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

First Nations Enterprise Development Fund

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”)

LLC Governance

Managing Members

SBA Approved Management Team

Advisory Board

Investor Nominees

Optional

Non-Manager Member(s)

Sponsoring Institution(s)

Refer to

below

Organization First Nations Enterprise Development Fund organizational structure

Fund Participation Open to All North American Tribes

Sponsoring Tribe(s) Passive Financial Participation

SBIC B

Admittance of Non-Tribal Investors into Fund

Examples

Banks HoldingGaming Deposits(Linked Deposits)

GamingConcessionaires(Ex.: Harrah’s)

LP

LP

LLC

GP

A

FundCapitalization and

Follow On Participation

Management

Limited Partnership

A

Advantages

Availability of Risk-Sharing Partners Reduced Financial Commitment from Individual Tribes Separation of SBIC Management and Ownership as Required by Federal Regulations

B

Management of Fund Assets

Provided by SBA Approved

Management Team

A

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 CommercializationManufacturing Joint Venture

Reservation Investment Strategy

Technology Research Company or Manufacturing Company or

Academic Institution

Proprietary Technology

First NationsEnterprise

Development Fund

Federal Incentive Programs

Small Disadvantaged BusinessIncentive Program

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

Adjustment

HUBZone ProgramEnterprises 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 DefenseIncentive Preference Payments

ProgramPrime Defense Contractors May Receive

5% Incentive Payments for Subcontracting with 51% Indian-Owned Organizations

Section 8(a) ProgramCertified 8(a) Contractors May Access

Federal Set Aside Contracts

Advantages Risk Partner Labor Access

Facility Federal

Preference Contracts

Fund Contributes Capital in

Exchange for Majority Stake

with Governance by Separate

Board

Ownership Interest in Form of

Preferred Stock Equivalent (e.g., LLC Membership

Interest with Special

Allocation)

Technology Transfer to

Special Purpose Corporation (MBE) with

Reversionary Interest to Contributor

Possible 39% ITC for Future LMI Investment

in Joint Venture

Fund Creates Enterprise and

Develops Value for

Ultimate Sale to Host Nation

Creation of Special Purpose Corporation

Minority Business EnterpriseHUBZone Location / Employees

Build to Suit Manufacturing Facility Contributed by Host Nation

(Reservation Employment and Lease Income to Tribe with Possible Equity

Stake in Venture) Non-GovernmentCommercial Contracts

Federal GovernmentPreference Programs

Commercial Production

Venture LeasingTechnology Commercialization Joint Ventures

R&D Firm

Technology Commercialization

Potential

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

Subsidiary Manufacturing

Corporation

Machinery& Equipment

Operating Capital

Cashflow Earnout from

Operating Income of Subsidiary Corporation

M&E Leasing Facility and Operating

Capital Loan

M&E Put

A

A

49%Stake

% Income Allocation

51%Stake

Technology Transfer

ProductionContracts[OperatingRevenue]

Preference Return of Operating Capital Loan Secured by Senior Claim on Earnings and Profits of Joint Venture Subsidiary

ConsolidationInvestment Strategy

Fund Investors

Enterprise Development

Fund(LLC)

49%-

90%

% Ownership of Consolidation Platform

(LLC) by Industry Management

Team

% Ownership of Consolidation Platform

(LLC) by Fund

LLC

Consolidation Platform

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

Acquisition and Amalgamation of Portfolio Companies

Actual % Ownership of Consolidation Platform by Fund Depends Upon Whether Investments are Eligible for “New Markets” Qualification

• 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)

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 bythe Advanced Ceramics Manufacturing joint venture, we have determinedto pursue the formation of a supra-regional SBIC in conjunction with aproactive deal generation strategy

Our objective is to utilize the SBIC as the vehicle for creating a sustainableeconomy 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 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)

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 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)

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

EXAMPLES

Tauber Aarons Rabin Brothers AssetTrade.com

• Wild card exit option

Monetization of fund’s portfolio via exchange listing as country fund