L A - 5 8 SBIC 2005 12
ERISA Employee Retirement Income Security Act of 1974 L Leverage SBA LR Leverage Ratio SBA ME Management Expense PC Private Capital PD Participating Debenture PPA Prioritized Payment /SBIC SBA / PS Participating Security SBA Small Business Administration SBIA Small Business Investment Act of 1958 SBIC Small Business Investment Company SBAPP SBA Profit Participation SBA SBIC
1 SBIC 2 SBIC PS SBA SBA GP SBIC 3 SBIC SBA SBIC SBIC 4 PS PS PS PD 5 PS PD Website 1
Intel Apple Microsoft VC VC 60 VC SBA SBIC SBIC 1970 VC (1)(2)VC 1994 Participating Security PS PS IT SBA 20 1/10 1/20 SBIC PS 2
1 SBIC VC 1946 American Research and Development ARD 1 VC 60 SBIC Small Business Investment Company VC VC SBA Small Business Administration 2 1958 2002 377 4 3 SBA SBIC B SBICs B B B SBA SBIC Program Special Report Exhibit 1 SBIC 2 1 6 2 SBA SBIC SBIC Small Business Investment Division SBI Division SBI Division SBIC New Markets Venture Capital NMVC NMVC 2001 SBIC SBA Vol.12 2 2 2 (1) 3
SBA 3 VC SBIC SBIC SBA VC SBIC SBA SBIC SBA (1)SBA (2) SBA SBIC 1960 70 VC 4 VC SBIC American Online AOLApple Computer Callaway Golf Company Compaq Computer Federal Express Intel Corporation PeopleSoft Incorporated SBIC SBIC SBIC SBIC AOL* 1985 Citicorp Venture Capital 2 1985 86 Apple Computer 1977 Continental Illinois Venture 1977 Callaway Golf Company 1982 MVenture Corp** 1 1985 87 Compaq Computer 1982 Mercantile Dallas Corporation 1983 Federal Express 1973 8 1973 Intel 1968 Wells Fargo Investment Company 1969 PeopleSoft 1987 Norwest Equity Partners 1991 SBA Success Story (http://www.sba.gov/inv/successstories.html) *Quantum Computer Service ** Banc One Capital Partners 3 $10M Debenture $5M 4 70 VC SBIC 6 4
SBIC SBIC SBIC SBIC SBIC SBA SBIC 1958 60 69 70 SBIC 78 79 ERISA 5 VC 2 SBIC VC SBIC 6 SBIC SBIC (1) SBIC (2) VC SBIC 5 ERISA Prudent Man Rule Prudent Man Rule 1830 Samuel Putnam PrudenceDiscretionIntelligence SafetyIncome 1979 ERISA VC 78 15% 88 46% ERISA 90 97 12 6 SBIC 70 50% 80 15% 6 5
SBA Table 25 87 11 SBIC 91 3 2000 IT IPO SBIC SBIC 4 SBA Table 25 6
SBIC 1994 2 Debenture Participating Security PS Debenture SBIC SBA SBIC SBA 1994 SBA SBIC SBIC SBIC 1994 PS SBIC SBA Debenture SBIC PS 2 Debenture 1995 PS SBA PS Debenture 1994 2004 SBIC 2004 SBA Debenture $2.84B PS $11.25B 7 2 SBIC PS PS 8 SBIA Sec.303.(d)(1) 13 CFR Ch.I 107.710107.720 9 7 SBA, 2004.b P.11 8 SBIC SBIA Small Business Investment Act of 1958 13 CFR Ch. I Part 107 Small Business Investment Companies SBIA 9 PricewaterhouseCoopers SBA 18 SBA, 2002 P.15 7
10 VC SBIC SBA SBIC 20% Smaller Enterprise 11 (SBIA Sec.303.(d)(1)(A))SBA $90M $90M 100%SBIA Sec.303.(d)(1)(B) SBA 2/3 SBIC 12 SBIC 20% 49% 13 CFR Ch.I 107.720(g) SBIC SBA SBIA Sec.303.(b)(2) 10 1994 18% 2004 2%SBA, 2002 P.15 2005 1 24 11 13 CFR Ch.I 121.201 SBA Smaller Enterprise 1,000 $21M 13 CFR Ch.I 107.710(a)(2) SBIC $6M 2 $2M 12 1994 2002 $14.4B SBIC $9.3B SBA, 2002 P.15 8
PS SBA $90M 1993 CPI2003 $113.4M SBA (1) PC$15M SBA SBA PC 3 $45 PC SBA (2) $15M $30M SBA $45M PC$15M $30M PC$15M $30M 2 PC SBA (3) $30M SBA $75M PC$30M $15M PC$30M 1 PC SBA SBIA Sec.303.(b)(2)(A) SBIC 3 SBA $45M SBA SBIC SBIA Sec.303.(g)(8) (12) SBIC PS 13 PS (1)SBA Prioritized Payment PPA / (2)SBA Maximum Tax Liability (3) PPA SBA PS 13 9
SBIC SBIC (1) (2) 1 Tax Liability A SBA SBA SBA LR LR* SBA 200% LR L*/ L+PC* 100% LR LR C SBAPP *LR SBA L / PC SBA SBA 2 1 SBA 1.5 40%=1/(1+1.5) 50% 25% B SBA 13 CFR Ch.I 107.1560(g) A SBA SBA (1) C SBA SBAPP 10
(2) SBIC (3) Participating Security (4) (5) C SBA SBIA Sec.303.(g)(11) SBA SBA Profit Participation SBAPP 10 T SBAPP A SBA LR SBA SBIA Sec.303.(i) SBA SBIC SBA SBA 3% SBIC SBIC SBA 1% 2% SBIC SBA SBA 3% GP SBIC SBIA Sec.303.(g)(7) SBIC GP ME Management Expense ME= 2.5% SBA 11
$20M SBIC 2.5% $125,000 $20M 2.5% 3.125% SBIA SBA 2004 SBA, 2004.b 20% 20% Carried Interest on profits 13 CFR Ch.I 107.730 GP GP SBIC SBIC SBIC Associate 14 SBIC SBIC SBIC SBIC SBA SBIA SBA (1) SBIC (2) SBIC SBIC SBIC (3) SBIC (4) SBIC 14 SBIC SBIC 12
(5) SBIC SBIC (1) SBIC (2) 15 SBIC i) SBA ii) iii) SBA iv) Transaction Fee SBIC (1) SBIC SBIC SBA (2) SBIC SBIC SBA SBIC SBIC SBA (1) 5% (2) 30 (3) Director s Fee 15 13 CFR Ch.I 107.900 13
3 SBIC 2 SBIC PS SBA PS 4 SBA 2SBIC PS SBIC PS PS SBIC SBA 100% 1.82 200% 1.50 SBIC 100% 200% SBA 100% 200% SBA 1/2 2/3 SBIC SBA SBIC SBIC SBIC SBIC 14
16 1 1 SBIC SBIC 17 PS 4 PS PS 12000 IT VC SBIC 16 Prism Capital Mr. Robert Finkel 2003 3 20 http://www.nasbic.com/resources/legislative_rep/3.20.03_finkel_testimony.cfmvc 17 SBA PS 1998 2003 $31M $43M SBA Table 39 1 1997 2003 SBIC $1 2M SBIC $6 15M SBA Table 10 15
SBIC PS 20 18 PS 2004 2005 2004 10 2005 9 SBIC 2005 10 2006 PS Debenture 2006 PS SBA 2004 SBA, 2004.b1994 SBIC 1994 2000 SBIC 2000 SBA 19 2 20 SBA SBA SBA 18 2004 9 PS Total Lifetime Subsidy Re-estimates / $0.5B $2.7B SBA, 2004.b 19 SBA 5 J 20 16
SBA, 2004.b Exhibit 6.1 Total Value to Paid-In Capital ( )/ 2000 IT 1998 2000 1 IT 2 SBA PS $280M $278M 1994 1998 SBA 1994 1995 4 1994 SBA 1 SBA 1 1995 1.03 SBA $280M 57% SBIC 75% SBIC 17
21 SBIC SBA PS SBA (1)2000 IT (2) (3)SBIC PS Committee on Small Business 109 2005 2006 Oversight Plan SBA SBIC PS 22 PS 2005 2 10 VC Prism Capital Chicago 2 17 Committee on Small Business & Entrepreneurship VC North Atlantic Capital Portland Coit VC PS PS i) ii) VC iii) i) 2004 12 Council on CompetitivenessInnovate America Equity Gap 21 1994 2002 PS 170 SBIC 49 SBIC SBA, 2004.b 22 Oversight Plan for the Committee on Small Business. http://wwwc.house.gov/smbiz/oversightplan/oversight_plan_109th.pdf 18
SBA NASBIC National Association of Small Business Investment Companies PS 4 Participating Debentures PD 7 Munzullo SBIC Participating Debenture Act of 2005 (H.R. 3429) PD PD PS SBA i) SBIC PS PPA SBA ii) SBA SBA iii) iv) iii) 2 2 2 2 23 v) SBIC SBIC Gross Receipts PD SBIC 23 SBA 2 10% 2 30% (7) (8) 19
SBA NASBIC IRR17% SBIC PS SBA 7.5% PD 27% 4 PS VC 5 5 6 24 1,300 VC VC 2003 VC 189.5 25 VC 1,503 26 10 1 181 27 VC 1970 40 SBIC PS 24 1 5 97 12 79 ERISA 25 National Venture Capital Association NVCA 26 VEC 27 The Center for Venture Research CVR 20
VC 10 PS PS SBA SBIC SBA SBA PS PD VC SBA SBA 28 SBIC 28 21
SBIC 22
PS PS SBAPP LR LR B PS A (A)/(B) 23
0% 100% 100% 100% 200% 200% 100% 200% 2 SBIC SBIC IT $400M 2 SBA SBIC $135M $45M SBA $90M SBIC 2 100%1.82 24
200%1.50 200% 100% 100% SBIC 200% 29 PS 1 SBIC SBIC SBA 100% 2 SBIC 200% SBA 30 1998 2003 SBIC PS 72% 80% SBIC 100% SBIC 200% 170% 200% 100% 29 2 2 3 $20M 20 24 $400M 480M 30 SBA Table 39 25
PD NASBIC Participating Debentures Pictorial Representation of Proposed Distribution Rules SBA SBA $25M $50M SBIC SBA $25M $20M $5M $15M SBA $35M $50M $20M 26
SBA SBA $25M $5M $20M $40M $5M $10M $50M $60M SBA $25M $5M $20M $40M $5M $10M $50M $20M 27
SBA SBA SBA $25M $5M $5M (33.3%) $20M SBA $40M (66.7%) $5M $10M $10M $50M $20M SBA $2M $25M $15M $5M $5M (33.3%) $20M SBA $40M (66.7%) $5M $30M $10M $10M $50M 2 $47M 28
2 SBA $25M $20M $20M $5M (100% - 11.7% = 88.3%) $20M $40M $49.6M $40M SBA 3 $22.6M $2.6M $7M $40M $10M SBA 25% x ($40M SBA / $60M SBA) 5% = 11.7% 5% $50M 2 SBA $25M $16.2M $20M $20M $5M (100% - 28.3% = 71.7%) $20M $56.2M $56.0M $40M SBA 4 $22.6M $6.4M $2.6M $7M $40M $10M SBA 50% x ($40M SBA / $60M SBA) 5% = 28.3% 10% $50M 29
1997 2001 13 CFR Part 107 Small Business Investment Company (http://www.sba.gov/library/cfrs/13cfr107.pdf) SBA Small Business Administration Small Business Investment Company Program, Fiscal Year 2002, Special Report2002 (http://www.sba.gov/inv/specialreport.pdf) The Small business Act as Amended 04-05-042004.a (http://www.sba.gov/regulations/sbaact/sbaact.pdf) Small Business Investment Company Program, Financial Performance Report, For Cohorts 1994-2004, Through September 30, 20042004.b (http://www.sba.gov/inv/performance%20report-sep-2004-final-2005.03.22-reformat1.pdf) Participating Debentures, Pictorial Representation of Proposed Distribution Rules 2005 SBA U.S. House of Representative NASBIC National Association of Small Business Investment CompaniesOMB Office of Management and BudgetNVCA National Venture Capital AssociationThe Center for Venture Research JETRO 30