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					SBIC Program Overview

  US Small Business Administration
       Investment Division
What is the SBIC Program?

    Created by Congress in 1958 to bridge the gap between
     entrepreneurs’ need for capital and traditional financing

    Multi billion $, government-sponsored “fund of funds”

    Invests long term capital in privately owned and
     managed investment firms (licensees)

    Public-private partnership

    Administered by the Investment Division, US Small
     Business Administration

What is the SBIC Program?

    An institutional LP, managing $8.2 billion in
     outstanding leverage and commitments

    An investor in 317 private equity partnerships

    Supported by roughly $8.7 billion in capital
     resources from private partners

                                  Source: SBIC Data Management Branch, Weekly Report as
                                  of September 9, 2009.

What is the SBIC Program?
An Engine for Growth in the US Economy

In Fiscal Year 2009:
SBIC financings totaled $1.8 billion
1,477 companies benefited from SBIC financing
361, or 24% of SBIC financings went to
companies less than 2 years old
11% of SBIC financings were made to
“Competitive Opportunity Gap Businesses”

                                 Source: SBIC Data Management Branch, Weekly Report as
                                 of September 30, 2009.

  What is the SBIC Program?
   A Source of Funding for Successful Companies
A&W Brands Holding Co             Domain Furniture, Inc.              Kent Electronics                 Read-Rite
Actel Corporation                            Kentucky Kingdom, Inc.           Restoration Hardware, Inc.
Adaptec                           Douglas Machine, Inc.               Kronos, Inc.                     Rock Bottom Restaurants
Airport Systems Int’l, Inc.       Duracraft Corporation               Labor Ready, Inc.                Sage Software
                                  Etak, Inc.                          Lansinoh Laboratories, Inc.
America OnLine                                                                                         Seasafe, Inc
                                  Educational Development             LaMadeleine, Inc.
Amgen, Inc.                       Encore Wire Corp.                   Lifeline Systems, Inc.           Security Dynamics Technology
Apple Computer                    Envoy Corporation                   Maxim Integrated Products        Staples
Assembly Solutions, Inc.          Evergreen Solar, inc.               Metrolina Outreach Mammography   Steelweld Equip. Co.
BeutiControl Cosmetics, Inc.      Federal Express                     Microcom                         Sun Microsystems
Build-a-Bear Workshop, Inc.       FIserv                              Micromodule Systems              Symbol Technologies, inc.
                                                                      Microtouch Systems, Inc.
Bright Start, Inc.                Fusion Systems Corp.                                                 Synoptics Communications, Inc.
                                                                      Mother’s Work, Inc.
CTC Distribution Services         Gendex                                                               Techne Corp.
                                                                      Neoterik Health Tech, Inc.
Callaway Golf Company             General Sciences Corp.                                               Telesis Corp.
                                                                      NetFrame Systems, Inc.
Cardio Logic Systems, Inc         Genicom Corp.                                                        Teradata Corp.
                                                                      Newcomb Communications, Inc.
Cerner Corporation                Geotek Communications, Inc.                                          The Computer Group (TCG)
                                                                      New England Critical Care
Chesapeake Biological Labs        Global Village Communications                                        The Last Best Place Catalog
                                                                      NuCo2, Inc.
Citation Computer Systems, Inc.   Gymboree Corporation                                                 The Merchandising Group (TMG)
                                                                      Octel Communications Corp.
Cognex Corporation                Hanger Orthopedic Group, Inc.                                        The Systems Center
                                                                      Optical Data Systems
Compaq, Inc.                      Harman International Ind.                                            Tricord Systems, Inc.
                                                                      Orbital Sciences Corp.
Comptek Research, Inc.            HS Resources, Inc.                                                   Vertex Communications
                                                                      Outback Steakhouse
Connecticut Culinary Institute    Healthcare Compare Corp.                                             Vivid Technologies, Inc.
                                                                      Peoplesoft, Inc.
Cooper Natural Resources, Inc.    Healthcare Services                                                  WebMethods
                                  HealthSouth Rehabilitation          Performance Polymers
Costco                                                                                                 Wellfleet Communications
                                  Industrial Training Corp.           Petstuff, Inc.
Cray Research                                                                                          Wire Networks, Inc.
                                  Information Analysis, Inc.          Potomac Group, inc. (MediFAX)
Cutter & Buck                                                                                          Extreme Networks, Inc.
                                  Infotec Commercial Systems          Protocol Systems
Data Stream Systems                                                                                    Zydacron, Inc.
                                  Intel Corp.                         RF Power Products
Devon Group, Inc.
                                  Jenny Craig, Inc.                   Radio One
Digimark, Inc

How Does the Program Work?
Debenture Securities Program

   Interest only, bullet with 10 year maturity

   Coupon Rate = 4.23%, or 76.5 bps over the 10 Year Treasuries Rate

   Origination fee = 3.0% (1.0% at commitment; 2.0% at draw)

   Annual fee on leverage drawn = .406%*

   Unsecured, non-recourse to General Partners

   Leverage available up to 3x private capital paid-in, but generally
    limited to 2X

   Leverage ceiling is $150 million per SBIC and $225 million for two or
    more licenses under common control
                                                       * The annual fee is fixed at time of leverage commitment.
   No prepayment penalty                              The current rate floats according to the SBIC Program’s
                                                       required subsidy rate.
How Does the Program Work?
SBICs invest in:

   Loans, debt with equity features or equity

   100% “Small Business”
        Net worth < $18M and average after-tax income for prior two years
        Of which, 25% must be “Smaller Enterprise” (net worth < $6M and
         average after-tax income for prior two years <$2M)

   Not more than 10% of the combined committed private capital
    and proposed leverage may be invested in a single company
    without prior SBA approval

   Project financing is prohibited (real estate, single purpose

   SBICs may control small businesses for up to seven years which
    may be extended with SBA approval
How Does the Program Work?
    SBA requires management teams to have:
   Senior-level decision making experience in a private equity / mezzanine fund
    relevant to proposed fund,

   Evidence of strong deal flow in investment area for proposed fund,

   Investment experience as a principal rather than an agent (i.e. investment
    banker, consultant, broker),

   A realized track record of superior returns benchmarked against funds of same
    vintage year and style,

   Hands-on experience adding value at the portfolio company level,

   A cohesive team, with complementary skills, history and strong chemistry,

   And, private capital comprised of diverse private LPs.

How Does the Program Work?
The SBIC Application – A Two Step Process

 Step 1: Office of Program Development “Gatekeeper”
       Management Assessment Questionnaire (“MAQ”)
       Track record evaluation and comprehensive due diligence
       Investment Committee
             6 to 8 weeks

 Step 2: Office of Licensing
       Minimum of $5 million committed private capital to begin process
       Analyst review of application, business plan, financial projections, legal
        documentation and ownership diversity
       Divisional and Agency Licensing Committee approvals
       Final approval (Second close on private capital within 1 year of final
             5 to 6 months

How Does the Program Work?
Portfolio Monitoring and Oversight

   Analyze annual audited financial statements, portfolio valuation
    reports, and other supporting documentation

   Analyze new commitment requests, review draw requests

   Process examination reports to determine if regulatory violations

   Attend SBIC annual and other on-site meetings

   Review regulatory issues requiring prior approval

How Does the Program Work?
Customized structures fit managers’ & LPs’ needs
    Standard structure
          At fund inception, 100% of private LPs participate in leveraged

    Drop-down structure
          A portion of all private LP capital is used from the parent fund to
           capitalize the leveraged SBIC
          Best suited for existing funds, looking to expand capital under
           management without a full fundraising cycle

    Side-by-side structure
          A portion of certain LP’s capital is used from the parent fund to
           capitalize the leveraged SBIC
          Best suited for funds, looking to expand capital under
           management, when only a subset of LPs desire leverage

**Additional costs and time required depend on complexity of the structure and private LP’s cooperation
Current Market Considerations
Increased demand…






        FY 2005     FY 2006       FY 2007         FY 2008     FY 2009

           Debenture Applicants             Debenture Licenses Granted
Why Partner with the SBA?
         Pros                                  Cons

 10 yr Committed Capital                  Leverage Ceiling

                            Regulated    Administrative Costs
    Attractive Pricing
                                           Time to Market
         2/3 LP
                                            Political Risk
       SBIC Network

  US Small Business
    SBIC Program


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