What is a Business Development Company (BDC) and how does it work.

1. ABC Corporation, Inc.
Becoming a Business Development Company (BDC)
To Fund Future Growth
1 Confidential © SBD Investment Partners, Inc.

2. Discussion Topics
Attributes of a BDC
BDC Industry Review and Market
Receptivity
Funding Options
Engagement Relationship with SBD
Confidential © SBD Investment Partners, Inc. 2

3. History of the Business
Development Company (BDC)
1. Investment Company Act 1940 (the “1940 Act”), which
is the same regulatory framework of mutual funds.
2. BDC was created as part of the Small Business
Investment Incentive Act of 1980 (the “1980
Amendments”) as a result of a perceived crisis in the
capital markets in the 1970s. (much like happening now)
3. Regulated Investment Company (RIC) Status in 1990.
Confidential © SBD Investment Partners, Inc. 3

4. What is a BDC?
Hybrid between an operating company and an
investment company.
Invest primarily in private companies.
Typically a closed-end fund regulated as a 1940
Act company.
Structured as Regulated Investment Company
(RIC) for tax purposes.
Confidential © SBD Investment Partners, Inc. 4

5. Attributes of the BDC to the Investor and
Portfolio Companies?
Public company which has:
Access to public capital markets
Shares are publicly traded - liquidity
Publicly available audited financial information
Flow-through tax treatment.
Reduced regulatory burden as compared to a 1940 Act Company
Restrictions on leverage/affiliated transactions
Hybrid between an operating company and an investment
company.
No audit requirements for portfolio companies.
Portfolio is typically diversified which reduces risk to investors
compared to a single private equity investment.
Confidential © SBD Investment Partners, Inc. 5

6. How and what do BDC’s invest?
Typically - small to middle-market private companies
Entire spectrum of financial instruments:
Equities (preferred stock, common stock, debentures, PIPE’s)
Commercial style debt
Services subsidiary originates financial services for the BDC
that will be in the form of:
Commercial debt
Due diligence
Merger and acquisitions (buy and sell side)
Management consulting
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7. How BDC’s Invest in the Portfolio
Senior Secured Debt
Higher
Second Lien Secured Debt
Mezzanine Debt & Warrants
Preferred Equity
Lower
Common Equity
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8. Becoming a BDC?
Be publically listed on one of the exchanges:
New York Stock Exchange (NYSE)
Nasdaq Stock Market, Inc. (Nasdaq)
NYSE AMEX
Register a class of securities on Form N-2
Make an election to be a BDC- file a Form N-54A
Comply with the exchange reporting requirements
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9. BDC Investing Rules?
A BDC must invest at least 70% of its assets in
eligible portfolio companies.
Generally:
Organized and principally operating in the United States
Private, or very thinly traded public company
Can’t invest in other BDC’s or insurance companies
Affiliated transactions (highly regulated)
Certain transactions may be prohibited, or require approval
of a majority of the Board, or an order from the SEC
Confidential © SBD Investment Partners, Inc. 9

10. Borrowing Limitations?
BDC’s can have and equal amount of debt to equity to
invest .
$50
For example: $50 Debt
A BDC with $50 in equity Equity $50
would be able to invest $100 Equity
in growing businesses.
Other investment companies are restricted to 50% debt to
equity.
$25
$50 Debt
Equity $50
Equity
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11. BDC’s Operational Requirements
Must have a majority of independent directors - persons who are not
“interested persons.”
Must make available significant managerial assistance to these
companies.
Must appoint a Chief Compliance Officer and maintain a
comprehensive compliance program.
Custodian Agreement - Must place and maintain its securities and
similar investments in the custody of a bank.
Fidelity Bond - A BDC must provide and maintain a bond issued by a
reputable fidelity insurance company to protect the company against
larceny and embezzlement. The bond must cover each officer and
employee with access to securities and funds of the company.
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12. SEC Reporting Requirements?
Form 10-K (Annual Report)
Form 10-Q (Quarterly Report)
Form 8-K (Current Report)
Proxy Statements
Comply with the Sarbanes-Oxley Act of 2002
Must comply with the corporate governance
of the exchange you are listed.
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13. How Are BDC Assets Valued?
Each asset must be valued on a quarterly basis (i.e.,
“mark-to-market”)
Market value is used for those assets for which market quotations
are readily available
“Fair value,” as determined by the board of directors, is used for
other securities and assets
Portfolio assets of intellectual property and patents which
can not be recognize by the portfolio companies can be
recognized on the BDC’s balance sheet
There is no single standard for determining fair value
Determining fair value requires that judgment be applied
to the specific facts and circumstances of each portfolio
investment while employing a consistently applied
valuation process.
Confidential © SBD Investment Partners, Inc. 13

14. How are BDC’s Managed?
Internally managed or,
Externally managed
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15. How Can an Internally Managed
BDC Compensate Management?
Certain performance-based compensation
permitted, including:
Issuance of at-the-market options, warrants, or rights
pursuant to an executive compensation plan
Maintenance of a profit sharing plan.
Otherwise, BDC must use cash assets as
compensation
Restricted stock – some exceptions
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16. How Can an Externally Managed
BDC Compensate the Advisor?
The investment advisor must be registered
under the Investment Advisors Act of 1940
The Advisors Act contains no prohibition
against an advisor taking an incentive fee
against income, although the market has
effectively capped these fees at 20%, usually
subject to a hurdle.
Confidential © SBD Investment Partners, Inc. 16

17. How are BDC’s Taxed?
Allows “pass through” tax treatment for
income and capital gains that are distributed to
shareholders.
Must distribute at least 90% of its investment
income to shareholders annually
May retain, distribute or “deem distribute”
capital gains.
Gains in asset appreciation is recognized when
the asset is sold.
Confidential © SBD Investment Partners, Inc. 17

18. BDC Industry Review and Market
Receptivity
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19. BDC Market Activity
Wells Fargo created a BDC
Index of “27” BDC’s in April 2011
Market Cap $15 Billion
Average stock price = $9.78
Average dividend = 5.78%
Registrations in 2010 = $5.1B
6 IPO’s in 2010 = $513M
In 2010 8 BDC’s did $1.2B in secondary's
There are ~ 63 BDC’s 0f which 39 are “active”
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20. Recent Industry Trends
Stock is valued against NAV or Book Value plus a premium
for dividends
The BDC model has proven to be resilient - 2010 and 2011
have been years of recovery:
Resumption of dividend payments;
Increase in repurchase programs;
Lower asset coverage ratios.
Of the top 27 actively traded BDC’s
10 are currently trading above NAV/Share
3 are trading between 90% - 99% of NAV/Share
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21. Options to Finance Growth
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22. Financing Assumptions
ABC needs interim funding (mezzanine) of
$15,000,000 to carry out the current operational plans
to be used as follows:
$5,500,000 for Phase II to retrofit a production facility;
$4,500,000 for working capital and
$5,000,000 for new projects.
Shareholders would like to see a liquidity event or
have the ability to be liquid in 18 to 24 months.
Additional capital to expand the growth of the
company.
Capital available to fund a technology incubator to
remain at the forefront of the technology.
Confidential © SBD Investment Partners, Inc. 22

23. Two Options
Option Time to Capital
Acquire a Public Company 9-18 Months
File an S-1 (IPO) 18-24 Months
Preferable option is to acquire a public company
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24. ABC Entity Chart
ABC Inc
Incubator IP Bank
ABC Operating Logistics & Construction
Advisor Services
Company Transportation Services
Refinery I Terminal I
Refinery II Terminal II
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25. Advisor Services
This subsidiary will be responsible for providing
support services to portfolio companies as well as
to commercial clients that are not part of the
BDC. It originates business in the form of:
Merger and Acquisition
Buy Side
Sell Side
Due Diligence
Management Consulting
Commercial Finance
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26. Pro-forma Capital Table
ABC Shares 10,000,000
Acquisition Share 541,125
Total Shares Outstanding 10,541,125
IP and other Values $30,000,000
Core operations $20,000,000
Pro Forma market capitalization $50,000,000
Pro Forma Share Price Range $4.74
Use of proceeds of a $100M offering
Acquisition creditors $500,000
Placement costs $4,500,000
Debt Reduction (mezzanine) $17,500,000
Investment Capital $77,500,000
Total $100,000,000
Confidential © SBD Investment Partners, Inc. 26

27. Time Line
Value IP & Secure Public Secure BDC Election IPO
Assets Company Mezzanine •Month 6 •Month 18
•Month 2 •Month 3 •Month 4
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28. Post Offering Ownership
IPO Share Price $10.00/share
Post IPO share price
Book Value/Asset Value $192,500,000
Shares in the market 20,541,125
Post IPO Share Price $9.37/share
Entity Shares % Market Value
ABC Shareholders 10,000,000 49% $93,700,000
Acquisition Shareholders 541,125 2% $5,100,000
IPO Shareholders 10,000,000 49% $93,700,000
Total 20,541,125 100% $192,500,000
Confidential © SBD Investment Partners, Inc. 28

29. Future
2012 2013 2014 2015
ABC Revenue $85,000,000 $177,000,000 $345,000,000 $531,000,000
Net Income $2,000,000 $11,000,000 $18,000,000 $26,000,000
BDC Book Value $50,000,000 $145,000,000 $245,000,000 $325,000,000
Shares Out 10,500,000 10,500,000 20,500,000 20,500,000
Share Price $4.80 $13.80 $12.00 $13.50
Dividends Paid $1,800,000 $5,200,000 $17,000,000 $22,100,000
Confidential © SBD Investment Partners, Inc. 29

30. SBD Investment Partners, Inc.
5815 Guenevere Ct.
Saint Cloud, FL 34772
www.sbdip.com
Roy Salisbury
207.553.0086
rsalisbury@ sbdip.com
Doug Calaway
907.227.5633
dcalaway@sbdip.com
Confidential © SBD Investment Partners, Inc. 30

31. Sources
Seeking Alpha
Sutherlin, Ashbill
Yahoo Finance
John Dresher “Stock Strategies”
REISA Conference
McGladrey
Confidential © SBD Investment Partners, Inc. 31