¢ InGrand Rock, the CDC officers brought together the major stakeholders in the

neighborhood and began a dialogue regarding the value of a master plan for the area. The
group has embraced the concept and has been meeting regularly to move the process forward.
NationsBank will pay for half the cost of the master planning process. Additionally, the CDC
will partner with one or more of the stakeholders to develop single family and multi-family
housing in the area once the plan is complete. Such a partnership provides the local groups
with the financial backing and technical assistance to both build their organizational capacity
and enable them to undertake much larger scale projects. The CDC’s ability to invest patient
capital over a sustained period of time will be critical to the successful implementation of the

master plan.

¢ The Forest Park Southeast process follows much the same model, except that the
neighborhood organizations and “people infrastructure” are more fully developed and
collectively moving forward. NationsBank CDC will be involved in partnering with the
community to build housing. The discussions to date have focused the CDC’s efforts toward
building at least 50 new single-family homes and a Make A Difference Center, if operational
support can be identified. The CDC is prepared to invest equity and additional capital as the
development progresses. Currently, the CDC is going to provide capital to and partner with
the community organization to acquire and rehabilitate six buildings for homeownership. The
project will be financed by the City, a Joint Community Development Grant from HUD that
was received by Washington University, and cash equity from the NationsBank CDC.

The NationsBank CDC hired staff and became active in St. Louis in July, 1997. I was
immediately impressed that NationsBank staffed its CDC with local professionals from the local
not-for-profit and government sector, people whose careers have been dedicated to housing and
community development — one a former Director of Neighborhood Housing Services in St. Louis,
one a former Community Development Director in St. Louis County and another from the City of

St. Louis Community Development staff.

All of the above activities were undertaken within the last year. These exceptional activities could

not have been undertaken in any form without the unique tools and huge financial capacity of
NationsBank.

bz


- We fully expect the merged Bank of America Corporation to continue working In
California on our established bridge between the busIness, government and environmental
communities. In fact, | would anticipate an expansion and export of these efforts to other areas
as the merged Bank of America Corporation pursues new national partnerships between various
stakeholders in our environment and economy. | see this merger as an opportunity to leverage
Bank of America's leadership role on a national scale and In more geographic locations.

CCEEB looks forward to a continued relationship with the new merged Bank of America
Corporation.

President


TLC Beatrice International, the nation’s largest black-owned company. Siméus wants to
build a billion dollar international company.

Percy Berger, NationsBank executive vice president, shares Mr. Siméus’ vision and recently
invited Montgomery Securities to assist SFI with a very promising acquisition that would
double his revenues. It will require more equity capital.

NationsBank played a similar role by taking a major stake in a sizable syndication for Radio
One, the nation’s largest African-American owned broadcast company. I want to see Radio
One, led by Cathy Hughes, join the Fortune 500 ranks at the turn of the century. It will
require more equity capital.

Let me add a few words about Bank of America. Like NationsBank, Bank of America
entered the Texas market through acquisitions of other financial institutions in the early
nineties. They, too, made a commitment to community development and investment. We
were fortunate enqugh to have been picked by Bank of America Texas’ executive team as a
major player in their community investment plans and received a substantial equity
commitment that made Bank of America Texas our third largest bank shareholder and key
supporter for our niche.

Tom Hay, senior credit officer in Texas, serves on the MESBIC Board and provides ready
access to Bank of America resources for our portfolio clients. In addition to Bank of
America’s direct financial involvement in our MESBIC, our firm’s national stature and
investment focus has allowed our niche to benefit further from Bank of America’s
involvement through Opportunity Capital, an Oakland, California-based SSBIC.

Bank of America is a founding shareholder of Opportunity Capital I, one of the nation’s
oldest SSBICs established in 1970. Since then, this fund has become one of the nation’s
most active providers of equity capital, along with Opportunity Capital I] and Opportunity
Capital II]. Bank of America’s total commitment for Opportunity Capital exceeds $25
million. We are co-investors in several financings, including SFI and Radio One, with
Opportunity Capital and its exceptional management team led by Peter Thompson, CEO.

So I believe Dave Coulter, chairman and CEO of Bank of America, when he says that his
“\..enthusiasm and excitement for banking comes from providing opportunities to millions of
individuals, families, and companies, large and small. Playing the role that we do in their
success, and watching it ripple through their communities, is what banking should be all
about.” (Excerpts from remarks at Bank of America’s Annual Shareholder Meeting, May
21, 1998). And, I believe Hugh McColl when he says, “...the greater our financial resources,
the greater our investment will be in the future of the communities we serve.” $350 billion
says it all!

The combination of these two banks will be better for all consumers and all businesses, large
and small. These two extraordinary, well-led companies will be the benchmark for banking
in the new millennium. And the $350 billion commitment to community lending and

-4.


NationsBank provided $2.5 million in LIHTC equity for the Etzel Place Apartments Phase I,

a 42-unit affordable housing development.

NationsBank provided the construction loan and provided the equity through purchase of the
tax credits for Parkview Gardens Phase IL, a not-for-profit development of the Parkview

Gardens Neighborhood Association, who originally began their efforts with Boatmen’s Bank.

There are a number of very exciting projects that can be accomplished in St. Louis exclusively

because of the additional financial resources and financing tools brought to the community by
NationsBank:

The NationsBank Small Business Investment Corporation made a $500,000 equity investment
in TLC Next Generation to help an African American businessman, Leroy Wright, to expand

his business. Mr. Wright is the founder of Wright Cellular. With cellular phone sales nearing
$1 million annually, the NationsBank investment and $1.6 million business loan helped him to
acquire Next Generation to form TLC Next Generation. Mr. Wright’s new firm is now the

largest distributor of wireless communications products in the St. Louis metropolitan area.

The NationsBank Community Development Corporation is undertaking the $5.3 million
acquisition and rehabilitation of an eight-story 60,000 s.f. warehouse building in our
Downtown Loft District. The building is being converted to 26 loft apartments with a first
floor art gallery and studio space. The Bank CDC will own the project long term in
partnership with a local nonprofit, the Regional Housing and Community Development
Alliance. NationsBank CDC invested cash equity and purchased the State and Federal LIHTC
and Historic Rehab Tax Credits. NationsBank will provide the construction financing, a
bridge loan, and permanent financing, as well. This project does not work financially as a
mixed-income development without the NationsBank CDC’S ability to invest patient capital.
NationsBank is essentially funding 100% of the debt and equity for this project, as well as

taking a long term ownership position.


Life & Casualty Insurance Co. and Travel-
ers Insurance Co., to kick in $500,000 each.
Mr. Wilkins recalls excruciating negotia-
tions that seemed way out of proportion to
the amount of money involved. “We called
that the hoops deal,” he says, “because we
had to jump through hoops.”

To help create investment opportuni-
ties, the two managers traveled to legisla
tive hearings in several large cities, where
they lobbied for minority participation in
the then-nascent cable-television industry.
“The rap always is: These minority people
have never done any of this before,” Mr.
Jones says. “We had to show that not only
was the money there, but the expertise was
also there.”

When minority investors did win a
franchise, they often turned to Messrs.
Wilkins and Jones for financial help.

“They were a godsend, period,” says J.
Barry Washington, a black entrepreneur
who won a cable-TV franchise in Newark,
N.J., in 1980. Syncom provided financing
during a crucial period, and helped find
larger investors. All told, Mr. Washington
raised $9.5 million.

But even Mr. Washington’s story is em-
blematic of the capital shortage that mi-
nority entrepreneurs and their backers of-
ten face. Syncom lacked the deep pockets
or clout with larger investors to keep fund-
ing Mr. Washington's growing company,
Connections Communications Corp., which
was still unprofitable.

Ina bind, Mr. Washington sold the ca-
ble system in 1986 for $33 million. While
that gave investors a big profit—Syncom
more than tripled its $625,000 investment—
it was far less than they could have made
by holding on to the system. Just six years
later, CableVision Systems Corp. paid $78
million for Gateway Cable, Connections’
successor.

Stuck in Same Level

For Syncom, the pattern of could-have-
beens would persist. “We've created value
in numerous cases, but even after doing
everything right, we've had to leave a lot of
money on the table because we don’t have
the capital to take our deals to the next
level,” Mr, Jones says.

Still, Syncom was performing much
better than most other investment compa-
nies that relied wholly or heavily on the
Mesbic program. One reason was special-
ization in niches in the booming media
field, such as inner-city radio and cable TV.
In contrast, most Mesbics dabbled in many
areas. And while many other Mesbics tried
to go it alone, Syncom became adept at syn-
dicating its deals, which raised more
money and spread the risk.

The formula that Messrs. Wilkins and
Jones developed was twofold: Use rigorous
screening methods to find the right deals,
and then give entrepreneurs sound advice
to help ensure that investments succeed.

One early client, Cathy Hughes, a black
radio executive who was seeking money to
buy a Washington station, says, “I was ter-

Going Their Own Way

(dollars in millions):

Investment funds and companies that invest primarily in minority-controlled
businesses now have much more in private assets under management than in
assets from the government-originated SSBIC program. A look at the largest

FUND/INVESTMENT ssc PRIVATE TOTAL
COMPANY LOCATION ASSETS ASSETS ASSETS
TSG Capital Group Stamford, Conn. $20 $225 $245
Fairview Capital Partners Farmington, Conn. - 200 200
Bastion Capital Los Angeles - 100 100
Medallion Funding New York 50 50 100
Penman Asset Management. Chicago - 90 90
Syncom Silver Spring, Md. 25 53 78
Mesbic Ventures/Pacesetters Dallas 40 38 78
Allied Capital Washington 50 = 50
Inroads Evanston, Ill. 50 50
Savant Group Santa Monica, Calif. — 50 50
TOTAL 400 1,091 1,491

other funda.

Source: Fairview Capital Partners Inc.

rified; both of them are very, very busi
nesslike and no-nonsense. I realized Ihad a
serious task in front of me to prove I was
credit-worthy.” Although she had been run-
ning a radio station, Ms. Hughes had never
owned a business.

At the first meeting with Messrs.
Wilkins and Jones, Ms. Hughes recalls,
“they asked me if I had a business plan. I
said my plan was to be successful in busi-
ness. They thought I was joking.” Over the
next several months, the two men helped
Ms. Hughes develop a detailed written
plan, “probably the size of a New York tele-
phone directory,” she says.

Eventuaily, Syncom helped finance the
start-up of Ms, Hughes's company, Almic
Broadcasting Inc., later renamed Radio
One Inc. When Almic got into trouble early
on, Mr. Jones, who says “there's a lot of
psychology involved” in venture finance,
gave pep talks. “We told her the only way
she could fail was if she let herself fail,”
Mr. Jones says. “She bought into that and
decided not to fail.”

Ms. Hughes says the sometimes-acer:
bic Mr. Wilkins, whose good humor can
turn caustic quickly, provided “tough love”
and minced no words; the gentier Mr.
Jones soothed the pain

The good cop/bad cop routine worked

Today, Radio One and a sister com,
pany, Radio One of Atlanta Inc., own 11
stations in four markets, employ more than
300 and say annual revenue exceeds $40
million, That's good news for Syncom,
which invested $729,000 and values the
stake it still holds at about $14 million. (A
Syncom fund also has a $1 million invest-
ment in the sister company.)

3

“Total includes double-counting of roughly $100 million in assets that funds have invested in

Aiming High

If the Syncom managers were more
skillful than those at many other Mesbics,
they were also much more ambitious. And
in 1990, they became the first Mesbic oper-
ators to raise a much larger pool of money.

On the basis of Syncom's successful in-
vestments in Mr. Washington’s company
and others, Messrs. Wilkins and Jones tried
to raise $70 million for their first limited-
partnership fund, Syndicated Communica-
tions Venture Partners [1 L.P. This would
be a leap forward, since Syncom up to that
point had total capital of only $14 million.

Mr. Wilkins says he, Mr. Jones and a
third partner for Syncom II, Duane C.
McKnight, paid calls on institutional in.
vestors. The original company, he told
pension-fund managers, was bringing in
20% annual returns, “The minority market
is so underserved that we can take the
cream,” he continued. “We can get the
best deals, almost without competition.”
Seven investors—including Edison Inter-
national's Southern California Edison pen-
sion fund, which committed $10 million—
bought in, and Syncom II attracted $35 mil-
lion, half the sum they were seeking.

Now, Syncom could break free of the
confining Mesbic structure, which, among
other things, held down the pay for Mesbic
managers. Just as important, Syncom’s
bosses now could espouse their philosophy
of undiluted capitalism without getting re-
sistance

Relying on Track Record

According to Dr. Bates of Wayne State,
the SBA traditionally has focused on help-

—


North Central Plaza |, Suite 710
12655 North Central Expressway
Dallas, Texas 75243 (972) 991-1597

DONALD R. LAWHORNE

Donald R. Lawhorne is President and CEO of MESBIC Ventures Holding Company
(MVHC) and a Co-Founder and Managing Director of Pacesetter Growth Fund, L.P.
(Pacesetter)

Pacesetter is a $46.5 million private equity fund. MVHC is the owner of two of the nation’s
oldest SSBICs, which were each established in 1970. MVHC has over $64 million in assets with
a portfolio of over 50 thriving small businesses. These funds provide equity capital to growing
businesses owned and managed by mostly Hispanic-American and African-American
entrepreneurs. These two funds combined represent nearly $110 million in venture capital.

An experienced speaker, Lawhorne has 16 years of venture capital experience, three years
as an entrepreneur in distribution and manufacturing, five years as a college teacher and
administrator, and several years of engineering and manufacturing experience.

Mr. Lawhorne has received numerous awards for small business initiatives from various
groups and is a past recipient of the Entrepreneur of the Year Finalist Award, sponsored by Ernst
& Young and /nc. Magazine. Mr. Lawhorne is the first individual to serve a three-year term as
Chairman of the National Association of Investment Companies (NAIC), the trade association for
the nation’s SSBICs. He is a former member of the Smal! Business Administration’s prestigious
SBIC and SSBIC Investment Advisory Councils.

He has testified before the small business committees of the U.S. Senate and U.S. House of
Representatives regarding how to improve access to equity capital for the nation’s most
underserved market—minority-owned companies. He also chaired the SBIC Council’s
Regulatory Committee and received the NAIC Paradigm of Excellence Award for distinguished
leadership and outstanding work, on behalf of the SSBIC industry.

He earned his MBA from Pepperdine University and BBA from Southern Methodist

University

MESBIC VENTURES HOLDING COMPANY

Lz


investment is unprecedented and will provide a major breakthrough for the historically
underserved markets with $180 billion for small business lending, including equity capital for
minority and non-minority business; $115 billion allocated for lower income housing; $25
billion for economical initiatives, such as community development corporations; and $30
billion for consumer loans for borrowers at or below 80% of median income.

Hugh McColl is right when he told the California Bankers’ Association this past May that,
“...this merger will allow even greater access to capital, the fuel that keeps the economy
running.” . Equally important, it will make substantially more equity capital available for
funds providing equity financings to minority-owned businesses.

In closing, minority business development is an economic imperative with important social
consequences only occurring from the outcome of highly competitive, profit-making,
growing firms owned by minority entrepreneurs. This requires access to capital.

This paradigm shift has been triggered by two major forces. First, after nearly twenty years
of government and private sector initiatives, most minority businesses, particularly those
owned by A frican-Americans and Hispanic-Americans, remain very small with well under $1
million in annual sales. This has become even more troublesome against the realities of
Workforce 2000 and the growing economic disparities between the majority community and
minority communities. This is most acute for African-Americans and Hispanic-Americans,
who make up the vast majority of America’s minority population. Secondly, the new
economy will require that minority-owned firms become larger, much larger to compete in
the global economy.

Research by Tim Bates in his book, “Banking on Black Business,” emphasizes that the
nation’s efforts to change the plight of the truly disadvantaged must be aimed at building
growing firms no matter where they are located. As with all other business studies, jobs
come from growing, competitive firms. Growth requires equity capital.

Thank you very much for allowing me to share my views on why this merger is important for
the 21st century.

L>


* NationsBank CDC is also pursuing the redevelopment of a 140,000 s.f. historic warehouse as
42 loft apartments, again in partnership with the Regional Housing and Community
Development Alliance. This $9 million Project will commence in the third quarter of this year.
In the short term, NationsBank has made a commitment to spend $200,000 to replace the roof

and stabilize the building.

Our partnership with NationsBank is helping us to create the mixed-income and vibrant residential
Presence in our Downtown that is absolutely critical to re-energize and spur our City’s
Downtown redevelopment efforts, Their Projects and their commitment serve as a catalyst to

encourage other corporations and institutions to invest in Downtown St. Louis.

¢ NationsBank has committed to invest $100 million in Downtown St. Louis. As part of this
commitment, the Bank advanced $425,000 to the City to pay for our Downtown Planning

Study that is being undertaken by EDAW. NationsBank was the first contribution and
allowed the team to start the Process.

¢ NationsBank made a $2.5 million loan to the City to acquire the long-vacant Gateway Hotel
as part of the City’s effort to attract a team to build a state-of-the-art Convention
Headquarters Hotel.

¢ The NationsBank CDC is Considering taking a major role in the tedevelopment of Cupples
Station, a historically significant collection of industrial warehouse buildings in our

Downtown, where Westin Hotels has recently announced plans to locate a new property.

On a neighborhood level, NationsBank made a commitment to invest $100 million in low-
moderate income communities for neighborhood projects such as mortgages, home improvement
loans, small business lending, and small scale community development lending. The commitment

was announced in June, 1997 and was met by the end of the year.

The NationsBank CDC is also active in two long-term, comprehensive neighborhood

revitalization efforts -- Forest Park Southeast and Grand Rock.


Reprinted from THE WALL STREET JOURNAL

THURSDAY, MAY 21, 1998

© 1998 Dow Jones & Company, Inc. All Rights Reserved.

| MALL BUSINES

Business in the 790s

HERE THE
ONEY ISN’T

Minority-owned firms often struggle to get venture
financing. Syncom wants to change that.

By JerrReY A. TANNENBAUM

IX YEARS AGO, when Amador
S. Bustos was looking to buy his
first radio station, the San Jose,
Calif., station manager pre-
dictably was rejected by sev-
eral banks. After all, he had
never owned a business before,
and he was Mexican-born in a financial
world where barriers to capital are highest for
blacks and Hispanics.

But a strange thing happened when he
came across Syncom, a Silver Spring, Md.,
venture-capital group that specializes in fi-
nancing start-ups run by minority entre-
preneurs. Not only did Syncom find money
for Mr. Bustos, but the investor group also
made his business plan more ambitious. So
Mr. Bustos’s Z-Spanish Radio Network
Inc., Sacramento, Calif., began by taking
over three California radio stations and
providing each with the same Hispanic-ori-
ented content, delivered by satellite.

Having picked up the tempo at Syn-
com’s urging, Z-Spanish now owns 21 radio
stations in four states and supplies pro-
gramming to 29 others. “Often, they've had
more of a vision for the business than I've
had,” says Mr. Bustos, whose enterprise
Syncom values at about $100 million.

Now, Syncom is hoping to show a simi-
larly aggressive vision in its own fund rais-
ing. It hopes to raise a $300 million fund, the
largest venture-capital pool ever ear-
marked for minority companies. That's
pretty ambitious stuff for a firm whose two

existing limited-partnership funds together
raised initial capital of $53 million.

Playing by Capitalist Rules

But Syncom has proved that it can suc-
ceed in arguably the toughest piece of the
venture-capital marketplace: minority
firms investing in minority businesses. In-
deed, the $300 million goal isn’t rattling
some of the firms’ backers. “Syncom, we
feel, is a brand,” says JoAnn H. Price, a
partner in Fairview Capital Partners Inc.,
Farmington, Conn, which has invested $18
million with Syncom, The partners, she
says, “have a reputation.”

The partners aim to prove to instit
tional investors that venture-capital
vestments in minority-owned companies
can be just as profitable as mainstream
venture-capital investments, if not more
so. “I can change the world!” declares 55:
year-old Herbert P. Wilkins Sr., Syncom’s
senior partner.

Their motives, of course, aren't solely
altruistic; on top of management fees, the
partners get 20% of profits realized by the
funds. But that’s part of the point: Syncom
wants to succeed in a capitalist society by
playing by capitalist rules.

Indeed, the partners chafe at the men-
tion of investment as an act of charity. Con:
sider, for example, the $63 million New
York City Investment Fund, founded by
world-class financier Henry Kravis. One
purpose of the fund is to seed companies of

minority entrepreneurs. But investors
don't look for a gain: Some 45% of the fund
was raised as outright charity; manage-
ment pledges to use “best efforts” to return
the other 55% in 15 years, without any in-
terest or capital gains; if underlying in-
vestments are profitable, the money will be
put into further investments.

Mr. Wilkins of Syncom, among others,

Herbert P. Wilkins Sr.

THE PustisHer’s SALE OF THis REPRINT Dogs Nor ConsTITUTE OR IMPLY ANY ENDORSEMENT OR SponsorsiiP OF ANY PRODUCT, SERVICE, COMPANY OR ORGANIZATION.

JournaiReprints (609)520-4328 P.O. Box 300 Pr

DOWJONES_

ton, N.J. 08543-0300. DO NOT EDIT OR ALTER REPRINTS + REPRODUCTIONS NOT PERMITTED



Fauol 29

Remarks Presented to
Federal Reserve Bank of San Francisco
In Support of the

‘ NationsBank/Bank of America Merger

Donald R. Lawhorne
President & CEO

MESBIC Ventures Holding Company

July 10, 1998



ing the most disadvantaged entrepreneurs,
not those with the most education and cor-
porate experience. But Syncom was seek-
ing the brightest and best. “The people we
financed were _ constantly called into
question by the SBA,” Mr. Wilkins says.
(The SBA confirms that recipients of Mes-
bic financing had to be “socially disadvan-
taged” or “economically disadvantaged.”)

Syncom DI came in 1996, armed with
$18 million in investment capital, with
Fairview Capital Partners as the sole lim-
ited partner.

To be sure, itis largely the record of the
Syncom II and II funds that will count
when the company tries for a much bigger
stake later this year. Mr. Wilkins says the
existing funds plan a partial payout by year
end of at least $50 million—consisting of $12
million in returned capital and $38 million
in profit.

Total returns are tricky to predict until
the funds are completely cashed out, but
Syncom II and II seem to be doing fine, in-

vestors say. Fairview says it is confident
that Syncom will top 25% in annual returns
on Fairview’s Syncom II investment.

That’s not to say that all of Syncom’s
deals work out. Mr. Wilkins estimates that
the firm has lost money on as many as 20
deals, with total wipeouts in about 15. Re-
cently, Syncom closed the books on $6.1
million in losses on a struggling Los Ange-
les cable-TV system, which Syncom had
bought, gambling on a turnaround.
“There are always going to be some deals
that you just can’t make work,” Mr.
Wilkins says.

Even if the next fund never reaches
Syncom's $300 million target, Mr. Wilkins
vows, he'll keep plugging away. “I’m an in-
crementalist,” he says, “but I'll get where I
want; I'll figure out how to do it. We've got
to convince the world that Syncom can
make a difference.” y

Mr. TANNENBAUM IS A WALL STREET
JOURNAL STAFF REPORTER IN NEW YORK.

——


Duane C. McKnight

fears that efforts such as Mr. Kravis's help
reinforce the notion that investing in mi-
nority enterprises has to be a money-losing
Proposition. “I call this kind of capital
‘sorry capital,’ money that people put up
when they feel sorry for minorities,” Mr,
Wilkins says. “That undermines minorities
because recipients don't need to develop
reai business discipline. That's foreign to
the American system.”

Kathryn S. Wylde, president of the
Kravis-founded fund, says she thinks Mr.
Wilkins is wrong. “We will be applying
Strict business tests to our investments,”
Ms. Wylde says. She adds, however, that
many of the fund’s investments will be
smaller and riskier than those usually fa-
vored by venture-capital firms.

Capitalist discipline is certainly pay-
ing off for Syncom and its clients. Many
of the more than five dozen entrepreneurs
that Syncom has helped finance are creat:
ing new minority wealth and jobs.

One client, WorldSpace Corp., in which
Syncom invested $500,000 at a critical point,
expects to be a global enterprise, having
since raised nearly $1 billion from foreign
investors for a digital-radio network it is
building. Though its network isn’t yet oper-
ational, WorldSpace, based in Washington,
already employs more than 200 people.

In raising money for a start-up, “you're
almost like a trapeze artist, going from one
bar to the other,” says Ethiopian-born
Noah Samara, WorldSpace's founder.
“Each piece of money is critical to get you
to the next stage.” Mr. Samara says Syn-
com's funding came in just when the com-
pany’s initial $1 million stake, from other
sources, was running out. “We were at a
Stage where we couldn’t go to a bank or to
major investment houses," he adds.

As minority business owners search for
capital, their hopes often hinge on such
firms as Syncom. While minority-con-
trolled investment companies nationwide
have nearly $1.4 billion in estimated assets

under management, that’s still less than
3% of the $54 billion raised last year alone
by all private equity firms, according to
Private Equity Analyst, a Wellesley, Mass.,
newsletter, And how much more flows into
minority-oriented funds will depend on the
returns registered by the companies in the
next few years.

“There aren't enough real track re-
cords out there yet to attract a lot of invest-
ment into minority venture-capital firms,”
Says Stanley Pratt, a managing partner in
Boston for Abbott Capital Management
L.L.C., a New York-based money-manage-
ment firm that works with about a dozen
pension funds.

The minority-venture-capital industry
got its start in the U.S. only a generation
ago. But its short history is littered with
failures. To spur investments in minority
enterprises, the Nixon administration in
1969 created the Minority Enterprise Small
Business Investment Company, or Mesbic,
program, which spawned scores of minor-
ity-oriented investment firms. Big compa-
nies, such as General Motors Corp., seeded
some Mesbics, but most were formed by in-
vestors with less than $1 million in fund-
ing—and sometimes as little as $150,000.

But of 141 Mesbics licensed by 1980
(others sprang up later), only 32 survived
into 1994, according to a study by Timothy
Bates, a Wayne State University econo-
mist in Detroit; the Small Business Ad-
ministration says it doesn’t quarrel with
those numbers.

Most Mesbics were undercapitalized,
and thus unable to hire good managers to
oversee investments. Worse, some Mesbics
were never serious about investing. In:
stead, they borrowed money cheaply from
the SBA, deposited it into banks at higher
interest rates and pocketed the spread, Dr.
Bates says.

Faced with these problems, changing
political attitudes and budgetary pres-
sures, Congress in 1995 ended all special
breaks for the Mesbics, by then called Spe-
cialized Small Business Investment Com-
panies, or SSBICs. Despite this checkered
history, these vehicles have channeled
more than $2 billion into minority busi-
nesses, if only in $100,000 chunks, on aver-
age, according to SBA figures.

But along the way, there have emerged
only about a dozen firms capable of pro-
ducing serious returns for outside in.
vestors, Dr. Bates estimates. “Without re-
ally topflight management, a Mesbic had
no chance to succeed,” he says. Many “lent
money to struggling, marginal businesses
and lost their shirts.”

Syncom's story—often as bitter as it is
sweet—shows how one firm kept its shirt,
and is steadily breaking ground in minor-
ity-business finance.

Syncom began in 1977 as Syndicated
Communications Inc., a closely held media-
investment company organized by Oppor-
tunity Funding Corp., a nonprofit entity
with social aims. The late Jack Gloster, a
charismatic executive who ran Opportu-
nity Funding, raised nearly $1.8 million

2

and hired Mr. Wilkins, then 35 years old, to..
oversee Syncom. To leverage its scant cap
ital, the company in 1978 took $1.3 million of
its funding and set up a Mesbic subsidiary,
Syncom Capital Corp., through which Syn-
com mostly operated until late 1990.

Scant Wealth

Mr. Wilkins says he had long dreamed
of building a venture-capital firm to aid mi-
norities. “I spend part of almost every day
thinking about what holds black people
back,” Mr. Wilkins says. “It has nothing to
do with black people, but the wealth that
they control is barely detectable on any
scale.”

The son of a Boston house painter, Mr.
Wilkins trained to be a machinist but says
he was denied a union card because of
racism. So he went to college and, with
help from an employer, to Harvard Busi-
ness School.

After admiring how venture capitalists
had seeded Digital Equipment Corp. and
other famous start-ups, Mr. Wilkins says
he and two others tried to raise a $10 million
fund to invest in budding minority busi-
nesses. They got nowhere, but Mr. Wilkins
later went to work in venture capital.

At Syncom, Mr. Wilkins was joined in
1978 by Nebraska-born Terry L. Jones, a
brainy beanpole of a man who a decade
earlier, in Hartford, Conn., had helped lead
a student revolt over scholarship policies at
Trinity College. After Mr. Jones earned an
M.B.A from Harvard, he headed for Africa,
where he helped start a savings-and-loan
institution in Kenya and other ventures. On
returning to the U.S., Mr. Jones went to
work for a foundation that gave minority
entrepreneurs advice, but not money.

Eager to help such people get actual
funds, he joined Mr. Wilkins at Syncom,
only to learn that firm itself was hard up for
money. The two managers spent much of
their time seeking new investors, and fi-
natly got two insurance companies, Aetna

Terry L. Jones

PoRTmAITS BY JULIAN PucKerT



MVHC creates Texas' largest
black-owned food
manufacturing company

DALLAS—MESBIC Ventures Holding Com-
pany (MVHC) announced it has closed a $55
million transaction for Dumas M. Siméus,
former president and chief operating officer of
TLC Beatrice International, a $2 billion food
maker and distributor with operations in 25
countries.

MVHC served as lead investor in Siméus’
acquisition of Portion-Trol Foods Inc., a
140,000-square-foot food processing plant
based in Mansfield, Texas with over $100 mil-
lion in annual sales. According to Don
Lawhorne, MVHC’s president and chief execu-
tive officer, “This transaction represents what
we do best: provide equity capital and invest-
ment leadership to create fast growth compa-
nies owned and led by mostly Hispanic-Ameri-
cans and Black-Americans.”

The company, called Siméus Foods Inter-
national (SFI), will make a variety of food prod-
ucts such as sausages, steaks, soups, cheese
sticks, onion rings and related value-added items
used throughout the restaurant industry. This
venture makes SFI the largest black-owned
manufacturing company in Texas and the sec-
ond largest foodmaker in the country behind
TLC Beatrice International.

According to Lawhorne, “SFI will create a
much needed paradigm shift for Texas where
current expectations and commitments for His-

panic-American and African-American com-
pany builders are often limited — usually very
small, socially driven, and totally void of the
principles of wealth creation.”

Siméus added, “My primary job is to de-
liver extraordinary results for all SFI stockhold-
ers, including customers, teammates, suppliers
and investors. My goal is build a $1 billion in-
ternational food processing company based here
in Texas.”

Other large Texas-based MVHC invest-
ments include Houston-based Ninfa’s, a SO-unit
Hispanic-owned upscale Mexican restaurant
chain; H-R Industries Inc., the state’s largest
Hispanic-owned printed circuit board manufac-
turer located in Richardson, Texas; McDonald
Technologies International Inc., the state’s larg-
est Asian/Indian-owned contract manufacturer:
and Hermana Inc., the state’s largest Hispanic-
owned airport concession operator.

MVHEC has 100 percent ownership in three
Specialized Small Business Investment Compa-
nies (SSBICs); MESBIC Ventures, Inc. (MVI),
Alliance Enterprise Corporation (AEC), and
Tower Ventures Inc. (T VI). All three are licensed
under Section 301(d) of the Small Business In-
vestment Act of 1958. On a consolidated basis,
the Company has assets that exceed $45 million
and ranks in the top five of the nation’s nearly 80
SSBICs.



This industry analysis pointed out an unintended consequence: very few minority-owned
firms would make the cut. The automakers saw one single barrier holding back minority
firms from benefiting in this global trend: access to equity capital to ensure minority-owned
firms would have the opportunity to build highly competitive and much larger enterprises
needed in the new millennium.

Since 1993, there has been an estimated $100 billion placed in private equity partnerships
here in the U.S. That’s the good news—plenty of equity capital is available. The bad news
is less than 1% of this capital went to funds focused on providing equity capital to build
larger, more competitive firms owned and led by minority entrepreneurs. While pension
funds, through altermative investment, provide most of the private equity to partnerships,
banks are major players in numerous private equity funds throughout the country.

U.S. Congressional leaders, such as Maxine Waters (D-CA), William J. Jefferson (D-LA),
and Esteban Edward Torres (D-CA), have been instrumental in helping to attract new private
capital from banks: and pension funds to alleviate this problem. The SBA has revitalized its
SBIC program. Today, approximately ten funds have benefited from their efforts—far less
than the need. And, we believe divestitures and consolidations can be the single most
important source for building and creating larger minority business enterprises (MBEs)
during the balance of this decade. We must have larger amounts of equity capital.

How will this merger help address this horribly underserved niche? Again, I speak from
experience: NationsBank has 20:20 vision when it comes to serving its markets. As I
mentioned earlier, barely five years ago they made a $10 billion commitment to underserved
niches, including low income housing; small business lending; and equity investments aimed
at building larger, more competitive small businesses including those owned by minority
entrepreneurs. The NationsBank/Bank of America merger includes a 10-year, $350 billion
commitment for community development lending and investment. This quantum leap
commitment is backed by a leadership team who will walk their talk! This team will
exceed their commitment, especially in underserved niches. I say this from having had
NationsBank as a major partner in our progress each day over the past decade. They initially
committed $2 million and later added $5 million to our new private equity fund.

Highly effective community investment for NationsBank is not just a financial commitment.
It is a mosaic that spans the entire spectrum of a community’s financial needs, NationsBank
has mastered the art of community investment. It begins with their ensuring access to
services through retail outlets in the highly diverse markets they serve. They are a leader in
low income housing, revitalizing neighborhoods and partnering with community groups.
Their small business continuum has micro-lending at one extreme, then various levels of
small business lending in the middle, and equity capital at the other end to build highly
competitive firms for tomorrow’s opportunity.

As a leading evangelist for our niche, I want tomorrow’s Fortune $00 companies to include
Siméus Foods International, Inc. (SFI), the nation’s second largest food processing company.
This highly competitive company is led by Dumas M. Siméus, former president and CEO of

3.


i “Panel 28

Nevada MicroRnterprise Initiative cormerly Nevada Set-Employment Trust

A Business Development Corporation

Testimonial from Gerald C. Alcasas
Executive Director, Nevada Microenterprise Initiative.

Proposed Merger between Bank of America and Nations Bank.

July 10, 1998

I appreciate the opportunity to inform this distinguished panel and/or other interested
parties by means of personal testimonial on the subject of the proposed merger. Upon
completion of this testimonial is my intention that there is understanding of the past

involvement and commitment Bank of America has provided to microenterprise in
Nevada.

The Nevada MicroEnterprise Initiative (NMI) 1s a_ statewide microenterprise
organization. In our capacity as a non-profit organization, we aim to help low- and
moderate-income individuals achieve ~~ economic ___ self-sufficiency _ through
entrepreneurship NMI offers entrepreneurial training, technical assistance, and
microloans to develop the entrepreneurial skills of our clients

Our training classes focus on what to consider when starting a business as well as the
development of a business plan. Topics include determining your target market, cash
flow, bookkeeping, marketing and financing your business. We believe this training is
the key to the success of our clients who, in most cases, have little or no business
experience.

Our Microloan fund was established in 1993 to fill a gap in access to credit for
individuals wishing to start or expand a business. Our clients typically have small loan
requests, poor credit or job history, or little or no business experience, which make them
‘unbankable’. With our nontraditional financing a client can access up to $7,500 for a
startup and $25,000 for an existing business. Our successfulness in this ‘risky’ lending is
based on our technical assistance program. We work one-on-one with our clients, to
assist them with any concerns or challenges the may encounter. This support is crucial to
the success of the business and repayment of the loan

{600 £. Desert Inn Road, Ste. 2064, Las Fegas, NV 89109 146 E. 7th Street. Ste. 3, Carson City, NV 89701
(7020734-3555 Fan (702)731-3530 (702084 1-1420 Fax (702)841-222

Nevada's only SBA-designated Microloan Program and Women's Business Center


Statement of Stephen Acree,
Executive Director, City of St. Louis Community Development Agency

San Francisco Federal Reserve Hearing

July 10, 1998 b debe —
Peo?

NationsBank

In 1997 NationsBank acquired Boatmen’s Bank, which was the oldest and largest banking
institution in St. Louis. Boatmen’s was a leader in the community development field in St. Louis.
They had a reputation for “pushing the envelope” for worthwhile Projects. Certainly, the St.
Louis community was concerned that this very proactive stance would be altered with

NationsBank’s merger with Boatmen’s Bank.

In fact, NationsBank has assumed a tremendous leadership role in the community, particularly in
Downtown. Not only has NationsBank fulfilled the commitments made by Boatmen’s, but they

have brought tremendous additional resources to the community.

In the year that NationsBank has been actively involved in St. Louis it has invested $2.1 million in
the St. Louis Equity Fund to provide equity to small, non-profit housing developers for the
creation of low- and moderate-income housing. NationsBank has partnered with my agency in

the following housing developments:

¢ Westminster Phase IV/McCormack House ~ a 100-unit supportive housing development for
the elderly. NationsBank provided $6.4 million in LIHTC equity and Affordable Housing

Assistance Program contribution dollars.

¢ NationsBank has contributed $100,000 to the day care center at the Murphy Park
development, which is a leading edge mixed-income redevelopment of a large Public Housing

site in St. Louis. NationsBank also helped raise $2.4 million in equity for this project.


NationsBank entered the Texas market by acquiring one of the state’s oldest financial
institutions. In 1992, it announced an unprecedented goal to provide $10 billion over ten
years for community development lending and investment.

At that time, NationsBank selected MESBIC Ventures as its national benchmark for
providing equity financing and management assistance to create competitive small businesses
owned and managed by Hispanic-American, African-American, Asian-American, Asian-
Indian, and Native-American entrepreneurs. After much due diligence, our selection began
with an initial equity investment of $2 million and had the personal endorsement of Ken
Lewis, president of NationsBank; Cathy Bessant, NationsBank’s chief community
investment officer; and the Texas executive team. This initial commitment went beyond
dollars to include active Board representation by Cathy Bessant (1991-1996) and now
Deborah Cannon, NationsBank executive vice president based in Dallas, Texas.

NationsBank’s financial commitment and top level executive involvement set the stage for
building MESBIC Ventures into what it is today—the nation’s largest, most successful
equity-oriented SSBIC in the nation. The NationsBank financial commitment did not end
with $2 million.

In 1997, we launched Pacesetter Growth Fund, L.P., a $46.5 million unregulated private
equity fund. NationsBank made a $5 million commitment to the new fund, making it the
largest single bank limited partner. Again, Ken Lewis personally approved the local team’s
recommendation which was championed by Tim Amoult, southwest/midwest region
president, and Deborah Cannon, MESBIC Board member and NationsBank executive vice
president.

Because of NationsBank’s leadership, vision, and unwavering commitment to our
underserved niche, we have provided over $100 million of equity-type financing to over 100
minority-owned firms throughout the Southwest, particularly Texas and California, during
this decade. As we like to say in Texas: “NationsBank walks its talk!”

Let me illustrate just how underserved this market is and how this merger will help. Just a
few short years ago, the Small Business Administration (SBA) was contacted by the major
automobile manufacturers regarding what they saw as a major problem in its supplier ranks
caused by global competitive pressures. They had projected by the year 2000 that their
smallest suppliers would have to have at least $200-300 million in annual sales to be
competitive. This would lead to numerous consolidations of suppliers caused by dramatic
downsizing of supplier ranks where substantially fewer are chosen to do substantially more.
In some cases, the automakers would drop from 1,500 suppliers to 500 or less within a
relatively short period of time—ofien one year or less. This was being done as part of a
world-wide focus on total quality management where it has been proven that fewer, larger
players mean better quality, better service, and more innovation, much like the proposed
merger before this committee today.

-2-


Presentation to Federal Reserve Bank of San Francisco
On Behalf of NationsBank/Bank of America
By Don Lawhorne
July 10, 1998

Good aftermoon. I am Don Lawhore, President and CEO of MESBIC Ventures Holding
Company, and a Co-Founder and Managing Director of Pacesetter Growth Fund, L.P.
Pacesetter is a $46.5 million private equity fund. MVHC is the owner of two of the nation’s
oldest SSBICs, which were each established in 1970. MVHC has over $64 million in assets
with a portfolio of over 50 thriving small businesses. These funds provide equity capital to
growing businesses owned and managed by mostly Hispanic-American and African-
American entrepreneurs.

In light of time restraints, I am submitting my remarks in writing for the record. J will use
this brief time to present the highlights from my formal remarks.

The strategic and economic rationales for the proposed merger of NationsBank and Bank of
America are well founded in light of growing competitive pressures triggered by the global
market place and perhaps, more importantly, today’s fast growing digital economy. It is well
known today that our nation has entered a new industrial revolution where technology will
change how we work, how we shop, and how we handle financial transactions. These
changes will be more radical than any other time in the history of our country.

The digital economy and global market will further fuel consumer expectations for excellent
services and competitive products. This will require extraordinary capabilities of the nation’s
banking system which will be best served through nationwide branch banking. This “merger
of equals” is essential to our nation’s own competitiveness by serving a highly diverse
customer base in 29 states and 38 countries.

We are all familiar with the Fortune 500 companies who dominate the business presence in
virtually every major city. We have grown accustomed to how the stock market has played a
major role in creating wealth for millions of Americans through stock ownership programs
such as 401k’s. We see reports of initial public offerings almost daily where company
founders and their financial backers achieve phenomenal returns on their equity investments.
Today’s highly competitive fast growing companies have the best chance of being
tomorrow’s Fortune 500 employers. These companies are fueled by equity capital furnished
by mostly institutional investors such as banks, insurance companies, and pension funds.

I am here to support the NationsBank/Bank of America merger because it will provide access
to larger amounts of equity capital for the nation’s most usderserved equity market: firms
owned and led by minority entrepreneurs.

——


© take Ross

waa California Council for
veimwleseer Environmental and
i Oe ar Economic Balance

Dave Van Car
YS REASURER

Manuel G. Grace

100 Spear Street, Sulte 805, San Francisco, CA 94105 + (415) 512-7890 * FAX (415) 512-7897
‘SECRETARY

BOARD OF DIRECTORS July 7, 1998 ;
liam T. Bagle
Robert Balgenorth WE
Michael Barr
Eoward Blakely . Ms. Joy Hoffman t- fo (¢ ay
overt Boleou Community Affairs Officer ;
Actnar Garter Federal Reserve Bank of San Francisco ;
Michela Corash Division of Banking Supervision and Regulation od ZH
Tim Cremins Mait Stop 620 ,
Bartel M.Curin 101 Market Street
on Doser °
John A. De Luca San Francisco, CA 94105
Katherine Dunlap ‘
Greg Feere ¢
Monica Florlan

Kathryn N. Frost . Dear Ms. Hoffman:
Michael Patrick Georgo .

Manuel G. Grace

Carolyn Groen . The California Council for Environmental and Economic Balance (CCEEB)

sae Graliner is a coalition of California business, labor and public leader established in 1975

John Hein by the late former Governor Edmund G. “Pat” Brown to collaborate on creative

‘verve tiecen approaches to achieve both our environmental and economic goals. Wa focus on

James WP) Jones. issues such as job creation, economic development, regulatory reform,

Perec Key environmental protection, infrastructure investment and fiscal reform.

eter Kelly

Kenneth L. Khachigian os .

Robert C. Kirkwood Everyone should be aware of Bank of America's exemplary internal

ome eee efforts to lower their own corporate environmental operational impacts, but

Donald Lehman perhaps what is less well known is the commitment and leadership the Bank has

Cet actonald shown in helping California face up to the broader environmental public policy

Chuck Mack challenges confronting us. Their landmark efforts in crafting workable proposed

Paul N. McCloskey, Jr solutions to California's most intractable issues, such as land use and sprawl,

Walter MeGul i" . .

uae MENA water, and habitat conservation are nothing short of remarkable.

Sunne McPeak

coer Nekagawa For several years, we have worked with Bank of America to help bridge

Michael R. Peevey the gap between the environmental and business communities. !n these efforts

pot nered Bank of America has repeatediy demonstrated their commitment and skills in

Cavid Rober! bullding collaboration between historically adversarial interests. We are proud

tinea R088 _ to have a good working relationship with Bank of America and share the same

Geraid Secundy values. In fact, CCEEB gave special recognition to Bank of America in 1995 by

Kammerioe Sue presenting our prestigious Edmund G “Pat” Brown Award to Fiera M.

Jenn Ulrich Rosenberg, Bank of America's former chairman and CEO, for exemplifying the

Gave Van Camp spirit of environmental and economic balance.

enzo Vonitto

Mason M. Warren wy

Victor Weisser Currently, we are pleased that Bank of America’s Environmental Program

fee Winstead is actively participating in the California Environmental Dialogue (CED), a
collaboration between environmental, business and government leaders working

CONSULTANTS.

to find common ground and workable solutions to thorny challenges in such areas -

Sevid E, Booher, AICP as cost-effectively reducing mobile sources of air pollution and demonstrating

Jackson R Gualee ie the linkage between habitat protection and sustainable economic growth. Leaning
Avert W. Lucas heavily on Bank of America's past experience in collaboration, we have seen
LUCAS ADVOCATES these CED members move from conflict to dialogue to actionable solutions. The
1 Tuck OF Bank's leadership role in this work has been a key in making the CED successful.

WILLIAM J. THOMAS

Gov. Edmund G. ‘Pat’ Brown
FOUNDING CHAIRMAN

Gb ER. Celebrating 25 Years of Excellence 1973-1998


Since the creation of our Microloan fund in 1993, Bank of America has played a key role
in the establishment and continuation of this program. BankAmerica Foundation was the
second contributor to help establish the Microloan fund by giving $15,000. The
following year, Bank of America established a $100,000 Micro/MBEWEBE program
exclusively for NMI participants. Those who utilized this opportunity are now very
successful in their businesses. In 1995, Bank of America matched various program

grants with a grant for $85,000. Recently, Bank of America committed $15,000 for NMI
operations.

Bank of America has also supported NMI through the participation of its employees.
NMI opened a second branch in Las Vegas in 1995. Bank of America staff served as
founding board members and were instrumental in the creation of that office. Other
employees offered assistance to Nevada MicroEnterprise Initiative over the years.

For the past two years, Joselyn Cousins, Community Development Department, serves as
the President of the Board of Directors. Previously, she served on our Loan Review

Committee. Her time and dedication to the organization has created many opportunities
for our organization

Ms. Cousins has helped to establish a referral system between Nevada MicroEnterprise
Initiative and Bank of America. Funds have been set aside for individuals who Bank of
America is unable to assist with their lending needs at that time. Those clients are then
referred to NMI’s training program to fine tune their business plan or idea and
entrepreneurial skills. The goal is to have that client then return to Bank of America with
business management skills.

As you can see, Bank of America has shown a real commitment to the community though
its extensive support of the Nevada MicroEnterprise Initiative.

l estimate my presentation time to be 10 minutes. If you have any further questions
please feel free to contact me at 116 East 7 Street, Ste. 3, Carson City, NV 89701 (702)
841-1420, (702) 841-2221 fax

Sincerely,”

Te a
Geil C Alea

Executive Director

_