Barrow Street Advisors of New York

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Barrow Street Advisors of New York

• The Key to Accessing Investor Capital
• An Organized Approach
• 
  Michael J. Nocera
• CEO
• 
  Harbin, China
• 
  November 1, 2004

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Barrow Street Advisors of New York

• Michael J. Nocera
• A. Securities Regulator at the U.S. Securities
  Exchange Commission 1973 to 1982.
• B. Investment Banker at E.F. Hutton Company
  and Paine Webber 1982 to 1990.
• C. VP/Dept. Head-Structured Finance at New York
  Life Insurance Company 1990 to 1996.
• D. President of New York Life International 1996
  to 2000.
• E. Independent Consultant 2000 to Present.

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Barrow Street Advisors of New York

• Representative Clients
• Dagong Global Credit Rating Company, Beijing
• Inter-Asia Venture Management, Hong Kong
• China Shanghai Seeinglong Bio-Pharmaceutical
  Corporation, Shanghai
• The Hong Kong Association of New York, Executive
  Director
• Standard Poors Corporation, New York

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Barrow Street Advisors of New York

• Notwithstanding the Growing Interest in China
  post WTO entry, substantially all the annual
  foreign direct investment (FDI) of US53
  billion is targeted for medium to long term
  strategic expenditures.
• Multi-national corporations as well as smaller
  SMEs invest for the medium to long-term for
  infrastructure, plant and equipment intended to
  generate products for export and/or Chinese
  domestic consumption.

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Barrow Street Advisors of New York

• Only a small percentage of such FDI is financial
  investment made solely for the purpose of
  providing the equity or debt financing
  requirements of domestic Chinese Businesses.
• 2003 Approximately US1.0 billion in financial
  investment vs. US52 billion in longer term
  strategic investment.

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Barrow Street Advisors of New York

• China Statistics

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Barrow Street Advisors of New York
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Barrow Street Advisors of New York

• Getting Ready to Approach Western Investors
• Understand Which Investor is Approaching You
• Organize for Success
• Understand Your Goals
• Be Ready with Answers to Many Questions
• Have the Data Available
• Understand Investors Needs and Objectives

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Barrow Street Advisors of New York

• Strategic Investors Typically, corporations with
  a long term strategic plan to locate and sell its
  products in a country. Characterized by building
  manufacturing plants, corporate infrastructure,
  distribution systems and other support systems
  necessary to build a profitable self-sustaining
  operation.
• Financial Investors Typically, pension funds
  which avoid risks and which invest via private
  equity or venture funds which control large
  amounts of money which are required to be
  invested for the benefit of retired persons.
  These investors expect to receive 100 of their
  investment plus a risk-adjusted return on their
  investment within 3 to 5 years from investment.
  They do not want to participate in management
  unless necessary to preserve their investment.

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Barrow Street Advisors of New York

• Strategic Investors
• Maybe Want to Become a Joint Venture/Control
  Partner
• Possibly Want to Buy 100 of Your Company
• Probably Do Not Care About Your Financial
  Situation
• Will Want to Understand Your Business But They
  Have a Plan for Conducting Their Business
• Look at the Quality of Your Assets and Other
  Resources
• Understand Your Expertise (if JV)

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Barrow Street Advisors of New York

• Financial Investors
• Require Specific Information About All Aspects of
  the Business
• Most Will Require Audited Financial Statements
  IAS or GAAP
• Accounting Firm Must be Internationally
  Recognized
• Will Conduct In-Depth Due Diligence
• Conduct Background Checks on Management
• Require Contractual Provisions to Preserve Rights
  Including
• Corporate Governance and Independent Directors on
  Board
• Transparent Decision Making
• Protections Against Misuse of Company Money and
  Assets
• Dispute Resolution in a Neutral Venue
• Other provisions
• Most Will Want Control or Easy Exit if Company
  Underperforms

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Barrow Street Advisors of New York

• It is Important to Understand that these
  Requirements are the Same in the U.S. and Europe
• The Financial Investors Have, Over Time, Created
  a Process that Works. This Process is called
  Due Diligence
• Understanding the Process Saves You Time and
  Money
• If You are Well Organized, You Can Make the
  Process Work for You

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Barrow Street Advisors of New York

• Due Diligence The Due Diligence process is an
  Inquiry into Each Important Aspect of the
  Companys Operations
• It Has Evolved from the U.S. Legal System and
  Smart Business Practice
• Once a Financial Investor Buys an Interest in a
  Company , It is Impossible to Return to the
  Seller and Get a refund So, It is Important to
  Check Carefully in Order to gain a Complete
  Understanding of the Companys Affairs
• If You Organize in Advance and Understand Why It
  is a Requirement, then You Can Save Time and
  Money and Attract Good Investors

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Barrow Street Advisors of New York

• Due Diligence Inquiries Include Reviews and
  Analysis of
• A Clear Business Plan and Vision of the Companys
  Future
• Complete Biographical History of Management
• Organization Charts
• Capital Structure
• Financing Plans and Review process
• Financial Statements. There may be Exceptions,
  but Most Investors will Expect Audited Financial
  Statements. At a Minimum, Immediately after
  Investment is made
• Balance Sheets and Income Statements Comparing
  One Year to the Next

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Barrow Street Advisors of New York

• Due Diligence Inquiries (Cont.)
• Shareholder Agreements
• A listing of All Obligations to Employees,
  Creditors, and Others
• All Contracts and Other Business Between the
  Company and its Management, Directors and
  Shareholders
• Detailed Financial Projections for Next Five
  Years
• Description and Location of All Assets
• List of Major Customers
• List of Major Suppliers and Vendors
• All Permits and Licenses Permitting the Company
  to Conduct Business
• A Listing and Documentation for All Intellectual
  Property

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Barrow Street Advisors of New York

• Navigating the Process
• Recognize that this Process Can Work for You
• Get Organized
• Think Through What You Want and What You Need
• Be Forthright Investors Understand that This
  process may be Unfamiliar to You But Will Expect
  Honesty
• Avoid Surprises You can Negotiate Deal Terms But
  Not Information Requirements of the Investor Due
  Diligence
• Consider Engaging a Consultant to Assist in
  Preparation for the Process and negotiations

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Barrow Street Advisors of New York

• Pursue Search for Capital in an Orderly Way
• Gather All Important Company Information
• Write a Business Plan that Explains the
  Companys Business
• Organize Companys Financial Information
• Prepare Reliable Financial Statements
• Goal should be to prepare Financials under IAS
  or GAAP
• Create a Dynamic Financial Model to Test
  Variable Assumptions
• Supporting Documents should be Easily Available
  for Review by Investors

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Barrow Street Advisors of New York

• Add Independent Members to Board of Directors
• Review Corporate Governance
• Create a Summary Marketing Presentation
• Prepare a Term Sheet which Explains Your Ideas
  on Financial Participation by Investors
• Equity or Debt
• Percent Equity Participation or Debt Structure
• Amount of Investment Desired
• Investor Rights and Safe-Guards
• Length of Time for Investment
• Exit Strategy for Investors

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Barrow Street Advisors of New York

• Introduce Your Company to Investors BEFORE Your
  Company Needs Capital
• Recognize that Each Party will Have Differing
  Views of Enterprise Value
• U.S. Investors will Expect a Return on Their
  Investment which is Higher than U.S. and European
  Benchmarks (typically IRR of 15 to 20 or higher
  depending on perception of risk)
• Be Prepared to Negotiate

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Barrow Street Advisors of New York

• How Consultants Can Improve Your Efforts
• Consultants Are Like Professors
• Consultants Provide the Benefits of Their
  Experience
• Consultants Offer You the Power of Their
  Knowledge
• Applying Their Knowledge and Experience to Your
  Efforts Enhances the Opportunity for Success
• Expenses Related to Consultants Fees Go Away
  after The Engagement is Completed

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Barrow Street Advisors of New York

• Consultants are not Free
• Each Company CEO Must Answer the Question What
  is the Lost Opportunity in Time and the Potential
  for Funding by NOT Working With a Consultant?
• Only You Can Decide if the Cost of the Consultant
  is Valuable to Your Efforts

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Barrow Street Advisors of New York

• Barrow Street Advisors Wishes You a Bright Future