First Nations Enterprise Development Fund

An SBIC in Formation

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

Program Architecture Developed by Sovereign Advisers

Structured Finance + Economic Development

Overview

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 policy) 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 investors      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 country”)

Organization

 First Nations Enterprise Development Fund organizational structure Sponsoring Tribe(s)

Fund Participation Open to All North American Tribes

Passive Financial Participation SBIC B Management Refer to A below LLC Governance Managing Members SBA Approved Management Team Advisory Board Investor Nominees Optional Non-Manager Member(s) Sponsoring Institution(s) LLC GP A Management of Fund Assets Provided by SBA Approved Management Team A Advantages LP LP Fund Capitalization and Follow On Participation Limited Partnership B Admittance of Non-Tribal Investors into Fund Examples Banks Holding Gaming Deposits (Linked Deposits) Gaming Concessionaires (Ex.: Harrah’s)    Availability of Risk-Sharing Partners Reduced Financial Commitment from Individual Tribes Separation of SBIC Management and Ownership as Required by Federal Regulations

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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 PRIORITY      Advanced materials Imaging systems Nanotechnology Optics Space sciences and satellite systems SECONDARY      Alternative energy Artificial intelligence and neural net systems Medical technology Microwave and communications technology Industrial Robotics

RATIONALE        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 incentives

Technology Commercialization Manufacturing Joint Venture Reservation Investment Strategy

Technology Research Company or Manufacturing Company or Academic Institution Proprietary Technology

First Nations Enterprise Development Fund Advantages

 Risk Partner   Labor Access Facility  Federal Preference Contracts Technology Transfer to Special Purpose Corporation (MBE) with Reversionary Interest to Contributor Fund Contributes Capital in Exchange for Majority Stake with Governance by Separate Board Possible 39% ITC for Future LMI Investment in Joint Venture

Creation of Special Purpose Corporation Minority Business Enterprise HUBZone Location / Employees

Build to Suit Manufacturing Facility Contributed by Host Nation (Reservation Employment and Lease Income to Tribe with Possible Equity Stake in Venture) Ownership Interest in Form of Preferred Stock Equivalent (e.g., LLC Membership Interest with Special Allocation)

Fund Creates Enterprise and Develops Value for Ultimate Sale to Host Nation Commercial Production Federal Incentive Programs Small Disadvantaged Business Incentive Program

Certified Small Disadvantaged Businesses May Reveive a 10% Bid Price Evaluation Adjustment

HUBZone Program

Enterprises Located on Reservation Lands or Employing 35% HUBZone Residents May Receive an Additional 10% Bid Price Evaluation Adjustment and Access to Federal Set Aside Contracts (Estimated at Approximately $6 Billion Annually)

Department of Defense Incentive Preference Payments Program

Prime Defense Contractors May Receive 5% Incentive Payments for Subcontracting with 51% Indian-Owned Organizations

Section 8(a) Program

Certified 8(a) Contractors May Access Federal Set Aside Contracts

Federal Government Preference Programs Non-Government Commercial Contracts

Venture Leasing Technology Commercialization Joint Ventures R&D Firm

Technology Commercialization Potential 49% Stake Technology Transfer Production Contracts [Operating Revenue] M&E Put A 51% Stake

Subsidiary Manufacturing Corporation

Machinery & Equipment Operating Capital

Enterprise Development Fund

Machinery and Equipment Operating Capital Machinery & Equipment Financing Provided by Manufacturer with Debt Guarantee Provided by Fund with Contingent Interest Rate Indexed to Production Revenues % Income Allocation Cashflow Earnout from Operating Income of Subsidiary Corporation M&E Leasing Facility and Operating Capital Loan A Preference Return of Operating Capital Loan Secured by Senior Claim on Earnings and Profits of Joint Venture Subsidiary

Fund Investors

Consolidation Investment Strategy Consolidation Platform

Enterprise Development Fund (LLC) 49% 90% Actual % Ownership of Consolidation Platform by Fund Depends Upon Whether Investments are Eligible for “New Markets” Qualification LLC % Ownership of Consolidation Platform (LLC) by Industry Management Team % Ownership of Consolidation Platform (LLC) by Fund Acquisition and Amalgamation of Portfolio Companies 10%-51% Held in Form of Managemen t Stock Option Plan Management Team Compensation is Subordinated to Stipulated Minimum Performance Results Exit via IPO or Sale to Strategic or Financial Buyer

• • 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 RATIONALE   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 RATIONALE   Cost of plant and equipment Ability to add value

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

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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 EXAMPLE 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; processes 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.

Examples              Referrals from the Defense Advanced Research Projects Agency (“DARPA”) regarding contractors having commercialization opportunities 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 network Various other regional, state and local manufacturing and technology councils 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 EXAMPLES OF RECENT COLLABORATIVE 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

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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 represented 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)

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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

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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 component Incorporate M&E put Follow-on commitment by host nation in form of build to suit  Construction of manufacturing facility (building) RATIONALE      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 RATIONALE      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)

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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

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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 Honeywell Lockheed Martin Lucent Technologies Motorola Northrop Grumman Raytheon TRW 15 26 19 53 64 9 8 10

• • Distress exits    Exchange of security White knight M&E Liquidation EXAMPLES    Tauber Aarons Rabin Brothers AssetTrade.com

Wild card exit option  Monetization of fund’s portfolio via exchange listing as country fund