American Capital Invests $10 Million in A.H. Harris; Investment in Leading Construction Material Supplier Adds Another Strong Investment to American Capital's Portfolio.

Business Editors

BETHESDA, Md.--(BUSINESS WIRE)--Dec. 28, 1999

American Capital (NASDAQ: ACAS) today announced that it has agreed to invest $10 million in the form of senior subordinated debt with detachable warrants in A.H. Harris & Sons, Inc., the largest distributor and rental center of concrete-related construction supplies in New England. At closing, $5 million of the commitment will be drawn down. A.H. Harris intends to use the proceeds of American Capital's investment to finance future acquisitions in order to further expand its leadership in its core markets and enter new markets.

American Capital President and Chief Operating Officer Adam Blumenthal stated, "A.H Harris represents another example of our strategy of adding strong investments to our portfolio by partnering with experienced management teams and proven private equity investors. Mellon Ventures, which is a leading equity sponsor in Harris' region, has shown a long-term commitment to A.H. Harris, and we are pleased to join them as partners in building this outstanding company. With the investment in A.H. Harris, American Capital has successfully added 15 companies to its portfolio in the past year, and has committed over $148 million to strong middle market companies over that time."

Joseph Bute, the American Capital Principal who structured and led this investment, said, "The A.H. Harris investment underscores our commitment to partnering with companies that service America's heartland. Robert Parsons and his team are taking a fragmented industry and effectively consolidating it through consistent performance and superior customer service."

A.H. Harris was founded in 1916 and is solidly positioned in a market that is estimated at $44 billion. It is anticipated to grow through meeting the projected steadily growing demand generated by U.S. transportation infrastructure development. It is strategically positioned in diverse regional markets and is actively pursuing incremental regional diversification. The company markets more than 3,000 products to a customer base that includes both regional and national contractors and provides substantial value-added consulting business to its regional contractors. Among A.H. Harris' competitive advantages are its breadth of products, long-term relationships with its core suppliers and customers, solid market share and experienced management team.

Robert Parsons, President and Chief Operating Officer of A.H. Harris stated, "Our decision to partner with American Capital reflects their long-term investment philosophy and expertise in positioning middle market companies for growth. We have been successful in building a strong brand and achieving a higher growth rate than our industry average. American Capital's resources and expertise will enable us to build upon our past accomplishments and further enhance our leadership in the construction supply industry."

A.H. Harris & Sons, Inc. is the largest distributor and rental center of concrete related construction supplies (tools, forming equipment, chemicals, fasteners, etc.) in New England with growing market positions in the Northeast and Middle Atlantic regions. Harris markets products from 200 vendors, including private label products. The company sells to contractors in all three segments of construction - residential, commercial and non-building/infrastructure. About half of all the company's sales are in highway-related projects (45% in 1998), with the remaining in commercial/industrial (45%) and residential (10%). Mellon Ventures, the venture capital affiliate of Mellon Financial Corporation, is the principal equity holder in A.H. Harris.

American Capital is a buyout and specialty finance company with capital resources exceeding $460 million. American Capital invests senior debt, subordinated debt and equity in businesses in need of capital for growth, acquisitions, ESOP buyouts, management buyouts, Internet development, liquidity and restructurings. Through http://www.Capital.com/, financing is provided for receivable and inventory financing, working capital loans, machinery and equipment loans, real estate loans, construction financing, acquisition funding, management buyouts, ESOP financings, Internet development, liquidity and restructurings. Further information on this transaction can be found on our website at http://www.american-capital.com/portfolio/harris.html.

Companies interested in learning more about American Capital and our flexible financing should contact John Hoffmire, Vice President of Sales and Marketing, at [phone] or visit our website at http://www.Capital.com/ or our shareholder site at www.ACASOnline.com.

This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements regarding expected results of American Capital Strategies are subject to various factors and uncertainties, including the uncertainties associated with the timing of transaction closings, changes in interest rates, availability of transactions, changes in regional or national economic conditions, or changes in the conditions of the industries in which American Capital has made investments.

A.H. Harris & Sons, Inc. Lays a Solid Base for Growth

December 28, 1999

By Maureen Flanagan

A.H. Harris & Sons, Inc., New England's largest distributor and rental center of concrete related construction supplies, has paved its way into new geographic markets and is building a solid foundation for further expansion. Owned by the Harris family for 77 years, the company was sold to the management in 1993 and subsequently re-sold to Mellon Ventures in partnership with the management in 1998. During this period it was restructured to focus on its core business as a supplier of construction specialty products to general and large construction contractors. Pursuing a growth strategy, the company first grew its own store locations throughout the New England area and then moved to build market share through the purchase of add-on businesses in areas adjoining its New England base. Recent acquisitions expand the company's presence into Virginia and give Harris a growing market position in the Middle Atlantic region. The company's growth is supported by subordinated debt financing from American Capital Strategies, Ltd. (NASDAQ: ACAS).

"A.H. Harris & Sons has become a leading provider of construction materials and related services, outpacing industry growth and expanding into new geographic areas. We anticipate that growth will continue as we partner with American Capital to proceed with future acquisitions and further enhance our leadership position in our market," said Robert Parsons, Harris President and CEO.

Based since its inception in New Britain, CT, Harris markets more than 3,000 concrete products and accessories for use by contractors who work in concrete repair and restoration, road and bridge construction, and commercial and residential building. Most products are components used for laying concrete, such as concrete reinforcement, curing, and forming systems. Products also include supplies for sitework and paving; thermal and moisture protection; and construction supplies including masonry, metals, and doors and windows, tools and safety equipment. The company also has built a significant business renting concrete forms.

Harris' strength lies in its niche as a value-added industrial distributor. Providing comprehensive services to construction contractors, the company, for example, helps contractors estimate a job and determine the optimal layout of forms and quantities needed to complete the project. Harris has also built a network of distribution locations to ensure a rapid response to customer needs. The ability to provide all components for a given job in the time needed by the contractor is a key value-added aspect of the company's business.

Originally started as a trucking company in 1916 by Arthur H. Harris, the company began distributing construction specialty products in 1946. When Arthur Harris died in 1964, the company passed on to four sons who formed strategic alliances, setting up operations in Medfield, MA, Latham, NY, and Newark, NJ to expand beyond the New Britain location. In 1987, the sons merged the operations into one company and promoted Robert Parsons to COO. An industry veteran, Parsons had joined Harris in 1979 after working at Symons, the company's most important vendor. In 1990, Parsons became the company's President and CEO.

As CEO, Parsons restructured Harris with emphasis on concrete products and related applications for the construction industry. Parsons and Robert Fisher, VP & CFO, purchased the company from the Harris family in 1993. Focusing on the specialty distribution business, they grew Harris from seven to seventeen locations and organized the company into six operating divisions. In 1998, Mellon Ventures and the senior management of Duff & Phelps acquired majority ownership, with Parsons and Fisher retaining a significant portion of the business.

Harris' management was in a strong position to take advantage of opportunities in the highly fragmented industry. Implementing a two-tiered acquisition strategy, they sought to build market share by buying add-on businesses in adjoining market areas and by acquiring or merging with a platform company in a different geographic region. Acquisitions have included Saunders Oil Company in Richmond, VA, and Zoubek Associates, Inc., in East Brunswick, NJ.

Harris has targeted additional acquisitions within the region. In order to have sufficient capital for these acquisitions and continue the company's growth strategy, the management required additional financial resources from a partner that could provide flexible subordinated debt financing.

With capital resources exceeding $460 million, American Capital was selected to assist Harris with its growth strategy. American Capital, a one-stop financing resource for the middle market, provides subordinated debt, senior debt and equity to companies in need of capital for acquisitions, growth, management and employee buyouts, liquidity and restructurings. Building a diverse investment portfolio since its IPO in August 1997, American Capital has recently provided acquisition financing for many different companies. These included Clear Communications, a provider of engineering and construction services in the telecommunications industry; Parts Plus, a growing East Coast distributor of auto parts; Cycle Gear, an ESOP company that has grown into the largest multi-store retailer of motorcycle parts in the country; and Auxi-Health, a rollup of home health service companies in the South and Midwest. American Capital also supports the on-going financial needs of its portfolio companies through long-term financial partnerships.

In the A.H. Harris & Sons transaction, American Capital provided $5 million of senior subordinated debt to finance the cash portion of its most recent acquisition's purchase price and help pay down the revolver balance. American Capital also committed to help finance the company's future acquisitions, bringing its total subdebt investment to $10 million. "American Capital was impressed by the high level of customer loyalty that management has fostered through the company's business practices," said Joe Bute, American Capital Principal. "Harris gets all the appropriate materials to a job site when they are needed and also trains contractors to do the job as efficiently as possible. This has earned them high marks for customer satisfaction and sets them apart from their competitors."

More than 1,000 establishments serve the national concrete construction market and 25 percent are in the Northeast region where Harris is headquartered. Most firms, including large retailers, generally focus on specific product lines and do not offer the breadth of supplies available from Harris. The company's range of value-added services is also unmatched by the competition. These include routinely providing engineering and training services, such as demonstrating new technologies and techniques that can reduce labor costs and increase efficiencies on a job site. These add-on services have increased sales, built customer loyalty and enabled Harris to grow faster than other businesses in its area. The company has become a leading supplier to second- and third-tier contractors as well as the distributor of choice for several large national and international corporations.

Harris' hub-and-spoke distribution system optimizes its customer service. Each Harris division serves as a central warehouse and center for sales, engineering and technical support. The divisions also support multiple store locations, which function as a point of contact with local contractors. One store in Boston is located just blocks away from the "Big Dig," one of the largest infrastructure projects in the country. On the other end of the spectrum are retail centers in rural, under-served areas of Maine where the company has built a strong and profitable business presence.

The company has also effectively alleviated a vexing problem for distributors -- managing inventory. Harris rapidly turns over inventory, keeps obsolescence at a minimum and anticipates seasonality in inventory flow.

The company's market share in the Northeast is estimated to be well over 25%. Overall, the total market for concrete construction products is estimated to be about $5 billion and is expected to grow. Highway construction contractors are expanding and taking on work farther from their home base, resulting in advantages to distributors who can serve widely spaced construction sites under the same account. Moreover, few smaller distributors are competitive enough to implement the necessary technology to connect the inventory, billing, order fulfillment, delivery and budget planning.

Added to this, spending on national construction projects has risen steadily to well over $150 billion in 1998. Although residential and commercial construction experiences up and down cycles, public construction projects have increased at a steady rate since 1975. With the passage of the Transportation Equity Act of the 21st Century (TEA-21) in June 1998, infrastructure funding is solidly in place through the end of 2005. Currently more than half of Harris' revenues come from publicly supported infrastructure projects that rely heavily on concrete as a construction material. In addition, housing construction in areas like the metropolitan Boston, New York and Washington, D.C. areas also appear to be strong, with the expectation that growth will continue.

The company has strong, long-term relationships with its core suppliers, including Symons Corporation, the leading manufacturer of concrete forms and equipment in the United States and Amoco Fabrics, the largest domestic producer of geotextiles. The company has exclusive distribution agreements with Symons and Amoco Fabrics and Fibers in New England and New York and is an exclusive dealer for five of its top fifteen vendors.

"A.H. Harris & Sons is in a solid position to take advantage of market growth, developing add-on products and using new technologies to further expand its business. Building a solid foundation for the future, the company will help pave the way for the country's infrastructure development along with its commercial, industrial and residential construction in the years to come," said Parsons.