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BIDCO Investment Program Rules

Title 19
CORPORATIONS AND BUSINESS
PART VII. Economic Development Corporation
SUBPART 6. Louisiana Economic Development Corporation

Chapter 71. BIDCO Investment and Co-Investment Program

7101. DEFINITIONS

A. BIDCO means a Louisiana business and industrial development corporation licensed by the Louisiana Office of Financial Institutions (OFI) with its business consisting of providing non-traditional capital and/or debt funding for Qualified Louisiana Businesses.

B. Qualified Louisiana Business means any enterprise with its primary operations in Louisiana, or with substantially all of its production in Louisiana, and which has no more than 500 employees and has annual business receipts not in excess of $7,000,000.

C. Definitions of other terms used herein are provided in the legislation which is reflected in Chapter 39-A of Title 51 of the Louisiana Revised Statutes of 1950, comprised of R.S.51:2386 through 2398.

D. Private Capital is defined as paid in cash from non-LEDC sources, available for investment in assets of the BIDCO. These non-LEDC sources may include other non-state governmental sources provided the non-state governmental funds do not exceed fifty percent (50%) of the private capital, and provided the non-state governmental funds are not directly or indirectly derived from state sources. For purposes of calculating the eligibility of a request for matching equity capital, components other than paid in cash will not be considered.

E. A Specialty BIDCO shall be defined in accordance with the Office Of Financial Institution's BIDCO policy.

F. Seed Investor is an investor in the start-up stages of the BIDCO, prior to certification by OFI and LEDC.

AUTHORITY NOTE: R.S. 51 : 2312 (A) (7), (B) (1) and (B) (3)
HISTORICAL NOTE: Promulgated by the Department of Economic Development, Louisiana Economic Development Corporation, LR 18:

7103 ELIGIBILITY FOR SUBMISSION OF AN APPLICATION

In order to be eligible for consideration to receive a matching or co-investment equity capital investment by LEDC, the Applicant must fulfill the following eligibility requirements:

A. It must have obtained a license from OFI.

B. It must be a for profit Louisiana corporation.

C. In order to be eligible to receive an investment from LEDC, as described in Section 109, it must have raised a minimum of $1,000,000 of private capital, exclusive of LEDC funds. These private capital funds must be actual cash contributions. (Pursuant to RS 51:2392 (B) (2) (d)(2).)

D. Its Management must be experienced in debt and/or capital financing of the types and volume contemplated by the applicant BIDCO.

E. LEDC may consider applications from BIDCOs which have a businesslike mission but with special circumstances or specialized opportunities (herein "Specialty BIDCOs").

F. Owners and Investors cannot be in conflict with the Code of Governmental Ethics R.S. 42:1112. BIDCO's shall not invest in a company in which a principal or officer of the BIDCO also has an interest in the company.

AUTHORITY NOTE: R.S. 51 : 2312 (A) (7), (B) (1) and (B) (3)
HISTORICAL NOTE: Promulgated by the Department of Economic Development, Louisiana Economic Development Corporation, LR 18:

7105. APPLICATION

A. An application fee of $500 shall be submitted at the time of application.

B. Applications will be processed for a matching equity capital investment or for a co-investment as follows:

1. Applications will be processed in the order in which they are received.

2. LEDC staff will conduct an initial screening of the application for completeness.

3. An incomplete application will be returned to the submitter. A previously incomplete application may be resubmitted, which will establish a new time and date received for that application.

4. An incomplete application not resubmitted within 30 days will forfeit the application fee.

5. LEDC staff will begin the evaluation process within 30 days of receipt.

C. Information submitted with the Application either for a match investment or co-investment representing the Applicant's business plan, financial position, financial projections, personal financial statements and background checks will be kept confidential to the extent allowed under the Public Records Law, La. R.S. 44:1 se seq. Confidential information in the files of LEDC and its accounts acquired in the course of duty will be used solely by and for LEDC. However, in the event of a BIDCO's licensure surrender, dissolution, bankruptcy, or other indication of insolvency previously confidential information shall be disclosable under the Public Records Law.

D. A BIDCO shall submit to LEDC evidence of its OFI approval with the application.

E. Application for a matching investment will contain the following information. The Applicant may provide other information which it believes relevant. LEDC may request further information beyond what is specified below :

1. Name of BIDCO, address (mailing and physical)

2. Specify the amount of LEDC investment/commitment requested.

3. Specify the minimum and maximum amounts of non-LEDC capital to be raised if the LEDC makes the requested investment/commitment .

4. Specify Applicant's projected timetable, with milestones for completion of the fund raising.

5. Specify whether applicant anticipates taking in all of the committed capital investment at closing, or whether applicant plans a phase in. If a phase-in is planned, specify the proposed schedule. It is permissible to have different scenarios based on the actual amount of capital raised.

6. MARKET - Identify the proposed market of the Applicant.

(a) Describe and discuss the types of businesses that the BIDCO will finance. Discuss the extent to which the BIDCO intends to specialize in certain industries, or if special circumstances will be addressed.

(b) Describe the size range of businesses that it is contemplated the BIDCO will finance, with a general indication of where most of the focus is expected.

© Discuss the life cycle stage or stages of the companies which the BIDCO will likely finance, with an indication of where most of the focus is contemplated, i.e., start-up, expansion.

(d) Discuss the geographic area in which the BIDCO plans to focus. Specify the city or parish in which the BIDCO's principal office will be located, and discuss intentions, if any, to establish any additional offices.

7. Management Assistance - Discuss the plans of the BIDCO to provide management and/or technical assistance to companies for which the BIDCO provides financing. Discuss the BIDCO's plans for monitoring its financing, and enforcing provisions of loan or investment agreements. Discuss how the BIDCO plans to handle problem loans and investments.

8. Idle Funds - Describe plans for the management of the idle funds of the BIDCO.

9. Realization of Returns By Investors - Discuss long term plans and strategies for providing a tangible return to the investors in the BIDCO including dividend policy, public markets, future mergers and acquisitions, sinking funds, etc.

10. Tax and Accounting Issues - Discuss relevant tax and accounting issues for the BIDCO.

11. Submit business and professional references for all stockholders, members of the Board and corporate officers.

12. Management Structure - Describe the proposed management structure for the BIDCO.

13. Describe the proposed responsibilities of each of the members of the management team. If any of these people will not be full time, describe their other activities.

14. Describe the responsibilities of any management position for which a person has not been identified.

15. Specify any other key people including any advisors, consultants, attorneys and accountants, and submit resumes and/or descriptions of firms. LEDC reserves the right to perform general and criminal background checks on these key people.

16. Identify all "principal shareholders" (i.e. owning directly or indirectly, or controlling directly or indirectly, 10% or more of the voting stock of the BIDCO), by name with specific ownership identified.

17. Financial Projections - Provide the following financial projections:

a) Returns-on-Average assets and Returns-on-Capital Performance projections, year by year, for a 10 year period. These projections should show summary cash flow, summary income and expense (including taxes), and summary balance sheet data. For these performance projections, operating income and expenses can be grouped by category. Emphasis must be placed on a specific exit strategies including provisions for a sinking fund to buy out LEDC's position. Specify the assumptions used for the performance projections.

b) Specify computer programs used for projections, if any, and specify formulas used.

F. A business plan which contains the following information shall be submitted for either a match investment or a co-investment request:

1. Provide a market analysis that the Applicant deems relevant.

2. Marketing Strategy - Describe the BIDCO's plans and approach to marketing its services, including methods of identifying potential applicants for financing assistance.

3. Screening Process & Evaluation Criteria - Discuss the anticipated number of business firms that will be reviewed for possible financing assistance, in comparison with the number that will actually be financed. Discuss the approach to screening business firms, and the evaluation criteria for deciding whether, and under what terms and conditions, to provide financing assistance.

4. Financing - Describe and discuss the financing instruments that are intended to be used by the BIDCO (e.g. debt with capital features, royalty, capital, pure debt (with SBA or not), etc.). Discuss the anticipated mix of the various types of financing instruments. Discuss the anticipated size range of loans/investments to be made, and information regarding pricing, term, and other conditions. Discuss risk/return expectations on projects. Discuss methods of exit from investments.

5. Specify applicant's start-up budget, including funds already expended and a detailed projected budget for completion of the fund raising. Specify the person or persons who will be working on the start-up phase, including how much of their time they will spend; how, if at all, they will be compensated; and their resumes and references. List applicant's seed investors, if any, with amount invested and number of shares of stock owned. Specify any additional amount of seed capital applicant is seeking, including a discussion of possible sources.

6. Describe and discuss the Applicant's fund raising strategy for raising the private capital.

7. Specify the principal investor sources that the Applicant will be targeting.

8. Attach all specific financing commitments already obtained, including documentation for each. This should include the evidence of the initial required capital.

9. Describe specific demonstrations of interest from private investor sources, including documentation where possible.

10. Capital Structure - Leverage - Discuss the BIDCO's plans and prospects for leveraging its capital by borrowing money, use of the SBA guarantee secondary market, or other approaches. With respect to borrowing money, describe the degree of leverage the BIDCO will seek and over what time period? Identify sources of debt financing the Applicant plans to utilize? Describe how the Applicant plans to structure the debt? If use of the SBA program is contemplated, discuss Applicant's approach to this activity and analyze its potential profitability. If Applicant is relying heavily on the SBA guarantee program, describe its alternate course of action if the SBA guarantee program is eliminated or its effectiveness significantly curtailed.

11. Financial Projections - Provide the following financial projections:

a) Returns-on-Average assets and Returns-on-Capital Performance projections, year by year, for a 10 year period. These projections should show summary cash flow, summary income and expense (including taxes), and summary balance sheet data. For these performance projections, operating income and expenses can be grouped by category. Specify the assumptions used for the performance projections.

b) Specify computer programs used for projections, if any, and specify formulas used.

12. Fee Income - Discuss the potential for fee income, and any plans that the BIDCO might have for generating fee income.

13. Complementary and Affiliate Relationships - Discuss the nature of complementary or affiliate relationships that are anticipated with banks, commercial lenders, investment bankers, venture capitalist and other institutions. This discussion can be based on general types of institutions and should identify specific institutions where complementary or affiliate relationships have already been discussed or arranged.

G. Application for a co-investment will contain the following information. The Applicant may provide other information which it believes relevant. LEDC may request further information beyond what is specified below :

1. The proposed amount, terms, and conditions of the investment

2. A business and funding plan for the recipient completed in accordance with the standards outlined in LEDC program material for all other LEDC programs.

3. Identify all "principal shareholders" (i.e. owning directly or indirectly, or controlling directly or indirectly, 10% or more of the voting stock of the BIDCO), by name with specific ownership identified.

4. The recipient must have its primary operating activities located in Louisiana, and the application of the funding must result in meaningful economic impact to the area of Louisiana where its activities are conducted.

AUTHORITY NOTE: R.S. 51 : 2312 (A) (7), (B) (1) and (B) (3)
HISTORICAL NOTE: Promulgated by the Department of Economic Development, Louisiana Economic Development Corporation, LR 18:

7107. AMOUNT OF INVESTMENT

Co-Investment

A. If a non-specialty BIDCO can show cash of at least $1 MM but less than $2,000,000, LEDC may co-invest $1 for each $2 for each LEDC approved project submitted to it by the BIDCO. The LEDC investment will participate pro-rata with the BIDCO share of the investment. The LEDC investment will not exceed thirty-three percent of any project nor will LEDC funding exceed $1 for each $2 of the BIDCO's total capital. On each project submitted for review, an application fee of $250 is required.

B. If a specialty BIDCO can show cash of at least $500K plus enough operating capital to administer ongoing investments, but less than $1,000,000, LEDC may co-invest $1 for each $1 for each LEDC approved project submitted to it by the BIDCO. The LEDC investment will participate pro-rata with the BIDCO share of the investment. The LEDC investment will not exceed fifty percent of any project nor will LEDC funding exceed $1 for each $1 of other BIDCO capital committed.

C. On each project submitted for reviewed, an application fee of $250 is required.

Match Investment

A. Each request should be accompanied by a $500 application fee.

B. If a non-specialty BIDCO can show cash, of $2,000,000, exclusive of any previous investments by LEDC, the BIDCO may request a matching equity capital contribution from LEDC subject to availability of funds and a determination by LEDC management that the BIDCO business plan is consistent with investment targets of LEDC. If the BIDCO is considered an acceptable risk, based upon LEDC review of its credentials, performance, and business plan, or some combination thereof, LEDC may make a matching cash contribution on the basis of $1 for each $2 of the BIDCO capital not to exceed $2,500,000, reduced for any previous LEDC capital contributions. LEDC will base it's matching equity capital contribution on the amount of capital as calculated in accordance with 103 D. Thereafter it will participate in all future BIDCO investments on a pro-rata basis with all other BIDCO funds. Any BIDCO which has received a LEDC match investment is ineligible to present portfolio projects to LEDC for assistance through any of LEDC's other programs.

C. If a specialty BIDCO can show capital contributions, as defined in Section 103, of $1,000,000, exclusive of any previous investments by LEDC, the BIDCO may request a matching equity capital contribution from LEDC. Each request should be accompanied by a $500 application fee. If the BIDCO is considered an acceptable risk, based upon LEDC review of its credentials, performance, and business plan, or some combination thereof, LEDC may make a matching cash contribution on the basis of $1 for each $1 of the BIDCO capital not to exceed $1,000,000 subject to availability of funds and a determination by LEDC management that the BIDCO business plan is consistent with investment targets of LEDC reduced for any previous LEDC capital contributions. LEDC will base it's matching equity capital contribution on the amount of non-LEDC capital as calculated in accordance with 103 D.. Thereafter it will participate in all future BIDCO investments on a pro-rata basis with all other BIDCO funds. Any BIDCO which has received a LEDC match investment is ineligible to present portfolio projects to LEDC for assistance through any of LEDC's other programs.

D. All funding of BIDCOs is subject to the availability of resources as allocated by the LEDC Board of Directors.

E. The consolidated dollar total of all LEDC investments authorized under section 109 A. through D. shall not exceed $2,500,000 to any one BIDCO.

AUTHORITY NOTE: R.S. 51 : 2312 (A) (7), (B) (1) and (B) (3)
HISTORICAL NOTE: Promulgated by the Department of Economic Development, Louisiana Economic Development Corporation, LR 18:

7109. TERMS OF INVESTMENT

A. Founders stock and or investment given in exchange for services shall be subordinate to LEDC's investment unless LEDC determines that the pricing of such founders investment and or stock is commensurate with the services performed or risks taken, in comparison with the pricing of LEDC investment.

B. LEDC will have the right to appropriate representation on the board in the BIDCO. This may include but not be limited to board seat/seats; veto authority or supermajority requirements for key management and financial decisions; board visitation rights.

C. LEDC's stock may be repurchased by the BIDCO or, secondarily, by its private-capital stockholders at any time beginning with the end of the third year based on the then-current book value or market value, whichever is higher, subject to LEDC's concurrence on the valuation methodology. However, the BIDCO shall establish a sinking fund beginning in year three so that the LEDC investment is returned by the end of year ten.

D. LEDC may negotiate additional operating requirements with individual applicant BIDCOs on a case by case basis, as needed to safeguard the quality of LEDC's investment or to promote achievement of the objectives of the program or LEDC.

E. All agreements will be executed by duly authorized persons outlining the details of the transaction.

F. The LEDC's funding under its commitment will be made on a quarterly basis subject to verification of non-LEDC funds received by the BIDCO and availability of LEDC funds.

AUTHORITY NOTE: R.S. 51 : 2312 (A) (7), (B) (1) and (B) (3)
HISTORICAL NOTE: Promulgated by the Department of Economic Development, Louisiana Economic Development Corporation, LR 18:

7111. OPERATING REQUIREMENTS

During the period when LEDC owns an investment in a BIDCO, the BIDCO shall operate in accordance with the following parameters:

A. The BIDCO shall provide financing assistance to Qualified Louisiana Businesses or to firms who will become Qualified Louisiana Businesses as a result of the funding by the BIDCO. If the business firm has multi-state operations, the criterion that shall be used by the BIDCO is whether or not Louisiana is the state where the primary economic benefit of the financing transaction is likely to occur. The BIDCO shall refrain from purchasing corporate stocks or other capital positions unless such investments are part of the BIDCO's funding plan for the Qualified Louisiana Business entity.

B. The BIDCO shall maintain as its primary focus the markets which it identifies in its initial business plan. The BIDCO shall not engage in operations outside the State of Louisiana while LEDC is an investor.

C. The BIDCO shall invest in or lend to Qualified Louisiana Businesses an amount at least equal to the sum of LEDC's funds plus the matching private-capital funds. For examples, (a) If LEDC invests $2.5 million to match $5 million of private capital funds, the BIDCO shall invest in or lend to Qualified Louisiana Businesses a minimum of $7.5 million of its total portfolio exclusive of operating expenses and minimum capital reserve requirements as set out by the Office of Financial Institutions. (b) If LEDC invests $1 million to $2 million of private capital, the BIDCO shall invest/lend to Qualified Louisiana Businesses a minimum of $3 million of its total portfolio exclusive of operating expenses and minimum capital reserve requirements as set out by the Office of Financial Institutions .

D. Without the consent of LEDC, the BIDCO shall not apply to OFI to surrender its license, provided, however, that if LEDC is not a stockholder no consent of LEDC is necessary. If LEDC grants its consent for such license-surrender application, the application shall state the commitment of the BIDCO to repurchase LEDC's stock at the time of license surrender for its then-current book value or market value, whichever is greater, or, if discounted pursuant to these rules, for the agreed-upon discounted price. If OFI requires surrender of license, the BIDCO must immediately notify LEDC to review the future plans of operation.

E. LEDC may negotiate additional operating requirements or material changes in the business plan with individual applicant BIDCOs on a case by case basis, as needed to safeguard the quality of LEDC's investment or to promote achievement of the objectives of the program or LEDC.

F. Reporting requirements shall include the following:

1. Annual audited financial statements in accordance with GAAP, quarterly financial statements, and minutes of all regular and special board meetings.

2. Timely advice of all management and board member changes with reasons for the changes and submission of new members' resumes showing experience and qualifications.

3. Reports of activity including client businesses' names, addresses, employment levels before and after funding, and other information required for LEDC's annual legislative report.

4. The BIDCO shall provide LEDC with complete copies of OFI's annual audit report.

5. If the BIDCO is also a CAPCO, it must be in compliance with all CAPCO regulations

6. The BIDCO's officers shall provide LEDC annual certification that BIDCO investments are consistent with their business plan and that they are in compliance with the Code of Governmental Ethics, R. S. 42:1112 et seq..

G. The failure of a BIDCO to comply with these operating requirements will constitute violation of the premise(s) on which LEDC relied in making its investment and will be just cause for LEDC to demand and require that its investment be immediately repurchased in whole or in part.

AUTHORITY NOTE: R.S. 51 : 2312 (A) (7), (B) (1) and (B) (3)
HISTORICAL NOTE: Promulgated by the Department of Economic Development, Louisiana Economic Development Corporation, LR 18: