This Memorandum provides general information regarding the SBA’s requirement that SBIC Licensees recertify the Institutional Investor status of their limited partners. For more detailed information on this issue, please contact Mark Kromkowski or Alan Roth.

The Investment Division of the SBA has re-initiated its efforts to have all SBIC Licensees recertify the status of all limited partners classified as Institutional Investors. Because the unfunded portion of an Institutional Investor’s commitment to a Licensee is included when calculating Regulatory Capital, the SBA has determined that it is essential to take steps on a regular basis to ensure all Institutional Investors remain qualified for that designation. If certain limited partners are no longer qualified, Regulatory Capital must be adjusted accordingly and a new Capital Certificate must be filed.

The level of Regulatory Capital has a direct bearing on a Licensee’s operations including its Capital Impairment Ratio, Over-line Limitation, Management Fee Calculation, Leverage Commitment Eligibility, etc. Misstatements of Regulatory Capital can be a violation of Federal law and may subject violators to criminal prosecution and civil penalties.

In light of the impact of the Institutional Investor designation, the SBA’s Investment Division will now require recertification annually. To that end, SBIC Licensees are required to recertify the status of their investors by submitting to your SBA Operations Analyst either:

OPTION 1: a fully executed Capital Certificate which reflects any revisions in its Institutional Investors and/or Regulatory Capital, or

OPTION 2: a letter certifying that a review of unfunded commitments and Institutional Investors has occurred and that no changes are required in the Capital Certificate most recently filed with the SBA.

Based on the level of Regulatory Capital on the last Capital Certificate submitted to the SBA, please recertify according to the following schedule:

[see table]