American Capital Invests $13.6 Million in Warner Power Buyout.

Business Editors

BETHESDA, Md.--(BUSINESS WIRE)--December 23, 1999

Middle Market Buyout Company Adds World-Class

Industry Leader to Portfolio

American Capital (Nasdaq: ACAS), a buyout and middle market finance company, announced today that it has completed the buyout of Warner Power, LLC, a New Hampshire based company.

To complete the purchase and capitalize the new company, American Capital invested $13.6 million for a majority ownership position, in the form of senior debt and subordinated debt with warrants. Warner Power designs, engineers and manufactures highly customized industrial power conversion supplies and electronic ballasts. American Capital teamed up with an equity group that includes Warner Power's senior management as well as a strategic partner, Power Gems Limited, a leading electronic ballast manufacturing company based in the UK.

This transaction came to American Capital and Capital.com via its Internet sites, showing, once again, the value of being an early mover in the e-commerce middle market finance field.

American Capital President and Chief Operating Officer Adam Blumenthal said, "The acquisition of Warner Power illustrates American Capital's strategy of adding solid, promising niche companies to our portfolio. Particularly important to us, Warner Power represents a buyout where we acted as the principal in the transaction, a role that we feel very comfortable playing and one that we have targeted as absolutely key for American Capital's growth. With the transaction, American Capital has successfully added 19 companies to our portfolio in 1999, and we have invested over $159 million in these strong middle market companies this year."

A spin-off of WPI Power Systems and WPI Electronics (former subsidiaries of WPI Group, Inc.), Warner Power has been in business for over 50 years. Its custom-engineered power systems are used in many industries, including high-rise elevators, thermal processing and semiconductors. Its ballast systems support medical and commercial applications, such as endoscopes and outdoor signage.

Dennis Deegan, who formerly held senior management positions at WPI Group for 15 years, is Warner Power's Chief Executive Officer. "Warner Power is a strong company with a healthy position in the markets it serves," said Deegan. "Some of the most prominent companies in the world rely on its power conversion systems and electronic ballasts, including Otis Elevator, Corning Glass, Amana and Teradyne. Going forward, we will continue to focus on making high quality products that meet our customers' needs. American Capital has provided the necessary funding and financial expertise to complete this transaction, and we look forward to a mutually beneficial relationship."

American Capital Principal Virginia Rollins remarked, "As a high value-added, custom manufacturer with a blue-chip customer base, Warner Power has bright prospects, and we are pleased to participate in its growth and future success."

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 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/warner.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 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.

Warner Power Buyout

December 23, 1999 By Maureen Flanagan

Warner Power, LLC, announced today that it has purchased the assets of WPI Electronics, Inc. and WPI Power Systems, Inc. American Capital worked with a management team to complete the buyout. Based in New Hampshire, Warner Power manufactures industrial power conversion systems, electronic ballasts and other products for customers that include Otis Elevator, Corning Glass, Amana, and Teradyne. For many years, Warner has been part of WPI Group, Inc., a manufacturer of high value-added products used in advanced systems for a wide range of applications.

To reinvigorate the industrial and electronics businesses, Warner Power's executives and American Capital Strategies (NASDAQ: ACAS) purchased the assets of WPI Power Systems, Inc., and WPI Electronics, Inc. in a December 1999 buyout. American Capital sponsored the transaction and invested $13.6 million of senior debt and subordinated debt with warrants. "American Capital has been the partner we needed to complete a complex transaction quickly," said Dennis Deegan, Warner's CEO. Warner Power is a diversified business making products that serve many different industries. The company's Power Systems division provides manufacturers and industrial end-users with custom-engineered power systems, including specialty transformers, chokes and reactors. One important market is providing the power supplies used in Otis Elevators, a customer for more than 20 years. Another business segment is manufacturing power supply products sold to industrial firms for use in thermal processing equipment. Another market segment that Warner Power serves is the production of power systems for industrial furnaces that are sold to manufacturers of products in the automotive, commercial, aerospace and infrastructure industries. Warner's capability to customize products for specific applications enables the company to serve customers whose products involve highly specialized treatments.

Warner's Electronics Ballasts Division makes specialized power supplies, or ballasts, to ignite and power high-intensity arc lamps. In 1990, Warner developed and patented a short arc ballast technology called SAFEARC(R) which is the leading technology for high-intensity focusable light used in applications such as medical equipment, including endoscopes and surgical room lighting, in addition to industrial lighting, video/overhead projection, entertainment lighting and fiber optics.

The company also provides contract manufacturing services, producing computer terminals for WPI. Warner makes assemblies that are sold to manufacturers for use with a larger system such as controlling a robot on an automated factory line or reading meters for a utility company. Warner's skilled workforce produces complex sub-assemblies for its customers and it expects to further develop this side of its business.

Originally established in 1948 as a supplier of high-quality magnetics, Warner was acquired by a larger diversified magnetics company in 1982 and in 1988 was bought by management. After the buyout, the company grew rapidly and completed an initial public offering in 1992. The management diversified the business and made several acquisitions, moving into the hand-held computer terminal market. During this time, WPI's reliance and focus shifted away from these original business segments.

In December 1999, American Capital invested $13.6 million to revitalize Warner by establishing it as an independent business. Financing provided by American Capital included a revolving credit facility, two senior term loans totaling $4.0 million and subordinated notes of $5.6 million. In addition to American Capital's majority interest in the company, other equity holders include the company's senior management and Power Gems Limited, a strategic partner with whom Warner has entered into a joint venture agreement.

With capital resources exceeding $460 million, American Capital provides senior debt, subordinated debt and equity to companies in need of financing for growth, acquisition, management and employee buyouts, liquidity and restructurings. American Capital has invested in a wide range of middle market companies since its 1997 IPO. American Capital also provides long-term support for its portfolio company's on-going financial requirements.

Virginia Rollins, American Capital Principal, said "Warner Power is a strong addition to American Capital's portfolio; we look forward to a long and productive relationship. With more than 50 years of experience, Warner is well positioned in the industries it serves. The company has developed specialized products for its customers, providing innovative, cost-effective solutions to a wide variety of power conversion and ballast applications. Warner has also developed close relationships with customers who use the company's expertise and in-depth knowledge as an extension of their own engineering efforts."

The markets for Warner's wide range of products are healthy and growing. As a preferred supplier to Otis Elevator, Warner makes DC specialty power supplies that are key products in modernizing the mid- to hi-rise segment of the elevator industry. Many other Warner customers rely on the company's power generating products which are critical to their production line -- if the furnace goes down, the entire production line shuts down.

Warner's products are also important components in the semiconductor market. In the 1990s the semiconductor market experienced unprecedented growth followed by a slump, due in part to the Asian crisis. The industry, though, has seen a resurgence in 1999. The connectivity revolution, led by networking and wireless communications devices, is driving a strong demand for personal computers. Industry experts project substantial growth in sales, as high as 26% in 1999 and 35% in 2000 and 200l for dynamic random access memory chips - traditionally one of the industry's main drivers.

The outlook is also excellent for the company's products in the medical and fiber optics area. For example, endoscopes, which use fiber optic lights, have revolutionized healthcare. U.S. sales of endoscopic surgical instruments are projected to reach $3.7 billion in 1999, up from $2.5 billion in 1995. Several medical areas, such as vascular surgery and neurosurgery, are forecast to be especially strong users of the technology. Warner is sole source supplier to several of the leading endoscope manufacturers in the world.

Warner also sells ballasts used in other fiber optic applications such as commercial lighting and outdoor signage. An increasing percentage of Warner's sales have been in the concert and entertainment lighting industry. This segment of the business is expected to grow, as Warner serves customers that provide lighting for rock concerts, theater and other entertainment venues. It also has potential for further growth through a joint venture agreement with Power Gems, a strategic partner that also serves the entertainment market.

Warner's prospects are bright. As a high value-added custom manufacturer, its products are sold into diverse industries. It has a blue-chip customer base with potential for additional cross-selling opportunities. And its strong management team is prepared to grow the company effectively. Dick Longo, President of Warner, said, "As a newly independent company, we can focus all our energies and resources on our customers' needs. By committing ourselves to solving our customers' problems, we'll guarantee the success of Warner Power, its employees, suppliers and partners, well into the next millennium."