<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NO. 0-24412
MACC PRIVATE EQUITIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 42-1421406
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.
101 SECOND STREET, S.E., STE. 800 52401
CEDAR RAPIDS, IOWA (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER
INCLUDING AREA CODE: (319) 363-8249
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K [ ]
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT AS OF NOVEMBER 29, 1996, WAS APPROXIMATELY
$8,410,170 BASED UPON THE AVERAGE BID AND ASKED PRICE FOR SHARES OF THE
REGISTRANT'S COMMON STOCK ON THAT DATE. AS OF NOVEMBER 29, 1996, THERE WERE
964,098 SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING, OF WHICH
APPROXIMATELY 773,349 SHARES WERE HELD BY NON-AFFILIATES.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED
SEPTEMBER 30, 1996, ARE INCORPORATED BY REFERENCE INTO PARTS II AND IV OF THIS
REPORT. PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 25, 1997, ARE INCORPORATED BY
REFERENCE INTO PART III OF THIS REPORT.
- --------------------------------------------------------------------------------
PAGE 1 OF 73.
EXHIBIT INDEX APPEARS ON PAGE: 12.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
MACC Private Equities Inc. (the "Corporation") was formed as a Delaware
corporation on March 3, 1994. It is qualified as a business development company
("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act").
The Corporation has two direct wholly-owned subsidiaries, MorAmerica
Capital Corporation ("MorAmerica Capital") and MorAmerica Realty Services, Inc.
("MorAmerica Realty"), and one indirect wholly-owned subsidiary, Motel Services,
Inc. ("Motel Services"), which is a wholly-owned subsidiary of MorAmerica
Realty. As of September 30, 1996, MorAmerica Capital and MorAmerica Realty
comprised approximately 92% and 0% of the Corporation's assets respectively.
MorAmerica Capital is an Iowa corporation incorporated in 1959 and which has
been licensed as a small business investment company since that year. It has
also elected treatment as a BDC under the 1940 Act. MorAmerica Realty, an Iowa
corporation incorporated in 1972, previously owned a motel which had been held
for liquidation. Following the sale of the motel during fiscal year 1994, the
activities of MorAmerica Realty and Motel Services have been limited to an
orderly wind-up of affairs.
The Corporation is the successor in interest to MorAmerica Financial
Corporation ("MorAmerica Financial"). On February 19, 1993, MorAmerica Financial
and its principal subsidiary, Morris Plan Liquidation Company ("Morris Plan"),
filed for protection under Chapter 11 of the United States Bankruptcy Code. On
December 28, 1993, the Bankruptcy Court confirmed the MorAmerica Financial and
Morris Plan Amended Debtors' Joint Plan of Reorganization (the "Plan").
Pursuant to the terms of the Plan, MorAmerica Financial was merged with
and into the Corporation. The effective date of the Plan was set by the
Corporation's Board of Directors as February 15, 1995, the date upon which all
issued and outstanding shares of the Corporation's common stock were issued to
creditors of the predecessor companies. The Corporation's common stock began
trading on the NASDAQ SmallCap Market thereafter on March 2, 1995. On February
13, 1996, the primary trading market for shares of the Corporation's Common
Stock advanced to the NASDAQ National Market.
THE CORPORATION'S OPERATION AS A BDC
As noted above, both the Corporation and its wholly-owned subsidiary,
MorAmerica Capital, have elected treatment as BDCs under the 1940 Act. Under the
1940 Act, a BDC may not acquire any asset other than Qualifying Assets as
defined under the 1940 Act, unless, at the time the acquisition is made,
Qualifying Assets represent at least 70 percent of the value of the BDC's total
assets. The principal categories of Qualifying Assets relevant to the business
of the Corporation are the following:
2
<PAGE> 3
(1) Securities purchased in transactions not involving any public offering
from the issuer of such securities, which issuer is an eligible portfolio
company. An eligible portfolio company is defined in the 1940 Act as any
issuer that:
(a) is organized under the laws of, and has its principal place of
business in, the United States;
(b) is not an investment company; and
(c) does not have any class of securities with respect to which a
broker may extend margin credit.
The Corporation's investment in all of the issued and outstanding common
stock of MorAmerica Capital is also a Qualifying Asset under the 1940 Act.
(2) Cash, cash items, government securities, or high quality debt securities
maturing in one year or less from the time of investment.
In addition, a BDC must have been organized (and have its principal
place of business) in the United States for the purpose of making investments in
the types of securities described in (1) above and, in order to count the
securities as Qualifying Assets for the purpose of the 70 percent test, the BDC
must make available to the issuers of the securities significant managerial
assistance. Making available significant managerial assistance means, among
other things, any arrangement whereby the BDC, through its directors, officers
or employees offers to provide, and, if accepted, does so provide, significant
guidance and counsel concerning the management, operations or business
objectives and policies of a portfolio company.
Under the 1940 Act, once a company has elected to be regulated as a
BDC, it may not change the nature of its business so as to cease to be, or
withdraw its election as, a BDC unless authorized by vote of a majority, as
defined in the 1940 Act, of the company's shares. In order to maintain their
status as BDCs, the Corporation and MorAmerica Capital each must have at least
50% of their total assets invested in the types of portfolio companies described
by Sections 55(a)(1) though 55(a)(3) of the 1940 Act. Accordingly, the
Corporation and MorAmerica Capital may not withdraw their BDC elections or
otherwise change their business so as to cease to qualify as BDCs without
shareholder approval.
INVESTMENTS AND DIVESTITURES
For the fiscal year ended September 30, 1996, the Corporation made
total investments of $5,135,249 in four new portfolio companies and in follow-on
investments in eight existing portfolio companies. The Corporation's
investment-level objectives on a consolidated basis call for new and follow-on
investments of approximately $8,500,000 during fiscal year 1997.
3
<PAGE> 4
During fiscal year 1996, the Corporation had $2,182,973 in realized
gains from the sale of investments in six portfolio companies. Over the same
period, $1,276,801 in realized losses were recognized from four portfolio
companies.
ITEM 2. PROPERTIES.
The Corporation does not own or lease any properties or other tangible
assets. Its business premises and equipment are furnished by InvestAmerica
Investment Advisors, Inc. (the "Investment Advisor"), the investment advisor to
the Corporation.
ITEM 3. LEGAL PROCEEDINGS.
The Corporation's wholly-owned subsidiary, Realty Services, had been
the defendant in a lawsuit filed in the Circuit Court of Tippecanoe County,
Indiana, Seabolt v. MorAmerica Realty Services, Inc. d/b/a/ University Inn and
University Inn. From inception until July 5, 1995, the lawsuit was defended on
behalf of Realty Services by its Insurer, Beverage Retailers Insurance
Corporation (the "Insurer"), under a Liquor Liability Insurance Policy; however,
on that date the Insurer's rehabilitation proceedings were converted to
liquidation proceedings.
The Corporation had reserved during the twelve months ended September
30, 1995, $200,000 with respect to its potential liability to the plaintiff.
During fiscal year 1996, this lawsuit was settled at a cost to the Corporation
of $187,500, and the lawsuit was dismissed with prejudice. By letter dated May
17, 1996, the Insurer's liquidation estate indicated that it had applied for an
initial disbursement of assets at the rate of 35% of claims, and the Corporation
has booked a corresponding receivable during fiscal year 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There are no items to report.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names, ages and positions of the
Corporation's Executive Officers as of December 15, 1996, as well certain other
information with respect to such persons:
4
<PAGE> 5
<TABLE>
<CAPTION>
Name Age Positions Currently Held Principal Occupations During the Past
- ---- --- with the Corporation Five Years
-------------------- ----------
<S> <C> <C>
David R. Schroder 53 Director, President and Director, President and Secretary of the
Secretary Investment Advisor; MorAmerica Capital;
InvestAmerica Venture Group, Inc.;
InvestAmerica N.D. Management, Inc.; and
InvestAmerica N.D., L.L.C.
Robert A. Comey 50 Director, Executive Vice Director, Executive Vice President, Treasurer
President and Treasurer and Assistant Secretary of MorAmerica Capital;
the Investment Advisor; InvestAmerica Venture
Group, Inc.; InvestAmerica N.D. Management,
Inc. and InvestAmerica N.D., L.L.C.
Kevin F. Mullane 40 Vice President Vice President of MorAmerica Capital; Vice
President and Director of the Investment
Advisor; InvestAmerica N.D. Management,
Inc.; and InvestAmerica N.D., L.L.C.
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Information in response to this Item is incorporated by reference to
the "Shareholder Information" section of the Corporation's Annual Report to
Shareholders for the fiscal year ended September 30, 1996 (the "1996 Annual
Report").
ITEM 6. SELECTED FINANCIAL DATA.
Information in response to this Item is incorporated by reference to
the "Selected Financial Data" section of the 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Information in response to this Item is incorporated by reference to
the "Management's Discussion and Analysis" section of the 1996 Annual Report.
5
<PAGE> 6
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information in response to this Item is incorporated by reference to
the Consolidated Financial Statements, notes thereto and report thereon
contained in the 1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There are no items to report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information in response to this Item is incorporated by reference to
the identification of directors and nominees contained in the "Election of
Directors" section and the subsection captioned "Section 16(a) Reporting
Compliance" of the Corporation's definitive proxy statement in connection with
its 1997 Annual Meeting of Stockholders, scheduled to be held on February 25,
1997 (the "1997 Proxy Statement"). Information in response to this Item also is
included under the caption "Executive Officers of the Registrant" of this
Report.
ITEM 11. EXECUTIVE COMPENSATION.
Information in response to this Item is incorporated by reference to
the subsection captioned "Compensation of Directors and Executive Officers" of
the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information in response to this Item is incorporated by reference to
the subsection captioned "Stock Ownership of Certain Beneficial Owners" of the
1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Corporation and MorAmerica Capital each have executed an Investment
Advisory Agreement with the Investment Advisor. With respect to the Corporation,
the Investment Advisory Agreement provides for a management fee payable to the
Investment Advisor equal to 2.5% of assets under management. With respect to
MorAmerica Capital, the management fee is equal to 2.5% of capital under
management, not to exceed 2.5% of assets under management, plus $5,000 per month
through September 30, 1998. In addition, the Investment Advisor is entitled to
an incentive fee under both of the Investment Advisory Agreements equal to 13.4%
of the net capital gains, before taxes, on portfolio investments and from the
disposition of other assets or property managed by the Investment Advisor.
6
<PAGE> 7
Management fees under the Investment Advisory Agreements on a
consolidated basis amounted to $609,436 for fiscal year 1996. Incentive fees
under the Investment Advisory Agreements on a consolidated basis amounted to
$539,896 for fiscal year 1996. Total fees under the Investment Advisory
Agreements on a consolidated basis for fiscal year 1996 amounted to $1,149,332.
The Investment Advisor is owned by its three principal officers and
directors, all of whom are also officers and/or directors of the Corporation.
These individuals and their positions held with the Investment Advisor are:
Name Offices
---- -------
David R. Schroder Director, President and Secretary
Robert A. Comey Director, Executive Vice President, and
Treasurer
Kevin F. Mullane Director, Vice President and Assistant
Secretary
On May 13, 1996, the Corporation entered into an Agreement (the
"Agreement") with Zions Bancorporation. Information with respect to the
Agreement is incorporated by reference to the "STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS" section of the 1997 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report:
1. A. The following financial statements are incorporated by reference
to the 1996 Annual Report.
Consolidated Balance Sheet at September 30, 1996
Consolidated Statement of Operations for the year
ended September 30, 1996
Consolidated Statements of Changes in Net Assets (Deficit) for the
year ended September 30, 1996, the seven and one-half months ended
September 30, 1995, and the four and one-half months ended
February 15, 1995
Consolidated Statement of Cash Flows for the year ended September 30,
1996
Notes to Consolidated Financial Statements
Consolidated Schedule of Investments as of September 30, 1996
Notes to the Consolidated Schedule of Investments
7
<PAGE> 8
B. The Report of Independent Accountants with respect to the
financial statements listed in A. above is incorporated by
reference to the 1996 Annual Report.
2. No financial statement schedules of the Corporation are filed
herewith because (i) such schedules are not required or (ii) the
information required has been presented in the aforementioned financial
statements and schedule of investments.
3. The following exhibits are filed herewith or incorporated by
reference as set forth below:
3.1* Certificate of Incorporation of the Corporation.
3.2 By-Laws of the Corporation.
4 See Exhibits 3.1 and 3.2.
10.1** Investment Advisory Agreement between the Corporation and
InvestAmerica Investment Advisors, Inc., dated October 1, 1994.
10.1.a First Amendment to Investment Advisory Agreement between the
Corporation and InvestAmerica Investment Advisors, Inc.,
dated August 1, 1996.
10.2** Investment Advisory Agreement between MorAmerica Capital
Corporation and InvestAmerica Investment Advisors, Inc., dated
October 1, 1994.
10.2.a First Amendment to Investment Advisory Agreement between
MorAmerica Capital Corporation and InvestAmerica Investment
Advisors, Inc., dated August 1, 1996.
10.3 Agreement between the Corporation and Zions Bancorporation, dated
May 13, 1996.***
13 1996 Annual Report to Stockholders.
21 Subsidiaries of the Corporation and jurisdiction of
incorporation.
27 Financial Data Schedule
*Incorporated by reference to the Corporation's Registration Statement
on Form N-2, filed with the Commission on May 24, 1994 (File No. 33-79276).
**Incorporated by reference to Amendment No. 3 to the Corporation's
Registration Statement on Form N-2, filed with the Commission on January 24,
1995 (File No. 33-79276).
***Incorporated by reference to the Corporation's Current Report on Form
8-K, dated May 13, 1996, filed with the Commission on May 13, 1996.
8
<PAGE> 9
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the three months ended September
30, 1996.
[Remainder of page intentionally left blank.]
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized on
December 24, 1996.
/s/ David R. Schroder
-----------------------------------
David R. Schroder
President and Secretary
10
<PAGE> 11
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Date
- --------- ----
/s/ Paul M. Bass, Jr. December 24, 1996
- ------------------------------- ------------------------------
Paul M. Bass, Jr.
Chairman of the Board of Directors
/s/ David R. Schroder December 24, 1996
- ------------------------------- ------------------------------
David R. Schroder
Director, President and Secretary
/s/ Robert A. Comey December 24, 1996
- ------------------------------- ------------------------------
Robert A. Comey
Director, Executive Vice President
and Treasurer
- ------------------------------- ------------------------------
Henry T. Madden
Director
/s/ John D. Wolfe December 24, 1996
- ------------------------------- ------------------------------
John D. Wolfe
Director
/s/ Michael W. Dunn December 24, 1996
- ------------------------------- ------------------------------
Michael W. Dunn
Director
- ------------------------------- ------------------------------
James L. Miller
Director
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Sequential Page
- ------ ----------- ---------------
<S> <C> <C>
3.1* Articles of Incorporation of the Corporation
3.2 By-Laws of the Corporation 13
4 See Exhibits 3.1 and 3.2
10.1** Investment Advisory Agreement between the
Corporation and InvestAmerica Investment Advisors,
Inc., dated October 1, 1994
10.1.a First Amendment to Investment Advisory Agreement
between the Corporation and InvestAmerica
Investment Advisors, Inc., dated August 1, 1996 27
10.2** Investment Advisory Agreement between MorAmerica
Capital Corporation and InvestAmerica Investment
Advisors, Inc., dated October 1, 1994
10.2.a First Amendment to Investment Advisory Agreement
between MorAmerica Capital Corporation and
InvestAmerica Investment Advisors, Inc., dated
August 1, 1996 29
10.3*** Agreement between the Corporation and Zions
Bancorporation, dated May 13, 1996
13 1996 Annual Report to Stockholders 31
21 Subsidiaries of the Corporation and Jurisdiction
of Incorporation 70
27 Financial Data Schedule 72
</TABLE>
*Incorporated by reference to the Corporation's Registration Statement
on Form N-2, filed with the Commission on May 24, 1994 (File No. 33-79276).
**Incorporated by reference to Amendment No. 3 to the Corporation's
Registration Statement on Form N-2, filed with the Commission on January 24,
1995 (File No. 33-79276).
***Incorporated by reference to the Corporation's Current Report on Form
8-K, dated May 13, 1996, filed with the Commission on May 13, 1996.
12
<PAGE> 1
EXHIBIT 3.2
Bylaws of the Corporation
<PAGE> 2
AMENDED AND RESTATED BYLAWS
OF
MACC PRIVATE EQUITIES INC.
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held on the fourth Tuesday of February commencing with the year 1996.
Section 2. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes prescribed in the notice of the meeting, may be called
by the Board of Directors or the Chairman of the Board or by vote of forty
percent (40%) of the issued and outstanding Common Stock of the Corporation. In
addition, special meetings shall be held at such place, on such date and at such
time as they or he or she shall fix.
Section 3. Notice of Meetings. Written notice of the place, date and
time of all meetings of the stockholders, and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given, not less
than ten (10) nor more than sixty (60) days before the date on which the meeting
is to be held, to each stockholder entitled to vote at such meeting, except as
otherwise provided herein or required by law (meaning, here and hereinafter, as
required from time to time by the Delaware General Corporation Law or the
Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum. At any meeting of the stockholders, the holders of
a majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all purposes,
unless or except to the extent that the presence of a larger number may be
required by law. Where a separate vote by a class or classes is required, a
majority of the shares of such class or classes present in person or represented
by proxy shall constitute a quorum entitled to take action with respect to that
vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date or time. If a notice of any adjourned special meeting of stockholders is
sent to all stockholders entitled to vote thereat, stating that it will be held
with those present constituting a quorum, then except as otherwise required by
law, those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
<PAGE> 3
Section 5. Organization. The Chairman of the Board, or such other
person as the Board of Directors may have designated or, in the absence of the
Chairman and such other person, the chief executive officer of the Corporation
or, in his or her absence, such person as may be chosen by the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
shall call to order any meeting of the stockholders and act as chairman of the
meeting. In the absence of the Secretary of the Corporation, the secretary of
the meeting shall be such person as the chairman appoints.
Section 6. Conduct of Business. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him or her in order.
The date and time of the opening and the closing of the polls for each
matter upon which the shareholders will vote at a meeting shall be announced at
the meeting by the person presiding over the meeting. The Board of Directors of
the Corporation may adopt by resolution such rules and regulations for the
conduct of the meeting of shareholders as it shall deem appropriate. Except to
the extent inconsistent with any such rules and regulations as adopted by the
Board of Directors, the chairman of any meeting of shareholders shall have the
right and authority to prescribe such rules, regulations and procedures and to
do all such acts as, in the judgment of such chairman, are appropriate for the
proper conduct of the meeting. Such rules, regulations or procedures whether
adopted by the Board of Directors or prescribed by the chairman of the meeting,
may include, without limitation, the following: (I) the establishment of an
agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to shareholders of
record of the Corporation, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting shall determine; (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof; and
(v) limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board of Directors or the chairman of
the meeting, meetings of shareholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
Section 7. Proxies and Voting. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing filed in accordance with the procedure established for
the meeting.
Each stockholder shall have one (1) vote for every share of stock
entitled to vote which is registered in his or her name on the record date for
the meeting, except as otherwise provided herein or required by law.
All voting, including the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or by his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast.
<PAGE> 4
Section 8. Stock List. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in his or her name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
Section 9. No Consent of Stockholders in Lieu of Meeting. Any action
required or permitted to be taken at any annual or special meeting of
stockholders of the Corporation must be effected at a duly called annual or
special meeting of the stockholders, and may not be effected by written consent
of the stockholders.
Section 10. Notice of Nominations and Other Business at Annual
Meetings.
(a) Nominations of persons for election to the Board of Directors
of the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (1)
pursuant to the Corporation's notice of meeting, (2) by or at the
direction of the Board of Directors or (3) by any stockholder of record
at the time of giving of the notice by the stockholders provided for in
this Section, who is entitled to vote at the meeting and who complied
with the notice procedures set forth in this Section.
(b) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (3) of
paragraph (a) of this Section, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to the Secretary at
the principal executive offices of the Corporation not less than sixty
(60) days nor more that ninety (90) days prior to the first anniversary
of the preceding year's annual meeting or in the case of the 1996
annual meeting, November 27, 1995; provided, however, that in the event
that the date of the annual meeting is advanced by more than thirty
(30) days or delayed by more than sixty (60) days from such anniversary
date, notice by the stockholder to be timely must be so delivered not
earlier than the 90th day prior to such annual meeting and not later
than the close of business on the later of the 60th day prior to such
annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (1) as to each person whom the
stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (2) as
to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such
<PAGE> 5
stockholder and the beneficial owner, if any, on which behalf the
proposal is made; and (3) as to the stockholder giving the notice and
the beneficial owner, if any, on which behalf the nomination or
proposal is made (I) the name and address of such stockholder, as they
appear on the Corporation's books, and of such beneficial owner and
(ii) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial
owner.
(c) Notwithstanding anything in the second sentence of paragraph
(b) of this Section to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased Board of
Directors made by the Corporation at least seventy (70) days prior to
the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section shall also be considered
timely, but only with respect to nominees for any new positions created
by such increase, if it shall be delivered to the Secretary at the
principal executive offices for the Corporation not later than the
close of business on the 10th day following the day on which such
public announcement is first made by the Corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible to serve as
directors and only such business shall be conducted at an annual
meeting of stockholders as shall have been brought before the meeting
in accordance with the procedures set forth in this Section. The
chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth in this
Section and, if any proposed nomination or business is not in
compliance with these Bylaws, to declare that such defective proposed
business or nomination shall be disregarded.
(e) For the purposes of this Section, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or a comparable national news service in a
document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act.
(f) Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this Section. Nothing in this Section shall be
deemed to affect any rights of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Term of Office. The number of directors of the
Corporation to constitute the Board of Directors shall be seven (7). Each
director shall hold office until such director's successor has been elected and
has qualified, or until such director's death, retirement, disqualification,
resignation or removal. The Board of Directors shall be and is divided into
three (3) classes, designated Class I, Class II and Class III. Class I directors
shall consist of three (3) directors who shall hold office until the annual
meeting of the stockholders in 1996. Class II directors shall consist of two (2)
directors who shall hold
<PAGE> 6
office until the annual meeting of the stockholders in 1997. Class III directors
shall consist of two (2) directors who shall hold office until the annual
meeting of stockholders in 1998. Upon expiration of the terms of the office of
directors as classified above, their successors shall be elected for the term of
three (3) years each. Each director shall hold office until the annual meeting
of the stockholders for the year in which his or her term expires and until his
or her successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
Section 2. Vacancies. If the office of any director becomes vacant by
reason of death, resignation, disqualification, removal or other cause, a
majority of the directors remaining in office, although less than a quorum, may
elect a successor for the unexpired term and until his or her successor is
elected and qualified.
Section 3. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the Board of Directors and publicized
among all directors. A notice of each regular meeting shall not be required.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by one-third (1/3) of the directors then in office (rounded up to
the nearest whole number) or by the chairman and shall be held at such place, on
such date and at such time as they or he or she shall fix. Notice of the place,
date and time of each such special meeting shall be given each director by whom
it is not waived by mailing written notice not less than five (5) days before
the meeting or by telegraphing or telexing or by facsimile transmission of the
same not less than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Section 5. Quorum. At any meeting of the Board of Directors, a majority
of the total number of the whole Board shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date or time, without further
notice or waiver thereof.
Section 6. Participation in Meetings by Conference Telephone. Members
of the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting. However, this Section 6 and the means of holding Board
meetings authorized hereunder shall not apply to Board meetings required to be
held in person by the Investment Company Act of 1940, as amended.
Section 7. Conduct of Business. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and all matters shall be determined by the vote
of a majority of the directors present, except as otherwise provided herein or
required by law. Action may be taken by the Board of Directors without a meeting
if all members thereof consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board of Directors. However,
the Board shall not take action by consent and without a meeting if the
provisions of the Investment Company Act of 1940, as amended, would otherwise
require the meeting to be held in person.
<PAGE> 7
Section 8. Powers. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(a) To declare dividends from time to time in accordance with
law;
(b) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(c) To authorize the creation, making and issuance, in such form
as it may determine, of written obligations of every kind, negotiable
or non-negotiable, secured or unsecured, and to do all things necessary
in connection therewith;
(d) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any
officer upon any other person for the time being;
(e) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(f) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers,
employees and agents of the Corporation and its subsidiaries as it may
determine;
(g) To adopt from time to time such insurance, retirement and
other benefit plans for directors, officers, employees and agents of
the Corporation and its subsidiaries as it may determine; and
(h) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and
affairs.
Section 9. Compensation of Directors. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors. The Board of
Directors, by a vote of a majority of the whole Board, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and shall,
for those committees and any others provided for herein, elect a director or
directors to serve as the member or members, designating, if it desire, other
directors as alternate members who may replace any absent or disqualified member
at any meeting of the committee. Any committee so designated may exercise the
power and authority of the Board of Directors to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the Delaware General Corporation Law if the
resolution which designates the committee or a supplemental resolution of the
<PAGE> 8
Board of Directors shall so provide. In the absence or disqualification of any
member of any committee and any alternate member in his or her place, the member
or members of the committee present at the meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 2. Conduct of Business. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; a
majority of the members shall constitute a quorum unless the committee shall
consist of one (1) or two (2) members, in which event one (1) member shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
ARTICLE IV
OFFICERS
Section 1. Generally. The officers of the Corporation shall consist of
a Chairman of the Board, a President, an Executive Vice President, one or more
Vice Presidents, a Secretary, a Treasurer and such other officers as may from
time to time be appointed by the Board of Directors. Officers shall be elected
by the Board of Directors, which shall consider that subject at its first
meeting after every annual meeting of stockholders. Each officer shall hold
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Any number of offices may be held by the same
person.
Section 2. President. The President shall be the chief executive
officer of the Corporation. Subject to the provisions of these Bylaws and to the
direction of the Board of Directors, he or she shall have the responsibility for
the general management and control of the business and affairs of the
Corporation and shall perform all duties and have all powers which are commonly
incident to the office of chief executive or which are delegated to him or her
by the Board of Directors. He or she shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision and direction of all of the other
officers, employees and agents of the Corporation.
Section 3. Vice President. Each Vice President shall have such powers
and duties as may be delegated to him or her by the Board of Directors. One (1)
Vice President shall be designated by the Board to perform the duties and
exercise the powers of the President in the event of the President's absence or
disability, provided that if there shall be only one Vice President, that Vice
President shall perform the duties and exercise the powers of the President in
the event of the President's absence or disability.
Section 4. Treasurer. The Treasurer shall have the responsibility for
maintaining the financial records of the Corporation. He or she shall make
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all such transactions and of the financial
condition of the Corporation. The Treasurer shall also perform such other duties
as the Board of Directors may from time to time prescribe.
<PAGE> 9
Section 5. Secretary. The Secretary shall issue all authorized notices
for, and shall keep minutes of, all meetings of the stockholders and the Board
of Directors. He or she shall have charge of the corporate books and shall
perform such other duties as the Board of Directors may from time to time
prescribe.
Section 6. Designation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 7. Removal. Any officer of the Corporation may be removed at
any time, with or without cause, by the Board of Directors.
Section 8. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or an officer
of the Corporation authorized by the President shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V
STOCK
Section 1. Certificates of Stock. Each stockholder shall be entitled to
a certificate signed by, or in the name of the Corporation by, the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer, certifying the number of shares owned by
him or her. Any or all of the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock. Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section 4
of Article V of these Bylaws, an outstanding certificate for the number of
shares involved shall be surrendered for cancellation before a new certificate
is issued therefor.
Section 3. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date on
which the resolution fixing the record date is adopted and which record date
shall not be more than sixty (60) days nor less than ten (10) days before the
date of any meeting of shareholders, nor more than sixty (60) days prior to the
time for such other action as hereinbefore described; provided, however, that if
no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given or, if notice is not waived, at the close of business
on the day next preceding the day on which the meeting is held, and, for
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the
<PAGE> 10
record date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
NOTICES
Section 1. Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or by sending such notice by pre-paid
telegram or mailgram. Any such notice shall be addressed to such stockholder,
director, officer, employee or agent at his or her last known address as the
same appears on the books of the Corporation. The time when such notice is
received, if hand delivered, or dispatched, if delivered through the mails or by
telegram or mailgram, shall be the time of the giving of the notice.
Section 2. Waivers. A written waiver of any notice, signed by a
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures. In addition to the provisions for use
of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Treasurer or by an Assistant Secretary or Assistant Treasurer.
<PAGE> 11
Section 3. Reliance upon Books, Reports and Records. Each director,
each member or any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his or her duties, be
fully protected in relying in good faith upon the books of account or other
records of the Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of its officers or employees, or
committees of the board of Directors so designated, or by any other person as to
matters which such director or committee member reasonably believes are within
such other person's professional or expert competence or who has been selected
with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
Section 5. Time Periods. In applying any provision of these Bylaws
which requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of the doing of
the act shall be excluded, and the day of the event shall be included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or an officer of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation broader indemnification rights than
such law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes and or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith; provided,
however, that, except as provided in Section 3 of this Article VIII with respect
to proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right of
indemnification provided for in this Section 1 is subject to the limitation
provided in Section 7 and elsewhere in this Article VIII.
Section 2. Right to Advancement of Expenses. The right to
indemnification conferred in Section 1 of this Article VIII shall include the
right to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that an advancement of expenses incurred by an
indemnitee in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such indemnitee, including,
without limitation, service to an employee benefit plan) shall be made only (I)
upon delivery
<PAGE> 12
to the Corporation of an undertaking (hereinafter an "undertaking"), by or on
behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 2 or otherwise, (ii) if the Corporation shall be insured against any
such advances or (iii) if a majority of a quorum of the disinterested, non-party
directors of the Corporation, or an independent legal counsel in a written
opinion, shall determine, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to believe that the
indemnitee ultimately will be found entitled to indemnification. The rights to
indemnification and to the advancement of expenses conferred in Sections 1 and 2
of this Article VIII shall be contract rights and such rights shall continue as
to an indemnitee who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
Section 3. Right of Indemnitee to Bring Suit. If a claim under Section
1 or 2 of this Article VIII is not paid in full by the Corporation within sixty
(60) days after a written claim has been received by the Corporation, except in
the case of a claim for an advancement of expenses, in which case the applicable
period shall be twenty (20) days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of the
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In
(a) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense
that, and
(b) in any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall
be entitled to recover such expenses upon final adjudication that,
the indemnitee has not met any applicable standard for indemnification set forth
in the Delaware General Corporation Law or Section 7 of this Article VIII.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation Law and
Section 7 of this Article VIII, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article VIII or otherwise, shall be on the Corporation.
Section 4. Non-Exclusivity of Rights. The rights to indemnification and
to the advancement of expenses conferred in this Article VIII shall not be
exclusive of any other right which any person
<PAGE> 13
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law; provided, however,
that no insurance may be obtained for the purpose of indemnifying any disabling
conduct, as defined in Section 7 of this Article VIII.
Section 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the Corporation to the fullest extent of the provisions
of this Article with respect to the indemnification and advancement of expenses
of directors and officers of the Corporation.
Section 7. Limitation for Disabling Conduct. Notwithstanding any of the
foregoing, the Corporation may not indemnify any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which such director or officer might otherwise be subject by reason of
"disabling conduct," as hereinafter defined.
(a) In the case of a director or officer of the Corporation, such
determination shall include a determination that the liability for which such
indemnification is sought did not arise by reason of such person's disabling
conduct. Such determination may be based on:
(I) a final decision on the merits by a court or other body
before whom the action, suit or proceeding was brought that the person
to be indemnified was not liable by reason of disabling conduct, or
(ii) in the absence of such a decision, a reasonable
determination, based on a review of the facts, that the person to be
indemnified was not liable by reason of such person's disabling conduct
by
(A) the vote of majority of a quorum of directors who are
disinterested, non-party directors, or
(B) an independent legal counsel in a written opinion. In
making such determination, such disinterested, non-party
directors or independent legal counsel, as the case may be,
may deem the dismissal for insufficiency of evidence of any
disabling conduct of either a court action or an
administrative proceeding against a person to be indemnified
to provide reasonable assurance that such person was not
liable by reason of disabling conduct.
15
<PAGE> 14
(b) For the purpose of this Section:
(I) "disabling conduct" of a director or officer shall mean such
person's willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office;
(ii) "disinterested, non-party director" shall mean a director of
the Corporation who is neither an "interested person" of the
Corporation as defined in Section 2(a)(19) of the Investment Company
Act of 1940 nor a party to the action, suit or proceeding in connection
with which indemnification is sought;
(iii) "independent legal counsel" shall mean a lawyer who is not,
and at least two (2) years prior to his engagement to render the
opinion in question has not been, employed or retained by the
Corporation, by any investment advisor to or the principal underwriter
for the Corporation, or by any person affiliated with any of the
foregoing; and
(iv) "the Corporation" shall include any wholly-owned subsidiary
of the Corporation and, in addition to the resulting Corporation, any
constituent Corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence
had continued, would have had power and authority to indemnify its
directors, officers, employees or agents.
ARTICLE IX
AMENDMENTS
These Bylaws may be amended or repealed by the Board of Directors at
any meeting or by the stockholders at any meeting.
THE AMENDED AND RESTATED BY-LAWS WERE ADOPTED AS OF DECEMBER 12, 1996.
<PAGE> 1
EXHIBIT 10.1.a
First Amendment to Investment Advisory Agreement
between the Corporation and InvestAmerica Investment
Advisors, Inc., dated August 1, 1996
<PAGE> 2
FIRST AMENDMENT TO MACC PRIVATE EQUITIES INC.
INVESTMENT ADVISORY AGREEMENT
THIS FIRST AMENDMENT TO MACC PRIVATE EQUITIES INC. INVESTMENT ADVISORY
AGREEMENT (the "First Amendment"), dated as of August 1, 1996, amends the terms
of the MACC Private Equities Inc. Investment Advisory Agreement (the
"Agreement") dated as of October 1, 1994, among MACC Private Equities Inc. (the
"Corporation") and InvestAmerica Investment Advisors, Inc. ("InvestAmerica").
All terms and conditions of the Agreement shall remain in full force and effect
except as expressly amended herein. All capitalized terms used but not defined
herein shall have their respective meanings set forth in the Agreement.
WHEREAS, the original term of the Agreement was for two years from the
date thereof, through September 30, 1996, subject to annual continuance
thereafter in accordance with Section 15 of the Investment Company Act of 1940,
as amended, by a majority of the Board of Directors of the Corporation who are
not interested persons of InvestAmerica, or by a vote of the holders of a
majority of the Corporation's outstanding voting securities;
WHEREAS, at a meeting duly held on June 12, 1996, a majority of the
Board of Directors of the Corporation who are not interested persons of
InvestAmerica, having requested from InvestAmerica and received and evaluated
such information as deemed reasonably necessary to evaluate the terms of the
Agreement, determined that the continuance of the Agreement for an additional
one-year term was in the best interests of the Corporation;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
Pursuant to Section 7 of the Agreement, the term of the Agreement shall
be continued in effect for a one year period from October 1, 1996 through
September 30, 1997.
IN WITNESS WHEREOF, the undersigned have executed this FIRST AMENDMENT
TO MACC PRIVATE EQUITIES INC. INVESTMENT ADVISORY AGREEMENT dated as of August
1, 1996.
MACC PRIVATE EQUITIES INC.
By /s/ Paul M. Bass, Jr.
---------------------------------
Paul M. Bass, Jr., Chairman
INVESTAMERICA INVESTMENT
ADVISORS, INC.
By /s/ David R. Schroder
---------------------------------
David R. Schroder, President
<PAGE> 1
EXHIBIT 10.2.a
First Amendment to Investment Advisory Agreement
between MorAmerica Capital Corporation and
InvestAmerica Investment Advisors, Inc.,
dated August 1, 1996
<PAGE> 2
FIRST AMENDMENT TO MORAMERICA CAPITAL CORPORATION
INVESTMENT ADVISORY AGREEMENT
THIS FIRST AMENDMENT TO MORAMERICA CAPITAL CORPORATION INVESTMENT
ADVISORY AGREEMENT (the "First Amendment"), dated as of August 1, 1996, amends
the terms of the MorAmerica Capital Corporation Investment Advisory Agreement
(the "Agreement") dated as of October 1, 1994, among MorAmerica Capital
Corporation (the "Corporation") and InvestAmerica Investment Advisors, Inc.
("InvestAmerica"). All terms and conditions of the Agreement shall remain in
full force and effect except as expressly amended herein. All capitalized terms
used but not defined herein shall have their respective meanings set forth in
the Agreement.
WHEREAS, the original term of the Agreement was for two years from the
date thereof, through September 30, 1996, subject to annual continuance
thereafter in accordance with Section 15 of the Investment Company Act of 1940,
as amended, by a majority of the Board of Directors of the Corporation who are
not interested persons of InvestAmerica, or by a vote of the holders of a
majority of the Corporation's outstanding voting securities;
WHEREAS, at a meeting duly held on June 12, 1996, a majority of the
Board of Directors of the Corporation who are not interested persons of
InvestAmerica, having requested from InvestAmerica and received and evaluated
such information as deemed reasonably necessary to evaluate the terms of the
Agreement, determined that the continuance of the Agreement for an additional
one-year term was in the best interests of the Corporation;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
Pursuant to Section 7 of the Agreement, the term of the Agreement shall
be continued in effect for a one year period from October 1, 1996 through
September 30, 1997.
IN WITNESS WHEREOF, the undersigned have executed this FIRST AMENDMENT
TO MORAMERICA CAPITAL CORPORATION INVESTMENT ADVISORY AGREEMENT dated as of
August 1, 1996.
MORAMERICA CAPITAL CORPORATION
By /s/ Paul M. Bass, Jr.
---------------------------------
Paul M. Bass, Jr., Chairman
INVESTAMERICA INVESTMENT
ADVISORS, INC.
By /s/ David R. Schroder
---------------------------------
David R. Schroder, President
<PAGE> 1
EXHIBIT 13
1996 Annual Report to Stockholders
<PAGE> 2
- --------------------------------------------------------------------------------
M A C C
Private Equities Inc.
ANNUAL REPORT
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<PAGE> 3
CORPORATE PROFILE
MACC Private Equities Inc. (Nasdaq National Market: MACC) (the
"Corporation") is a Delaware corporation, formed on March 3, 1994, to be the
successor in interest to MorAmerica Financial Corporation and the sole
shareholder of MorAmerica Capital Corporation ("MorAmerica Capital"), a small
business investment company licensed in 1959. The Corporation and MorAmerica
Capital are both regulated under the federal securities laws as business
development companies.
As business development companies, the Corporation and MorAmerica
Capital focus the majority of their investing activities in U.S.-owned
businesses with annual sales volume ranging from $1,000,000 to $30,000,000. The
companies also provide managerial support to their portfolio companies,
generally through membership on the board of directors.
Typically, the companies invest in businesses with at least five to
eight years of operating experience; however, occasionally a minor portion of
their consolidated investment portfolio may consist of earlier stage ventures.
MorAmerica Capital's investment portfolio traditionally has been concentrated on
manufacturing and service businesses with no focus on any single technology or
industry.
MACC PRIVATE EQUITIES INC. SHARE DATA
[GRAPH]
The investment strategy of the Corporation and MorAmerica Capital is to
realize capital gains from portfolio investment divestitures and liquidity
events five to seven years after the initial investment. In order to earn a high
return and to balance the Corporation's current expenses, the Corporation and
MorAmerica Capital seek current yielding investments with equity features, such
as preferred stock or debentures with warrants.
Table of Contents
================================================================================
<TABLE>
<S> <C>
To Our Shareholders.............................. 3
Selected Financial Data.......................... 5
Management's Discussion and Analysis............. 6
Financial Statements............................. 15
Shareholder Information.......................... 35
</TABLE>
================================================================================
2
<PAGE> 4
TO OUR SHAREHOLDERS
Although Fiscal Year 1996 was a year of progress for the Corporation and
our shareholders, the year was also a year of loss. On September 11, 1996, Steve
Massey, Vice President of both the Corporation and the Investment Adviser,
passed away. Steve was a valued and respected member of our team. We will truly
miss him and extend our most sincere sympathies to his family.
PROGRESS TOWARD CORPORATE GOALS
When we started Fiscal Year 1996, the Corporation reaffirmed its primary
goal of increased shareholder value. A 3% increase in net asset value per share
and a 29% increase in closing market bid price per share were achieved this
year.
Several factors contributed to our progress toward this objective.
First, the Corporation invested $5,135,249 during Fiscal Year 1996. When
contrasted with a total of $4,082,089 invested during the twelve months ended
September 30, 1995, this 25.8% increase in portfolio investment activity was
substantial. The higher level of new and follow-on investments was desirable in
order to replenish and to increase the Corporation's total number of portfolio
investments.
Most of the Corporation's portfolio investments are expected to mature
in five to seven years. Therefore, the Corporation's higher investment levels in
fiscal years 1995 and 1996 support additional possible long-term capital growth.
In order to increase long-term shareholder value, the Corporation took
several steps to raise the market price per share compared to the net asset
value per share ("book value per share"). Although not technically a closed-end
mutual fund, in some respects, the Corporation is valued like one by market
participants. In recent months, shares of closed-end mutual funds generally have
traded at substantial discounts from book value per share. As illustrated in the
MACC Private Equities Inc. Share Data chart on page 2, shares of the
Corporation's Common Stock ended fiscal year 1995 with a closing market bid
price per share of $7 3/8 on September 30, 1995, which represented 43% of the
book value per share of $17.24 on that date.
In an important step to increase the market price in comparison to the
book value per share, the Corporation sought to improve liquidity for the
Corporation's shareholders by changing the trading market for the Corporation's
Common Stock. On February 8, 1996, the Corporation announced that the primary
trading market for the Corporation's Common Stock would advance from the Nasdaq
SmallCap Market to the Nasdaq National Market. This move met with the immediate
approval of the market, and on February 9, 1996, the bid price for shares of the
Common Stock closed up 1/8 at $8, which represented 46% of the book value per
share of $17.52 at December 31, 1995.
MACC PRIVATE EQUITIES INC. PRICE/BOOK VALUE PER SHARE
[GRAPH]
In an additional step that helped to increase shareholder value, the
Corporation undertook a Commission-Free Shareholder Sales Plan during fiscal
year 1996. Pursuant to this program, the Corporation repurchased 50,715 shares
of the Common Stock from those shareholders who owned less than 100 shares each.
These shareholders had expressed an interest in an economical way to achieve
liquidity in their investments (without incurring brokerage costs), and the
Corporation was pleased to provide this service to its shareholders.
Our shareholders further benefited from an Agreement, dated May 13, 1996,
with Zions Bancorporation (Nasdaq National Market: ZION)
3
<PAGE> 5
("Zions"), a regional bank holding company. Zions is an experienced venture
capital investor through its ownership of the Wasatch Venture Fund. Pursuant to
this Agreement, Zions agreed to purchase 20,000 shares of the Corporation's
Common Stock for a price equal to the March 31, 1996, book value per share of
$17.70, and indicated its intention to increase its total ownership of the
Corporation's Common Stock to up to 25% of the issued and outstanding shares
through additional open-market purchases. Zions' willingness to purchase shares
of the Common Stock at a price equal to 100% of book value per share represented
a significant vote of confidence in your Corporation from an experienced player
in our industry. Following the announcement of the Agreement on May 15, 1996,
the market bid price for shares of the Common Stock closed up $ 1 1/4 at $10 1/4
on May 16, 1996, which represented 58% of book value per share of $17.70 at
March 31, 1996.
From September 30, 1995, to September 30, 1996, shareholders have achieved
significant growth in the value of their investments in the Corporation, both in
terms of the increase in the market price and in terms of the decrease in the
gap between market price and book value per share. Over the life of the
Corporation, as is indicated in the MACC Private Equities Inc. Share Data chart
on page 2, the closing market bid price for the Corporation's Common Stock
increased from $5 on March 31, 1995 (the last day of the first month in which
trading in the Corporation's Common Stock commenced) and from $7 3/8 on
September 30, 1995, to $9 1/2 on September 30, 1996, increases of 90% and 29%,
respectively. We were pleased with the results of our efforts in this regard and
will continue to build value to reward our shareholders.
FINANCIAL PERFORMANCE
The Corporation achieved a net asset value per share of $17.71 as of
September 30, 1996, an increase of approximately 3% as compared to net asset
value per share of $17.24 on September 30, 1995. Additionally, the Corporation
achieved net realized gains on portfolio investments of $906,172 and a pre-tax
net change in net assets from operations of $(1,255).
In connection with the Agreement with Zions, the Board of Directors
increased MorAmerica Capital's paid-in-capital from $7,575,000 to $10,110,000.
This change increases MorAmerica Capital's maximum single investment size from
$1,675,000 to $2,181,800 and thus supports larger investments as projected in
the Corporation's growth plans.
OPERATIONS - INVESTMENT AND DIVESTITURE ACTIVITY
During Fiscal Year 1996, the Corporation made total investments of
$5,135,249 in four new portfolio companies and in follow-on investments in eight
existing portfolio companies. The Corporation's investment-level objectives on a
consolidated basis call for new and follow-on investments of approximately
$8,500,000 during fiscal year 1997.
Divestitures and portfolio company liquidity events for fiscal year 1996
were significant with $2,182,973 in realized gains from the sale of investments
in six portfolio companies. Over the same period, $1,276,801 in realized losses
were recognized from four portfolio companies, for a net realized gain on
investments of $906,172.
Most of the Corporation's portfolio investments are expected to mature five
to seven years after the initial investment. The Corporation continues to review
a number of promising investment prospects and will pursue profitable
divestiture opportunities whenever possible.
In conclusion, fiscal year 1996 was an eventful year for the Corporation
and our shareholders. We appreciate the trust placed in us by our shareholders,
and we will strive to continue to reward that trust by working to create
increases in shareholder value.
Paul M. Bass, Jr. David R. Schroder,
Chairman President
4
<PAGE> 6
SELECTED FINANCIAL DATA
MACC PRIVATE EQUITIES INC.(1)
For the Fiscal Years Ending September 30,
<TABLE>
<CAPTION>
Seven and One- Four and One-
Half Months Half Months
Ended Sept. 30, Ended Feb. 15,
1996 1995 1995 1994 1993 1992(4)
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Investment (expense) $ (89,576) 103,653 (17,776)(2) (1,613,419)(2) (2,613,832)(2) (5,144,766)
income net
Net realized gain (loss) on 514,172 1,102,697 4,514,338 (448,784) 1,051,036 395,704
investments, net of tax
Net change in unrealized
appreciation/depreciation on
investments (641,851) 586,458 (948,191) 2,292,753 (3,391,714) (2,467,761)
------------ ---------- ---------- ----------- ------------ -----------
Net (decrease) increase in
net assets or (increase) $ (217,255) 1,792,808 3,548,371 230,550 (4,954,510) (7,216,823)
decrease in net deficit from ============ ========== ========== =========== ============ ===========
operations
Extraordinary item - gain - - - 11,622,270 - -
on extinguishment of debt ------------ ---------- ---------- ----------- ------------ -----------
Net (decrease) increase in
net assets or (increase)
decrease in net deficit from $ (217,255) 1,792,808 3,548,371 11,852,820 (4,954,510) (7,216,823)
operations ============ ========== ========== =========== ============ ===========
Net (decrease) increase in
net assets or (increase)
decrease in net deficit from
operations per common $ (0.23)(5) 1.80 3.56 (3) 119.52 (2,568.43) (3,741.22)
share before extraordinary ============ ========== ========== =========== ============ ===========
item
Extraordinary item per - - - 6,025.02 - -
common share ------------ ---------- ---------- ----------- ------------ -----------
Net (decrease) increase in
net assets or net (increase)
decrease in net deficit from $ (0.23) 1.80 3.56 6,144.54 (2,568.43) (3,741.22)
operations per common ============ ========== ========== =========== ============ ===========
share
Total assets $ 27,906,798 28,006,385 25,775,717 22,781,482 22,995,992 27,307,503
============ ========== ========== =========== ============ ===========
Total long term debt $ 10,236,250 10,228,647 10,224,152 54,772,521 65,764,431 64,785,150
============ ========== ========== =========== ============ ===========
</TABLE>
- -----------------
1 Four and one-half months ended February 15, 1995 and fiscal years ended
September 30, 1994, through 1992, represent selected financial data of
MorAmerica Financial Corporation, the predecessor to the Corporation.
2 Including $253,908, $624,527 and $586,095 of reorganization expenses in the
four and one-half months ended February 15, 1995, 1994 and 1993, respectively.
3 Computed using 996,539 shares outstanding at February 15, 1995.
4 Data related to operations for the year ended September 30, 1992, have been
derived from MorAmerica Financial Corporation's unaudited consolidated
statement of operations.
5 Computed using 964,098 shares outstanding at September 30, 1996.
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 (the "1995 Act"). Such
statements are made in good faith by the Corporation pursuant to the safe-harbor
provisions of the 1995 Act. In connection with these safe-harbor provisions, the
Corporation has identified in the "Risks" Section below important factors that
could cause actual results to differ materially from those contained in any
forward-looking statement made by or on behalf of the Corporation. The
Corporation further cautions that the factors identified in the "Risks" Section
are not exhaustive or exclusive. The Corporation does not undertake to update
any forward-looking statement which may be made from time to time by or on
behalf of the Corporation.
Introduction
The Corporation was formed as a Delaware corporation on March 3, 1994. The
Corporation's wholly-owned subsidiary, MorAmerica Capital, is an Iowa
corporation incorporated in 1959 and has been licensed as a small business
investment corporation since that year.
The Corporation is the successor in interest to MorAmerica Financial
Corporation ("MorAmerica Financial"), which operated a variety of financial
service businesses, principally including state-chartered savings associations
known as "Morris Plan" companies, a mortgage lending company and MorAmerica
Capital. On February 19, 1993, MorAmerica Financial and its principal
subsidiary, Morris Plan Liquidation Company ("Morris Plan"), filed for
protection under Chapter 11 of the United States Bankruptcy Code. On December
28, 1993, the Bankruptcy Court confirmed the MorAmerica Financial and Morris
Plan Amended Debtors' Joint Plan of Reorganization (the "Plan").
Pursuant to the terms of the Plan, MorAmerica Financial was merged with and
into the Corporation. The effective date of the Plan was February 15, 1995, the
date upon which all issued and outstanding shares of the Corporation's common
stock were issued to creditors of the predecessor companies.
Because the Corporation adopted fresh-start accounting on February 15, 1995,
the Financial Statements on a fresh-start basis are not comparable to those of
the predecessor companies. Accordingly, the Consolidated Statements of Changes
in Net Assets (Deficit) are presented on a predecessor-successor company basis
for fiscal year 1995.
Because of the diversity of financial service businesses operated by
MorAmerica Financial, the consolidated financial statements of MorAmerica
Financial for periods ended prior to the fresh-start date are not necessarily
representative of the results of operations of the Corporation or MorAmerica
6
<PAGE> 8
Capital because the continuing business of the Corporation on a consolidated
basis has been and continues to be solely venture capital investing. Moreover,
the portfolio investments of the Corporation and MorAmerica Capital are expected
to mature in five to seven years, and the current principals of the Investment
Advisor have managed the Corporation and MorAmerica Capital throughout the
10-year period shown below. Accordingly, for purposes of discussing the results
of operations of the Corporation for the current fiscal year, as compared to the
results of operations of the Corporation and MorAmerica Capital for prior fiscal
years, the financial results of solely the venture capital operations for the
ten fiscal years ended September 30, 1996, through September 30, 1987, are set
forth in the following table. The table sets forth financial information solely
for MorAmerica Capital for the years ended September 30, 1987, through the four
and one-half months ended February 15, 1995, and for the Corporation and
MorAmerica Capital on a consolidated basis for periods ended after February 15,
1995. The following table should not be relied upon to the exclusion of the
audited financial statements or the selected financial data included elsewhere
in this Annual Report.
VENTURE CAPITAL OPERATIONS(1)
FOR THE FISCAL YEARS ENDING SEPTEMBER 30,
(IN THOUSANDS ONLY)
<TABLE>
<CAPTION>
Seven and One- Four and One-
Half Months Half Months
Ended Sept. 30, Ended Feb. 15,
1996 1995 1955 1994 1993 1994
---- ---- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Investment (expense) $ (266) (66) (204) (1,011) (1,135) (513)
income before income tax
Income tax benefit 176 170 40 0 0 126
------ ----- ------ ----- ------ ------
Investment (expense)
income, net (90) 104 (164) (1,011) (1,135) (387)
------ ------ ------ ------ ------ ------
Net realized gain (loss) on
investments before income tax 906 948 6,217 (449) 1,051 396
Income tax (expense) benefit (392) 155 (1,206) 0 0 (179)
------ ----- ------ ----- ------ ------
Net realized gain (loss) on
investments, net 514 1,103 5,011 (449) 1,051 217
------ ----- ------ ----- ------ ------
Net change in unrealized
appreciation/depreciation on
investments (642) 586 (3,150) 2,340 (2,394) (2,468)
------ ----- ------ ----- ------ ------
Net (decrease) increase in
net assets from operations $ (218) 1,793 1,697 880 (2,478) (2,638)
====== ===== ====== ===== ====== ======
</TABLE>
- ------------------------
1 Fiscal year 1996 and seven and one-half months ended September 30, 1995,
represent selected financial data of the Corporation on a consolidated basis.
All other periods represent selected financial data of MorAmerica Capital on
an unconsolidated basis. Data related to the results of operations of
MorAmerica Capital on an unconsolidated basis have been derived from
MorAmerica Capital's audited Annual Financial Report on Small Business
Administration Form 468.
7
<PAGE> 9
VENTURE CAPITAL OPERATIONS(1)
FOR THE FISCAL YEARS ENDING SEPTEMBER 30,
(IN THOUSANDS ONLY)
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Investment (expense)
income before income tax (816) (172) (646) (1,191) (1,471) (1,066)
Income tax benefit 314 68 263 0 0 0
----- ------ ------ ------ ----- ------
Investment (expense)
income, net (502) (104) (383) (1,191) (1,471) (1,066)
----- ------ ------ ------ ----- ------
Net realized gain (loss) on
investments before income tax 1,779 6,852 17,907 4,675 170 (1,100)
Income tax (expense) benefit (685) (2,725) (7,310) (125) 0 35
----- ------ ------ ------ ----- ------
Net realized gain (loss) on
investments, net 1,094 4,127 10,597 4,550 170 (1,065)
----- ------ ------ ------ ----- ------
Net change in unrealized
appreciation/depreciation on
investments 392 (6,081) (4,417) (2,256) 4,446 2,443
----- ------ ------ ------ ----- ------
Net (decrease) increase in
net assets from operations 984 (2,058) 5,797 1,103 3,145 312
===== ====== ====== ====== ===== ======
</TABLE>
- --------------------
1 Fiscal year 1996 and seven and one-half months ended September 30, 1995,
represent selected financial data of the Corporation on a consolidated basis.
All other periods represent selected financial data of MorAmerica Capital on
an unconsolidated basis. Data related to the results of operations of
MorAmerica Capital on an unconsolidated basis have been derived from
MorAmerica Capital's audited Annual Financial Report on Small Business
Administration Form 468.
Results of Operations
Total investment income includes the Corporation's income from
interest, dividends and fees. Net investment income represents total income
minus operating and interest expenses, net of applicable income taxes. The main
objective of portfolio company investments is to achieve capital appreciation,
and realized gains and losses from, and unrealized appreciation and depreciation
in, portfolio investments are not included within total investment income.
However, consistent with one of the Corporation's long-term goals of achieving
net investment income and increased earnings stability in future years, a
significant proportion of new portfolio investments are structured so as to
provide a current yield through interest or dividends. The Corporation also
earns interest on short term investments of cash funds.
For fiscal year 1996, total investment income was $1,689,791, total
operating expenses were $1,955,367, tax benefit equaled $176,000, and net
investment expense was $89,576. During the twelve months ended September 30,
1995, the Corporation had reserved $200,000 for a potential loss from a personal
injury lawsuit against a subsidiary of the Corporation. This lawsuit was settled
8
<PAGE> 10
during fiscal year 1996 at a cost to the Corporation of $187,500. The
Corporation expects to recoup 35% of this sum from the liquidation estate of the
Corporation's insurer, and a corresponding receivable was booked during fiscal
year 1996.
The net investment expense of $89,576 for the current fiscal year was an
improvement over net investment expense for the twelve months ended September
30, 1995, of $168,031. This net investment expense level also represents a
substantial improvement over the net investment expense of MorAmerica Capital
for fiscal years prior to the twelve months ended September 30, 1995. The
Corporation views this as a significant step toward meeting its goal of
achieving net investment income and increased earnings stability, and
anticipates that the higher level of current-yielding portfolio investments to
be made in future periods may increase total income during such periods.
In order to progress further toward this goal by decreasing operating
expenses, the Corporation instituted a program whereby during fiscal year 1996
it repurchased 50,715 of the outstanding shares of the Corporation's Common
Stock from holders owning fewer than 100 shares ("odd-lot shareholders"). These
repurchases removed approximately 676 beneficial owners of the Common Stock, and
accordingly, the Corporation believes that these repurchases may result in lower
shareholder communication expenses in future periods.
Net realized gain on investments for fiscal year 1996 totaled $906,172.
These gains substantially contributed to the net gain on investments before
income taxes of $264,321 for the current fiscal year. While the Corporation had
a net decrease in net assets from operations of $217,255, this decrease was
offset on a net asset per share basis by the Corporation's Common Stock
repurchases from odd-lot shareholders. The net effect of these repurchases,
which were made at market price in accordance with the rules of the Securities
and Exchange Commission, was an increase of approximately $.39 in net asset
value per share of the Common Stock. Because of the substantial interest and
participation in this program by the odd-lot shareholders and because a
significant percentage of the Corporation's shareholder base continues to
consist of odd-lot shareholders, the Corporation intends to offer a similar
program during fiscal year 1997. To the extent that the Common Stock continues
to trade at a significant discount from net asset value per share, the
Corporation anticipates that the fiscal year 1997 repurchase program, if
completed, would also result in an increase in net asset value per share.
Most of the Corporation's portfolio investments are structured to mature in
five to seven years. Management does not attempt to maintain a comparable level
of realized gains from year to year, but instead attempts to maximize total
investment portfolio appreciation through realizing gains in the disposition of
securities and investing in new portfolio investments. Due to the provisions of
the plans of reorganization under which MorAmerica Financial operated during
1986-1993, a substantial percentage of the proceeds from MorAmerica Capital's
portfolio company liquidity events and divestitures was paid out to creditors of
the Corporation's predecessor entities, and therefore, MorAmerica Capital made
fewer portfolio investments during this period. During fiscal years 1995 and
1996, MorAmerica Capital recorded higher levels of new and follow-on portfolio
investments, and the Corporation anticipates that MorAmerica Capital will
continue these higher
9
<PAGE> 11
portfolio investment levels over the foreseeable future. As an ordinary element
of its investment cycle, the Corporation typically experiences unrealized
depreciation and/or realized losses on portfolio investments before it
experiences unrealized appreciation and/or realized gains. Accordingly, the
Corporation anticipates that it may realize fewer portfolio company liquidity
events and divestitures and may experience a higher level of unrealized
depreciation and/or realized losses on portfolio investments over the next one
to three years, and, as a result, the Corporation's net asset value growth, if
any, may slow over this period. The Corporation anticipates that the growth rate
in net asset value per share will increase again over the next three to ten year
period, and will be reflective of the recent and anticipated higher investment
levels.
Income Taxes
During fiscal year 1996 the Corporation utilized a portion of its deferred
tax assets relating to net operating loss carry forwards at the fresh-start date
and utilized all of its capital loss carryforwards generated in fiscal year
1995. Under fresh-start reporting, such utilization resulted in a charge to
operations of $184,000 during the current year for the reduction in deferred tax
assets. Also during fiscal year 1996, the Corporation recorded a net increase of
$81,000 in deferred tax assets based upon its projection of future taxable
income, resulting in an increase in paid in capital of $265,000 for the current
year under fresh-start reporting. During the Fourth Quarter, income tax expense
and the income tax effect credited to paid-in capital were reduced by $386,000
and $440,000 respectively.
Financial Condition, Liquidity and Capital Resources
To date, the Corporation has relied upon several sources to fund its
investment activities, including the Corporation's U.S. treasury bills, cash
equivalents and cash, and the Small Business Investment Company ("SBIC") capital
program operated by the Small Business Administration (the "SBA").
The Corporation, through its wholly-owned subsidiary, MorAmerica Capital,
from time to time may seek to procure additional capital through the SBIC
capital program to provide a portion of its future investment capital
requirements. At present there is availability of capital through the SBIC
program and the Corporation anticipates that there will be capital available in
future periods. The Corporation also believes that recently enacted federal
legislation which permits SBICs to obtain debt financing from federal home loan
banks may provide an additional source of debt financing for the Corporation.
As of September 30, 1996, the Corporation's U.S. treasury bills, cash
equivalents and cash collectively totaled $14,181,406. The Corporation believes
that this provides adequate funds for the Corporation's planned $8,500,000 in
new and follow-on investment activities during fiscal year 1997. The Corporation
does not now need additional capital to meet its anticipated cash requirements
over the next twelve months, including investment activities, operating expenses
and odd-lot shareholder stock repurchases.
10
<PAGE> 12
Liquidity for the next several years will not be impacted by principal
payments on the Corporation's debentures payable because there are no scheduled
principal payments until 2000. Debentures payable are composed of $10,290,000 in
principal amount of SBA-guaranteed debentures issued by the Corporation's
subsidiary, MorAmerica Capital, which mature as follows: $2,450,000 in 2000,
$5,690,000 in 2001 and $2,150,000 in 2003.
While additional capital is not anticipated to be required during fiscal
year 1997, the Corporation anticipates that it may seek additional capital in
future years, either in the form of additional SBA-guaranteed debentures or
participating securities issued by MorAmerica Capital or in the form of common
stock of the Corporation, to fund growth of the Corporation, to meet principal
payments as the outstanding SBA-guaranteed debentures become due and payable and
for other corporate purposes.
Portfolio Activity
The Corporation's investment level objectives for fiscal year 1996 called
for total new and follow-on investments of $7,000,000. During this period, the
Corporation invested $5,135,249 in twelve portfolio companies. Of this amount,
$4,110,584 was invested in four new portfolio companies and $1,024,665 was
invested in follow-on investments in eight existing portfolio companies.
Although the Corporation did not achieve its investment level objective for the
current fiscal year, the $5,135,249 in total new and follow-on investments made
during fiscal year 1996 represents a substantial improvement over total
portfolio investment levels of prior one-year periods. Management attributes the
Corporation's lower than planned investment level during fiscal year 1996 to the
highly competitive industry in which the Corporation operates and the attendant
difficulty in predicting the timing of new and follow-on portfolio investments.
Management views investment level objectives for any given year as secondary in
importance to the Corporation's overriding concern of investing only in those
portfolio companies which satisfy the Corporation's investment criteria.
During fiscal year 1996, the Corporation undertook two initiatives which may
contribute to its ability to achieve its investment level objectives during
future periods. On May 13, 1996, the Corporation entered into an Agreement (the
"Agreement") with Zions Bancorporation (Nasdaq National Market: "ZION")
("Zions"), pursuant to which Zions purchased 20,000 newly issued shares of the
Corporation's Common Stock, and further indicated its intention to increase its
total ownership of the Corporation's Common Stock up to 25% of the issued and
outstanding shares. The Corporation anticipates that its new relationship with
Zions, an experienced venture capital investor through its subsidiary, Zions
First National Bank (the "Bank"), and the Bank's subsidiary, the Wasatch Venture
Fund ("Wasatch"), may stimulate increased deal flow for the Corporation during
future periods. In addition, during fiscal year 1996 the Corporation increased
MorAmerica Capital's paid-in-capital from $7,575,000 to $10,110,000. This change
resulted in an increase in MorAmerica Capital's maximum single investment size
from $1,675,000 to $2,181,800, and thus may make available more potential
portfolio investments to MorAmerica Capital during future periods.
Portfolio Changes
11
<PAGE> 13
Set forth in the table below are the significant increases and decreases in
fair value of portfolio company securities held by the Corporation at September
30, 1996, as compared with fair value at September 30, 1995.
<TABLE>
<CAPTION>
FAIR VALUE
-------------------------------------------
Portfolio Company September 30, 1996 September 30, 1995
- ----------------- ------------------ ------------------
<S> <C> <C>
Apertus Technologies $ 81,945 242,222
Environmental Solvents Corp. 1 341,453
The Forgotten Woman -- 300,000
Houghton Acquisition 994,173 400,026
Microdynamics -- 58,603
Portrait Display Labs, Inc. 650,002 445,001
</TABLE>
Determination of Net Asset Value
The net asset value per share of the Corporation's outstanding common stock
is determined quarterly, as soon as practicable after and as of the end of each
calendar quarter, by dividing the value of total assets minus liabilities by the
total number of shares outstanding at the date as of which the determination is
made.
In calculating the value of the total assets, securities that are traded in
the over-the-counter market or on a stock exchange are valued in accordance with
the current valuation policies of the Small Business Administration ("SBA").
Under SBA regulations, publicly traded equity securities are valued by taking
the average of the close (or bid price in the case of over-the-counter equity
securities) for the valuation date and the preceding two days. This policy
differs from the Securities and Exchange Commission's guidelines which utilize
only a one day price measurement. The Company's use of SBA valuation procedures
did not result in a material variance as of September 30, 1996, from valuations
using the Securities and Exchange Commission's guidelines.
All other investments are valued at fair value as determined in good faith
by the Board of Directors. The Board of Directors has determined that all other
investments will be valued initially at cost, but such valuation will be subject
to semi-annual adjustments if the Board of Directors determines in good faith
that cost no longer represents fair value.
Risks
Portfolio Risks
Pursuant to Section 64(b)(1) of the Investment Company Act of 1940, a
business development company is required to describe the risk factors involved
in an investment in the securities of such company due to the nature of the
Corporation's investment portfolio.
Accordingly, the Corporation states that:
12
<PAGE> 14
The portfolio securities of the Corporation consist primarily of securities
issued by small, privately held companies. Generally, little or no public
information is available concerning the companies in which the Corporation
invests, and the Corporation must rely on the diligence of the Investment
Advisor to obtain the information necessary for the Corporation's investment
decisions. In order to maintain their status as business development companies,
the Corporation and MorAmerica Capital both must invest at least 50% of their
total assets in the types of portfolio investments described by Sections
55(a)(1) though 55(a)(3) of the Investment Company Act of 1940, as amended.
These investments generally are securities purchased in private placement
transactions from small privately held companies. Typically, the success or
failure of such companies depends on the management talents and efforts of one
person or a small group of persons, so that the death, disability or resignation
of such person or persons could have a materially adverse impact on such
companies. Moreover, smaller companies frequently have smaller product lines and
smaller market shares than larger companies and may be more vulnerable to
economic downturns. Because these companies will generally have highly leveraged
capital structures, reduced cash flows resulting from an economic downturn may
adversely affect the return on, or the recovery of, the Corporation's
investments. Investment in these companies therefore involves a high degree of
business and financial risk, which can result in substantial losses and should
be considered speculative.
The Corporation's investments primarily consist of securities acquired
directly from the issuers in private transactions, which are usually subject to
restrictions on resale and are generally illiquid. No established trading market
generally exists with regard to such securities, and most of such securities are
not available for sale to the public without registration under the Securities
Act of 1933, as amended, which involves significant delay and expense.
The investments of the Corporation are generally long-term in nature. Many
existing investments do not bear a current yield and a return on such
investments will be earned only after the investment matures or is sold. Most
investments to be made in the future are expected to be structured so as to
return current yields throughout most of the terms of such investments, but will
only produce capital gains, if any, after approximately five to seven years due
to accompanying equity features. There can be no assurance, however, that any of
the Corporation's investments will produce current yields or capital gains.
Operations Risks
The Corporation generally relies on portfolio investment divestitures and
liquidity events, as well as increases in fair value of portfolio investments,
to provide for increases in net asset value, if any, in any period. The
Corporation has stated above that it anticipates that the rate of growth in net
asset value will slow over the next several years, but that the rate of growth
in net asset value may increase following that period due to the higher
investment levels achieved in the last two fiscal years and anticipated to be
achieved into the foreseeable future. The Corporation typically relies on the
sale of portfolio companies in negotiated transactions and on the initial public
offering of portfolio company securities to provide for portfolio investment
divestitures and liquidity events. Accordingly, a contraction in the markets
generally for corporate acquisitions and/or initial public offerings could
13
<PAGE> 15
adversely affect the Corporation's ability to realize capital gains, if any,
from the sale of its portfolio company securities. The SBIC guidelines under
which MorAmerica Capital operates permit the MorAmerica Capital Board of
Directors to determine increases in fair value of unliquidated portfolio
investments based upon a number of factors, including subsequent financings
provided to portfolio companies. Accordingly, decreases in the supply or demand
for additional capital to the Corporation's portfolio companies could adversely
affect MorAmerica Capital's ability to achieve increases, if any, in fair value
of its portfolio investments. The Corporation's failure to achieve its
investment level objectives for any particular year or years could also
adversely affect the rate of increase, if any, in net asset value.
In addition, the Corporation has stated that one of its goals is to
structure more portfolio investments to provide a current yield in order to
provide the Corporation with increased earnings stability. These investments
typically provide for a fixed preferred dividend or interest rate, and have in
the past been partially funded with the proceeds from the sale of SBA-
guaranteed debentures, which also provide for a fixed rate of interest.
Accordingly, the Corporation's ability to earn a net operating profit under its
current strategy could be adversely affected by a decrease in market interest
rates over the next several years because the increased level of portfolio
investments anticipated to be made during this period would reflect these lower
interest rates, which would adversely affect the Corporation's projected total
income over the foreseeable future.
[Remainder of page intentionally left blank]
14
<PAGE> 16
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
MACC Private Equities Inc.:
We have audited the accompanying consolidated balance sheet of MACC Private
Equities Inc. and subsidiaries, including the consolidated schedule of
investments, as of September 30, 1996, and the related consolidated statements
of operations and cash flows for the year ended September 30, 1996, and the
consolidated statements of changes in net assets for the year ended September
30, 1996, the seven and one-half months ended September 30, 1995, and the four
and one-half months ended February 15, 1995. These consolidated financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation or examination of securities owned as of September 30, 1996. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As explained in note 1, MACC Private Equities Inc. and subsidiaries (successor
company) consummated a plan of reorganization on February 15, 1995, and adopted
fresh-start reporting in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code."
Since the financial statements on a fresh-start basis are not comparable with
those of MorAmerica Financial Corporation and subsidiaries (predecessor
company), the statements of changes in net assets are presented on a
predecessor/successor company basis for 1995.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of MACC Private
Equities Inc. and subsidiaries as of September 30, 1996, and the results of its
operations and its cash flows for the year then ended, and changes in net assets
for the year ended September 30, 1996, the seven and one-half months ended
September 30, 1995, and the four and one-half months ended February 15, 1995, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Des Moines, Iowa
October 30, 1996
15
<PAGE> 17
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Balance Sheet
September 30, 1996
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Loans and investments in portfolio securities
at market or fair value, cost of $11,676,141 (note 2) $11,620,748
U.S. treasury bills, at cost, which approximates market 12,202,414
Certificates of deposit 1,657,801
Cash 321,191
Other assets, net 1,011,644
Deferred income taxes (note 5) 1,093,000
-----------
Total assets $27,906,798
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Debentures payable, net of discount (note 3) $10,236,250
Accrued interest 259,662
Accounts payable and other liabilities (note 6) 333,117
-----------
Total Liabilities 10,829,029
-----------
Stockholders' equity (notes 3 and 4):
Common stock, $.01 par value per share;
authorized 2,000,000 shares; issued 964,098 shares. 9,641
Additional paid-in-capital (notes 4 and 5) 15,492,575
Net investment income 14,077
Net realized gain on investments 1,616,869
Unrealized depreciation on investments (55,393)
-----------
Total stockholders' equity 17,077,769
-----------
Commitments (note 6).
Total liabilities and stockholders' equity $27,906,798
===========
Net assets per share $ 17.71
===========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE> 18
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Statement of Operations
Year ended September 30, 1996
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Interest $ 1,405,681
Dividends 108,373
Other 175,737
-----------
Total income 1,689,791
-----------
Operating expenses:
Interest 892,235
Management fees (note 6) 609,436
Professional fees 224,753
Other operating expenses 273,587
Change in provision for doubtful accounts (44,644)
-----------
Total operating expenses 1,955,367
-----------
Investment expense, net
before income tax benefit (265,576)
Income tax benefit (note 5) 176,000
-----------
Investment expense, net (89,576)
-----------
Realized and unrealized gain on investments (note 2):
Net realized gain on investments 906,172
Net change in unrealized appreciation/
depreciation on investments (641,851)
-----------
Net gain on investments
before income taxes 264,321
Income tax expense (note 5) (392,000)
-----------
Net loss on investments (127,679)
-----------
Net change in net assets from operations $ (217,255)
===========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 19
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Net Assets
<TABLE>
<CAPTION>
MACC Private MorAmerica
MACC Private Equities Inc. Financial Corp.
Equities Inc. (Successor Co.) - (Predecessor Co.) -
(Successor Co.) - See note 1 See note 1
See note 1 Seven and one-half Four and one-half
Year ended months ended months ended
September 30, September 30, February 15,
1996 1995 1995
------------ ------------ -----------
<S> <C> <C> <C>
Operations:
Net investment (expense) income $ (89,576) 103,653 (271,684)
Net realized gain on investments, net of tax 514,172 1,102,697 4,514,338
Net change in unrealized (depreciation)
appreciation on investments (641,851) 586,458 (948,191)
----------- ---------- -----------
Net (decrease) increase in
net assets from operations (217,255) 1,792,808 3,294,463
Issuance of common stock (note 4) 354,000 - -
Repurchase/retirement of common stock (note 4) (506,097) - -
Reorganization items - professional fees and other - - 253,908
Recognized income tax benefit of
preconfirmation net operating losses (note 5) 265,000 687,000 -
Cancellation of debt to prepetition debt holders
through issuance of common stock - - 46,615,347
----------- ---------- -----------
Net (decrease) increase in net assets (104,352) 2,479,808 50,163,718
Net assets (deficit):
Beginning of period 17,182,121 14,702,313 (35,461,405)
----------- ---------- -----------
End of period $17,077,769 17,182,121 14,702,313
=========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 20
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year ended September 30, 1996
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Decrease in net assets from operations $ (217,255)
------------
Adjustments to reconcile decrease
in net assets from operations to
net cash provided by operating activities:
Change in provision for doubtful accounts (44,644)
Net realized and unrealized gain on investments (264,321)
Deferred income taxes 184,000
Other 21,793
Change in assets and liabilities:
Receivables and other assets 1,654,204
Accrued interest, accounts payable, and other liabilities (2,838)
------------
Total adjustments 1,548,194
------------
Net cash provided by operating activities 1,330,939
------------
Cash flows from investing activities:
Proceeds from disposition of and payments on
loans and investments in portfolio securities 5,640,383
Purchases of loans and investments
in portfolio securities (5,135,249)
Proceeds from disposition of other investments 18,399,967
Purchases of other investments (21,273,735)
------------
Net cash used in investing activities (2,368,634)
------------
Cash flows from financing activities:
Proceeds from issuance of common stock 354,000
Retirement of common stock (506,097)
------------
Net cash used in financing activities (152,097)
------------
Net decrease in cash and cash equivalents (1,189,792)
Cash and cash equivalents at beginning of year 6,255,803
------------
Cash and cash equivalents at end of year $ 5,066,011
============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 878,482
============
Supplemental disclosure of noncash
investing and financing information -
Assets received in lieu of cash $ 124,000
============
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 21
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1996
(1) Summary of Significant Accounting Policies and Related Matters
Basis of Presentation
The consolidated financial statements include the accounts of MACC
Private Equities Inc. (Equities) and its wholly owned subsidiaries,
MorAmerica Capital Corporation (MACC) and MorAmerica Realty Services,
Inc. (MRS) (the Company, Successor Company) on February 15, 1995, and
thereafter and MorAmerica Financial Corporation and subsidiaries (the
Predecessor Company) prior to February 15, 1995. Equities and MACC
are qualified as business development companies under the Investment
Company Act of 1940. All material intercompany accounts and
transactions have been eliminated. The financial statements have been
prepared in accordance with generally accepted accounting principles
for investment companies. Since February 15, 1995, as discussed
below, the financial statements are presented in accordance with
AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," (SOP 90-7).
On February 15, 1995, the Company consummated a plan of reorganization
(the Plan) as confirmed by the United States Bankruptcy Court for the
Northern District of Iowa on December 28, 1993. Under terms of the
Plan, the Predecessor Company, exclusive of MACC and MRS, merged into
Equities. As of February 15, 1995, the Company adopted fresh-start
reporting in accordance with SOP 90-7, resulting in the Company's
assets and liabilities being adjusted to fair values. Although the
financial statements on a fresh-start basis are not comparable with
those of the Predecessor Company, the Company has presented the 1995
statement of changes in net assets on a predecessor-successor company
basis. As part of the reorganization, $46,615,347 of debt was
canceled through issuance of common stock, as shown in the changes in
net assets for the four and one-half months ended February 15, 1995.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash Equivalents
For purposes of reporting cash flows, the Company considers certificates
of deposit and U.S. treasury bills with maturities of three months or
less from purchase and money market deposit accounts to be cash
equivalents. At September 30, 1996, such amounts totaled $4,744,820.
Loans and Investments in Portfolio Securities
Investments in securities traded on a national securities exchange (or
reported on the NASDAQ national market) are stated at the average of
the bid price on the three final trading days of the valuation
period. Restricted and other securities for which quotations are not
readily available are valued at fair value as determined by the board
of directors. Realization of the carrying value of investments is
subject to future developments (see note 2). Investment transactions
are recorded on the trade date. Identified cost is used to determine
realized gains and losses. Under the provisions of SOP 90-7, the fair
value of loans and investments in portfolio securities on February
15, 1995, the fresh-start date, is considered the cost basis for
financial statement purposes.
(Continued)
20
<PAGE> 22
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies and Related Matters, Continued
Income Taxes
Equities and its subsidiaries are members of a consolidated group for
income tax purposes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the period that includes the enactment date.
Disclosures About Fair Value of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
About Fair Value of Financial Instruments," requires that disclosures
be made regarding the estimated fair value of financial instruments,
which are generally described as cash, contractual obligations, or
rights to pay or receive cash. The carrying amount approximates fair
value for certain financial instruments because of the short-term
maturity of these instruments, including cash, U.S. treasury bills,
certificates of deposit, accrued interest, and accounts payable.
Portfolio investments are recorded at fair value. The consolidated
schedule of investments discloses the applicable fair value and cost
for each security investment, which aggregated to $11,620,748 and
$11,676,141, respectively, at September 30, 1996.
The estimated fair value of long-term debt is $10,600,000 with cost of
$10,290,000. This amount was calculated by discounting future cash
flows through estimated maturity using the borrowing rate currently
available to the Company for debt of similar original maturity.
(2) Loans and Investments in Portfolio Securities
Loans and investments in portfolio securities include debt and equity
securities in small business concerns located throughout the
continental United States, with current concentrations in the Midwest
and Florida. The Company determined that the fair value of its
portfolio securities was $11,620,748 at September 30, 1996. Among the
factors considered by the Company in determining the fair value of
investments were the cost of the investment; developments, including
recent financing transactions, since the acquisition of the
investment; the financial condition and operating results of the
investee; the long-term potential of the business of the investee;
and other factors generally pertinent to the valuation of
investments. However, because of the inherent uncertainty of
valuation, those estimated values may differ significantly from the
values that would have been used had a ready market for the
securities existed, and the differences could be material.
The Company acquired its portfolio securities by direct purchase from the
issuers under investment representation and values the securities on
the premise that, in most instances, they may not be sold without
registration under the Securities Act of 1933. The price of
securities purchased was determined by direct negotiation between the
Company and the seller. All portfolio securities at September 30,
1996, except for Apertus Technologies, Inc. (28,922 common shares
carried at $81,945 with a cost of $250,536), are considered to be
restricted in their disposition and are illiquid.
(Continued)
21
<PAGE> 23
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Debentures Payable
Debentures of MACC guaranteed by the Small Business Administration (SBA)
of $10,290,000 at September 30, 1996, are unsecured. Maturities of
the debentures are as follows:
<TABLE>
<CAPTION>
Interest
Year ending September 30, Debentures rate
------------------------- ---------- ----
<S> <C> <C>
2000 $ 2,450,000 9.30%
2001 5,690,000 9.08
2003 2,150,000 6.12
------------ ======
$ 10,290,000
============
</TABLE>
The debentures contain restrictions on the acquisition or repurchase of
MACC's capital stock, distributions to MACC's shareholder other than
out of undistributed net realized earnings, officers' salaries, and
certain other matters. At September 30, 1996, $2,432,077 of MACC's
undistributed net realized earnings (computed under SBA guidelines)
of $6,137,393 were available for distribution to Equities.
(4) Stockholders' Equity
Transactions in common stock during the year ended September 30, 1996,
were as follows:
<TABLE>
<CAPTION>
Shares Amount
------ ------
<S> <C> <C>
Purchase and retirement of shares (1) (50,715) $(506,080)
Retirement of shares (2) (1,726) (17)
Issuance of shares (3) 20,000 354,000
--------- ---------
Net change (32,441) $(152,097)
========= =========
</TABLE>
The purchase, retirement, and issuance of shares reduced common stock by
$324. Amounts greater than par were allocated to additional paid-in
capital, reducing the balance by $151,773 to $15,227,575 before the
recognized tax benefits of pre-confirmation net operating losses
(note 5).
(1) The Company conducted a Commission-Free Shareholder Sales
Plan purchasing outstanding shares from stockholders with
less than 100 shares.
(2) The Company retired shares held by subsidiaries of the
Company.
(3) On May 13, 1996, the Company entered into an agreement
with Zions Bancorporation (Zions), providing for the
issuance of 20,000 shares of common stock. The agreement
provides that, without the prior approval of the Company's
board of directors, Zions shall not purchase more than 25
percent of the Company's outstanding common stock.
(Continued)
22
<PAGE> 24
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Income Taxes
Income tax expense at September 30, 1996, consists of the following
components:
<TABLE>
<CAPTION>
Federal State Total
------- ----- -----
<S> <C> <C> <C>
Current $ 24,000 8,000 32,000
Deferred 138,000 46,000 184,000
-------- -------- --------
$162,000 54,000 216,000
======== ======== ========
</TABLE>
Income tax expense differed from the amounts computed by applying the
United States federal income tax rate of 34 percent to pre-tax income
due to the following:
<TABLE>
<S> <C>
Computed "expected" tax expense $ -
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal tax effect 36,000
Nontaxable dividend income (37,000)
Recognized tax benefit of
pre-confirmation net operating losses 265,000
Change in the beginning of the period balance
valuation allowance for deferred tax assets (80,000)
Other 32,000
-----------
Income tax expense $ 216,000
===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at September 30, 1996, are as
follows:
<TABLE>
<S> <C>
Net operating loss carryforwards $ 5,416,000
Unrealized depreciation on investments 1,360,000
Other 127,000
------------
Total gross deferred tax assets 6,903,000
Less valuation allowance 5,810,000
------------
Net deferred tax assets $ 1,093,000
============
</TABLE>
The $1,093,000 of deferred tax assets include $265,000 related to net
operating losses at the fresh-start date. This benefit, under SOP
90-7, has been credited to additional paid-in capital of $15,227,575,
resulting in a balance of $15,492,575 at September 30, 1996.
(Continued)
23
<PAGE> 25
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Income Taxes, Continued
The valuation allowance for deferred tax assets as of September 30, 1995,
was $5,890,000. The net change in the total valuation allowance for
the year ended September 30, 1996, was a decrease of $80,000. In
assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary
differences become deductible. Management considers projected future
taxable income and tax planning strategies in making this assessment.
In order to fully realize the deferred tax assets, the Company will
need to generate future taxable income of approximately $17 million
prior to the expiration of the net operating loss carryforwards in
2009. Taxable income for the year ended September 30, 1996, was
approximately $1,547,000. Based upon the level of historical taxable
income of MACC and projections for future taxable income over the
periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the
benefits of these deductible differences, net of the existing
valuation allowance at September 30, 1996.
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of September 30, 1996, will primarily be
allocated to additional paid-in capital under the provisions of SOP
90-7.
At September 30, 1996, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $13,542,000, which
are available to offset future federal taxable income, if any,
through 2009. Approximately $1,492,000 of the carryforwards are
available for the year ending September 30, 1997, with approximately
$1,004,000 available annually thereafter.
(6) Commitments
Management Agreements
Equities has an investment advisory agreement (the Agreement) with
InvestAmerica Investment Advisors, Inc. (IAIA). Three of Equities'
officers are officers and stockholders of IAIA. The Agreement expires
September 30, 1997, but may be renewed annually thereafter by the
board of directors of Equities. The management fee is equal to 2.5
percent of the assets under management, on an annual basis. The
management fee is calculated excluding MACC. In addition, Equities
contracted to pay an incentive fee of 13.4 percent of the net capital
gains (as defined in the Agreement) before taxes on the disposition
of investments. The Agreement may be terminated by either party upon
60 days written notice. Total expenses under the Agreement amounted
to $110,436 for the year ended September 30, 1996. There were no
incentive fees accrued or paid under the Agreement.
MACC has a separate investment advisory agreement with IAIA. This
agreement expires September 30, 1997, but may be renewed annually
thereafter by the board of directors of MACC. The fee is equal to 2.5
percent of the capital under management (as defined in the Agreement)
on an annual basis, but in no event more than 2.5 percent of the
assets under management on an annual basis; plus $5,000 per month
through September 30, 1998. In addition, MACC contracted to pay IAIA
13.4 percent of the net realized capital gains (as defined in the
agreement), before taxes, on investments in the form of an incentive
fee. Capital losses and realized capital gains are not cumulative
under the incentive fee computation. Total expenses (exclusive of
incentive fees) under this agreement amounted to $499,000 for the
year ended September 30, 1996. Total incentive fees were $539,896 for
the year ended September 30, 1996. Incentive fees are an expense in
determining net realized gain (loss) on investments in the
consolidated statement of operations. At September 30, 1996,
incentive fees payable amounted to $203,733.
24
<PAGE> 26
Schedule 1
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments
September 30, 1996
<TABLE>
<CAPTION>
Company Equity Security Value Cost
------- ------ -------- ----- ----
<S> <C> <C> <C> <C>
Manufacturing:
Central Fiber Corporation *Warrants to purchase 18.4 common
Wellsville, Kansas shares at $1.00, expire
Recycles and manufactures October 29, 2002 $ - -
cellulose fiber products *Warrants to purchase 10.4 common
shares at $1.00, expire
October 29, 2002 - -
12% Debt security, due November 1, 1999 400,000 400,000
----------- ----------
15.60% 400,000 400,000
----------- ----------
Centrum Industries, Inc. 11% Debt security, due March 31, 2001 1,254,890 1,254,890
Holland, Ohio *Warrant to purchase 627,445 common
Holding Company with strategic basic shares at $2.00, expires March 8, 2004 13 13
industry holdings
----------- ----------
5.50% 1,254,903 1,254,903
----------- ----------
Cirque Corporation 2.45% *100,000 Shares Series A Pfd. at $3.35 335,000 335,000
Salt Lake City, Utah ----------- ----------
Develops, manufactures, and markets
computer pointing devices
Hemco Corporation - 12% Debt security, due November 20, 1996 12,429 12,429
Holland, Michigan ----------- ----------
Manufacturer of precision metal gauges
</TABLE>
25
<PAGE> 27
Schedule 1. Cont'd
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
September 30, 1996
<TABLE>
<CAPTION>
Company Equity Security Value Cost
------- ------ -------- ------------ ------------
<S> <C> <C> <C> <C>
Manufacturing, continued:
Houghton Acquisition Corporation *Warrants to purchase 897.7014
Alton, Illinois common shares at $1.00 $ 594,173 26
Manufacturer of rotors for use in 4,000 Shares Class A Pfd. 400,000 400,000
subfractional horsepower motors ------------ ------------
10.32% 994,173 400,026
------------ ------------
J-Tec Associates, Inc. *87,413 Shares Series C Pfd. at $2.86 9,245 9,248
Cedar Rapids, Iowa *51,129 Shares Series E Pfd. at $27.83 52,622 52,635
Designer and manufacturer of gaseous *5,244 Shares Series C Pfd. at $2.86 555 555
and liquid flow measurement *31,250 Shares Series D Pfd. at $1.60 1,849 1,849
and metering devices *58 Common shares at $6.044 13 13
*3,200 Common shares at $0.1375 16 440
------------ ------------
4.90% 64,300 64,740
------------ ------------
KW Products, Inc. Variable rate debt security, due
Cedar Rapids, Iowa January 1, 2001 358,307 358,307
Manufacturer of automobile after-market *29,340 Common shares at $.01 293 293
engine and brake repair machinery Variable rate debt security, due
January 1, 2001 224,517 224,517
------------ ------------
28.50% 583,117 583,117
------------ ------------
</TABLE>
26
<PAGE> 28
Schedule 1. Cont'd
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
September 30, 1996
<TABLE>
<CAPTION>
Company Equity Security Value Cost
------- ------ -------- ------------ ------------
<S> <C> <C> <C> <C>
Manufacturing, continued:
Linton Truss Corp. 14% Debt security, due March 1, 2001 $ 418,710 418,710
Delray Beach, Florida *Warrant to purchase 14.68% of
Markets and manufactures residential common shares, expires February 24, 2005 15 15
roof and floor truss systems *542.8 Common shares at $73.69 40,000 40,000
*400 Shares Series 1 Pfd. -- --
------------ ------------
18.50% 458,725 458,725
------------ ------------
Monitronics 1.29% *73,214 Common Shares 54,910 54,703
Dallas, Texas ------------ ------------
Manufacturer and installer of home
security systems and monitoring services
Portrait Display Labs, Inc. *535,715 Shares Series B Pfd. 550,001 750,001
Freemont, California *Warrants to purchase 16,071 common
Designs and markets portrait monitors shares at $.14, expire August 23, 1998 -- --
for personal computers *71,429 Shares Series C Pfd. at $1.40 100,001 100,001
*Warrant to purchase 13,570 Series C Pfd.
at $1.40, expires November 21, 2001 -- --
*Warrant to purchase 12,240 Series C Pfd.
at $1.40, expires November 21, 2001 -- --
*Warrant to purchase 27,160 Series C Pfd.
at $1.40, expires November 21, 2001 -- --
------------ ------------
6.10% 650,002 850,002
------------ ------------
</TABLE>
27
<PAGE> 29
Schedule 1, Cont'd
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
September 30, 1996
<TABLE>
<CAPTION>
Percent of
Company Equity Security net assets Value Cost
------- ------ -------- ---------- ----- ----
<S> <C> <C> <C> <C> <C>
Manufacturing continued:
Taylor Holdings, Inc. 8% Debt security, due May 31, 2003 $ 574,163 574,163
Kansas City, Missouri *48,038 Common shares at $1.00 48,038 48,038
Manufacturer of industrial *292,800 Shares Pfd. at $1.04 304,512 304,512
bagging equipment *Warrant to purchase 56,529 common shares
at $1.00, expires May 31, 2002 565 565
---------- ----------
16.80% 927,278 927,278
---------- ----------
Total manufacturing 33.58% 5,734,837 5,340,923
------ ---------- ----------
Chemicals:
Environmental Solvents Corporation *5% Debt security, due October 30, 1998 - 31,109
Jacksonville, Florida *7% Debt security, due June 30, 1999 - 17,207
Developer and manufacturer of nontoxic, *416,667 Shares of Series A-1 Conv. Pfd.
environmentally safe solvents for and 276,143 Shares of Series B-1 Pfd. - 177,320
industrial cleaning applications *16,667 Common shares at $.30 1 2,000
*8% Debt security, due November 1, 1998 - 26,977
*8% Debt security, due November 1, 1998 - 10,554
*8% Debt security, due December 31, 1996 - 15,550
---------- ----------
12.20% 1 280,717
---------- ----------
</TABLE>
28
<PAGE> 30
Schedule 1, Cont'd
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
<TABLE>
<CAPTION>
Percent of
Company Equity Security net assets Value Cost
------- ------ -------- ---------- ----- ----
<S> <C> <C> <C> <C> <C>
Chemicals, continued:
Pharmco Products, Inc. 12% Debt security, due April 1, 2000 $333,250 333,250
Brookfield, Connecticut 16,675 Shares Class A Res. Pfd. 166,750 166,750
Distributor and
processor of ethyl *25 Common shares
alcohol products
-------- -------
8.75% 500,000 500,000
-------- -------
Total Chemicals 2.93% 500,001 780,717
---- -------- -------
Service/Merchandising:
Apertus Technologies, Inc. Less than
Eden Prairie, Minnesota 1.00% *28,922 common shares at $8.66 81,945 250,536
Acquires, develops, -------- -------
markets, and licenses
IBM and IBM compatible
mainframe software
Organized Living, Inc. 400,000 Shares Series A Pfd.
convertible at $1.00 400,000 400,000
Lenexa, Kansas 100,000 Shares Series B Pfd.
convertible at $1.15 150,000 400,000
-------- -------
Retail specialty store
for storage and
organizational products 6.00% 550,000 550,000
-------- -------
Physician Sales and Services, Inc.
Beaumont, Texas
Distributor of medical
supplies to physician Less than
and alternate care markets 1.00% *1,008 Common shares -------- -------
</TABLE>
29
<PAGE> 31
Schedule I, Cont'd
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
September 30, 1996
<TABLE>
<CAPTION>
Company Equity Security Value Cost
------- ------ -------- ----- ----
<S> <C> <C> <C> <C>
Service/Merchandising, continued:
Potpourri Collection, Inc.
Medfield, Massachusetts Variable debt security, due May 31, 2001 $ 400,000 400,000
Gift and stitchery mail order *Warrants to purchase 40 common
catalog retailer shares at $.01, expire December 23, 2001 -- --
---------- ---------
3.46% 400,000 400,000
---------- ---------
Progressive Solutions, Inc. 12% Debt security, due December 31, 1999 150,000 150,000
Salt Lake City, Utah 12% Debt security, due March 31, 2000 350,000 350,000
Develops court automated software and *Warrant to purchase 33,852 common shares
public records management software at $0.0066, expires January 25, 2000 100 100
*Warrant to purchase 14,505 common shares
at $0.0069, expires December 13, 2004 100 100
12% Debt security, due December 31, 1999 125,000 125,000
*Warrant to purchase 10,000 common shares
at $14.00, expires May 28, 2002 -- --
*Warrant to purchase 300 common shares
at $.1667, expires May 28, 2002 -- --
---------- ---------
28.80% 625,200 625,200
---------- ---------
Sight & Sound Distributors, Inc. 12.5% Debt security, due April 22, 2001 1,333,333 1,333,333
St. Louis, Missouri *Warrant to purchase 53,911 common shares
National video products distributor at $.01, expires April 22, 2007 -- --
---------- ---------
5.67% 1,333,333 1,333,333
---------- ---------
</TABLE>
30
<PAGE> 32
Schedule I, Cont'd
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
September 30, 1996
<TABLE>
<CAPTION>
Percent of
Company Equity Security net assets Value Cost
------- ------ -------- ---------- ----- ----
<S> <C> <C> <C> <C> <C>
Service/Merchandising, continued:
Tuttle Design Building, Inc. 12% Debt security, due April 1, 2000 $ 675,000 675,000
Lakeworth, Florida *18 Common shares at $200.00 3,600 3,600
Distributor of ornamental and bedding *3,964 Shares Series 1 Pfd. 396,400 396,400
plants to retailers and provider of *Warrant to purchase a variable number of common
irrigation and landscaping services shares at variable prices, expires March 28, 2005 14 14
---------- ---------
10.50% 1,075,014 1,075,014
---------- ---------
Total service/merchandising 23.81% 4,065,492 4,234,083
------ ---------- ---------
Other:
Miles Media Group, Inc. *Warrants to purchase 570 common
Sarasota, Florida shares at $52.64, expire Februry 2, 2001
Tourist magazine publisher *Warrant to purchase 1,799 common -- --
shares at $52.64, expire June 1, 2002
12% Loan, due June 1, 1997 -- --
*4,500 Shares Red. Pfd. at $100.00 200,000 200,000
*1,550 Shares Class A Conv. Pfd. at $32.26 450,000 450,000
*5,000 Shares Class C Conv. Pfd. at $10.00 50,003 50,003
*1,000 Shares Red. Pfd. at $100.00 50,000 50,000
*Warrants to purchase 1,100 common shares 100,000 100,000
shares at $186, expire December 1, 2001 -- --
---------- ---------
26.70% 850,003 850,003
---------- ---------
</TABLE>
31
<PAGE> 33
SCHEDULE 1, Cont'd
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
September 30, 1996
<TABLE>
<CAPTION>
Percent of
Company Equity Security net assets Value Cost
------- ------ -------- ---------- ----- ----
<S> <C> <C> <C> <C> <C>
Other, continued:
Northword Holding Corp. *325.8 Shares Red. Pfd. at $1,000.00
Minocqua, Wisconsin *235 Common shares at $615.38 $ 325,800 325,800
Publisher of nature-related books, *Earnout warrant 144,615 144,615
calendars, posters, and audio products *Earnout warrant - -
- -
----------- ----------
2.57% 470,415 470,415
----------- ----------
Total others 7.73% 1,320,418 1,320,418
------- ----------- ----------
$11,620,748 11,676,141
=========== ==========
</TABLE>
*Presently nonincome producing
32
<PAGE> 34
Schedule 1. Cont'd
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
September 30, 1996
Notes to the Consolidated Schedule of Investments
(a) For investments held at the February 15, 1995, fresh-start date,
the stated cost represents the fair value at the fresh-start date.
(b) At September 30, 1996, all securities except for Apertus
Technologies, Inc. are considered to be restricted in their
disposition and are stated at what the board of directors
considers to be fair market value.
(c) The percentages in the "equity" column express the actual or
potential equity interest held by MACC Private Equities Inc. and
subsidiaries (the Companies) in each issuer. The percentage
represents the amount of the issuer's common stock held by the
Companies as a percentage of the issuer's total outstanding common
stock or, where the issuer has outstanding warrants, convertible
securities, or shares reserved for employee stock options, the
percentage reflects the approximate equity interest held by the
Companies upon the exercise of all warrants, conversion rights, and
reserved employee options.
(d) At September 30, 1996, the cost of securities for federal income
tax purposes was $14,772,588, and the aggregate unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $ 594,148
Unrealized depreciation (3,695,987)
------------
Net unrealized depreciation $ (3,101,839)
============
33
<PAGE> 35
Schedule 1. Cont'd
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
September 30, 1996
Notes to the Consolidated Schedule of Investments, Continued
(e) The Company owns a portfolio which includes investments in
restricted securities of small businesses. Within this portfolio,
16 of these restricted securities include registration rights, and
6 of these restricted securities do not include registration
rights.
Within the 16 securities that include registration rights, the
actual rights include the following general characteristics:
1. The securities generally provide for demand rights as follows:
(a) The demand rights may only be required from a low of 25
percent of the security holders to a high of a majority of
the security holders.
(b) The security holders may require from one to two demand
registrations.
(c) The small businesses are generally only required to use
"best efforts" to comply with the demands.
2. The securities generally allow the security holders to register
securities if the small business registers its securities, i.e.
"piggyback rights."
(a) Piggyback rights generally may be accessed by individual
security holders.
(b) Under piggyback rights, the small business and its
investment bankers are only required to use best efforts
to comply with the right.
3. The Companies expect that, in general, the securities that they
will acquire in the future will include demand and piggyback
rights.
34
<PAGE> 36
SHAREHOLDER INFORMATION
STOCK TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C., 85 Challenger Road, Overpeck
Centre, Ridgefield Park, New Jersey 07660 (telephone (800) 288-9541 and (800)
231-5469 (TDD)) serves as transfer agent and registrar for the Corporation's
common stock. Certificates to be transferred should be mailed directly to the
transfer agent, preferably by registered mail.
SHAREHOLDERS
The Corporation had approximately 3,541 record holders of its common
stock at November 29, 1996.
ANNUAL MEETING
The Annual Meeting of Shareholders of the Corporation will be held on
Tuesday, February 25, 1997, at 10:00 a.m. at the Five Seasons Hotel, 350 First
Avenue N.E., Cedar Rapids, Iowa.
DIVIDENDS
The Corporation has no history of paying dividends and does not
anticipate declaring any dividends in the foreseeable future, but instead
intends to retain all earnings, if any, for use in the Corporation's business.
The payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Corporation's earnings, capital
requirements, financial condition and other relevant factors. The Corporation
does not presently have any type of dividend reinvestment plan.
MARKET PRICES
The common stock of the Corporation had been traded in the
over-the-counter market through the National Association of Securities Dealers
Automated Quotation ("Nasdaq") SmallCap Market since March 2, 1995, under the
symbol "MACC." On February 13, 1996, the primary trading market for shares of
the Corporation's common stock advanced to the Nasdaq National Market. At the
close of business on November 29, 1996, the bid price for shares of the
Corporation's common stock was $10 1/4. The following high and low bid
quotations for the shares during each quarterly period ended on the date shown
below of the Corporation's fiscal year 1996 were taken from quotations provided
to the Corporation by the National Association of Securities Dealers, Inc:
<TABLE>
<CAPTION>
High Low
- ---------------------------------------------------------------
<S> <C> <C>
December 31, 1995 $ 7 1/2 6 1/2
March 31, 1996 9 6 7/8
June 30, 1996 11 1/8 8 3/4
September 30, 1996 11 1/8 9 1/4
</TABLE>
Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not represent actual
transactions.
35
<PAGE> 37
------------------------
FUND MANAGER
------------------------
InvestAmerica Investment Advisors, Inc.
------------------------
OFFICERS AND STAFF
------------------------
DAVID R. SCHRODER
President and Secretary
ROBERT A. COMEY
Executive Vice President and Treasurer
KEVIN F. MULLANE
Vice President
MARILYN M. BENGE
Assistant Secretary
------------------------
BOARD OF DIRECTORS
------------------------
PAUL M. BASS, Jr., Dallas, Texas
Chairman of the Company
Vice Chairman of First Southwest Company,
a regional investment banking firm
ROBERT A. COMEY, Cedar Rapids, Iowa
Executive Vice President of the Company
Executive Vice President of InvestAmerica
Investment Advisors, Inc.
MICHAEL W. DUNN, Manchester, Iowa
President, Farmers and Merchants Savings Bank
HENRY T. MADDEN, Iowa City, Iowa
Adjunct Professor, School of Management,
University of Iowa, and Management Consultant
JAMES L. MILLER, Cedar Rapids, Iowa
Self-employed, with background in
retail management
DAVID R. SCHRODER, Cedar Rapids, Iowa
President of the Company, President of
InvestAmerica Investment Advisors, Inc.
JOHN D. WOLFE, Mount Vernon, Iowa
Retired from a career in retail banking
and mortgage lending
36
<PAGE> 1
EXHIBIT 21
Subsidiaries of MACC Private Equities Inc.
and Jurisdiction of Incorporation
<PAGE> 2
MACC PRIVATE EQUITIES INC.
SUBSIDIARIES AND JURISDICTIONS
OF INCORPORATION
1. MorAmerica Capital Corporation, a wholly-owned subsidiary of MACC
Private Equities Inc. incorporated under the laws of the State of Iowa.
2. MorAmerica Realty Services, Inc., formerly d/b/a/ University Inn, a
wholly owned subsidiary of MACC Private Equities Inc. incorporated
under the laws of the State of Iowa.
3. Motel Services, Inc., a wholly owned subsidiary of MorAmerica Realty
Services, Inc. incorporated under the laws of the State of Iowa.
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 23,878,555
<INVESTMENTS-AT-VALUE> 23,823,162
<RECEIVABLES> 0
<ASSETS-OTHER> 1,011,644
<OTHER-ITEMS-ASSETS> 3,071,992
<TOTAL-ASSETS> 27,906,798
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 10,236,250
<OTHER-ITEMS-LIABILITIES> 592,779
<TOTAL-LIABILITIES> 10,829,029
<SENIOR-EQUITY> 9,641
<PAID-IN-CAPITAL-COMMON> 15,492,575
<SHARES-COMMON-STOCK> 964,098
<SHARES-COMMON-PRIOR> 996,539
<ACCUMULATED-NII-CURRENT> 14,077
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,616,869
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (55,393)
<NET-ASSETS> 17,077,769
<DIVIDEND-INCOME> 108,373
<INTEREST-INCOME> 1,405,681
<OTHER-INCOME> 175,737
<EXPENSES-NET> 1,955,367
<NET-INVESTMENT-INCOME> (89,576)
<REALIZED-GAINS-CURRENT> 906,172
<APPREC-INCREASE-CURRENT> (641,851)
<NET-CHANGE-FROM-OPS> (217,255)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,000
<NUMBER-OF-SHARES-REDEEMED> 52,441
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (104,352)
<ACCUMULATED-NII-PRIOR> 103,653
<ACCUMULATED-GAINS-PRIOR> 1,102,697
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
