SBIC 2014-10 B, CUSIP 831641 FB6

OFFERING CIRCULAR

$1,007,590,000

(Approximate)

U.S. Small Business Administration

Guaranteed 3.015% Debenture

Participation Certificates, Series SBIC 2014-10 B

Evidencing Fractional Undivided Interests in a Pool of 3.015% Debentures Due September 1, 2024

Issued by

Small Business Investment Companies

Distributions of interest payable March 10 and September 10, commencing March 10, 2015

The Certificates:

U.S. Small Business Administration Guaranteed 3.015% Debenture Participation Certificates, Series SBIC 2014-10 B.

 The Certificates represent fractional undivided interests in a pool of debentures which will be issued, simultaneously with the

Certificates, by small business investment companies licensed by the U.S. Small Business Administration, an independent

agency of the United States.

 The Certificates are issued by SBA, through its agent The Bank of New York Mellon, as Trustee.

SBICs:

Small Business Investment Companies, licensed by the U.S. Small Business Administration.

The Pool:

The Pool will be composed of $1,007,590,000 aggregate principal amount of 3.015% debentures to be issued on or about

September 24, 2014, by seventy-seven SBICs.

Payment Dates:

Payment of interest on the debentures in the pool will be made on each March 1 and September 1, commencing March 1, 2015.

Distribution Dates:

Distributions of interest will be made on the Certificates, on each March 10 and September 10, commencing March 10, 2015.

Each debenture is scheduled to mature on September 1, 2024, and final distribution in retirement of the Certificates is

scheduled for September 10, 2024.

Capitalized terms used on this page and in this Offering Circular have the meanings given to them in the text of this Offering

Circular.

SBA is guaranteeing the timely payment of principal and interest when due on the debentures and the timely pass-through of

such principal and interest to Holders of the Certificates.

The full faith and credit of the United States is pledged to honor SBA’s Guarantee. See “Full Faith and Credit

Guarantees.”

The principal amount of a debenture in the Pool will be immediately due and payable when there is an event of default by an

SBIC and SBA accelerates the debenture. When such an acceleration happens, SBA will make a payment pursuant to its Guarantee of

100% of the principal amount of the debenture together with accrued interest to the next Payment Date. The amount of any

acceleration payment will be distributed pro rata to the Holders of the Certificates on the Distribution Date for such Payment Date. See

“Acceleration of Debentures.”

An SBIC currently has the option to prepay its debentures, in whole but not in part, on any Payment Date on or after

March 1, 2015, at a prepayment price of 100% of the principal amount of the debenture, together with accrued interest. The amount of

any Optional Prepayment will be distributed pro rata to the Holders of the Certificates on the Distribution Date for such Payment Date.

See “Optional Prepayment of Debentures.”

 

 

 

Price to Public(1)

Underwriting Discount

Proceeds of the Offering(1)(2)

Per Certificate

100%

0.375%

99.625%

Total(3)

$1,007,590,000

$3,778,462.50

$1,003,811,537.50

 

 

(1) Plus accrued interest, if any, from date of original issue.

(2) Before deduction of expenses, estimated at $50,000.

(3) May vary by plus or minus 5%.

Delivery of the Certificates will be made in New York, New York through the book-entry system of The Depository Trust

Company on or about September 24, 2014.

The Certificates are exempt from the registration requirements of the Securities Act of 1933, so no registration statement has

been filed with the Securities and Exchange Commission. Neither the Securities and Exchange Commission nor any state securities

commission has approved or disapproved of the Certificates or passed upon the accuracy or adequacy of this Offering Circular. Any

representation to the contrary is a criminal offense.

J.P. Morgan

G oldman, Sachs & Co.

Credit Suisse

The date of this Offering Circular is September 16, 2014.

1

OFFERING CIRCULAR SUMMARY

The following summary is qualified in its entirety by more detailed information appearing elsewhere

in this Offering Circular.

Guarantor .............................................. The U.S. Small Business Administration (“SBA”), an

independent agency of the United States.

The Certificates .................................... Guaranteed 3.015% Debenture Participation Certificate,

Series SBIC 2014-10 B. Each Certificate represents a

fractional undivided interest in the Pool of these debentures.

The Pool ................................................. The Series SBIC 2014-10 B Pool is composed of

(i) $1,007,590,000 aggregate principal amount of four

hundred eighty-four 3.015% debentures, (ii) the guarantee

agreement pursuant to which timely payment of principal and

interest on each debenture in the Pool will be guaranteed by

SBA and (iii) an account into which payment by the SBICs

and SBA with respect to the debentures in the pool will be

deposited.

The Debentures ...................................... The debentures in the Pool have been issued by seventyseven

small business investment companies, or SBICs,

licensed by SBA pursuant to Section 301 of the Small

Business Investment Act of 1958, as amended. Each

debenture will mature September 1, 2024.

Optional Prepayment ............................... Each debenture in the Pool is subject to Optional

Prepayment, in whole but not in part, at the option of an

SBIC on any Payment Date on or after March 1, 2015, at a

prepayment price of 100% of the principal amount of the

debenture, together with accrued interest. See “Optional

Prepayment of Debentures.”

Acceleration Event

and Acceleration Payment ...................... An Acceleration Event with respect to a debenture in the

Pool will occur upon an event of default and transfer of the

SBIC into liquidation status by SBA. See “Acceleration of

Debentures.” Upon an Acceleration Event, pursuant to its

Guarantee, SBA will make a payment of 100% of the

principal amount of a debenture in the Pool, together with

interest accrued to the Payment Date next following an

Acceleration Event.

The anticipated frequency and amount of Acceleration

Payments cannot be predicted and will be influenced by

a variety of factors. See “Acceleration of Debentures.”

2

Full Faith and Credit

Guarantees .............................................. Pursuant to Sections 303 and 319 (formerly Section 321) of

the Small Business Investment Act of 1958, as amended,

SBA guarantees the timely payment of principal and interest

on the debentures in the Pool and the timely pass-through of

principal and interest to the Holders of the Certificates. The

full faith and credit of the United States is pledged to SBA’s

Guarantees. See “Full Faith and Credit Guarantees.”

Distributions of Interest.......................... Interest on the debentures in the Pool will accrue from the

date of original issue of the Certificates at the rate of 3.015%

per annum and will be paid on each March 1 and

September 1, commencing March 1, 2015. The interest will

be passed through on each March 10 and September 10

(unless such day is not a business day, in which case

payment will be made on the next applicable business day),

commencing March 10, 2015, to holders in whose names

the Certificates are registered in the certificate register

maintained by the Trustee at the close of business on the

related Record Date. Interest on the Certificates is calculated

on the basis of a year of 365 days (regardless of whether the

year is composed of 365 or 366 days) and the actual number

of days elapsed (including the first day but excluding the last

day) from the date of pooling of the related debentures to the

first payment date and thereafter from payment date to

payment date until maturity.

Distributions of Principal ....................... Principal is scheduled to be distributed to the Holders of the

Certificates on September 10, 2024. However, upon an

Optional Prepayment, the prepayment price will be passed

through pro rata to the Holders on the Distribution Date for

such Payment Date. Acceleration Payments, if any, will be

passed through pro rata to the Holders on the next

succeeding Distribution Date following such Acceleration

Payment. See “Acceleration of Debentures.”

Trustee ..................................................... The Bank of New York Mellon, as successor in interest to

JPMorgan Chase Bank, N.A. (formerly The Chase

Manhattan Bank), or any successor trustee appointed under

the Trust Agreement, dated as of February 1, 1997, as

amended from time to time, will act as Trustee. The Trustee

will hold legal title to the debentures and the other assets

constituting the Pool, collect payments of principal and

interest due on the debentures in the Pool and distribute

such payments to the Holders of the Certificates.

Denominations ........................................ Certificates will be issued in multiples of $5,000 with

minimum original principal amounts of $100,000. The

denomination signifies a Holder’s pro rata share of the

aggregate principal amount of the debentures on the pooling

date.

Registration of Certificates .................... The Certificates will initially be offered through the facilities

of The Depository Trust Company in book-entry or

certificated form. Persons acquiring beneficial ownership

3

interests in the Certificates will hold their interests through

The Depository Trust Company.

Transfers within The Depository Trust Company will be

made in accordance with its usual rules and operating

procedures. Upon request, a purchaser of Certificates is also

entitled to receive a physical certificate representing such

person’s interest. See “Description of Participation

Certificates — Book-Entry and Physical Certificates.”

Information Concerning

Acceleration Events and

Optional Prepayments ............................ The Trustee will maintain a record of all debentures in the

Pool which have been subject to an Acceleration Event or

Optional Prepayment (to the extent the Trustee has been

notified by SBA of such Acceleration Event or Optional

Prepayment). Such information will be made available by

dialing (800) 254-2826, a toll-free telephone number, during

the Trustee’s normal business hours.

Tax Status ............................................... The Pool will be treated as a grantor trust for federal income

tax purposes, and the beneficial owners of Certificates will

be treated as the beneficial owners of undivided pro rata

interests In the income on each debenture in the Pool for

such purposes. Ownership of the Certificates will be treated

as ownership of “government securities” and “obligations of

the United States” for purposes of certain provisions of the

federal income tax laws. See “Tax Status.”

Legality of Investment ............................ Under federal law, the Certificates are:

 acceptable for purchase by and as security for

advances to member banks of the Federal Reserve

System; and

 eligible as security for the deposit of public monies

of the United States and as collateral for Treasury

Tax and Loan Accounts.

ERISA Considerations ........................... Fiduciaries of employee benefit plans subject to the

Employee Retirement Income Security Act of 1974, as

amended, should consult their tax and legal advisors to

determine whether the acquisition of a Certificate could

result in prohibited transactions or other violations of the

fiduciary responsibility provisions of ERISA and

Section 4975 of the Code. See “ERISA Considerations”

herein.

Future Issuances of SBIC

Debentures .............................................. The formation of additional pools of SBA-guaranteed SBIC

debentures and the offering of certificates representing

fractional undivided interests in such pools are required at

periodic intervals of not less than every twelve months or

shorter intervals as deemed appropriate. See “Description of

SBIC Program — Guaranteed Pools” herein. The frequency

and size of such offerings may vary due to such factors as

4

the level of demand for funds by SBICs and changes in the

law, in market conditions and in SBA policy.

SBIC Participating Securities. ................ The Small Business Investment Act of 1958, as amended,

was amended in 1992 to authorize SBA to guarantee a

participating security. Consequently, in addition to pools of

SBA-guaranteed SBIC debentures, the formation of pools

primarily comprised of an assignment of certain interests in

SBA-guaranteed participating securities and the offering of

certificates representing fractional undivided interests in

such pools were required at periodic intervals of not less

than every twelve months or shorter intervals as deemed

appropriate. See “Description of SBIC Program —

Participating Securities” and “Description of SBIC

Program — Guaranteed Pools” herein. After September 30,

2008, SBICs can no longer issue participating securities. As

a result, the last offering of SBA-guaranteed participating

securities participation certificates occurred in February

2009. Investors are advised that any redemption experience

of SBA-guaranteed participating securities is not relevant or

material to the offering of the Certificates hereunder.

5

RISK FACTORS

The following information, which you should carefully consider, identifies certain significant

sources of risk associated with a purchase of Certificates.

Certificates have limited liquidity

and market disruption may

adversely affect the value of

the Certificates ..................................... The Certificates have been offered twice a year and have

historically had a limited secondary market. Due to recent

developments in the credit markets, there is currently a very

limited secondary market for the Certificates. If a secondary

market does develop for the Certificates, market prices may

be below or substantially below the principal amounts of

such Certificates. In addition, if a secondary market does

develop, it might not continue or it might not be sufficiently

liquid to allow Holders to resell Certificates. Consequently,

Holders may not be able to sell Certificates readily or at

prices that will enable Holders to realize a desired yield. In

addition, the lack of a defined secondary market may make it

difficult to determine the fair value of Certificates even if a

Holder does not intend to sell. The market values of the

Certificates are likely to fluctuate. Any of these fluctuations

may be significant and could result in significant losses to

Holders desiring to sell in the secondary market.

Illiquidity can have a severely adverse effect on the prices of

securities, including the Certificates, that are especially

sensitive to prepayment, credit or interest rate risk.

The rate of prepayment on the

debentures is uncertain and may

adversely affect the average life of

and yield on the Certificates .................. The anticipated frequency and amount of principal

prepayments on the debentures cannot be predicted and

may be influenced by a variety of factors. Any prepayment

can impact the yield on the Certificates. The debentures are

subject to prepayment either as an Optional Prepayment or

as the result of an Acceleration Event.

 Each debenture in the Pool is subject to Optional

Prepayment, in whole but not in part, at the option of

an SBIC on any Payment Date on or after March 1,

2015, at a prepayment price of 100% of the principal

amount of the debenture, together with accrued

interest. See “Optional Prepayment of Debentures.”

 An Acceleration Event with respect to a debenture in

the Pool will occur upon an event of default and

transfer of the SBIC into liquidation status by SBA.

Upon an Acceleration Event, pursuant to its

Guarantee, SBA will make a payment of 100% of the

principal amount of a debenture in the Pool, together

with interest accrued to the Payment Date next

following an Acceleration Event. See “Acceleration of

Debentures.”

6

The anticipated rate and amount of prepayments of

principal, if any, to the Holders of the Certificates as a

result of Optional Prepayments or Acceleration Events

cannot be determined. The amount of Optional

Prepayments may be influenced by a variety of

economic factors, including a decrease in interest

rates, which may make the prepayment of a debenture

attractive to an SBIC. An Acceleration Event may

result upon the occurrence of the events of default

described under “Acceleration of Debentures —

Procedure for Acceleration of Debentures.” The rate

at which Acceleration Events are experienced may be

influenced by a variety of economic factors, including

but not limited to the weakening of national, regional

and local economic conditions, changes or continued

weakness in specific industry segments or the

capability of management of an SBIC.

7

DESCRIPTION OF SBA

The U.S. Small Business Administration (“SBA”), an independent agency of the United States, was

created by the Small Business Act, as amended (15 U.S.C. §§631 et. seq.) (the “Small Business Act”),

and derives its present authority from the Small Business Act and the Small Business Investment Act of

1958, as amended (15 U.S.C. §§661 et. seq.) (the “Act”).

The basic mission of SBA is to aid, counsel, assist and protect the interests of small business

concerns; to ensure that small business concerns receive a fair portion of government purchases and

contracts as well as of the sales of government property; to make or guarantee loans to small business

concerns, state and local development companies, and the victims of floods or other catastrophes, and of

economic injury caused thereby; and to license, regulate, and provide financial assistance to small

business investment companies.

SBA provides guaranteed, direct, or immediate participation loans to small concerns for plant

construction, machinery or supplies, and working capital. SBA also makes low interest loans to

handicapped individuals and organizations and may grant revolving lines of credit for export purposes.

SBA also makes subsidized loans to victims of floods, riots, or other catastrophes to repair or

replace disaster-damaged property, and to small businesses without access to credit elsewhere that have

sustained substantial economic injury in consequence of a disaster.

Through its surety bond guarantee program, SBA guarantees a qualified surety up to 90 percent of

losses incurred and paid under bid, payment, or performance bonds issued to small contractors, on

contracts valued up to $2.0 million.

Under provisions of the Act, SBA guarantees debentures of state and local development

companies; the development companies, in turn, make loans to small business concerns.

DESCRIPTION OF THE SBIC PROGRAM

SBA licenses, regulates, and provides financial assistance to small business investment

companies licensed pursuant to Section 301(c) and former Section 301(d) of the Act. The sole function of

these privately owned and managed investment companies, hereinafter referred to as “SBICs,” is to

provide venture capital in the form of equity financing, long-term loan funds and management services to

small business concerns, for their growth, expansion and modernization. Regulations for the SBIC

Program, including the regulations governing issuance by an SBIC of SBA-guaranteed debentures and

participating securities, as further described below, are codified at 13 C.F.R. Part 107, and may be

amended from time to time.

SBICs can be formed as for-profit corporations, limited partnerships, limited liability companies or,

in the case of SBICs licensed pursuant to former Section 301(d) of the Act (“Specialized SBICs”), nonprofit

corporations. Specialized SBICs are restricted to investments in “small business concerns which will

contribute to a well-balanced national economy by facilitating ownership in such concerns by persons

whose participation in the free enterprise system is hampered because of social or economic

disadvantage” and, prior to October 1, 1996, could qualify for SBA financial assistance on more favorable

terms than SBICs licensed pursuant to Section 301(c) of the Act.

From the inception of the SBIC program to June 30, 2014, all SBICs, including Specialized SBICs,

have invested approximately $70.9 billion in approximately 168,572 financings to small concerns. During

the first half of calendar year 2014, Specialized SBICs made approximately 10 financings aggregating

approximately $35.9 million to disadvantaged small concerns, and other SBICs made approximately

1,105 financings aggregating approximately $2.394 billion.

8

Debentures. The Act permits SBA to guarantee debentures issued by SBICs, the proceeds of

which are used to augment other funds available to SBICs for investment. Such debentures may have

terms of up to 15 years, although currently no outstanding SBIC debenture guaranteed by SBA has an

original term of more than 10 years and twenty-nine weeks. Debentures guaranteed by SBA after July 1,

1991 are subordinated only to loans to the issuing SBIC from non-associated lenders in an amount not to

exceed the lesser of $10 million or 200% of the SBIC’s combined private paid-in capital and paid-in

surplus (“Private Capital”), unless otherwise determined by SBA. As more fully described under “Full Faith

and Credit Guarantees” below, the full faith and credit of the United States is pledged to the guarantee by

SBA of the timely payment of principal and interest due on each debenture.

On September 9, 2014, there were a total of 282 licensed and operating SBICs other than

Specialized SBICs with private capital of $11.45 billion, of which 128 had no outstanding debenture

borrowings guaranteed by SBA, and 154, with private capital of $7.60 billion, had $7.07 billion of

outstanding debenture borrowings guaranteed by SBA (exclusive of the $38.2 million in aggregate

currently outstanding LMI debentures and the $17.8 million in aggregate outstanding Early Stage

debentures, as discussed below under “— Regulatory and Legislative Developments”).

On September 9, 2014, there were a total of 9 licensed and operating Specialized SBICs with

private capital of $124 million, of which 8 had no outstanding government financings guaranteed by SBA,

and one, with private capital of $50.1 million, had $30.3 million of outstanding debenture borrowings

guaranteed by SBA. On September 9, 2014, there were no outstanding LMI debentures issued by

Specialized SBICs.

Three of the operating SBICs other than Specialized SBICs with private capital of $104 million

were originally licensed as Specialized SBICs. These three SBICs converted their licenses and are no

longer restricted to investments in disadvantaged small businesses.

In accordance with Division E, Title V, of Pub. L. 113-76, the Consolidated Appropriations Act,

2014, commitments to guarantee loans for debentures cannot exceed $4 billion.

Until March 29, 1990, debentures issued by Specialized SBICs were only funded directly by SBA.

Until April 7, 1986, debentures issued by other SBICs were funded through and held by the Federal

Financing Bank, an instrumentality of the United States under the general supervision of the Secretary of

the Treasury. Since April 7, 1986, the Federal Financing Bank has not been authorized to purchase SBAguaranteed

SBIC debentures.

Participating Securities. On September 4, 1992, the President signed into law Public Law 102-

366, the “Small Business Credit and Business Opportunity Enhancement Act of 1992.” Title IV of the

statute amended the Act and authorized SBA to guarantee a participating security (each, a “participating

security,” or collectively, “participating securities”), which could be issued by those SBICs that made

equity-type investments in small business concerns. Since October 1, 2004, however, SBA has not been

able to issue new commitments for participating securities leverage. The fees payable by SBICs for

participating securities leverage are not sufficient to cover the projected net losses in the participating

securities program and no funds have been appropriated for this program. SBA’s authority to guarantee

participating securities issued under commitments made by SBA prior to October 1, 2004, including

participating securities issued under such commitments after October 1, 2004, is not affected by this

change. Between February 22, 1995 and February 25, 2009, inclusive, $10,263,495,000 aggregate

principal amount of SBA-guaranteed SBIC participating securities Participation Certificates were sold in

underwritten public offerings. The effect of the passage of the Small Business Credit and Business

Opportunity Enhancement Act of 1992 on the volume of debentures issued under the current program

cannot be predicted with certainty. After September 30, 2008, SBICs can no longer issue participating

securities. As a result, the last offering of SBA-guaranteed participating securities participation certificates

occurred in February 2009. Investors are advised that any redemption experience of SBA

guaranteed participating securities is not relevant or material to the offering of the Certificates

hereunder.

9

Interim Funding. In May 1998, SBA began making financial assistance available to SBICs more

frequently than the currently scheduled semi-annual offerings of SBA guaranteed participation

certificates. SBA now guarantees SBIC debentures and participating security partial assignments for an

“Interim Period,” which begins at the time of the sale of such instruments to a designated financial

institution (the “Interim Funding Provider”) and continues until the date of the next applicable participation

certificate issuance. The Interim Funding Provider receives a rate of interest or prioritized payments, as

applicable, for the Interim Period, which will generally not exceed six months and two weeks. At the end

of the relevant Interim Period the debentures or partial assignments of participating securities are

repriced, repurchased and pooled for the sale of participation certificates. SBA expects that all SBIC

debentures (other than LMI debentures as discussed below under “—Regulatory and Legislative

Developments”) and interests in participating securities issued after May 1998 will be funded in this

manner. Although such “Interim Funding” will not affect the terms of the Certificates, Interim Funding

effectively extends the term of the debentures and participating security partial assignments prior to

pooling by the length of the Interim Period.

Regulatory and Legislative Developments. In response to a Presidential directive to all federal

agencies to simplify their regulations, SBA published a final rule on January 31, 1996, which streamlined

the regulations governing the SBIC Program (61 Fed. Reg. 3177, January 31, 1996). In general, the rule

eliminated obsolete regulations and made a number of substantive changes intended to reduce the

regulatory burden on SBICs and to make the SBIC Program more cost-effective. The substantive

changes included: (1) allowing SBICs to charge a higher interest rate on the loans they make to small

businesses; (2) increasing the license application fee, the examination fee and certain processing fees;

(3) requiring all new SBICs that obtain SBA financial assistance to have diversity between the

management and the ownership of the SBIC; (4) expanding the permitted sources of private capital for

Specialized SBICs; and (5) requiring SBICs licensed after January 31, 1996 to have private capital of at

least $5 million in order to apply for debenture financing unless such SBICs can demonstrate long-term

financial viability at a lesser amount.

On September 30, 1996, the President signed Public Law 104-208, Division D of which is the

Small Business Programs Improvement Act of 1996 (the “Improvement Act”). The Improvement Act made

a number of changes to the Act and the SBIC Program, including the repeal of SBA’s authority to license

Specialized SBICs and to provide such companies with financial assistance on terms different than those

available to other SBICs. The Improvement Act also required all new SBICs to have at least $5 million of

private capital to issue debentures and at least $10 million of private capital to issue participating

securities, although SBA has the discretion to license and to approve leverage for a participating

securities issuer with private capital ranging from $5 million to $10 million. An exception to this provision

was enacted on December 2, 1997, in the Small Business Reauthorization Act of 1997 (the

“Reauthorization Act”). The exception permits certain SBICs with private capital of less than $5 million but

not less than $3 million to issue debenture leverage in an amount not to exceed their private capital. The

exception is available to any SBIC that filed its license application on or before May 31, 1998 and that is

located in a state not served by another licensee.

The Improvement Act and the Reauthorization Act also changed the fees payable by SBICs

issuing debentures or participating securities. First, effective October 1, 1997, the leverage fee of 3% of

the face amount of the leverage may be paid in two stages: 1% at the time the SBIC obtains an SBA

leverage commitment and 2% at the time the leverage is drawn under the commitment. Second, SBICs

were required to pay SBA an annual fee equal to 1% of the debentures or participating securities issued

after October 1, 1996.

On December 21, 2001, the President signed the Small Business Investment Company

Amendments Act of 2001, which changed the annual fee for debentures and participating securities

obligated after September 30, 2001. On September 30, 2003, the President signed Public Law 108-84,

which changed the annual fee for participating securities. For debentures and participating securities, the

fee is the lower of (1) a percentage established by SBA that reduces to zero the cost of their purchase

and guarantee and (2) 1.38% in the case of debentures and 1.46% in the case of participating securities.

10

The annual fee is payable on the same terms and conditions as interest on the debentures or prioritized

payments on the participating securities.

In 1999, SBA introduced an initiative to encourage SBICs to invest in small businesses that are

located in, or that provide employment for people residing in, inner cities and rural areas. As outlined in

64 Fed. Reg. 52641 (September 30, 1999), this initiative is known as the low- or moderate-income (“LMI”)

investments initiative and is a program of narrowly-tailored regulatory and financial incentives for

investments by SBICs in qualifying small businesses. Under the initiative, eligible SBICs may issue an

SBA-guaranteed deferred-interest debenture and use the proceeds to make equity-type investments in

businesses in the targeted areas. There are no LMI debentures in the Pool and SBA expects that LMI

debentures will not be pooled for sale. LMI debentures are funded out of the same program levels that

are available for SBA’s guarantee of other debenture leverage. SBA cannot predict the amount of LMI

debentures that will be issued in the future, but does not expect it to be significant relative to the amount

of standard SBIC debentures.

On December 19, 2007, the President signed Public Law 110-140 which is the Energy

Independence and Security Act of 2007 (the “Energy Act”). The Energy Act authorizes eligible SBICs

licensed on and after October 1, 2008 to issue SBA-guaranteed deferred interest debentures and use the

proceeds to make investments in small business concerns that are primarily engaged in researching,

manufacturing, developing, or providing products, goods, or services that reduce the use or consumption

of non-renewable energy resources (“Energy Saving Debentures”). Energy Saving Debentures will be

funded out of the same program level that is available for SBA’s guarantee of other debenture leverage.

SBA cannot predict the amount of Energy Saving Debentures that will be issued in the future, but does

not expect it to be significant relative to the amount of standard SBIC debentures.

On February 17, 2009, the President signed the American Recovery and Reinvestment Act of

2009 (“Recovery Act”), which changed the maximum amount of SBA financial assistance available to an

SBIC or group of commonly controlled SBICs. The Recovery Act also requires all SBICs applying for

financial assistance to certify that not less than 25% of their future investments will be made in smaller

businesses.

On April 27, 2012, SBA published the final rule to create the Early Stage SBIC initiative to focus

equity investments in early stage small businesses. Under the initiative, outlined in the final rule (77 Fed.

Reg. 25042 (April 27, 2012)) and in the proposed rule (76 Fed. Reg. 76907 (December 9, 2011)),

applicants may apply to become licensed as Early Stage SBICs and issue SBA-guaranteed debentures,

the proceeds of which will be used to make equity-type investments in early stage small businesses. The

final rule for the initiative was effective April 27, 2012 and the first Early Stage debenture was issued on

September 27, 2013. None of the Early Stage debentures issued under the initiative are included in this

pool, and SBA expects that Early Stage debentures issued under the initiative in the future will not be

pooled for sale.

Capital Requirements. The current statutory minimum Private Capital requirement for the

licensing of new SBICs which issue debentures is $5 million. SBA may license an SBIC with Private

Capital between $3 million and $5 million, however, if the applicant demonstrates special circumstances

and good cause, has a viable business plan for achieving profitability and has a reasonable timetable for

achieving the required level of Private Capital. In general, such SBICs will not be eligible for SBA financial

assistance until they meet the required level of Private Capital. However, if such an SBIC filed its license

application on or before May 31, 1998, and is located in a state not served by another SBIC, then the

SBIC will be eligible to issue debentures in an amount not to exceed its Private Capital. SBICs licensed

before October 1, 1996 that do not meet the current statutory minimum Private Capital requirements are

eligible to issue debentures only if: (i) the licensee certifies that at least 50% of the aggregate dollar

amount of its financings after October 1, 1996 will be provided to smaller businesses and (ii) SBA

determines that allowing the licensee to issue debentures would not create or otherwise contribute to an

unreasonable risk of default or loss to the United States Government. Issuers of participating securities,

whether or not they issue debentures, will be required to have Private Capital of at least $10 million

11

unless long-term financial viability can be demonstrated at a lesser amount, but no application for the

guarantee of participating securities will be considered if the issuer has Private Capital of less than

$5 million.

The total principal amount of outstanding debentures and participating securities guaranteed by

SBA and issued by an SBIC may not, in general, exceed at any one time an amount equal to three times

such SBIC’s private capital or $150 million, whichever is less, except that in the case of two or more

commonly controlled SBICs, the total principal amount of outstanding debentures and participating

securities guaranteed by SBA and issued by the commonly controlled SBICs may not, in general, exceed

$225 million.

Prior to October 1, 1996, Specialized SBICs investing in venture capital financing may have

qualified for financial assistance in an amount equal to four times their Private Capital up to an aggregate

of $35 million and, for financial assistance in excess of $35 million, in those ratios applicable to other

SBICs. Since October 1, 1996, new financial assistance has been made available to Specialized SBICs

only on the same terms and conditions available to other SBICs.

As of September 4, 1992, the definition of Private Capital was broadened to include investments in

SBICs by all pension funds, whether public or private; direct investments in an SBIC by a State or local

government entity provided such investments do not exceed 33 percent of an SBIC’s Private Capital; and,

for regulatory purposes only, unfunded commitments from institutional investors. Specialized SBICs may

also include in Private Capital funds indirectly obtained from State or local governments provided that

such funds were contributed to the Specialized SBIC prior to October 1, 1996.

Guaranteed Pools. Section 319 (formerly Section 321) of the Act authorizes the formation of

pools of SBIC debentures guaranteed by SBA and the issuance of guaranteed participation certificates

representing fractional undivided interests in such pools (see “Description of the Pool of Debentures”

below). As more fully described under “Full Faith and Credit Guarantees,” pursuant to Section 319 of the

Act the full faith and credit of the United States is pledged to the guarantee by SBA of the timely passthrough

of payments of principal and interest due on such debentures.

As envisioned under Section 319, the offering hereby of Guaranteed 3.015% Debenture

Participation Certificates, Series SBIC 2014-10 B (the “Certificates”), representing fractional undivided

interests in a pool (the “Pool”) of SBA-guaranteed SBIC debentures (the “Debentures”), is being

undertaken by SBA to provide SBICs with funds for investment activities. The Certificates represent the

seventy-eighth issue of 10-year SBA-guaranteed SBIC Debenture Participation Certificates pursuant to

Section 319 (formerly Section 321). From September 24, 1986 through March 26, 2014, $11,881,175,000

aggregate principal amount of 10-year SBA-guaranteed SBIC Debenture Participation Certificates were

sold in underwritten public offerings. On June 24, 1992, $6,000,000 aggregate principal amount of 5-year

SBA-guaranteed SBIC Debenture Participation Certificates were sold in an underwritten public offering.

On June 8, 1988, September 28, 1988, December 21, 1988 and December 19, 1990, $38,770,000

aggregate principal amount of 3-year SBA-guaranteed SBIC Debenture Participation Certificates were

sold in underwritten public offerings.

Prior to October 1, 1997, Section 320 (formerly Section 322) of the Act required SBA to issue and

guarantee SBIC participation certificates at periodic intervals of not less than every three months.

Effective October 1, 1997, such requirement was changed to allow for the semi-annual issuance and

guarantee of SBIC participation certificates. Effective April 5, 1999, such requirement was changed again

to allow for the annual issuance and guarantee of SBIC participation certificates. SBA currently

anticipates the formation of additional pools of 10-year SBA-guaranteed SBIC debentures, on a semiannual

basis, and the semi-annual offering of SBA-guaranteed SBIC debenture participation certificates

representing fractional undivided interests in such pools. SBA currently contemplates that semi-annual

offerings under the Debenture Program will occur each March and September. The offering of SBAguaranteed

participating securities participation certificates, in February 2009, was the final offering under

the participating security program. SBA’s plans with respect to future offerings of certificates representing

12

fractional undivided interests in either pools of debentures or participating security partial assignments are

subject to change due to such factors as the level of demand for funds by the SBICs and changes in the

law, in market conditions and in SBA policy.

DESCRIPTION OF THE POOL OF DEBENTURES

The Pool is composed of (i) $1,007,590,000 aggregate principal amount of 3.015% Debentures

issued by a total of seventy-seven SBICs licensed by SBA pursuant to Section 301 of the Act together

with the guarantee agreement pursuant to which timely payment of principal and interest on each

Debenture in the Pool will be guaranteed by SBA (the “Guarantee Agreement”) and (ii) an account into

which payment by the SBICs and SBA with respect to the Debentures will be deposited. The Trustee is

the holder of legal title to each Debenture and the funding of the Debentures is being arranged by the

sale of the beneficial interest in the principal and interest of each Debenture to the holders (the “Holders”)

of the Certificates. The largest Debenture in the Pool is in the amount of $15,000,000; the smallest

Debenture in the Pool is in the amount of $100,000 and the median of the Debentures in the Pool is in the

amount of $1,500,000. None of the Debentures in the Pool have been issued by a Specialized SBIC.

DESCRIPTION OF DEBENTURES

General. Each Debenture contained in the Pool has been guaranteed by SBA as to timely

payment of principal and interest pursuant to the Guarantee Agreement. Each Debenture requires

repayment of its entire principal amount on September 1, 2024. Each Debenture requires payment of

interest semiannually on March 1 and September 1 of each year, commencing March 1, 2015 (the

“Payment Dates”) and bears interest at the rate of 3.015% per annum on the basis of a year of 365 days

(regardless of whether the year is composed of 365 or 366 days) for the actual number of days elapsed

(including the first day but excluding the last day), from the date of issuance of the Debenture to the first

Payment Date and thereafter from Payment Date to Payment Date until its maturity. The SBICs are

required to make all scheduled Debenture payments to the Trustee on the applicable Payment Dates.

Prepayment of Debentures. The Debentures are subject to prepayment in whole but not in part

as a result of either Optional Prepayments (as defined herein) or Acceleration Events (as defined herein).

See “Optional Prepayment of Debentures” and “Acceleration of Debentures.”

DESCRIPTION OF PARTICIPATION CERTIFICATES

The Certificates are offered hereby pursuant to Section 319 (formerly Section 321) of the Act and

represent fractional undivided interests in a Pool of Debentures. The fractional undivided interest of each

Certificate is calculated by dividing the original principal amount stated on the face of the Certificate by

the aggregate principal amount of the Debentures as of the date of issuance. The principal amount

represented by the Certificates and the aggregate unpaid principal amount of the Debentures will decline

proportionately to the extent principal is paid pursuant to Optional Prepayments or Acceleration

Payments. Certificates will be issued in original principal amounts of $100,000 or integral multiples of

$5,000 in excess thereof.

Payments of principal and interest due under the Debentures will be made by the SBICs to the

Trustee. In the event an SBIC fails to make timely payment of principal or interest due under a Debenture,

SBA will make payment of such amount of principal or interest directly to the Trustee on or before the

Distribution Date, in accordance with SBA’s Guarantee. See “Full Faith and Credit Guarantees.”

The Trustee will collect payments of principal and interest due on the Debentures (including

payments made as the result of an Optional Prepayment, if any) and remit such payments, together with

any necessary additional amounts received from SBA under its Guarantee, to the Holders of the

Certificates on the Distribution Dates, March 10 and September 10 (unless such day is not a business

day, whereupon payment shall be made upon the next applicable business day) of each year, beginning

March 10, 2015. The Certificates will accrue interest from the date of pooling of the related Debentures to

13

the first Payment Date and thereafter from Payment Date to Payment Date until maturity. Late payments

of interest made by SBICs will be paid directly to SBA as reimbursement for payments pursuant to its

Guarantee.

Book-Entry and Physical Certificates

The Certificates will be issued in registered form (i) in the form of beneficial interests in one or

more restricted global certificates (the “Book-Entry Certificates”), deposited with a custodian for The

Depository Trust Company (“DTC” and, together with any successor depository, the “Depository”) and

(ii) upon request, in certificated form (the “Physical Certificates”). Such a request for Physical Certificates

is made to the Trustee or a Participant or Indirect Participant (each as defined below), as applicable. The

Book-Entry Certificates and Physical Certificates will be issued in denominations of $100,000 or any

integral multiples of $5,000 in excess thereof. The registered holders of the Certificates are referred to as

“Holders” and the owners of beneficial interests in the Book-Entry Certificates as “Book-Entry Owners.”

Book-Entry Certificates. Book-Entry Certificates will be deposited with DTC or its custodian and

registered in the name of Cede & Co., as nominee of DTC. DTC is a limited purpose trust company

organized under the laws of the State of New York, a member of the Federal Reserve System, a “clearing

corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency”

registered pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. DTC was

created to hold securities for its participating organizations (“Participants”) and to facilitate the clearance

and settlement of securities transactions between Participants through electronic book-entries, thereby

eliminating the need for physical movement of certificates. Participants include securities brokers and

dealers, banks, trust companies and clearing corporations. Indirect access to the DTC system also is

available to others such as banks, brokers, dealers and trust companies that clear through or maintain a

custodial relationship with a Participant, either directly or indirectly (“Indirect Participants”).

Book-Entry Owners that are not Participants or Indirect Participants of DTC who desire to

purchase, sell or otherwise transfer ownership of or other interests in Certificates may do so only through

Participants and Indirect Participants. In addition, Book-Entry Owners will receive all distributions of

principal of and interest on the Certificates through Participants, as described below. It is anticipated that

the only “Holder” of record of the Book-Entry Certificates will be Cede & Co., as nominee of DTC. Book-

Entry Owners will not be recognized by the Trustee as Holders, as such term is used in the Trust

Agreement, and Book-Entry Owners will be permitted to exercise the rights of Holders only indirectly

through DTC and its Participants.

Under the rules, regulations and procedures creating and affecting DTC and its operations (the

“Rules”), DTC is required to make book-entry transfers of Book-Entry Certificates among Participants on

whose behalf it acts with respect to the Book-Entry Certificates. Participants and Indirect Participants with

which Book-Entry Owners have accounts with respect to the Certificates similarly are required to make

book-entry transfers and receive and transmit such distributions on behalf of their respective Book-Entry

Owners. Accordingly, although Book-Entry Owners will not hold physical certificates representing their

interests in Book-Entry Certificates, the Rules provide a mechanism by which Book-Entry Owners will

receive payments and will be able to transfer their interests in such Certificates.

Because DTC can act only on behalf of Participants, who in turn act on behalf of Indirect

Participants and certain banks, the ability of a Book-Entry Owner to pledge its interest in Certificates to

persons or entities that do not participate in the DTC system, or to otherwise act with respect to such

Certificates, may be limited due to the lack of a physical certificate.

DTC generally will take any action permitted to be taken by a Holder under the Trust Agreement

only at the direction of one or more Participants to whose accounts with DTC interests in the Book- Entry

Certificates are credited. DTC may take conflicting actions with respect to other undivided interests to the

extent that such actions are taken on behalf of Participants whose holdings include such undivided

interest.

14

None of SBA, SBIC Funding Corporation, the Underwriters or the Trustee will have any liability for

any aspect of the records relating to or distributions made on account of beneficial ownership interests in

the Book-Entry Certificates held by Cede & Co., as nominee for DTC, or for maintaining, supervising or

reviewing any records relating to such beneficial ownership interests.

Physical Certificates. Ownership of certificates may be evidenced by Physical Certificates,

registered in the name of the purchaser thereof or any nominee of such purchaser upon request of such

purchaser to the Trustee or the purchaser’s Participant or Indirect Participant, as applicable. Physical

Certificates will also be issued to a Book-Entry Owner (or its nominee) at any time (subject to the rules

and procedures of DTC) upon the request of such Book-Entry Owner that its interest in a Book-Entry

Certificate be exchanged for a Physical Certificate or Certificates.

The holder of any Physical Certificate may exchange the same in whole or in part (in an original

principal amount equal to $100,000 or any integral multiple of $5,000 in excess thereof) for other Physical

Certificates or, if such holder is entitled to hold an interest in Book-Entry Certificates (subject to the rules

and procedures of DTC), for a beneficial interest in Book-Entry Certificates by surrendering such Physical

Certificate to the Trustee (and completing the form of transfer on the reverse thereof) together with any

certificate or other required documentation. A nominal charge will be imposed for any registration of

transfer or exchange, and the Trustee may require payment of a sum sufficient to cover any tax or other

governmental charge imposed in connection therewith. See “Trust Agreement — Registration of Transfer

and Exchange of Certificates.”

Distributions. Distributions of principal of and interest on the Book-Entry Certificates will be made

to Cede & Co. as the registered owner of the Book-Entry Certificates. Book-Entry Owners will receive all

distributions of principal and interest through Participants. It is expected that Cede & Co., upon receipt of

any distribution of principal or interest in respect of a Book-Entry Certificate held by it, as nominee for

DTC, will immediately credit Participants’ accounts with amounts proportionate to their respective

beneficial interests in such Book-Entry Certificate as shown on the records of Cede & Co. It is also

expected that distributions by Participants to Book-Entry Owners will be governed by standing instructions

and customary practices, as is now the case with securities held for the accounts of customers registered

in the names of nominees for such customers. Such distributions will be the responsibility of such

Participants. Under a book-entry format, therefore, Book-Entry Owners may experience some delay in

their receipt of payments since such payments will be forwarded by the Trustee to Cede & Co., and by

Cede & Co. to Participants, which thereafter will forward them to Indirect Participants or Book-Entry

Owners.

Holders of Certificates evidencing in the aggregate a minimum original principal amount of

$1 million shall be paid by wire transfer for the account of such person in immediately available funds to a

commercial bank located in the continental United States having appropriate facilities therefor upon

written request received by the Trustee on or before the Record Date, as defined herein, prior to the

applicable Distribution Date. For other Holders, distributions on the Certificates will be made by check

mailed to the address of the person in whose name the Certificate is registered at the close of business

on the Record Date.

YIELD CONSIDERATIONS

The effective yield to Holders will be reduced below the yield otherwise produced by the rate of

interest payable on the Debentures because the distribution of interest that accrues on the Debentures in

respect of any semiannual interest period ending March 1 or September 1, as the case may be, will not

be made until the related Distribution Date, which occurs on March 10 or September 10. An Optional

Prepayment or Acceleration Payment will include all interest to the relevant Payment Date and will be

passed through pro rata to the Holders on the Distribution Date for such Payment Date.

15

FULL FAITH AND CREDIT GUARANTEES

Pursuant to Section 303 of the Act, SBA guarantees the timely payment of principal and interest

due under each Debenture (the “Section 303 Guarantee”). The Section 303 Guarantee is stated in the

Guarantee Agreement, executed on behalf of the United States by an SBA official, which covers the

Debentures. The full faith and credit of the United States is pledged to the Section 303 Guarantee. In the

event that an SBIC fails to make payment of principal or interest due upon its Debenture on a Payment

Date, SBA, pursuant to the Section 303 Guarantee, will make payment of such principal or interest on or

before the Distribution Date for such Payment Date.

Pursuant to Section 319 (formerly Section 321) of the Act, SBA guarantees to the Holders the

timely pass-through of payments of principal and interest actually received on the Debentures by the

Trustee (the “Section 319 Guarantee”). The Section 319 Guarantee is stated on the Certificates and is

executed on behalf of the United States by the Administrator or Acting Administrator of SBA. The full faith

and credit of the United States is pledged to the Section 319 Guarantee.

Collectively, the Section 303 Guarantee and the Section 319 Guarantee form SBA’s guarantee

(the “Guarantee”) of timely payment to the Holders of principal and interest due on the Debentures.

However, in light of the Section 303 Guarantee, it is anticipated that payments by SBA under the

Section 319 Guarantee will not be necessary. In the event that a Debenture is prepaid as a result of

Optional Prepayment or is paid upon an Acceleration Event, SBA’s Section 319 Guarantee will be

reduced in proportion to the amount of principal and interest such prepaid Debenture represents in the

Pool upon the pass-through of such payments to the Holders.

Should there be any change in the status of SBA as an independent agency or in the Program, the

SBA Guarantee and the full faith and credit of the United States pledged to the Guarantee on the

Certificates will not be altered or impaired.

The Guarantee is backed by the full faith and credit of the United States and will be performed

through payments from the Business Loan Guarantee Financing Account, which is backed by SBA’s

permanent and definite authority to borrow from the United States Treasury to satisfy all outstanding

obligations of SBA.

OPTIONAL PREPAYMENT OF DEBENTURES

Debentures issued between September 24, 1986 and March 25, 1992 were subject to prepayment

(an “Optional Prepayment”) in whole but not in part at the option of an SBIC at a declining premium after

the first five years from the date of issuance. Debentures issued between September 24, 1986 and

March 25, 1992 could not be prepaid by an SBIC at its option during the first five years of their terms.

Debentures issued between June 24, 1992 and September 12, 2006 were subject to an Optional

Prepayment, in whole but not in part, on any Payment Date, at the option of an SBIC at a declining

premium.

SBA changed the Optional Prepayment terms for Debentures issued on or after September 13,

2006 to allow for Optional Prepayments on any Payment Date without requiring a prepayment premium.

For Debentures issued on or after September 13, 2006, an SBIC may, without prior notice, elect an

Optional Prepayment, in whole, but not in part, on any Payment Date at a prepayment price of 100% of

the principal amount of the Debenture being prepaid, together with interest accrued thereon to the

Payment Date. Therefore, the past Optional Prepayment experience of Debentures issued between

September 24, 1986 and March 25, 1992 and Debentures issued between June 24, 1992 and

September 12, 2006 may not be relevant or material to this Offering. Investors should note that rapid

rates of Optional Prepayments on Debentures are likely to coincide with periods of low prevailing interest

rates, and therefore, the yields at which an investor may be able to reinvest amounts received from

Optional Prepayments may be lower than the interest rate on the Debentures subject to such Optional

Prepayments. Conversely, slow rates of Optional Prepayments on the Debentures are likely to coincide

16

with periods of high prevailing interest rates, and therefore, the amount of Optional Prepayments

available to an investor for reinvestment may be relatively low.

Investors should be advised that the prepayment experience of Debentures cannot be predicted

and will be influenced by a variety of factors.

The Trustee will distribute all Optional Prepayments pro rata to the Holders of the Certificates on

the Distribution Date, as defined herein, for such Payment Date.

Additional statistical information on Optional Prepayments can be found in the prepayment

schedules on the SBA’s website at http://www.sba.gov/taxonomy/term/15441 under the heading

“SBIC Pool Deal Factors and Payment Summaries: SBIC Pooled 10-Year Deb Prepayment

Summary.”

ACCELERATION OF DEBENTURES

Acceleration Event. A default by an SBIC as specified in SBA’s regulations may result in either

an automatic or a discretionary acceleration of such SBIC’s Debenture. Upon the occurrence of an SBA

administrative action to transfer the applicable SBIC from operating status into liquidation status (an

“Acceleration Event”), SBA will pay to the Trustee 100% of the principal amount of such Debenture

together with interest accrued to the applicable Payment Date (the “Acceleration Payment”). The

Acceleration Payment will be made on or before the Distribution Date for such Payment Date. The

Trustee will distribute such Acceleration Payments pro rata to the Holders on the Distribution Date for

such Payment Date. Upon an acceleration, the principal amount of the Debenture and interest accrued to

the next Payment Date following such acceleration shall be immediately due and payable to SBA.

Payments, if any, made by an SBIC with respect to an acceleration will be made directly to SBA.

Despite an event of default which could trigger a discretionary acceleration, SBA may, in its sole

discretion, refrain from transferring an SBIC into liquidation status and thereby avoid or delay an

Acceleration Event. See “— Procedure for Acceleration of Debentures.” However, such a decision by

SBA will not affect SBA’s obligation to make all payments as due under such Debenture pursuant to its

Guarantee in the event of an SBIC’s failure to make timely payments. See “— Full Faith and Credit

Guarantees.”

Procedure for Acceleration of Debentures. SBA’s Office of SBIC Operations continually monitors

the condition and performance of SBICs through established reporting systems, examination reports of

SBA’s Office of SBIC Examinations, correspondence with the SBICs and reports filed by SBICs.

SBA may, in its sole discretion, declare an acceleration of the debenture upon the occurrence of

any one or more of the following: (i) an SBIC commits a fraudulent act which causes detriment to SBA’s

position as a creditor or a guarantor; (ii) an SBIC makes any transfer or incurs any obligation that is

fraudulent under the terms of 11 U.S.C. 548 (the Bankruptcy Code); (iii) an SBIC willfully engages in selfdealing

or other conflicts of interest; (iv) an SBIC willfully violates any substantive provision of the Act or

any substantive regulation promulgated thereunder; (v) after being notified of a curable event of default,

an SBIC engages in similar behavior which results in another occurrence of the same default; (vi) an

SBIC transfers a license or willfully transfers ownership or control of the SBIC; (vii) after repeatedly failing

to comply with any non-substantive provision of the Act or the regulations promulgated thereunder, an

SBIC also fails to take steps to accomplish an action required by SBA; (viii) an SBIC fails to notify SBA as

soon as it knows or reasonably should have known that an event of default exists; (ix) an SBIC fails to

notify SBA within ten days of a declaration of default under any non-SBA indebtedness; (x) an SBIC pays

fees in excess of those permitted by SBA; (xi) an SBIC makes improper distributions; (xii) an SBIC fails to

make timely payment on any obligation held or guaranteed by SBA; (xiii) an SBIC fails to maintain the

required minimum capital; (xiv) an SBIC is capitally impaired; (xv) an SBIC defaults under non-SBA

indebtedness in excess of $100,000 unless contested by the SBIC in good faith by appropriate

proceedings; (xvi) an SBIC fails to perform under any obligation held or guaranteed by SBA under any

17

agreement with SBA; (xvii) an SBIC fails to comply with any substantive provision of the Act or any

substantive regulation promulgated thereunder; or (xviii) an SBIC fails to maintain required investment

ratios. Before an acceleration may be declared for any of the events of default set forth in (x) through

(xviii) above, SBA must provide the SBIC with a cure period of not less than fifteen days. In addition,

before any acceleration is declared, SBA’s standard operating procedures call for the transfer of the SBIC

from operating status to liquidation status.

When the Office of SBIC Operations determines that an SBIC Debenture is in default, the staff

may seek to resolve the problems through cooperative efforts with the SBIC. In such circumstances, SBA

will forbear the acceleration of SBA-held or -guaranteed debt during the work-out period. SBA will make

Guarantee Payments with respect to the Debentures during this forbearance period and will seek to

recover those payments from the SBIC. There is no set time limit for the forbearance. The SBA decides

how long to continue the period of forbearance based upon the facts of each case. If efforts to cure the

default fail, SBA will transfer the SBIC from operating status into liquidation status in order to protect the

creditor position of SBA.

Upon a determination by SBA to transfer an SBIC into liquidation status, jurisdiction over the SBIC

is transferred to the Office of SBIC Liquidation whereupon the SBIC is considered in liquidation status. At

this point, an acceleration letter is sent to the SBIC citing violations and defaults, making demand for

payment of the accelerated obligations and advising the SBIC that it has been transferred to liquidation

status. SBA will make a Guarantee Payment of the outstanding principal and accrued interest with

respect to such SBIC Debenture to the next scheduled Payment Date on or before the next scheduled

Distribution Date for such Payment Date.

Notwithstanding the above, SBA regulations provide that a Debenture is automatically accelerated

without prior notice to the defaulting SBIC whenever: (i) an SBIC is insolvent; (ii) not having sufficient

property to pay all of its debts, an SBIC makes a voluntary assignment thereof; or (iii) a petition is filed in

commencement of any bankruptcy or reorganization proceeding, receivership, dissolution or other similar

creditors’ rights proceeding, by or against an SBIC, whichever event shall first occur. Whenever SBA

learns of the occurrence of such an event of default it must transfer the SBIC into liquidation status. In

such event, the administrative procedures described in the preceding paragraph are followed except that

SBA may exercise no discretion with respect to the decision to liquidate the SBIC. Likewise, SBA will

make a Guarantee Payment of the outstanding principal and accrued interest with respect to such SBIC

Debenture to the next scheduled Payment Date on or before the next scheduled Distribution Date for

such Payment Date.

SBA applies the same procedures and standards for acceleration of a Specialized SBIC’s

Debenture as it applies to Debentures issued by other than Specialized SBICs.

The anticipated rate of prepayment of principal, if any, to the Holders of the Certificates as a result

of Acceleration Events cannot be determined. Acceleration of a Debenture may result from a variety of

factors including the occurrence of any one or more of the events of default set forth above, none of

which are predictable. Commencing in May of 1998, SBIC debentures are funded for an Interim Period of

not more than twenty-nine weeks prior to pooling. See “Description of the SBIC Program — Interim

Funding.” Although acceleration may occur during the Interim Period, no debentures were accelerated

during their related Interim Period as of September 9, 2014.

Additional statistical information on Acceleration Events can be found in the prepayment schedules

on the SBA’s website at http://www.sba.gov/taxonomy/term/15441 under the heading “SBIC Pool Deal

Factors and Payment Summaries: SBIC Pooled 10-Year Deb Prepayment Summary.”

DESCRIPTION OF PROGRAM MANAGEMENT AND OPERATION

Section 102 of the Act sets forth the policy of the Congress to establish the SBIC program to

stimulate and supplement the flow of private equity capital and long-term loan funds to small business

18

concerns. Pursuant to the Act and the regulations established thereunder, SBA provides financial

assistance to SBICs through the purchase or guarantee of SBIC debentures or participating securities

(collectively, “Leverage”).

Management of SBA. The Administrator of SBA, its Deputy Administrator, its Chief Counsel for

Advocacy, and its Inspector General are appointed by the President of the United States with the advice

and consent of the Senate. The major small business assistance programs of SBA and the general

administration of SBA are managed by officials appointed by the Administrator. The Presidential

appointees together with the major program managers establish SBA policy with respect to operations

under the Small Business Act and the Act and applicable regulations. Career personnel at various levels

constitute the middle management of SBA and make the preponderance of program operations decisions

in conformance with the applicable laws, regulations, and policies. Additionally, the Office of Management

and Budget guides SBA’s policies directly through the senior management officials and through circulars

issued from time to time. The SBA Inspector General audits the SBIC program and the administration of

the Debenture Program within SBA.

Investment Division of SBA. The Investment Division of SBA, which is headed by the Associate

Administrator for Investment, is the organizational element within SBA with the authority and responsibility

for administering the SBIC Program. Within the Investment Division is the Office of SBIC Operations,

headed by a Director who has under her supervision and direction Area Chiefs, all located in Washington,

D.C. Each Area Chief supervises and directs the activities of several financial analysts. This Office

regulates and provides leverage to SBICs. Also within the Investment Division are the Office of Licensing

and Program Standards, which is responsible for licensing new SBICs and for the development of

regulations for SBICs, the Office of SBIC Liquidation, which is responsible for liquidating SBICs, and the

Office of SBIC Examinations, which is responsible for examining the books and records of the operating

SBICs.

Underwriting Standards and Procedures. Consistent with the legislative intent of the Act, SBA

grants Leverage for the purpose of providing financing to small business concerns that are not dominant

in their fields and that are unable to obtain equity and long-term debt financing on reasonable terms. See

“Description of the SBIC Program.”

Section 310 of the Act, as amended by Public Law 100-590, requires that each SBIC be examined

at least every two years, except that, under certain circumstances, SBA may waive the examination for up

to one additional year. As a general policy, SBA will not process an SBIC’s application for Leverage if the

SBIC has not been examined by SBA’s Office of SBIC Examinations during the 24-month period

immediately preceding the date of the application. However, because of resource limitations, for SBICs

that have been examined at least once, SBA may determine that prior experience with an SBIC and other

relevant circumstances justify processing an application where the SBIC has not been examined during

the 24-month period immediately preceding the date of the application. Newly licensed SBICs may be

leveraged prior to any examination by the Office of SBIC Examinations. It is the policy of SBA not to

approve Leverage where there is an unanswered alleged regulatory violation, where there is a regulatory

violation on which SBA and the SBIC have not agreed to a compliance plan, or where SBA and the SBIC

disagree on the facts surrounding such an allegation or the interpretation of the facts as they relate to the

regulation alleged to have been violated. However, SBA may accept an application under these

circumstances if ample justification exists. An applicant SBIC’s capital adequacy, asset quality,

management performance, earnings capability, and liquidity characteristics are the principal

measurements that are to be used in reaching the financial decision to approve Leverage.

SBICs present different degrees and types of risk and vary widely in their characteristics, many of

which could affect the performance of an SBIC in meeting its payment obligations under a debenture.

These characteristics include age (newly licensed or seasoned), form of business (corporation or

partnership), location, type of financing (loan oriented, equity oriented or balanced), stage of financing,

industry preference, size, management types, structure (proximity of management to ownership), and

ownership (individual, financial parent, institutional, foreign, domestic, passive or active).

19

The Act requires a certain degree of diversification of an SBIC’s portfolio. In general, without the

approval of SBA, Specialized SBICs with outstanding Leverage and other Leveraged SBICs may not

invest an amount exceeding 30% of their private capital in any single enterprise. An SBIC’s sources of

liquidity are generally limited to the following: current revenues from and amortization of assets, maturity

and redemption of assets, sales of assets, collections of receivables, private capital increases, new and

refunding borrowings from SBA, and cash and idle fund balances.

SBA believes the possible risks presented by these factors are so interrelated as not to be

separately quantifiable. Accordingly, no effort has been made to isolate or compare the effects of any of

these factors on the overall risk in the granting of Leverage. The impact of this risk to investors is that

each Debenture is subject to acceleration and payment at 100% of its principal amount at any time prior

to the stated maturity upon an Acceleration Event. See “Acceleration of Debentures.”

Use of Proceeds of Debentures. SBICs use the proceeds of Debentures principally in

combination with their private capital to invest in or make loans to small business concerns. SBICs may

also use the proceeds of Debentures for operating purposes to provide interim funds during periods in

which liquidity is not available from portfolio flows or from the sale of investments. SBICs are permitted,

however, under certain circumstances, to develop bank lines of credit or other sources of liquidity so that

it will not be necessary for them to depend upon the issuance of the Debentures for short-term needs.

See “Description of the SBIC Program.”

TRUST AGREEMENT

The Certificates will be issued pursuant to a Trust Agreement dated as of February 1, 1997 (as

amended from time to time, the “Trust Agreement”), among SBA, The Bank of New York Mellon, as

Trustee, and SBIC Funding Corporation, as Fiscal Agent (as defined below). Holders will be entitled to

the benefits of such Trust Agreement to the full extent provided therein. No Holder is intended to have,

nor shall any Holder have any right by virtue of any provision of the Trust Agreement, to institute any suit,

action or proceeding in equity or at law upon or under or with respect to the Trust Agreement. The rights

of a Holder against SBA under the Guarantee are direct, and not through the Trustee. The responsibilities

of the Trustee, summarized below, are limited to those set forth in the Trust Agreement, and no further

responsibilities should be inferred. All references to time herein refer to New York City time.

The Trust Agreement will be available for reasonable inspection and copying by any Holder or its

designee, at such person’s expense at the Trustee’s Corporate Trust Office, 101 Barclay Street, FL4W

New York, New York 10286 Attention: Corporate Trust Services (ABS).

Purchase, Pooling and Exchange of Debentures; Issuance of Certificates. The Underwriters

have agreed to purchase the Debentures from the SBICs together with the Guarantee Agreement of SBA

and to combine the Debentures and the Guarantee Agreement into a Pool; pursuant to a Supplement to

the Trust Agreement, the Underwriters will then assign to the Trustee without recourse all of their right,

title and interest in and to such Debentures and Guarantee Agreement. In exchange therefor, SBA,

through its agent, The Bank of New York Mellon, acting in its capacity as Trustee, will issue Certificates

representing fractional undivided interests in such Pool to or upon the order of the Underwriters.

SBA to Act as Servicer. As guarantor of the Debentures, SBA will service and administer the

Debentures and will have full power and authority, acting alone, to do any and all things in connection

with such servicing and administration which it may deem necessary or desirable, and will have the sole

and exclusive right to take action and assert claims with respect to the Debentures. Such servicing may

include enforcing of representations, warranties and covenants, collecting payments, accelerating

maturity in the event of a default, taking action to enforce payments and otherwise exercising the rights

and pursuing the remedies available to a holder of a Debenture. Without limiting the generality of the

foregoing, SBA may execute and deliver, on behalf of the Trustee and the Holders, any and all

instruments of satisfaction or cancellation, or of partial or full release or discharge and all other

comparable instruments, with respect to the Debentures.

20

SBA may perform its servicing obligations through such entity as it may designate, provided that at

the time of such designation SBA shall give written notice to the Trustee, signed by an authorized official,

of such designation.

Collection of Debenture Payments — Certificate Account. The Trustee will receive the payments

due on the Debentures (other than payments made on a Debenture by an SBIC after the Trustee has

received notice of an Acceleration Event with respect to such Debenture) and deposit such payments in

the Certificate Account as described hereinafter. SBA has directed each SBIC to make such payments

directly to the Trustee by noon on the relevant Payment Date or, in the case of Optional Prepayments,

three business days prior to such Payment Date. No later than 2:00 P.M. on the third business day

preceding each Distribution Date, the Trustee will notify SBA in writing of any required Guarantee

Payment and the amount thereof. SBA will make any required Guarantee Payment by wire transfer to the

Certificate Account, as defined herein, not later than 10:00 A.M. on the relevant Distribution Date.

The Trustee will establish and maintain a separate non-interest-bearing trust account (the

“Certificate Account”) into which the Trustee will deposit the following payments and collections received

by it in respect of principal of and interest on the Debentures: (i) all regular interest payments on the

Debentures, including those made by SBA pursuant to the Guarantee Agreement; (ii) all payments on

account of principal on the Debentures at their stated maturity, including those made by SBA pursuant to

the Guarantee Agreement; (iii) all Optional Prepayments; and (iv) all Acceleration Payments.

The Trustee will not deposit into the Certificate Account any payment received from an SBIC on

account of an Optional Prepayment unless such payment conforms to all of the requirements specified in

the Trust Agreement for an Optional Prepayment; provided, however, that the receipt of any nonconforming

payment will not in any way reduce the obligation of SBA under the Guarantee Agreement.

Any late interest payments made by an SBIC and payments on a Debenture, if any, made by an SBIC

after an Acceleration Event will be made directly to SBA and will not be deposited into the Certificate

Account or otherwise constitute part of the Pool.

Distributions to the Holders. On each Distribution Date, the Trustee will distribute to the Holders

of record as of the close of business on the first calendar day of the month in which the Distribution Date

occurs (the “Record Date”), other than as described herein respecting the final distribution, each such

Holder’s pro rata share (based on the aggregate fractional undivided interest represented by Certificates

held by such Holder) of all amounts credited to the Certificate Account relating to the Pool as of

10:00 A.M. on the applicable Distribution Date.

Statements to the Holders. At the time of each distribution, the Trustee will furnish to each

Holder a statement setting forth the following information with respect to the Certificates owned of record

by such Holder:

(i) the amount of such distribution allocable to principal (including a separate breakdown of

any Optional Prepayments and Acceleration Payments);

(ii) the amount of such distribution allocable to interest; and

(iii) the aggregate amount of the Holder’s fractional undivided interest in the aggregate

unpaid principal amount of Debentures in the Pool as of the opening of business on the business

day next succeeding the Distribution Date, after giving effect to payments on such Debentures due

on the Distribution Date and distributed either as collections or as Guarantee Payments.

In addition, within a reasonable period of time after the end of each calendar year, the Trustee will

furnish a report to each Holder at any time during such calendar year as to the aggregate of amounts

reported pursuant to (i) and (ii) above for such calendar year or, in the event such person was a Holder of

record during a portion of such calendar year, for the applicable portion of such year.

21

Information Concerning Acceleration Events and Optional Prepayments. The Trustee will

maintain a record of the aggregate principal amount of all Debentures which have been subject to an

Acceleration Event or Optional Prepayment (to the extent the Trustee has been notified by SBA of such

Acceleration Event or Optional Prepayment). Such information is generally available from the Trustee to

Holders of Certificates by dialing (800) 254-2826, a toll-free telephone number, during the Trustee’s

normal business hours.

Waivers and Modifications of Debentures. SBA may waive, modify or vary any term of any

Debenture or consent to the postponement of strict compliance with any such term or in any manner

grant indulgence to any SBIC; provided that SBA may not, without the consent of all Holders, permit any

modification with respect to any Debenture that would decrease the interest rate, change the terms of

prepayment of principal or interest, reduce the outstanding principal amount (except by reason of actual

payment of all principal due thereon), change the final maturity date on such Debenture or terminate or

otherwise reduce the benefits of the Guarantee Agreement with respect thereto. See “Acceleration of

Debentures.” Without the consent of all Holders, no change in the payment schedule of any Debenture

will alter or affect SBA’s Guarantee of timely payment of principal and interest on such Debenture in

accordance with the Guarantee Agreement. See “Full Faith and Credit Guarantees.”

Registration of Transfer and Exchange of Certificates. The Trustee has been appointed

Certificate Registrar for the purpose of registering the ownership of Certificates and any transfers and

exchanges of Certificates as herein provided. The Trustee will maintain at its Corporate Trust Office a

Certificate Register in which, subject to such requirements as it may prescribe, the Trustee will provide for

the registration of the Certificates and of transfers and exchanges of Certificates.

A service charge equal to a reasonable fee for the expenses of the Trustee will be charged to the

person presenting a Certificate for transfer or exchange, as the case may be, for any registration of

transfer or exchange of such Certificate. SBA or the Trustee may require payment of a sum sufficient to

cover any tax or governmental charge that may be imposed in connection with any transfer or exchange

of Certificates. All fees charged by the Trustee are subject to SBA’s prior written approval. The initial fee

for transfer or exchange of a Certificate is $9.50 unless any part of the transaction is handled by mail, in

which case the initial fee is $14.50.

Disclosure Requirement. The Act requires each seller of a Certificate, prior to any sale thereof, to

disclose to a purchaser information on the terms, conditions and yield of such Certificate. Each Holder, by

virtue of its acquisition of a Certificate, will be deemed to agree to such requirements.

Persons Deemed Owners. Prior to due presentation of a Certificate for registration of transfer,

the Trustee and any agent of the Trustee may treat the person in whose name any Certificate is

registered as the owner of such Certificate for the purpose of receiving distributions as described herein

and for all other purposes whatsoever, and neither the Trustee nor any agent of the Trustee shall be

affected by notice to the contrary.

Amendments to the Trust Agreement. The Trust Agreement may be amended from time to time

by SBA, the Trustee and the Fiscal Agent, without the consent of any of the Holders; provided, however,

that no such amendment shall reduce in any manner the amount of, or delay the timing of, payments

received on Debentures, including Guarantee Payments, which are required to be distributed on any

Certificate without the consent of the Holder of such Certificate. No amendment, modification, waiver or

consent affecting any provision of the Trust Agreement by the parties thereto shall adversely affect the

rights of the Holder of any Certificate outstanding at the time of such amendment, modification, waiver or

consent.

Termination. The respective obligations and responsibilities of SBA and the Trustee with respect

to the Pool (other than the obligation of SBA to make payments to Holders as hereafter set forth) shall

terminate upon the final payment of the last Debenture in the Pool, whether at the stated maturity of the

22

Debentures, upon an Acceleration Payment or Optional Prepayment of all Debentures constituting the

Pool or otherwise.

With respect to any termination on a date other than the stated maturity of the Debentures, the

Trustee will give notice of any such termination by letter to the Holders (with a copy thereof to SBA)

mailed not later than the fifth business day subsequent to the Payment Date on which all outstanding

principal and accrued interest for the Debentures remaining in the Pool have been paid in full as a result

of Optional Prepayments, are payable by SBA as a result of Acceleration Events, or a combination of

both. Such notice will specify that final payment will be made from the Certificate Account upon

presentation and surrender of Certificates at the Corporate Trust Office of the Trustee, on or after the

Distribution Date for such Payment Date. If termination occurs upon the stated maturity of the

Debentures, no notice will be given and final payment will be made from the Certificate Account on the

next following Distribution Date upon presentation and surrender of Certificates at the Corporate Trust

Office of the Trustee.

Any monies held by the Trustee for the payment of any Certificate upon termination which remain

unclaimed by any Holder for six months after the date the final payment was made, will be repaid to SBA.

Holders must thereafter look to SBA for payment of such amounts, and all liability of the Trustee with

respect to such amounts will thereupon cease.

TRUSTEE

The Bank of New York Mellon, as successor in interest to The Bank of New York, which is in turn

the successor in interest to JPMorgan Chase Bank, N.A., a national banking association organized under

the laws of the United States, or any successor trustee appointed under the Trust Agreement will serve

as trustee (the “Trustee”) and will perform such duties as specified in the Trust Agreement and as

described herein. The Corporate Trust Office of The Bank of New York Mellon where its duties under the

Trust Agreement shall be performed is located at 101 Barclay Street, FL4W New York, New York 10286

Attention: Corporate Trust Services (ABS).

SBIC FUNDING CORPORATION

The SBIC Funding Corporation is a District of Columbia not-for-profit corporation organized to

serve as the fiscal agent (“Fiscal Agent”) of SBA to oversee the implementation and continued operation

of the Program. SBIC Funding Corporation has been appointed by the SBICs participating in the Program

to serve as their selling agent (“Selling Agent”). The SBIC Funding Corporation was organized by the

Small Business Investor Alliance, a trade association based in the Washington, D.C. area which

represents the interests of the SBIC industry before SBA, Congress, and the financial community.

SBIC Funding Corporation, as Fiscal Agent, provides advice and counsel to SBA relating to the

development and conduct of the Program. In this regard, the Fiscal Agent consults with the SBIC

industry, monitors the financial markets, makes cost reduction recommendations to SBA and assists in

assuring that all regulatory requirements of the Program are met. SBIC Funding Corporation, as Selling

Agent, reviews and evaluates on a continuing basis underwriting candidates for the Program, manages

the offerings of Certificates under the Program, which includes participation in the preparation of

appropriate documentation and the acquisition of necessary regulatory clearances, and executes, with

SBA’s written approval, agreements for the purchase of the Debentures and the issuance of the

Certificates. For its services to the Program, the SBIC Funding Corporation is compensated by the SBICs

and from a fee levied by SBA upon the funding of the Debentures pursuant to Section 303(b) of the Act.

LEGALITY OF INVESTMENT

The Certificates are acceptable as security for the deposit of public monies subject to the control of

the United States or any of its officers, agents or employees, and are eligible as collateral for Treasury

Tax and Loan Accounts. Under federal law, national banks and state banks which are members of the

23

Federal Reserve System may deal in, underwrite, and purchase for their own account Certificates without

regard to any limitation based on capital and surplus.

The Certificates are eligible as security for advances to member banks by Federal Reserve Banks.

TAX STATUS

The following is a general discussion of certain of the anticipated United States federal income tax

consequences of the purchase, ownership and disposition of the Certificates under the Internal Revenue

Code of 1986, as amended (the “Code”) without consideration of the particular facts and circumstances of

each prospective investor’s special tax situation. The discussion addresses only a beneficial owner of a

Certificate that acquires the Certificate at original issuance and that holds the Certificate as a capital

asset, and does not address a taxpayer that is not a “United States Person” (as defined below.) The

discussion is based on interpretations of laws, regulations, rulings and decisions, all of which are subject

to change. Any such change may be applied retroactively and may adversely affect the federal income

tax consequences described herein. Such discussion is not binding on the Internal Revenue Service

(“IRS”), which may take a contrary view as to the matters discussed herein. Accordingly, each

prospective investor is urged to consult its own tax advisor with respect to the United States

federal income tax consequences of holding a Certificate, as well as any consequences arising

under the laws of any other taxing jurisdiction.

United States Person. A “United States Person” is a citizen or resident of the United States, a

corporation, partnership or other entity organized in or under the laws of the United States or state

thereof, including, for this purpose, the District of Columbia (other than a partnership that is not treated as

a United States Person under any applicable Treasury regulations) or an estate the income of which is

includible in gross income for United States federal income tax purposes regardless of its source, or a

trust if a court within the United States is able to exercise primary supervision over the administration of

the trust and one or more United States Persons have the authority to control all substantial decisions of

the trust. Notwithstanding the preceding sentence, to the extent provided in Treasury regulations, certain

trusts in existence on August 20, 1996, and treated as United States Persons prior to such date, that elect

to continue to be treated as United States Persons shall also be United States Persons.

The Pool. The IRS has issued a number of revenue rulings regarding the characterization, for

federal income tax purposes, of pooling arrangements. Based on these rulings, the Pool will be classified

for such purposes as a “grantor” trust of which the beneficial owners of Certificates are the grantors. As a

consequence, the Pool will not be subject to federal income tax, and each beneficial owner of a

Certificate will be treated for federal income tax purposes as the beneficial owner of a fractional undivided

interest in the corpus of the Pool and the income and deductions allocable to such interest. Each

beneficial owner of a Certificate will be required to report on its federal income tax returns, consistent with

its method of accounting, such income, including interest.

The Trustee will furnish to each Holder a statement with respect to each distribution, setting forth

the amount of such distribution allocable to principal and interest and the source thereof. In addition, the

Trustee will furnish, within a reasonable time after the end of each calendar year, to each person who

was a Holder at any time during such year, a statement setting forth such Holder’s share of interest

received.

Characterization of Certificates. Ownership of the Certificates will be treated as ownership, for

federal income tax purposes, of (i) “obligations of the United States” within the meaning of

Section 7701(a)(19)(C)(ii) of the Code, relating to the definition of federal and domestic savings and loan

associations and certain other financial institutions; (ii) “government securities” within the meaning of

Section 851(b)(3) of the Code, relating to the definition of regulated investment companies; and

(iii) “government securities” within the meaning of Section 856(c)(4)(A) of the Code, relating to the

definition of real estate investment trusts. Income from the Certificates, for the federal income tax

purposes, will be treated as income from “obligations of the United States or of any agency or

24

instrumentality thereof” within the meaning of Section 895 of the Code, relating to the exemption from

withholding tax for foreign central banks of issue in certain circumstances, but will not be treated as

interest on “obligations secured by mortgages on real property or interests in real property” within the

meaning of Section 856(c)(3)(B) of the Code, relating to the definition of real estate investment trusts.

State and Local Taxes. Under Title 31, Section 3124 of the United States Code, as amended,

“obligations of the United States” are exempt from state, municipal or local taxes, other than estate or

inheritance taxes and nondiscriminatory taxes or other nonproperty taxes imposed on corporations. The

United States Supreme Court in 1987 held that certain federally guaranteed trust or pool certificates

should not be treated as “obligations of the United States” for purposes of Section 3124, principally

because such certificates are secondary, and not primary, obligations of the United States. Rockford Life

Insurance Co. v. Illinois Department of Revenue, 482 U.S. 182 (1987). The Certificates issued by the

agent of SBA, which is an instrumentality of the United States, arguably can be distinguished from the

guaranteed certificates under consideration in Rockford, which were issued by a private entity. However,

the Certificates may be considered to be merely guaranteed by SBA and not clearly direct and certain

obligations of SBA. At least one court has held that the certificates do not constitute “obligations of the

United States” for purposes of Section 3124. Sumitomo Trust & Banking Co. v. Commissioner of Taxation

And Finance, 720 N.Y.S. 2d 251 (2001). Accordingly, although there are some factual distinctions

between the Certificates and the guaranteed certificates in Rockford, no opinion is expressed as to the

treatment of the Certificates under Section 3124. Nevertheless, the laws of particular states may

specifically exempt federally guaranteed securities from some state and local taxes, and prospective

investors are urged to consult their own tax advisors to determine the tax treatment of the Certificates in

their states.

Sale or Other Disposition. If a beneficial owner of a Certificate sells, exchanges or otherwise

disposes of a Certificate, the beneficial owner of the Certificate will recognize gain or loss in an amount

equal to the difference between the amount realized by the beneficial owner upon the sale, exchange or

other disposition and the beneficial owner’s adjusted tax basis in the Certificate. The adjusted tax basis of

a Certificate to a particular beneficial owner generally will equal the beneficial owner’s cost for the

Certificate, increased by any discount previously included by such beneficial owner in income with

respect to the Certificate and decreased by the amount of principal payments previously received by such

beneficial owner with respect to the Certificate. Any such gain or loss will be capital gain or loss if the

Certificate was held as a capital asset, except for gain representing accrued interest and accrued

discount not previously included in income. Capital losses generally may be used only to offset capital

gains.

Backup Withholding. A backup withholding tax may be imposed on any reportable payment

unless the recipient (i) has furnished under penalties of perjury an accurate taxpayer identification number

or (ii) is exempt from the backup withholding provisions of the Code. Corporations and certain other

entities are, and individuals are not, exempt from the backup withholding provisions. In the case of an

individual, the individual’s social security number is his or her taxpayer identification number. A reportable

payment would include interest payments to a beneficial owner of a Certificate and proceeds from the

sale of a Certificate to or through a broker or dealer in securities prior to the maturity of the underlying

Debentures. A reportable payment also would include proceeds from the retirement of an underlying

Debenture, paid or credited to an account by a broker or dealer in securities. Any amount withheld under

the backup withholding rules from a reportable payment to a beneficial owner of a Certificate would be

allowed as a refundable credit against the beneficial owner’s United States federal income tax, provided

that the required information is furnished to the IRS.

PURCHASES BY EMPLOYEE BENEFIT PLANS — ERISA CONSIDERATIONS

The acquisition of a Certificate by an employee benefit plan or other retirement arrangements

including individual retirement accounts subject to the Employee Retirement Income Security Act of 1974,

as amended (“ERISA”) or Section 4975 of the Code (a Plan), could result in prohibited transactions or

other violations of the fiduciary responsibility provisions of ERISA and Section 4975 of the Code if, by

25

virtue of such acquisition, the Debentures were deemed to be assets of the Plan. For example, if an

employer whose employees are covered by a Plan had entered into a loan with an SBIC whose

Debenture was contained in the Pool, the purchase and holding of Certificates by the Plan would

constitute prohibited transactions if the Debentures in the Pool were deemed to be assets of the Plan.

Under the United States Department of Labor regulations, the assets of a Plan will be deemed to

include any of the underlying assets of an entity, such as a grantor trust, for purposes of the fiduciary

responsibility provisions of ERISA, when a Plan acquires an equity interest in such entity. Under these

regulations as effectively amended by Section 3(42) of ERISA under the Pension Protection Act of 2006,

the assets in the Pool would not be assets of a Plan if, at all times, less than 25% of the Certificates are

held by Plans and entities whose underlying assets include plan assets by reason of investment by Plans

in the entities. However, there can be no assurance that this limit will not be exceeded because there are

no limitations on who may purchase the Certificates.

Even if the Debentures are deemed to be assets of a Plan, there are class exemptions, including

the following, issued by the Department of Labor that may apply to any prohibited transactions resulting

therefrom or from the purchase and holding of Certificates. These exemptions are for transactions that

meet the requirements of the exemption and that are effected by independent qualified professional asset

managers or “in-house” asset managers and for certain transactions involving insurance company

general and pooled separate accounts and bank collective investment funds (DOL Prohibited Transaction

Exemptions 84-14, 96-23, 95-60, 90-1 and 91-38). There is also a statutory exemption that may be

available under Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code to a party in interest

that is a service provider to a Plan investing in the Certificates for adequate consideration, provided such

service provider is not (i) the fiduciary with respect to the Plan’s assets used to acquire the Certificates or

an affiliate of such fiduciary or (ii) an affiliate of the employer sponsoring the Plan. Also, all state and local

government employee benefit plans and certain church plans are exempt from ERISA and therefore are

not subject to the ERISA plan asset regulations, irrespective of the treatment of the Certificates. However,

such plans could be subject to laws that are substantially similar to ERISA.

Any Plan or other plan fiduciary considering the purchase of Certificates should consult its tax and

legal advisors regarding the applicability of the exemptions and the issues described above and their

potential consequences.

LEGAL OPINIONS

The legality of the sale of the Certificates will be passed upon for SBA by the Office of the General

Counsel of SBA and for the Underwriters by Bingham McCutchen LLP Washington, D.C.

NOTICE

The statements herein with respect to the Certificates and related documents are subject to the

detailed provisions of such Certificates and documents, and the statements made herein are qualified in

their entirety by reference thereto. Copies of these documents are available at the Trustee’s Corporate

Trust Office.

UNDERWRITING

The Underwriters named below have severally agreed, subject to the terms and conditions of the

Debenture Purchase, Pooling and Exchange Agreement between SBIC Funding Corporation, as Selling

Agent of the SBICs, and the Underwriters, to purchase the Debentures together with the related

Guarantee Agreement and to exchange such Debentures and Guarantee Agreement for the principal

amount of Certificates set forth below opposite their respective names.

26

Underwriter

Principal

Amount

of Certificates

J.P. Morgan Securities LLC ....................................................................... $ 335,870,000

Goldman, Sachs & Co. .............................................................................. 335,860,000

Credit Suisse Securities (USA) LLC. ......................................................... 335,860,000

Total ........................................................................................................... $1,007,590,000

The Debenture Purchase, Pooling and Exchange Agreement provides that the obligations of the

Underwriters are subject to certain conditions precedent, and that the Underwriters will be obligated to

purchase all of the Certificates if any are purchased.

SBA has been advised by the Representative of the Underwriters that the Underwriters propose to

offer the Certificates to the public initially at the offering price set forth on the cover page of this Offering

Circular and to certain dealers at such price less a concession of 0.30% of the principal amount of the

Certificates; that the Underwriters and such dealers may allow a discount of 0.25% of such principal

amount on sales to other dealers; and that the public offering price and concession and discount to

dealers may be changed by the Underwriters.

The Underwriters are permitted to engage in certain transactions that stabilize the price of the

Certificates. Such transactions consist of bids or purchases for the purpose of pegging, fixing or

maintaining the price of the Certificates.

If an Underwriter creates a short position in the Certificates in connection with the offering, i.e., if it

sells more Certificates than are set forth opposite its name above, such Underwriter may reduce that

short position by purchasing Certificates in the open market. In general, purchases of a security for the

purpose of stabilization or to reduce a short position could cause the price of the security to be higher

than it might be in the absence of such purchases.

Neither SBA nor any of the Underwriters makes any representation or prediction as to the direction

or magnitude of any effect that the transactions described above may have on the price of the

Certificates. In addition, neither SBA nor any of the Underwriters makes any representation that such

Underwriters will engage in such transactions or that such transactions, once commenced, will not be

discontinued without notice.

The Underwriters and their affiliates may, from time to time, have equity investments in SBICs.

No dealer, salesman or other person has been

authorized to give any information or to make any

representation other than the information and

representations contained in this Offering Circular.

This Offering Circular does not constitute an offer to

sell or a solicitation of an offer to buy any of the

securities offered hereby in any jurisdiction to any

person to whom it is unlawful to make such offer in

such jurisdiction. Delivery of this Offering Circular

does not imply that the information contained in it is

correct any time after its date.

TABLE OF CONTENTS

Page

Offering Circular Summary .................................... 1

Risk Factors .......................................................... 5

Description of SBA ................................................ 7

Description of the SBIC Program .......................... 7

Description of the Pool of Debentures .................. 12

Description of Debentures ..................................... 12

Description of Participation Certificates ................ 12

Yield Considerations ............................................. 14

Full Faith and Credit Guarantees .......................... 15

Optional Prepayment of Debentures ..................... 15

Acceleration of Debentures ................................... 16

Description of Program Management and

Operation .......................................................... 17

Trust Agreement ................................................... 19

Trustee .................................................................. 22

SBIC Funding Corporation .................................... 22

Legality of Investment ........................................... 22

Tax Status ............................................................. 23

Purchases by Employee Benefit Plans —

ERISA Considerations ...................................... 24

Legal Opinions ...................................................... 25

Notice .................................................................... 25

Underwriting .......................................................... 25

$1,007,590,000

(Approximate)

U.S. Small Business

Administration

Guaranteed 3.015% Debenture

Participation Certificates,

Series SBIC 2014-10 B

OFFERING CIRCULAR

J.P. Morgan

Goldman, Sachs & Co.

Credit Suisse

September 16, 2014

File Attachments: 
Attachments Size
SBIC 2014-10 B, CUSIP 831641 FB6 126Kb