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Volume 1 - Instructions to Bidders
 

Volume 1 - Instructions to Bidders

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    Volume 1 - Instructions to Bidders Volume 1 - Instructions to Bidders Document Transcript

    • North West Business Finance Ltd INVITATION TO TENDER FOR THE PROVISION OF Fund and Loan Management Services for North West Business Finance VOLUME ONE - INSTRUCTIONS TO BIDDERS 1
    • North West Business Finance Ltd (NWBF) c/o North West Development Agency (NWDA) Renaissance House Centre Park Warrington WA1 1QN 19th January 2010 Re: Invitation to Tender for Fund Management Services for NW Business Finance North West Business Finance Ltd (NWBF) is pleased to invite tender responses for the provision of Fund and Loan Management services for the NW Venture Capital and Loan Funds created by NWBF. You are invited to submit a fully priced tender in accordance with the provisions of this tender document by noon on the 5th March, 2010. Any tender submitted later than this date and time will not be eligible for consideration. Please ensure that your tenders are submitted in line with the requirements set out in Volume 1 (Instructions to Bidders). The NW Venture Capital and Loan Funds will be divided into four lots. Bidders are required to submit a separate tender for each lot that it wishes to tender for. Please note that Bidders are only permitted to bid for up to two Lots in total. Please note each lot will be separately evaluated and if successful, Bidders will be appointed to a multi-party framework panel for the individual lots and subsequently invited to bid at the mini competition stage for the individual awards. The Invitation To Tender (ITT) document is separated into four volumes. Please ensure that you take the time to read ALL volumes. Volume 1- Instructions to Tender Volume 2- Selection documentation Volume 3- Award documentation Volume 4- Contract Documentation A Bidders’ conference will be take place at 1.00pm on Wednesday 27th January 2010 at the Village Hotel, Warrington. The conference will represent an opportunity for all Bidders to ask any questions and seek clarification on the different lots and the procurement process. Should you wish to attend the conference then please register your intention by emailing NWBF.tenders@NWDA.co.uk by the 25th January 2010. Each Bidder is limited to a maximum of two places. Details of the tender clarifications process are set out in this volume (Instructions to Bidders). All clarifications and queries should be submitted by email to NWBF.tenders@NWDA.co.uk Clarification questions will be accepted up to and including the 24th February 2010. We will aim to respond to any questions within four working days. 2
    • Yours faithfully, David Read Director North West Business Finance Ltd. North West Business Finance Ltd is a company limited by guarantee registered in England, no. 07028838. Registered office address:- Eversheds House, 70 Great Bridgewater Street, Manchester, M1 5ES. Directors: David Read, Timothy Sheward 3
    • Table of Contents – Volume 1 INVITATION TO TENDER DOCUMENTATION STRUCTURE.......................................6 1 GLOSSARY ..................................................................................................................8 2. INTRODUCTION.........................................................................................................13 2.1 Purpose of this Procurement..................................................................................13 Bidders will be invited to bid to operate and manage the Limited Partnerships, which will each be a CIS for the purposes of FSMA. .......................................................................16 In relation to Lot 3, NWBF is proposing that an alternative structure may be made available for managing the SME Loans that would not require bidding fund managers to be authorised under FSMA to operate a CIS or to manage investments, in order to increase the range of organisations who would be able to bid to provide the Service. The terms of the documentation for any alternative structure will reflect substantially the terms set out in this document including Volume 4 but subject to all necessary changes to reflect the different legal and tax structure employed........................................................................16 All Bidders are required to note that their tenders should be submitted based on the “minimum” fund size value by Lot set out in the Tables 1 and 2 above.............................16 2.2 Introduction and Overview.....................................................................................16 2.3 North West Business Finance Ltd.........................................................................17 2.5 Fund details.........................................................................................................20 Contract Period.............................................................................................................20 2.7General Contract Conditions....................................................................................20 2.8Lot Specific Information............................................................................................20 3 INSTRUCTIONS TO BIDDERS....................................................................................24 3.1Indicative Procurement Timetable ...........................................................................24 3.2 General ..................................................................................................................24 3.3 Tender Process......................................................................................................25 3.4 Submission of Documents......................................................................................25 3.5 Non Compliance ...................................................................................................29 3.7 Pricing Schedule.....................................................................................................29 3.8 Bidders’ Conference...............................................................................................30 3.9 Initial Appraisal .....................................................................................................30 3.10 Validation including Due Diligence........................................................................30 3.11 Interviews .............................................................................................................31 3.12 Conditions of Contract...........................................................................................31 3.13 Debriefing........................................................................................................31 3.14 Confidentiality.......................................................................................................32 3.15 Freedom of Information.........................................................................................32 3.16 Guarantees/Security Bond....................................................................................33 3.17 TUPE................................................................................................................33 4. EVALUATION METHODOLOGY................................................................................35 2.1 Key Principles .........................................................................................................35 APPENDIX A - SELECTION METHODOLOGY FOR VOLUME 2 (Selection Documentation)..............................................................................................................40 APPENDIX B- AWARD METHODOLOGY FOR VOLUME 3.........................................46 4
    • APPENDIX C –NWBF OVERVIEW AND MARKETING SUPPORT...............................55 Fund 1 – “X” Development Capital Fund....................................................................62 CHECKLIST.................................................................................................................105 5
    • INVITATION TO TENDER DOCUMENTATION STRUCTURE VOLUME 1 - INSTRUCTIONS TO BIDDERS Section 1 Glossary Section 2 Introduction Section 3 Instructions to Bidders Section 4 Evaluation Methodology Appendix A Selection Methodology for Volume 2 Appendix B Award Methodology for Volume 3 Appendix C NWBF Marketing Support Appendix D Fund Structures Appendix E Investment Operating Guidelines (IOGs) Appendix F Checklist VOLUME 2 - SELECTION DOCUMENTATION Stage One Selection VOLUME 3 - AWARD DOCUMENTATION Section 1 Service Delivery & Approach Questions Section 2 Pricing Schedule Section 3 Procurement Certificates VOLUME 4 – CONTRACT DOCUMENTATION Section 1 Contents Appendix 1 Draft LP Agreement Appendix 2 Draft Framework Agreement Appendix 3 Draft Fund Management Agreement 6
    • SECTION 1: GLOSSARY -7-
    • 1 GLOSSARY Unless the context otherwise requires, the following words and expressions used within this Invitation to Tender shall have the following meanings: Term Meaning “Bidders” Organisations responding to this Invitation To Tender. “BVCA” British Private Equity and Venture Capital Association “CIS” Collective Investment Scheme “Conditions of Tender” Terms and Conditions set out in this Invitation To Tender Documentation relating to the submission of a Tender. “Contract” a Fund Management Agreement entered into as a result of a Mini-competition “Contract Management Team” The team Bidders will put in place to manage any subsequent awards “EIB” European Investment Bank “EIF” European Investment Fund “ERDF” European Regional Development Fund “Expansion Capital” Financing providing for growth of an undertaking, which may not break even or trade profitably, for the purposes of increasing production capacity, market or product development or the provision of additional working capital “Framework” or “Framework Panel” A small number of fund managers, (anticipated number as set out in this ITT assuming sufficient suitable bids are received) appointed to each of four Lots of the Framework Agreement (a draft agreement is attached to Volume 4 of this document). “Framework Agreement” The agreement between NWBF and any successful Bidders under which NWBF may procure fund management services. “FSMA” Financial Services and Markets Act 2000 -8-
    • “FSA” Financial Services Authority “Fund Manager” The manager appointed to provide the Services to the Limited Partnership. “General Block Exemption Regulation Commission Regulation (EC) No (GBER)” 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty “GVA” Gross Value Added (value generated by a region or economy). “Invitation To Tender Documentation” This document and all related documents published by the NWBF and made available to Bidders “IOGs” Investment and Operational Guidelines “JEREMIE” Joint European Resources for Micro to Medium Enterprises Initiative “Limited Partnership” or “LP” A limited partnership established by a Limited Partnership Agreement “Limited Partnership Agreement” or “LPA” Each limited partnership agreement pursuant to which the Product Funds are established, substantially in the form set out in Volume 4 of this document “Lot” Each individual fund type to be bid for during this Tender process “m” Millions “Mini-competition” The process undertaken by NWBF between members of the Framework Panel for the awarding of the Services in relation to specific Lots “Most Economically Advantageous Tender The most economically advantageous (MEAT)” tender in terms of costs, ability to deliver and quality. “NWDA” North West Development Agency “NWBF” North West Business Finance Ltd. This is the Contracting Authority “NW VCLF” North West Venture Capital and Loan Fund, to be operated by NWBF Ltd -9-
    • “OJEU Notice” Notice to tender published in the Official Journal of the European Union. “Open Procedure” One of four methods of procurement under EU regulations. “Part” Relates to different stages of the process of appointing Fund Managers “Priority Sector” For details for what constitutes the components of the Priority Sectors or the constituents of each element making up the Priority Sectors, please refer to the NWDA website: http://www.nwda.co.uk/areas-of- work/business/key-sectors.aspx “Requirement” The specified minimum requirements needed for the delivery of the service. “Seed Capital” Financing provided to study, assess and develop an initial concept, preceding the start up phase “Service” The fund management services to be provided via the Fund Management contract (substantially in the form set out in Volume 4 of this document) to the Limited Partnership formed under each Lot via the Limited Partnership Agreement (substantially in the form set out in Volume 4 of this document) “SME” Small to medium sized enterprises defined as enterprises with less than 250 employees and either an annual turnover of less than €50m or a balance sheet total net worth of less than €43m as more particularly defined in Annex 1 of the GBER “Stage 1 (Selection)” The first stage of this procurement process, determining suitable suppliers deemed as having financial and technical capability, the investment track record and the capacity to deliver similar Services demonstrated from their past experience. “Stage 2 (Award)” The second stage of this procurement process, awarding places in the Framework Panel within the Framework Agreement based on the MEATs - 10 -
    • “Start up Capital” Financing provided for the growth and expansion of an undertaking, which has not sold its products or services commercially and is not yet generating a profit for product development and initial marketing “Submission” The Bidders’ formal offer in response to this Invitation To Tender Documentation “Volume” There are four volumes to this Invitation To Tender Documentation; Volume 1 - Instructions to Tender; Volume 2 - Selection Documentation; Volume 3 - Award Documentation; and Volume 4 - Contract Documentation. “X” NWBF brand name for the single brand approach for all funds as advised to successful Bidders on the award of the Fund Management Contract under the Framework Agreement. - 11 -
    • SECTION 2: INTRODUCTION - 12 -
    • 2. INTRODUCTION 2.1 Purpose of this Procurement The purpose of this procurement is to seek proposals from organisations for the provision of fund and loan management services for the NWBF’s Venture Capital and Loan Funds as advertised in OJEU. This document provides guidance to Bidders in respect of the approach they should adopt in developing and submitting their responses. This procurement follows the “OPEN” procedure as outlined in Regulation 15 of The Public Contracts Regulations 2006 (SI 2006 No. 5). A summary of how the Submissions will be evaluated is as follows. Further details are in the following sections. Stage 1 (Selection) will be based on a desktop assessment process. Only those Bidders whose responses pass all of the ‘pass/fail’ criteria, demonstrate relevant financial strength and score 50% or more on the section covering technical capability, track record and capacity to deliver similar services in the past will proceed to Stage 2 (Award). Stage 2 (Award) will be evaluated based on a desktop assessment and the top scoring Bidders will then form a short list up to the following maximum for each Lot as follows (subject to there being sufficient suitable tenders in the relevant Lot):- Lot 1 - top 5 scoring Bidders; Lot 2 - top 5 scoring Bidders; Lot 3 - top 5 scoring Bidders; and Lot 4 – top 3 scoring Bidders for each of the 3 Priority Sector funds e.g. Lots 4a, 4b and 4c, plus the top 3 scoring Bidders for the whole of Lot 4. Lot 4a Energy and Environmental Lot 4b Biomedical Lot 4c Digital and Creative Lot 4 in total – top 3 scoring bids - 13 -
    • NWBF is seeking to establish a Framework Agreement for fund management and loan management services. The framework will be divided into Lots and it is anticipated that a max of 5 suppliers will be awarded onto each of Lots 1-3. Lot 4 will be further subdivided into each of the 3 priority sectors and in total it is anticipated that there will be a maximum of 12 suppliers awarded onto Lot 4, comprising of up to 3 suppliers for each of the priority sectors and up to 3 suppliers for the provision of the whole of Lot 4 services. Following award to the framework, mini competitions will be run for all Lots. In respect of Lot 4 service provision, contracts may either be awarded to three separate Fund Management service providers, covering each of the priority sectors or to a single Fund Management service provider covering all three priority sectors and the decision will be based on the assessment of those mini competitions. Bidders for Lot 4 are required to submit either a single bid for Lot 4 in total and/or may choose to submit for more than one element from this (ie any or all of Lots 4a, 4b and 4c). In either instance Bidders are required to submit the Contract Selection and Award documentation as a single submission for all or any of Lot 4, 4a, 4b and/or Lot 4c but with the Pricing Schedule and Technical Ability and Experience (i.e. Section 11 Volume 2) completed separately for each of Lot 4, 4a, 4b and/or 4c as relevant. Due diligence will be undertaken on the short list of Bidders with in-depth interviews, visits and presentations to validate the short listed Bidders proposals Following due diligence and interviews/presentations with the ‘Top 5’ bidding for Lots 1, 2 and 3 and up to ‘Top 3’ for each part of Lot 4, those found to offer the most economically advantageous tender during Stage 2 (Award) for their Lot(s) bid for will be appointed to the Framework Panel. If the due diligence process causes any Bidder to be disqualified or cease to be in the Top 5 (or Top 3 for Lot 4 and its sub- lots) NWBF will carry out the due diligence on the next ranking Bidder or Bidders as relevant for that Lot, if available. NWBF will arrange mini-competitions for each Lot/sub lot based on specific cost and quality criteria defined in this Invitation To Tender Documentation, the draft Framework Agreement, IOGs and the Fund Structures (detailing the initial specified fund value for each Lot) set out in the Appendices of this document. The successful supplier(s) following completion of each Mini-competition will be invited to form the Limited Partnership under the relevant Lot and to be appointed to manage the Limited Partnership for that Lot. Future funding will be allocated to Framework Panel suppliers in subsequent funding rounds on the basis of Mini-competitions run and assessed against the criteria and weightings defined in this Invitation To Tender Documentation as referred to above. Any subsequent modifications to the criteria and/or the procurement process required by NWBF will be notified to Framework Panel suppliers as part of any subsequent Mini-competition process. - 14 -
    • A copy of the draft Framework Agreement is attached to Volume 4 (Contract Documentation). The Services are to be provided across the four Lots set out in the following Table 1. The value ranges relating to the individual funds and the overall fund sizes provide flexibility for NWBF to prioritise further investment between Lots in allocating the subsequent drawdown of NWBF funding. These fund size values have not been finally determined by NWBF. Bidders are requested to bid on the basis of the minimum size levels, but should be aware that the initial awards under the Mini-competition process may vary from the stated size levels, but will be within the fund size values detailed in Table 1. After 31st December 2015 there may be subsequent funding available for follow on investments for existing investments from legacy monies returned to the NWDA from previous venture capital interventions in the Northwest. NWBF will decide how this funding will be allocated at a later date. The maximum fund sizes in Table 1 are designed to cater for this potential funding. Table 1 – NWBF Funds Lot “Fund” Title Description Minimum and Maximum Fund Size Values 1 “X” Development Capital Expansion capital for SMEs £45m to £125m Fund Equity, Quasi-Equity and Loans for all sectors 2 “X” Venture Capital Fund £30m to £100m Early Stage including Pre- Start, Seed and Follow-on investments for all sectors including a specific focus on Technology. 3 “X” Loan Fund Loans between £50,000 to £35m to £50m £250,000 4 “X” Priority Sector Growth Sector focused. The Priority £45m to £125m Fund Sectors are: 4a Energy and Environmental 4b Bio-medical 4c Digital and Creative Additionally, suppliers will be required to undertake monitoring and realisation services in respect of an Interim Venture Capital Fund LLP (“Interim VC Fund”) and an Interim Loan Fund LLP (“Interim Loan Fund”) both established by the NWDA during 2009. These are comparatively small funds and are not considered by NWBF to be of a sufficient size to distort a supplier’s cost structure and hence the value of the management fee tendered. - 15 -
    • Table 2 – Priority Sector Funds Priority “Fund” Title Description Minimum and Sector Maximum Fund Size Values 4 “X” Priority Sector All priority sectors as Growth Fund detailed in 4 a, 4b and 4c. £45m to £125m 4a “X” Energy and Environmental Energy and Environmental £15m to £95m Growth Fund 4b “X” Bio-medical Growth Fund Bio-medical £15m to £95m 4c “X” Digital and Creative Growth Digital and Creative £15m to £95m Fund Bidders will be invited to bid to operate and manage the Limited Partnerships, which will each be a CIS for the purposes of FSMA. In relation to Lot 3, NWBF is proposing that an alternative structure may be made available for managing the SME Loans that would not require bidding fund managers to be authorised under FSMA to operate a CIS or to manage investments, in order to increase the range of organisations who would be able to bid to provide the Service. The terms of the documentation for any alternative structure will reflect substantially the terms set out in this document including Volume 4 but subject to all necessary changes to reflect the different legal and tax structure employed. All Bidders are required to note that their tenders should be submitted based on the “minimum” fund size value by Lot set out in the Tables 1 and 2 above. 2.2 Introduction and Overview North West Development Agency (NWDA) is sponsoring the launch of a £184m (€204m) Regional Venture Capital and Loan Fund (VCLF) building on the success of previous public venture capital funds operated in the region. A new private company called North West Business Finance Limited (NWBF) has been established to oversee the delivery of the VCLF, under the Joint European Resources for Micro to Medium Enterprises Initiative (JEREMIE) in the North West of England. The JEREMIE initiative offers European Union (EU) Member States, through their national or regional Managing Authorities, the opportunity to use part of their EU Structural Funds to finance small and medium-sized enterprises (SMEs) by means of equity, loans or guarantees, through a revolving umbrella fund. The initiative was developed by the European Commission (EC) and the European Investment Fund (EIF), which is part of the European Investment Bank (EIB) Group. JEREMIE provides for a range of debt and equity financial tools to obtain the most appropriate allocation of funds according to national, regional or local requirements by means of a venture capital and loan fund (VCLF). The North West VCLF is funded by a European Regional Development Fund (ERDF) grant under the 2007-13 programme and is to be matched equally by private sector - 16 -
    • loan funding from EIB. The JEREMIE fund will run for an initial investment period up to the end of December 2015. Previous NWDA sponsored Venture Capital Funds (VCFs), whose investment periods have now closed, are not part of the JEREMIE initiative. The realisations from these funds to date amount to circa £12.5m, but is likely to increase to circa £40m by the end of December 2015 and it’s envisaged that this funding will be retained for use as follow-on funding to existing VCLF investments from Lots 1, 2 and 4 after December 2015. The ranges set out in Tables 1 and 2 earlier allow for possible further funds (which are not part of this ITT) being made available by NWBF. As mentioned earlier NWDA established two interim funds during 2009 (Interim VC Fund and Interim Loan Fund) for investment prior to establishment of the new regional VCLF and these are currently being managed by third parties. The assets created by the contract award dates under these interim funds will be transferred in specie to the funds established under Lots 1 to 4, as appropriate, for management and realisation. The minimum fund size specified in Tables 1 and 2 above exclude the value of any such assets transferred in specie but the contracts awarded under the initial Mini - competition will include these funds. It is anticipated that the successful organisation(s) or consortium(s) will be capable of delivering Venture Capital and/or Loan fund management. In addition, on lots 1,2, and 4, the successful Bidder(s) must be able to secure private sector co-investment funding to enhance the economic and financial benefits created by the Framework. The basis of co-investment is set out in inter alia the IOGs. 2.3 North West Business Finance Ltd. NWBF has been set up to act as the umbrella for the operation of the JEREMIE programme in the Northwest. NWBF is a company limited by guarantee and is non- profit distributing - i.e. its constitutional documentation restricts the distribution of any profit / surplus to its members. Figure 1: Governance and flow of funds is shown overleaf - 17 -
    • Members ERDF Other NWBF Grant legacy monies and EIB NWDA grant 1 Partnership Partnership Loans Capital Carried Interest Partner3 General Partner2 423 Partnership Capital LP2 Management Agreement4 Management Services Dev. Capital SME Investments Fund into SMEs Venture SME Manager Capital Loan SME Priority Sectors SME Notes to diagram: 1. The NWDA grant relates solely to the expenses of NWBF. 2. Each LP is to be established as an English Limited Partnership. The partners in each LP are the General Partner (which will be a company in the same group as the Fund Manager), NWBF (which will be a limited partner in the LP) and a carried interest partner (Carried Interest Partner). The General Partner will be solely responsible for the management and operation of the LP. The General Partner may be a limited liability partnership or limited company and will be an entity in the same group as the Fund Manager. 3. Carried Interest Partner will be a carried interest partner in the LP. Its members will be the Fund Manager and executives of the Fund Manager and it will participate in the profits of LP as described below as an incentive for optimising the performance of the fund. 4. The successful Bidder(s) will contract to provide fund management services to the LP under the terms of the Management Agreement. The General Partner will execute the Management Agreement on behalf of the LP in its capacity as general partner of LP. The General Partner will be solely responsible for paying the fees of the Fund Manager for providing management services to the LP. - 18 -
    • Figure 2: Returns on SME Investment and Funds Flow NWBF Loan EIB Repayment Partnership Preferred Surplus Loan Return Profit Repayment General Partner Carried Interest Partner Carried Interest Priority Profit Share LP Management Fee Dividend SME Fund Manager Investment returns Interest SME Future Loan Legacy Repayments SME Realisation Proceeds SME 2.4 Regional Context The NWDA leads the economic development and regeneration of England’s North West, covering the five sub-regions of Merseyside, Greater Manchester, Lancashire, Cumbria and Cheshire and is responsible for: • Supporting business growth and encouraging investment; • Matching skills provision to employer needs; • Creating the conditions for economic growth; • Connecting the region through effective transport and communication; • Infrastructure; and • Promoting the region’s outstanding quality of life. With a budget of £1.5 billion between 2007 and 2010, the NWDA has been responsible for directly influencing £1.2 billion of other public and private sector investment into the Northwest region to support the delivery of the Regional Economic Strategy (RES). The RES sets out a clear and measurable vision for the region, outlining the actions which are required to deliver this vision in detail. Further details of the NWDA’s role, responsibilities and work activities can be found at www.nwda.co.uk. Improving access to finance for small to medium sized enterprises (SMEs) is identified within the RES (Key Actions 5 and 6) along with UK central Government and the European Commission’s similar policies as one of the major enablers to the formation, survival and growth of businesses. - 19 -
    • The inability to access the right funding package at the right time represents a significant barrier to all business groups – whether they want help to get started or are trying to develop a new product, technology or process. Whilst many businesses in the North West region are well served by the UK’s dynamic and flexible financial markets there are other businesses which are unable to access the finance they need to innovate, invest and grow. These lost opportunities represent both an economic – through reduced job creation and lower productivity growth – and social cost. 2.5 Fund details Funds are to be used to invest in SMEs which are defined in GBER as enterprises with less than 250 employees and either an annual turnover of less then €50million or a balance sheet “net worth” of less than €43million. Under GBER the investment size for risk capital measures is restricted to an annual investment rate of less than €1.5million per SME but please refer to the IOGs for guidance on subsequent funding round limits. 2.6 Contract Period The duration of the Framework Agreement is four years. Fund Management services under Fund Management Agreements will be required until the end of December 2022. NWBF reserves the right to enter into future limited partnership agreements under this JEREMIE programme and for other funds as set out in this ITT with the successful Bidders during the course of these Limited Partnerships at prices and fund sizes to be agreed in the Mini-competitions under the Framework Agreement. 2.7 General Contract Conditions These are detailed in the IOGs in Appendix E of Volume 1 and in the LPA attached to Volume 4. 2.8 Lot Specific Information The following tables set out Lot specific information. Bidders submission(s) shall be based on the minimum fund values as an indicative fund size for the purposes of the tender, enabling all Bidders to be evaluated against this baseline figure. Detailed specifications for individual Lots are included in this Volume 1 in Appendix D. Lot 1 – “X” Development Capital Fund Purpose: Expansion Capital for SMEs to provide flexible equity and loan packages to support weaknesses in the market and to invest with other private capital in the North West market. Typical expansion capital structures providing equity, quasi-equity (mezzanine) capital and loan support, to the levels set out in GBER. Tender Submission size: Total allocations: £45million in the range of £45million - £125 million - 20 -
    • Lot 1 – “X” Development Capital Fund Industry Sector Specialism  General, with an emphasis on demonstrating NWDA Regional Economic Strategy Instruments and Agreements  Equity and quasi-equity instruments using expansion and development capital equity structures;  Loan funding but always with an equity component. Lot 2 - Venture Capital Fund Purpose: Early Stage Finance for SMEs across the broad range of new businesses covering Proof of Concept /Pre-Start /Start-Up, Seed Capital, Gap Venture Finance and Venture Capital Funding including follow-on investments to the levels set out in GBER. The sector range is General with an emphasis and focus on the regional economic priority sectors including technology. Tender Submission size: Total allocations: £30 million in the range of £30million - £100million Industry Sector Specialism  General;  Demonstrating NWDA Regional Economic Strategy;  Technology; Instruments and Agreements  Equity;  Debt;  Quasi equity; Lot 3 – Loan Fund Purpose: Loans between £50,000 to £250,000 will be available to SMEs for growth businesses with actual or potential revenue streams but whose investment and funding needs are not fully met by the banking sector including the Enterprise Finance Guarantee scheme. In general the arrangement requires the taking of security including, at the Fund Manager’s discretion, personal security of the owners of the SME. Tender Submission size: Total allocations: £35million in the range of £35million - £50million Industry Sector Specialism:  General, demonstrating NWDA Regional Economic Strategy Instruments and Agreements - 21 -
    •  Loans only, no equity stakes are to be taken Lot 4 - “X” Priority Sector Fund Purpose: Priority Sectors, which require specialist investment manager skills, are extremely important to the delivery of the North West Regional Economic Strategy. In particular, the NWBF desires to focus investment resources on venture capital (Early Stage investing, Start-Up, Innovation and Growth) investing with a concentration on three Priority Sectors up to the levels set out in GBER. These sectors will be each awarded a minimum level of investment £15m with overall size not outside the parameters of the total allocation below:-  NWBF seeks specialist manager(s) for this Fund, focused on one or more of these Priority Sectors. Tender Submission size: Total allocations: £45 million or £15 million for individual in the range of: sectors £45 million to £125 million Each Individual Specialist Fund £15 million to £95 million Industry Sector Specialism  Bio medical (life sciences, pharma and health)  Energy and Environmental  Digital and Creative As defined by the Regional Economic Strategy Instruments and Agreements  Equity and quasi equity instruments in debt and equity - 22 -
    • SECTION 3: INSTRUCTIONS TO BIDDERS - 23 -
    • 3 INSTRUCTIONS TO BIDDERS 3.1 Indicative Procurement Timetable Key Actions Dates 2010 Issue of OJEU 19th January Bidders Conference 27th January Last date for submission of requests for 24th February clarifications Tender return date 12 noon 5th March Evaluation of tenders - Stage 1 12th March Evaluation of tenders - Stage 2 19th March Validation visits to Bidders’ premises 22nd March – 9th April Presentation and interviews of Bidders 12th April -16th April Notifications of awards to Framework 23rd April Panel Standstill period 26th April – 10th May Framework Agreement Awarded/Signed By 13th May Mini Competition 11th – 21st May Notification of Award of Funds 28th May Standstill period 1st– 14th June Anticipated date for Award of Fund(s) 15th June The procurement timetable sets out the indicative programme of activities. However, the NWBF reserves the right to alter the timetable at any stage and will inform Bidders of changes as they arise. 3.2 General Bidders should read these instructions carefully before completing their Invitation To Tender response. These instructions are designed to ensure that all Bidders are given equal and fair consideration. It is important that Bidders provide all requested information in the format and order specified. Failure to comply with these requirements for completion and submission may result in the rejection of their tender. - 24 -
    • The Bidder shall ensure that each and every sub-contractor, consortium member and advisor abides by the terms of these instructions and of all sections, appendices and schedules comprising the Invitation to Tender Documentation. Tenders shall remain open and valid for acceptance for a period of 12 months from the tender return date. The Bidder shall not make contact with any employee, agent or consultant of the NWBF or the NWDA who is in any way connected with this procurement exercise, unless instructed otherwise by NWBF. Bidders should note that any representations made or discussions held with any employee, agent or consultant of the NWBF prior to the issuing of this Invitation To Tender Documentation cannot be relied on or warranted in the preparation of Bidders’ submissions. While reasonable care has been taken in preparing this Invitation to Tender Documentation, the information within it does not purport to be exhaustive or to have been independently verified. The NWBF does not accept liability or responsibility for the adequacy, accuracy or completeness of any information or opinions stated in this document. No representation or warranty, expressed or implied, is or will be given by NWBF or the NWDA or any of their representatives, employees, agents or advisers with respect to the Invitation To Tender Documentation or the information on which it is based. Each Bidder shall be deemed to have satisfied itself before submitting a proposal as to the accuracy and sufficiency of the price stated in its proposal, which shall (unless otherwise provided) cover all obligations under the Lot. NWBF shall have no liability for any cost or expense Bidders may incur as a direct or indirect consequence of tendering for the provision of the Services. NWBF reserves the right to amend, add to or withdraw all or any part of this Invitation To Tender Documentation at any time during the procurement process. No unauthorised alteration or addition shall be made to the Invitation To Tender Documentation. In addition submissions must not be qualified, whether by reference to assumptions, conditions or otherwise, but must be submitted strictly in accordance with the Invitation To Tender Documentation and these instructions. NWBF does not bind itself to accept the lowest price or any tender and reserves the right to award on the basis of only part of a Tender. 3.3 Tender Process Stage 1 (Selection) - documentation is contained in Volume 2 (Selection) of this Invitation To Tender Documentation. Stage 2 (Award) - contains three Parts and documentation is contained in Volume 3 (Award Documentation) of this Invitation To Tender Documentation. 3.4 Submission of Documents The tender must be submitted in full accordance with the Form of Tender instructions contained in Section 3 of Volume 3 (Award Documentation) and the key submission requirements set out below. Failure to do so may render the tender non-compliant and result in the tender being rejected. - 25 -
    • Bidders should submit all documents fully completed and in the format set out in the table below. All documents shall be clearly referenced, separately appended and cross reference to the relevant question number. Instruction to Tender – Volume 1 Documents to be returned Instructions to Tender for each lot Not required to be returned. Please read including Appendix D: Fund Structures and understand, declaring your agreement with key objectives and outputs in question 11 of Stage 1 (Selection). The specification forms part of the Terms of Contract. Appendix F: Checklist for return Two hard copies Selection Documents – Volume 2 Documents to be returned Stage 1 – Selection Three hard copies and One copy on CD Rom Copy Award Documents – Volume 3 Documents to be returned 1. Service Delivery & Approach Three hard copies, one copy on CD-Rom 2. Pricing Schedule Three hard copies, one copy on CD-Rom 3. Procurement Certificates Two signed hard copies of each certificate One scanned signed copy on CD Rom - 26 -
    • Contract Documents – Volume 4 Documents to be returned 1. Framework Agreement Not required to be returned. It is noted by all parties that this agreement is subject to review from the funders to NWBF. Please include a declaration stating your agreement, subject to contract, with all terms and conditions, in your response documentation 2. LP Agreement Not required to be returned. It is noted by all parties that this agreement is subject to review from the funders to NWBF. Please include a declaration stating your agreement, subject to contract, with all terms and conditions, in your response documentation. 3. Fund Management Agreement Not required to be returned. It is noted by all parties that this agreement is subject to review from the funders to NWBF. Please include a declaration stating your agreement, subject to contract, with all terms and conditions, in your response documentation  All documentation relating to a particular Lot must be submitted in a single envelope stipulating on the envelope which Lot is being bid for.  Bidders are responsible for ensuring that they have completed and returned in their envelope all the required and completed copies of agreements and procurement certificates.  Bidders shall not substitute their own type of documents for the required questionnaire(s) contained in Volume 2 (Selection Documentation) and Volume 3 (Award Documentation) of the Invitation to Tender Documentation.  Bidders shall not include in their submissions any promotional material and other documents not requested in Invitation to Tender Documentation.  Bidders should adhere to the word or page limits which have been set.  Bidders are to complete the documentation in 12 Arial font.  All submissions must be written in English.  ONLY one submission per Lot is permitted except for Lot 4 if sub divided i.e. Bidders may bid for Lot 4 as a whole or for 4a, 4b and 4c separately. No - 27 -
    • variants will be permitted other than as indicated in section 2.1 above (relating to Lot 3 loan fund, where the bidder is not, and does not wish to be FSA regulated as a Fund Manager). Bidders should submit a separate tender for each Lot. Bidders must bid for no more than 2 Lots.  Please ensure that you reply to each point as instructed.  Where responses are not offered or further information (e.g. an attachment) is missing, an evaluation rating of zero or fail may be recorded.  Submission envelopes shall be plain and shall not show any reference to the Bidders identity. Bidders shall note that this requirement also applies to any tenders submitted by courier.  CD-Roms should be clearly marked with the Bidders organisation and the Lot/Sub Lot number they are bidding for.  All documents saved to a CD Rom should be readable as a PDF document or in Microsoft Office 2007 programme. Submissions should be CLEARLY labelled as follows: Tender Submission for [LOT NAME]: NWBF VENTURE CAPITAL and LOAN FUND David Read c/o NWDA Renaissance House Centre Park Warrington WA1 1QN Closing Date and time for receipt of tenders The last date and time for receipt of tenders is 12:00 noon 5th March 2010. Tenders received before this deadline will be retained unopened until after the opening date and time have elapsed. Tenders, in general, will not be accepted after this date. Late submissions may not be assessed. Please note NWBF is not accepting tenders electronically by email. If your tender response is being delivered by hand or courier, it must be handed in to the reception at Renaissance House and you should ask for Rachel Laver who will provide a timed and dated official receipt. The NWBF will not accept a courier’s delivery receipt as proof that a tender has been received by NWBF. It is the responsibility of the applicant to ensure that its submission is delivered by the appointed time. The NWBF may at its own absolute discretion extend the closing date and the time for receipt of tenders. Any extension granted by the NWBF will apply to all Bidders. For clarity, the Evaluation Methodology is set out in detail in Section 4 of this Volume. Bidders will be notified of the outcome of evaluations by email. - 28 -
    • Please note that NWBF reserves the right to ask for further clarification from Bidders following submission of their tender responses. 3.5 Non Compliance The NWBF reserves the right to reject or disqualify a Bidder’s submission where: required documents are submitted late, are completed incorrectly, are incomplete or fail to meet the NWBF’s submission requirements which are detailed in this document; • in the opinion of the NWBF the Bidder is guilty of misrepresentation in relation to its submission and/or the Selection or Award stages; • it is established that there is a conflict of interest arising between NWBF or the NWDA and the Bidder; • a tender containing major arithmetical errors or a large number of arithmetical errors is submitted. This may be rejected on the grounds that there is a serious doubt about the competence of the Bidder; • any material change to information provided at any point during the procurement process but prior to the award of a Framework must be given to NWBF and it reserves the right to reassess selection/evaluation as appropriate. The Framework will include the right to terminate if any subsequent information comes to light which would have affected the outcome of the selection or evaluation process. 3.6 Tender Clarification Process Unless stated otherwise in these instructions or in writing from the NWBF, all communications from Bidders (including their subcontractors, consortium members, consultants and advisors) for queries or requests for clarifications during the period of this procurement exercise must be directed through the Contact Officer via the email address: NWBF.tenders@NWDA.co.uk . Telephone enquiries will not be accepted. The final date on which the NWBF is prepared to accept clarification requests is the 24th February 2010. Any clarification requests received after this date will not receive a response. All clarification questions and responses will be anonymous and will then be distributed to all of the Bidders. If a Bidder considers a matter to be confidential, NWBF will consider the request and if it agrees the answer will be kept confidential. If NWBF does not agree, it will provide the Bidder with the right to withdraw the question or agree to it not being confidential and information will then be circulated. If NWBF considers any question or requests for clarification to be of material significance, both the query and response will be communicated the NWDA website www.nwda.co.uk/tenders in an anonymous form. It is the responsibility of Bidders to check this website on a regular basis. The NWBF aims to respond electronically within four working days of receiving any communication from Bidders. 3.7 Pricing Schedule Bidders are required to complete the Pricing Schedule in Section 2 of Volume 3 (Award Documentation). Bidders are advised that the fees which they submit will be the maximum fees they will be able to charge under any future Fund Management Agreement. During the Mini competition process however there will be opportunities - 29 -
    • for Bidders to review their proposals concerning fee levels, but their revised proposals should be no more than the maximum fee level offered in this Tender. Pricing and any financial data provided must be submitted in or converted into pounds Sterling. Where official documents include financial data in a foreign currency, a Sterling equivalent value must also be provided. Instructions for completing the Pricing Schedule are included in Section 2 of Volume 3 (Award Documentation). Whilst the NWBF accepts there may be a need for post tender clarification before a Lot can be awarded, the Bidders must have the capacity to immediately accept a Lot without the need for further negotiations. All prices should be exclusive of VAT. 3.8 Bidders’ Conference The NWBF will hold a Bidders’ conference to enable the NWBF to outline the requirements of the tender process in an open forum. Each Bidder is limited to two places at the conference. This will be held at 1.00pm 27th January 2010 at the Village Hotel, Warrington (http://www.village-hotels.co.uk/hotels/Warrington/directions.aspx Please email your organisation’s confirmation of attendance and the names of those attending to NWBF.tenders@NWDA.co.uk no later than 5.00pm on Monday 25th January 2010. 3.9 Initial Appraisal At the end of Stage 1 (Selection) appraisal those that meet the selection criteria will be taken forward to Stage 2 (Award). At the Stage 2 (Award) all submissions will be subject to desktop review based on all material submitted. The aim of the selection exercise will be to test and appraise the content of Bidders’ submissions and to score bids in accordance with the Evaluation Methodology set out in detail in Section 4 of this Volume 1 and to short-list the Top 5 Bidders under each Lot (with the exception of Lot 4 which will have up to12 shortlisted Bidders) or fewer if appropriate e.g. there are fewer passing the selection process . 3.10 Validation including Due Diligence The short listed Bidders under each Lot will have due diligence undertaken, referred to as validation. The validation process will involve staff from NWBF or its agents conducting one to two day meetings on site at the Bidder’s current premises. The validation process will be used to increase understanding and to validate the responses submitted in Stages 1 and 2, particularly with respect to the composition of the proposed team, fund management structure or loan management structure, investment strategy and historic financial and fund management performance. The requirements of NWBF’s funders, which are not known in full, at the date of this document, will need to be included in this validation process. The award of any Framework Agreement or contract under a Mini-competition may be stopped if NWBF’s funders do not approve the award. Discussions may be held with the Bidders’ proposed team either individually or as a group. The NWBF validation process will focus, but not exclusively, on material submitted in response to the questions set out in Volumes 2 and 3 of the Invitation To - 30 -
    • Tender Documentation as it relates to the approach to delivery of the activities. NWBF will review and reassess the scores which may be subject to a downwards review only, in relation to Stage 2 Evaluation and a pass becoming a fail in relation to Stage 1 Selection, if any deficiency or omission is identified based on the responses for Stage 1 and 2 following the validation process. Bidders are also reminded of the provisions concerning disclosure of material changes as set out at point 3.5 of this ITT and in the Form of Tender in Volume 3. The short listed Bidders under each Lot will be informed of the specific on-site validation dates in due course. 3.11 Interviews Following the validation process the short-listed Bidders will be invited to interview and present. Bidders will be required to submit their presentations electronically to the interview panel 2 days prior to the interview taking place to NWBF.tenders@NWDA.co.uk. The date of the interviews will be confirmed during the procurement process but are expected to be held between the 12th to 16th April 2010 in Warrington. 3.12 Conditions of Contract Successful Bidders will be required to arrange for an LP to be established between the General Partner (which will be a company in the same group as the successful Bidder) and a Carried Interest Partner and for execution of a Limited Partnership Agreement between the General Partner the Carried Interest Partner and NWBF as a deed. Successful Bidders will be required to provide or procure such customary legal and tax opinions and other evidence of this being done as NWBF shall reasonably require. Details of the fund structures are contained in Appendix D of this Volume 1 (Instructions) and are part of the Terms and Conditions of appointment. Successful Bidders will be required to execute a fund management agreement with the LP acting by the General Partner which is to be formed under the Framework award substantially in the form attached Volume 4 Section 3. The NWBF considers that Bidders should be able to commit to the terms and conditions of the draft documents as set out in Volume 4 of this ITT, because tenders are submitted on the basis that the successful Bidder will be capable of performing the contract and that the tender price covers the true cost of performance. Once the tender has been awarded and the final documentation prepared, a copy of the engrossed agreements will be sent to the successful Bidder for execution. No changes will be permitted to the agreement except in the case of manifest error. Should any additions or deletions to any Invitation To Tender Documentation, supplementary clauses or additional information be considered necessary by the NWBF at any time prior to the closing date for submission of proposals, then these will be by way of an update on the tender website www.nwda.co.uk/tenders and will be deemed to form part of the Invitation To Tender Documentation. In order to give Bidders a reasonable time in which to take such amendments or additional information into account in preparing their proposal, the NWBF may, at its discretion, extend the deadline for the receipt of tenders. 3.13 Debriefing - 31 -
    • At the same time as notification is given to successful Bidders of the decision to award the contract, notification and debrief information will be sent to unsuccessful Bidders in accordance with Regulation 32 of the Public Contracts Regulations 2006. 3.14 Confidentiality The contents of this Invitation To Tender Documentation are being made available by the NWBF on condition that:  Bidders shall at all times treat the contents of the Invitation To Tender Documentation and any related documents as confidential, save insofar as they are already in the public domain;  Bidders shall not disclose, copy, reproduce, distribute or pass any of the information to any other person other than its professional advisers at any time or allow any of these things to happen; and  Bidders shall not use any of the information for any purpose other than for the purposes of submitting (or deciding whether to submit) a tender and completing this tender process. Notwithstanding the above, Bidders may disclose, distribute and pass any of the information to the Bidders’ advisors, sub-contractors or to another person provided that:  this is done for the sole purposes of enabling a tender to be submitted and the person receiving the information undertakes in writing to keep the information confidential on the same terms as if that person were the Bidder; or  the Bidder is legally required to make such a disclosure. The NWBF may disclose detailed information relating to tenders to its officers, employees, agents or advisors, and to the NWBF funders, (NWDA, EIB, EIF, or other funders together with their professional advisers). The NWBF also reserves the right to disseminate information that is materially relevant to the procurement to all Bidders, even if the information has only been requested by one Bidder, subject to the duty to protect each Bidder’s commercial confidentiality in relation to its tender as stated in paragraph 3.6 above. In addition, the NWBF may have an obligation to disclose information relating to the procurement pursuant to the Freedom of Information Act 2000, as explained in paragraph 3.14 below. 3.15 Freedom of Information The NWDA acting as agent for the ERDF is committed to open government and to meeting its legal responsibilities under the Freedom of Information Act 2000 (the Act) or the Environmental Information Regulations (the EIR) (together the Freedom of Information Legislation). Accordingly, all information submitted may need to be disclosed in response to a request under the Freedom of Information Legislation. Bidders should be aware that the information they provide could be disclosed in response to a request under the Freedom of Information Legislation. The NWBF and/or the NWDA will proceed on the basis of disclosure unless an appropriate exemption applies. Bidders should be aware that despite the availability of some exemptions, information may still be disclosed if the public interest in its disclosure outweighs the public interest in maintaining the exemption. NWBF and/or NWDA may also decide to publish certain information under the Act. - 32 -
    • No response to this Invitation To Tender should be covered by a general statement regarding its overall confidentiality or commercial sensitivity; instead any specific areas of confidential information and commercial sensitivity should be highlighted. The NWBF and/or NWDA accepts no liability (including for negligence) for loss as a result of any information disclosed in response to a request under the Freedom of Information Legislation. Bidders shall highlight information in their responses which they consider to be commercially sensitive or confidential in nature, and should state the precise reasons why they consider this to be the case. The NWBF and/or NWDA will use reasonable endeavours to consult with Bidders over the release of information which is highlighted by them as commercially sensitive or confidential. NWBF and NWDA are considered to be bound by the Code of Practice under the Act and accordingly required to consult with third parties, where appropriate, regarding the disclosure of information obtained from third parties. However, in all cases, the NWBF and the NDWA must determine whether or not information should be disclosed under the Freedom of Information Legislation and their decision is final. Bidders are recommended to take their own independent legal advice regarding the effect of the Act. 3.16 Guarantees/Security Bond The NWBF may require appropriate security in the form of an ultimate holding or parent company guarantee from the successful Bidder in a form to be agreed by the NWBF. In the event that a Bidder is unwilling or unable to provide a parent company guarantee, the Bidder should specify any other types of security that will be provided and / or whether they will obtain a performance bond in respect of their performance under the contract. The successful Bidder shall, if so requested by the NWBF, furnish the required guarantee or bond to the NWBF contemporaneously with the award of the contract. 3.17 TUPE Bidders are advised to seek independent professional advice on the effect of the Transfer of Undertakings (Protection of Employment) Regulations 1981, as amended (“TUPE”). Bidders must be prepared to accept all liabilities that may arise as a consequence of the application of TUPE. - 33 -
    • SECTION 4: EVALUATION METHODOLOGY - 34 -
    • 4. EVALUATION METHODOLOGY 2.1 Key Principles The tender process is an open process with ’Selection’ and ‘Award’ assessments as part of the same scoring exercise separated into two stages. This process involves a procedure to appoint suppliers to a Framework Panel which will contain four different Lots. The appointment to the Framework Panel will be followed by a supplemental process of “Mini competition” to undertake an exercise whereby one panel firm is selected in relation to each Lot (with the possible exception of Lot 4 where more than one may be appointed) at the outset from those on the Framework Panel. As noted earlier further funding may be made available by NWBF and if this occurs during the life of the Framework Panel, the NBWF may award Fund Management contract’s through this Mini-competition procedure. Key points within the process include: • The evaluation criteria set out in this Invitation to Tender Documentation, at Appendix A and B, Volume 1 (Instructions to Tender), will be used to inform the final decision as to which Bidders will be appointed to the Framework Panel. • Bidders responses to the questions contained in Volumes 2 (Selection Documentation) and 3 (Award Documentation) will be used as the basis of evaluation for all Lots. • Weightings applied to questions for Stage 1 (Selection) and Stage 2 (Award) will be applied to the evaluation of all Lots. These weightings are set out in Appendix A and B Volume 1 (Instructions to Tender). • Bidders should note that for technical criteria, marks will be awarded against each question independently and then weighted. Worked examples of the scoring methodology are included in Appendix A, Volume 1 (Instructions to Tender) to assist Bidders’ understanding of the marking scheme. • The Top 5 Bidders for Lots 1-3 and the Top 3 for each part of Lot 4 (ie maximum 12 in total) (or fewer if appropriate e.g. there are fewer passing the selection process) at Stage 2 (Award) will be interviewed and will be subject to a validation visit at their current premises. • The validation process will cover the information which was provided for Stage 1 (Selection) as well as the Stage 2 (Award). If the validation process reveals (1) information which, if known at Stage 1 (Selection) would have prevented the Bidder from passing that Stage the Bidder will be disqualified from the process or (2) if the validation process reveals information which causes that Bidder’s scores to be reduced such that it is no longer in the Top 5 or 3 as the case may be, then the next ranking Bidder will have the validation process carried out. • The Bidders which are in the Top 5 for Lots 1-3 and the Top 3 for each part of Lot 4 (i.e. maximum 12 in total) will be the successful ones and will be - 35 -
    • awarded places on the Framework (or fewer if appropriate e.g. there are fewer passing the selection process ). • The NWBF reserves the right to accept all or part of a tender at Stage 2. Each tender will be the subject of a separate evaluation. It is possible, therefore, that Bidders submitting tenders for more than one Lot will be either assessed as ‘successful, or ‘unsuccessful’ for each of the Lots. All Lots will be scored using the same scoring principles shown below: Score Scoring Principles Unacceptable / Unaddressed – response is 0 unacceptable or has not addressed the specific question(s) asked and hence is therefore considered unacceptable. Significant Reservations – does not fully meet the 2 requirements and therefore leads to significant reservations. Minor Reservations – The response meets the 5 requirements with some minor reservations Fully meets – 8 The response fully meets the requirements Exceeds – The response meets and exceeds 10 requirements and offers the potential for optimising MEAT Tender submissions will be assessed on the following basis: Pass / Fail – all submitted documents shall be completed; they will be assessed to establish whether they meet these requirements. Documents assessed as incomplete may fail. Scored - this applies to documents, validation and interview parts that are scored and aggregated to other scores for the basis of the tender evaluation. Incomplete or blank responses will receive a nil mark. Reviewed - scores will be moderated based on all evidence provided. - 36 -
    • Assessment Method Stage 1 – Selection Pass/Fail Checklist & associated completeness check (Volume 1) Mandatory Questionnaire (Questions 1-10, Volume 2)  Organisation Details Pass/Fail Pass/Fail  Prime Contractors Details Pass/Fail  Eligibility Pass/Fail  Accounts Bidders should be aware that NWBF reserves the right to require a parental company performance guarantee or bond (if appropriate). This may be required if, without it, the evaluation would result in a Fail. Pass/Fail  Banking facilities Pass/Fail  Insurance Pass/Fail  Equal Opportunities Pass/Fail  Conflict of Interest Pass/Fail. This may not be required in  FSA Declaration respect of Lot 3 but please see Volume 2 Section 9 – Selection Documentation. For Information only  Environmental/Sustainability Pass/Fail  Conditions Declaration  Technical Ability, Track Record & Pass/fail - Scored out of 100% maximum Experience (Question 11 Volume 2) with a minimum score of over 50% needed to pass. Assessment Method Stage 2 – Award Documents - 37 -
    • Scored – 85% maximum Approach & Service Delivery Scored – 15% maximum Award- Pricing Schedule Not scored separately - used for Interviews and site visits validation purposes; Stage 2 Validation - All scores under Stages 1 and 2 will be subject of rescoring as a result of information gathered during the validation visit and at interview. Scoring can only be reduced as a result of the validation and interview. - 38 -
    • APPENDIX A- SELECTION METHODOLOGY FOR VOLUME 2 - 39 -
    • APPENDIX A - SELECTION METHODOLOGY FOR VOLUME 2 (Selection Documentation) 1. Selection Checklist Please complete and submit the selection checklist contained in Appendix F, Volume 1 (Instructions to Tender) confirming that you have submitted all the required documentation. All tenders will be checked for their completeness upon receipt. All relevant Appendices as required in these Instructions to Tender must be returned. Incomplete tenders may not be evaluated. 2. Mandatory Questions 1-10 Volume 2 (Selection Documentation) contains a number of mandatory questions. All sections should be completed and organisations should enclose all requested documents in order to progress to Stage 2 (Award). The table below sets out the key requirements for questions 1-10. A fail on any score will result in the bid not being assessed further. 1. Organisation Details Evaluation Pass - details enclosed in accordance with requirements Fail - details not enclosed in accordance with requirements 2. Prime Contractor  Please provide details of your fund management sub contractors or consortia members (where appropriate) and signed letters of participation from each sub contractor or consortia member. Evaluation Pass - details enclosed in accordance with requirements Fail - details not enclosed in accordance with requirements 3. Eligibility  Summary of ineligibility conditions provided by Regulation 23 of the Public Contracts Regulations 2006 Evaluation Your organisation must pass on all counts and if required enclose details in accordance with requirements. Failure to confirm the statements unless justified to the satisfaction of NWBF will result in a Fail. 4. Financial Information Request for detailed historical financial information about your organisation and or group. - 40 -
    • Evaluation Detailed financial checks will be carried out. The information requested will be assessed on a risk based opinion as to whether a company has sufficient financial standing and capacity and deemed credit worthy. This assessment will lead to a pass or fail. In addition the following minimum requirements must be satisfied: The Bidder(s) must have positive net current assets. To assess this, the current ratio (current assets divided by current liabilities) obtained from the audited accounts and most recent management accounts must be 1 or more. The balance sheet contained in the audited accounts and most recent management accounts must show that assets exceed liabilities. A Bidder must notify NWBF promptly if at any time prior to the award of a Fund Management Agreement its current ratio falls below 1 or its liabilities exceed its assets. Confirmation that a parent company guarantee and performance bond will be given if required by NWBF or if not what alternative security/performance bond will be given which must be to the NWBF’s satisfaction to pass Phase 1. Non-compliance will result in a Fail, unless there has been a financial reconstruction since the date of the last audited accounts in which case full disclosure needs to be made and this will be the subject of a detailed evaluation as part of this process and if this evaluation is acceptable the bid will not necessarily Fail. 5. Banking Facilities and Funding Arrangements  Confirmation that you have met the terms of your banking facilities and financial agreements together with details thereof.  Confirmation that you have fully met your obligations to pay creditors and staff in the normal course of business.  Confirmation that NWBF can contact the Bidder’s banker to validate the position. Evaluation Non-compliance with banking terms will result in a Fail. 6. Insurance  Certificate of Employers Liability Insurance (not less than £10m in respect of any one claim)  Certificate of Public Liability Insurance (not less than £5million in respect of any one claim).  Certificate of Professional Indemnity Insurance (a minimum of £2million for any one claim and £10million in aggregate).  Written confirmation, where necessary, your organisation will obtain the minimum - 41 -
    • insurance levels stated above prior to the award of any Fund Management contract. Evaluation The information requested above will be assessed by NWBF. If you do not have the requisite insurances please provide proof that this is attainable by providing a copy of a quote from an insurer, because you will be required to prove relevant insurance levels prior to the start of the contract (part of your conditions precedent). NWBF will only accept a letter from your insurance company as evidence. Non-compliance will result in a Fail. 7. Equal Opportunities  Diversity and inclusion  Unlawful discrimination  Commission for Racial Equality  Copy of Equal Opportunities Policy Evaluation Pass- Meet the legal requirements set out in equal opportunities legislation Fail - Do not meet the requirements for equal opportunities legislation and if there has been a finding of unlawful discrimination. 8. Conflict of Interest Confirm you have no conflict of interest with NWBF or NWDA or its members as per the declaration OR Provide details of any conflicts of interest between NWBF and NWDA Directors, Members, the Investment Advisory Board, related to this Lot and your company and any steps the Bidder intends taking to manage any conflict issues which may arise in the future. Where there is any indication that a conflict of interest exists or may arise, then it shall be the responsibility of the Bidder to inform NWBF, detailing the conflict in writing as an attachment to this tender. NWBF will be the final arbiter in cases of potential conflicts of interest. Failure to notify the Agency of any potential conflict of interest will invalidate any verbal or written agreement. Evaluation Pass - No Conflict of interest Fail - Conflict of interest, where the consequences can’t be managed to the satisfaction of NWBF. 9. FSA Declaration (in relation to bids for Lots 1,2 and 4 only)  This must be full and complete. If you are not FSA authorised you must declare your organisation’s intention to apply and provide confirmation of any interim measures you intend to make. - 42 -
    •  In relation to Lot 3 you are required to provide the information as set out in Volume 2 Section 9. Evaluation Pass - Declaration completed and (if required) satisfactory interim measures and application for FSA authorisation submitted to the FSA and attached to this Submission Fail - Declaration not completed or unsatisfactory interim measures and/or application for FSA authorisation not submitted 10. Environmental Sustainability Policy  Please validate and return Evaluation For information only 3. Technical Ability & Experience - Question 11 Technical Ability and Experience Questions are included within Volume 2 (Selection Documentation) of the Invitation to Tender Documentation. Each Technical Ability and Experience Question contained in Volume 2 (Question 11) will be scored using the common principles set out in Section 4.1 (Overview Evaluation Methodology) of this Volume 1 (Instructions to Tender) and then weighted on the following priority basis. The table sets out both the structure and the weightings: Ref Title Weighting 11.1 Fund management history and investment experience 60 11.2 Due diligence methodology 5 11.3 2 case studies 5 11.4 Investment appraisal and monitoring 10 11.5 Organisation processes 5 11.6 Code of conduct/ethics 5 11.7 References 5 11.8 CVs 5 - 43 -
    • An example of how Technical Ability and Experience will be scored, using this weighting methodology, is shown below. Individual Weighting Weighted Question Score Score 8/10 60 480 11.1 Fund management history 8/10 5 40 11.2 Due diligence methodology 10/10 5 50 11.3 2 case studies 5/10 10 50 11.4 Investment appraisal and monitoring 10/10 5 50 11.5 Organisation processes 8/10 5 40 11.6 Code of conduct/ethics 5/10 5 25 11.7 References 5/10 5 25 11.8 CVs *Total Score 760 Overall % score 76% * The Bidder’s total weighted score will be converted into a percentage. For each Lot, the Bidders which: a) pass all of the pass/fail criteria and; b) achieve 50% or more in their score for Question 11 will be taken through to Stage 2 and have their submission for Stage 2 evaluated. Bidders must note that their Stage 1 submission could be subsequently disqualified if the validation process reveals information which affects the selection process. - 44 -
    • APPENDIX B – AWARD METHODOLOGY FOR VOLUME 3 - 45 -
    • APPENDIX B- AWARD METHODOLOGY FOR VOLUME 3 1. Service Delivery and Approach Questions Service Delivery and Approach Questions are included within Section 1, Volume 3 (Award documentation) and Bidders must follow the numbering system provided. Section 1, Volume 3 (Award Documentation) is worth 85%. Each section has an overall weighting reflecting its relative importance. The sub-total of marks for each section will be added together and the weighting applied to produce a final score. Each Service Delivery and Approach question contained in Section 1, Volume 3 (Award Documentation) will be scored using the common principles set out in Section 4 (Overview Evaluation Methodology), Volume 1 and weighted on the following priority basis. The table below sets out both the structure and the weightings. - 46 -
    • Total Maximum Weighting Ref Title Weighted Score 2 Understanding of the requirements (7) 2.1 Service delivery challenges 3 30 2.2 Approach to addressing issues and 2 20 challenges 2.3 Market failure and business support 2 20 3 Investment Strategy (12) 3.1 Detail how regional coverage will be 3 30 achieved (give examples) 3.2 Schedule anticipated investment profile in 2 20 years when delivering this Lot 3.3 Describe approach to adding value and 2 20 innovation 3.4 Explain methodology for incentivising staff 2 20 delivery of the services 3.5 Explain proposed portfolio construction 3 30 - 47 -
    • Total Maximum Weighting Ref Title Weighted Score 4 Opportunity creation (12) 4.1 Explain how your organisation intends to 3 30 market the fund 4.2 Describe how you propose to generate 2 20 your deal flow 4.3 Explain your approach to structuring deals 2 20 4.4 Describe your exit strategy at investment 2 20 level 4.5 Proposed approach to recovery / default 2 20 programmes? 4.6 How will partners’ capital and loan 1 10 accounts be protected through this Lot? 5 Operations – People (11) 5.1 Details of all personnel who will be working 4 40 on this Lot 5.2 Responsibilities of key personnel 3 30 5.3 Organisational chart 2 20 5.4 Detail how staff will acquire and maintain a 2 high level of subject matter expertise and 20 knowledge 6 Operations – Process (9) 6.1 Flow charts demonstrating the processes 9 90 that will be utilised when delivering this Lot 7 Operations – Systems (9) - 48 -
    • Total Maximum Weighting Ref Title Weighted Score 7.1 Details of systems to be used 5 50 7.2 Template examples of relevant reports 4 40 8 Risk and Monitoring (10) 8.1 Steps to be taken to mitigate any variances 2 20 against the projected asset profile 8.2 Explain how you will identify, report and 2 20 mitigate risks 8.3 2 20 Explain how you will ensure investments do not fall outside eligibility criteria 8.4 2 20 Key performance indicators 8.5 1 10 Describe how you will identify, record and monitor any conflicts of interest 8.6 1 10 BVCA code of ethics adherence 9 Project Management (5) 9.1 Provide details of proposed methodology 3 30 for project management 9.2 Provide details of technical & specialist 2 20 expertise 10 Outputs and Results (10) 10.1 How will your organisation evidence, 3 30 record and verify the number of jobs created and safeguarded, businesses assisted and impact on GVA? 10.2 Sources and status of match funding 4 40 10.3 Provide details of key outputs 3 30 - 49 -
    • Total Maximum Weighting Ref Title Weighted Score 11 Environmental Impact 0 0 Total Weighting 85 Total Maximum Score* 850 *The Bidder’s total weighted score will be converted into a percentage. Award weightings will be applied using the same scoring system demonstrated in Appendix A (as applied to Selection). 2. Pricing Schedule Evaluation The Pricing Schedule is contained in Section 2, Volume 3 (Award Documentation). All parts must be completed as detailed in the instructions to bidders at the front of the pricing schedule workbook. Bidders should satisfy themselves that their proposals include all relevant and associated costs involved in delivering the full requirement should they be awarded a contract. The NWBF will not reimburse costs via the General Partners Share as defined in the LPA as set out in Volume 4 that have not been identified at the tender stage. Proposals provided must be based on Bidders assessment of the required resources and the quality of information provided in this document. All prices quoted shall be fixed and firm and shall apply during the whole of the contract period. Each item in the Pricing Schedule must be fully priced, with insertions for each item. If any item is unpriced (whether by leaving the rate and/or amount space blank or by entering “included” or otherwise), that item shall be deemed to be free of charge. Figures inserted into the Pricing Schedule must be a single figure and not a range of figures. Where a range of fees is submitted, NWBF will evaluate this bid on the basis of the highest fee quoted within the range. Bidders shall include any discount within the pricing schedule; the final figure after such discount will be the assessed amount. - 50 -
    • During validation the pricing schedule will be assessed as to whether fully inclusive of all costs and delivers value for money. Prices will be evaluated by reference to the range of responses to the Fund Management fee percentage and the preferred return percentage received in the pricing schedule of the tenders for each Lot. In addition the overall performance forecast of the fund will be scored for achievability and MEAT. Out of the 15% to be awarded for the pricing schedule evaluation: a) 10% will be awarded for the assessment of the economic and financial outputs projected by the Bidders, together with an assessment of the probability of these projected outputs being attained, as follows: I. The financial and economic outputs as specified by the fund structure document (appendix D Volume 1) and the summary of the financial model of the pricing schedule will be used to create a single score from the scoring mechanism contained in section 4.1 of Volume 1. II. To that score will be applied a weighting of either 0 or 1 to reflect an assessment of the probability of the financial and economic outputs being achieved. The outputs will be assessed against those contained in the Fund Structure document, Appendix D of Volume 1 of this ITT. The financial outputs will be assessed principally by a critical review of the Gross MIRR on net income as set out at the foot of the Summary Fund Accounts worksheet, projected by the Bidders in the Pricing Schedule. b) 3% awarded in respect of the Fund Management Price comparison methodology. This means the lowest tendered price commensurate the requirements detailed in this ITT as Services will receive the maximum available score and other responses will be scored relative to the lowest tendered price. c) 2% for the most advantageous Preferred Return as defined in the Limited Partnership Agreement as contained in volume 4 of this ITT. For the avoidance of doubt, the Preferred Return relates to the “hurdle rate”. Bidders proposals for the return will be evaluated in relation to the bidders projected overall fund gross MIRR as detailed above and those proposals which give the most advantageous outcome to the NWF will score the highest. Please note that NWBF reserves the right to mark down the scores attained during the tender evaluation process given the outcome of the validation and interview processes. Applications for payment shall be made in accordance with the draft LPA contained in Volume 4. All prices quoted shall be exclusive of Value Added Tax (VAT). 3. Award Interviews Interviews will be conducted on a date and in a location to be advised. It is anticipated that the interview will be attended by the evaluation team as well as other - 51 -
    • observers and advisers to NWBF. Further details of attendees will be provided prior to the interview. Bidders will be required at the interview to confirm that there have been no changes to the information provided in the Submission which would affect the scoring of the Submission or to provide information about any such changes in writing. The interview will be used as part of the validation process and as such NWBF reserves the right to mark down the scores, where appropriate, on the basis of any clarifications to the Submissions which are received at interview. 4. Award Validation A second round of due diligence known as validation will involve conducting one to two day meetings on site with representatives from the Fund Manager and such other enquiries as NWBF or its funders require. Bidders must note that the validation process will cover: a) Bidders’ Submissions relating to Stage 1 (Selection) questions; and b) Bidders’ Submissions relating to Stage 2 (Award) questions, Discussions will be held with the team members individually and as a group. An indicative list of minimum review content is shown below. NWBF reserves the right to amend / adjust the information requirements in order for it to fully complete its validation process. This adjustment may include considering any funder’s requirements which are not known at the time of issue of this ITT. Any change in information requirements will be published on the NWDA website prior to the tender submission date. After this time, should there be any changes all bidders will be informed and given adequate time to respond. The indicative list of minimum review content is as follows:  Roles of the Bidders’ proposed team members including decision making processes, their skills and background, to deliver the projected results. (Stage 2)  Proposed marketing and investment strategy to reach the target market and achieve the forecasted business plan. (Stage 2)  The fund management company including legal status and ownership, staffing and succession planning. (Stage 1)  Due diligence process of the fund management company, approach to investments/divestment process including monitoring and reporting. (Stage 1)  Remuneration of the team including incentives and motivation to support a high performance team. (Stage 2)  Review of historic financial information including any further explanations required. (Stage 1)  Review of the proposed teams’ investment track records and that of the Bidders as a whole. (Stage 1)  Review of the bidders pricing model. (Stage 2) - 52 -
    •  Terms and conditions of other potential co-investors at a parallel fund level. The NWBF validation team will consider these issues as part of their assessment of the relative strengths and weaknesses of each Bidder. NWBF reserves the right to mark down all scores attained during Stages 1 and 2 after the conclusion of the validation process. 6 Successful Bidders Up to the Top 5 bidders for Lots 1-3 and up to the Top 3 bidders for each part of Lot 4 (i.e. maximum of 12 in total) or fewer if appropriate will be appointed to the Framework e.g. if there are fewer passing the selection and award process. After the validation process has finished the successful Bidders will be awarded places on the relevant Lot /sub Lot of the Framework. - 53 -
    • APPENDIX C- Marketing Support - 54 -
    • APPENDIX C –NWBF OVERVIEW AND MARKETING SUPPORT MARKETING THE FUND 1. Overview of NWBF Marketing NWBF will provide a central marketing and public relations support service for the Fund which will include promoting the overall fund across the region and supporting individual Fund Managers in the promotion of specific funds. The broad role of NWBF Marketing is to: • Develop the brand identity and brand values for the Fund. • Generate awareness, profile and interest in the fund(s) through centralised marketing and PR activity • Develop and maintain the Fund website and associated e-media activities • Maintain the integrity of the brand through ensuring the delivery of consistent messaging • Co-ordinate marketing activities of individual Fund Managers Leading up to and immediately following the Fund launch, NWBF will undertake an awareness generating marketing campaign focused on raising the profile, understanding and interest in the Fund amongst key target markets across the Northwest. This campaign will target key media, networks and organisations via a range of channels. It is important to develop an overarching brand for NWBF which will be applied to specific funds, and thereafter generate awareness, visibility and interest in the brand across the region. As such, clear and consistent promotion of the Fund’s brand will be required. We do not wish to see the brand diluted at the expense of the identities of individual Fund Managers. NWBF Marketing will provide clear guidelines on this issue as well as a co-ordinated framework to ensure consistency of message and avoid duplication. 2. The Role of NWBF Marketing The role of NWBF Marketing will include: Brand identity and development Development of the brand identity and brand values for NWBF and the specific funds. This will include the production of specific brand guidelines including clear guidance on brand hierarchy and representation. Marketing Materials NWBF Marketing will develop a number of marketing materials for use centrally and by the respective Fund Managers up including: 1. Fund Brochure – outlining the overall make-up of the Fund including eligibility and application information; 2. Website – a central website containing eligibility information, online application functionality for all funds, contact information, news etc; - 55 -
    • 3. Information Leaflets – information sheets on specific funds; 4. Powerpoint template – for use in delivering presentations; 5. E-newsletter – to disseminate regular Fund information. Some of these elements are discussed in more detail below. Brand Guidelines Upon appointment Fund Managers will receive detailed Brand Guidelines which will contain all the information required to represent the Fund brand correctly. This will include use of Fund logo, co-branding, tone of voice, as well as information on PR and approvals required. NB: The Fund will be need to contain ERDF, NWDA and Solutions for Business branding. Fund Manager Co-ordination Whilst NWBF Marketing will be responsible for brand awareness of the Fund, it is expected that the individual Fund Managers will be responsible for generating leads for specific funds amongst businesses and intermediaries in the region. It is important that this activity is co-ordinated with central activity and consistent in terms of message and visual appearance. NWBF Marketing will meet with each Fund Manager individually to discuss and agree their marketing plans and discuss their detailed calendar of activity. A full calendar of activity will then be produced by NWBF outlining all promotional activity being undertaken. Call to action When promoting the Fund(s), it is important that the following calls to action are used: a. Web - the central Fund website address should be used on all marketing materials produced; b. Telephone – telephone numbers for the appropriate Fund Manager should be used on central and fund-specific materials. External advertising / Media Planning NWBF Marketing will appoint an individual media agency who will be responsible for managing the purchasing all media space for the Fund(s). This will provide economies of scale and avoid duplication. It is anticipated that NWBF Marketing will undertake advertising to promote the overall fund as well as provide templates for the Fund Managers to undertake their own activity where appropriate. Fund Managers will be expected to provide all information relating to planned advertising to NWBF who will maintain a master calendar of all media bookings and highlight areas of potential duplication. Approval of Marketing Materials To ensure brand consistency NWBF Marketing will act as brand guardians for the Fund(s) and should be given draft copies of all promotional material for approval before they are produced. All draft marketing materials should be passed to the NWBF Marketing Team for review / approval five working days in advance of its production deadline to ensure sufficient time is given to review. Direct Marketing To avoid duplication each Fund Manager will be expected to supply NWBF Marketing with an overview of any planned bulk direct mail or email campaigns. This includes the date of the anticipated mailing as well as the data selections included such as: - 56 -
    • • Volume; • Geographical spread; • SIC Code; • Data source. NWBF Marketing will record and review this information and highlight to Fund Managers any potential for duplication. Public Relations The NWBF Marketing Team will issue all PR relating to the Fund(s). This will ensure consistency of message delivery and avoid confusion within the media between the respective roles of the Fund / NWBF / Fund Manager. Press releases will initially be drafted by the individual Fund Manager and forwarded to NWBF who will provide a quote and issue to relevant media. NWBF will also co- ordinate input from the NWDA/ERDF to ensure adherence to their PR protocol. NWBF will also proactively seek opportunities to promote the overall Fund within the media including features, interviews and other media activity. E-Media A central website will be established for the Fund. This will contain all information relating to the overall Fund and individual Funds, including investment focus, eligibility, contact details etc. Permissions will be provided to enable individual Fund Managers to content manage certain areas of the site although ultimate approval of this content will rest with NWBF Marketing. It is understood that individual Fund Managers will have their own corporate websites on which they will include information about the specific fund they are managing. NWBF Marketing should be given the opportunity to review and approve all information relating to the funds that appears on Fund Manager websites. All promotional material directly relating to the fund (brochures, leaflets, PR etc) should direct people to the central Fund website where businesses will be able to apply online. NWBF Marketing will also be responsible for listing and promoting Fund(s) information on other relevant websites including Business Link, intermediaries and any other networks. Events To ensure minimal duplication, a master calendar containing all events / exhibitions attended by Fund Managers will be maintained. Fund Managers will be required to regularly inform NWBF Marketing when they are attending an event specifically to promote the Fund(s). NWBF Marketing will highlight any potential duplication for review/discussion. NWBF Marketing will produce a number of exhibition stands promoting the overall Fund which can be used when attending events / exhibitions. It will be the responsibility of the Fund Manager to collect, set up and return all stands. Referral Partners and Organisations Business Link Northwest - 57 -
    • Business Link Northwest is the call to action and first point of contact for all public sector business support in the region. This ensures appropriate and independent diagnostic of business needs and thereafter signposting to the relevant provider. Whilst BLNW will not act as the primary access point for the Fund(s), it is anticipated that a large number of referrals for the Fund(s) will come from businesses who have been signposted to the Fund(s) by the Business Link service. NWBF Marketing will work with the relevant team at BLNW to provide all written information promoting the Fund(s) including promotional material as well as information for the Business Link Knowledge Platform and Business Support Directory. To ensure quality of referrals it is the responsibility of individual Fund Managers to ensure staff within Business Link Northwest (Universal Service and Access to Finance Team) are suitably informed about the Fund(s) in relation to eligibility criteria and fund investment focus. It is anticipated that some businesses will contact the Fund and not be appropriate for investment. In such instances, the respective Fund Managers will be expected to signpost these businesses to Business Link in order that they may access relevant support. It is important that relevant Business Link brokers are invited to relevant events at which the Fund(s) is being promoted to ensure continued knowledge of the product. Chambers and other organisations Fund Managers might have existing relationships with other business support organisations in the region. Whilst it is important that these relationships are utilised to promote the Fund(s) it is also clear that duplication needs to be avoided, particularly in relation to the work that maybe undertaken by the NWBF Marketing. Fund Managers will be asked to provide NWBF with a list of all 3rd party relationships that could be utilised in the promotion of the Fund(s) in the initial meeting. The NWBF team will review and work with the Fund Managers to agree the preferred approach to contacting these organisations where duplication exists. 3. Meetings An initial planning meeting will take place between NWBF Marketing and the individual Fund Managers to discuss proposed marketing and PR plans for the year. Following this meeting, a yearly communications plan will be produced outlining key promotional activities. Thereafter a monthly marketing meeting will be held with NWBF Marketing and marketing representatives of each Fund Manager. - 58 -
    • APPENDIX D – Fund Structures - 59 -
    • NORTH WEST BUSINESS FINANCE LIMITED Fund Structures Prepared By David Read Date 19th January 2010 Version 1.2 File Reference - 60 -
    • Fund Structure Contents Fund 1 – “X” Development Capital Fund 53 Fund 2 – “X” Venture Capital Fund 62 Fund 3 - “X” Loan Fund 65 Fund 4 – “X” Priority Sector Growth Fund 68 _____________________________________________________________________ Version 1.1 Page 61
    • Fund Structure Fund 1 – “X” Development Capital Fund The Fund structure is as follows: _____________________________________________________________________ Version 1.1 Page 62
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 63
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 64
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 65
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 66
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 67
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 68
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 69
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 70
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 71
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 72
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 73
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 74
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 75
    • Fund Structure Name of Fund X Development Capital Fund Lot 1 - Fund 1 Purpose Expansion Capital for SMEs in the form of flexible risk packages to support weaknesses in the market and to work with other sources of private capital in the Northwest. Typical expansion capital structures include equity, quasi-equity and loan instruments. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £45 million Initial Fund Size will be finalised at Panel Stage. £45 million to £125 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General, demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Equity and Quasi-equity instruments using expansion and development capital equity structures  Equity combined with term debt Investment Profile Expansion Capital Funding Split (Target) Debt/Loans YES Expansion Equity YES Debt /Loans  Loans can only be provided if there is an equity involvement to justify the risk involved. Any loan without equity and £250,000 or under can be provided through Fund 3  Secured lending with max maturity 7 years and minimum 3.5 years duration  Secured Lending Advance Rates limited to 100% of Collateral value (on property, the Loan to Value ratio to be no greater than 70%)  Max capital holidays up to 6 months and no interest holidays  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Total loans subject to cap to be notified by NWBF Quasi-equity  Target minimum of 35% of fund size over life of fund  Max maturity 7 years and minimum 3.5 years duration _____________________________________________________________________ Version 1.1 Page 76
    • Fund Structure Investment Parameters, Conditions and Constraints – please refer to IOGs _____________________________________________________________________ Version 1.1 Page 77
    • Fund Structure Fund 2 – “X” Venture Capital Fund The Fund structure is as follows: Name of Fund X Venture Capital Fund Lot 2 - Fund 2 Purpose Early Stage Finance covering broad range of new businesses: Proof-of-Concept /Pre-start /Start-Up, Seed Capital, Gap Venture Finance and Venture Capital Funding. Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment Purposes) £30 million Initial Fund Size will be finalised at Panel Stage. £30 million to £100 million The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General (including Technology) but demonstrating NWDA Regional Economic Sectors focus. Note: Businesses that require Venture Capital funding for Energy and Environmental, Biomedical and Digital and Creative should be directed to Fund 4 “Priority Sector Growth Fund” Instruments and Agreements Equity, Quasi-equity and Debt instruments Investment Profile General and Technology Venture Capital Funding Split (Target) Loans YES Start-Up Capital YES Seed - Equity YES Venture - Equity YES Portfolio Caps Start-Up Capital 30% (by number) Seed Capital 30% (by number) Debt/ Loans  Max maturity 7 years or the LP end date  80% of the loans and/or leases to have a tenure of up to 5 years  Security to be taken for loans  Personal guarantees may be taken (subject to criteria to be determined by Fund Manager)  Fixed or variable interest rate terms as per the Fund Manager’s proposal but not less than Relevant Interest Rates  No loan may be provided unless there is an equity involvement  Total loan subject to cap to be notified by NWBF Equity  All equity investments require any shareholder _____________________________________________________________________ Version 1.1 Page 78
    • Fund Structure rights to be freely transferable to NWBF or to whom it nominates Excluded Instruments (see Preference Shares without conversion rights definitions) LP Term 12 years Investment Period 31/12/2015 LP Termination Date (subject to 31/12/2022 extensions agreed at maturity depending upon unrealised portfolio) Planned Smallest Initial Investment £50,000 (indicative) Outputs ERDF Target 40%/60% Split of Economic Enterprises invested in or advanced to Merseyside/RONW YES Subject to Assisted Area Rules Priority 1: 50% Priority 2: 50% ERDF Priority split Number of Companies 150 Start-ups 90 Level of co-investment at investee Nil level Gross Employment “New”, 750/750 = 1500 “Safeguarded” and Total GVA Turnover Increase (Gross) £67 million Follow on allowed and Size Limits Yes Risk Classification Medium / High _____________________________________________________________________ Version 1.1 Page 79
    • Fund Structure Management Fees (General TBD Partner’s Share) Carried interest 20% over Preferred Return Investment Parameters, Conditions and Constraints – please refer to IOGs Please note: Some venture capital investments may have a duration and maturity that extends beyond the termination date of the LP and NWBF reserves the right to extend the LP life or require the investments to be transferred in specie at the LP termination date at an appropriate valuation to another fund specified by NWBF. _____________________________________________________________________ Version 1.1 Page 80
    • Fund 3 - “X” Loan Fund The Fund structure is as follows: Name of Fund X Loan fund Lot 3 – Fund 3 Purpose Loans to SMEs to fund their growth ambitions. Available to those businesses with actual or potential revenue streams but whose investment and funding needs are not fully met by the banking sector including the Enterprise Finance Guarantee scheme. The arrangement requires security for all loans. This security can include the personal security of the controlling shareholders Source of Funds ERDF 2007-2013 programme and EIB Facilities Fund Size (for Assessment £35 million Purposes) Initial Fund Size will be finalised £35 million to £50 million at Panel Stage. The range caters for potential increases over the lifetime of the fund Industry Sector Specialism General but demonstrating NWDA Regional Economic Sectors focus Instruments and Agreements  Loans only Loans only Investment Profile Loans YES Funding Split (Target) Overlines YES Debt/Loan  Max maturity 7 years and minimum 3.5 years duration  80% of the loans by number to have a tenure of up to 5 years  Personal guarantees supported by personal security may be taken (subject to criteria to be determined by Fund Manager)  Secured Lending Advances limited to 100% of Collateral value, based on an up-to-date commercial valuation of the 81
    • assets  Max capital and interest holidays up to 6 months  Fixed or variable rates as per the Fund Manager’s proposal but not less than Relevant Interest Rates  Security to be taken can include chattel mortgages in non- moveable equipment Overlines  Maximum maturity 7 years or the fund end date and minimum 3.5 years duration  Maximum capital holidays up to two years  Fixed or variable rate terms as per the Fund Manager’s proposal  Capped at 25% of initial fund size, by value Equity  No equity can be taken or unsecured lending provided other than as defined under “overlines” All equity and quasi-equity instruments Excluded Instruments (see Leasing and Hire Purchase instruments definitions) LP Term 12 years Investment Period 31/12/2015 LP Termination Date 31/12/2022 £50,000 Planned Smallest Initial Investment £250,000 Largest Investment Size (Initial) ERDF Target Outputs 40%/60% Split of Economic Enterprises invested in or advanced to Merseyside/RONW YES Subject to Assisted Area Rules Priority 1: 50% Priority 2: 50% ERDF Priority split 390 Number of Companies (Objective) 82
    • 30 Start-ups Gross Employment “New”, 1950/1950/3900 “Safeguarded” and Total £106 million GVA Turnover Increase (Gross) Not above £250,000 per borrower Follow on allowed and Size Limits Low to Medium Risk Classification TBD Management Fees (General Partner’s Share) Investment Parameters, Conditions and Constraints – please refer to IOGs 83
    • Fund 4 – “X” Priority Sector Growth Fund The Fund structure is as follows: Name of Fund “X” Priority Sector Growth Fund or “X” Energy and Environmental Growth Fund “X” Biomedical Growth Fund “X” Digital and Creative Growth Fund Lot 4 – Fund 4 Priority Sector Growth Fund or 4a - Energy and Environmental, and/or 4b – Biomedical, and/or 4c - Digital and Creative Purpose Certain Priority Sectors which require specialist investment manager skills are extremely important to the delivery of the North West Regional Economic Strategy. These funds focus on providing specialist investment resources in venture capital (Early Stage investing, Start-up, Innovation and Growth) providing a concentration on these Priority Sectors. Each sector will be awarded a minimum level of investment £15m with overall size not outside the parameters to the maximum asset allocation below. NWBF seeks one or more specialist manager(s) for this Fund. Source of Funds ERDF 2007-2013 program and EIB Facilities Fund Size (for Assessment Purposes) £45 million for a combined fund option or £15 million each if individual funds are being established Initial Fund Size(s) will be finalised at Panel Total combined fund £45 million to £125 million Stage. The range caters for potential increases over the lifetime of the fund Each Individual Specialist fund £15 million to £95 million Industry Sector Specialism  Bio Medical (Life Sciences, Pharma and Health)  Energy and Environmental Technologies  Digital and Creative 84
    • As defined by the Regional Economic Sectors plan Instruments and Agreements Equity and Quasi-equity instruments only Investment Profile Venture Capital Investing Funding Split (Target) Loans: YES (subject to cap notified by NWBF) Start-Up Capital: YES Seed - Equity: YES Venture – Equity: YES Expansion – Equity: YES Portfolio Caps Start-up Capital: 30% (by number) Seed Capital: 30% (by number) Equity All equity investments require any shareholder rights to be freely transferable to NWBF or to whom it nominates Excluded Instruments Preference Shares without conversion rights LP Term 12 years Investment Period 31/12/2015 LP Termination Date (subject to extensions 31/12/2022 agreed at maturity depending upon unrealised portfolio) Fund Sizes £45 million £15 million (for each sub-fund) Outputs ERDF Targets ERDF Targets Split of Economic Enterprises invested in or 40%/60% 40%/60% advanced to Merseyside/RONW Subject to Assisted Area Rules YES YES ERDF Priority split P1: 50% P2: 50% P1: 50% P2: 50% Number of Companies (Objective) 140 47 Start-ups 20 7 Target level of co-investment at investee level £46 million £15 million Gross Employment including “New”, “Safeguarded “ and Total 1800 / 1800 /3600 600/600 / 1200 GVA Turnover Increase (Gross) £198 million £66 million Follow on allowed and Size Limits Yes Yes Risk Classification Medium to High Medium to High Management Fees (General Partner’s Share) TBD TBD Carried interest 20% 20% Investment Parameters, Conditions and Constraints – please refer to IOGs 85
    • Please note: Some venture capital investments may have a duration and maturity that extends beyond the termination date of the LP and NWBF reserves the right to extend the LP life or require the investments to be transferred in specie at the LP termination date at an appropriate valuation to another fund specified by NWBF. Definitions of terminology used for Fund Structures Debt The term debt is used to refer to obligations arising under contracts whereby monies are advanced to an investee company or borrower for a predefined duration in return for the repayment in full of principal plus additional sums (consisting of interest, arrangement fees, kickers, other fees and charges and (solely in relation to Funds 1, 2 and 4) potentially benefiting from participation rights (share options or warrants) and the repayments spread over a series of payments (amortising loans) Early Stage Investing Early stage investing consists of “seed” capital described in GBER Article 28 (4) and “start-up capital” in (5) of the same Article, in the industry referred to as Proof of Concept, Seed, Gap Venture and Venture Capital Equity The acquisition, investment or subscription of unlisted securities containing ownership rights (equity) in the capital of an economic enterprise with an owner’s interest in the accruing dividends, distributions and reserves, and an undefined future sale or repurchase date. The equity investment is normally supported with a Shareholder’s Agreement capturing terms and conditions relating to the conduct of business. The equity may benefit from some preferred terms Excluded Instruments These instruments and financing structures are not allowed or considered acceptable investments for the fund’s portfolio. In addition to the Investment Parameters and Conditions exclusions and those specifically scheduled above, for all investment funds, Excluded Instruments shall include the instruments listed below:- Preference shares (a class of equity, preferred ahead of ordinary shares with limited voting rights, and only entitled to a predefined fixed dividend per annum paid from after-tax earnings and frequently in cumulative or redeemable form) without conversion rights GBER General Block Exemption Regulation No. 800/2008 issued on 6 August 2008 Quasi-equity As set out in GBER Article 28 (2) Overlines Advances of loans to businesses where the Finance Facility consists of firstly, a secured loan with a debenture holding a first fixed and floating security position and which, on a prudent loan to value basis, is within the normal credit policy and secondly, an additional loan, effectively creating a secured but unsupported loan. The size and scale of the extra advance 86
    • is based on the Fund Manager’s professional judgement of the financial and credit position of the borrower and its underlying cash flows being sufficient to support the extra advance. Pre-Start /Start-up As per GBER Article 28 (5) “financing provided to undertakings, which have not yet sold their product or service commercially and are not yet generating a profit for product development and initial marketing”. Participation in early stage investment prior to commencement of the full commercial operations, (often titled Proof-of-Concept). Pre-start may include investment to registration patents, rights, trade marks, copyrights, market research and product testing. Participation can take the form of partnership participation, equity or debt Relevant Interest Rates The relevant interest rates required to be charged on all Loans, Overlines and Loan Stock is the aggregate interest rate at or above the following:-the EC Reference Rate set out on http:// ec.europa.eu/competition/state_aid/legislation/reference.html from time to time for the relevant maturity the liquidity charge, as set by NWBF from time to time for the relevant maturity or duration; • a credit margin spread of 2% plus a risk premium determined by the Fund Manager to cover projected credit losses on the portfolio; • a recovery default rate exceeding 100 basis points. Security Security is a debenture (first or subordinated positions) providing the lender with a preferred right to certain assets or revenue streams ahead of other creditors. Security consists of both fixed and floating charges. These will typically cover real, fixed, movable and intangible (rights, IP, trade marks, patents, approvals, distribution rights, copyrights and etc) assets Seed The investment in early stage companies pre-commencement of business or soon after commencement and firms requiring core capital prior to a growth phase. State Aid Rules State Aid rules apply for Small and Medium Enterprises and are primarily described in the GBER - General Block Exemption Regulations (Commission Regulation (EC) No 800/2008 of 87
    • 6th August 2008 declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty. 88
    • Appendix E: Investment Operating Guidelines (IOGs) 89
    • NORTH WEST BUSINESS FINANCE LIMITED LIMITED PARTNERSHIP INVESTMENT OPERATING GUIDELINES (IOGs) Prepared By David Read Date 19th January 2010 Version 2.2 File Reference 90
    • 1. Introduction These guidelines deal with the operating and investment policies of the Limited Partnerships comprising the JEREMIE programme in the North West of England, which is operated through a private sector company limited by guarantee, North West Business Finance Limited (“NWBF”). These policies have yet to be fully adopted by NWBF and are subject to further clarification as a result of on-going dialogues between NWBF and the funders. This version is issued, as part of the Invitation to Tender (“ITT”), to potential fund managers on the strict understanding that it is still subject to change. Bidders are requested to bid, however, on the basis of these IOGs. 2. Fund name A “brand name” has yet to be selected by NWBF, and all funds will be required to operate under this brand (referred to in this version of the IOGs as “X”). 3. Operating Structure Each fund will operate through a limited partnership (“LP”), formed under the Limited Partnerships Act of 1907. The only possible exception is Fund 3 (see part 4. below). The partners of the LP will be:- (a) NWBF, the principal funder, with limited liability; (b) the General Partner, with unlimited liability, and likely to be a specially- formed subsidiary of the successful Fund Manager; and (c) the Carried Interest Partner, likely to be a special purpose vehicle whose participants are the successful Fund Manager and its employees. Any other funder, with limited liability, which wishes to co-invest on a “fund wide” basis, rather than on an individual investment basis can do so by making parallel investments into investees, alongside Funds 1, 2 and 4 on a pari passu basis, into all investee companies, thereby contributing to the co- investment targets contained in Appendix D (Fund Structures) of Volume 1 of the Invitation To Tender Documentation (ITT). The LP will be governed by a limited partnership agreement (“LPA”), and will be managed via a Fund Management Contract with the successful Fund Manager. Both the draft LPA and the draft Fund Management Contracts are contained in Volume 4 of the ITT. The LP will have a small capital, contributed by NWBF and the Carried Interest Partner, and, in addition, have loan accounts (for both onward investment/advances into investees/borrowers and for the General Partner’s Share out of which the General Partner will pay fund management fees). The operation of these loan accounts will be the subject of detailed drawdown notices and investment/loan returns procedures, details of which are contained in the draft LPA. NWBF will provide £9,999.99 of loan monies for every £0.01 of capital. Further loan advances may be made by NWBF at its discretion after 31 December 2015 to support the payment of fund management fees, to the extent that there is insufficient income/realisations/loan redemptions to enable the General Partner to pay the management fees out of these sources. Whilst the General Partner will have delegated the management of the fund to the fund manager, it nevertheless remains fully responsible for the fund manager’s performance, and in particular for: 91
    • (a) investment documentation; (b) financial and economic outputs recording and reporting; (c) collection and management of income from investees/borrowers; (d) realisations and loan redemptions; (e) payment of fees and its own expenses, including the fund management fee; (f) production of budgets and monitoring of actual performance against these budgets; and (g) detailed cash projections, to support draw down requests and to provide information on longer term cash requirements/repayments to funding partners. The basis of the Carried Interest Partner’s participation is to be as set out in Schedule 3 of the LPA and in the ITT Pricing Schedule. The level of Preferred Return will be entered into the Pricing Schedule as part of the bidder’s response. Once NWBF has received its Preferred Return the Carried Interest Partner has an ‘open catch-up’ mechanism, and thereafter further profits are shared 80% to NWBF and 20% to the Carried Interest Partner. The allocation of the carried interest amongst the parties interested in the Carried Interest Partner is of little concern to NWBF. Each LP will be a limited life partnership, concluding on 31 December 2022, unless extended with the consent of NWBF. Its investment phase runs from inception to 31 December 2015 and the full amount of the JEREMIE funds (£184.4 million) is to be invested / advanced by that date into the SMEs. The limited life partnerships have two distinct life cycle stages: (a) the investment period to 31 December 2015; and (b) the monitoring and realisation phase to 31 December 2022 with provision for extensions, where approved by NWBF. It is currently envisaged that any remaining investments/loans as at 31 December 2022 would be transferred in specie and at an agreed valuation into an evergreen “legacy” fund, but no such fund has, at the date of this version of the IOGs, currently been established. Nevertheless, Bidders should base their bids upon this assumption. NWBF is likely to be in possession of monies other than those forming the JEREMIE programme after 31 December 2015. It is NWBF’s current intention to make some or all of these funds available (at NWBF’s discretion) to support investments made prior to 31 December 2015 (by way of further investment) when it is in the interests of NWBF to provide additional facilities (e.g. to avoid penal dilution, or to enhance its equity stake and valuation). This money is NOT to be used to make new investments/advances after 31 December 2015. NWBF will consider its options for providing such funding in due course. This money is not intended to be used for Fund 3 (the X Loan Fund). Each General Partner will be required to put in place custodianship arrangements on a fully “arms length” basis with a business which is not controlled by, or under the same ownership as the fund manager. 4. Other Possible Investment Management Structures Solely in relation to Fund 3 (the X Loan Fund), an alternative structure may be agreed between the NWBF and the successful bidder, but only if that successful bidder has requested such a structure in its response to this ITT and is not FSA registered as a fund manager and either cannot or does not 92
    • wish to become FSA registered. Any such structure would only be considered or approved by NWBF if: (a) the arrangement has substantially the same commercial effect as an LP structure (but taking account of any necessary legal, regulatory or tax differences); (b) its use has been approved by NWBF’s funders; and (c) the open procurement process, of which the ITT is part, has been complied with in all respects. 5. General Operating Procedures 5.1 Segregation of Cash Monies drawn down from NWBF will be kept in two bank accounts (reflecting the sources of funding to NWBF), pending completion of the investment/loan to the investee/borrowers. One account will accept monies originating from the European Regional Development Fund (“ERDF”) and the host bank is to be notified of the ERDF’s proprietary interest in that bank account. The other will accept monies originating from the EIB and this account will be subject to a floating charge in favour of the EIB. Receipts from investees/borrowers of a revenue nature (e.g. fees, interest and dividends) are to be deposited in a separate bank account (which will be subject to a floating charge in favour of the EIB), out of which the General Partner’s share and any expenses that it is authorised to pay from LP assets (being, in broad summary, stamp duty payable on investments; professional fees, commission and expenses payable by the LP in connection with the realisation of investments to the extent not recoverable from investee companies, and such other fees and expenses as NWBF shall agree in writing are payable to the LP) can be paid. Any surpluses thereafter are to be returned to NWBF via a reduction in its loans to the LP (Investment Loan and Management Project Loan first and then profit distribution). No accumulation of funds is allowed in this account. The payment of future commitments of the General Partner (e.g. future fund management fees) can, if necessary, be paid for out of further draw downs of the remaining Management Project Loan from NWBF. Receipts from investees/borrowers of a capital nature (e.g. loan redemptions, realisations of equity investments) are to be deposited in a separate realisations bank account, which will be subject to a floating charge in favour of the EIB. Once the balance of cleared funds on this account exceeds £50,000, all monies on this account are to be transferred to the NWBF via a reduction in its loans to the Partnership (Investment Loan first, then Management Project loan and then profit distribution). The monies required to pay out the Carried Interest Partners share will be provided by NWBF by means of a movement on its Investment Loan at the end of the life of the fund. 5.2 Idle Funds Policy As can be seen from the “Segregation of Cash” section, above, there is unlikely to be significant funds that are idle in any of the LP’s bank accounts. Accordingly, idle funds should be placed on bank deposit for an appropriate length of time with a bank approved by NWBF and likely to be rated ‘A’ or better by rating agencies. Interest earned on such deposits will be processed through the revenue bank account detailed in Section 5.1 above. 5.3 Negative Pledges The LP will not be allowed to:- (a) issue any form of financial guarantees; 93
    • (b) grant security over any of its assets (other than as stated in the “Segregation of Cash” section above) except during the completion of an investment/advance or a realisation/redemption relating to an investee/borrower; (c) sell, transfer or otherwise dispose of LP assets on terms whereby they may be leased or re- acquired by the LP in the future; (d) sell, transfer or otherwise dispose of any of the LP’s receivables; (e) Allow set-off or any other form of co-mingling between the LP’s banks accounts; (f) arrange loan finance for the LP; (g) pledge any of the LP’s assets, other than as stated in the “Segregation of Cash” section above; (h) enter into any preferential arrangements having a similar effect; (i) hold money or bank deposits in any currency other than Sterling; (j) enter into an investment or a loan involving the LP assuming unlimited or a limited liability for the debts and obligations of any investee/borrower or any other person; (k) enter into transactions involving the LP giving warranties and/or indemnities (save for warranties given on the disposal of investments regarding to title and related matters customarily given in the ordinary course of business by a venture capital fund disposing of investments); (l) make an investment which results in the LP owning a controlling interest in an investee business, or otherwise invest in such a manner which results in the investee businesses’ financial results being consolidated in NWBF’s published accounts. 5.4 Co-investment The JEREMIE programme structure provides the “matched funding” requirements of the ERDF and State Aid Rules by way of a £1 for £1 “match” of ERDF grant and EIB loan within the NWBF itself. EIB is deemed to be private sector funding for this purpose. Consequently, there is no absolute requirement for co-investment under the JEREMIE structure. However, the NWBF strongly endorses and encourages the use of co-investment, at either the parallel investment level into investee companies on a ‘fund-wide’ basis or at an individual investee level. Its reasons are as follows: (a) to enable private sector funders to gain exposure to a section of the venture capital market which has not seen a high level of private sector venture capital involvement in the past (i.e. “Equity Gap” investing); (b) to increase the economic benefits to the region, by increasing the level of investment above the level set by the size of the JEREMIE fund (£184.4 million); (c) to share risk, at the investee level, with other potential investors who would not have been willing to accept the whole risk themselves, thereby enabling businesses to be financed which would otherwise have failed to raise finance; (d) to optimise the use of its own funds, especially in relation to limits on the overall level of exposure of the NWBF to any one investee business (see later for details of these restrictions). Co-investment can be:- (a) via a segregated parallel partnership; and/or (b) on a “deal by deal” basis, direct into investee businesses. 94
    • Please note that Fund 3 (the X Loan Fund) has no requirement for co-investment. Instead, the investee company will need to demonstrate that it has failed to secure appropriate loan finance from conventional market sources. No investment, without prior agreement of NWBF, may be made by way of acquisition of an equity interest in an investee company which was owned by another fund under the same management as any fund comprising the JEREMIE programme in the North West. Similarly, an investment may not be realised to such a fund, without prior agreement of NWBF. Such investments must be on a pari passu or no better basis when compared with investments made by funds comprising of the JEREMIE programme in the North West. 5.5 Sourcing of Investment/Lending Opportunities A Fund Manager may generate potential investees from: (a) the fund manager’s own marketing programme; (b) the NWBF marketing and brand awareness programme; (c) via the Business Link and other public sector initiatives. In order to ensure efficient handling of enquiries across all four funds the following procedures are to be adopted: (a) only one Fund Manager may deal with a particular enquiry at any time. If the opportunity is not suitable for its fund, it may refer the enquiry to a more appropriate funding source (including other funds operating the JEREMIE programme) or to Business Link for further assistance; (b) only one offer/facility letter may, therefore, be sent to a particular enquirer; (c) Fund Managers must log all business enquiries on the NWBF CRM database system to be established and operated by NWBF; (d) enquiries which progress to the making of an investment/advance need to be logged on the CRM system, along with the termination of discussions if an investment/advance is not made, detailing what alternative funding advice (if any) has been provided by the Fund Manager; (e) information is to be shared between Fund Managers when an enquiry is transferred from one JEREMIE Fund Manager to another. This is to include any due diligence (including third party) undertaken on the potential investee/borrower; (f) once an investee has received finance from one of the JEREMIE equity funds, (i.e. Funds 1, 2 and 4), then that fund can provide “follow-on” finance from its own fund resources, up to the limits specified below. Accordingly, the investee company does not need to be “transitioned” to a different JEREMIE fund manager; (g) NWBF will monitor deal pipeline reports and controls to ensure progress on potential investees and offer letters. 95
    • 5.6 Business Support Simplification NWBF and each of the Fund Managers are required to comply with the Business Support Simplification Programme which is operated and directed by the NWDA. Detailed operating guidelines will be made available once they have been revised and finalised. 5.7 Operation of General Partner’s Share The General Partner shall be entitled to receive an advance of profits by means of a General Partner’s Share, out of which it pays the Fund Manager’s fee specified in the Fund Management Contract. In the absence of sufficient return cash flows from investees/borrowers, the General Partner may draw down funds from NWBF to enable it to make such payments. These drawdowns will be through a separate Management Project Loan Account. This loan account in effect funds normal quarterly fees in anticipation of future income and realisations/redemptions. 6.0 Excluded Investment Instruments 6.1 Preference Shares Preference shares with a conversion element (i.e. into ordinary equity) or where a significant return can be generated via a redemption premium may be permitted, but preference should be given to the use of loan stock (with or without conversion rights) instead. 6.2 Funds 1 and 3 The following investment instruments are excluded for Funds 1 and 3: (a) loans when the principal security consists of motor vehicles and similar movable assets; (b) receivables financing (i.e. factoring and invoice discounting). However, secured loans, where the principal asset underpinning the debenture is the business receivables, is permitted; (c) all forms of stock finance; (d) all forms of operating lease; (e) all forms of finance lease. However, loans are permitted where they are secured by a fixed and floating debenture, where the underlying security is provided by the assets listed above. 7 Investment Restrictions Various restrictions apply, the sources of which are: (a) NWBF Policy (“NWBF”); (b) State Aid Rules (“GBER”); (c) ERDF Sensitive Sector etc (“ERDF”); (d) EIB Excluded Sectors (“EIB”). 96
    • As there is considerable overlap, when each restriction is discussed, the source of the restriction will be identified by the initials quoted above. The source is very important as different “reliefs” are available for each source, and these are discussed in general below:- 7.1 NWBF Policy Restrictions These are decided and modified from time to time by NWBF and are set to ensure the good health of its funds, which include those invested via the LP structures. In specific circumstances, NWBF may agree to exceptions being made to these restrictions. The decision will be final and will be made after consultation with the Investment Advisory Board and the Managing Director. It is not envisaged that many such exceptions will be allowed. 7.2 State Aid Rules The JEREMIE Programme operates entirely within the remit for State Aid set out in the General Block Exemption Regulation No.800/2008 (“GBER”) issued on 6 August 2008. Whilst the State Aid Risk Capital (“SARC”) Guidelines, last modified in 2006, are still valid, they do not impinge on the operation of the JEREMIE programme, and should not be referred to, as some of the definitions differ. GBER operates by exempting from the need to notify the European Commission (“Notification”) every time state-aided finance is provided to a business. Successful Bidders will be given a more detailed review of all restrictions prior to their Fund being launched. Additionally, it is a State Aid requirement that all potential investees should produce a business plan for each investment, containing details of product/services, sales and profitability development, and establishing the commercial viability of the project and the investee business. Additionally, a clear and realistic exit strategy needs to exist and be discussed and agreed with the fund manager – GBER and NWBF. 7.3 ERDF Sensitive Sectors etc These are contained in the Funding Agreement between ERDF and NWBF. There is no turnover “de maximus” limit on businesses where a proportion of their turnover may be derived from businesses within one or more of the ERDF Sensitive Sectors. There are various other requirements which are discussed in the Section “Other Matters to be Considered Prior to Making an Investment/Advance” below. 7.4 EIB Excluded Sectors These are contained the Loan Agreement between EIB and NWBF, the terms of which are still being finalised at the date of issue of the ITT and hence may be the subject of further change. At present, the EIB Excluded Sectors contain no turnover “de maximus” assistance when only a proportion of turnover comes from within an EIB Excluded Sector. It is understood that there will be some flexibility on this point (so far as supply chain companies are concerned) and it is hoped to be able to provide further information on this matter at the Bidders’ Conference on 27th January 2010. 7.5 Investment Size No more than €1.5 million may be invested in any one investee SME company (taking connected companies as together being one investee company) in any 12 month period. Due to cumulation rules under the GBER, this annual cap is reduced for “follow on” investment made in the 3-year 97
    • period from the date of the first equity/quasi equity investment by up to 50% in non-assisted areas (i.e. by up to €750,000 in each year) and by up to 30% in assisted areas (i.e. by up to €450,000 in each year). In all cases the reduction in the applicable cap on "follow on equity/quasi equity investment" shall not be greater than smaller of the amount of the first equity/quasi equity investment or the applicable percentage reduction (e.g. where the initial investment is only €300,000 the reduction in the annual cap will be limited to €300,000 - the amount of the initial investment - this being less than the 50% or 30% reduction) in each subsequent year during the 3 year period in both assisted and non assisted areas, If the initial investment was €800,000 the reduction in the subsequent annual caps would be limited to €750,000 (i.e. 50%) in non assisted areas and €450,000 (30%) in assisted areas. The lower investment size limits vary per fund and are set out on the Detailed Lot Specifications contained in the ITT Volume 1, Appendix D – NWBF No more than 10% of a Fund’s minimum commitment may be invested in any one investee company. Usually, the GBER restrictions detailed above will result in a lower overall investment limit than this general 10% limit. – NWBF NWBF will be responsible for maintaining an appropriate balance of risk exposures across all economic sectors in which it is able to invest. From time to time General Partners may receive requests to increase/decrease any one Fund’s exposure to a particular economic sector, in order to achieve the desired overall portfolio balance. –NWBF 8 Stage of Investment All investees/borrowers must fall within the definition of SMEs contained in Annex 1 of GBER at the time of the initial investment, namely:- Small Medium Combined Maximum number of employees 50 250 250 Maximum annual turnover €10m €50m €50m Annual Balance Sheet Total €10m €43m €43m In determining whether a borrower/investee entity falls within the above detailed criteria, regard must be made of ownership of or by the relevant entity. Where the entity is linked or partnered to another organisation then some or all of the turnover figures etc of that other organisation may be required to be taken into account in ascertaining if the borrower/investee is an SME. For further details please refer to Annex 1 of the GBER. The stage of investment is as follows (definitions taken from Article 28 of GBER): 8.1 Seed Capital “Finance provided to study, assess and develop an initial concept, proceeding the start-up phase”. This therefore includes “Proof of Concept” investments. 8.2 Start-Up Capital “Finance provided to undertakings which have not sold their product or service commercially and are not yet generating a profit for product development and initial marketing”. Consequently, this includes “Early Stage” investments. 98
    • 8.3 Expansion Capital “Finance provided for the growth and expansion of an undertaking, which may or may not break even or trade profitably, for the purposes of increasing production capacity, market or product development, or the provision of additional working capital”. Please note:- 8.3.1 The provision of Expansion Capital to Medium-sized Enterprises in Non- Assisted Areas is NOT permitted (GBER Article 29, Clause 4). Please note that the Assisted Areas in the Merseyside Region, as shown on Appendix 1 to these IOGs, differ from the Merseyside Area used for ERDF purposes as shown in the map on schedule K of the draft LPA in Volume 4. This matter may be the subject of a State Aid Notification, but no decision has been taken on this and bidders should work on the status quo assumption. - GBER 8.3.2 Legal opinion obtained by NWDA states that MBOs and MBIs do not fall within the definition of “Expansion Capital”, because there is no existing business in “Newco” to expand. This matter may be the subject of a State Aid Notification, but no decision has been taken, and Bidders should work on the status quo assumption. - GBER 8.3.3 Neither ERDF nor EIB allow their finance to be used to acquire shares (even if otherwise the proposed transaction would fall within the definition of expansion capital above). Further clarification is being sought on this matter and it is hoped that further information will be provided at the Bidders’ Conference on 27th January 2010. –ERDF and EIB 8.3.4 There is a ban on using JEREMIE funds to support “undertakings in difficulty” as defined in GBER Article 1, clause 7. In general this covers: (a) where a business fulfils the criteria under English law for being the subject of collective insolvency proceedings (note that this is wider than just those businesses already in such proceedings); or (b) where more than half of its registered capital (share capital and reserves)has disappeared AND more than a quarter has been lost in the proceeding 12 months. In the case of SMEs which have been incorporated for less than three years these will only amount to a “firm in difficulty” if they fulfil the criteria in (a) (please see Article 7 of the GBER) Please note that there is a degree of flexibility to (b) above, details of which will be provided to successful bidders in due course. - GBER, ERDF and EIB 8.3.5 There is also a ban on using JEREMIE funds to provide support to any entity that is the subject of an outstanding recovery order following a decision by the European commission declaring an aid to that entity as illegal and incompatible with the Common Market (GBER and ERDF). 8.3.6 Loans/investments are not to be made into businesses whose shares are traded on a Recognised Investment Exchange or on Alternative Investment Market (AIM). - NWBF 9.0 Sector Exclusions 99
    • There is some considerable overlap between the four sources of exclusions. These are noted against each sector, as there may be differing mitigating circumstances, which might permit an investment to proceed (as described above). In general, these include: (a) land and buildings – where the land ownership is the key driver (e.g. property investment and development companies (including housebuilding), furnished holiday accommodation, hospitals, nursing homes, fire stations, child-minding facilities, sports facilities, housing, ports); the acquisition of land and buildings to be used solely or mainly by a qualifying business is not excluded, nor are day nurseries, brownfield land clearance, environmental capital works, large scale tourism projects, workshop units or managed workspace; ERDF and EIB (pure property development only) (b) dealing in commodities, futures, shares and other financial instruments; NWBF, ERDF and EIB (Shares only) (c) retail activities, including owning, operating or development of retail facilities (NB. this is the subject of an appeal by the British Government, but as the outcome is not known, Bidders should assume that the restriction applies); – ERDF (d) banks (including leasing companies) and insurance companies; – ERDF (e) synthetic fibres and yarns; – GBER and ERDF (f) shipbuilding; – GBER and ERDF (g) steel production; – GBER and ERDF (h) coal production; – GBER and ERDF (i) large scale transport; – GBER and ERDF (j) agricultural production (but not food processing); – GBER and ERDF (k) fisheries and aquaculture; – GBER and ERDF (l) school-age education; – ERDF (m) production of weapons, ammunition and provision of services or infrastructure to defence bodies, the police, prisons etc; – EIB (n) gambling, including equipment supply; – EIB (o) tobacco manufacturing, processing and distribution; – EIB (p) use of live animals for experimental and scientific purposes unless their use complies with EU standards; – EIB (q) businesses giving rise to environmental impacts which are not largely mitigated or compensated; – EIB 100
    • (r) businesses considered ethically or morally controversial; – EIB (s) dismantling of nuclear power stations; –ERDF There are other sectors which the EIB may wish to treat as excluded sectors. Clarification is being sought on these currently and it is hoped that further details can be made available at the Bidders Conference on 27th January 2010. 10 Other matters to be considered prior to making an investment/advance The following matters need to be considered:- 10.1 The principal place of the business, or a material part of its operations, people or trading need to be in the North West Region, as defined in the ITT. If the business commits to move into the area, the investment needs to be made in a form which would enable it to be unwound in the event that this commitment is not met (e.g. a convertible loan). – ERDF and NWBF 10.2 In relation to Funds 1, 2 and 4, the investee company needs to demonstrate, to the reasonable satisfaction of the Fund Manager, that it has been unable to obtain the finance requested from mainstream or commercial investors. – ERDF 10.3 The business has in place appropriate environmental, health and safety, equal opportunities and disability policies/statements, to the Fund Manager’s reasonable satisfaction. – ERDF 10.4.1 In respect of any loans made these will in all cases be required to be at or above the applicable EC reference rate at the time. This is detailed in the definition of “Relevant Interest Rates” in the Definition of Terminology used in the Funds Structure in Appendix D of Volume 1 of the ITT. This is also likely to vary, depending upon conversion rights (if any) or upon completion of a contemporaneous equity investment. Details of how to calculate the rate can be found within the EC Communication on the revision of the method for setting the reference rate and discount rate (OF C 14 19.1.2008 P6-9) or any replacement thereof by the European Commission. –ERDF and NWBF 10.4.2 NWBF will notify each Fund Manager of the amount of the Fund (other than Fund 3) that can be used for making loans consistent with the GBER requirement that at least 70% of NWBF’s overall JEREMIE programme must be in equity or quasi-equity. 10.5 The investment/loan agreement with the investee company/borrower should contain terms obliging the investee/borrower to maximise its use of business support organisations and programmes, including without limitation, the NWDA’s Business Link and Small Business Services – ERDF 10.6 The purpose of the proposed investment/loan is not to refinance existing activities of the investee/borrower, or to support its normal operational costs. – ERDF 10.7 Investees/borrowers commit, in the investment/loan agreement:- (a) Not to unlawfully discriminate, based on sex, racial or ethnic origin, religious or belief, disability, age or sexual orientation, and to take reasonable steps to address barriers experienced by female, disabled and black minority ethnic persons. – ERDF 101
    • (b) To completing annually during the lifetime of the investment/loan, an estimate of their carbon impact for energy and business travel on the NWDA’s “Carbon Calculator” website. - ERDF (c) To take note of the advice and guidance on the NWDA’s website on green travel issues and:- (i) if employing less than 50 staff, provide a SMART Green Travel Plan once during the lifetime of the investment/loan; or (ii) if employing over 50 staff, to conduct a staff travel survey once during the lifetime of the investment/loan. - ERDF Additionally, investees are required to commit to providing reports on all green travel issues to the NWBF at the end of each financial year. 10.7.4 To considering the sustainable impact of capital purchases over £10,000 made out of the investment/loan provided, by reference to the “sustainability” section of the NWDA website. - ERDF 10.7.5 To take advice from Environment Connect once during the lifetime of the investment/loan, on ways in which energy use and/or waste may be minimised for their business. - ERDF 10.8 In relation solely to Funds 1, 2 and 4 investees commit, in the investment agreement to the fund having the right to appoint a mentor, observer or director to the Board of the investee, including such persons being able to invest in the business. - ERDF 102
    • 103
    • Appendix F: Checklist 104
    • CHECKLIST Please indicate TICK for the lot your organisation is submitting for: ‘X’ Development Capital Fund ‘X’ Venture Capital Fund ‘X’ Loan Fund ‘X’ Priority Sector Growth Fund Or ‘X’ Energy & Environmental Growth Fund ‘X’ Biomedical Growth Fund ‘X’ Digital & Creative Growth Fund VOLUME 2 (SELECTION DOCUMENTATION) Section 2: Mandatory Questionnaire 1.0 Organisation Details ENCLOSED/COMPLETE Yes No 2.0 Prime Contractor Details ENCLOSED/COMPLETE Yes No 3.0 Eligibility ENCLOSED/COMPLETE Yes No Financial Accounts 4 4.2 Audited Accounts ENCLOSED Yes No 4.2 Parent Account Information (if required) ENCLOSED Yes No 105
    • 4.5 Bidders who have not been trading for a year, ENCLOSED/RESPONDED should provide copies of their most recently Yes No available unaudited financial information. Audited accounts of any relevant antecedent entities together with any appropriate explanations 4.6 Statement on Interim Statements, Preliminary ENCLOSED/RESPONDED Announcements. Yes No 4.7 Statement on Subsequent Circumstances or ENCLOSED Events Since Last Annual Accounts Yes No 4.9 Management Accounts for the Bidder, any ENCLOSED intermediate and ultimate parent undertaking, as at the last available date, but in any case not Yes No more than 6 weeks prior to the date of this Submission. The management accounts should include as a minimum, profit and loss accounts and balance sheets, together with an informative commentary. Bank Facilities / Funding Arrangements 5 5.1 Meeting Terms of your Banking Facilities RESPONDED Yes No 5.2 Meeting Obligations To Pay Creditors RESPONDED Yes No 6.0 Insurance 6.1 Employers Liability Insurance RESPONDED Yes No 6.2 Public Liability Insurance RESPONDED Yes No 106
    • 6.3 Professional Indemnity Insurance RESPONDED Yes No 6.4 Quote from Insurance Company (if required) RESPONDED Yes No 6.5 Insurance and conditions precedent RESPONDED Yes No 107
    • 7.0 Equal Opportunities 7.1 Copy of your Equal Opportunities & Inclusion RESPONDED Policy Yes No 7.14 Details of unlawful discrimination if required RESPONDED Yes No 7.15 Details of a formal investigation by the RESPONDED Commission for Racial Equality if required Yes No 8.0 Conflict of Interest 8.1 Signed Conflict of Interest statement RESPONDED Yes No 9.0 FSA Declaration (Lots 1,2 and 4 only) In relation to Lot 3 you are required to provide the information as set out in Volume 2 Section 9. 9.1 FSA registration number, scope of permission, RESPONDED details of approved persons under FSA regulations, executives and controllers Yes No 9.2 Undertaking to apply for FSA authorisation and RESPONDED copy of completed FSA application pack Yes No 9.3 If applying for FSA authorisation please provide RESPONDED names of proposed approved persons, executives and controllers together will full Yes No details of any interim arrangement and “fall-back” position if FSA authorisation is not gained within 6 months 10.0 Environmental/Sustainability Policy 10.1 Written environmental/sustainability policy. RESPONDED Yes No 108
    • 11.0 Technical Ability, Track Record and RESPONDED Experience Questions Yes No VOLUME 3 (AWARD DOCUMENTATION) 1.0 Service Delivery & Approach Questions ENCLOSED Yes No 2.0 Pricing Schedule (excel spreadsheet) ENCLOSED Yes No 3.0 Procurement Certificates Schedule 1: Completed Form of Tender ENCLOSED Yes No Schedule 2: Non-Collusive Tender ENCLOSED Certification Yes No Schedule 2a: Non-canvassing certificate ENCLOSED Yes No VOLUME 4 (CONTRACT DOCUMENTATION) 1 Declaration regarding Framework Agreement ENCLOSED Yes No 2 Declaration regarding LP Agreement ENCLOSED Yes No 3 Declaration regarding Fund Management ENCLOSED Agreement Yes No 109