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68498 Federal Register / Vol. 67, No.

218 / Tuesday, November 12, 2002 / Rules and Regulations

owners and managers to voluntarily Signed in Washington, DC, on October 31, Markets Venture Capital, (202) 205–
conserve or enhance grazing land 2002. 7027.
resources to meet ecological, economic, Bruce I. Knight,
SUPPLEMENTARY INFORMATION:
and social demands. Chief, Natural Resources Conservation
(b) The term ‘‘private grazing land’’ Service. I. Background
means private, State-owned, tribally [FR Doc. 02–28691 Filed 11–8–02; 8:45 am] The New Markets Venture Capital
owned, and any other non-federally BILLING CODE 3410–16–P Program Act of 2000 (‘‘the Act’’) was
owned rangeland, pastureland, grazed created by the Consolidated
forestland, hayland, and other lands Appropriations Act of 2001, Public Law
used for grazing. SMALL BUSINESS ADMINISTRATION 106–554, enacted December 21, 2000.
(c) The NRCS Chief may implement SBA published in the Federal Register
the CPGL Program in any of the 50 13 CFR Part 108 a final rule implementing the Act on
States, the District of Columbia, RIN 3245–AE91 May 23, 2001 (66 FR 28602) and a
Commonwealth of Puerto Rico, Guam, technical correction on June 19, 2001
the U.S. Virgin Islands, and American New Markets Venture Capital Program (66 FR 32894).
Samoa. NRCS will provide assistance in AGENCY: Small Business Administration. On May 20, 2002, SBA published in
cooperation with conservation districts, the Federal Register a proposed rule
ACTION: Final rule.
or directly to a landowner or operator. making amendments to the regulations
SUMMARY: The U.S. Small Business implementing the Act (67 FR 35449).
§ 610.32 Technical assistance furnished.
Administration (‘‘SBA’’) makes several SBA received one comment on the
(a) Provide technical assistance to amendments to the regulations for the proposed rule, which SBA discusses in
grazing-land owners and managers to New Markets Venture Capital the following section-by-section
plan and implement resource (‘‘NMVC’’) program. The majority of the analysis. With the exception of a minor
conservation on grazing land. The amendments make technical changes to clarifying change to the lead-in phrase
objective of planning on grazing land is the regulations, to correct typographical in section 108.2005(d), SBA has made
to assist landowners and managers in errors or to clarify language. SBA also no changes to the text of the
understanding the basic ecological makes five substantive amendments to amendments to the regulations as
principles associated with managing the regulations, which SBA believes published in the proposed rule.
their land. This objective can be met by will result in more efficient and SBA has conducted a first application
implementing a plan that meets the effective delivery of NMVC program round for the NMVC program, and has
needs of the resources (soil, water, air, benefits to the targeted geographic areas. selected seven companies as
plants, and animals) and management Generally, the five changes will: conditionally approved NMVC
objectives of the owner or manager. Allow a New Markets Venture Capital companies. The amendments in this
NRCS may provide assistance, at the company (‘‘NMVC company’’) to rule would apply to those seven
request of the private grazing-land include in its regulatory capital SBA- companies as well as to applicants for
owner or manager to: approved organizational and the NMVC program in future
(1) Maintain and improve private management expenses paid on behalf of application round(s) and to entities SBA
grazing land resources that provide the NMVC company before the company selects for participation in the NMVC
multiple benefits; is finally approved; program as a result of any future
(2) Ensure the long-term sustainability Allow SBA, in selecting recipients for application round(s).
of private grazing land resources; NMVC program assistance, to compare
grant applications from specialized II. Section-by-Section Analysis
(3) Implement new grazing land
small business investment companies SBA amends three of the definitions
management technologies;
(‘‘SSBICs’’) with NMVC company in § 108.50. The definitions of ‘‘New
(4) Manage resources on private applications from the same or proximate
grazing land through conservation Markets Venture Capital Company’’ and
low-income geographic areas (‘‘LI ‘‘Participation Agreement’’ are amended
planning, including, but not limited to; areas’’);
grazing management, nutrient to correct typographical errors.
Create rules governing fees an NMVC The definition of ‘‘Regulatory Capital’’
management, and weed and invasive company or its associates may charge
species control; is amended to simplify it by
for management services provided to consolidating into § 108.230, which
(5) Maintain and improve water small businesses in which the NMVC addresses private capital, all the current
quality and quantity, aquatic and company invests; restrictions on what may be included in
wildlife habitat, recreational Revise the grant application process regulatory capital. The definition states
opportunities, and aesthetics on private for SSBICs so as to make it more parallel that regulatory capital is private capital,
grazing land; with the application process for NMVC excluding any portion of private capital
(6) Harvest, process, and market companies; and that the NMVC company designates as
private grazing land resources; and Add a requirement that NMVC grant matching resources.
(7) Identify opportunities to diversify companies must use at least 80 percent SBA amends paragraphs (b), (c), and
private grazing land enterprises. of their grant funds (both funds from (d) of § 108.230. In paragraph (b), SBA
(b) Refer to 7 CFR 610.4 on other SBA and grant matching resources) to makes a technical change. The word
items relating to technical assistance. provide operational assistance to ‘‘contributed’’ is changed to read ‘‘paid-
(c) To receive technical assistance, a smaller enterprises located in an LI area in,’’ to indicate more clearly that only
landowner or manager may contact at the time the operational assistance capital contributions actually made are
NRCS or the local conservation district commenced. considered ‘‘contributed capital’’ for
to seek assistance to solve identified DATES: This rule is effective on purposes of § 108.230.
natural resource problems or December 12, 2002. SBA amends paragraph (c) by adding
opportunities. Participation in this FOR FURTHER INFORMATION CONTACT: a new subparagraph (5) to move to this
program is voluntary. Austin J. Belton, Director of New section language concerning

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Federal Register / Vol. 67, No. 218 / Tuesday, November 12, 2002 / Rules and Regulations 68499

questionable commitments that and similar services (for example, or incentives of the NMVC program. The
currently is in the definition of negotiating bank debt, sale of the commenter suggests that NMVC
regulatory capital in § 108.50. This is a company, or a lease, or structuring an companies are likely to want to charge
non-substantive change. employee stock ownership plan) their portfolio companies two types of
SBA revises paragraph (d) to allow charged by an NMVC company or its management services fees, (1) regular
NMVC companies to include in private associates to small businesses that the fees of up to $2,000 per quarter per
capital SBA-approved organizational NMVC company finances. The portfolio company, to be paid to the
and management expenses paid on regulation requires SBA’s prior written managers of the NMVC company for
behalf of an NMVC company prior to approval of all such fees charged. The managing the portfolio company, and
SBA’s final approval of the NMVC regulation states that it does not apply (2) more substantial fees that will arise
company. SBA intends to provide to operational assistance that an NMVC ‘‘in the ordinary course of business.’’
guidance on the limitations by company or its associate provides to a SBA notes that while the commenter
percentage and/or dollar amounts on business that the NMVC company has characterizes the amount of the first
such expenses that SBA will approve for financed or in which it expects to make type of fee as ‘‘modest,’’ an NMVC
inclusion in private capital. Other non- a financing, and that the NMVC company could earn up to $80,000 per
cash assets, such as ‘‘pre-licensing company may not charge the business a year from such fees, if one assumes the
investments,’’ would continue to not be fee for such operational assistance. SBA company has 10 portfolio companies
allowed for inclusion in private capital. expects an NMVC company to use its paying $2,000 per quarter. This would
SBA previously determined that such grant funds (both SBA funds and grant allow the NMVC company to receive
other non-cash assets would not be matching resources) to cover the costs of more than a third again as much as the
acceptable for inclusion in regulatory providing such operational assistance. typical annual management fee earned
capital. (See discussion on this subject This regulation also requires that at by an NMVC company (assuming it is a
in the preamble to the proposed rule least 50 percent of all such fees paid to $5 million regulatory capital fund).
implementing the Act, 66 FR 20536, an associate (as defined in 13 CFR The first type of fee presumes that the
April 23, 2001, and the preamble to the 108.50) of an NMVC company by a manager of an NMVC company also will
final rule implementing the Act, 66 FR small business must be allocated back to be managing the day-to-day operations
28603, May 23, 2001.) the NMVC company for its benefit. SBA of the companies in which an NMVC
SBA makes technical changes to understands that an NMVC company or company invests. SBA does not believe
§ 108.310 to more clearly articulate what its associate (for example, its that this would be an appropriate role
an NMVC company applicant must state management company) may want to for an NMVC company’s managers to
in its application regarding the amounts provide management and other services play in most cases. First of all, the fact
of regulatory capital and grant matching to the NMVC company’s portfolio that such managers have the expertise to
resources it proposes to raise. The companies and charge a fee for such manage a venture capital fund does not
amendment requires an applicant to services. It may be in the best interests mean that such managers have the
state specific amounts of regulatory of the small business that the NMVC necessary skills and ability to manage
capital and grant matching resources, company or its associate provide such an operating business concern. In any
both of which must comply with the services rather than an outside third event, the appropriate role of an NMVC
statutory minimums established by the party. However, SBA believes that the company’s managers is to actively
Act. SBA also makes a minor technical NMVC company’s manager should share oversee the affairs of the portfolio
change to § 108.320. equally with the NMVC company the concerns, which implies a degree of
SBA amends § 108.360(k) to allow financial benefit (i.e., fees) of providing counseling and advising as a board
SBA, when making selections as to those services, since that relationship member or otherwise, usually delivered
which applicants will receive (of the manager to the NMVC company) in the form of a close, informal working
conditional approval, to compare the is what brought about the opportunity relationship. Those activities usually are
applications submitted by NMVC for the manager to obtain that financial compensated by an NMVC company’s
company applicants to the applications benefit. In addition, SBA believes that annual management fee and any profit
submitted by SSBICs that intend to neither the NMVC company itself nor participation received from its
invest in the same or proximate LI areas. the NMVC program in general is well investment in the business. In addition,
This change will allow SBA to more served if the focus of the NMVC an NMVC company has the opportunity
effectively utilize limited NMVC company’s manager is on fee generation to provide management expertise, at no
program appropriations. This change rather than managing the NMVC cost to the business or to the NMVC
also will increase the potential for company. SBA believes that a 50–50 company’s investors, through the
achieving the nationwide distribution of allocation of such fees between the expenditure of operational assistance
the NMVC program’s benefits that the NMVC company manager and the grant resources. For these reasons, SBA
Act directs. NMVC company itself strikes an believes that the first type of fees will
SBA makes three technical changes to appropriate balance between these require scrutiny and, therefore, it is
§ 108.380. As amended, subsections objectives and reflects what critical that SBA have the opportunity
(a)(1)(i)(A) and (a)(1)(i)(B) more clearly knowledgeable private investors often to review in advance any such fees that
state that the amounts of regulatory require in commercial equity venture an NMVC company proposes to charge.
capital and grant match that applicants capital funds. The commenter characterizes the
must raise before they can be finally The commenter disagreed with the second type of fee as for management
approved are the exact same amounts approach SBA takes in this section services that are occasional and
that they said they would raise in their 108.900. The commenter stated that a opportunistic, and states that requiring
applications. SBA amends subsection prior approval requirement would place SBA’s advance approval might result in
(b)(3) to correct a typographical error. an excessive burden on the NMVC an NMVC company losing significant
SBA adds new § 108.900, based in company’s management of small opportunities to provide such services
part on § 107.900 for the small business businesses in which it invests and that and earn such fees. SBA intends to
investment company (SBIC) program, the 50–50 allocation of the fees would require NMVC companies to complete
governing fees for management services not appreciably change the economics one form (SBA Form 2217) requesting

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68500 Federal Register / Vol. 67, No. 218 / Tuesday, November 12, 2002 / Rules and Regulations

prior approval of such fees, which SBA information required from NMVC located in an LI area at the time the
does not believe constitutes ‘‘extensive company applicants, and will allow investment is made.
reporting.’’ SBA believes that it will be SBA to better determine the potential The commenter recommended that
sensitive to any time constraints on a impact on specific LI areas, when SBA determine whether the operational
potential deal or on an NMVC company, making selections as to recipients of assistance provided by an NMVC
and be able to provide a timely response NMVC program benefits. company falls within the 80 percent
to such requests. Section 108.2006 (currently basket of assistance to smaller
SBA removes § 108.2000 and replaces § 108.2000(b)(5)) would replace the term enterprises located in LI areas or the 20
it with several smaller, more easily ‘‘Developmental Venture Capital percent basket of assistance to
readable sections, §§ 108.2000– Investments’’ with ‘‘Low-Income businesses outside those areas, based on
108.2007. Section 108.2000 (currently Investments’’ in new subsection (d), for the ultimate location of the business,
§ 108.2000(a)) provides a more the reasons described above. The not its location when the assistance
comprehensive list of the regulations regulation also allows SBA to add an commenced. In other words, consider
applicable to operational assistance interview component to its selection OA provided by a NMVC company to a
grants to NMVC companies and to process, paralleling SBA’s current business not located in an LI area to fall
SSBICs. Section 108.2001 (currently authority to require an interview with within the 80 percent basket as long as
§ 108.2000(b)(1) and (b)(3)(i)) is NMVC company applicants (see 13 CFR the business moved into the LI area
unchanged in content. 108.340). SBA is considering ‘‘within a reasonable period of time’’
Section 108.2002 (currently interviewing applicants in future after the start of the assistance.
§ 108.2000(b)(2)) includes several application rounds. New subsection (h), SBA declines to implement this
technical corrections. First, the term as amended, allows SBA, when making suggestion. As in the context of 13 CFR
‘‘Developmental Venture Capital selections as to which SSBICs 108.710(a) concerning the required
Investments’’ is replaced with ‘‘Low- conditionally will receive an percentage of capital that must be
Income Investments’’ in new operational assistance grant, to compare invested in businesses located in LI
subsections (a) and (c). The term ‘‘Low- the applications submitted by SSBICs to areas, SBA intends that NMVC
Income Investments’’ already is defined the applications submitted by NMVC companies will determine the status of
in § 108.50, and more accurately reflects company applicants that intend to the business’s location at the time the
the statutory requirement that an SSBIC invest in the same or proximate LI areas. operational assistance commences, not
must use all of its new capital raised for This change allows SBA to more at some later date. SBA intends that
the NMVC program, to make equity effectively utilize limited NMVC NMVC companies make an assessment
capital investments in smaller program appropriations. This change of the business at the time operational
enterprises located in LI areas. Second, also increases the potential for assistance commences (or at the time of
the phrase ‘‘after December 21, 2000’’ is achieving the nationwide distribution of its initial financing to the business, in
added to the end of new subsection (c), the NMVC program’s benefits the case of financial assistance) and
to incorporate the NMVC program contemplated by the Act. determine whether its principal office is
statutory effective date and make more Section 108.2007 (currently located in an LI area at that moment in
clear that an SSBIC may use operational § 108.2000(b)(6)) is unchanged in time. The assessment of the business is
assistance grant funds only in content. set at that point in time, and becomes
connection with investments it makes Section 108.2010 adds a new the basis to determine whether the
after such date. paragraph (b) (and redesignates NMVC company may count the
Section 108.2003 (currently paragraph (b) as paragraph (c)) requiring assistance given to that business toward
§ 108.2000(b)(3)(ii)) is unchanged in that an NMVC company must use at the 80 percent requirement. SBA
content. Section 108.2004 (currently least 80 percent of its grant funds (both considered and rejected alternative
§ 108.2000(b)(4)(i) and (ii)) makes funds from SBA and grant matching approaches when it developed the
technical changes to more clearly resources) to provide operational requirements in 13 CFR 108.710. SBA
articulate what an SSBIC must state in assistance to smaller enterprises whose believes that this ‘‘snapshot’’ approach
its application regarding the amounts of principal office is located in an LI area is the most efficient and workable
regulatory capital and grant matching at the time the operational assistance means of tracking both investments and
resources it proposes to raise. The commences. operational assistance, as well as
regulation requires that an SSBIC state The Act explicitly requires that all achieving the statutory mission of
specific amounts of regulatory capital operational assistance funded by the directing the majority of the program’s
and grant matching resources, and that NMVC program go only to smaller resources to smaller enterprises located
the amount of grant matching resources enterprises. The regulation imposes an in LI areas. SBA believes that an NMVC
comply with the statutory minimum additional requirement that a specific company will have some flexibility in
established by the Act. percentage, 80 percent, of such the way it structures its financial and
Section 108.2005 (currently operational assistance provided by operational assistance. For example, an
§ 108.2000(b)(4)(ii)(A) through (G)) NMVC companies go to businesses NMVC company might provide a small
replaces the term ‘‘Developmental located in LI areas. This requirement amount of operational assistance to a
Venture Capital Investments’’ with serves to maximize the impact of the business located outside an LI area
‘‘Low-Income Investments’’ in new operational assistance funded by SBA (which would fall within the 20 percent
subsections (a), (c), (d) and (f), for the on the LI areas targeted for assistance basket of assistance) and advise the
reasons described above. Subsections (a) through the NMVC program. This 80 business that more assistance will be
and (d) adds new requirements that an percent requirement also parallels the forthcoming once the business relocates
SSBIC identify specific LI areas in existing regulatory requirement (see 13 into an LI area.
which it intends to make investments CFR 108.710(a)) that NMVC companies SBA revises redesignated paragraph
and provide operational assistance, and must use at least 80 percent of its capital (c) to correct the title of the part of the
specify how much of its investments it (both funds from SBA and private Federal Acquisition Regulations
will make in each of the specified LI capital) to make equity capital containing the definition of G&A
areas. These requirements parallel the investments in smaller enterprises expense.

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Federal Register / Vol. 67, No. 218 / Tuesday, November 12, 2002 / Rules and Regulations 68501

Technical amendments are made to concern participation in the program NMVC applicant for the same LI area
§§ 108.2020(b), 108.2030(c)(2)(iii), apply to all NMVC companies selected and avoiding duplicative coverage of a
108.2030(c)(2)(iv), 108.2030(d)(2), and through both application rounds and LI area. The overall results of these
108.2040(a) to correct cross-references SSBICs applying under the second changes are to ensure even-handed
to other sections in this part and to application round. treatment of SSBICs and NMVC
clarify requirements. The changes to This rule makes several amendments companies, maximize the nationwide
§ 108.2030(c) allow grant matching to the existing regulations implementing impact of the NMVC program, and
resources to be payable over a multiyear the program. Most of the amendments achieve greater administrative efficiency
period not to exceed the term of the are technical changes that have no in program administration.
grant from SBA, and in no event more impact on the costs associated with the SBA also clarifies that SBA will
than 10 years. This change provides program to the Government or to the permit SBA-approved organizational
support for SBA to allow an applicant program beneficiaries. After SBA’s first and management expenses incurred
to request a specific grant term within year of experience in creating and prior to SBA’s final approval of the
a range acceptable to SBA and as long administering this new program, SBA NMVC company to be credited in whole
as it did not exceed the 10 year limit set also makes a few substantive changes or part against the regulatory capital the
forth in the Act, rather than having SBA which SBA believes will result in more NMVC company is required to raise.
establish one allowable grant term for efficient and effective delivery of NMVC This credit is in lieu of an NMVC
all applicants. This gives each NMVC program benefits to the targeted LI areas company being required to pay out cash
company and selected SSBIC greater and businesses. SBA believes that these at its outset for the same pre-approved
flexibility to determine how best to use changes will result in reduced costs. This change will improve the
operational assistance funds from SBA operational costs for the program to both efficiency of an NMVC company’s
to accomplish its mission. This change the government, the NMVC companies, operations and prevent unnecessary
is made possible by a change in the law and to the beneficiary small businesses paperwork on the part of the NMVC
governing SBA’s appropriation for the financed by the NMVC companies with company, which will streamline the
NMVC program. On July 24, 2001, SBA leverage. program. This change also will bring the
Congress passed a supplemental The most significant change SBA NMVC program in line with the SBIC
appropriations bill (Pub. L. 107–20) that makes is to add a requirement that program and with best practices of the
extended the availability of the funds NMVC companies must use at least 80 private venture fund industry in this
appropriated to SBA for the NMVC percent of the SBA grant funds (and the area.
program. required match funding from non-SBA In sum, the changes will result in
sources) to assist smaller enterprises more NMVC program funds going to
III. Regulatory Compliance Section— whose principal office is in an LI area. smaller enterprises in LI areas, in line
Compliance With Executive Orders This is consistent with the existing with the legislative intent, and greater
12866, 12988, and 13132; With the requirement on the use of an NMVC cost-effectiveness and efficiency in
Paperwork Reduction Act (44 U.S.C. company’s capital. This change ensures SBA’s administration of the NMVC
Ch. 35); and With the Regulatory that the primary impact of the grant will program to execute the congressional
Flexibility Act (5 U.S.C. 601–612) be on the LI areas targeted by the NMVC mandate.
program. It also will have the effect of
Compliance With Executive Order Compliance with Executive Order 12988
enabling smaller enterprises in LI areas
12866
to qualify for equity investment, or For purposes of Executive Order
The Office of Management and Budget otherwise assisting such enterprises to 12988, SBA has determined that this
(OMB) has determined that this rule is grow at no cost to such businesses. rule is drafted, to the extent practicable,
a ‘‘significant regulatory action’’ under SBA’s experience over the past year in accordance with the standards set
Executive Order 12866. A regulatory indicates that some NMVC companies forth in section 3 of that order.
assessment of the potential costs and may charge management services fees to
benefits of the regulatory action follows. smaller enterprises in connection with Compliance With Executive Order
Because this is a new program and only investments made by the NMVC 13132
one NMVC Company is operational as company, but SBA’s existing regulations For purposes of Executive Order
yet, SBA does not have relevant data to are silent in this area. SBA believes that 13132, SBA has determined that this
estimate actual dollar values for these adding a regulation governing such fees rule has no federalism implications
amendments. will give SBA the necessary tools to because the legislation authorizing it
The NMVC program is an equity ensure that smaller enterprises are not addresses private, for-profit concerns
venture capital program designed to being charged too much for such (NMVC companies) working directly
promote the economic development of, services and that an NMVC company’s with entrepreneurs. The regulation will
and address the unmet equity capital management is not motivated solely by not have substantial direct effects on the
needs of smaller enterprises located in, fee generation. SBA adds section States, on the relationship between the
LI areas. The program has a one-time 108.900 which places limits on such national government and the States, or
no-year appropriation of $52 million to fees, requires SBA’s advance approval, on the distribution of power and
fund newly formed NMVC companies. and requires that at least 50 percent of responsibilities among the various
To date, SBA has selected seven any fees charged by the fund manager be levels of government. Therefore, under
applicants as conditionally approved for the benefit of the NMVC company. Executive Order 13132, SBA determines
NMVC companies, and has finally SBA also makes several changes to that this rule does not have sufficient
approved one of those conditionally clarify the application requirements for federalism implications warranting the
approved NMVC companies as an SSBICs to participate in the NMVC preparation of a Federalism Assessment.
NMVC company. SBA anticipates a program and to do so on a parallel basis
second application round, and the as NMVC companies. For example, one Compliance With Paperwork Reduction
amendments concerning the application change requires SSBICs to identify Act, 44 U.S.C. Ch. 35
process will affect applicants in the specific LI areas they intend to target, SBA has determined that this rule
second round. The amendments that thereby allowing comparison with any imposes new information collection

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68502 Federal Register / Vol. 67, No. 218 / Tuesday, November 12, 2002 / Rules and Regulations

requirements that require approval by their first five to seven years of § 108.50 Definition of terms.
OMB under the Paperwork Reduction existence. Generally, a NMVC company * * * * *
Act, 44 U.S.C. 3501–3520. The rule will fund three or at most four Regulatory Capital means Private
includes two new collections of businesses in one year out of the 20 to Capital, excluding any portion of Private
information: (1) A request for prior SBA 30 businesses it will fund over its life. Capital that is designated as matching
approval of management services fees Therefore, NMVC program funds will resources in accordance with
and other fees and (2) concerning the flow out to businesses at a rate of § 108.2030(b)(3).
application process for SSBICs, an approximately $50 million per year. * * * * *
additional component to the plan for The average size of an investment by 3. Amend § 108.230 by:
use of the operational assistance grant, a community development company is a. Revising paragraph (b);
and an interview component. These approximately $300,000. Based upon b. Adding paragraph (c)(5); and
information collections were described total funding of $260 million and an c. Revising paragraph (d); to read as
in more detail in the preamble to the average investment in a small business follows:
proposed rule SBA published in the of $300,000, approximately 867 small
Federal Register on May 20, 2002 (67 businesses will be affected by this § 108.230 Private Capital for NMVC
FR 35449). program during the lives of the NMVC Companies.
SBA already has provided the public companies authorized by the Act. SBA * * * * *
with a 60-day comment period on this estimates that there are approximately (b) Contributed capital. For purposes
collection (67 FR 35449). SBA received 22.4 million small businesses in the of this section, contributed capital
no comments on the collection. On July United States and 867 constitutes less means the paid-in capital and paid-in
29, 2002, OMB approved, without than 1⁄10 percent of those businesses. surplus of a Corporate NMVC Company,
change, the collection under OMB the members’ paid-in capital of a LLC
number 3245–0338. Further, NMVC companies must
invest in ‘‘smaller enterprises’’ which NMVC Company, or the partners’ paid-
You may request a copy of the in capital of a Partnership NMVC
collections by calling Louis Cupp at are defined as businesses with a net
worth not greater than $6 million and Company, in each case subject to the
(202) 619–0511 or writing to him at
average net income of not greater than limitations in paragraph (c) of this
Office of New Markets Venture Capital,
$2 million. Based upon an average section.
Investment Division, U.S. Small
investment of $300,000, an investment (c) * * *
Business Administration, 409 Third
in a business with a net worth of $6 (5) A commitment from an investor if
Street, SW., 6th Floor, Washington, DC
million would equate to 5 percent of the SBA determines that the collectability of
20416.
business’s net worth. Additionally, the commitment is questionable.
Compliance With the Regulatory industry practices indicate that while (d) Limitations on including non-cash
Flexibility Act, 5 U.S.C. 601–602 the average investment in a particular capital contributions in Private Capital.
Under the Regulatory Flexibility Act business is $300,000, this amount may Private Capital does not include capital
(RFA), SBA has determined that this not be disbursed all at once. The average contributions in a form other than cash,
rule does not have a significant investment per round in the industry is except as provided in this paragraph (d).
economic impact on a substantial approximately $185,000, which is only Subject to SBA’s prior approval, Private
number of small entities, within the 3 percent of the business’s net worth. Capital may include payments made on
meaning of the RFA, for the following behalf of an Applicant or Conditionally
List of Subjects in 13 CFR Part 108 Approved NMVC Company before the
reasons.
The NMVC program is expected to Community development, Applicant or Conditionally Approved
result in the creation of fewer than 20 Government securities, Grant NMVC Company becomes a NMVC
NMVC companies. The program’s programs—business, Securities, Small Company for organizational expenses
impact will be felt to a greater extent on businesses. and Management Expenses incurred by
the small businesses that the NMVC the Applicant or the Conditionally
For the reasons stated in the Approved NMVC Company prior to its
companies invest in and assist through preamble, the Small Business
this program. The Act authorizes $150 becoming a NMVC Company.
Administration amends 13 CFR part 108
million to guarantee debentures to as follows. * * * * *
NMVC companies, which will result in 4. Revise § 108.310(a) to read as
a discounted amount of approximately PART 108—NEW MARKETS VENTURE follows:
$100 million with which NMVC CAPITAL PROGRAM
companies can make investments, and § 108.310 Contents of application.
$30 million for operational assistance 1. The authority citation for part 108 * * * * *
grants to NMVC companies and SSBICs. continues to read as follows: (a) Amounts. The Applicant must
In addition, NMVC companies must Authority: 15 U.S.C. 689—689q. indicate—
raise capital totaling $100 million, and (1) The specific amount of Regulatory
NMVC companies and SSBICs must 2. Amend § 108.50 by: Capital it proposes to raise (which
raise grant matching resources totaling a. Revising the citation in paragraph amount must be at least $5,000,000);
$30 million. Thus, the total net funding (1) of the definition of New Markets and
for the NMVC program, including Venture Capital Company or NMVC (2) The specific amount of binding
matching funds raised by NMVC Company from ‘‘§ 108.390’’ to commitments for contributions in cash
companies and SSBICs, is $260 million. ‘‘§ 108.380’’; or in-kind it proposes to raise, and/or an
Based upon industry practices, it is b. Revising the citation in the first annuity it proposes to purchase, in
likely that the funds will be disbursed sentence of the definition of accordance with the requirements of
over a five to seven year period. A Participation Agreement from § 108.2030, as its matching resources for
NMVC company’s minimum life is 10 ‘‘§ 108.390’’ to ‘‘§ 108.380’’; and its Operational Assistance grant award
years and NMVC companies’ c. Revising the definition of (the aggregate of which must be not less
investments are typically made during Regulatory Capital; to read as follows: than $1,500,000 or 30 percent of the

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Regulatory Capital it proposes to raise that you do not finance. It also does not Business on that portion of a Financing
under paragraph (a)(1) of this section, apply to Operational Assistance that that you do not provide.
whichever is greater). you or your Associate provide to a (f) Recordkeeping requirements. You
* * * * * Smaller Enterprise that you have must keep a record of hours spent and
5. Revise the second sentence of Financed or in which you expect to amounts charged to the Small Business,
§ 108.320(g) to read as follows: make a Financing, for which neither you including expenses charged.
nor your Associate may charge the
§ 108.320 Contents of comprehensive Smaller Enterprise. 9.–10. Revise § 108.2000 and add
business plan. (b) SBA approval. You must obtain §§108.2001 through 108.2007 as
SBA’s prior written approval of any follows:
* * * * *
(g) * * * If it proposes to obtain management services fees and other fees § 108.2000 Operational Assistance Grants
commitments for cash and in-kind described in this section that you or to NMVC Companies and SSBICs.
contributions, it also must estimate the your Associate charge.
(c) Permitted management services (a) NMVC Companies. Regulations
ratio of cash to in-kind contributions (in governing Operational Assistance grants
no event may in-kind contributions fees. You or your Associate may provide
management services to a Small to NMVC Companies may be found in
exceed 50 percent of the total subparts D and E of this part 108, and
contributions). * * * Business financed by you if:
(1) You or your Associate have in §§ 108.2010 through 108.2040.
* * * * * (b) SSBICs. Regulations governing
entered into a written contract with the
6. Revise § 108.360(k) to read as Small Business; Operational Assistance grants to SSBICs
follows: (2) The fees charged are for services may be found in §§ 108.2001 through
§ 108.360 Evaluation criteria. actually performed; 108.2040.
(3) Services are provided on an hourly
* * * * * fee, project fee, or other reasonable § 108.2001 When and how SSBICs may
(k) The strength of the Applicant’s apply for Operational Assistance grants.
basis;
application compared to applications (4) You can demonstrate to SBA, upon (a) Notice of Funds Availability
submitted by other Applicants and by request, that the rate does not exceed (‘‘NOFA’’). SBA will publish a NOFA in
SSBICs intending to invest in the same the prevailing rate charged for the Federal Register, advising SSBICs of
or proximate LI Areas. comparable services by other the availability of funds for Operational
7. Revise § 108.380(a)(1)(i)(A), organizations in the geographic area of Assistance grants to SSBICs. This NOFA
(a)(1)(i)(B), and the second sentence in the Small Business; and will be the same NOFA described in
(b)(3) to read as follows: (5) At least 50 percent of any § 108.300(a), or will be published
management services fees paid to your simultaneously with that NOFA. An
§ 108.380 Final approval as a NMVC
Company. Associate by a Small Business for SSBIC may submit an application for an
management services provided by the Operational Assistance grant only
(a) * * *
Associate is allocated back to you for during the time period specified for
(1) * * *
(i) * * * your benefit. such purpose in the NOFA.
(d) Fees for service as a board (b) Application form. An SSBIC must
(A) The amount of Regulatory Capital
member. You or your Associate may apply for an Operational Assistance
set forth in its application, pursuant to
charge a Small Business Financed by grant using the application packet
§ 108.310(a)(1); and
you for services provided as members of provided by SBA. Upon receipt of an
(B) The amount of matching resources
the Small Business’ board of directors. application, SBA may request clarifying
for its Operational Assistance grant
The fees must not exceed those paid to or technical information on the
award set forth in its application,
other outside board members. In the materials submitted as part of the
pursuant to § 108.310(a)(2); and
absence of such board members, fees application.
* * * * * must be reasonable when compared
(b) * * * with amounts paid to outside directors § 108.2002 Eligibility of SSBICs to apply
(3) * * * Under no circumstances of similar companies. Fees may be in for Operational Assistance grants.
will SBA designate a Conditionally the form of cash, warrants, or other
Approved NMVC Company as a NMVC An SSBIC is eligible to apply for an
payments. At least 50 percent of any Operational Assistance grant if:
Company if such Conditionally such fees paid to your Associate by a
Approved NMVC Company does not (a) It intends to increase its Regulatory
Small Business for service by the
raise the required amount of Regulatory Capital, as in effect on December 21,
Associate as a board member must be
Capital within the time period SBA gave 2000, and to make Low-Income
allocated back to you for your benefit.
it to do so. Investments in the amount of such
(e) Transaction fees. (1) You or your
8. Add an undesignated centerhead increase;
Associate may charge reasonable
and a new § 108.900 to read as follows: transaction fees for work performed (b) It intends to raise binding
such as preparing a Small Business for commitments for contributions in cash
Management Services and Fees or in-kind, and/or to purchase an
a public offering, private offering, or
§ 108.900 Fees for management services sale of all or part of the business, and annuity, in an amount not less than 30
provided to a Small Business by a NMVC for assisting with the transaction. Fees percent of the intended increase in its
Company or its Associate. may be in the form of cash, notes, stock, Regulatory Capital described in
(a) General. This section applies to and/or options. At least 50 percent of paragraph (a) of this section; and
management services that you or your any such fees paid to your Associate by (c) It has a plan describing how it
Associate provide to a Small Business a Small Business for transactions work intends to use the requested grant funds
during the term of a Financing or prior done by the Associate must be allocated to provide Operational Assistance to
to a Financing. It does not apply to back to you for your benefit. Smaller Enterprises in which it has
management services that your (2) Your Associate may charge market made or expects to make Low-Income
Associate provides to a Small Business rate investment banking fees to a Small Investments after December 21, 2000.

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68504 Federal Register / Vol. 67, No. 218 / Tuesday, November 12, 2002 / Rules and Regulations

§ 108.2003 Grant issuance fee for SSBICs. (d) Projected allocation of investments § 108.2006 Evaluation and selection of
An SSBIC must pay to SBA a grant among identified LI Areas. The SSBIC SSBICs.
issuance fee of $5,000. An SSBIC must must describe the amount of Low- SBA will evaluate and select an
submit this fee in advance, at the time Income Investments it intends to make SSBIC for an Operational Assistance
of application submission. If SBA does in each of the identified LI Areas. grant award under the NMVC program
not award a grant to the SSBIC, SBA (e) Track record of management team solely at SBA’s discretion, based on
will refund this fee to the SSBIC. in obtaining public policy results SBA’s review of the SSBIC’s application
through investments. The SSBIC must materials, interviews or site visits with
§ 108.2004 Contents of application provide information concerning the past the SSBIC (if any), and information in
submitted by SSBICs. SBA’s records relating to the SSBIC’s
track record of the SSBIC in making
Each application submitted by an investments that have had a regulatory compliance status and track
SSBIC for an Operational Assistance demonstrable impact on the socially or record as an SSBIC. SBA’s evaluation
grant must contain the information economically disadvantaged businesses and selection process is intended to
specified in the application packet targeted by the SSBIC program (for ensure that SSBIC requests are
provided by SBA, including the example, new businesses created, jobs evaluated on a competitive basis and in
following information: created, or wealth created). Such a fair and consistent manner. SBA will
(a) Amounts. An SSBIC must specify information might include case studies evaluate and select SSBICs for an
the amount of Regulatory Capital it or examples of the SSBIC’s successful Operational Assistance grant award by
intends to raise after December 21, 2000, Financings. considering the following criteria:
and the amount of Operational (f) Market analysis. The SSBIC must (a) The strength of the SSBIC’s
Assistance grant funds it seeks from provide an analysis of the LI Areas in application, including the strength of its
SBA, which must be at least 30 percent which it intends to makes its Low- proposal to provide Operational
of its intended increase in its Regulatory Income Investments and provide its Assistance to Smaller Enterprises in
Capital since December 21, 2000. Operational Assistance to Smaller which it intends to invest;
(b) Plan. An SSBIC must submit a Enterprises, demonstrating that the (b) The SSBIC’s regulatory
plan addressing the specific items SSBIC understands the market and the compliance status and past track record
described in § 108.2005. unmet capital needs in such areas and in being able to accomplish program
how its activities will meet these unmet goals through its investment activity;
§ 108.2005 Contents of plan submitted by
SSBICs. capital needs through Low-Income (c) The likelihood that and the time
Investments and have a positive frame within which the SSBIC will be
(a) Plan for providing Operational able to raise the Regulatory Capital it
Assistance. The SSBIC must describe economic impact on those areas. The
analysis must include a description of intends to raise and obtain the matching
how it plans to use its grant funds to resources described in § 108.2005(b) and
provide Operational Assistance to the extent of the economic distress in
the identified LI Areas. The SSBIC also (g);
Smaller Enterprises in which it will (d) The need for Low-Income
make Low-Income Investments. Its plan must analyze the extent of the demand
in such areas for Low-Income Investments in the LI Areas in which
must address the types of Operational the SSBIC intends to invest;
Assistance it proposes to provide, and Investments and any factors or trends
(e) The SSBIC’s demonstrated
how it plans to provide the Operational that may affect the SSBIC’s ability to
understanding of the markets in the LI
Assistance through the use of licensed make effective Low-Income
Areas in which it intends to invest;
professionals, when necessary, either Investments. (f) The extent to which the activities
from its own staff or from outside (g) Regulatory Capital. The SSBIC proposed by the SSBIC will promote
entities. must include a detailed description of economic development and the creation
(b) Matching resources for how it plans to raise its Regulatory of wealth and job opportunities in the
Operational Assistance grant. The Capital. The SSBIC must discuss its LI Areas in which it intends to invest
SSBIC must include a detailed potential sources of Regulatory Capital, and among individuals living in LI
description of how it plans to obtain the estimated timing on raising such Areas;
binding commitments for contributions funds, and the extent of the expressions (g) The likelihood that the SSBIC will
in cash or in-kind, and/or to purchase of interest to commit such funds to the fulfill the goals described in its
an annuity, to match the funds SSBIC. application and meet the objectives of
requested from SBA for the SSBIC’s (h) Projected impact. The SSBIC must the NMVC program; and
Operational Assistance grant. If it describe the criteria and economic (h) The strength of the SSBIC’s
proposes to obtain commitments for measurements to be used to evaluate application compared to applications
cash and in-kind contributions, it also whether and to what extent it has met submitted by other SSBICs and by
must estimate the ratio of cash to in- the objectives of the NMVC program. It Applicants intending to invest in the
kind contributions (in no event may in- must include: same or proximate LI Areas.
kind contributions exceed 50 percent of (1) An estimate of the social,
the total contributions). The SSBIC must economic, and community development § 108.2007 Grant award to SSBICs.
discuss its potential sources of matching benefits to be created within identified An SSBIC selected for an Operational
resources, the estimated timing on LI Areas over the next five years or more Assistance grant award will receive a
raising such match, and the extent of the as a result of its activities; grant award only if, by a date
expressions of interest to commit such (2) A description of the criteria to be established by SBA, it increases its
match to the SSBIC. used to measure the benefits created as Regulatory Capital in the specific
(c) Identification of LI Areas. The a result of its activities; and amount set forth in its application,
SSBIC must identify the specific LI (3) A discussion about the amount of pursuant to § 108.2004(a), and raises
Areas in which it intends to make Low- such benefits created that it will matching resources for the grant in the
Income Investments and provide consider to constitute successfully amount required by § 108.2030(d)(2).
Operational Assistance under the meeting the objectives of the NMVC 11. Amend § 108.2010 by
NMVC program. program. redesignating paragraph (b) as paragraph

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Federal Register / Vol. 67, No. 218 / Tuesday, November 12, 2002 / Rules and Regulations 68505

(c), adding a new paragraph (b), and Companies also must comply with all Capitol Street, NW., suite 700,
revising redesignated paragraph (c), to reporting, record retention, and Washington, DC.
read as follows: recordkeeping requirements set forth in FOR FURTHER INFORMATION CONTACT:
Circular A–110 of the Office of Richard Monschke, Aviation Safety
§ 108.2010 Restrictions of use of Management and Budget (for
Operational Assistance grant funds. Engineer, FAA, Rotorcraft Directorate,
availability, see 5 CFR 1310.3) and any Rotorcraft Standards Staff, Fort Worth,
* * * * * grant award document executed
(b) Restrictions applicable only to Texas 76193–0110, telephone (817)
between SBA and the NMVC Company. 222–5116, fax (817) 222–5961.
NMVC Companies. A NMVC Company
* * * * *
must use at least 80 percent of both SUPPLEMENTARY INFORMATION: A
grant funds awarded by SBA and its Dated: September 3, 2002. proposal to amend 14 CFR part 39 to
matching resources to provide Hector V. Barreto, include an AD for ECF Model EC 155B
Operational Assistance to Smaller Administrator. helicopters was published in the
Enterprises whose Principal Office at [FR Doc. 02–28204 Filed 11–8–02; 8:45 am] Federal Register on August 14, 2002 (67
the time the Operational Assistance BILLING CODE 8025–01–P FR 52898). That action proposed to
commences is located in an LI Area. require inspecting and adjusting, if
(c) Restrictions applicable to NMVC necessary, the position of the locking
Companies and SSBICs. A NMVC DEPARTMENT OF TRANSPORTATION pins on each pilot, co-pilot, and
Company or a SSBIC that receives an passenger-hinged and sliding door
Operational Assistance grant must not Federal Aviation Administration (door) initially and each time a door is
use either grant funds awarded by SBA replaced.
or its matching resources for ‘‘general 14 CFR Part 39 The Direction Generale De L’Aviation
and administrative expense,’’ as defined Civile (DGAC), the airworthiness
in the Federal Acquisition Regulations, [Docket No. 2002–SW–26–AD; Amendment
39–12942; AD 2002–22–15] authority for France, notified the FAA
‘‘Definitions of Words and Terms,’’ 48 that an unsafe condition may exist on
CFR 2.101. RIN 2120–AA64 ECF Model EC 155B helicopters. The
12. Revise the citation in DGAC advises of two reports of the
§ 108.2020(b) from ‘‘§§ 108.2000 and Airworthiness Directives; Eurocopter passenger-hinged doors opening in
108.2030’’ to ‘‘§§ 108.2007 and France Model EC 155B Helicopters flight. The investigation revealed
108.2030’’. AGENCY: Federal Aviation noncompliant installation and
13. Revise § 108.2030(c)(2)(iii), Administration, DOT. adjustment of the door-locking
(c)(2)(iv), and (d)(2) to read as follows: ACTION: Final rule. mechanism, which can result in the
door unlocking and a risk of losing the
§ 108.2030 Matching requirements.
SUMMARY: This amendment adopts a door in flight.
* * * * * new airworthiness directive (AD) for the ECF has issued Alert Telex 52-A008,
(c) * * * specified Eurocopter France (ECF) dated March 11, 2002, which specifies
(2) * * * model helicopters that requires checking and adjusting the position of
(iii) Binding commitments for cash or inspecting and adjusting, if necessary, each door’s locking pins to prevent the
in-kind contributions that may be the position of the locking pins on each door opening in flight. The DGAC
payable over a multiyear period pilot, co-pilot, and passenger-hinged classified this service bulletin as
acceptable to SBA (but not to exceed the and sliding door (door) initially and mandatory and issued AD No. 2002–
term of the Operational Assistance grant each time a door is replaced. This 186–005(A), dated April 3, 2002, to
from SBA and in no event more than 10 amendment is prompted by two reports ensure the continued airworthiness of
years); and/or of inadvertent opening of the passenger- these helicopters in France.
(iv) An annuity, purchased with funds hinged doors in flight due to improper
other than Regulatory Capital, from an This helicopter model is
adjustment of the door-locking manufactured in France and is type
insurance company acceptable to SBA mechanism. The actions specified by
and that may be payable over a certificated for operation in the United
this AD are intended to prevent loss of States under the provisions of 14 CFR
multiyear period acceptable to SBA (but a door in flight, contact with the main
not to exceed the term of the 21.29 and the applicable bilateral
rotor or tail rotor, and subsequent loss agreement. Pursuant to the applicable
Operational Assistance grant from SBA of helicopter control.
and in no event more than 10 years). bilateral agreement, the DGAC has kept
(d) * * * DATES: Effective December 17, 2002. the FAA informed of the situation
(2) SSBICs. The amount of matching The incorporation by reference of described above. The FAA has
resources required of an SSBIC is equal certain publications listed in the examined the findings of the DGAC,
to the amount of Operational Assistance regulations is approved by the Director reviewed all available information, and
grant funds requested by the SSBIC, as of the Federal Register as of December determined that AD action is necessary
set forth in its application pursuant to 17, 2002. for products of this type design that are
§ 108.2004(a). ADDRESSES: The service information certificated for operation in the United
referenced in this AD may be obtained States.
14. Revise § 108.2040(a) to read as
follows: from American Eurocopter Corporation, Interested persons have been afforded
2701 Forum Drive, Grand Prairie, Texas an opportunity to participate in the
§ 108.2040 Reporting and recordkeeping 75053–4005, telephone (972) 641–3460, making of this amendment. No
requirements. fax (972) 641–3527. This information comments were received on the
(a) NMVC Companies. Policies may be examined at the FAA, Office of proposal or the FAA’s determination of
governing reporting, record retention, the Regional Counsel, Southwest the cost to the public. The FAA has
and recordkeeping requirements Region, 2601 Meacham Blvd., Room determined that air safety and the
applicable to NMVC Companies may be 663, Fort Worth, Texas; or at the Office public interest require the adoption of
found in subpart H of this part. NMVC of the Federal Register, 800 North the rule as proposed.

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