Transcript R E X Royalty Entitlement Exchange & Revenue Participation

Royalty Entitlement Exchange
For presentation at the 2006 New Orleans Investment Conference - November 19, 2006
Overview of Benefits, Structure,
Participants and Operations of the
Royalties Entitlement Exchange
“REX”
For more information, contact:
Arthur Lipper, Interim Chairman
Royalty Entitlement Exchange (S) Pte Ltd.
16 Collyer Quay, #11-02 Hitachi Tower
Singapore 049318
[email protected] – www.rex.sg
TM
Fair Revenue Participation Contracts and Sharia Fair Revenue Participation Contracts are Singapore and U.S. patent pending.
Copyright © 2006 Royalty Entitlement Exchange (S) Pte Ltd. All Rights Reserved.
Revenue participation or royalties are the
"better way" of investing in and financing
privately owned companies and projects
The purpose of this presentation is to expose you to
a new, patent pending, idea from which it is hoped
you will benefit.
The idea is to use revenue participation contracts or
royalties in investing in and financing privately
owned companies.
Royalties, being neither equity nor debt, are not
securities.
You are not, in this presentation, being offered any
security or other investment opportunity.
TM
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Reported profits are largely discretionary.
Buying equity in companies is tantamount to
buying a share of the company's reported
profits and stock prices are a reflection of
the market's anticipation of future earnings.
Projecting revenues is easier than predicting
profits as there are lots of things which can
unexpectedly adversely effect profits.
TM
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As appearing in the October 23, 2006 issue of Barron's The Dow Jones Business and Financial Weekly
" Here's where accounting went all ethical on us."
TM
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A better way to
invest in and finance
private companies and projects
Revenue participation contracts, or royalties, are an agreement
between two parties, with the Issuer of the royalty agreeing to pay
a certain percentage of revenues to the Investor for an agreed
period of time.
The Investor as royalty holder has no ownership in the Issuer
and no interest in the profit or loss of the Issuer. The holder may
not even be aware of the profitability of the Issuer.
Royalties can be transferable and therefore can be traded on an
exchange.
TM
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Seeing things differently is what
successful entrepreneurs and investors do.
The tradition of investment has been the
purchase of equity or debt sold by
companies.
The result frequently has been one of greater
benefit to the seller than the buyer.
I am asking you to think differently and
consider buying and selling slivers of future
revenue, not profits.
TM
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Entrepreneurs see things and think differently.
The depiction is from the back of the Chinese edition of
"The Larry and Barry Guide to Entrepreneurial Wisdom"
TM
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A better way for management
to raise capital
Payments received by companies for the purchase of royalties are
not debt and do not have to be repaid.
Royalties are not shares or equity and do not dilute the
ownership or lessen the control of the existing owners.
The funds received by a company for the sale of a percentage
or sliver of future revenues can be used to:
expand the business
acquire other companies
acquire existing outstanding shares
reduce or repay outstanding debt
The money is the company’s to use as it’s managers believe
best for the owners of the business.
TM
Copyright © 2006 Royalty Entitlement Exchange (S) Pte Ltd. All Rights Reserved.
Royalties are not impacted by
changes in reported earnings
One of the risks of owning shares in
companies having managers and
Boards of Directors dedicated to
maintaining and accelerating revenue
growth is that profit margins are
frequently sacrificed to achieve sales
objectives.
TM
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The making of decisions resulting in lower near term profit for the
sake of achieving greater long term profit can be difficult for
managers with shareholders having shorter term perspectives
TM
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Eliminating the focus on short term profits
enables better management and
long-term decision making
Corporate managers using revenue-based financing are not under
pressure to use accounting options which maximize the level of
reported profits, frequently resulting in increasing the level of
income taxes due.
Absent the need to report successively higher quarterly earnings
managers are able to make better long term decisions regarding
expenditures for; staff training, additional research, advertising /
marketing and other areas of expense generally thought to be ok to
postpone during periods of profit margin pressure.
TM
Copyright © 2006 Royalty Entitlement Exchange (S) Pte Ltd. All Rights Reserved.
Creating conservative projections
and making the numbers is the
essence of entrepreneurial survival
TM
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The terms of a royalty can be as flexible as
agreed between the Issuer and the Investors
The royalty payment obligation remains regardless
of reported earnings.
However, royalty payment obligations can be
changed with the receipt of cumulative payments
during specified periods of time within the duration
of the royalty period..
TM
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A better way to achieve
Predictable income and returns
Most investors and professional investment managers agree that
it is easier to predict a company’s future revenues than it is
future earnings.
Investment quality is generally a function of predictability of
results. Markets do not like surprises, as most are
disappointments. The more precisely predictable the
performance results of a company, usually the higher the price
earnings ratio relative to achieved earnings growth.
In the case of a debt instrument, the higher perceived quality,
the lower the yield or better the terms under which the
company can borrow.
It is only a matter of time before investors understand that long
term royalties are income producing calls on future revenue
growth. As a result, royalties traded on an exchange will develop a
premium over the present value of the royalty currently being
received based upon present levels of revenue.
TM
Copyright © 2006 Royalty Entitlement Exchange (S) Pte Ltd. All Rights Reserved.
A better way to protect
the interests of
investors
Protecting the interests of the royalty Investors is mission critical
for the success of the REX.
The more certain the royalty Investor is of receiving the expected
return, the more favorable will be the terms for Issuers and
therefore the more issues which will be available for trading on
the REX.
The REX traded royalty contract units will require assets of the
issuer be transferred to an independent Singapore registered and
regulated trustee company.
The specific assets to be transferred will be as agreed between
the REX member, acting in the capacity of Managing
Underwriter, and the company issuing the royalty entitlement.
TM
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A better way to protect
the interests of
investors
(Continued)
The trustee company will permit the royalty issuing company to
use the assets, exclusively and without charge, for as long as
there is no default in the royalty payment agreement.
The transferred assets may include equity interest in land and
buildings, land use rights, equipment and/or intellectual
property. In the event of default the assets will be used by the
Trustee for the benefit of the royalty holders.
Royalty collection protocol:
Companies issuing royalties will designate an agreed number
of banks into which all revenues derived from the sale or lease
of goods or services will be deposited. The issuer will provide
irrevocable instructions to the banks to deduct, at the time of
deposit, the agreed royalty percentage from all deposits.
TM
Copyright © 2006 Royalty Entitlement Exchange (S) Pte Ltd. All Rights Reserved.
A better way to protect
he interests of
investors
(Continued)
Quarterly, the company selected banks will forward to the
Singapore trustee company the collected funds, which the
trustee will distribute to the registered royalty holders.
Directors or controlling shareholders of the issuer, as
satisfactory to the Managing Underwriter, will quarterly attest to
the correctness of the reported and deposited revenues. There
will also be an annual audit of revenues by a REX and Managing
Underwriter approved auditor.
The trustee company will serve as an agent of the REX and
administer the royalty collection and distribution process.
The trustee company will also perform services for the Issuer.
TM
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A better way
to attract Islamic capital and
finance Islamic and other enterprises
Hundreds of billions of dollars of investment capital are
managed under the laws of Islamic finance. These funds are
controlled by those who live Sharia compliant lives and who
require that both the investing process and the companies in
which investments are made are found by recognized Islamic
scholars to be Sharia compliant.
REX’s patent pending Sharia Fair Revenue Participation
Contract (“SFRPC”) complies with the Sharia prohibition of
interest and requirement for “fair and reasonable” participation
in both risk and reward. Therefore, both investors and
enterprises can achieve their financial objectives using SFRPCs
to invest their capital or finance their companies.
SFRPC Issuers will be required to initially obtain a fatwa
(decree) indicating compliance and agree to be audited annually
to assure continued compliance.
TM
Revenue sharing is risk sharing and royalties are not a form of interest.
Therefore the REX process is consistent with the principles of Sharia.
Copyright © 2006 Royalty Entitlement Exchange (S) Pte Ltd. All Rights Reserved.
The basic commercial principles of Sharia are
generally consistent with the principles of
business as practiced internationally
TM
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A better way
to offer a standard structure
while also enabling flexibility and creativity
There are only four variables in a revenue participation contract:
1. Capital: The amount of capital to be raised (in denominations
of US$10,000 contractual units)
2. Percentage: The percentage of the issuer’s revenues which will
be paid quarterly to the royalty contract holder.
3. Duration: The calendar or event triggered period during which
royalties will be paid.
4. Critical Assets: The critical assets of the Issuer which will transferred to the
independent, Singapore government registered and regulated trustee company,
held by the trustee company for the benefit of the royalty contract unit holders
in the event of a default by the Issuer. Once the underwriting is completed the
revenue participation contract units will be admitted for trading on the REX.
The royalty contracts are highly standardized, but these four terms
are negotiated between the Issuer and the underwriter and can
be as flexible and imaginative as those creating them.
TM
Copyright © 2006 Royalty Entitlement Exchange (S) Pte Ltd. All Rights Reserved.
A better way to operate an exchange for the benefit
of investors and royalty contract issuers.
The REX will be an electronic market and operate 24 hours a
day, 7 days a week, matching bids and offers for quoted royalty
units.
Only members of the REX will be allowed to transact business
on the REX. The REX members will act as both agents for their
clients and as principals for their own accounts.
The members of the REX will be firms that are recognized and
respected members of the international financial community, in
many cases they will be members of exchanges supervised and
regulated by government regulating bodies.
TM
Copyright © 2006 Royalty Entitlement Exchange (S) Pte Ltd. All Rights Reserved.
Royalties are the new and better
way of both investing in and
financing companies
For further information, please contact:
Arthur Lipper, Interim Chairman
Royalty Entitlement Exchange (S) Ltd.
16 Collyer Quay - 11-02 Hitachi Tower,
Singapore 049318
[email protected] – www.rex.sg
TM
Copyright © 2006 Royalty Entitlement Exchange (S) Pte Ltd. All Rights Reserved.
Congratulations.
The grasping and acceptance of new ideas is never easy.
Now you are entitled to wear the following badge.
TM
Copyright © 2006 Royalty Entitlement Exchange (S) Pte Ltd. All Rights Reserved.