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

i Sale of fund’s stake to host nationS Sale of portfolio company to strategic or financial buyerS Initial public offering of portfolio companyI Management buyout of fund’s staket 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 O 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

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

• Stage

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

• Sectors

PRIORITY

P Advanced materialsA Imaging systemsI NanotechnologyN OpticsO Space sciences and satellite systems

SECONDARY

S Alternative energyA Artificial intelligence and neural net systemsA Medical technologyM Microwave and communications technologyM Industrial Robotics

RATIONALE

R Emerging technologies with expansion stage investment opportunitiesE Exceptional market capture opportunities and market growth ratesE 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 fundsA Presence of targeted industrial clusters within fund’s focus area and university sponsored research programs

• Characteristics

C 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 contractsd 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

AdvantagesA Risk PartnerR Labor Access

L FacilityF 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

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

RATIONALE

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

• Transaction size

T Fund’s participation in a typical technology commercialization manufacturing joint venture is estimated to be in the $500,000 – $2 million range

RATIONALE

R Cost of plant and equipmentC Ability to add value

POTENTIAL ISSUES

P Lack of tribal corporation codes (use of Delaware corporation code)L Unskilled labor pool (manufacturing activities conductive to training

programs)p 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

S 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

P BoeingB HoneywellH Lockheed MartinL Lucent Technologies L MotorolaM Northrop Grumman N RaytheonR TRW

• Attractive aspects to joint venture partner

A 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 N Access to federal preference contracts (HUBZone set asides)A Access to DOD 5% preference paymentsA Eligibility for bid pricing adjustment (HUBZone status)E Eligibility for 25% LMI investment tax credit (if cash contributed)E Eligibility for Native American employment wage tax creditE Eligibility for accelerated depreciation on building and equipment

• Miscellaneous sources

M 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

E Referrals from the Defense Advanced Research Projects Agency (“DARPA”) regarding contractors having commercialization opportunitieso Small Manufacturing Executives of TucsonS Arizona Innovation NetworkA The Enterprise NetworkT Arizona Small Business AssociationA Arizona Department of CommerceA Economic development councils throughout the State of ArizonaE Small Business Development Centers (“SBDCs”)S Statewide venture forums; for example, the Arizona venture capital networkn Various other regional, state and local manufacturing and technology councilsc SBIR phase III grant recipientsS R&D 100 Award WinnersR 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)d Corporate attorneysC Certified Public Accountants (both local and regional practices as well as national firms)a 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)

a Targeted advertising in industry trade publicationsT Sponsoring; co-sponsoring; or participating as exhibitors or panelists at industry conferencesa 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

p Coronado Ventures (Tucson, Arizona)C Diamond Ventures (Tucson, Arizona)D MagnetCapital (Phoenix, Arizona)M Arizona Multi-Bank (Phoenix, Arizona)

• Deals reviewed

We reviewed approximately twenty investment proposals, representing the following sectors

r Aerospace manufacturingA Alternative construction materials manufacturingA Consumer products manufacturingC E-commerceE 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

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

• Business plan and product(s) analysis

B Single or multiple product lineS Market growth rate and trendlineM Competitive assessmentC Margin analysis and sustainabilityM Projections review and assessmentP 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

R Fund as MBE (pass through entity owned by qualified MBE investors)F HUBZone location and employing HUBZone residentsH Fund holds majority stake in joint venture company (e.g., LLC)F 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

F Construction of manufacturing facility (building)

RATIONALE

R Ownership to vest with host tribeO Location of building on reservationL Employment opportunities for tribal membersE Pre-leased facility with lease income for term of ventureP Possible equity stake in venture

• Instrument

I LLC membership units (possibly incorporating special allocations)L If SubChapter C corporation; cumulative participating convertible preferred (possibly incorporating PIK)p Subordinated debt with interest accrual trancheS Subordinated debt with warrants or sharesS Convertible subordinated debtC Participating subordinated debt (performance-indexed contingent

interest rate)

• Pricing

P Price to yield 20-30% annual IRRP Cost basis (51% interest in joint venture)C Differential obtained through PIKD Compare with equity pricing model

RATIONALE

R Commercialization riskC Subordinated positionS Reservation financingR Provide access to economical labor pool and federal incentivesP 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

P 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

M Create stock option arrangement to incentivize managementC Contingent compensation structure

• Technical assistance

T 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

I HUBZone incentives are location dependent

• Preferred exit strategies

P Sale of fund’s stake to host nationS Cashflow earnoutC MBOM Company buyback via put agreementC Sale of stake in portfolio company to strategic or financial buyerS IPO (cashout or distribution of public securities to fund investors)

• Defense technology sector price-earnings matrix

D Boeing 151 Honeywell 262 Lockheed Martin 191 Lucent Technologies 535 Motorola 646 Northrop Grumman 9 Raytheon 8 TRW 10

• Distress exits

D Exchange of securityE White knightW M&E Liquidation

EXAMPLES

E Tauber AaronsT Rabin BrothersR AssetTrade.com

• Wild card exit option

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