7/31/2019 SBIC 2011-10 A 831641EU5_0

1/29

OFFERINGCIRCULAR$822,685,000

(Approximate)U.S. Small Business Administration

Guaranteed4.084%DebentureParticipationCertificates,SeriesSBIC201110A

EvidencingFractionalUndividedInterestsinaPoolof4.084%DebenturesDueMarch1,2021Issuedby

SmallBusinessInvestmentCompaniesDistributionsofinterestpayableMarch10andSeptember10,commencingSeptember10,2011TheCertificates:

U.S.SmallBusinessAdministrationGuaranteed4.084%DebentureParticipationCertificates,SeriesSBIC201110A. TheCertificatesrepresentfractionalundividedinterestsinapoolofdebentureswhichwillbeissued,simultaneously

withtheCertificates,bysmallbusinessinvestmentcompanieslicensedbytheU.S.SmallBusinessAdministration,anindependentagencyoftheUnitedStates.

TheCertificatesareissuedbySBA,throughitsagentTheBankofNewYorkMellon,asTrustee.SBICs:

SmallBusinessInvestmentCompanies,licensedbytheU.S.SmallBusinessAdministration.ThePool:

ThePoolwillbecomposedof$822,685,000aggregateprincipalamountof4.084%debenturestobeissuedonoraboutMarch23,2011,bysixtySBICs.PaymentDates:

Paymentof interestonthedebenturesinthepoolwillbemadeoneachMarch1andSeptember1,commencingSeptember1,2011.DistributionDates:

DistributionsofinterestwillbemadeontheCertificates,oneachMarch10andSeptember10,commencingSeptember10,2011.

EachdebentureisscheduledtomatureonMarch1,2021,andfinaldistributioninretirementoftheCertificatesisscheduledforMarch10,2021.

CapitalizedtermsusedonthispageandinthisOfferingCircularhavethemeaningsgiventotheminthetextofthisOfferingCircular.

SBAisguaranteeingthetimelypaymentofprincipalandinterestwhendueonthedebenturesandthetimelypassthroughofsuchprincipalandinteresttoHoldersoftheCertificates.

ThefullfaithandcreditoftheUnitedStatesispledgedtohonorSBAsGuarantee.SeeFullFaithandCreditGuarantees.TheprincipalamountofadebentureinthePoolwillbeimmediatelydueandpayablewhenthereisaneventofdefaultbyanSBICandSBAacceleratesthedebenture.Whensuchanaccelerationhappens,SBAwillmakeapaymentpursuanttoitsGuaranteeof100%oftheprincipalamountofthedebenturetogetherwithaccruedinteresttothenextPaymentDate.TheamountofanyaccelerationpaymentwillbedistributedproratatotheHoldersoftheCertificatesontheDistributionDateforsuchPaymentDate.SeeAccelerationofDebentures.

AnSBICcurrentlyhastheoptiontoprepay itsdebentures,inwholebutnotinpart,onanyPaymentDateonorafterSeptember1,2011,ataprepaymentpriceof100%oftheprincipalamountofthedebenture,togetherwithaccruedinterest.TheamountofanyOptionalPrepaymentwillbedistributedproratatotheHoldersoftheCertificatesontheDistributionDateforsuchPaymentDate.SeeOptionalPrepaymentofDebentures.

PricetoPublic(1) UnderwritingDiscount ProceedsoftheOffering(1)(2)

PerCertificate .. ... . .... ..... ... .... .... . .... ... .... ....Total(3) . . .. .... ..... .... . .. . ... . .... ..... .. . .... .... . .(1) Plusaccruedinterest,ifany,fromdateoforiginalissue.(2) Beforedeductionofexpenses,estimatedat$50,000.(3) Mayvarybyplusorminus5%.

100%$822,685,000.00 0.375%$3,085,068.75 99.625%$819,599,931.25

DeliveryoftheCertificateswillbemadeinNewYork,NewYorkthroughthebookentrysystemofTheDepositoryTrustCompanyonoraboutMarch29,2011.

TheCertificatesareexemptfromtheregistrationrequirementsoftheSecuritiesActof1933,sonoregistrationstatementhasbeenfiledwiththeSecuritiesandExchangeCommission.NeithertheSecuritiesandExchangeCommissionnoranystatesecuritiescommissionhasapprovedordisapprovedoftheCertificatesorpassedupontheaccuracyoradequacyofthisOfferingCircular.Anyrepresentationtothecontrary isacriminaloffense.Goldman,Sachs&Co.

CreditSuisseJ.P.Morgan

ThedateofthisOfferingCircularisMarch22,2011.

7/31/2019 SBIC 2011-10 A 831641EU5_0

2/29

OFFERINGCIRCULARSUMMARYThefollowingsummary isqualifiedinitsentiretybymoredetailedinformationappearing

elsewhereinthisOfferingCircular.Guarantor..................... TheU.S.SmallBusinessAdministration(SBA),anindepen-

dentagencyoftheUnitedStates.TheCertificates................ Guaranteed4.084%DebentureParticipationCertificate,

SeriesSBIC201110A.EachCertificaterepresentsafrac-tionalundividedinterestinthePoolofthesedebentures.

ThePool...................... TheSeriesSBIC201110APooliscomposedof(i)$822,685,000aggregateprincipalamountofthreehundredtwelve4.084%debentures,(ii)theguaranteeagreementpur-suanttowhichtimelypaymentofprincipalandinterestoneachdebentureinthePoolwillbeguaranteedbySBAand(iii)anaccountintowhichpaymentbytheSBICsandSBAwithrespecttothedebenturesinthepoolwillbedeposited.

TheDebentures................ ThedebenturesinthePoolhavebeenissuedbysixtysmallbusinessinvestmentcompanies,orSBICs,licensedbySBApursuanttoSection301oftheSmallBusinessInvestmentActof1958,asamended.EachdebenturewillmatureMarch1,2021.

OptionalPrepayment ........... EachdebentureinthePoolissubjecttoOptionalPrepayment,inwholebutnotinpart,attheoptionofanSBIConanyPay-mentDateonorafterSeptember1,2011,ataprepaymentpriceof100%oftheprincipalamountofthedebenture,togetherwithaccruedinterest.SeeOptionalPrepaymentofDebentures.

AccelerationEventandAccelerationPayment........... AnAccelerationEventwithrespecttoadebentureinthePool

willoccuruponaneventofdefaultandtransferoftheSBICintoliquidationstatusbySBA.SeeAccelerationofDeben-tures.UponanAccelerationEvent,pursuantto itsGuarantee,SBAwillmakeapaymentof100%oftheprincipalamountofadebentureinthePool,togetherwithinterestaccruedtothePaymentDatenextfollowinganAccelerationEvent.TheanticipatedfrequencyandamountofAccelerationPaymentscannotbepredictedandwillbeinfluencedbyavarietyoffactors.SeeAccelerationofDebentures.

2

7/31/2019 SBIC 2011-10 A 831641EU5_0

3/29

FullFaithandCreditGuarantees ................... PursuanttoSections303and319(formerlySection321)of

theSmallBusinessInvestmentActof1958,asamended,SBAguaranteesthetimelypaymentofprincipalandinterestonthedebenturesinthePoolandthetimelypassthroughofprincipalandinteresttotheHoldersoftheCertificates.ThefullfaithandcreditoftheUnitedStates ispledgedtoSBAsGuarantees.SeeFullFaithandCreditGuarantees.

DistributionsofInterest ......... InterestonthedebenturesinthePoolwillaccruefromthedateoforiginalissueoftheCertificatesattherateof4.084%perannumandwillbepaidoneachMarch1andSeptem-ber1,commencingSeptember1,2011.TheinterestwillbepassedthroughoneachMarch10andSeptember10(unlesssuchday isnotabusinessday,inwhichcasepaymentwillbemadeonthenextapplicablebusinessday),commencingSep-tember10,2011,toholdersinwhosenamestheCertificatesareregisteredinthecertificateregistermaintainedbytheTrusteeatthecloseofbusinessontherelatedRecordDate.InterestontheCertificates iscalculatedonthebasisofayearof365days(regardlessofwhethertheyeariscomposedof365or366days)andtheactualnumberofdayselapsed(includingthefirstdaybutexcludingthelastday)fromthedateofpoolingoftherelateddebenturestothefirstpaymentdateandthereafterfrompaymentdatetopaymentdateuntilmaturity.

DistributionsofPrincipal ........ PrincipalisscheduledtobedistributedtotheHoldersoftheCertificatesonMarch10,2021.However,uponanOptionalPrepayment,theprepaymentpricewillbepassedthroughproratatotheHoldersontheDistributionDateforsuchPaymentDate.AccelerationPayments,ifany,willbepassedthroughproratatotheHoldersonthenextsucceedingDistributionDatefollowingsuchAccelerationPayment.SeeAccelerationofDebentures.

Trustee....................... TheBankofNewYorkMellon,assuccessorininteresttoJPMorganChaseBank,N.A.(formerlyTheChaseManhattanBank),oranysuccessor trusteeappointedunder theTrustAgreement,datedasofFebruary1,1997,asamendedfromtimetotime,willactasTrustee.TheTrusteewillholdlegaltitletothedebenturesandtheotherassetsconstitutingthePool,collectpaymentsofprincipalandinterestdueonthedeben-tures inthePoolanddistributesuchpaymentstotheHoldersoftheCertificates.

Denominations ................ Certificateswillbeissuedinmultiplesof$5,000withminimumoriginalprincipalamountsof$100,000.Thedenominationsig-nifiesaHoldersproratashareoftheaggregateprincipalamountofthedebenturesonthepoolingdate.

3

7/31/2019 SBIC 2011-10 A 831641EU5_0

4/29

RegistrationofCertificates....... TheCertificateswillinitiallybeofferedthroughthefacilitiesofTheDepositoryTrustCompanyinbookentryorcertificatedform.PersonsacquiringbeneficialownershipinterestsintheCertificateswillholdtheir intereststhroughTheDepositoryTrustCompany.TransferswithinTheDepositoryTrustCompanywillbemadeinaccordancewithitsusualrulesandoperatingprocedures.Uponrequest,apurchaserofCertificates isalsoentitledtoreceiveaphysicalcertificaterepresentingsuchpersonsinter-est.SeeDescriptionofParticipationCertificatesBookEntryandPhysicalCertificates.

InformationConcerningAccelerationEventsandOptionalPrepayments........... TheTrusteewillmaintainarecordofalldebenturesinthePool

whichhavebeensubjecttoanAccelerationEventorOptionalPrepayment

(to

the

extent

the

Trustee

has

been

notified

by

SBAofsuchAccelerationEventorOptionalPrepayment).Suchinformationwillbemadeavailablebydialing(800)2542826,atollfreetelephonenumber,duringtheTrusteesnormalbusinesshours.

TaxStatus .................... ThePoolwillbetreatedasagrantor trustforfederalincometaxpurposes,andthebeneficialownersofCertificateswillbetreatedasthebeneficialownersofundividedproratainterestsintheincomeoneachdebentureinthePoolforsuchpur-poses.OwnershipoftheCertificateswillbetreatedasowner-shipofgovernmentsecuritiesandobligationsoftheUnitedStatesforpurposesofcertainprovisionsofthefederalincometax laws.SeeTaxStatus.

LegalityofInvestment........... Underfederallaw,theCertificatesare: acceptableforpurchasebyandassecurityforadvancestomemberbanksoftheFederalReserveSystem;and eligibleassecurityfor thedepositofpublicmoniesoftheUnitedStatesandascollateralforTreasuryTaxandLoanAccounts.

ERISAConsiderations........... FiduciariesofemployeebenefitplanssubjecttotheEmployeeRetirementIncomeSecurityActof1974,asamended,shouldconsulttheir taxandlegaladvisorstodeterminewhethertheacquisitionofaCertificatecouldresultinprohibitedtransac-tionsorotherviolationsofthefiduciaryresponsibilityprovi-sionsofERISAandSection4975oftheCode.SeeERISAConsiderationsherein.

4

7/31/2019 SBIC 2011-10 A 831641EU5_0

5/29

FutureIssuancesofSBICDebentures ................... TheformationofadditionalpoolsofSBAguaranteedSBIC

debenturesandtheofferingofcertificatesrepresentingfrac-tionalundividedinterestsinsuchpoolsarerequiredatperi-odicintervalsofnotlessthaneverytwelvemonthsorshorterintervalsasdeemedappropriate.SeeDescriptionofSBICProgramGuaranteedPoolsherein.ThefrequencyandsizeofsuchofferingsmayvaryduetosuchfactorsasthelevelofdemandforfundsbySBICsandchangesinthe law, inmarketconditionsandinSBApolicy.

SBICParticipatingSecurities ..... TheSmallBusinessInvestmentActof1958,asamended,wasamendedin1992toauthorizeSBAtoguaranteeapartic-ipatingsecurity.Consequently, inadditiontopoolsofSBAguaranteedSBICdebentures,theformationofpoolsprimarilycomprisedofanassignmentofcertaininterestsinSBAguar-anteedparticipatingsecuritiesandtheofferingofcertificatesrepresentingfractionalundividedinterestsinsuchpoolswererequiredatperiodicintervalsofnotlessthaneverytwelvemonthsorshorter intervalsasdeemedappropriate.SeeDescriptionofSBICProgramParticipatingSecuritiesandDescriptionofSBICProgramGuaranteedPoolsherein.AfterSeptember30,2008,SBICscannolongerissuepartici-patingsecurities.Asaresult,thelastofferingofSBAguaran-teedparticipatingsecuritiesparticipationcertificatesoccurredinFebruary2009.InvestorsareadvisedthatanyredemptionexperienceofSBAguaranteedparticipatingsecuritiesisnotrelevantormaterialtotheofferingoftheCertificateshereunder.

5

7/31/2019 SBIC 2011-10 A 831641EU5_0

6/29

RISKFACTORSThefollowinginformation,whichyoushouldcarefullyconsider,identifiescertainsignifi-

cantsourcesofriskassociatedwithapurchaseofCertificates.Certificateshavelimitedliquidityand

market

disruption

may

adverselyaffectthevalueoftheCertificates . . . . . . . . . . . . . . . . . . . TheCertificateshavebeenofferedtwiceayearandhavehis-

toricallyhadalimitedsecondarymarket.Duetorecentdevel-opmentsinthecreditmarkets,thereiscurrentlyaverylimitedsecondarymarketfor theCertificates.Ifasecondarymarketdoesdevelopfor theCertificates,marketpricesmaybebeloworsubstantiallybelowtheprincipalamountsofsuchCertifi-cates.Inaddition,ifasecondarymarketdoesdevelop, itmightnotcontinueor itmightnotbesufficientlyliquidtoallowHolderstoresellCertificates.Consequently,HoldersmaynotbeabletosellCertificatesreadilyoratpricesthatwillenableHolderstorealizeadesiredyield.Inaddition,the lackofadefinedsecondarymarketmaymake itdifficulttodeterminethefairvalueofCertificatesevenifaHolderdoesnotintendtosell.ThemarketvaluesoftheCertificatesarelikelytofluc-tuate.AnyofthesefluctuationsmaybesignificantandcouldresultinsignificantlossestoHoldersdesiringtosellinthesecondarymarket.Illiquiditycanhaveaseverelyadverseeffectonthepricesofsecurities,includingtheCertificates,thatareespeciallysensi-tivetoprepayment,creditor interestraterisk.

TherateofprepaymentonthedebenturesisuncertainandmayadverselyaffecttheaveragelifeofandyieldontheCertificates. . . . . . Theanticipatedfrequencyandamountofprincipalprepay-

mentsonthedebenturescannotbepredictedandmaybeinfluencedbyavarietyoffactors.AnyprepaymentcanimpacttheyieldontheCertificates.ThedebenturesaresubjecttoprepaymenteitherasanOptionalPrepaymentorastheresultofanAccelerationEvent. EachdebentureinthePoolissubjecttoOptionalPrepay-

ment,inwholebutnotinpart,attheoptionofanSBIConanyPaymentDateonorafterSeptember1,2011,atapre-paymentpriceof100%oftheprincipalamountofthedebenture,togetherwithaccruedinterest.SeeOptionalPrepaymentofDebentures.

AnAccelerationEventwithrespecttoadebentureinthePoolwilloccuruponaneventofdefaultandtransferoftheSBICintoliquidationstatusbySBA.UponanAccelerationEvent,pursuantto itsGuarantee,SBAwillmakeapaymentof100%oftheprincipalamountofadebentureinthePool,

6

7/31/2019 SBIC 2011-10 A 831641EU5_0

7/29

togetherwithinterestaccruedtothePaymentDatenextfol-lowinganAccelerationEvent.SeeAccelerationofDebentures.

Theanticipatedrateandamountofprepaymentsofprincipal,ifany,totheHoldersoftheCertificatesasaresultofOptionalPrepayments

or

Acceleration

Events

cannot

be

determined.

TheamountofOptionalPrepaymentsmaybeinfluencedbyavarietyofeconomicfactors,includingadecreaseininterestrates,whichmaymaketheprepaymentofadebentureattrac-tivetoanSBIC.AnAccelerationEventmayresultupontheoccurrenceoftheeventsofdefaultdescribedunderAccelera-tionofDebenturesProcedureforAccelerationofDeben-tures.TherateatwhichAccelerationEventsareexperiencedmaybeinfluencedbyavarietyofeconomicfactors,includingbutnotlimitedtotheweakeningofnational,regionalandlocaleconomicconditions,changesorcontinuedweaknessinspe-cific industrysegmentsor thecapabilityofmanagementofanSBIC.

7

7/31/2019 SBIC 2011-10 A 831641EU5_0

8/29

DESCRIPTIONOFSBATheU.S.SmallBusinessAdministration(SBA),anindependentagencyoftheUnitedStates,

wascreatedbytheSmallBusinessAct,asamended(15U.S.C.631et.seq.)(theSmallBusinessAct),andderivesitspresentauthorityfromtheSmallBusinessActandtheSmallBusinessInvestmentActof1958,asamended(15U.S.C.661et.seq.)(theAct).

ThebasicmissionofSBAistoaid,counsel,assistandprotecttheinterestsofsmallbusinessconcerns;toensurethatsmallbusinessconcernsreceiveafairportionofgovernmentpurchasesandcontractsaswellasofthesalesofgovernmentproperty;tomakeorguaranteeloanstosmallbusinessconcerns,stateandlocaldevelopmentcompanies,andthevictimsoffloodsorothercatastrophes,andofeconomicinjurycausedthereby;andtolicense,regulate,andprovidefinancialassistancetosmallbusinessinvestmentcompanies.

SBAprovidesguaranteed,direct,or immediateparticipationloanstosmallconcernsforplantconstruction,machineryorsupplies,andworkingcapital.SBAalsomakeslowinterestloanstohandicappedindividualsandorganizationsandmaygrantrevolvinglinesofcreditforexportpurposes.

SBAalsomakessubsidizedloanstovictimsoffloods,riots,orothercatastrophestorepairorreplacedisasterdamagedproperty,andtosmallbusinesseswithoutaccesstocreditelsewherethathavesustainedsubstantialeconomicinjury inconsequenceofadisaster.

Throughitssuretybondguaranteeprogram,SBAguaranteesaqualifiedsuretyupto90percentof lossesincurredandpaidunderbid,payment,orperformancebondsissuedtosmallcontractors,oncontractsvaluedupto$2.0million.

UnderprovisionsoftheAct,SBAguaranteesdebenturesofstateandlocaldevelopmentcompanies;thedevelopmentcompanies,inturn,makeloanstosmallbusinessconcerns.

DESCRIPTIONOFTHESBICPROGRAMSBAlicenses,regulates,andprovidesfinancialassistancetosmallbusinessinvestmentcompa-

nieslicensedpursuanttoSection301(c)andformerSection301(d)oftheAct.Thesolefunctionoftheseprivatelyownedandmanagedinvestmentcompanies,hereinafterreferredtoasSBICs,istoprovideventurecapitalintheformofequityfinancing,longterm loanfundsandmanagementservicestosmallbusinessconcerns,for theirgrowth,expansionandmodernization.Regulationsfor theSBICProgram,includingtheregulationsgoverningissuancebyanSBICofSBAguaranteeddebenturesandparticipatingsecurities,asfurtherdescribedbelow,arecodifiedat13C.F.R.Part107,andmaybeamendedfromtimetotime.

SBICscanbeformedasforprofitcorporations, limitedpartnerships,limitedliabilitycompaniesor, inthecaseofSBICslicensedpursuanttoformerSection301(d)oftheAct(SpecializedSBICs),nonprofitcorporations.SpecializedSBICsarerestrictedto investmentsinsmallbusinessconcernswhichwillcontributetoawellbalancednationaleconomybyfacilitatingownershipinsuchconcernsbypersonswhoseparticipationinthefreeenterprisesystemishamperedbecauseofsocialoreconomicdisadvantageand,prior toOctober1,1996,couldqualifyforSBAfinancialassistanceonmorefavorabletermsthanSBICs licensedpursuanttoSection301(c)oftheAct.

FromtheinceptionoftheSBICprogramtoDecember31,2010,allSBICs,includingSpecializedSBICs,haveinvestedapproximately$58.2billioninapproximately161,500financingstosmallconcerns.Duringcalendaryear2010,SpecializedSBICsmadeapproximately48financingsaggregat-ingapproximately$3.2milliontodisadvantagedsmallconcerns,andotherSBICsmadeapproximately2,370financingsaggregatingapproximately$2.2billion.

Debentures. TheActpermitsSBAtoguaranteedebenturesissuedbySBICs,theproceedsofwhichareusedtoaugmentotherfundsavailabletoSBICsfor investment.Suchdebenturesmayhavetermsofupto15years,althoughcurrentlynooutstandingSBICdebentureguaranteedbySBAhas

8

7/31/2019 SBIC 2011-10 A 831641EU5_0

9/29

anoriginaltermofmorethan10yearsandtwentynineweeks.DebenturesguaranteedbySBAafterJuly1,1991aresubordinatedonlytoloanstotheissuingSBICfromnonassociatedlendersinanamountnottoexceedthelesserof$10millionor200%oftheSBICscombinedprivatepaidincapitalandpaidinsurplus(PrivateCapital),unlessotherwisedeterminedbySBA.AsmorefullydescribedunderFullFaithandCreditGuaranteesbelow,thefullfaithandcreditoftheUnitedStatesispledgedtotheguaranteebySBAofthetimelypaymentofprincipalandinterestdueoneachdebenture.

OnMarch8,2011,therewereatotalof286licensedandoperatingSBICsother thanSpecializedSBICswithprivatecapitalof$8.52billion,ofwhich166hadnooutstandingdebentureborrowingsguaranteedbySBA,and120,withprivatecapitalof$4.05billion,had$3.98billionofoutstandingdebentureborrowingsguaranteedbySBA(exclusiveofthe$27.6millioninaggregatecurrentlyoutstandingLMIdebentures,asdiscussedbelowunderRegulatoryandLegislativeDevelopments).

OnMarch8,2011,therewereatotalof13licensedandoperatingSpecializedSBICswithprivatecapitalof$91.4million,ofwhich9hadnooutstandinggovernmentfinancingsguaranteedbyordirectlyfromSBA,and4,withprivatecapitalof$16.2million,had$9.6millionofoutstandingdebentureborrowingsfromorguaranteedbySBAand$4.38millioninpreferredsecuritiespurchasedandheldbySBA.OnMarch8,2011,therewerenooutstandingLMIdebenturesissuedbySpecializedSBICs.

SevenoftheoperatingSBICsother thanSpecializedSBICswithprivatecapitalof$122.5millionwereoriginallylicensedasSpecializedSBICs.These7SBICsconvertedtheir licensesandarenolongerrestrictedto investmentsindisadvantagedsmallbusinesses.OnMarch8,2011,oneoftheseconvertedSBICshad$1.1millioninpreferredsecuritiespurchasedandheldbySBA.

InaccordancewithDivisionC,TitleVofPublicLaw111117,theConsolidatedAppropriationsAct,2010,ascontinuedbytheContinuingAppropriationsAct,2011,Pub.L.111242,asamended,commitmentstoguaranteeloansfordebenturescannotexceed$3billion.

UntilMarch29,1990,debenturesissuedbySpecializedSBICswereonlyfundeddirectlybySBA.UntilApril7,1986,debenturesissuedbyotherSBICswerefundedthroughandheldbytheFederalFinancingBank,aninstrumentalityoftheUnitedStatesunder thegeneralsupervisionoftheSecretaryoftheTreasury.SinceApril7,1986,theFederalFinancingBankhasnotbeenauthorizedtopurchaseSBAguaranteedSBICdebentures.

ParticipatingSecurities. OnSeptember4,1992,thePresidentsignedintolawPublicLaw102366,theSmallBusinessCreditandBusinessOpportunityEnhancementActof1992.TitleIVofthestatuteamendedtheActandauthorizedSBAtoguaranteeaparticipatingsecurity(each,aparticipatingsecurity,orcollectively,participatingsecurities),whichcouldbeissuedbythoseSBICsthatmadeequitytypeinvestmentsinsmallbusinessconcerns.SinceOctober1,2004,however,SBAhasnotbeenableto issuenewcommitmentsforparticipatingsecuritiesleverage.ThefeespayablebySBICsforparticipatingsecuritiesleveragearenotsufficienttocover theprojectednetlossesintheparticipatingsecuritiesprogramandnofundshavebeenappropriatedfor thisprogram.SBAsauthoritytoguaranteeparticipatingsecuritiesissuedundercommitmentsmadebySBAprior toOctober1,2004,includingparticipatingsecuritiesissuedundersuchcommitmentsafterOctober1,2004,isnotaffectedbythischange.BetweenFebruary22,1995andFebruary25,2009,inclusive,$10,263,495,000aggregateprincipalamountofSBAguaranteedSBICparticipatingsecuritiesPartic-ipationCertificatesweresoldinunderwrittenpublicofferings.TheeffectofthepassageoftheSmallBusinessCreditandBusinessOpportunityEnhancementActof1992onthevolumeofdebenturesissuedunderthecurrentprogramcannotbepredictedwithcertainty.AfterSeptember30,2008,SBICscannolongerissueparticipatingsecurities.Asaresult,thelastofferingofSBAguaranteedparticipatingsecuritiesparticipationcertificatesoccurredinFebruary2009.InvestorsareadvisedthatanyredemptionexperienceofSBAguaranteedparticipatingsecuritiesisnotrelevantormaterialtotheofferingoftheCertificateshereunder.

9

7/31/2019 SBIC 2011-10 A 831641EU5_0

10/29

InterimFunding. InMay1998,SBAbeganmakingfinancialassistanceavailabletoSBICsmorefrequentlythanthecurrentlyscheduledsemiannualofferingsofSBAguaranteedparticipationcertifi-cates.SBAnowguaranteesSBICdebenturesandparticipatingsecuritypartialassignmentsforanInterimPeriod,whichbeginsatthetimeofthesaleofsuchinstrumentstoadesignatedfinancialinstitution(theInterimFundingProvider)andcontinuesuntilthedateofthenextapplicableparticipationcertificateissuance.TheInterimFundingProviderreceivesarateof interestorprioritizedpayments,asapplicable,for theInterimPeriod,whichwillgenerallynotexceedsixmonthsandtwoweeks.AttheendoftherelevantInterimPeriodthedebenturesorpartialassignmentsofparticipatingsecuritiesarerepriced,repurchasedandpooledfor thesaleofparticipationcertificates.SBAexpectsthatallSBICdebentures(other thanLMIdebenturesasdiscussedbelowunderRegulatoryandLegislativeDevelopments)andinterestsinparticipatingsecuritiesissuedafterMay1998willbefundedinthismanner.AlthoughsuchInterimFundingwillnotaffectthetermsoftheCertificates,InterimFundingeffectivelyextendsthetermofthedebenturesandparticipatingsecuritypartialassignmentsprior topoolingbythelengthoftheInterimPeriod.

RegulatoryandLegislativeDevelopments. InresponsetoaPresidentialdirectivetoallfederalagenciestosimplifytheirregulations,SBApublishedafinalruleonJanuary31,1996,whichstreamlinedtheregulationsgoverningtheSBICProgram(61Fed.Reg.3177,January31,1996).Ingeneral,theruleeliminatedobsoleteregulationsandmadeanumberofsubstantivechangesintendedto

reduce

the

regulatory

burden

on

SBICs

and

to

make

the

SBIC

Program

more

costeffective.

The

substantivechangesincluded:(1)allowingSBICstochargeahigherinterestrateontheloanstheymaketosmallbusinesses;(2)increasingthelicenseapplicationfee,theexaminationfeeandcertainprocessingfees;(3)requiringallnewSBICsthatobtainSBAfinancialassistancetohavediversitybetweenthemanagementandtheownershipoftheSBIC;(4)expandingthepermittedsourcesofprivatecapitalforSpecializedSBICs;and(5)requiringSBICs licensedafterJanuary31,1996tohaveprivatecapitalofatleast$5millioninorder toapplyfordebenturefinancingunlesssuchSBICscandemonstratelongtermfinancialviabilityatalesseramount.

OnSeptember30,1996,thePresidentsignedPublicLaw104208,DivisionDofwhichistheSmallBusinessProgramsImprovementActof1996(theImprovementAct).TheImprovementActmadeanumberofchangestotheActandtheSBICProgram,includingtherepealofSBAsauthorityto licenseSpecializedSBICsandtoprovidesuchcompanieswithfinancialassistanceontermsdifferent

than

those

available

to

other

SBICs.

The

Improvement

Act

also

required

all

new

SBICs

to

haveatleast$5millionofprivatecapitaltoissuedebenturesandatleast$10millionofprivatecapitaltoissueparticipatingsecurities,althoughSBAhasthediscretionto licenseandtoapproveleverageforaparticipatingsecuritiesissuerwithprivatecapitalrangingfrom$5millionto$10million.AnexceptiontothisprovisionwasenactedonDecember2,1997,intheSmallBusinessReauthorizationActof1997(theReauthorizationAct).TheexceptionpermitscertainSBICswithprivatecapitaloflessthan$5millionbutnotlessthan$3milliontoissuedebentureleverageinanamountnottoexceedtheirprivatecapital.TheexceptionisavailabletoanySBICthatfileditslicenseapplicationonorbeforeMay31,1998andthatis locatedinastatenotservedbyanotherlicensee.

TheImprovementActandtheReauthorizationActalsochangedthefeespayablebySBICsissuingdebenturesorparticipatingsecurities.First,effectiveOctober1,1997,the leveragefeeof3%ofthefaceamountoftheleveragemaybepaidintwostages:1%atthetimetheSBICobtainsanSBAleveragecommitmentand2%atthetimetheleverageisdrawnunderthecommitment.Second,SBICswererequiredtopaySBAanannualfeeequalto1%ofthedebenturesorparticipatingsecuritiesissuedafterOctober1,1996.

OnDecember21,2001,thePresidentsignedtheSmallBusinessInvestmentCompanyAmend-mentsActof2001,whichchangestheannualfeefordebenturesandparticipatingsecuritiesobligatedafterSeptember30,2001.OnSeptember30,2003,thePresidentsignedPublicLaw10884,whichchangedtheannualfeeforparticipatingsecurities.Fordebenturesandparticipatingsecurities,thefeeisthelowerof(1)apercentageestablishedbySBAthatreducestozerothecostoftheirpurchaseandguaranteeand(2)1.38%inthecaseofdebenturesand1.46%inthecaseofparticipating

10

7/31/2019 SBIC 2011-10 A 831641EU5_0

11/29

securities.Theannualfeeispayableonthesametermsandconditionsasinterestonthedebenturesorprioritizedpaymentsontheparticipatingsecurities.

In1999,SBAintroducedaninitiativetoencourageSBICstoinvestinsmallbusinessesthatarelocatedin,or thatprovideemploymentforpeopleresidingin,innercitiesandruralareas.Asoutlinedin64Fed.Reg.52641(September30,1999),thisinitiativeisknownasthelow ormoderateincome(LMI) investmentsinitiativeandisaprogramofnarrowlytailoredregulatoryandfinancialincentivesfor investmentsbySBICsinqualifyingsmallbusinesses.Under theinitiative,eligibleSBICsmay issueanSBAguaranteeddeferredinterestdebentureandusetheproceedstomakeequitytypeinvest-mentsinbusinessesinthetargetedareas.TherearenoLMIdebenturesinthePoolandSBAexpectsthatLMIdebentureswillnotbepooledforsale.LMIdebenturesarefundedoutofthesameprogramlevelsthatareavailableforSBAsguaranteeofotherdebentureleverage.SBAcannotpredicttheamountofLMIdebenturesthatwillbeissuedinthefuture,butdoesnotexpectittobesignificantrelativetotheamountofstandardSBICdebentures.

OnDecember19,2007,thePresidentsignedPublicLaw110140whichistheEnergyIndepen-denceandSecurityActof2007(theEnergyAct).TheEnergyActauthorizeseligibleSBICs licensedonandafterOctober1,2008toissueSBAguaranteeddeferredinterestdebenturesandusetheproceedstomakeinvestments insmallbusinessconcernsthatareprimarilyengagedinresearching,manufacturing,developing,orprovidingproducts,goods,orservicesthatreducetheuseorconsump-tionofnonrenewableenergyresources(EnergySavingDebentures).EnergySavingDebentureswillbefundedoutofthesameprogramlevelthatisavailableforSBAsguaranteeofotherdebentureleverage.SBAcannotpredicttheamountofEnergySavingDebenturesthatwillbeissuedinthefuture,butdoesnotexpect ittobesignificantrelativetotheamountofstandardSBICdebentures.

OnFebruary17,2009,thePresidentsignedtheAmericanRecoveryandReinvestmentActof2009(RecoveryAct),whichchangedthemaximumamountofSBAfinancialassistanceavailabletoanSBICorgroupofcommonlycontrolledSBICs.TheRecoveryActalsorequiresallSBICsapplyingforfinancialassistancetocertifythatnotlessthan25%oftheirfuture investmentswillbemadeinsmallerbusinesses.

CapitalRequirements. ThecurrentstatutoryminimumPrivateCapitalrequirementfor thelicensingofnewSBICswhichissuedebenturesis$5million.SBAmay licenseanSBICwithPrivateCapitalbetween$3millionand$5million,however, iftheapplicantdemonstratesspecialcircum-stancesandgoodcause,hasaviablebusinessplanforachievingprofitabilityandhasareasonabletimetableforachievingtherequiredlevelofPrivateCapital.Ingeneral,suchSBICswillnotbeeligibleforSBAfinancialassistanceuntiltheymeettherequiredlevelofPrivateCapital.However, ifsuchanSBICfiled its licenseapplicationonorbeforeMay31,1998,andis locatedinastatenotservedbyanotherSBIC,thentheSBICwillbeeligibleto issuedebenturesinanamountnottoexceeditsPrivateCapital.SBICs licensedbeforeOctober1,1996thatdonotmeetthecurrentstatutoryminimumPrivateCapitalrequirementsareeligibletoissuedebenturesonlyif:(i)thelicenseecertifiesthatatleast50%oftheaggregatedollaramountofitsfinancingsafterOctober1,1996willbeprovidedtosmallerbusinessesand(ii)SBAdeterminesthatallowingthelicenseetoissuedebentureswouldnotcreateorotherwisecontributetoanunreasonableriskofdefaultor losstotheUnitedStatesGovernment.Issuersofparticipatingsecurities,whetherornottheyissuedebentures,willberequiredtohavePrivateCapitalofat least$10millionunlesslongtermfinancialviabilitycanbedemonstratedatalesseramount,butnoapplicationfor theguaranteeofparticipatingsecuritieswillbeconsiderediftheissuerhasPrivateCapitalof lessthan$5million.

ThetotalprincipalamountofoutstandingdebenturesandparticipatingsecuritiesguaranteedbySBAandissuedbyanSBICmaynot,ingeneral,exceedatanyonetimeanamountequaltothreetimessuchSBICsprivatecapitalor$150million,whichever is less,exceptthat inthecaseoftwoormorecommonlycontrolledSBICs,thetotalprincipalamountofoutstandingdebenturesandparticipat-ingsecuritiesguaranteedbySBAandissuedbythecommonlycontrolledSBICsmaynot, ingeneral,exceed$225million.

11

7/31/2019 SBIC 2011-10 A 831641EU5_0

12/29

Prior toOctober1,1996,SpecializedSBICsinvestinginventurecapitalfinancingmayhavequalifiedforfinancialassistanceinanamountequaltofour timestheirPrivateCapitaluptoanaggregateof$35millionand,forfinancialassistanceinexcessof$35million,inthoseratiosapplicabletootherSBICs.SinceOctober1,1996,newfinancialassistancehasbeenmadeavailabletoSpecializedSBICsonlyonthesametermsandconditionsavailabletootherSBICs.

AsofSeptember4,1992,thedefinitionofPrivateCapitalwasbroadenedto includeinvestmentsinSBICsbyallpensionfunds,whetherpublicorprivate;directinvestmentsinanSBICbyaStateorlocalgovernmententityprovidedsuchinvestmentsdonotexceed33percentofanSBICsPrivateCapital;and,forregulatorypurposesonly,unfundedcommitmentsfrom institutionalinvestors.Special-izedSBICsmayalsoincludeinPrivateCapitalfundsindirectlyobtainedfromStateor localgovernmentsprovidedthatsuchfundswerecontributedtotheSpecializedSBICprior toOctober1,1996.

GuaranteedPools. Section319(formerlySection321)oftheActauthorizestheformationofpoolsofSBICdebenturesguaranteedbySBAandtheissuanceofguaranteedparticipationcertif-icatesrepresentingfractionalundividedinterestsinsuchpools(seeDescriptionofthePoolofDebenturesbelow).AsmorefullydescribedunderFullFaithandCreditGuarantees,pursuanttoSection319oftheActthefullfaithandcreditoftheUnitedStatesispledgedtotheguaranteebySBAofthetimelypassthroughofpaymentsofprincipalandinterestdueonsuchdebentures.

AsenvisionedunderSection319,theofferingherebyofGuaranteed4.084%DebenturePartic-ipationCertificates,SeriesSBIC201110A(theCertificates),representingfractionalundividedinterestsinapool(thePool)ofSBAguaranteedSBICdebentures(theDebentures),isbeingundertakenbySBAtoprovideSBICswithfundsfor investmentactivities.TheCertificatesrepresenttheseventyfirstissueof10yearSBAguaranteedSBICDebentureParticipationCertificatespursuanttoSection319(formerlySection321).FromSeptember24,1986throughSeptember22,2010,$6,443,760,000aggregateprincipalamountof10yearSBAguaranteedSBICDebentureParticipationCertificatesweresoldinunderwrittenpublicofferings.OnJune24,1992,$6,000,000aggregateprincipalamountof5yearSBAguaranteedSBICDebentureParticipationCertificatesweresoldinanunderwrittenpublicoffering.OnJune8,1988,September28,1988,December21,1988andDecember19,1990,$38,770,000aggregateprincipalamountof3yearSBAguaranteedSBICDebentureParticipationCertificatesweresoldinunderwrittenpublicofferings.

Prior toOctober1,1997,Section320(formerlySection322)oftheActrequiredSBAto issueandguaranteeSBICparticipationcertificatesatperiodicintervalsofnotlessthaneverythreemonths.EffectiveOctober1,1997,suchrequirementwaschangedtoallowfor thesemiannualissuanceandguaranteeofSBICparticipationcertificates.EffectiveApril5,1999,suchrequirementwaschangedagaintoallowfor theannualissuanceandguaranteeofSBICparticipationcertificates.SBAcurrentlyanticipatestheformationofadditionalpoolsof10yearSBAguaranteedSBICdebentures,onasemi-annualbasis,andthesemiannualofferingofSBAguaranteedSBICdebentureparticipationcertif-icatesrepresentingfractionalundividedinterestsinsuchpools.SBAcurrentlycontemplatesthatsemi-annualofferingsunder theDebentureProgramwilloccureachMarchandSeptember.TheofferingofSBAguaranteedparticipatingsecuritiesparticipationcertificates,inFebruary2009,wasthefinalofferingunder theparticipatingsecurityprogram.SBAsplanswithrespecttofutureofferingsofcertificatesrepresentingfractionalundividedinterestsineitherpoolsofdebenturesorparticipatingsecuritypartialassignmentsaresubjecttochangeduetosuchfactorsasthelevelofdemandforfundsbytheSBICsandchangesinthelaw, inmarketconditionsandinSBApolicy.

DESCRIPTIONOFTHEPOOLOFDEBENTURESThePooliscomposedof(i)$822,685,000aggregateprincipalamountofthreehundredtwelve

4.084%DebenturesissuedbyatotalofsixtySBICslicensedbySBApursuanttoSection301oftheActtogetherwiththeguaranteeagreementpursuanttowhichtimelypaymentofprincipalandinterestoneachDebentureinthePoolwillbeguaranteedbySBA(theGuaranteeAgreement)and(ii)an

12

7/31/2019 SBIC 2011-10 A 831641EU5_0

13/29

accountintowhichpaymentbytheSBICsandSBAwithrespecttotheDebentureswillbedeposited.TheTrusteeistheholderoflegaltitletoeachDebentureandthefundingoftheDebenturesisbeingarrangedbythesaleofthebeneficialinterestintheprincipalandinterestofeachDebenturetotheholders(theHolders)oftheCertificates.ThetwolargestDebenturesinthePoolareeachintheamountof$20,000,000;thefoursmallestDebenturesinthePoolareeachintheamountof$50,000;andthemedianoftheDebenturesinthePoolis intheamountof$2,000,000.NoneoftheDebenturesinthePoolhavebeenissuedbyaSpecializedSBIC.

DESCRIPTIONOFDEBENTURESGeneral. EachDebenturecontainedinthePoolhasbeenguaranteedbySBAastotimely

paymentofprincipalandinterestpursuanttotheGuaranteeAgreement.EachDebenturerequiresrepaymentofitsentireprincipalamountonMarch1,2021.EachDebenturerequirespaymentofinterestsemiannuallyonMarch1andSeptember1ofeachyear,commencingSeptember1,2011(thePaymentDates)andbearsinterestattherateof4.084%perannumonthebasisofayearof365days(regardlessofwhethertheyear iscomposedof365or366days)for theactualnumberofdayselapsed(includingthefirstdaybutexcludingthe lastday),fromthedateof issuanceoftheDebenturetothefirstPaymentDateandthereafterfromPaymentDatetoPaymentDateuntilitsmaturity.TheSBICsarerequiredtomakeallscheduledDebenturepaymentstotheTrusteeontheapplicablePaymentDates.

PrepaymentofDebentures. TheDebenturesaresubjecttoprepaymentinwholebutnotinpartasaresultofeitherOptionalPrepayments(asdefinedherein)orAccelerationEvents(asdefinedherein).SeeOptionalPrepaymentofDebenturesandAccelerationofDebentures.

DESCRIPTIONOFPARTICIPATIONCERTIFICATESTheCertificatesareofferedherebypursuanttoSection319(formerlySection321)oftheAct

andrepresentfractionalundividedinterestsinaPoolofDebentures.ThefractionalundividedinterestofeachCertificateiscalculatedbydividingtheoriginalprincipalamountstatedonthefaceoftheCertificatebytheaggregateprincipalamountoftheDebenturesasofthedateof issuance.TheprincipalamountrepresentedbytheCertificatesandtheaggregateunpaidprincipalamountoftheDebentureswilldeclineproportionatelytotheextentprincipalispaidpursuanttoOptionalPrepay-mentsorAccelerationPayments.Certificateswillbeissuedinoriginalprincipalamountsof$100,000or integralmultiplesof$5,000inexcessthereof.

Paymentsofprincipalandinterestdueunder theDebentureswillbemadebytheSBICstotheTrustee.IntheeventanSBICfailstomaketimelypaymentofprincipalor interestdueunderaDebenture,SBAwillmakepaymentofsuchamountofprincipalor interestdirectlytotheTrusteeonorbeforetheDistributionDate, inaccordancewithSBAsGuarantee.SeeFullFaithandCreditGuarantees.

TheTrusteewillcollectpaymentsofprincipalandinterestdueontheDebentures(includingpaymentsmadeastheresultofanOptionalPrepayment,ifany)andremitsuchpayments,togetherwithanynecessaryadditionalamountsreceivedfromSBAunderitsGuarantee,totheHoldersoftheCertificatesontheDistributionDates,March10andSeptember10(unlesssuchday isnotabusinessday,whereuponpaymentshallbemadeuponthenextapplicablebusinessday)ofeachyear,beginningSeptember10,2011.TheCertificateswillaccrueinterestfromthedateofpoolingoftherelatedDebenturestothefirstPaymentDateandthereafterfromPaymentDatetoPaymentDateuntilmaturity.LatepaymentsofinterestmadebySBICswillbepaiddirectlytoSBAasreimbursementforpaymentspursuanttoitsGuarantee.

13

7/31/2019 SBIC 2011-10 A 831641EU5_0

14/29

BookEntryandPhysicalCertificatesTheCertificateswillbeissuedinregisteredform(i) intheformofbeneficialinterestsinoneor

morerestrictedglobalcertificates(theBookEntryCertificates),depositedwithacustodianforTheDepositoryTrustCompany(DTCand,togetherwithanysuccessordepository,theDepository)and(ii)uponrequest,incertificatedform(thePhysicalCertificates).SucharequestforPhysicalCertificates

is

made

to

the

Trustee

or

a

Participant

or

Indirect

Participant

(each

as

defined

below),

as

applicable.TheBookEntryCertificatesandPhysicalCertificateswillbeissuedindenominationsof$100,000oranyintegralmultiplesof$5,000inexcessthereof.TheregisteredholdersoftheCertificatesarereferredtoasHoldersandtheownersofbeneficialinterestsintheBookEntryCertificatesasBookEntryOwners.

BookEntryCertificates. BookEntryCertificateswillbedepositedwithDTCor itscustodianandregisteredinthenameofCede&Co.,asnomineeofDTC.DTCisalimitedpurposetrustcompanyorganizedunder thelawsoftheStateofNewYork,amemberoftheFederalReserveSystem,aclearingcorporationwithinthemeaningoftheNewYorkUniformCommercialCodeandaclearingagencyregisteredpursuanttoSection17AoftheSecuritiesExchangeActof1934,asamended.DTCwascreatedtoholdsecuritiesforitsparticipatingorganizations(Participants)andtofacilitatetheclearanceandsettlementofsecuritiestransactionsbetweenParticipantsthroughelectronicbookentries,therebyeliminatingtheneedforphysicalmovementofcertificates.Participantsincludesecuritiesbrokersanddealers,banks,trustcompaniesandclearingcorporations.IndirectaccesstotheDTCsystemalsoisavailabletootherssuchasbanks,brokers,dealersandtrustcompaniesthatclear throughormaintainacustodialrelationshipwithaParticipant,eitherdirectlyor indirectly(IndirectParticipants).

BookEntryOwnersthatarenotParticipantsorIndirectParticipantsofDTCwhodesiretopurchase,sellorotherwisetransferownershipoforother interestsinCertificatesmaydosoonlythroughParticipantsandIndirectParticipants.Inaddition,BookEntryOwnerswillreceivealldistribu-tionsofprincipalofandinterestontheCertificatesthroughParticipants,asdescribedbelow.It isanticipatedthattheonlyHolderofrecordoftheBookEntryCertificateswillbeCede&Co.,asnomineeofDTC.BookEntryOwnerswillnotberecognizedbytheTrusteeasHolders,assuchtermisusedintheTrustAgreement,andBookEntryOwnerswillbepermittedtoexercisetherightsofHoldersonlyindirectlythroughDTCanditsParticipants.

Under therules,regulationsandprocedurescreatingandaffectingDTCanditsoperations(theRules),DTC isrequiredtomakebookentrytransfersofBookEntryCertificatesamongParticipantsonwhosebehalfitactswithrespecttotheBookEntryCertificates.ParticipantsandIndirectParticipantswithwhichBookEntryOwnershaveaccountswithrespecttotheCertificatessimilarlyarerequiredtomakebookentrytransfersandreceiveandtransmitsuchdistributionsonbehalfoftheirrespectiveBookEntryOwners.Accordingly,althoughBookEntryOwnerswillnotholdphysicalcertificatesrepresentingtheir interestsinBookEntryCertificates,theRulesprovideamechanismbywhichBookEntryOwnerswillreceivepaymentsandwillbeabletotransfer their interestsinsuchCertificates.

BecauseDTCcanactonlyonbehalfofParticipants,whointurnactonbehalfofIndirectParticipantsandcertainbanks,theabilityofaBookEntryOwner topledgeits interestinCertificatestopersonsorentitiesthatdonotparticipateintheDTCsystem,or tootherwiseactwithrespecttosuchCertificates,maybelimitedduetothelackofaphysicalcertificate.

DTCgenerallywilltakeanyactionpermittedtobetakenbyaHolderunder theTrustAgreementonlyatthedirectionofoneormoreParticipantstowhoseaccountswithDTCinterestsintheBookEntryCertificatesarecredited.DTCmaytakeconflictingactionswithrespecttootherundividedintereststotheextentthatsuchactionsaretakenonbehalfofParticipantswhoseholdingsincludesuchundividedinterest.

14

7/31/2019 SBIC 2011-10 A 831641EU5_0

15/29

NoneofSBA,SBICFundingCorporation,theUnderwritersor theTrusteewillhaveanyliabilityforanyaspectoftherecordsrelatingtoordistributionsmadeonaccountofbeneficialownershipinterests intheBookEntryCertificatesheldbyCede&Co.,asnomineeforDTC,orformaintaining,supervisingorreviewinganyrecordsrelatingtosuchbeneficialownershipinterests.

PhysicalCertificates. OwnershipofcertificatesmaybeevidencedbyPhysicalCertificates,registeredinthenameofthepurchaserthereoforanynomineeofsuchpurchaseruponrequestofsuchpurchasertotheTrusteeor thepurchasersParticipantorIndirectParticipant,asapplicable.PhysicalCertificateswillalsobeissuedtoaBookEntryOwner(or itsnominee)atanytime(subjecttotherulesandproceduresofDTC)upontherequestofsuchBookEntryOwner that its interestinaBookEntryCertificatebeexchangedforaPhysicalCertificateorCertificates.

TheholderofanyPhysicalCertificatemayexchangethesameinwholeorinpart(inanoriginalprincipalamountequalto$100,000oranyintegralmultipleof$5,000inexcessthereof)forotherPhysicalCertificatesor,ifsuchholderisentitledtoholdaninterestinBookEntryCertificates(subjecttotherulesandproceduresofDTC),forabeneficialinterestinBookEntryCertificatesbysurrender-ingsuchPhysicalCertificatetotheTrustee(andcompletingtheformoftransferonthereversethereof)togetherwithanycertificateorotherrequireddocumentation.Anominalchargewillbeimposedforanyregistrationoftransferorexchange,andtheTrusteemayrequirepaymentofasumsufficienttocoveranytaxorothergovernmentalchargeimposedinconnectiontherewith.SeeTrustAgreementRegistrationofTransferandExchangeofCertificates.

Distributions. DistributionsofprincipalofandinterestontheBookEntryCertificateswillbemadetoCede&Co.astheregisteredowneroftheBookEntryCertificates.BookEntryOwnerswillreceivealldistributionsofprincipalandinterestthroughParticipants.It isexpectedthatCede&Co.,uponreceiptofanydistributionofprincipalor interestinrespectofaBookEntryCertificateheldby it,asnomineeforDTC,willimmediatelycreditParticipantsaccountswithamountsproportionatetotheirrespectivebeneficialinterestsinsuchBookEntryCertificateasshownontherecordsofCede&Co.It isalsoexpectedthatdistributionsbyParticipantstoBookEntryOwnerswillbegovernedbystandinginstructionsandcustomarypractices,asisnowthecasewithsecuritiesheldfor theaccountsofcustomersregisteredinthenamesofnomineesforsuchcustomers.SuchdistributionswillbetheresponsibilityofsuchParticipants.Underabookentryformat,therefore,BookEntryOwnersmayexperiencesomedelayintheirreceiptofpaymentssincesuchpaymentswillbeforwardedbytheTrusteetoCede&Co.,andbyCede&Co.toParticipants,whichthereafterwillforwardthemtoIndirectParticipantsorBookEntryOwners.

HoldersofCertificatesevidencingintheaggregateaminimumoriginalprincipalamountof$1millionshallbepaidbywiretransferfor theaccountofsuchpersoninimmediatelyavailablefundstoacommercialbanklocatedinthecontinentalUnitedStateshavingappropriatefacilitiesthereforuponwrittenrequestreceivedbytheTrusteeonorbeforetheRecordDate,asdefinedherein,prior totheapplicableDistributionDate.ForotherHolders,distributionsontheCertificateswillbemadebycheckmailedtotheaddressofthepersoninwhosenametheCertificateisregisteredatthecloseofbusinessontheRecordDate.

15

7/31/2019 SBIC 2011-10 A 831641EU5_0

16/29

YIELDCONSIDERATIONSTheeffectiveyieldtoHolderswillbereducedbelowtheyieldotherwiseproducedbytherateof

interestpayableontheDebenturesbecausethedistributionofinterestthataccruesontheDebenturesinrespectofanysemiannualinterestperiodendingMarch1orSeptember1,asthecasemaybe,willnotbemadeuntiltherelatedDistributionDate,whichoccursonMarch10orSeptember10.AnOptionalPrepaymentorAccelerationPaymentwillincludeallinteresttotherelevantPaymentDateandwillbepassedthroughproratatotheHoldersontheDistributionDateforsuchPaymentDate.

FULLFAITHANDCREDITGUARANTEESPursuanttoSection303oftheAct,SBAguaranteesthetimelypaymentofprincipalandinterest

dueundereachDebenture(theSection303Guarantee).TheSection303GuaranteeisstatedintheGuaranteeAgreement,executedonbehalfoftheUnitedStatesbyanSBAofficial,whichcoverstheDebentures.ThefullfaithandcreditoftheUnitedStatesispledgedtotheSection303Guarantee.IntheeventthatanSBICfailstomakepaymentofprincipalor interestdueuponitsDebentureonaPaymentDate,SBA,pursuanttotheSection303Guarantee,willmakepaymentofsuchprincipalorinterestonorbeforetheDistributionDateforsuchPaymentDate.

PursuanttoSection319(formerlySection321)oftheAct,SBAguaranteestotheHoldersthetimelypassthroughofpaymentsofprincipalandinterestactuallyreceivedontheDebenturesbytheTrustee(theSection319Guarantee).TheSection319GuaranteeisstatedontheCertificatesandisexecutedonbehalfoftheUnitedStatesbytheAdministratororActingAdministratorofSBA.ThefullfaithandcreditoftheUnitedStatesispledgedtotheSection319Guarantee.

Collectively,theSection303GuaranteeandtheSection319GuaranteeformSBAsguarantee(theGuarantee)oftimelypaymenttotheHoldersofprincipalandinterestdueontheDebentures.However, inlightoftheSection303Guarantee, it isanticipatedthatpaymentsbySBAunder theSection319Guaranteewillnotbenecessary.IntheeventthataDebentureisprepaidasaresultofOptionalPrepaymentor ispaiduponanAccelerationEvent,SBAsSection319GuaranteewillbereducedinproportiontotheamountofprincipalandinterestsuchprepaidDebenturerepresentsinthePooluponthepassthroughofsuchpaymentstotheHolders.

Shouldthere

be

any

change

in

the

status

of

SBA

as

an

independent

agency

or

in

the

Program,

theSBAGuaranteeandthefullfaithandcreditoftheUnitedStatespledgedtotheGuaranteeontheCertificateswillnotbealteredorimpaired.

TheGuaranteeisbackedbythefullfaithandcreditoftheUnitedStatesandwillbeperformedthroughpaymentsfromtheBusinessLoanGuaranteeFinancingAccount,whichisbackedbySBAspermanentanddefiniteauthoritytoborrowfromtheUnitedStatesTreasurytosatisfyalloutstandingobligationsofSBA.

OPTIONALPREPAYMENTOFDEBENTURESDebenturesissuedbetweenSeptember24,1986andMarch25,1992weresubjecttoprepay-

ment(anOptionalPrepayment)inwholebutnotinpartattheoptionofanSBICatadecliningpremiumafterthefirstfiveyearsfromthedateofissuance.DebenturesissuedbetweenSeptember24,1986andMarch25,1992couldnotbeprepaidbyanSBICatitsoptionduringthefirstfiveyearsoftheir terms.DebenturesissuedbetweenJune24,1992andSeptember12,2006weresubjecttoanOptionalPrepayment,inwholebutnotinpart,onanyPaymentDate,attheoptionofanSBICatadecliningpremium.

SBAchangedtheOptionalPrepaymenttermsforDebenturesissuedonorafterSeptember13,2006toallowforOptionalPrepaymentsonanyPaymentDatewithoutrequiringaprepaymentpremium.ForDebenturesissuedonorafterSeptember13,2006,anSBICmay,withoutpriornotice,electanOptionalPrepayment,inwhole,butnot inpart,onanyPaymentDateataprepaymentprice

16

7/31/2019 SBIC 2011-10 A 831641EU5_0

17/29

of100%oftheprincipalamountoftheDebenturebeingprepaid,togetherwithinterestaccruedthereontothePaymentDate.Therefore,thepastOptionalPrepaymentexperienceofDebenturesissuedbetweenSeptember24,1986andMarch25,1992andDebenturesissuedbetweenJune24,1992andSeptember12,2006maynotberelevantormaterialtothisOffering.InvestorsshouldnotethatrapidratesofOptionalPrepaymentsonDebenturesarelikelytocoincidewithperiodsof lowprevailinginterestrates,andtherefore,theyieldsatwhichaninvestormaybeabletoreinvestamountsreceivedfromOptionalPrepaymentsmaybelower thanthe interestrateontheDebenturessubjecttosuchOptionalPrepayments.Conversely,slowratesofOptionalPrepaymentsontheDebenturesarelikelytocoincidewithperiodsofhighprevailinginterestrates,andtherefore,theamountofOptionalPrepaymentsavailabletoaninvestorforreinvestmentmayberelativelylow.

InvestorsshouldbeadvisedthattheprepaymentexperienceofDebenturescannotbepredictedandwillbeinfluencedbyavarietyoffactors.

TheTrusteewilldistributeallOptionalPrepaymentsproratatotheHoldersoftheCertificatesontheDistributionDate,asdefinedherein,forsuchPaymentDate.

AdditionalstatisticalinformationonOptionalPrepaymentscanbefoundintheredemptiontablesontheSBAswebsiteatwww.sba.gov/category/lendernavigation/sbaloanprograms/smallbusiness-investmentcompanysbicprogram/sbics/participatingsecuritiesdebenunder theheadingParticipat-ing

Securities

&

Debenture

Performance.

ACCELERATIONOFDEBENTURES

AccelerationEvent. AdefaultbyanSBICasspecifiedinSBAsregulationsmayresultineitheranautomaticoradiscretionaryaccelerationofsuchSBICsDebenture.UpontheoccurrenceofanSBAadministrativeactiontotransfer theapplicableSBICfromoperatingstatus intoliquidationstatus(anAccelerationEvent),SBAwillpaytotheTrustee100%oftheprincipalamountofsuchDebenturetogetherwithinterestaccruedtotheapplicablePaymentDate(theAccelerationPayment).TheAccelerationPaymentwillbemadeonorbeforetheDistributionDateforsuchPaymentDate.TheTrusteewilldistributesuchAccelerationPaymentsproratatotheHoldersontheDistributionDateforsuchPaymentDate.Uponanacceleration,theprincipalamountoftheDebentureandinterestaccruedtothenextPaymentDatefollowingsuchaccelerationshallbe immediatelydueandpayabletoSBA.Payments,ifany,madebyanSBICwithrespecttoanaccelerationwillbemadedirectlytoSBA.

Despiteaneventofdefaultwhichcouldtriggeradiscretionaryacceleration,SBAmay, initssolediscretion,refrainfromtransferringanSBICintoliquidationstatusandtherebyavoidordelayanAccelerationEvent.SeeProcedureforAccelerationofDebentures.However,suchadecisionbySBAwillnotaffectSBAsobligationtomakeallpaymentsasdueundersuchDebenturepursuanttoitsGuaranteeintheeventofanSBICsfailuretomaketimelypayments.SeeFullFaithandCreditGuarantees.

ProcedureforAccelerationofDebentures. SBAsOfficeofSBICOperationscontinuallymoni-torstheconditionandperformanceofSBICsthroughestablishedreportingsystems,examinationreportsofSBAsOfficeofSBICExaminations,correspondencewiththeSBICsandreportsfiledbySBICs.

SBAmay, initssolediscretion,declareanaccelerationofthedebentureupontheoccurrenceofanyoneormoreofthefollowing:(i)anSBICcommitsafraudulentactwhichcausesdetrimenttoSBAspositionasacreditororaguarantor;(ii)anSBICmakesanytransferor incursanyobligationthat isfraudulentunder thetermsof11U.S.C.548(theBankruptcyCode);(iii)anSBICwillfullyengagesinselfdealingorotherconflictsof interest;(iv)anSBICwillfullyviolatesanysubstantiveprovisionoftheActoranysubstantiveregulationpromulgatedthereunder;(v)afterbeingnotifiedofacurableeventofdefault,anSBICengagesinsimilarbehaviorwhichresultsinanotheroccurrenceofthesamedefault;(vi)anSBICtransfersa licenseorwillfullytransfersownershiporcontrolofthe

17

http://www.sba.gov/category/lender-navigation/sba-loan-programs/small-businesshttp://www.sba.gov/category/lender-navigation/sba-loan-programs/small-business

7/31/2019 SBIC 2011-10 A 831641EU5_0

18/29

SBIC;(vii)afterrepeatedlyfailingtocomplywithanynonsubstantiveprovisionoftheActor theregulationspromulgatedthereunder,anSBICalsofailstotakestepstoaccomplishanactionrequiredbySBA;(viii)anSBICfailstonotifySBAassoonasitknowsorreasonablyshouldhaveknownthataneventofdefaultexists;(ix)anSBICfailstonotifySBAwithintendaysofadeclarationofdefaultunderanynonSBAindebtedness;(x)anSBICpaysfeesinexcessofthosepermittedbySBA;(xi)anSBICmakesimproperdistributions;(xii)anSBICfailstomaketimelypaymentonanyobligationheldorguaranteedbySBA;(xiii)anSBICfailstomaintaintherequiredminimumcapital;(xiv)anSBICiscapitallyimpaired;(xv)anSBICdefaultsundernonSBAindebtednessinexcessof$100,000unlesscontestedbytheSBIC ingoodfaithbyappropriateproceedings;(xvi)anSBICfailstoperformunderanyobligationheldorguaranteedbySBAunderanyagreementwithSBA;(xvii)anSBICfailstocomplywithanysubstantiveprovisionoftheActoranysubstantiveregulationpromulgatedthereun-der;or(xviii)anSBICfailstomaintainrequiredinvestmentratios.Beforeanaccelerationmaybedeclaredforanyoftheeventsofdefaultsetforth in(x)through(xviii)above,SBAmustprovidetheSBICwithacureperiodofnotlessthanfifteendays.Inaddition,beforeanyaccelerationisdeclared,SBAsstandardoperatingprocedurescallfor thetransferoftheSBICfromoperatingstatustoliquidationstatus.

WhentheOfficeofSBICOperationsdeterminesthatanSBICDebentureisindefault,thestaffmayseektoresolvetheproblemsthroughcooperativeeffortswiththeSBIC.Insuchcircumstances,SBAwillforbeartheaccelerationofSBAheldorguaranteeddebtduringtheworkoutperiod.SBAwillmakeGuaranteePaymentswithrespecttotheDebenturesduringthisforbearanceperiodandwillseektorecover thosepaymentsfromtheSBIC.Thereisnosettimelimitfor theforbearance.TheSBAdecideshowlongtocontinuetheperiodofforbearancebaseduponthefactsofeachcase.Ifeffortstocurethedefaultfail,SBAwilltransfer theSBICfromoperatingstatus intoliquidationstatusinorder toprotectthecreditorpositionofSBA.

UponadeterminationbySBAtotransferanSBICintoliquidationstatus,jurisdictionover theSBICistransferredtotheOfficeofSBICLiquidationwhereupontheSBICisconsideredinliquidationstatus.Atthispoint,anaccelerationletter issenttotheSBICcitingviolationsanddefaults,makingdemandforpaymentoftheacceleratedobligationsandadvisingtheSBICthatithasbeentransferredto liquidationstatus.SBAwillmakeaGuaranteePaymentoftheoutstandingprincipalandaccruedinterestwithrespecttosuchSBICDebenturetothenextscheduledPaymentDateonorbeforethenextscheduledDistributionDateforsuchPaymentDate.

Notwithstandingtheabove,SBAregulationsprovidethataDebentureisautomaticallyacceler-atedwithoutpriornoticetothedefaultingSBICwhenever:(i)anSBIC isinsolvent;(ii)nothavingsufficientpropertytopayallof itsdebts,anSBICmakesavoluntaryassignmentthereof;or(iii)apetitionisfiledincommencementofanybankruptcyorreorganizationproceeding,receivership,dissolutionorothersimilarcreditorsrightsproceeding,byoragainstanSBIC,whichevereventshallfirstoccur.WheneverSBAlearnsoftheoccurrenceofsuchaneventofdefaultitmusttransfer theSBIC into liquidationstatus.Insuchevent,theadministrativeproceduresdescribedintheprecedingparagrapharefollowedexceptthatSBAmayexercisenodiscretionwithrespecttothedecisiontoliquidatetheSBIC.Likewise,SBAwillmakeaGuaranteePaymentoftheoutstandingprincipalandaccruedinterestwithrespecttosuchSBICDebenturetothenextscheduledPaymentDateonorbeforethenextscheduledDistributionDateforsuchPaymentDate.

SBAappliesthesameproceduresandstandardsforaccelerationofaSpecializedSBICsDebentureas itappliestoDebenturesissuedbyother thanSpecializedSBICs.

Theanticipatedrateofprepaymentofprincipal,ifany,totheHoldersoftheCertificatesasaresultofAccelerationEventscannotbedetermined.AccelerationofaDebenturemayresultfromavarietyoffactors includingtheoccurrenceofanyoneormoreoftheeventsofdefaultsetforthabove,noneofwhicharepredictable.CommencinginMayof1998,SBICdebenturesarefundedforanInterimPeriodofnotmorethantwentynineweeksprior topooling.SeeDescriptionoftheSBIC

18

7/31/2019 SBIC 2011-10 A 831641EU5_0

19/29

ProgramInterimFunding.AlthoughaccelerationmayoccurduringtheInterimPeriod,nodebentureswereacceleratedduringtheirrelatedInterimPeriodasofMarch8,2011.

AdditionalstatisticalinformationonAccelerationEventscanbefoundintheredemptiontablesontheSBAswebsiteatwww.sba.gov/category/lendernavigation/sbaloanprograms/smallbusiness-investmentcompanysbicprogram/sbics/participatingsecuritiesdebenunder theheadingParticipat-ingSecurities&DebenturePerformance.

DESCRIPTIONOFPROGRAMMANAGEMENTANDOPERATIONSection102oftheActsetsforththepolicyoftheCongresstoestablishtheSBICprogramto

stimulateandsupplementtheflowofprivateequitycapitalandlongterm loanfundstosmallbusinessconcerns.PursuanttotheActandtheregulationsestablishedthereunder,SBAprovidesfinancialassistancetoSBICsthroughthepurchaseorguaranteeofSBICdebenturesorparticipatingsecurities(collectively,Leverage).

ManagementofSBA. TheAdministratorofSBA, itsDeputyAdministrator, itsChiefCounselforAdvocacy,anditsInspectorGeneralareappointedbythePresidentoftheUnitedStateswiththeadviceandconsentoftheSenate.ThemajorsmallbusinessassistanceprogramsofSBAandthegeneral

administration

of

SBA

are

managed

by

officials

appointed

by

the

Administrator.

The

Presiden-tialappointeestogetherwiththemajorprogrammanagersestablishSBApolicywithrespectto

operationsunder theSmallBusinessActandtheActandapplicableregulations.CareerpersonnelatvariouslevelsconstitutethemiddlemanagementofSBAandmakethepreponderanceofprogramoperationsdecisionsinconformancewiththeapplicablelaws,regulations,andpolicies.Additionally,theOfficeofManagementandBudgetguidesSBAspoliciesdirectlythroughtheseniormanagementofficialsandthroughcircularsissuedfromtimetotime.TheSBAInspectorGeneralauditstheSBICprogramandtheadministrationoftheDebentureProgramwithinSBA.

InvestmentDivisionofSBA. TheInvestmentDivisionofSBA,whichisheadedbytheAssociateAdministratorforInvestment,istheorganizationalelementwithinSBAwiththeauthorityandrespon-sibilityforadministeringtheSBICProgram.WithintheInvestmentDivisionistheOfficeofSBICOperations,headedbyaDirectorwhohasunderhersupervisionanddirectionAreaChiefs,alllocatedin

Washington,

D.C.

Each

Area

Chief

supervises

and

directs

the

activities

of

several

financial

analysts.

ThisOfficeregulatesandprovidesleveragetoSBICs.AlsowithintheInvestmentDivisionaretheOfficeofLicensingandProgramStandards,whichisresponsiblefor licensingnewSBICsandfor thedevelopmentofregulationsforSBICs,theOfficeofSBICLiquidation,whichisresponsibleforliquidatingSBICs,andtheOfficeofSBICExaminations,whichisresponsibleforexaminingthebooksandrecordsoftheoperatingSBICs.

UnderwritingStandardsandProcedures. ConsistentwiththelegislativeintentoftheAct,SBAgrantsLeveragefor thepurposeofprovidingfinancingtosmallbusinessconcernsthatarenotdominantintheirfieldsandthatareunabletoobtainequityandlongtermdebtfinancingonreasonableterms.SeeDescriptionoftheSBICProgram.

Section310oftheAct,asamendedbyPublicLaw100590,requiresthateachSBICbeexaminedatleasteverytwoyears,exceptthat,undercertaincircumstances,SBAmaywaivetheexaminationforuptooneadditionalyear.Asageneralpolicy,SBAwillnotprocessanSBICsapplicationforLeverageiftheSBIChasnotbeenexaminedbySBAsOfficeofSBICExaminationsduringthe24monthperiodimmediatelyprecedingthedateoftheapplication.However,becauseofresourcelimitations,forSBICsthathavebeenexaminedat leastonce,SBAmaydeterminethatpriorexperiencewithanSBICandotherrelevantcircumstancesjustifyprocessinganapplicationwheretheSBIChasnotbeenexaminedduringthe24monthperiodimmediatelyprecedingthedateoftheapplication.NewlylicensedSBICsmaybeleveragedprior toanyexaminationbytheOfficeofSBICExaminations.It isthepolicyofSBAnottoapproveLeveragewherethereisanunansweredallegedregulatoryviolation,wherethereisaregulatoryviolationonwhichSBAandtheSBIChavenotagreed

19

http://www.sba.gov/category/lender-navigation/sba-loan-programs/small-businesshttp://www.sba.gov/category/lender-navigation/sba-loan-programs/small-business

7/31/2019 SBIC 2011-10 A 831641EU5_0

20/29

toacomplianceplan,orwhereSBAandtheSBICdisagreeonthefactssurroundingsuchanallegationor theinterpretationofthefactsastheyrelatetotheregulationallegedtohavebeenviolated.However,SBAmayacceptanapplicationunder thesecircumstancesifamplejustificationexists.AnapplicantSBICscapitaladequacy,assetquality,managementperformance,earningscapability,andliquiditycharacteristicsaretheprincipalmeasurementsthataretobeusedinreachingthefinancialdecisiontoapproveLeverage.

SBICspresentdifferentdegreesandtypesofriskandvarywidelyintheircharacteristics,manyofwhichcouldaffecttheperformanceofanSBIC inmeetingitspaymentobligationsunderadebenture.Thesecharacteristics includeage(newly licensedorseasoned),formofbusiness(corpo-rationorpartnership),location,typeoffinancing(loanoriented,equityorientedorbalanced),stageoffinancing,industrypreference,size,managementtypes,structure(proximityofmanagementtoownership),andownership(individual,financialparent,institutional,foreign,domestic,passiveoractive).

TheActrequiresacertaindegreeofdiversificationofanSBICsportfolio.Ingeneral,withouttheapprovalofSBA,SpecializedSBICswithoutstandingLeverageandotherLeveragedSBICsmaynotinvestanamountexceeding30%oftheirprivatecapitalinanysingleenterprise.AnSBICssourcesofliquidityaregenerallylimitedtothefollowing:currentrevenuesfromandamortizationofassets,maturityandredemptionofassets,salesofassets,collectionsofreceivables,privatecapitalincreases,newandrefundingborrowingsfromSBA,andcashandidlefundbalances.

SBAbelievesthepossibleriskspresentedbythesefactorsareso interrelatedasnottobeseparatelyquantifiable.Accordingly,noefforthasbeenmadetoisolateorcomparetheeffectsofanyofthesefactorsontheoverallrisk inthegrantingofLeverage.Theimpactofthisriskto investorsisthateachDebentureissubjecttoaccelerationandpaymentat100%ofitsprincipalamountatanytimeprior tothestatedmaturityuponanAccelerationEvent.SeeAccelerationofDebentures.

UseofProceedsofDebentures. SBICsusetheproceedsofDebenturesprincipallyincombina-tionwiththeirprivatecapitalto investinormakeloanstosmallbusinessconcerns.SBICsmayalsousetheproceedsofDebenturesforoperatingpurposestoprovideinterimfundsduringperiodsinwhichliquidityisnotavailablefromportfolioflowsorfromthesaleof investments.SBICsarepermitted,however,undercertaincircumstances,todevelopbanklinesofcreditorothersourcesofliquiditysothat itwillnotbenecessaryfor themtodependupontheissuanceoftheDebenturesforshorttermneeds.SeeDescriptionoftheSBICProgram.

TRUSTAGREEMENTTheCertificateswillbeissuedpursuanttoaTrustAgreementdatedasofFebruary1,1997(as

amendedfromtimetotime,theTrustAgreement),amongSBA,TheBankofNewYorkMellon,asTrustee,andSBICFundingCorporation,asFiscalAgent(asdefinedbelow).HolderswillbeentitledtothebenefitsofsuchTrustAgreementtothefullextentprovidedtherein.NoHolderisintendedtohave,norshallanyHolderhaveanyrightbyvirtueofanyprovisionoftheTrustAgreement,to instituteanysuit,actionorproceedinginequityorat lawuponorunderorwithrespecttotheTrustAgreement.TherightsofaHolderagainstSBAunder theGuaranteearedirect,andnotthroughtheTrustee.TheresponsibilitiesoftheTrustee,summarizedbelow,arelimitedtothosesetforth intheTrustAgreement,andnofurtherresponsibilitiesshouldbeinferred.Allreferencestotimehereinrefer toNewYorkCitytime.

TheTrustAgreementwillbeavailableforreasonableinspectionandcopyingbyanyHolderor itsdesignee,atsuchpersonsexpenseattheTrusteesCorporateTrustOffice,101BarclayStreet,FL4WNewYork,NewYork10286Attention:CorporateTrustServices(ABS).

Purchase,PoolingandExchangeofDebentures;IssuanceofCertificates. TheUnderwritershaveagreedtopurchasetheDebenturesfromtheSBICstogetherwiththeGuaranteeAgreementofSBAandtocombinetheDebenturesandtheGuaranteeAgreementintoaPool;pursuanttoa

20

7/31/2019 SBIC 2011-10 A 831641EU5_0

21/29

SupplementtotheTrustAgreement,theUnderwriterswillthenassigntotheTrusteewithoutrecoursealloftheirright,titleandinterestinandtosuchDebenturesandGuaranteeAgreement.Inexchangetherefor,SBA,throughitsagent,TheBankofNewYorkMellon,actinginitscapacityasTrustee,willissueCertificatesrepresentingfractionalundividedinterestsinsuchPooltoorupontheorderoftheUnderwriters.

SBAto

Act

as

Servicer.

As

guarantor

of

the

Debentures,

SBA

will

service

and

administer

the

Debenturesandwillhavefullpowerandauthority,actingalone,todoanyandallthingsinconnectionwithsuchservicingandadministrationwhichitmaydeemnecessaryordesirable,andwillhavethesoleandexclusiverighttotakeactionandassertclaimswithrespecttotheDebentures.Suchservicingmay includeenforcingofrepresentations,warrantiesandcovenants,collectingpayments,acceleratingmaturityintheeventofadefault,takingactiontoenforcepaymentsandotherwiseexercisingtherightsandpursuingtheremediesavailabletoaholderofaDebenture.Withoutlimitingthegeneralityoftheforegoing,SBAmayexecuteanddeliver,onbehalfoftheTrusteeandtheHolders,anyandallinstrumentsofsatisfactionorcancellation,orofpartialorfullreleaseordischargeandallothercomparableinstruments,withrespecttotheDebentures.

SBAmayperformitsservicingobligationsthroughsuchentityasitmaydesignate,providedthatatthetimeofsuchdesignationSBAshallgivewrittennoticetotheTrustee,signedbyanauthorizedofficial,ofsuchdesignation.

CollectionofDebenturePaymentsCertificateAccount. TheTrusteewillreceivethepaymentsdueontheDebentures(other thanpaymentsmadeonaDebenturebyanSBICafter theTrusteehasreceivednoticeofanAccelerationEventwithrespecttosuchDebenture)anddepositsuchpaymentsintheCertificateAccountasdescribedhereinafter.SBAhasdirectedeachSBICtomakesuchpaymentsdirectlytotheTrusteebynoonontherelevantPaymentDateor, inthecaseofOptionalPrepayments,threebusinessdaysprior tosuchPaymentDate.Nolater than2:00P.M.onthethirdbusinessdayprecedingeachDistributionDate,theTrusteewillnotifySBA inwritingofanyrequiredGuaranteePaymentandtheamountthereof.SBAwillmakeanyrequiredGuaranteePaymentbywiretransfer totheCertificateAccount,asdefinedherein,notlater than10:00A.M.ontherelevantDistributionDate.

TheTrusteewillestablishandmaintainaseparatenoninterestbearingtrustaccount(theCertificateAccount)intowhichtheTrusteewilldepositthefollowingpaymentsandcollectionsreceivedbyit inrespectofprincipalofandinterestontheDebentures:(i)allregularinterestpaymentsontheDebentures, includingthosemadebySBApursuanttotheGuaranteeAgreement;(ii)allpaymentsonaccountofprincipalontheDebenturesattheirstatedmaturity,includingthosemadebySBApursuanttotheGuaranteeAgreement;(iii)allOptionalPrepayments;and(iv)allAccelerationPayments.

TheTrusteewillnotdepositintotheCertificateAccountanypaymentreceivedfromanSBIConaccountofanOptionalPrepaymentunlesssuchpaymentconformstoalloftherequirementsspecifiedintheTrustAgreementforanOptionalPrepayment;provided,however,thatthereceiptofanynon-conformingpaymentwillnotinanywayreducetheobligationofSBAundertheGuaranteeAgreement.AnylateinterestpaymentsmadebyanSBICandpaymentsonaDebenture,ifany,madebyanSBICafteranAccelerationEventwillbemadedirectlytoSBAandwillnotbedepositedintotheCertificateAccountorotherwiseconstitutepartofthePool.

DistributionstotheHolders. OneachDistributionDate,theTrusteewilldistributetotheHoldersofrecordasofthecloseofbusinessonthefirstcalendardayofthemonthinwhichtheDistributionDateoccurs(theRecordDate),other thanasdescribedhereinrespectingthefinaldistribution,eachsuchHoldersproratashare(basedontheaggregatefractionalundividedinterestrepresentedbyCertificatesheldbysuchHolder)ofallamountscreditedtotheCertificateAccountrelatingtothePoolasof10:00A.M.ontheapplicableDistributionDate.

21

7/31/2019 SBIC 2011-10 A 831641EU5_0

22/29

StatementstotheHolders. Atthetimeofeachdistribution,theTrusteewillfurnishtoeachHolderastatementsettingforththefollowinginformationwithrespecttotheCertificatesownedofrecordbysuchHolder:

(i) theamountofsuchdistributionallocabletoprincipal(includingaseparatebreakdownofanyOptionalPrepaymentsandAccelerationPayments);

(ii) theamountofsuchdistributionallocableto interest;and(iii) theaggregateamountoftheHoldersfractionalundividedinterestintheaggregate

unpaidprincipalamountofDebenturesinthePoolasoftheopeningofbusinessonthebusinessdaynextsucceedingtheDistributionDate,aftergivingeffecttopaymentsonsuchDebenturesdueontheDistributionDateanddistributedeitherascollectionsorasGuaranteePayments.Inaddition,withinareasonableperiodoftimeafter theendofeachcalendaryear,theTrustee

willfurnishareporttoeachHolderatanytimeduringsuchcalendaryearastotheaggregateofamountsreportedpursuantto(i)and(ii)aboveforsuchcalendaryearor, intheeventsuchpersonwasaHolderofrecordduringaportionofsuchcalendaryear,for theapplicableportionofsuchyear.

InformationConcerningAccelerationEventsandOptionalPrepayments. TheTrusteewillmain-tainarecordoftheaggregateprincipalamountofallDebentureswhichhavebeensubjecttoanAccelerationEventorOptionalPrepayment(totheextenttheTrusteehasbeennotifiedbySBAofsuchAccelerationEventorOptionalPrepayment).SuchinformationisgenerallyavailablefromtheTrusteetoHoldersofCertificatesbydialing(800)2542826,atollfreetelephonenumber,duringtheTrusteesnormalbusinesshours.

WaiversandModificationsofDebentures. SBAmaywaive,modifyorvaryanytermofanyDebentureorconsenttothepostponementofstrictcompliancewithanysuchtermor inanymannergrantindulgencetoanySBIC;providedthatSBAmaynot,withouttheconsentofallHolders,permitanymodificationwithrespecttoanyDebenturethatwoulddecreasetheinterestrate,changethetermsofprepaymentofprincipalorinterest,reducetheoutstandingprincipalamount(exceptbyreasonofactualpaymentofallprincipalduethereon),changethefinalmaturitydateonsuchDebentureor terminateorotherwisereducethebenefitsoftheGuaranteeAgreementwithrespectthereto.SeeAccelerationofDebentures.WithouttheconsentofallHolders,nochangeinthepayment

schedule

of

any

Debenture

will

alter

or

affect

SBAs

Guarantee

of

timely

payment

of

principal

andinterestonsuchDebentureinaccordancewiththeGuaranteeAgreement.SeeFullFaithandCreditGuarantees.

RegistrationofTransferandExchangeofCertificates. TheTrusteehasbeenappointedCertif-icateRegistrarfor thepurposeofregisteringtheownershipofCertificatesandanytransfersandexchangesofCertificatesashereinprovided.TheTrusteewillmaintainatitsCorporateTrustOfficeaCertificateRegisterinwhich,subjecttosuchrequirementsasitmayprescribe,theTrusteewillprovidefor theregistrationoftheCertificatesandoftransfersandexchangesofCertificates.

Aservicechargeequaltoareasonablefeefor theexpensesoftheTrusteewillbechargedtothepersonpresentingaCertificatefor transferorexchange,asthecasemaybe,foranyregistrationoftransferorexchangeofsuchCertificate.SBAor theTrusteemayrequirepaymentofasumsufficienttocoveranytaxorgovernmentalchargethatmaybeimposedinconnectionwithanytransferorexchangeofCertificates.AllfeeschargedbytheTrusteearesubjecttoSBAspriorwrittenapproval.Theinitialfeefor transferorexchangeofaCertificateis$9.50unlessanypartofthetransactionishandledbymail,inwhichcasetheinitialfeeis$14.50.

DisclosureRequirement. TheActrequireseachsellerofaCertificate,prior toanysalethereof,todisclosetoapurchaserinformationontheterms,conditionsandyieldofsuchCertificate.EachHolder,byvirtueofitsacquisitionofaCertificate,willbedeemedtoagreetosuchrequirements.

PersonsDeemedOwners. Prior toduepresentationofaCertificateforregistrationoftransfer,theTrusteeandanyagentoftheTrusteemaytreatthepersoninwhosenameanyCertificateis

22

7/31/2019 SBIC 2011-10 A 831641EU5_0

23/29

registeredastheownerofsuchCertificatefor thepurposeofreceivingdistributionsasdescribedhereinandforallotherpurposeswhatsoever,andneithertheTrusteenoranyagentoftheTrusteeshallbeaffectedbynoticetothecontrary.

AmendmentstotheTrustAgreement. TheTrustAgreementmaybeamendedfromtimetotimebySBA,theTrusteeandtheFiscalAgent,withouttheconsentofanyoftheHolders;provided,however,thatnosuchamendmentshallreduceinanymanner theamountof,ordelaythetimingof,paymentsreceivedonDebentures,including GuaranteePayments,whicharerequiredtobedistributedonanyCertificatewithouttheconsentoftheHolderofsuchCertificate.Noamendment,modification,waiverorconsentaffectinganyprovisionoftheTrustAgreementbythepartiestheretoshalladverselyaffecttherightsoftheHolderofanyCertificateoutstandingatthetimeofsuchamendment,modification,waiverorconsent.

Termination. TherespectiveobligationsandresponsibilitiesofSBAandtheTrusteewithrespecttothePool(other thantheobligationofSBAtomakepaymentstoHoldersashereaftersetforth)shallterminateuponthefinalpaymentofthelastDebentureinthePool,whetheratthestatedmaturityoftheDebentures,uponanAccelerationPaymentorOptionalPrepaymentofallDebenturesconstitutingthePoolorotherwise.

Withrespecttoanyterminationonadateother thanthestatedmaturityoftheDebentures,theTrusteewillgivenoticeofanysuchterminationbyletter totheHolders(withacopythereoftoSBA)mailednotlater thanthefifthbusinessdaysubsequenttothePaymentDateonwhichalloutstandingprincipalandaccruedinterestfor theDebenturesremaininginthePoolhavebeenpaidinfullasaresultofOptionalPrepayments,arepayablebySBAasaresultofAccelerationEvents,oracombinationofboth.SuchnoticewillspecifythatfinalpaymentwillbemadefromtheCertificateAccountuponpresentationandsurrenderofCertificatesattheCorporateTrustOfficeoftheTrustee,onorafter theDistributionDateforsuchPaymentDate.IfterminationoccursuponthestatedmaturityoftheDebentures,nonoticewillbegivenandfinalpaymentwillbemadefromtheCertificateAccountonthenextfollowingDistributionDateuponpresentationandsurrenderofCertificatesattheCorporateTrustOfficeoftheTrustee.

AnymoniesheldbytheTrusteefor thepaymentofanyCertificateuponterminationwhichremainunclaimedbyanyHolderforsixmonthsafter thedatethefinalpaymentwasmade,willberepaidtoSBA.HoldersmustthereafterlooktoSBAforpaymentofsuchamounts,andallliabilityoftheTrusteewithrespecttosuchamountswillthereuponcease.

TRUSTEETheBankofNewYorkMellon,assuccessor ininteresttoTheBankofNewYork,whichisin

turnthesuccessor ininteresttoJPMorganChaseBank,N.A.,anationalbankingassociationorganizedunder thelawsoftheUnitedStates,oranysuccessor trusteeappointedunder theTrustAgreementwillserveastrustee(theTrustee)andwillperformsuchdutiesasspecifiedintheTrustAgreementandasdescribedherein.TheCorporateTrustOfficeofTheBankofNewYorkMellonwhereitsdutiesundertheTrustAgreementshallbeperformedislocatedat101BarclayStreet,FL4WNewYork,NewYork10286Attention:CorporateTrustServices(ABS).

SBICFUNDINGCORPORATIONTheSBICFundingCorporationisaDistrictofColumbianotforprofitcorporationorganizedto

serveasthefiscalagent(FiscalAgent)ofSBAtooverseetheimplementationandcontinuedoperationoftheProgram.SBICFundingCorporationhasbeenappointedbytheSBICsparticipatingintheProgramtoserveastheirsellingagent(SellingAgent).TheSBICFundingCorporationwasorganizedbytheNationalAssociationofSmallBusinessInvestmentCompanies(NASBIC),atradeassociationbasedintheWashington,D.C.areawhichrepresentsthe interestsoftheSBICindustrybeforeSBA,Congress,andthefinancialcommunity.

23

7/31/2019 SBIC 2011-10 A 831641EU5_0

24/29

SBICFundingCorporation,asFiscalAgent,providesadviceandcounseltoSBArelatingtothedevelopmentandconductoftheProgram.Inthisregard,theFiscalAgentconsultswiththeSBICindustry,monitorsthefinancialmarkets,makescostreductionrecommendationstoSBAandassistsinassuringthatallregulatoryrequirementsoftheProgramaremet.SBICFundingCorporation,asSellingAgent,reviewsandevaluatesonacontinuingbasisunderwritingcandidatesfor theProgram,managestheofferingsofCertificatesunder theProgram,whichincludesparticipationintheprepara-tionofappropriatedocumentationandtheacquisitionofnecessaryregulatoryclearances,andexecutes,withSBAswrittenapproval,agreementsfor thepurchaseoftheDebenturesandtheissuanceoftheCertificates.For itsservicestotheProgram,theSBICFundingCorporationiscompensatedbytheSBICsandfromafeeleviedbySBAuponthefundingoftheDebenturespursuanttoSection303(b)oftheAct.

LEGALITYOFINVESTMENTTheCertificatesareacceptableassecurityfor thedepositofpublicmoniessubjecttothecontrol

oftheUnitedStatesoranyof itsofficers,agentsoremployees,andareeligibleascollateralforTreasuryTaxandLoanAccounts.Underfederallaw,nationalbanksandstatebankswhicharemembersoftheFederalReserveSystemmaydealin,underwrite,andpurchasefor theirownaccountCertificateswithoutregardtoanylimitationbasedoncapitalandsurplus.

TheCertificatesareeligibleassecurityforadvancestomemberbanksbyFederalReserveBanks.

IRSCIRCULAR230NOTICETheTreasuryDepartmentrecentlyrevisedCircular230,containingregulationsthatmayapplyto

thesummariesoffederalincometaxandERISAprovisionssetoutbelow.In lightofCircular230,youshouldbeawarethat:

ThediscussionscontainedinthisOfferingCircularastotaxconsiderationsarenotintendedorwrittentobeused,andcannotbeused,forthepurposeofavoidingUnitedStatesfederalincometaxpenalties.SuchdiscussionsarewrittentosupportthepromotionormarketingofthetransactionaddressedinthisOfferingCircular.Eachtaxpayershouldseekadvicebasedonthetaxpayersparticularcircumstancesfromanindependenttaxadvisor.

TheforegoingdisclaimerhasbeenprovidedtosatisfyobligationsunderCircular230,governingstandardsofpracticebeforetheInternalRevenueService.

TAXSTATUSThefollowingisageneraldiscussionofcertainoftheanticipatedUnitedStatesfederalincome

taxconsequencesofthepurchase,ownershipanddispositionoftheCertificatesunder theInternalRevenueCodeof1986,asamended(theCode)withoutconsiderationoftheparticularfactsandcircumstancesofeachprospectiveinvestorsspecialtaxsituation.ThediscussionaddressesonlyabeneficialownerofaCertificatethatacquirestheCertificateatoriginalissuanceandthatholdstheCertificateasacapitalasset,anddoesnotaddressataxpayer thatisnotaUnitedStatesPerson(asdefinedbelow.)Thediscussionisbasedon interpretationsof laws,regulations,rulingsanddecisions,allofwhicharesubjecttochange.Anysuchchangemaybeappliedretroactivelyandmayadverselyaffectthefederalincometaxconsequencesdescribedherein.SuchdiscussionisnotbindingontheInternalRevenueService(IRS),whichmaytakeacontraryviewastothemattersdiscussedherein.Accordingly,eachprospectiveinvestorisurgedtoconsult itsowntaxadvisorwithrespecttotheUnitedStatesfederalincometaxconsequencesofholdingaCertificate,aswellasanyconsequencesarisingunderthelawsofanyothertaxingjurisdiction.

UnitedStatesPerson. AUnitedStatesPersonisacitizenorresidentoftheUnitedStates,acorporation,partnershiporotherentityorganizedinorunder thelawsoftheUnitedStatesorstate

24

7/31/2019 SBIC 2011-10 A 831641EU5_0

25/29

thereof, including,for thispurpose,theDistrictofColumbia(other thanapartnershipthat isnottreatedasaUnitedStatesPersonunderanyapplicableTreasuryregulations)oranestatetheincomeofwhichisincludibleingross incomeforUnitedStatesfederalincometaxpurposesregardlessofitssource,oratrustifacourtwithintheUnitedStatesisabletoexerciseprimarysupervisionover theadministrationofthetrustandoneormoreUnitedStatesPersonshavetheauthoritytocontrolallsubstantialdecisionsofthetrust.Notwithstandingtheprecedingsentence,totheextentprovidedinTreasuryregulations,certaintrusts inexistenceonAugust20,1996,andtreatedasUnitedStatesPersonsprior tosuchdate,thatelecttocontinuetobetreatedasUnitedStatesPersonsshallalsobeUnitedStatesPersons.

ThePool. TheIRShasissuedanumberofrevenuerulingsregardingthecharacterization,forfederalincometaxpurposes,ofpoolingarrangements.Basedontheserulings,thePoolwillbeclassifiedforsuchpurposesasagrantortrustofwhichthebeneficialownersofCertificatesarethegrantors.Asaconsequence,thePoolwillnotbesubjecttofederalincometax,andeachbeneficialownerofaCertificatewillbetreatedforfederalincometaxpurposesasthebeneficialownerofafractionalundividedinterestinthecorpusofthePoolandtheincomeanddeductionsallocabletosuchinterest.EachbeneficialownerofaCertificatewillberequiredtoreportonitsfederalincometaxreturns,consistentwithitsmethodofaccounting,such income,includinginterest.

TheTrusteewillfurnishtoeachHolderastatementwithrespecttoeachdistribution,settingforththeamountofsuchdistributionallocabletoprincipalandinterestandthesourcethereof.Inaddition,theTrusteewillfurnish,withinareasonabletimeafter theendofeachcalendaryear,toeachpersonwhowasaHolderatanytimeduringsuchyear,astatementsettingforthsuchHoldersshareofinterestreceived.

CharacterizationofCertificates. OwnershipoftheCertificateswillbetreatedasownership,forfederalincometaxpurposes,of(i)obligationsoftheUnitedStateswithinthemeaningofSec-tion7701(a)(19)(C)(ii)oftheCode,relatingtothedefinitionoffederalanddomesticsavingsandloanassociationsandcertainotherfinancialinstitutions;(ii)governmentsecuritieswithinthemeaningofSection851(b)(3)oftheCode,relatingtothedefinitionofregulatedinvestmentcompanies;and(iii)governmentsecuritieswithinthemeaningofSection856(c)(4)(A)oftheCode,relatingtothedefinitionofrealestateinvestmenttrusts.IncomefromtheCertificates,for thefederalincometaxpurposes,willbetreatedasincomefromobligationsoftheUnitedStatesorofanyagencyorinstrumentalitythereofwithinthemeaningofSection895oftheCode,relatingtotheexemptionfromwithholdingtaxforforeigncentralbanksof issueincertaincircumstances,butwillnotbetreatedasinterestonobligationssecuredbymortgagesonrealpropertyor interestsinrealpropertywithinthemeaningofSection856(c)(3)(B)oftheCode,relatingtothedefinitionofrealestateinvestmenttrusts.

StateandLocalTaxes. UnderTitle31,Section3124oftheUnitedStatesCode,asamended,obligationsoftheUnitedStatesareexemptfromstate,municipalor localtaxes,other thanestateorinheritancetaxesandnondiscriminatorytaxesorothernonpropertytaxesimposedoncorporations.TheUnitedStatesSupremeCourtin1987heldthatcertainfederallyguaranteedtrustorpoolcertificatesshouldnotbetreatedasobligationsoftheUnitedStatesforpurposesofSection3124,principallybecausesuchcertificatesaresecondary,andnotprimary,obligationsoftheUnitedStates.RockfordLifeInsuranceCo.v.IllinoisDepartmentofRevenue,482U.S.182(1987).TheCertificatesissuedbytheagentofSBA,whichisaninstrumentalityoftheUnitedStates,arguablycanbedistinguishedfromtheguaranteedcertificatesunderconsiderationinRockford,whichwereissuedbyaprivateentity.However,theCertificatesmaybeconsideredtobemerelyguaranteedbySBAandnotclearlydirectandcertainobligationsofSBA.At leastonecourthasheldthatthecertificatesdonotconstituteobligationsoftheUnitedStatesforpurposesofSection3124.SumitomoTrust&BankingCo.v.CommissionerofTaxationAndFinance,720N.Y.S.2d251(2001).Accordingly,althoughtherearesomefactualdistinctionsbetweentheCertificatesandtheguaranteedcertificatesinRockford,noopinionisexpressedastothetreatmentoftheCertificatesunderSection3124.Nevertheless,thelawsofparticularstatesmayspecificallyexemptfederallyguaranteedsecurities

25

7/31/2019 SBIC 2011-10 A 831641EU5_0

26/29

fromsomestateandlocaltaxes,andprospectiveinvestorsareurgedtoconsulttheirowntaxadvisorstodeterminethetaxtreatmentoftheCertificatesintheirstates.

SaleorOtherDisposition. IfabeneficialownerofaCertificatesells,exchangesorotherwisedisposesofaCertificate,thebeneficialowneroftheCertificatewillrecognizegainor lossinanamountequaltothedifferencebetweentheamountrealizedbythebeneficialowneruponthesale,exchangeorotherdispositionandthebeneficialownersadjustedtaxbasisintheCertificate.TheadjustedtaxbasisofaCertificatetoaparticularbeneficialownergenerallywillequalthebeneficialownerscostfor theCertificate,increasedbyanydiscountpreviouslyincludedbysuchbeneficialownerinincomewithrespecttotheCertificateanddecreasedbytheamountofprincipalpaymentspreviouslyreceivedbysuchbeneficialownerwithrespecttotheCertificate.Anysuchgainor losswillbecapitalgainor lossiftheCertificatewasheldasacapitalasset,exceptforgainrepresentingaccruedinterestandaccrueddiscountnotpreviouslyincludedinincome.Capitallossesgenerallymaybeusedonlytooffsetcapitalgains.

BackupWithholding. Abackupwithholdingtaxmaybeimposedonanyreportablepaymentunlesstherecipient(i)hasfurnishedunderpenaltiesofperjuryanaccuratetaxpayer identificationnumberor(ii)isexemptfromthebackupwithholdingprovisionsoftheCode.Corporationsandcertainotherentitiesare,andindividualsarenot,exemptfromthebackupwithholdingprovisions.Inthecaseofanindividual,theindividualssocialsecuritynumberishisorher taxpayer identificationnumber.AreportablepaymentwouldincludeinterestpaymentstoabeneficialownerofaCertificateandproceedsfromthesaleofaCertificatetoor throughabrokerordealerinsecuritiesprior tothematurityoftheunderlyingDebentures.AreportablepaymentalsowouldincludeproceedsfromtheretirementofanunderlyingDebenture,paidorcreditedtoanaccountbyabrokerordealerinsecurities.Anyamountwithheldunder thebackupwithholdingrulesfromareportablepaymenttoabeneficialownerofaCertificatewouldbeallowedasarefundablecreditagainstthebeneficialownersUnitedStatesfederalincometax,providedthattherequiredinformationisfurnishedtotheIRS.

PURCHASESBYEMPLOYEEBENEFITPLANSERISACONSIDERATIONSTheacquisitionofaCertificatebyanemployeebenefitplanorotherretirementarrangements

includingindividualretirementaccountssubjecttotheEmployeeRetirementIncomeSecurityActof1974,asamended(ERISA)orSection4975oftheCode(aPlan),couldresultinprohibitedtransactionsorotherviolationsofthefiduciaryresponsibilityprovisionsofERISAandSection4975oftheCodeif,byvirtueofsuchacquisition,theDebenturesweredeemedtobeassetsofthePlan.Forexample,ifanemployerwhoseemployeesarecoveredbyaPlanhadenteredintoaloanwithanSBICwhoseDebenturewascontainedinthePool,thepurchaseandholdingofCertificatesbythePlanwouldconstituteprohibitedtransactionsiftheDebenturesinthePoolweredeemedtobeassetsofthePlan.

Under theUnitedStatesDepartmentofLaborregulations,theassetsofaPlanwillbedeemedto includeanyoftheunderlyingassetsofanentity,suchasagrantor trust,forpurposesofthefiduciaryresponsibilityprovisionsofERISA,whenaPlanacquiresanequityinterestinsuchentity.Under theseregulationsaseffectivelyamendedbySection3(42)ofERISAunder thePensionProtectionActof2006,theassetsinthePoolwouldnotbeassetsofaPlanif,atalltimes,lessthan25%oftheCertificatesareheldbyPlansandentitieswhoseunderlyingassetsincludeplanassetsbyreasonof investmentbyPlansintheentities.However,therecanbenoassurancethatthislimitwillnotbeexceededbecausetherearenolimitationsonwhomaypurchasetheCertificates.

EveniftheDebenturesaredeemedtobeassetsofaPlan,thereareclassexemptions,includingthefollowing,issuedbytheDepartmentofLabor thatmayapplytoanyprohibitedtransactionsresultingtherefromorfromthepurchaseandholdingofCertificates.Theseexemptionsarefortransactionsthatmeettherequirementsoftheexemptionandthatareeffectedbyindependentqualifiedprofessionalassetmanagersorinhouseassetmanagersandforcertaintransactionsinvolvinginsurancecompanygeneralandpooledseparateaccountsandbankcollectiveinvestment

26

7/31/2019 SBIC 2011-10 A 831641EU5_0

27/29

funds(DOLProhibitedTransactionExemptions8414,9623,9560,901and9138).ThereisalsoastatutoryexemptionthatmaybeavailableunderSection408(b)(17)ofERISAandSection4975(d)(20)oftheCodetoaparty ininterestthatisaserviceprovider toaPlaninvestingintheCertificatesforadequateconsideration,providedsuchserviceprovider isnot(i)thefiduciarywithrespecttothePlansassetsusedtoacquiretheCertificatesoranaffiliateofsuchfiduciaryor(ii)anaffiliateoftheemployersponsoringthePlan.Also,allstateandlocalgovernmentemployeebenefitplansandcertainchurchplansareexemptfromERISAandthereforearenotsubjecttotheERISAplanassetregulations,irrespectiveofthetreatmentoftheCertificates.However,suchplanscouldbesubjecttolawsthataresubstantiallysimilar toERISA.

AnyPlanorotherplanfiduciaryconsideringthepurchaseofCertificatesshouldconsultitstaxandlegaladvisorsregardingtheapplicabilityoftheexemptionsandtheissuesdescribedaboveandtheirpotentialconsequences.

LEGALOPINIONSThelegalityofthesaleoftheCertificateswillbepasseduponforSBAbytheOfficeofthe

GeneralCounselofSBAandfor theUnderwritersbyBinghamMcCutchenLLPWashington,D.C.

NOTICE

ThestatementshereinwithrespecttotheCertificatesandrelateddocumentsaresubjecttothedetailedprovisionsofsuchCertificatesanddocuments,andthestatementsmadehereinarequalifiedintheirentiretybyreferencethereto.CopiesofthesedocumentsareavailableattheTrusteesAdministrationOffice.

UNDERWRITINGTheUnderwritersnamedbelowhaveseverallyagreed,subjecttothetermsandconditionsofthe

DebenturePurchase,PoolingandExchangeAgreementbetweenSBICFundingCorporation,asSellingAgentoftheSBICs,andtheUnderwriters,topurchasetheDebenturestogetherwiththerelatedGuaranteeAgreementandtoexchangesuchDebenturesandGuaranteeAgreementfor theprincipalamountofCertificatessetforthbelowoppositetheirrespectivenames.

PrincipalAmount

Underwrit