends, the shareholders must report those dividends as income on their personal tax returns even though the corporation has already paid corporate taxes. Texas C Corporation shareholders do not report any of the business income and expense on their individual tax return. The corporation files tax returns and pays its income taxes (at generally lower tax rates than would individuals) while the individual shareholders report and pay personal income taxes only on monies paid to them by the corporation. It should be noted that shareholders are required to pay personal income taxes on income from dividends paid by a C Corporation even though income taxes have previously been paid by the corporation. This leads to what is commonly referred to as double taxation. Texas C Corporations best serve owners who want the limited liability, a more formal business structure, the ability to reduce overall income taxes and accumulate assets in the business, and ways to more easily raise capital. Official documents must be filed with Texas in order to form a Texas C Corporation.

Limited Liability

Texas C Corporation shareholders normally enjoy limited liability and can lose no more than the amount they invested in the corporation Texas C Corporation shareholders cannot normally be held liable for legal judgments against the corporation or for any of the corporations debts or obligations Protection of Texas C Corporation shareholders personal assets is one of the major reasons business owners choose to incorporate in Texas

Page 10 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Raising Capital

A Texas C Corporation can raise additional capital easier than some of the other types of business since you can issue and sell stock or a variety of other financial instruments as evidence of interest in the corporation The sale of stock is sometimes subject to Texas and Federal securities laws Ownership can be easily transferred by selling stock in the corporation

Taxation

Texas C corporations are normally audited less frequently than sole proprietorships and partnerships Texas C Corporations file tax returns and pay income taxes but since tax rates are lower for C corporations, owners can (by dividing profits) accumulate more in the corporation than is possible with pass-through taxation Texas C Corporation shareholders face double taxation since they are required to pay personal income taxes on dividends paid them by the corporation Texas C Corporations can reduce owners self employment taxes

Owners & Employees

Owners working for the Texas C Corporation are employees and are therefore eligible for certain fringe benefits such as group insurance plans, retirement and profit sharing plans, and tax-favored stock option and bonus plans Employees frequently prefer to work for a corporation that can offer them stock options and stock bonuses In a sense a Texas C Corporation is immortal and perpetual since it does not end with the death of a shareholder owner as do some of the other business types

Public Perception

The general public normally thinks of corporations as being more substantial than sole proprietorships and partnerships

Page 11 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Page 12 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

II. FIRM AND INVESTMENT PHILOSOPHY


Overview
The investment objective of the Corporation is to maximize total return on capital by seeking capital appreciation through the development and management of a diversified portfolio of nonperforming, underperforming, or distressed residential assets. The Corporations investment strategy is to purchase assets from state and regional banks offering a discounted rate on the written-down value. Thereafter, the Corporation intends to resell the assets at 15%-20% of the retail value in an up market. The current management team has been together for the last 5 years. All additional Officers who have joined the Corporation have been in the real estate industry for over 15 years and have worked with the current Management Team for the last ten years. Collectively, the current Management Team has more than 100 years of experience in the real estate industry. Lionheart Holding, Inc. is a virtual hybrid Corporation allowing the Corporation to expedite the Purchase-to-Sale process when compared to the larger, more traditional Companies. Due to the Corporations exceptionally experienced management team and its green process, it is able to capture market trends and act significantly more responsively than its industry competitors. Lionheart Holding, Inc. has a custom-built computerized system that drives a more efficient marketing process, resulting in a more efficient resale process. In addition, Lionheart Holding, Inc. works with institutional buyers to sell in bulk, at a commercial level.

Geographical Focus
The Corporation is focused on investing in non-performing and distressed assets in Texas and other Non-Judicial states, primarily in the Midwest.

Competitive Advantage
Lionheart Holdings, Inc. is currently in a market environment of low interest rates and low inventory, driving real estate costs to increase significantly. Thus, market environment has been dictating a drastic economic turn-around, causing an astronomical demand for housing. The Corporations select and discriminating management team has more than a century of real estate experience between them, and as much wisdom in the market. More importantly, the Corporation holds the singular ability to liquidate a large inventory in an expedited Purchase-toSale process. Lionheart Holding, Inc. also places value in the fact it will be investing in hard, tangible assets.

Page 13 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Buying Advantage
The Corporation offers the significant buying advantage of a virtually undiscovered niche market: the small and regional banks not being serviced by the large asset disposition companies. With an experienced and trusted management group, the Corporation can track its ability to negotiate notably attractive purchase prices for its investors. More importantly, Lionheart Holding, Inc. has an in-house asset management team with nation-wide real estate experience overseeing all asset pricing and evaluation.

Sales Advantage
Potential sales of assets acquired by the Corporation shall be closed with maximum efficiency by the exceptional sales team and its extensive years of residential and commercial sales experience in bulk real estate transactions and negotiations. Lionheart Holding, Inc. has efficiencies in property maintenance, including boarding, initial and recurring property services, waste, and trash removal. Lionheart Holding, Inc. has a longstanding relationship with Jack O Boyle & Associates, one of the nations largest and top foreclosure law firms. Attorney OBoyle, Freddie Macs attorney, i is known for highly personalized cradle-to-grave eviction services and has associates in all 50 states. This relationship allows Lionheart Holding, Inc. to efficiently purchase and maintain real estate, regardless of the occupancy status. Lionheart Holding, Inc. has a proprietary computer system t designed to streamline the buying process and which allows the Corporations clients to customize their own applications. By design, the system enables clients to mix and match their property portfolios. With maximum efficiency in mind, the Corporation has streamlined the entire process with the following:

Active and Sold Comparables Rental Comparables by neighborhood Tax records Up to100 date-stamped photographs of an asset Professionally-prepared Broker Price Option (BPO) Estimated repair list Previous MLS Listings, as available

Page 14 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Ability to service a Non-Digitalized Market


The Auction Process will commence 120 days after the Property has first been listed. The Property shall be listed with the nations largest real estate Auction House, Hudson and Marshall. The cost servicing the auction is at maximum efficiency since the price to sell is zero. Hudson and Marshall is producing 70-73% of the current market list price in Absolute Auction. All auction houses primary revenue stream for servicing is from retention of buyers premiums. Either liquidation model has the potential to yield a net-profit between 20-30% of the original purchase price. The Corporation holds a very sound investment thesis; Lionheart Holding, Inc. has the ability to buy and sell residential properties that carry a non-performing asset status at an institutional level, with innovative systems that allow for quick inventory rotation and reinvestment. The most significant criteria for the Corporation, when seeking its target assets, is price selection. The Corporation will acquire non-performing assets exclusively at a substantial discount on the written-down value. The Corporations liquidation model sets forth a trifurcated approach to expedited turnarounds and significant profits, specifically Bulk Sales, Single Property Sales, and Auction Sales. Lionheart Holding, Incs President and CEO (Chief Executive Officer), Stacy R. Sutter, closed over 395 transactions in 2012 by raising over $39 Million for the purchase and resale of commercial real estate. Affiliates of the Corporation have owned a controlling interest in several diverse property types for over 15 years. The Corporation targets financially non-performing assets, such as residential properties, by purchasing said properties from Hedge Funds, Banks, and Financial Institutions for liquidation through Bulk Sales, Single Property Sales, & Auction Sales. The Corporation will invest only in control positions where it will be in complete control in the management of the investment from acquisition to sale. The portfolio will also be diversified as to the different branches from which The Corporation plans to acquire such nonperforming assets. Tightened credit in the real estate market and the increase of foreclosures anticipated from purchases by over-leveraged buyers have provided financially attractive opportunities for acquisition in 2013. The Corporation intends to focus on real estate acquisitions in the distressed and non-performing sector. Lionheart Holding, Inc. holds a proprietary computer system that has been implemented to streamline the buying process allowing the Corporations clients to build their own packages. The computer system allows the client to mix and match their property portfolio allowing them appropriate time to complete their due diligence.

Page 15 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Investment Process
Key elements of the Corporations investment process include: (i) identification of nonperforming assets, (ii) acquisition at a discounted, current written-down value, (iii) implementation of one of the three Liquidation models. With the Corporations 100 years of collective real estate negotiation experience, the process will be one of due diligence and keen evaluation of each individual property, conducted by in-house managers at the time of purchase. Local REO Brokers, with expertise in the local real estate market, will provide the Broker Price Opinions (BPO). These BPOs contain essential information relevant to the property. Upon receipt of the BPO, in-house Asset Managers evaluate the price, condition, and profitability margins of the property, for further classification.

Transaction Flow
The flow of transactions begins with the banks ownership of non-performing assets (NPA) that meet the Corporations specific criteria, maximizing investor profitability. Based on the evaluation of its in-house asset managers, the Corporation will negotiate a substantially discounted price to acquire properties, at which point First American Title will begin title research, to confirm clear title or remedy any encumbrances that might hinder the title transfer process. The Broker Price Opinion (BPO) is then ordered, to further assist with the asset aid evaluation process.. The BPOs are ordered from a local real estate professional. Next, the Corporation develops a package of real estate non-performing assets to be listed on the website for bulk liquidation. After 60 days, if the property is not sold in bulk liquidation, the property will be transferred to the one-off sales team, which will assign it to a local real estate professional for sale in the area market. If the asset has not sold 60 days after this listing, it will be listed with Hudson and Marshall Auction House for final liquidation. Currently Hudson and Marshall is receiving 70-73% of list price in an absolute sale.

Liquidation Model
The Corporation targets financially non-performing assets, purchasing them from Hedge Funds, Banks, and Financial Institutions. In turn, the Corporation liquidates them through Bulk Sales, Single Property Sales, and Auction Sales.

(i)

Bulk Sales begin with the Title Companies performing due diligence and initiating a proper title check of each property to ensure clear and unencumbered title. Thereafter, the Broker Price Opinion (BPO) is ordered through the Broker Network who will perform a Property Evaluation. Investors shall register and deposit $50,000 into a non-refundable trust account for 6-months. These deposits shall be credited to

Page 16 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

the purchase price if the transaction closes. Within the 6-month period from when the deposit is placed into the trust account, the Properties shall be listed for sale. Investors have the ability to build their own asset packages and bundles. Investors shall be given full and complete access to all information for their own15 - 30 day due diligence. All closings shall be done on a cash only basis and the deposited credit of $50,000 shall be credited towards the purchase price.

(ii)

Single Property Sales begin with the Real Estate Owned (REO) Attorney who initiates the foreclosure process, if necessary. As stated, Lionheart Holding, Inc. has a longstanding relationship with Jack O Boyle & Associates, one of the nations largest and top foreclosure law firms. Attorney OBoyle is Freddie Macs Attorney because of his long standing highly personalized and cradle-to-grave eviction services with associates in all 50 states. If the foreclosure process is not necessary, then the one off sales team will assign the property to a local real estate professional who has 60 days and a single price reduction, to have the asset placed under contract for purchase. Upon the success of the local real estate professional, the Title Company will immediately close the transaction. The Corporations Officers have had significant relationships with First American Title Company for more 15 years and for over 120 years, First American has offered its services through direct operations and a network of qualified agents across the United States and internationally. In the extremely unlikely event that any property is unable to be sold within the 60-day period allotted, the property shall be immediately listed with the Auction House Partner, Hudson and Marshall, for Absolute Sale.

(iii)Properties that have not been sold through the Single Property sales process, will be
listed with the Auction House, Hudson and Marshall, for Absolute Sale. Hudson & Marshall is the most experienced and trusted leader in the REO auction industry, having sold over 80,000 homes in the past ten years. Moreover, during the past five years alone, Hudson & Marshalls total sales topped $3.5 billion dollars. The auction process will commence 60 days after the Property has first been listed. Cost servicing the auction is at maximum efficiency since the price to sell is zero. Hudson and Marshall is producing 70-73% of the current market list price in an Absolute Auction. All auction houses primary revenue stream for servicing auctions is earned through retaining a 5% buyers premiums.

Exit Strategy
The Corporation has a 3 Option Exit Strategy.

Page 17 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Option 1: By the end of year 2, all the original funds shall be returned to the investors. Projections assume that the investment group shall continue to share in the profits and the Company will continue to expand and grow while liquidating properties. Option 2: With increased and successful returns, an Investment Fund may elect to purchase Lionheart Holding, Inc. Option 3: If market competition grows at an exponential rate, the Corporation will elect to take proceeds and dissolve Lionheart Holding, Inc. while, satisfying investors. More importantly, the Corporation shall assess the market and anticipate any material changes in the real estate market, which shall allow the Corporation to maneuver with market opportunities. Any principal investments returns are contingent upon returns actually being realized on the principal contribution.

Investment Analysis
Sound corporations must first identify attractive investment opportunities. Next they should conduct rigorous due diligence, to identify the prospective risks and rewards of the investment. However, with this opportunity, the Corporation has already completed all the research and development needed to identify, understand, and vet-out the investment in non-performing assets. The liquidation analysis is an essential component of the due diligence process, as it enables the corporation to clearly define the true downside of the investment opportunity. Once again, the Corporation has identified a proven, profitable liquidation structure based on its Officers collective experiences and relationships. Investors will have a very competitive advantage with profitable returns since the Corporation has completed the due diligence of acquiring and selling non-performing assets. The Corporation has consulted and performed financial investments of this sort with vendors and other financial institutions involved in order to understand the investment opportunity and the sources of efficient profitability. These relationships have assisted in identifying a critical process for targeting cost reductions for potentially maximizing the profitability that shall yield the most efficient and highest profit on the investment. The due diligence process is managed by investment professionals. Typically, a comprehensive transaction summary is prepared, including third-party analyses, and/or valuation opinions.

Page 18 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Small-to-Middle Market Bankruptcy Sales and Non-Performing Assets


The Corporation is in an exceptional position to benefit from the increased supply of small-tomiddle market investment opportunities presented by the economic downturn of the last few years. The rise in residential bankruptcies and the pressure homeowners and various financial entities have felt to rid themselves of non-performing assets have resulted in a marked increase in private equity opportunities for investment in bankruptcy sales and/or non-performing assets. The Corporation possesses the experience and expertise to work closely with the financial institutions in acquiring such assets and monetizing them through its liquidation model.

The Domestic Market for Non-performing Investments


The Corporation believes that the non-performing asset markets are likely to continue to present favorable investment opportunities for experienced investors in the coming years . Furthermore, the financial institutions have reacted strongly to widespread discoveries of these nonperforming assets and are requiring banks to reacquire them. The Corporation believes it will be able to generate attractive returns for its Investors. The Corporations investment strategy is focused on acquiring assets at a substantially discounted rate to sell at a profit. Due to the investment strategy, the Partners active participation, and vast experience in the market, the Corporation believes its investment opportunities and deal flow will remain strong, as a result of the untapped investment opportunity to which investors have not had ready access.

Page 19 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

III. CORPORATE INVESTMENT PROFESSIONALS AND PARTNERS


The Corporation and Management Company Managed by its officers
Stacy R. Sutter , Broker / Chief Executive Officer
Successful entrepreneurs seize opportunities, capitalize on experience, and create their good fortune. Stacy Sutter is one of those individuals. Stacy Sutters broad bandwidth has put his real estate firm, Big City Properties, in the Wall Street Journals Top 50 real estate teams in the Country, made him an acclaimed industry trainer and business coach, author, designer of an online real estate application, and more. Sutters work ethic and desire to go places launched him into business during his school years. His tenacity and charisma have helped fuel his long record of achievement and recognition, along with his keen eye for opportunity and risk assessment. Sutter put himself through college as a restaurant manager for Hyatt Hotels and Brinker Internationals Chilis Restaurants. He continued in the restaurant industry after graduation, working his way through management, accounting, and training. Sutter founded Concept Consultants International, a restaurant consulting company that helped hire, train, build-out, and open fast food concepts around the world for franchisees. Choosing to move into a real estate, Sutter sold his business and, in his first year with Keller Williams, earned the coveted Rookie of the Year award, with $5 million in closed volume. As he continued to build his business in the Houston real estate market, Sutter developed an interest in the REO sector, carving out a niche in the market and becoming known as the HUD Specialist. Before long, Sutter started Big City Properties, Inc building a base of investment and resale clients, many of whom continue to work with Big City Properties to this day. Big City Properties is responsible for closing hundreds of millions of dollars in residential real estate and, in 2012 was name one of the Top 50 Real Estate Teams in the Country by The Wall Street Journal and DS News and in the Top Ten Teams, as reported by The Houston Business Journal for the past two years. Sutter has taken Big City Properties from a single-account / single-agent company to one that represents 15 different REO companies, including Fannie Mae, Freddie Mac,

Page 20 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

VA, and Bank of America, to name a few, with a small, agile staff of 13 posting over a $1 million in gross commissions earned. Sutter lives in Houston Heights, a historic neighborhood, with his incredibly patient wife Kay and their two wonderful Scotties, Maggie and Duffy.

Wayne Lohmeyer, Chief Information Officer


Wayne Lohmeyer is equally deft at developing people and systems to optimize results. Forty years of corporate experience, in Information Technology (IT), public education, real estate, and aviation, at successively higher executive levels, have equipped Lohmeyer to contribute significantly to todays opportunities. For the last ten years, Lohmeyer has held positions with Keller Williams Realty, from business office Team Leader, to Realtor business coach and new agent trainer. In 2010, Lohmeyer joined Big City Properties as the Sales and Marketing Manager, a new and essential role to the business model. When challenged with an inefficiency, Lohmeyer sets in motion processes to identify and engage best practices for resolution.. Among his strengths are the ability to delegate and manage, inspire results, and maintain a strong focus on ethics. Lohmeyer has also consistently demonstrated exceptional skill with complex project management, most recently managing a real estate office of 200 Agents profitably. When challenged with building and managing a new sales team for Big City Properties, Lohmeyers team was instrumental in nearly doubling the revenue and sales volume of the company in the first 12 months, while expanding the client database from 1200 to more than 9500 contacts. Lohmeyer moved Big City Properties into the 21 Century in a few, short months, taking it paperless and introducing the effective use of virtual assistants, positively transforming business flow and cost-savings. Additionally, Loymeyer automated the process of collecting and reporting repairs on client properties, which resulted in a standardized iPad application that ensures repair cost estimates reported from the field are consistent and, therefore, more accurate. To date, the application has been licensed to seven companies. Wayne lives in Houston, Texas with his wife Septra and enjoys piloting his own airplane.

Page 21 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Page 22 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Laura L. Sangiri-Kellogg, Chief Real Estate Officer


Laura L. Sangiri-Kellogg has poured her entire professional career into real estate, from traditional residential real estate, to corporate relocation, to distressed asset disposition, and has earned awards and recognition at every turn. Originally licensed in Illinois, Sangiri-Kellogg moved her expertise into the Dallas/Fort Worth real estate market in 1982, becoming a member of the corporate relocation and listing teams that successfully managed the JC Penney move from New York to, Texas and earning her way into the Diamond Circle Winners-Club, an award reserved for top Agents. In addition, Sangiri-Kellogg served as a Home Finding Counselor, helping international buyers and seller moving to or from North Central Texas. She won awards from PHH, USAA, and several smaller relocation companies for her extraordinary work. On average, Sangiri-Kellogg managed a case load of 450 transferees per year, for the entire Dallas/Fort Worth Metropolitan area. While completing her CRP (Certified Relocation Professional) designation, Sangiri-Kellogg joined a start-up venture working to dispose of foreclosed assets for GSEs, across the United States, Guam, Puerto Rico, and the Virgin Islands. Ultimately, the company became known as Vendor Resource Management (VRM), one of the largest and most respected REO Outsourcing companies in the industry. During Sangiri-Kelloggs tenure with VRM, she served as Senior Asset Manager and Sales Specialist, known widely for her professionalism, knowledge and exceptional customer service. Sangiri-Kellogg excels at the analysis, acquisition, holding, management, and disposition of residential properties through multiple market cycles, with the tenacity to maintain focus on the end goal regardless of market position. Sangiri-Kellogg is a Five Star Residential Property Manager; Certified VRM REO and BPO Agent, certified to handle Government and GSE accounts, and Chase Priority Partner with the NAR Single Family Residence designation in process. Sangiri-Kellogg is President of the River Bend Lake Front Owners HOA, former WCR (Womens Council of Realtors) Officer. SangiriKellogg also believes in giving back to the community: her motto, Supporting communities, one home at a time. She is a volunteer ESL (English for Speakers of Other Languages) Instructor, and a former Circle 10 Boy Scout Leader..

Page 23 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Laura is the mother of three, step mom to three, and has six wonderful grandchildren.

Douglas R. Williamson, Chief Investment Officer / Chief Financial Officer


Douglas R. Williamson is a veteran of the Mortgage Servicing and Default Management Life Cycle Industries, with 25+ years of progressive executive responsibilities and disposition or tens of thousands of REO assets. Williamsons experience has spanned Servicing Operations, Customer Service, Collections, Foreclosure, Bankruptcy, and REO Asset Management and Disposition sectors, where he has been lauded for the vital role he has played successfully overseeing complex, cross-functional programs. Williamson has earned the Project Management Professional (PMP) and Six Sigma Green Belt certifications, and served as Corporate General Counsel Servicing Liaison in multiple organizations. Mr. Williamsons role in successfully overseeing asset disposition for dozens of investor owners has been to ascertain their individual risk and loss tolerances, tailoring asset sales in the respective pools that best suit their unique parameters. His overarching perspective is that each asset, like each client, is unique and requires a specific approach to disposition. Williamsons Management Consulting Career brought him recognition as an expert in Business Impact Analysis. He was consistently called upon to conduct meetings and discussions with C-level company executives in the healthcare industry, oil field operations, telecommunications, insurance, and industrial manufacturing. He has applied this experience and business acumen to author winning responses to many commercial and government contracts, including his most recent award, the fiveyear, $ 1 Billion Department of Veterans Affairs REO and Portfolio Servicing Contract. Having a computer networking (IT) background, Williamson is adept at using technology and software as powerful tools to facilitate business management, budgeting, reporting, communications, and executive-level presentations. Combining his technology capabilities with his Asset Management expertise, he has served in the Subject Matter Expert (SME) capacity on multiple REO Management Systems. Williamsons philanthropic work centers around the Career Search Network (CSN), (http:// www.careersearchnetwork.org), a non-profit organization he co-founded in 2009. CSN is a completely self-supporting entity focused on helping displaced workers throughout the D/FW area meet others, in a positive, supportive setting, and providing opportunities for networking, at no cost

Page 24 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

to the job seeker. Initially, serving as the organizations COO, Williamson now volunteers in the CIO capacity.
Doug Williamson lives with his wife Margot in Fort Worth, Texas and is an avid Barbershop Quartet Singer.

Bernadette M. Canero, VP Operations


Bernadette M. Canero has skillfully and consistently applied the principles of her industrial engineering degree throughout her career, developing, improving, implementing, and analyzing resource utilization, flow, and management for optimal, objective results. Canero is a master of organizational business processes, strategies, and resource development. With her international business experience, Canero has also provided an invaluable dimensional perspective in her work. Canero first demonstrated her intuitive management skills in her native Baguio City, Philippines,, where she was moved from personnel management to Operation Manager in less than a year. Working for the citys largest residential housing concern, Canero handled operations for business units under the corporate umbrella. Texas Instrument Philippines, Inc. snapped up Canero, to work as a Quality Control Engineer, where she was responsible for IC program changes and updates, to adhere to client specifications for function and quality.. Whether optimizing circuit board or sales systems, Canero designs and manages exceptional business results. Worldwide Warehousing, Inc. (WWI), a Canadian firm that opened a branch in Baguio City, Philippines, hired Canero to supervise its launch sales team. From supervising the small team, Canero was quickly promoted to operations where she single handedly restructured operations, opening the companys ability to open branches throughout the major cities in the Philippines and expand into Guam and Saipan, USA. In March 2011, Canero was drafted by Big City Properties Inc. to provide her operational management expertise, first in the companys new system flow, then in its transition to a virtual company. This single component has led to a smooth working relationship between the Houston and Philippine teams. As Operations Manager, Ms. Canero controls a major portion of Big City Properties property management people and processes and has succeeded in raising the teams task-scoring to the 95% range.

Page 25 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Ms. Canero lives in Baguio City, Philippines.

Page 26 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Corporate Partners
First American Title Company With experience dating back to 1889, First American offers its services through direct operations and a network of qualified agents across the United States as well as internationally. Hudson and Marshall Auction House
As the nations largest real estate foreclosure auction house, Hudson and Marshall handle all the marketing and liquidation of the Corporation. The Corporation has negotiated with Hudson and Marshall to auction off their non-performing assets for a zero cost to the Corporation. Hudson & Marshall will receive their profits by retaining a 5% buyers premium generated from the sale.

Jack OBoyle & Associates


Jack O Boyle and Associates has entities and is able to do business in all 50 states. This more easily and efficiently allows for the Corporation to expand and acquire non-performing assets in other states outside of Texas. This law firm encompasses over 30 years of experience in the REO industry. Jack O Boyle and Associates has practiced law and maintained an exclusive concentration in foreclosure law.

Hodgson CPA
A Houston based Certified Public Accounting Firm provides Certified Public Accountant services and professional tax preparation and planning services for individuals and businesses. More than a traditional accounting company, they are a business advisory firm with International Experience. Hodgson CPA has

Page 27 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

provided financial analysis, quarterly financials and conduct yearly audits. Memberships and Affiliations

National Association of Realtors Texas Association of Realtors Houston Association of Realtors Elite REO 5 Star Institute Freddie Mac - Circle of Excellence National Association of Hispanic Realtors Katy Chamber of Commerce Heights Chamber of Commerce

Page 28 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

IV.

CORPORATE TERMS AND AGREEMENTS

Investment Objective
The investment objective of the Corporation is to maximize total return on capital by seeking capital appreciation through the development and management of a diversified portfolio of nonperforming assets, underperforming assets or distressed residential assets. The Corporations investment strategy is to purchase assets from state and regional banks offering a discounted rate on the written down value. Thereafter, the Corporation intends to resell the assets at a 15%-20% of the retail value in an up market. The current management team has been together for the last 5 years. All additional Officers who have joined the Corporation have been in the real estate industry for over 15 years and have worked with the Current Management Team for the last 10 years. Collectively, the Current Management Team has over 100 collective years of experience in the real estate industry. Lionheart Holding, Inc. is a virtual hybrid Corporation which allows the Corporation to expedite the Purchase to Sale process compared to the larger, more traditional Companies. Due to the Corporations vastly experienced management team and a green process, the Corporation is able to capture the market trends and act at a much faster rate than any industry competitors. Lionheart Holding, Inc. has a custom built computerized system that allows for a more efficient marketing process, which inevitably allows for a more efficient resale process. In addition, Lionheart Holding, Inc.s works with institutional buyers to sell in bulk at a commercial level. Lionheart Holding, Inc. has a custom built, computerized system that allows for a more efficient marketing process which inevitably allows for a more efficient resale process. In addition, Lionheart Holding, Inc.s relationship with institutional buyers allows Lionheart Holding, Inc. to sell in bulk at a commercial level. The Corporation seeks to purchase the non-performing assets and other obligations at substantial discounts to their original value, in situations where the Corporation believes that the underlying asset values protect the cost of the investment, realizing gains through sale after value is recognized in the market.

Corporate Investment Size


The Corporation is seeking an aggregate initial capital commitment for the Corporation of between Five Million Dollars ($5,000,000) and Twenty Million Dollars ($20,000,000) from accredited investors. Aggregate commitments in excess of (or less than) this amount may be accepted at the discretion of the Corporation. Returns on any investment for the Investor shall be outlined in a mutually agreed upon Investors Agreement and/or Equity Partners Agreement.

Page 29 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Prot Distributions
Profits shall be distributed to all investors at a level that commensurate with investor terms outlined in investors agreement. Said shares will be distributed to all investors on a Quarterly basis of the Corporations Annual Fiscal Year. Income, gain, loss, deduction and credit of the Corporation will be allocated for Federal income tax and book purposes in a manner, which generally conforms to the foregoing distribution provisions. Thus, income and gain will generally be allocated to offset certain loss allocations. Such income and gain will then be allocated to the Investor Agreement. Losses will generally be allocated to reverse the foregoing allocations of income and gain and then to all Investors in proportion to their capital contributions. The minimum capital commitment of an Investor will be Five Million Dollars USD ($5,000,000), although commitments of lesser amounts may be accepted at the discretion of the Corporation. An initial closing of this offer by the Corporation will be held as soon as practicable after the Corporation determines that a sufficient minimum amount of commitments has been obtained. Additional commitments may be added at the discretion of the Corporation for up to 270 days after the Initial Closing. The Corporation will pay all costs and expenses relating to the Corporation's activities (to the extent not reimbursed in connection with an investment), including legal, auditing, consulting, research and accounting expenses, other expenses associated with the sourcing, acquiring, holding and disposing of its investments or proposed investments, expenses incurred in collection of monies owed to the Corporation, expenses of its Officers, any taxes, fees or other governmental charges levied against the Corporation or any Special Purpose Vehicle or Alternative Investment Vehicle, extraordinary expenses (such as litigation-related and indemnification expenses) and expenses substantially comparable to the foregoing.

Transfer of Interests
No Investor may sell, assign, pledge or otherwise dispose of its Interests without the prior written consent of the Corporation in its sole discretion. An Investor desiring to affect a transfer must also comply with certain requirements of the Corporation. No trading market will exist for the Investors Interests.

Unrelated Business Taxable Income


The Corporation will use its reasonable best efforts not to make any investment, incur any liabilities, or otherwise take actions that would generate unrelated business taxable income ("UBTI"). However, the Corporation may cause itself to make such investment, incur such

Page 30 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

liability or take such actions; provided that such UBTI will not be material in light of the anticipated return on any such investment. UBTI will be considered material if the anticipated amount of UBTI from an investment exceeds ten percent (10%) of the anticipated income from such investment.

Page 31 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

V. LEGAL AND TAX MATTERS


Erisa Investors
Investors subject to ERISA should consult their own ERISA and tax advisors as to the consequences of an investment in the Corporation. The Corporation may require certain representations or assurances from investors subject to ERISA to determine compliance with ERISA provisions. The Corporation will use its reasonable best efforts to conduct the affairs and operations of the Corporation. The Corporation issues no pension plans to its Officers, thus ERISA does not apply to the Corporation.

Certain ERISA Considerations: Employee Benet Plan Regulations


Fiduciaries of employee benefit plans ("ERISA Plans") subject to Title I of ERISA and Section 4975 of the Code should consult their advisors regarding the impact of ERISA and the Code on an investment in the Corporation. Among other considerations, a fiduciary of a prospective ERISA Plan investor should take into account whether an investment in the Corporation is permitted under the ERISA Plan's governing instruments; the impact of the investment on the overall diversification of the ERISA Plan's assets; the cash flow needs of the ERISA Plan and the effects thereon of the illiquidity of the investment; the fact that the Corporation is expected to consist of a diverse group of investors; the tax effects and risks of the investment described above, neither the Corporation nor any of its affiliates, representatives, agents or employees will be acting as a fiduciary under ERISA to the ERISA Plan, either with respect to the ERISA Plan's purchase or retention of its investment or with respect to the management, business operations, and assets of the Corporation. Under a regulation issued by the United States Department of Labor (the "Regulation"), the assets of an ERISA Plan investor in the Corporation will be deemed to include an undivided interest in each of the underlying assets of the Corporation, unless equity participation in the Corporation by benefit plan investors is not significant or the Corporation qualifies as a venture capital operating company. If the Corporation were deemed to hold plan assets, ERISA's prohibited transaction restrictions and prudence and other fiduciary standards would apply to the investments and operation of the Corporation. In order to qualify as a venture capital operating company within the meaning of the Regulation, the Corporation must, on its initial valuation date and during each annual valuation period, have at least fifty percent (50%) of its assets (valued at cost) invested in operating companies with respect to which the Corporation has or obtains direct contractual rights to substantially

Page 32 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

participate in, or substantially influence the conduct of, the management of the operating company, and must, in the ordinary course of its business, exercise its management rights with respect to one or more of its portfolio investments. The Regulation defines an "operating company" as a company which is engaged in the production or sale of a product or service other than the investment of capital. The Corporation does not intend on spending the investment on any acquirement of companies. Thus, ERISA does not apply to the Corporation.

Certain Income Tax Considerations


The following is a general discussion of certain significant Federal income tax consequences of an investment under the Internal Revenue Code of 1986, as amended (the "Code"). The discussion does not deal with all the potential tax consequences of an Investment in Corporation, especially for certain categories of investors that are subject to special rules (such as insurance companies). The discussion is not a substitute for careful tax planning, particularly since certain of the Federal income tax consequences of an investment in Corporation will vary from investor to investor, depending upon the investors own particular circumstances. This discussion is based upon the Code, administrative rulings, judicial decisions and Treasury Regulations as in effect on the date hereof, all of which are subject to change (possibly with retroactive effect). IN VIEW OF THE FOREGOING, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING ALL THE FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES OF AN INVESTMENT IN CORPORATION WITH SPECIFIC REFERENCE TO SUCH INVESTOR'S OWN PARTICULAR TAX SITUATION AND RECENT CHANGES IN APPLICABLE LAW.

Taxation of the Investors


The Corporation will be subject to Federal income tax. However, each Investor will be required to separately take into account on its own Federal income tax return in computing its Federal income tax liability each year its distributive share of income, gain, loss, deduction, credit and items of tax preference for the taxable year of the Corporations year ending within or with such taxable year of the Investor, regardless of whether the Corporation makes any cash distributions during that year.

Page 33 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

VI.

INHERENT FUND RELATED INVESTMENT RISKS

Risk Factors
The statements made in this Memorandum regarding the future activity and opportunities in the distressed assets market are forward-looking statements. The matters discussed in such statements may be affected by a number of events, including general market and economic conditions and the other factors described in this Memorandum and in this Risk Factors section. Prospective investors are urged to read this section, which should be considered, before making an investment in the Corporation.

Investment Risks
All Corporation investments risk the loss of capital. The Corporation believes that its investment program and research techniques moderate this risk through a careful selection of real estate, equity interests, debt and other financial instruments and assets. No guarantee or representation is made that the Corporations program will be successful. There are several risks inherent in such investments, some of which are specifically referenced below. Not only are such investments subject to investment-specific price fluctuations but also to macro-economic, market and industry-specific conditions. No assurance can be given as to when or whether adverse events might occur which could cause significant and immediate loss in value of Corporation's portfolio.

The Corporations Investments May Be Volatile


A principal risk in investing in distressed assets is the traditional volatility in the market prices of such assets.

Government-Entity Risk
Some U.S. Government securities, such as Treasury bills, notes and bonds are mortgages-backed Securities guaranteed by the Government National Mortgage Association (Ginnie Mae), are supported by the right of the issuer to borrow from the U.S. Treasury; others are supported by the discretionary authority of the U.S. Government to purchase the agencys obligations; still others are supported only by the credit of the issuing agency, instrumentality, or enterprise. Although U.S. Government-sponsored enterprises (GSEs), such as the Federal Home Loan Banks, Freddie Mac, Fannie Mae and the Student Loan Marketing Association (Sallie Mae) may be chartered or sponsored by Congress, they are not funded by Congressional appropriations, and

Page 34 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

their Securities are not issued by the U.S. Treasury or supported by the full faith and credit of the U.S. Government and involve increased credit risks. Although legislation has been enacted to support certain GSE, including the Federal Home Loan Banks, Freddie Mac, Fannie Mae, there is no assurance that GSE obligations will be satisfied in full, or that such obligations will not decrease in value or default. It is difficult, if not impossible; to predict the future political, regulatory or economic changes that could impact GSEs and the values of their related securities or obligations. In addition, certain governmental entities have been subject to regulatory scrutiny regarding their accounting policies and practices and other concerns that may result in legislation, changes in regulatory oversight and/or other consequences that could adversely affect the credit quality, availability or investment character of securities issued or guaranteed by these entities.

Management Risks
The Corporations ability to identify and invest in attractive opportunities is dependent upon the Officers. If one or more key individuals leave the Officers, it may not be able to hire qualified replacements, or may require an extended time to do so. This could prevent the Corporation from achieving its investment objectives. As with any officer managed corporation, the Officers may not be successful in selecting the best-performing assets, leverage strategy or investment techniques, and the Corporations performance may lag behind that of similar investments as a result.

Liquidity Risks
Investors will not be permitted to withdraw from the Corporation prior to its termination and interests in the Corporation may be assigned or otherwise transferred only under limited circumstances. At times, a major portion of an issue of non-performing assets may be held by relatively few investors. Under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, the Corporation may find it more difficult to sell such assets when it believes it advisable to do so or may be able to sell such assets only at prices lower than if the assets were more widely held. Illiquid assets are assets that the Officers determine cannot be disposed of within seven days in the ordinary course of business at approximately the value at which the Corporation has valued the assets. Illiquid assets may trade at a discount from comparable, more liquid investments, and may be subject to wide fluctuations in market value. Also, the Corporation may not be able to dispose readily of illiquid assets when that would be beneficial at a favorable time or price or at prices approximating those at which the Corporation currently values them. The absence of trading market can make it difficult to determine a market value for illiquid investments. Disposing of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for the

Page 35 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Corporation to sell them promptly at an acceptable price. The Corporation may have to bear the extra expense of registering such assets for resale and the risk of substantial delay in effecting such registration. In addition, market quotations are less readily available. The judgment of the Officers may at times play a greater role in valuing these assets than in the case of publicly traded assets.

Geopolitical Risk
The wars with Iraq and Afghanistan and similar conflicts and geopolitical developments, their aftermath and continued military presence in Iraq and Afghanistan are likely to have a substantial effect on the U.S. and world economies and securities markets. The nature, scope, and duration of the wars and the potential costs of rebuilding infrastructure cannot be predicted with any certainty. Terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001 closed some of the U.S. securities markets for a four-day period and similar future events cannot be ruled out. The war and occupation, terrorism and related geopolitical risks have led, and may in the future lead, to increased short-term market volatility and may have adverse long-term effects on U.S. and world economies and markets generally. Likewise, natural and environmental disasters, such as the earthquake and tsunami in Japan in early 2011, and systematic market dislocations of the kind surrounding the insolvency of Lehman Brothers in 2008, if repeated, could be highly disruptive to economies and markets. Those events, as well as other changes in foreign and domestic economic and political conditions, also could have an acute effect on individual issuers or related groups of issuers. These risks also could adversely affect individual issuers and securities markets, interest rates, secondary trading, ratings, credit risk, inflation, deflation, and other factors relating to the Corporations investments and the market value.

Distressed and Defaulted Assets Risks


Distressed and defaulted assets generally present the same risks as investment in below investment grade assets. However, in most cases, these risks are of a greater magnitude because of the uncertainties of investing in an issuer undergoing financial distress. An issuer of distressed assets may be in bankruptcy or undergoing some other form of financial restructuring. In any reorganization or liquidation proceeding relating to an investment, the Corporation may lose its entire investment or may be required to accept cash or assets with a value substantially less than its original investment. Interest and/or principal payments on distressed assets may be in default. The Corporation may incur additional expenses to the extent it is required to seek recovery upon a default in the payment of principal or interest on is portfolio holdings. Distressed assets present a risk of loss of principal value, including potentially a total loss. Distressed assets may be highly illiquid and the prices at which distressed assets may be sold

Page 36 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

may represent a substantial discount to what the Officers believe to be the ultimate value of such obligations. It may be difficult to obtain information as to the true financial condition of such issuer.

Small Company Risk


The General risk associated with debt instruments or equity assets are particularly pronounced for assets issued by companies with small market capitalizations. Small capitalization companies involve certain special risks. They are more likely than larger companies to have limited product lines, markets or financial resources, or to depend on a small, inexperienced management group. Assets of smaller companies may trade less frequently and in lesser volume than more widely held assets and their values may fluctuate more sharply than other assets. These assets may therefore be more vulnerable to adverse developments than assets of larger companies, and the Corporation may have difficulty purchasing or selling assets positions in smaller companies at prevailing market prices. Also there may be less publicly available information about smaller companies or less market interest in their assets as compared to larger companies.

General Real Estate Risks


Real estate investments generally will be subject to the risks incident to the ownership and operation of income producing real estate and/or risks incident to the making of non-recourse mortgage loans secured by real estate, including (i) risks associated with the general economic climate; (ii) local real estate conditions; (iii) risks due to dependence on cash flow; (iv) risks and operating problems arising out of the absence of certain construction materials; (v) changes in supply of, or demand for, competing properties in an area (as a result, for instance, of overbuilding); (vi) the financial condition of tenants, buyers and sellers of properties; (vii) changes in availability of debt financing; (viii) energy and supply shortages; (ix) changes in tax, real estate, environmental and zoning laws and regulations beyond the control of the Corporation; (x) various uninsured or uninsurable risks; (xi) natural disasters; and (xii) the ability of the Corporation or third-party borrowers to manage the real properties. With respect to investments in the form of real property owned by the Corporation, the Corporation will incur the burdens of ownership of real property, which include the paying of expenses and taxes, maintaining such property and any improvements thereon and ultimately disposing of such property. With respect to investments in equity or debt assets, the Corporation will in large part be dependent on the ability of third parties to successfully operate the underlying real estate assets. The Corporations investment strategy, which may frequently involve the acquisition of distressed or underperforming assets in a leveraged capital structure, will involve a high degree of legal and financial risk, and there can be no assurance that the Corporation's rate of return objectives will

Page 37 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

be realized or that there will be any return of capital. There is no assurance that there will be a ready market for resale of investments because investments in real estate generally are not liquid. Illiquidity may result from the absence of an established market for the investments, as well as from legal or contractual restrictions on their resale by the Corporation. The possibility of partial or total loss of capital will exist and investors should not subscribe unless they can readily bear the consequences of such loss.

Risks of Litigation
Investing in distressed assets can be a contentious and adversarial process. Different investor groups may have qualitatively different, and frequently conflicting, interests. The Corporation's investment activities may include activities that are hostile in nature and will subject it to the risks of becoming involved in litigation by third parties. The expense of defending against claims against the Corporation by third parties and paying any amounts pursuant to settlements or judgments would be borne by the Corporation and would reduce net assets and could require the partners to return distributed capital and earnings to the Corporation. The Shareholders will be indemnified by the Corporation in connection with such litigation, subject to certain conditions.

Page 38 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

VII. ACCOUNTING AND REPORTING SECTION


Securities Law Matters
The Corporation will not be registered as an investment company under the Company Act, and/ or the Corporation will not be registered as an investment advisor under the Investment Advisers Act of 1940, as amended. Corporate Interests are only available to persons who are "qualified purchasers" as defined in the Company Act. The Corporation is offering Interests to prospective investors in reliance upon an exemption from the registration requirements of the Securities Act set forth in Section 4(2) of such Act. As a result, in order to be able to rely on such exemption, the Corporation will be obtaining from each prospective investor certain representations in connection with a subscription for Interests, including that it is acquiring such Interests for investment and not with a view to resale or distribution and that it is an "accredited investor," as defined in Regulation D of the Securities Act. Further, each investor must be prepared to bear the economic risk of the investment for an indefinite period, because these Interests can be resold only pursuant to an offering registered under the Securities Act or an exemption from such registration requirement. It is extremely unlikely that the Interests will ever be registered under the Securities Act and the Corporation has no obligation to register the Interests. In connection with any acquisition of beneficial ownership by the Corporation of more than five percent (5%) of any class of the equity securities of a company registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Corporation may be required to make certain filings with the Securities and Exchange Commission. Generally, these filings require disclosure of the identity and background of the purchasers, the source and amount of funds used to acquire the securities, the purpose of the transaction, the purchaser's interest in the securities, and any contracts, arrangements or undertakings regarding the securities. In certain circumstances, the Corporation may be required to aggregate certain of the Corporation's investments in a given company with the beneficial ownership of that company's assets held by or on behalf of the Corporation and its affiliates, which could require the Corporation, together with such other parties, to make certain disclosure filings or otherwise restrict the Corporation's activities with respect to such company's assets. If the Corporation, alone or as part of a group acting together for certain purposes, becomes the beneficial owner of more than ten percent (10%) of certain classes of securities of a public company or places a director on the board of directors of such a company, the Corporation may be subject to certain additional reporting requirements and to liability for short-swing profits under Section 16 of the Exchange Act. The Corporation intends to manage its investments so as to avoid the short-swing liability provisions of Section 16 of the Exchange Act.

Page 39 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

In General
Generally, the gains and losses realized by a trader or investor on the sale of assets are capital gains and losses. Thus, subject to the treatment of certain currency exchange gains as ordinary income and certain other transactions, The Corporation expects that its gains and losses from its investments typically will be capital gains and capital losses. These capital gains and losses may be long-term or short-term depending, in general, upon the length of time the Corporation maintains a particular investment position and, in some cases, upon the nature of the transaction. Property held for more than one year generally will be eligible for long-term capital gain or loss treatment. The maximum ordinary income tax rate for individuals is currently thirty-eight point six percent (38.6%)* and, in general, the maximum individual income tax rate for long-term capital gains is twenty percent (20%).** A special individual long-term capital gains tax rate of twenty-five percent (25%) generally applies to the portion of the "depreciation recapture" recognized upon the sale of depreciable real estate held for more than one year. In all cases the actual rates may be higher due to the phase out of certain tax deductions, exemptions and credits. The excess of capital losses over capital gains may be offset against the ordinary income of an individual taxpayer, subject to an annual deduction limitation of Three Thousand Dollars ($3,000). For corporate taxpayers, the maximum income tax rate is thirty-five percent (35%). Capital losses of a corporate taxpayer may be offset only against capital gains, but unused capital losses may be carried back three years (subject to certain limitations) and carried forward five (5) years. The Corporation may also acquire debt obligations with "market discount." Upon disposition of such an obligation, Corporation generally would be required to treat gain realized as interest income to the extent of the market discount, which accrued during the period the debt obligation was held by Corporation. Moreover, if the Corporation were treated as a "dealer" with respect to all or part of its assets (meaning that it was viewed as holding such assets for sale in the ordinary course of its business), then all the gains from such assets would be treated as ordinary income and the Corporation generally would be required to recognize gains and losses with respect to such assets (and other assets not properly designated as being held for investment) on a mark-tomarket basis at the end of each year.
**

Under existing legislation, this rate is reduced in stages until calendar year 2006 when the maximum rate will be thirty-five percent (35%). However, this legislation contains a "sunset" provision that will result in the top rate being restored to thirty-nine point six percent (39.6%) in 2011.
****

The maximum individual long-term capital gains tax rate is eighteen percent (18%) for certain property purchased after December 31, 2000 and held for more than five (5) years.

Page 40 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Deductibility of Corporate Investment Expenditures by NonCorporate Investors.


Accordingly, non-corporate Investors should consult their tax advisors with respect to the application of these limitations.

Application of Rules for Income and Losses from Passive Activities.


The Code restricts the deductibility of losses from a "passive activity" against certain income which is not derived from a passive activity. This restriction applies to individuals, personal service corporations and certain closely held corporations. Pursuant to Temporary Regulations issued by the Treasury Department, income or loss from Corporation's securities investment and trading activity generally will not constitute income or loss from a passive activity. Therefore, passive losses from other sources generally could not be deducted against an Investor's share of such income and gain from the Corporation.

Taxation of Tax-Exempt Investors.


Tax-exempt organizations generally are subject to Federal income tax on their UBTI. Generally, a tax-exempt entity that incurs UBTI is taxed on such income at the regular trust or, in the case of certain entities, corporate Federal income tax rates. Where a tax-exempt entity owns an interest in a corporation, the activities of the corporation are attributed to it for purposes of determining whether the tax-exempt entity's distributive share of corporation income is UBTI. UBTI is defined generally as any gross income derived by a tax-exempt entity from an unrelated trade or business that it regularly carries on, less the deductions directly connected with that trade or business. However, Section 512(b) of the Code provides that interest, dividends, certain rents from real property, gain from the sale of property that is not held for sale to customers in the ordinary course of business and certain other types of income generally are not treated as UBTI. Nevertheless, Section 514 of the Code provides that UBTI includes a percentage of any gross income or gain not otherwise treated as UBTI (less the same percentage of applicable deductions) that is derived from any property that is subject to "acquisition indebtedness." Acquisition indebtedness includes the amount of any mortgage or lien to which property is subject at the time of its acquisition and debt incurred after the acquisition or improvement of any property if the debt would not have been incurred but for such acquisition or improvement and the incurrence of the debt was reasonably foreseeable at the time of the acquisition or

Page 41 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

improvement. The calculation of a particular tax-exempt organization's UBTI is also affected if it incurs indebtedness to finance its investment in Series One. Section 514(c)(9) of the Code excludes from the definition of "acquisition indebtedness" any indebtedness incurred in acquiring or improving real property (but not mortgage loans) that is owned by employee trusts qualified under Section 401 of the Code and certain educational institutions (collectively "Qualified Organizations") if six enumerated conditions are met. Those conditions include (subject to certain exceptions) that the purchase price for the real property be fixed at the time of acquisition, that certain terms of the indebtedness not be dependent upon the income from the real property, that no part of the real property be leased to the seller (or its affiliates), that the real property not be acquired from or leased to certain persons connected with the Qualified Organization, that the real property not be financed by the seller, its affiliates or certain persons connected with the Qualified Organization, unless the financing is on commercially reasonable terms, and that, where the investment is held through a partnership with partners that are not Qualified Organizations, the partnership's tax allocations satisfy certain technical requirements. The amount of UBTI that is realized by tax-exempt Investors will depend on the nature of Corporation's future operations. Although the Corporation will use its reasonable best efforts not to take any action that might generate UBTI, some investments of the Corporation might generate UBTI. For example, it is possible that, in implementing its acquisition and disposition strategy with respect to distressed debt portfolios, the Corporation will be treated as a "dealer" with respect to a portion of the assets in which it invests, in which case all the gain from the disposition of such assets generally would be UBTI. Even if the Corporation were not treated as a dealer as described above, due to the Corporations investment strategy of using leverage in certain circumstances to finance its investments, it is possible that a portion of the income of the Corporation will be UBTI under the acquisition indebtedness rules described above. The Corporation will use reasonable efforts to qualify for the Section 514(c)(9) exception with respect to real estate securities for Investors that are Qualified Organizations. However, it is possible that Corporation will take actions (such as employing certain types of seller financing) which would make the Section 514(c)(9) exception not applicable. Furthermore, UBTI may be generated for reasons unrelated to leverage. Accordingly, it is possible that a portion of the income and gain earned by the Corporation will constitute UBTI, even for Investors that are Qualified Organizations. However, it is expected that any investments which might generate UBTI would be an insignificant part of the Corporation's portfolio.

Page 42 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Special Considerations for Foreign Investors


U.S. Trade or Business.
Section 864(b)(2) of the Code generally provides a safe harbor (the "Safe Harbor") applicable to a foreign corporation (other than a dealer in securities) that engages in the United States in trading assets and/or securities for its own account. Treasury Regulations apply the Safe Harbor where a foreign investor invests in a corporation (both domestic and foreign) that engages in the United States in trading assets and/or securities for its own account. The Corporation intends to conduct its business in a manner so as to meet the requirements of the Safe Harbor. Thus, the Corporation assets trading activities should not constitute a U.S. trade or business and, except in the circumstances discussed below, the Corporation should not be subject to the regular U.S. income tax on any of its trading profits. However, certain investments by the Corporation, for example, investments in real estate or operating businesses conducted in a partnership or another "flow-through" entity may result in the Corporation and a foreign Investor being deemed engaged in a U.S. trade or business. If a foreign Investor is deemed to be engaged in a U.S. trade or business, such foreign Investor would have to file U.S. tax returns and income or gain which is effectively connected to such trade or business would be subject to United States Federal income tax on a net basis. The Corporation expects that it may utilize a Special Purpose Vehicle or an Alternative Investment Vehicle to hold any such investment on behalf of foreign investors and to pay any U.S. taxes thereon; however, no assurance can be given that such structures will eliminate all adverse U.S. income tax consequences for foreign investors, including the requirement to file U.S. income tax returns.

Withholding Taxes
In general, a foreign Investor of a corporation which does not conduct a U.S. trade or business is nonetheless subject to a withholding tax of thirty percent (30%) on the gross amount of certain U.S. source income which is not effectively connected with a U.S. trade or business. Income subject to such a flat tax rate is of a fixed or determinable annual or periodic nature, including dividends and certain interest income. Such withholding tax may be reduced or eliminated with respect to certain types of such income under any applicable income tax treaty between the United States and the foreign Investor's country of residence or under the "portfolio interest" rules contained in Section 871 or 881 of the Code, provided that the foreign Investor provides proper certification as to his eligibility for such treatment. Any foreign Investor that is a governmental entity qualifying under Section 892 of the Code may be exempt from the thirty percent (30%) withholding tax. Foreign Investors generally will be personally liable to The Corporation with respect to any withholding tax not satisfied out of their share of any distributions by The Corporation.

Page 43 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

United States Real Property Interests.


Any gain or loss of a foreign person that is realized in connection with the (actual or constructive) disposition of a "United States real property interest" (as defined below) (a "USRPI") generally would be treated as gain or loss effectively connected with a trade or business engaged in by the taxpayer in the United States and would be subject to Federal net income tax. Any gain or loss allocable to a foreign Investor arising from a disposition by The Corporation of a USRPI would be so taxable. The Corporation expects that it may utilize a Special Purpose Vehicle or an Alternative Investment Vehicle to hold U.S. real property investments on behalf of foreign investors. In addition, to the extent attributable to USRPIs owned by The Corporation, the amount realized on a sale or exchange by a foreign Investor of its The Corporation Interest would be treated as received in exchange for a USRPI. Gain or loss to the extent so attributable therefore would be subject to Federal net income tax and the gross proceeds from such sale or exchange may become subject to a ten percent (10%) withholding tax. "United States real property interest" generally means an ownership interest in real property located in the United States or the Virgin Islands and any equity interest in certain domestic corporations or partnerships that hold real property interests, but would not include a mortgage loan unless it provided for contingent interest payments based upon the income from or value of the real property securing such loan.

Other Potential Taxes


Prospective investors that are foreign corporations should also be aware that the thirty percent (30%) U.S. "branch-profits tax' and "branch-level tax" imposed by Section 884 of the Code would apply to an investment in the Corporation by a corporate foreign Investor, although the tax rate may be reduced or the tax eliminated entirely for residents of certain countries with tax treaties with the United States. Investors Interests owned or treated as owned by a foreign individual at the date of death may be included in such individual's estate for United States Federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

Page 44 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Tax Audits and Related Matters


In the event that tax returns of the Corporation are audited by the Service, the Corporation generally would control the conduct of such tax audit in its capacity as "tax matters partner," which would include the decision as to whether to extend the statute of limitations of the Corporations with respect to such returns. If the Service were to successfully assert that any adjustment should be made to the returns of the Corporation for any taxable year, the Investors and Officers generally would be required to amend their own tax returns for such year to reflect that adjustment.

Tax Shelter Reporting Requirements


Under recently issued Regulations, the activities of The Corporation may include one or more "reportable transactions," requiring The Corporation and, in certain circumstances, an Investor to file information returns as described below. In addition, the Corporation and other material advisors to The Corporation may each be required to maintain for a specified period of time a list containing certain information regarding the "reportable transactions" and The Corporations investors, and the Service could inspect such lists upon request. A "reportable transaction" of a partnership or a corporation includes, among others, a transaction that results in a loss claimed under Section 165 of the Code (computed without taking into account offsetting income or gain items, and without regard to limitations on its deductibility) generally of at least Two Million Dollars ($2,000,000) in any one taxable year or an aggregate of at least Four Million Dollars ($4,000,000) over a period of six (6) taxable years (beginning with the taxable year in which the transaction is entered into), unless the transaction has been exempted from reporting by the Service. Subject to certain exemptions as described below, a officer will be treated as participating in a corporation's "loss transaction," and thus be required to report the transaction, if (i) the officer's allocable share of such a corporation's loss exceeds certain thresholds, * or (ii) the officer is an individual or a trust which is allocated in any one taxable year a loss of at least Fifty Thousand Dollars ($50,000) from a Section 988 transaction. The Service has published guidance exempting many of the Corporation's transactions from the reporting requirements, provided that the Corporation has a "qualifying basis" in the assets underlying the transaction. An asset with a "qualifying basis" includes, among others, an asset purchased by the Corporation for cash. However, even if the Corporation has a "qualifying basis" in the asset generating the loss, each of the following transactions is still subject to the
**

For non-corporate partners, the thresholds are Two Million Dollars ($2,000,000) in any one taxable year or an aggregate of Four Million Dollars ($4,000,000) over the six-year period described above, and for corporate partners, the thresholds are Ten Million Dollars ($10,000,000) in any one taxable year or Twenty Million Dollars ($20,000,000) over the six-year period described above.

Page 45 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

reporting requirements unless it is marked to market under the Code (e.g., Section 1256 Contract): (i) a transaction involving an asset that is, or was, part of a straddle (other than a mixed straddle), (ii) a transaction involving certain "stripped" instruments, (iii) the disposition of an interest in a pass- through entity, and (iv) a foreign currency transaction which generates an ordinary loss. The Regulations require The Corporation to complete and file Form 8886 ("Reportable Transaction Disclosure Statement") with its tax return for each taxable year in which The Corporation participates in a "reportable transaction." Additionally, each Investor treated as participating in a reportable transaction of The Corporation is required to file Form 8886 with its tax return. The Corporation and any such Investor, respectively, must also submit a copy of the completed form with the Service's Office of Tax Shelter Analysis. The Corporation intends to notify the Investors that it believes (based on information available to The Corporation) are required to report a transaction of The Corporation, and intends to provide such Investors with any available information needed to complete and submit Form 8886 with respect to The Corporation's transactions. Under the above rules, an Investors recognition of a loss upon its disposition of an interest in the Corporation could also constitute a "reportable transaction" for such Investor. Investors should consult with their advisors concerning the application of these reporting obligations to their specific situations.

State and Local Income Tax Aspects


In addition to the Federal income tax consequences described above, prospective investors should consider potential state and local tax consequences of an investment in The Corporation. State and local laws often differ from Federal income tax laws with respect to the treatment of specific items of income, gain, loss, deduction and credit. An Investor's distributive share of the taxable income or loss of The Corporation generally will be required to be included in determining its reportable income for state and local tax purposes in the jurisdiction in which it is a resident. A partnership in which The Corporation acquires an interest may conduct business in a jurisdiction which will subject to tax an Investor's share of the partnership's income from that business. Prospective investors should consult their tax advisors with respect to the availability of a credit for such tax in the jurisdiction in which that Investor is a resident.

Page 46 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

VIII. BUDGET & PROJECTED RETURNS


Projected Budget (1st Year)

Page 47 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Page 48 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Forecast Projection 2013 - $10MM

Page 49 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Forecast Projection 2013 - $20MM

Page 50 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Forecast Projection 2014 - $10MM

Page 51 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Forecast Projection 2014 - $20MM

Page 52 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Page 53 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Forecast Projection 2015 - $10MM

Page 54 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.

Forecast Projection 2015 - $20MM

Page 55 of 55
The information contained in this document is confidential and proprietary to Lionheart Holding, Inc. and may not be reproduced, published, or disclosed to others without company authorization.