Llc Membership Transfer Form

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					    First Nations Enterprise
       Development Fund
          An SBIC in Formation

A New Markets Initiative Investment Fund
Serving the Business Development Needs
          America’s First Nations

       Program Architecture Developed by
              Sovereign Advisers
               Structured Finance + Economic Development

Situation statement (rationale for investor focus)

        General trends affecting tribal nations (wealth accumulation and
        concentration; endemic poverty and unemployment)

        Gaming revenues

        Reservation opportunities v. lack of sophisticated business
        investment evaluation process (reactive posture v. proactive
        approach to deal generation)

        Lack of financing for business development on reservation lands
        (ex: sovereign immunity issue)

        Emerging Markets Economic Development Finance System: the
        Exitbond® Model for financing reservation business development
•   Mission to be served by fund (ex: LMI focus; advantages of
    availability of risk capital partners; compare with developing nations)

•   General template (i.e., limited life joint venture structure)

•   ACM model (Alon® Transparent Ceramic Armor)

•   Sector preferences and rationale

•   General plan of operation (ex: siting of ventures on reservation lands
    (HUBZones) or proximate to reservations (LMI employee preference

•   Portfolio company technical assistance
•   Create monetization options for fund (limited partners)

    Cashflow earnout and interim distributions of portfolio company
    E&P to fund investors

    Exit investment and distribute cash or public securities to fund

               Sale of fund’s stake to host nation
               Sale of portfolio company to strategic or financial buyer
               Initial public offering of portfolio company
               Management buyout of fund’s stake
               Company buyback of fund’s stake

•   Fund as interface between tribes and industry (“the undiscovered
   Organization                                   First Nations Enterprise Development Fund organizational structure

                                                               Fund Participation Open to All North American Tribes

                             Sponsoring Tribe(s)               Passive Financial

                                                                    SBIC                          B

                                                    LLC    A                              LP
                                                                                                              Admittance of Non-Tribal
                                                                                                                Investors into Fund
                                                    GP                                    LP
                    Refer to
                       A                    Management of
                                                                                         Fund                      Banks Holding
                                             Fund Assets
                    below                                                          Capitalization and            Gaming Deposits
                                           Provided by SBA
                                                                                      Follow On                  (Linked Deposits)
                                           Management Team
    LLC Governance                                                                                                    Gaming
                                                                                                                   (Ex.: Harrah’s)
   Managing Members

SBA Approved Management                                      Limited Partnership

     Advisory Board                                                                               Availability of Risk-Sharing
                                           A                                                       Partners
   Investor Nominees
                                                                                                  Reduced Financial Commitment
         Optional                                                                                  from Individual Tribes
                                                                                                  Separation of SBIC Management
 Non-Manager Member(s)                                                                             and Ownership as Required by
 Sponsoring Institution(s)                                                                         Federal Regulations
Investment Strategy

•       Strategy

         Provide both equity and mezzanine financing in connection with
          the formation of technology commercialization manufacturing
          joint ventures, preferably involving defense applications
         Limited appetite for opportunities involving consolidations and
          roll-ups having applications within targeted sectors (constraints
          include limited opportunities and weak IPO demand)

•       Stage

         Commercialization of emerging proprietary technologies in high
          growth sectors (i.e., manufacturing expansion stage
•   Sectors


       Advanced materials
       Imaging systems
       Nanotechnology
       Optics
       Space sciences and satellite systems


       Alternative energy
       Artificial intelligence and neural net systems
       Medical technology
       Microwave and communications technology
       Industrial Robotics

 Emerging technologies with expansion stage investment opportunities
 Exceptional market capture opportunities and market growth rates
 Defense contract potential, representing excellent utilization of
  HUBZone status of reservation lands and /or LMI employees, and
  other preference incentive programs
 Defense contracting margins, in conjunction with federal preference
  incentives, enable manufacturing operations to be conducted in
  relatively remote areas such as reservation lands which entail higher
  transportation costs
 Avoidance of sectors characterized by overnight obsolescence and
  ability to uncover value and investment opportunities resulting from
  capital flight to Internet and e-commerce (ex.: satellite systems)
 Ability to attract co-investment interest from other funds
 Presence of targeted industrial clusters within fund’s focus area and
  university sponsored research programs
•   Characteristics

     Small private R&D firms possessing proprietary technologies
      with significant prior years funded research, on the threshold of
      significant commercialization opportunities, preferably involving
      defense agency manufacturing contracts
     Prime defense contractors seeking access to federal preference
                                Technology Commercialization
                                 Manufacturing Joint Venture

                               Reservation Investment Strategy

Technology Research Company or               First Nations
   Manufacturing Company or                   Enterprise
                                                                             Federal Incentive Programs
      Academic Institution                   Development
                                                                              Small Disadvantaged Business
                                                 Fund                               Incentive Program
      Proprietary Technology
                                                                                 Certified Small Disadvantaged
                                                                               Businesses May Reveive a 10% Bid
 Advantages                    Fund Contributes             Ownership             Price Evaluation Adjustment
 Risk Partner                     Capital in            Interest in Form
    Labor                       Exchange for                    of                  HUBZone Program
   Access                       Majority Stake           Preferred Stock      Enterprises Located on Reservation
   Facility                   with Governance           Equivalent (e.g.,    Lands or Employing 35% HUBZone
   Federal                      by Separate             LLC Membership      Residents May Receive an Additional
   Preference                       Board                  Interest with     10% Bid Price Evaluation Adjustment
   Contracts                                                  Special          and Access to Federal Set Aside
                                                            Allocation)      Contracts (Estimated at Approximately
Technology                                                                            $6 Billion Annually)
 Transfer to                                              Fund Creates
   Special                 39% ITC for
                                                         Enterprise and           Department of Defense
   Purpose                 Future LMI                       Develops          Incentive Preference Payments
Corporation                Investment                       Value for                    Program
 (MBE) with                                               Ultimate Sale
                             in Joint                                        Prime Defense Contractors May Receive
                             Venture                     to Host Nation            5% Incentive Payments for
  Interest to
                                                                             Subcontracting with 51% Indian-Owned

                 Creation of Special Purpose                                        Section 8(a) Program
                         Corporation                                          Certified 8(a) Contractors May Access
                                                                                   Federal Set Aside Contracts

         Minority Business Enterprise
        HUBZone Location / Employees
                                                                                   Federal Government
          Build to Suit Manuf acturing Facility                                    Preference Programs
              Contributed by Host Nation
         (Reservation Employment and Lease
         Income to Tribe with Possible Equity
                   Stake in Venture)                                                Non-Government
                                                                                  Commercial Contracts
                      Venture Leasing
         Technology Commercialization Joint Ventures

         R&D Firm                              Enterprise                             Machinery &
                                            Development Fund                           Equipment
                        49%         51%      Machinery and                             Provided by
      Technology        Stake       Stake     Equipment                             Manufacturer with
    Commercialization                                                               Debt Guarantee
       Potential                            Operating Capital                       Provided by Fund
                                                                                     with Contingent
                                                                                      Interest Rate
                                                                                        Indexed to
                                            % Income Allocation

                          Subsidiary                               Cashflow
                         Manufacturing                            Earnout from
                          Corporation                              Operating
 Production                                                        Income of
  Contracts                                                        Subsidiary                  Preference
 [Operating                                                       Corporation                  Return of
  Revenue]                                                                                     Operating
                                                                                    A          Capital
  M&E                      Machinery                                                           Secured
  Put                     & Equipment                                   M&E                    by Senior
                                                                       Leasing                 Claim on
                                                                     Facility and
                                                                                               and Profits
                                                                      Operating                of Joint
                                                                     Capital Loan              Venture
     A                                                                                         Subsidiary
                               Investment Strategy

         Investors                 Consolidation Platform


                                                                        Held in Form
                                       % Ownership of                        of
                                    Consolidation Platf orm             Managemen
        Enterprise                    (LLC) by Industry                   t Stock
       Development                      Management                      Option Plan
          Fund                              Team

                                      % Ownership of               Management Team
                                    Consolidation Platf orm        Compensation is
                         49%                                       Subordinated to
                           -           (LLC) by Fund
                                                                   Stipulated Minimum
                         90%                                       Performance Results
Actual % Ownership of
Consolidation Platform by
Fund Depends Upon Whether
Investments are Eligible for
“New Markets” Qualification

                                                                              Exit via
                                                                              IPO or
                                 Acquisition and Amalgamation of              Sale to
                                      Portfolio Companies                    Strategic
•   Lead v. co-invest

     Fund is anticipated to originate the majority of the investments, thus
      acting as the lead investor
     Corporate joint venture partner will make contributions of value to the
       venture, thus acting in the capacity of an industry co-investor


     Unique nature of fund (investor base; federal preference programs;
      reservation-based manufacturing; etc.)
     Superior valuation

•   Transaction size

     Fund’s participation in a typical technology commercialization
      manufacturing joint venture is estimated to be in the $500,000 –
      $2 million range


     Cost of plant and equipment
     Ability to add value

 Lack of tribal corporation codes (use of Delaware corporation code)
 Unskilled labor pool (manufacturing activities conductive to training
 Lack of industrial buildings (arrange tribal build to suit or off-
  reservation build to suit by private investor or lease proximate existing
Deal Generation

•      Sources

        Prospective transactions are expected to be cultivated on a
         proactive (v. reactive) basis through implementation of a company
         visitation program targeting prime defense contractors for referral
         of investment opportunities involving suppliers and
         subcontractors, as well as specialty R&D houses


       Contact corporate development officers of the following firms to
       discuss opportunities involving the DoD Indian-Owned Subcontractor
       Preference Payments Program

          Boeing
          Honeywell
          Lockheed Martin
          Lucent Technologies
          Motorola
          Northrop Grumman
          Raytheon
          TRW
•   Attractive aspects to joint venture partner

     Contribution in form of manufacturing contracts; technology;
     Miitigation of direct financial risk through fund’s position in deal
      (financial partner)
     Negligible balance sheet impact
     Access to federal preference contracts (HUBZone set asides)
     Access to DOD 5% preference payments
     Eligibility for bid pricing adjustment (HUBZone status)
     Eligibility for 25% LMI investment tax credit (if cash contributed)
     Eligibility for Native American employment wage tax credit
     Eligibility for accelerated depreciation on building and equipment
•   Miscellaneous sources

     We also expect to generate deal flow through a variety of other means,
      focusing on networking referral sources in geographic regions where
      there is a cluster or concentration of industrial sectors in which the
      fund will have an interest; for example, the biotech industry located in
      San Diego or the optics industry concentrated in Tucson. We will work
      with universities, technical institutions and industry organizations to
      establish an identity which will assist in generating financing referrals
      to the fund.

 Referrals from the Defense Advanced Research Projects Agency
  (“DARPA”) regarding contractors having commercialization
 Small Manufacturing Executives of Tucson
 Arizona Innovation Network
 The Enterprise Network
 Arizona Small Business Association
 Arizona Department of Commerce
 Economic development councils throughout the State of Arizona
 Small Business Development Centers (“SBDCs”)
 Statewide venture forums; for example, the Arizona venture capital
 Various other regional, state and local manufacturing and technology
 SBIR phase III grant recipients
 R&D 100 Award Winners
 University of Arizona, and other universities and academic institutions
   offering technology transfer and commercialization opportunities as
   well as network referrals
 Financial institutions (i.e., bank referrals with respect to companies
  requiring equity financing rather than debt, or requiring equity or
  subordinated debt financing as a credit enhancement for senior bank
  debt financing)
 Corporate attorneys
 Certified Public Accountants (both local and regional practices as well
  as national firms)
 Other business professionals, including risk management firms (i.e.,
  commercial insurance brokers and consultants); business brokers;
  business valuation consultants and appraisers; etc.
 Portfolio company founders and CEOs (assessment of complimentary
  and competitive technologies and companies)
 Targeted advertising in industry trade publications
 Sponsoring; co-sponsoring; or participating as exhibitors or panelists
  at industry conferences
 Developing co-investment partnerships with other SBICs and midsize
  to large equity funds offering financial participation in transactions
  which they originate
 Publication and distribution of newsletter to both prospective portfolio
   investment companies and potential referral sources, featuring market
   and financial data as well as activities of interest regarding the fund
   and the fund managers
•   Collaborative Investment relationships


    We engaged in exploratory discussions involving
    possible co-investment activity with the following firms

       Coronado Ventures (Tucson, Arizona)
       Diamond Ventures (Tucson, Arizona)
       MagnetCapital (Phoenix, Arizona)
       Arizona Multi-Bank (Phoenix, Arizona)
•   Deals reviewed

    We reviewed approximately twenty investment proposals,
    representing the following sectors

       Aerospace manufacturing
       Alternative construction materials manufacturing
       Consumer products manufacturing
       E-commerce
       Nanotechnology manufacturing

    We declined to invest in any of the submittals we received
•   Collaborative investment with Advanced Ceramics Research

    Instead we approached a local “R&D 100 Award” winning, “Inc. 500”
    company to create a manufacturing joint venture on the Pascua Yaqui
    Reservation (Advanced Ceramics Manufacturing)

•   Formation of SBIC

    To replicate the reservation business investment model represented by
    the Advanced Ceramics Manufacturing joint venture, we have determined
    to pursue the formation of a supra-regional SBIC in conjunction with a
    proactive deal generation strategy

    Our objective is to utilize the SBIC as the vehicle for creating a sustainable
    economy for all participating tribal nations
Deal Review Process

•      Initial review phase

       Investment proposals will be entered into a database indexed by both the
       name of the person or company making the submittal and the industry

       The preliminary review will include a summary write-up of the proposal
       and will be scored utilizing the general scoring template presented as an
       addenda to this presentation

•      Periodic review

       Proposals will be scheduled for periodic review and discussion at
       quarterly intervals

•      Discussion with product users and “hands on” industry personnel
       regarding market acceptance potential of product(s)
Development of a Transaction

•      Management

        Evaluation (technical personnel v. business skills)
        Previous history (track record)
        Determine company management and governance process

•      Business plan and product(s) analysis

          Single or multiple product line
          Market growth rate and trendline
          Competitive assessment
          Margin analysis and sustainability
          Projections review and assessment
          Environmentally friendly
•   Consultant review

•   Equity pricing model

•   Discuss deal with prospective co-investors

•   Negotiate terms sheet

•   Due diligence procedure

•   Engage counsel

•   Negotiate build to suit facility on or off reservation, or negotiate lease of
    existing facility
Structuring an Investment

•       Reservation manufacturing joint venture with tribal build to suit

         Fund as MBE (pass through entity owned by qualified MBE investors)
         HUBZone location and employing HUBZone residents
         Fund holds majority stake in joint venture company (e.g., LLC)
         Multi-tranche structure comprised of subordinated debt with interest
          accrual tranche and equity-flavored subordinated debt, yielding a
          blended Interest rate of approximately 17% with equity value accretion
          potential, and possibly incorporating a contingent interest rate or PIK
         Incorporate M&E put

•       Follow-on commitment by host nation in form of build to suit

         Construction of manufacturing facility (building)


           Ownership to vest with host tribe
           Location of building on reservation
           Employment opportunities for tribal members
           Pre-leased facility with lease income for term of venture
           Possible equity stake in venture
•   Instrument

     LLC membership units (possibly incorporating special allocations)
     If SubChapter C corporation; cumulative participating convertible
      preferred (possibly incorporating PIK)
     Subordinated debt with interest accrual tranche
     Subordinated debt with warrants or shares
     Convertible subordinated debt
     Participating subordinated debt (performance-indexed contingent
      interest rate)

•   Pricing

       Price to yield 20-30% annual IRR
       Cost basis (51% interest in joint venture)
       Differential obtained through PIK
       Compare with equity pricing model


       Commercialization risk
       Subordinated position
       Reservation financing
       Provide access to economical labor pool and federal incentives
       Arrange build-to-suit for joint venture (by tribe if located on reservation;
        by private investor if located proximate to reservation)
             Participating with Operating Management

•   Portfolio company governance

     Joint venture structure

    Board structure to generally comprise two directors to be appointed by joint
    venture partner; two directors to be appointed by fund; and mutual
    appointment of three outside directors with extensive industry experience
    acceptable to both parties

•   Management incentives

     Create stock option arrangement to incentivize management
     Contingent compensation structure

•   Technical assistance

     Engage specialized consultants as necessary and provide technical
      assistance to management

•   Formation of linkages

     Utilize outside directors’ industry contacts to develop marketing and
      other alliances with various companies, including licensing and
      cooperative R&D relationships
     Identify cross-selling opportunities
Exiting an Investment
•       Issues indigenous to Indian reservation joint ventures
         HUBZone incentives are location dependent
•       Preferred exit strategies
           Sale of fund’s stake to host nation
           Cashflow earnout
           MBO
           Company buyback via put agreement
           Sale of stake in portfolio company to strategic or financial buyer
           IPO (cashout or distribution of public securities to fund investors)
•       Defense technology sector price-earnings matrix
           Boeing                            15
           Honeywell                         26
           Lockheed Martin                   19
           Lucent Technologies               53
           Motorola                          64
           Northrop Grumman                   9
           Raytheon                           8
           TRW                               10
•   Distress exits
     Exchange of security
     White knight
     M&E Liquidation
     Tauber Aarons
     Rabin Brothers
•   Wild card exit option
     Monetization of fund’s portfolio via exchange listing as country fund

Description: Llc Membership Transfer Form document sample