<PAGE> 1
Reg. No. 33-_________
As filed with the Securities and Exchange Commission on , 1997.
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-5
REGISTRATION STATEMENT OF
SMALL BUSINESS INVESTMENT COMPANY
Under The Securities Act of 1933
And
The Investment Company Act of 1940
----------------
EASTERN VIRGINIA SMALL BUSINESS INVESTMENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
300 EAST MAIN STREET, SUITE 1380
NORFOLK, VIRGINIA 23510
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
J. ALAN LINDAUER, PRESIDENT AND CHIEF EXECUTIVE OFFICER
EASTERN VIRGINIA SMALL BUSINESS INVESTMENT CORPORATION
300 EAST MAIN STREET, SUITE 1380
NORFOLK, VIRGINIA 23510
(757) 626-1111
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH A COPY TO:
FREDERICK T. STANT, III, ESQ.
CLARK & STANT, P.C.
900 COLUMBUS CENTER
VIRGINIA BEACH, VIRGINIA 23462
(757) 499-8800
----------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Title of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to Registered Offering Price Aggregate Offering Registration Fee
be Registered per Share(1) Price(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $1 800,000 Shares $12.50 $10,000,000 $3030.30
Par Value
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
EASTERN VIRGINIA SMALL BUSINESS INVESTMENT CORPORATION
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus of the responses to
the Items of Parts I and II of Form N-5)
<TABLE>
<CAPTION>
Item No. and Caption Prospectus Caption
- -------------------- ------------------
<S> <C>
1. Organization and Business..........................................THE COMPANY
2. Fundamental Policies of Registrant.................................BUSINESS-Fundamental Investment Policies
3. Policies with Respect to Security Investments......................BUSINESS-Other Investment Policies
4. Ownership of Voting and Convertible Securities of Other
Issuers ...........................................................Not required to be in the Prospectus
5. Special Tax Provisions Applicable to Registrant....................FEDERAL INCOME TAX CONSIDERATIONS
6. Pending Legal Proceedings..........................................Not Applicable
7. Summary of Earnings................................................PROSPECTUS SUMMARY
8. Persons in Control Relationships with Registrant...................Not Applicable
9. Persons Owning Equity Securities of Registrant.....................PRINCIPAL SHAREHOLDERS
10. Number of Holders of Equity Securities of Registrant...............Not required to be in the Prospectus
11. Directors and Executive Officers...................................MANAGEMENT-Directors and Executive Officers
12. Members of Advisory Board of Registrant............................Not applicable
13. Remuneration of Directors, Officers and Members of
Advisory Board ....................................................MANAGEMENT-Remuneration
14. Indemnification of Officers and Directors..........................Not required to be in the Prospectus
15. Custodians of Portfolio Securities.................................Not Applicable
16. Investment Advisers................................................Not Applicable
17. Business and Other Connections of Investment Advisers
and Their Managements..............................................Not Applicable
18. Interest of Affiliated Persons in Certain Transactions.............Not Applicable
19. Capital Stock......................................................DESCRIPTION OF CAPITAL STOCK
20. Long-Term Debt.....................................................DESCRIPTION OF CAPITAL STOCK
21. Other Securities...................................................Not Applicable
22. Financial Statements...............................................See Item 28
23. Distribution Spread................................................Cover Page
24. Plan of Distribution...............................................PLAN OF DISTRIBUTION
25. Use of Proceeds to Registrant......................................USE OF PROCEEDS
26. Sales Otherwise Than for Cash......................................Not Applicable
27. Information Required by Items of Part I............................See Above
28. Financial Statements Required by Item 22 of Part I.................FINANCIAL STATEMENTS
</TABLE>
N-2
<PAGE> 3
PART I
INFORMATION REQUIRED IN REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
(For Part I Items contained in the
Prospectus see Cross Reference Sheet)
ITEM 2. FUNDAMENTAL INVESTMENT POLICIES.
The following policies of the Registrant with respect to the activities
described below are matters of fundamental policy in accordance with Sections
8(b) and 13(a) of the Investment Act. These policies may not be changed without
the approval of the lesser of (i) 67% of the Registrant's shares present or
represented at a shareholders' meeting at which the holders of more than 50% of
such shares are present or represented or (ii) more than 50% of the outstanding
shares of the Registrant. Undefined capitalized terms have the meanings ascribed
in the attached Prospectus.
(a) The Registrant is permitted to issue the maximum amount of SBA
Debentures and SBA Participating Securities permitted by the SBA Act and SBA
Regulations. The Registrant has not issued any SBA Debentures or SBA
Participating Securities and does not anticipate doing so in the foreseeable
future.
(b) The Registrant is permitted to borrow money only for the purpose of
investments in, and making loans to, Small Business Concerns. It is, however,
permitted to finance the acquisition of capital assets used in its ordinary
business operations.
(c) The Registrant is not permitted to engage in the business of
underwriting the securities of other issuers. It is anticipated that all or
substantially all of its investments in Small Business Concerns will be in
securities that may not be sold to the public without registration under the
Securities Act. All of the Registrant's current equity investments in Small
Business Concerns are so restricted.
(d) The Registrant is prohibited from concentrating more than 30% of the
value of its assets, determined at the time an investment is made, exclusive of
U.S. government securities, in securities issued by companies primarily engaged
in the same industry.
(e) The Registrant is prohibited from engaging in the business of purchasing
or selling real estate. The Registrant may bring mortgage foreclosure actions
and take title to and possession of property with respect to which it is the
mortgagee in accordance with applicable mortgage foreclosure laws. Additionally,
the Registrant may purchase office facilities, although, at present it leases
office facilities.
(f) The Registrant is not permitted to engage in the purchase or sale of
commodities or commodity contracts.
(g) The Registrant is permitted to make loans to Small Business Concerns
to the extent allowed by the SBA Act and SBA Regulations.
ITEM 3. OTHER INVESTMENT POLICIES.
The Registrant's policies with respect to the following matters are not
fundamental policies and may be changed, subject to the SBA Act and SBA
Regulations, by the Registrant's Executive Committee without shareholder
approval.
(a) The Registrant may make investments in equity and debt securities of
Small Business Concerns as approved by the Executive Committee. The Registrant
has no strict policy regarding the percentage of its assets that may be invested
in any specific type of security.
(b) The Registrant follows SBA Regulations prohibiting an investment in any
single Small Business Concern and its affiliates exceeding 20% of the
Registrant's Regulatory Capital.
(c) As permitted by SBA Regulations, the Registrant may purchase (i) up to
49% of the voting securities of a Small Business Concern if the Small Business
Concern has less than 50 shareholders or (ii) up to 19% (and in certain
situations up to 25%) of the voting securities of a Small Business Concern if
the Small Business Concern has 50 or more shareholders.
N-3
<PAGE> 4
(d) Except where necessary to protect an investment, the Registrant does not
invest in companies for the purpose of exercising control of management and does
not intend to do so in the future. SBA Regulations prohibit SBICs from
controlling a Small Business Concern except where necessary to protect an
investment.
(e) The Registrant does not invest in securities of other investment
companies and does not intend to do so in the future.
(f) The Registrant intends to hold its portfolio debt securities for a
minimum of five years as required by SBA Regulations or until maturity. It
anticipates retaining its equity investments from five to seven years.
ITEM 4. OWNERSHIP OF VOTING AND CONVERTIBLE SECURITIES OF
PORTFOLIO COMPANIES.
As of August 31, 1997, the Registrant owned the following securities of
a portfolio company that are convertible into voting securities. On the
conversion of all such securities, the Registrant would own the following
percentage of the voting securities of this portfolio company:
<TABLE>
<CAPTION>
TITLE OF SECURITIES PERCENTAGE OF PERCENTAGE OF VOTING
NAME AND NATURE OF ITS OWNED, CONTROLLED OR VOTING SECURITIES SECURITIES OWNED
ADDRESS OF COMPANY PRINCIPAL BUSINESS HELD BY THE REGISTRANT NOW OWNED UPON CONVERSION
------------------ ------------------ ---------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Mid-Atlantic Originator 500 shares of 0 49
Small Business and broker convertible
Finance, Inc. of preferred stock
300 East Main Street, SBA-guaranteed
Suite 1380 loans to
Norfolk, VA Small
23510 Business
Concerns
</TABLE>
ITEM 10. NUMBER OF HOLDERS OF EQUITY SECURITIES.
<TABLE>
<CAPTION>
Title of class Number of holders
-------------- -----------------
<S> <C>
Common Stock 87
</TABLE>
ITEM 14.INDEMNIFICATION AND ELIMINATION OF LIABILITY.
The Registrant's Articles of Incorporation and Bylaws contain provisions
that govern indemnification of its directors, investment advisors/managers and
shareholders, officers, agents, employees and affiliates. These provisions
enable the Registrant to indemnify these individuals to the fullest extent
permitted by Virginia law. By law, Virginia corporations may indemnify any
person who was or is a party to any proceeding by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation or is
or was serving at the request of the corporation in any such capacity of another
corporation or other entity against liability incurred in connection with such
proceeding, including any appeal thereof, if the individual acted in good faith
and believed (i) in the case of conduct in the individual's official capacity
with the Registrant, that the individual's conduct was in the best interests of
the Registrant or (ii) in all other cases, that the individual's conduct was at
least not opposed to the best interests of the Registrant. In addition, in the
case of any criminal proceeding, the individual must not have had reasonable
cause to believe his conduct was unlawful. Virginia law requires the Registrant
to indemnify its directors and officers (and allows the Registrant to indemnify
employees or agents) who entirely prevail in the defense of any proceeding to
which they were a party because they are or were directors or officers (or
employees or agents) of the Registrant. The indemnification authorized under
Virginia law is not exclusive and is in addition to any other rights granted to
officers and directors under the Articles or Bylaws. The Articles also provide
for the advancement of expenses incurred by the directors, officers, agents and
employees described above in connection with the defense of any action, suit or
proceeding to which such a person is or was a party because such a person is or
was a director,
N-4
<PAGE> 5
officer, agent or employee of the Registrant, on the receipt of an undertaking
to repay such amount, if it is ultimately determined that such person is not
entitled to indemnification. Virginia law, permits the Registrant to purchase
and maintain insurance or furnish similar protection on behalf of any officer or
director against any liability asserted against the officer or director and
incurred by the officer or director in such capacity, or arising out of the
person's status, as an officer or director. This insurance protection is
available under Virginia law whether or not the Registrant would have the power
to indemnify the director or officer against such liability under Virginia law.
The Registrant has purchased such insurance for the benefit of its officers and
directors.
Virginia law prohibits the Registrant from indemnifying directors and
officers in connection with a proceeding by or in the right of the Registrant in
which the director or officer was adjudged liable to the Registrant, although
the court in which such action was brought may order indemnification of the
director or officer to the extent of his reasonable expenses if it determines
that the director or officer is entitled to such indemnification. Virginia law
also prohibits the Registrant from indemnifying directors or officers in
connection with any other proceeding charging improper personal benefit to the
director or officer (whether or not involving action in his official capacity)
in which the director or officer was adjudged liable on the basis that personal
benefit was improperly received by him.
Under Virginia law and the Articles and the Bylaws, directors and
officers are not personally liable for monetary damages to the Registrant or any
other person for acts or omissions in their capacity as a director or officer,
except in certain limited circumstances such as certain violations of criminal
law and transactions in which the director or officer derived an improper
personal benefit. As a result, shareholders may be unable to recover monetary
damages against directors and officers for actions taken by directors or
officers that constitute negligence or gross negligence or that violate their
fiduciary duties. Injunctive or other equitable relief may be available.
N-5
<PAGE> 6
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS
DATED , 1997
PROSPECTUS
800,000 SHARES
EASTERN VIRGINIA SMALL BUSINESS INVESTMENT CORPORATION
COMMON STOCK
Eastern Virginia Small Business Investment Corporation, a Virginia
corporation (the "Company"), is offering 800,000 shares (the "Shares") of its
common stock, par value $1 (the "Common Stock"), at $12.50 per share.
The Common Stock is not, and, following this Offering, will not be,
traded on any exchange.
Before this Offering, there has been no public market for the Common
Stock and it is highly unlikely that a market will develop after this Offering.
THE SHARES INVOLVE A HIGH DEGREE OF RISK. INVESTORS SHOULD CONSIDER THE
INFORMATION UNDER "RISK FACTORS" IN CONNECTION WITH THEIR INVESTMENT DECISION
CONCERNING THE PURCHASE OF COMMON STOCK IN THIS OFFERING.
--------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
NOTIFICATION OF THIS OFFERING WILL BE FILED UNDER THE SECURITIES LAWS OF
CERTAIN SELECTED STATES AND THE SHARES MAY BE SOLD ONLY IN THOSE STATES. SUCH
NOTIFICATONS, HOWEVER, DO NOT CONSTITUTE AN ENDORSEMENT OR APPROVAL BY ANY
PARTICULAR STATE SECURITES COMMISSION OF ANY SECURITES OFFERED OR THE TERMS OF
THE OFFERING. NO STATE SECURITIES COMMISSION HAS PASSED ON THE ACCURACY OR
COMPLETENESS OF THIS PROSPECTUS OR ANY OTHER SELLING LITERATURE.
THIS OFFERING INVOLVES SUBSTANTIAL RISKS CONCERNING THE COMPANY AND AN
INVESTMENT IN ITS SECURITIES SHOULD BE CONSIDERED ONLY BY PERSONS ABLE TO BEAR
THE ECONOMIC RISK OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME OR ABLE TO
AFFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS." OFFERS ARE
PERMITTED ONLY TO RESIDENTS OF CERTAIN STATES.
<TABLE>
<CAPTION>
================================================================================
Price Proceeds
To To
Public (1) Company (2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Per Share........................... $12.50 $12.50
- --------------------------------------------------------------------------------
Total................................. $10,000,000 $10,000,000
================================================================================
</TABLE>
(1) The Shares will be offered and sold by employees and, where required
by state securities laws, by authorized agents of the Company. No commissions or
other compensation will be paid to employees, but authorized agents will be
compensated for sales made. No broker or dealer has been retained or is under
any obligation to purchase any Shares, although the Company may attempt to
engage brokers or dealers and pay a commission on sales made. See "Plan of
Distribution."
(2) Before deducting expenses of this Offering, payable by the Company,
estimated at $200,000.
----------------
THE DATE OF THIS PROSPECTUS IS ______________, 1997
<PAGE> 7
================================================================================
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS REFLECTS (i) AN
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION AUTHORIZING AN INCREASE IN
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 25,000 SHARES TO 1,500,000
SHARES AND (ii) A 100 TO ONE SPLIT OF THE COMMON STOCK BY MEANS OF A STOCK
DIVIDEND, BOTH TO BE EFFECTED BEFORE COMPLETION OF THIS OFFERING.
THE COMPANY
Eastern Virginia Small Business Investment Corporation (the "Company")
is a diversified closed-end investment company licensed by the Small Business
Administration (the "SBA") as a small business investment corporation (a
"SBIC") under the Small Business Investment Act of 1958, as amended (the "SBA
Act"). The Company operates primarily as a venture capital investment firm,
making equity investments in, and providing long-term, fixed and variable rate
loans to, established Small Business Concerns (as defined below) to finance
their growth, expansion and modernization. At August 31, 1997, the Company had
approximately $1.6 million in equity investments in five portfolio companies,
and had no loans, outstanding. At present, most of the Company's equity
investments are in Small Business Concerns located in Eastern Virginia.
To fund its equity investments and debt financing, the Company has used
only the cash portion of its Private Capital (as defined below). Although it has
no plans to do so, it may, in the future, use funds acquired from or guaranteed
by the SBA provided by issuing of current-pay debentures ("SBA Debentures") or
deferred-coupon preferred stock or deferred-interest debentures (collectively
"SBA Participating Securities").
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered....................................... 800,000 shares
Common Stock to be Outstanding after this Offering......... 1,368,900 shares
Use of Proceeds............................................ Increase Private Capital
</TABLE>
USE OF PROCEEDS
The Company will use the net proceeds of this Offering to increase its
Private Capital.
==============================================================================
2
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
The following table contains certain financial and operating data and is
qualified by the more detailed Financial Statements and Notes included elsewhere
in this Prospectus. The Balance Sheet Data as of June 30, 1997 and the Operating
and Other Data for the years ended June 30, 1996 and 1997 were derived from the
Company's Financial Statements and Notes that have been audited by Hoffman,
Morrison & Fitzgerald, P.C., independent certified public accountants, and are
included elsewhere in this Prospectus. The Balance Sheet Data for the three
months ended September 30, 1997 and the Operating and Other Data for the three
months ended September 30, 1996 and 1997 have been derived from the unaudited
financial statements of the Company which, in the opinion of Management, have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting of normal recurring adjustments, which Management
considers necessary for a fair presentation of the selected data shown. The
three months ended September 30, 1997 are not necessarily indicative of the
results to be expected for the entire year ending June 30, 1998. The Operating
and Other Data have been derived from the unaudited internal records of the
Company. The financial data shown below should be read in conjunction with the
Financial Statements and Notes.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEARS ENDED JUNE 30, SEPTEMBER 30,
---------------------------- -------------------
OPERATING AND OTHER DATA: 1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net interest income............... $ 42,262 $ 176,003 $ $
Other income...................... $ 17,255 $ 37,450 $ $
Operating expenses................ $ 59,777 $ 205,376 $ $
-------- --------- -------- -------
Net operating income (loss) before
net change in unrealized appreciation
on investments and provision for
income taxes........................... $ (260) $ 8,077 $ $
Provision (benefit) for income taxes..... $ (7,346) $ (11,780) $ $
-------- --------- -------- -------
Net operating income .................... $ 7,086 $ 19,857 $ $
Change in unrealized appreciation
in investments, net of provision for
income taxes........................... $ - $ 238,094 $ $
-------- -------- -------- -------
Net income............................... $ 7,086 $ 257,951 $ $
========= ======== ======== =======
Net income per share..................... $ 0.96(1) $ 0.46(1) $ $
======== =======
Net operating income per share........... $ 0.96(1) $ 0.04(1) $ $
Weighted average number of
shares outstanding..................... 7,386 562,117
<CAPTION>
AT JUNE 30, 1997 AT SEPTEMBER 30, 1997
-------------------------- -----------------------------
ACTUAL AS ADJUSTED(2) ACTUAL AS ADJUSTED(2)
------ -------------- ------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
U.S. Government securities,
at market value................. $2,209,470 $ 2,209,470 $ $
Total stockholders' equity.......... $3,840,087(3) $ 13,640,087(3) $ $
</TABLE>
- ------------------------------------------
(1) Net operating income per share and net income per share are based on the
weighted average number of shares outstanding for the year.
(2) As adjusted to reflect the receipt and application of the net proceeds from
the sale of the Shares (assuming a sale of all 800,000 Shares at $12.50 per
share).
(3) Between May 1994 and February 1997, the Company sold 568,300 shares of
Common Stock in a series of transactions in a private placement. As
permitted by the offering documents, the Company allowed accredited
investors, as defined in Regulation D of the Securities Act ("Regulation
D"), to pay 50% of the subscription price of the Common Stock in cash and
to finance the unpaid purchase price by a non-interest bearing demand
recourse promissory note secured by the shares of Common Stock purchased.
"Total stockholders' equity" does not reflect $2,006,000 in such promissory
notes receivable from stockholders'. See Note C to Financial Statements.
3
<PAGE> 9
THE COMPANY
Eastern Virginia Small Business Investment Corporation is a diversified
closed-end investment company licensed by the SBA as a SBIC under the SBA Act.
The Company, however, operates primarily as a venture capital investment firm,
making equity investments in, and providing long-term, fixed and variable rate
loans to, established Small Business Concerns to finance their growth, expansion
and modernization. The Company may also provide guarantees of all or a portion
of portfolio companies' indebtedness to financial institutions or other
commercial lenders. See "Business-Investment Policies." At August 31, 1997, the
Company had approximately $1.6 million in equity investments in five portfolio
companies, and had no loans, outstanding.
The Company makes its equity investment and lending decisions based on a
number of factors, all of which must be present to give the Company a desired
rate of return commensurate with its risk in undertaking the equity investment
or loan. The Company considers the past and present financial condition and
performance of the portfolio company and its management, as well as the market
or potential market for its goods or services, its creditworthiness, including
an analysis of its projected cash flow , the adequacy of its capitalization and
its profitability during the prior five years. (See "Business-Investment
Policies"). Most of the Company's investments have been in Small Business
Concerns located in Eastern Virginia. A "Small Business Concern," as defined in
the SBA Act and in regulations promulgated by the SBA ("SBA Regulations"), is a
business concern independently owned and operated and not dominant in its field
of operation. In addition, a Small Business Concern must either (i) have a net
worth, together with any affiliates, of $18 million or less and an average net
income after federal income taxes for the preceding two years of $6 million or
less (average net income to be computed without benefit of any carryover loss)
or (ii) satisfy alternative criteria under SBA Regulations that focus on the
industry of the business and the number of persons employed by the business or
its gross revenue.
To fund its equity investments and debt financing, the Company has used
only the cash portion of its "Private Capital" (that, in the case of the
Company, is defined as eligible capital paid for capital stock and eligible
additional paid-in capital). Although it has no plans to do so in the future, it
may use funds acquired from or guaranteed by the SBA ("SBA Leverage"). Such
funds may be provided by the Company's issuance of SBA Debentures. In addition,
assuming the sale of approximately 560,000 Shares in this Offering, the Company
will meet "SBA Regulatory Capital" requirements (defined as Private Capital less
any non-cash assets contributed to the Company) that would permit it to apply to
the SBA to issue SBA Participating Securities. Current SBA Regulations and
procedures require that a SBIC invest at least 50% of its Leveragable Capital
(defined as Private Capital less unfunded commitments and private funds from
federal sources) before becoming eligible to apply to the SBA to issue either
SBA Debentures or SBA Participating Securities. Accordingly, until it has
invested 50% of its Leveragable Capital, the Company cannot apply for SBA
Leverage. If it decides to do so, the Company cannot predict if its application
will be approved because the SBA may reject an application for credit or
regulatory reasons. See "Risk Factors-Sources of Funds" and "Business-Sources of
Funds." In any event, the Company does not anticipate applying for SBA Leverage
in the foreseeable future.
Incorporated in Virginia on July 13, 1993, the Company is registering
under the Investment Company Act of 1940 (the "Investment Act"). The Company's
principal office is located at 300 East Main Street, Suite 1380, Norfolk,
Virginia 23510, and its telephone number is (757) 626-1111.
4
<PAGE> 10
RISK FACTORS
INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK AND IS
SUITABLE ONLY FOR PERSONS WHO HAVE THE FINANCIAL MEANS NOT ONLY TO HOLD THE
SHARES FOR AN INDEFINITE PERIOD OF TIME, BUT TO AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK.
INVESTMENT AND CREDIT RISKS. The Company's investment assets consist
primarily of direct equity investments (generally in the form of preferred stock
with a warrant to acquire shares of common stock) in small businesses. It will
continue to invest only in Small Business Concerns, that, by SBA Regulation,
must have a net worth of less than $18 million. Equity investing and extending
credit involves the risk that the equity investment will be or become illiquid
or unrealizable or that the loan will not be repaid. The transferability of the
equity and debt securities of portfolio companies held by the Company is, and
will continue to be, highly restricted. Because the Company's clients are small
businesses with more limited financial resources than larger, more established
entities, the Company assumes a greater risk of loss than might otherwise be the
case if it focused on investing in or lending to larger companies. The Company
does not operate like traditional lenders because, in most instances, it
operates as a venture capital firm, the antithesis of a secured lender. Venture
capital investments are, by their very nature, both long-term and one of the
highest risk categories of investments. See "Business-Investment Policies."
UNSPECIFIED INVESTMENTS. The Company will make future unspecified
investments in portfolio companies. As a result, the uncertainty and risk of an
investment in the Shares is increased because investors will not be able to
evaluate for themselves the economic merits of such future investments.
SOURCES OF FUNDS. The Company has established its equity and debt
investment operations solely by raising its Private Capital. The Company's
ability to raise any additional required capital necessarily depends on the
condition of the equity markets at the time the Company seeks additional equity
financing. There can be no assurance that the Company can, in the future, raise
additional equity capital on acceptable terms. The Company has no foreseeable
plans to issue SBA Debentures or, assuming it meets the minimum SBA Regulatory
Capital requirements, SBA Participating Securities. To expand its investment
operations, the Company may seek bank or institutional borrowings. The
willingness of banks and other financing institutions to lend to the Company may
be affected by their financial condition and by the agencies regulating their
operations. Consequently, there may be times when it is difficult or impossible
for the Company to obtain institutional financing on acceptable terms.
LIMITED OPERATING HISTORY. The Company obtained its license from the SBA
in May 1996. Since that time, it has made only two loans and five equity
investments. Both loans were repaid by the borrowers. The Company continues to
hold, and anticipates holding, its equity investments for an extended period of
time See "Business-Investment Policies." The Company has no history of
realizable profits in its investments, although it has recorded unrealized
appreciation on certain of its equity investments. See "Business-Investments."
LEVERAGE. Although it may use SBA Leverage at some point, the Company
has not yet issued any SBA Debentures or SBA Participating Securities and does
not anticipate issuing any in the foreseeable future. If it does so, its
operations will involve a high degree of leverage. SBA Debentures require that
interest be paid on a current basis and the income from the Company's
investments may not be sufficient to make the required payments. Leverage
increases the risk of loss because increased operating revenues are needed to
make required payments of principal and interest on loans. As such, losses on a
small percentage of the Company's investments and loans can result in a much
larger percentage reduction in shareholders' equity.
COMPETITION. The Company competes with venture capital investors and
venture capital investment firms. The Company also competes with other SBICs,
other non-bank financial companies and, to a limited extent, commercial banks,
most of which have greater resources and significantly more operating history.
5
<PAGE> 11
NO UNDERWRITER OR DEALER. The Company is making this Offering on a
best-efforts basis. It has not retained an underwriter or securities dealer to
assist in selling the Shares, and, although the Company may attempt to engage
brokers or dealers and pay them a commission on sales, no broker or dealer
is under any obligation to purchase the Shares. Instead, the Company will make
this Offering, wherever possible, directly through its employees. Although this
method of offering securities is less expensive for the Company because no
commissions or underwriting discounts are anticipated to be paid in connection
with this Offering, it will be more difficult for the Company to complete this
Offering without the assistance of an underwriter or dealer. In addition, the
absence of an underwriter or market maker will further impede the development of
an active trading market for the Company's Common Stock.
RELIANCE ON MANAGEMENT. Management is a key factor in the successful
development and operation of a SBIC. J. Alan Lindauer serves as President and
Chief Executive Officer, and as a Director and Chairman of the Executive
Committee of the Company. He is the Company's only full-time executive officer.
Although Mr. Lindauer is a Certified Management Consultant and has experience in
business evaluation and venture capital investing, until his election as
President of the Company in March 1994, he had never served as an executive
officer of a SBIC. See "Management."
LIMITED PARTICIPATION IN MANAGEMENT. From its members, the Company's
Board of Directors has established a seven-member Executive Committee to oversee
Management and make all decisions regarding equity, debt or guarantee
investments. Mr. Lindauer serves as Chairman of the Executive Committee and
manages the day-to-day operations of the Company. See "Management." No investor
will have any participation in the management of the Company or any vote on
investment decisions of the Company.
NO PUBLIC MARKET. Before this Offering, there has been no public market
for the Common Stock and it is highly unlikely that any active trading market
will develop or continue after this Offering or that the market price of the
Common Stock will not decline below the initial public offering price.
Accordingly, investors may not be able to sell their Common Stock readily, if at
all, and therefore must be prepared to bear the economic risks of the investment
for an indefinite period of time or be able to afford the loss of the entire
investment.
VOLATILITY OF STOCK PRICE. The initial public offering price was
determined solely by the Company and may not be indicative of prices that may
prevail after this Offering. In the event a public market were to develop, the
Company Stock is likely to be thinly traded and its trading price highly
volatile and subject to wide fluctuations in response to factors, many of which
are beyond the Company's control. These may include fluctuations in the
operating results of its portfolio companies, sales of the Common Stock in the
marketplace, shortfalls in revenues, earnings or other operating results of the
Company, general financial conditions and the like. There can be no assurance
that the market price of the Common Stock will not experience significant
fluctuations that are material, adverse and unrelated to the Company's
performance.
SHARES ELIGIBLE FOR FUTURE SALE. All of the 568,900 shares of Common
Stock currently outstanding were offered and sold by the Company in private
transactions in reliance on exemptions from registration under the Securities
Act. Accordingly, all of such shares are "restricted securities," as defined by
Rule 144 ("Rule 144") under the Securities Act and cannot be resold without
registration, except in reliance on Rule 144 or another applicable exemption
from registration. Shares of Common Stock have been eligible for resale under
Rule 144, depending on their date of issue, since February 1995 (assuming the
other requirements of Rule 144 are met).
No prediction can be made as to the effect, if any, that future sales of
restricted shares of Common Stock, or the availability of such Common Stock for
sale, will have on the market price of the Shares prevailing from time to time.
Sales of substantial amounts of formerly restricted Common Stock in the public
market, or the perception that such sales may occur, could adversely affect the
then prevailing market price of the Common Stock.
In addition, in the future the Company may issue additional shares of
Common Stock. No prediction can be made as to the effect, if any, that future
issuances of Common Stock may have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of such Common Stock,
or the perception that such sales may occur, could adversely affect the then
prevailing market price of the Common Stock. See "Shares Available for Future
Sale."
6
<PAGE> 12
DETERMINATION OF OFFERING PRICE. There is no public trading market for
the Common Stock, and the price of the Shares bears no relationship to the
assets, book value, net worth or any other recognized criteria of value of the
Company. The offering price of the Shares was determined arbitrarily by
Management of the Company, and should not be considered as an indication of the
actual value of the Company. Each prospective investor should make an
independent evaluation of the fairness of such price.
USE OF PROCEEDS
Based on an assumed public offering price of $12.50 per share and the
sale of all 800,000 Shares in this Offering, the Company will receive
approximately $10 million, before deduction of expenses of this Offering
estimated at $200,000. All the net proceeds received will be used to increase
the Company's Private Capital that will be used to make additional equity or
debt investments in Small Business Concerns, thus expanding the Company's
business. See "Business-Investment Policies."
DIVIDEND POLICY
After this Offering, the Company anticipates that all of its earnings
will be retained for development and expansion of its business and does not
anticipate paying any cash dividends in the foreseeable future. The payment of
dividends is subject to the discretion of the Board of Directors and will depend
on the Company's results of operations, financial position, capital
requirements, general business conditions, restrictions imposed by any financing
arrangements, legal and regulatory restrictions on the payment of dividends and
other factors the Board of Directors deems relevant.
7
<PAGE> 13
CAPITALIZATION
The following sets forth the equity capitalization of the Company at
June 30, 1997, and, as adjusted, to give effect to the sale by the Company of
800,000 Shares of Common Stock (based on an assumed public offering price of
$12.50 per share) and the application of the estimated net proceeds of such
sale.
This table should be read in conjunction with the Financial Statements
and Notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1997
-----------------------------
OUTSTANDING AS ADJUSTED
----------- ------------
<S> <C> <C>
Stockholders' equity(1):
Preferred Stock, par value $1 per share,
25,000 shares authorized; no shares issued or
outstanding or as adjusted........................... $ - $ -
Common Stock, par value $1 per share; 1,500,000 shares
authorized, 568,900 shares issued
and outstanding; 1,368,900 shares as adjusted 568,900 1,368,900
Additional paid-in capital.............................. 5,041,100(2) 14,041,100(2)
Net unrealized appreciation on investments 238,094 238,094
Undistributed accumulated earnings (deficit) (2,007) (2,007)
Stockholders' notes receivable.......................... (2,006,000) (2,006,000)
------------- -------------
Total stockholders' equity.......................... 3,840,087(2) 13,640,087(2)
------------- -----------
Total capitalization................................ $3,840,087(2) $13,640,087(2)
============= ==============
</TABLE>
- ---------------------------
(1) Gives effect to the anticipated amendment and restatement of the Company's
Articles of Incorporation, increasing the number of authorized shares of
Common Stock to 1,500,000 and a 100 to one stock split of the Common Stock
by means of a stock dividend.
(2) Between May 1994 and February 1997, the Company sold 568,300 shares of
Common Stock in a series of transactions in a private placement. As
permitted by the offering documents, the Company allowed accredited
investors (as defined in Regulation D) to pay 50% of the subscription price
of the Common Stock in cash and to finance the unpaid purchase price by a
non-interest bearing demand recourse promissory note secured by the shares
of Common Stock purchased. "Additional paid-in capital," "Total
stockholders' equity" and "Total capitalization" do not reflect $2,006,000
in such promissory notes receivable from stockholders. See Note C to
Financial Statements.
8
<PAGE> 14
BUSINESS
The Company was licensed by the SBA as a SBIC in May 1996. To date, it
has conducted its operations primarily in southeastern Virginia. All of its
present investments are equity investments in Small Business Concerns, primarily
in the form of preferred stock, coupled with either warrants to acquire, or that
is convertible into, common stock of the portfolio company. All of the equity
securities acquired by the Company are unregistered and may not be sold by the
Company, except as permitted by the Securities Act and applicable state
securities laws. At August 31, 1997, the Company had approximately $1.6 million
invested in the capital stock of five portfolio companies. The Company's only
debt financings were for $350,000 and $50,000, both of which have been repaid. A
brief description of these transactions follows.
INVESTMENTS
- In October 1996, the Company loaned $50,000 to, and, in November
1996, for $700,000, purchased 700 shares of redeemable preferred stock of, a
company principally engaged in back office and software support for the
financial services industry. The loan was prepaid in November 1996. The
preferred stock carries an annual cumulative dividend rate of 10%. The
preferred stock may be called by the portfolio company at any time after
November 1997 and the Company may put the preferred stock to the portfolio
company at any time after November 2001. In either case, the redemption price
is 10 times the adjusted earnings, as defined in the preferred stock purchase
agreement, of the portfolio company for the 12-month fiscal year preceding the
redemption date; provided that the minimum redemption price is $1,000 per share
increased by $40 per year for each 12-month period the preferred stock is held
by the Company and the maximum redemption price is an amount calculated on an
annualized basis to yield the Company an annual internal rate of return between
15% and 20% depending on the year of redemption.
As part of the transaction, the Company acquired a common stock purchase
warrant, exercisable at $1 per share for 125 shares of the portfolio company's
common stock that, if exercised, will represent approximately 4% of its
outstanding common stock. The term of the warrant commenced in November 1996 and
terminates in November 2000. The warrant contains anti-dilution provisions and
is detachable and transferable. The warrant is also subject to an agreement
providing that, after November 2003, the Company has the right to put to the
portfolio company, and the portfolio company has the right to call, the shares
of common stock into which the warrant is exercisable. In either case, the price
of the common stock is 4% of the fair market value of the portfolio company, as
of the date of the exercise of the put or call, as determined by a professional
appraiser selected by the Company and the portfolio company; provided that the
purchase price may not exceed 4% of the portfolio company's net revenues for the
fiscal year preceding the exercise date of the put or call.
- In December 1996, the Company loaned $350,000 to a borrower
principally engaged in providing long-distance telephone rebilling services. The
term of the loan was five years and it carried an annual interest rate of 10%.
The loan was collateralized by a perfected security interest in the accounts
receivable of a subsidiary of the borrower. As part of the transaction, the
Company received a common stock purchase warrant exercisable until December 2003
at $1.50 per share for 245,000 shares of the portfolio company's common stock.
The warrant contained anti-dilution provisions and was detachable and
transferable. At the time the loan was made, recent transactions in the
borrower's common stock averaged $1.95 per share.
In January 1997, the borrower requested that the Company subordinate a
portion of its collateral interest to another lender. The Company agreed to do
so in exchange for the borrower's grant of a similar common stock purchase
warrant exercisable until February 2000 at $2 per share for 56,000 shares of
common stock (representing less than 1% of the outstanding shares of common
stock). In March 1997, the borrower prepaid the $350,000 loan.
9
<PAGE> 15
In June 1997, the borrower sought a second loan from the Company of
$250,000. In lieu of a loan, the Company agreed to exercise the original 245,000
share-warrant if the borrower agreed to lower the exercise price from $1.50 per
share to $1.02 per share. In July 1997, the Company exercised the warrant and
paid the borrower $249,900. At that time, recent transactions in the borrower's
common stock averaged $2.27 per share and the common stock held by the Company,
as of the date of this Prospectus, represents approximately 3% of the
outstanding shares of the borrower's common stock.
- In January 1997, the Company purchased $140,000 of redeemable
convertible preferred stock of a portfolio company principally engaged in loan
origination and brokerage of SBA-guaranteed small business loans to Small
Business Concerns. The preferred stock carries an annual cumulative dividend
rate of 9% and is convertible into common stock of the portfolio company
representing 49% of its outstanding common stock. The preferred stock is
redeemable by the portfolio company after January 2001 for $140,000 plus 50% of
its retained earnings, but the redemption price may not be less than (i)
$240,000, if redeemed between January 2001 and January 2002, (ii) $260,000, if
redeemed between January 2002 and January 2003, and (iii) $290,000, if redeemed
between January 2003 and January 2004. Beginning in February 2002, the Company
has a put right with respect to the preferred stock for $140,000 plus 50% of
such retained earnings, except the redemption price may not be less than
$290,000.
- In April 1997, the Company purchased $125,000 of redeemable preferred
stock of a company principally engaged in the manufacture and sale of roasted
delicatessen meats to food distributors. The preferred stock carries an annual
cumulative dividend rate of 10%. The portfolio company may redeem the preferred
stock at any time after April 1998 and the Company has the right to put the
preferred shares at any time after April 2002. In either case, the redemption
price is 10 times the adjusted earnings of the portfolio company for the
12-month fiscal year preceding the redemption date; provided that the minimum
redemption price is $1,000 per share increased by $40 per year for each 12-month
period the preferred stock is held by the Company and the maximum redemption
price is an amount calculated on an annualized basis to yield the Company an
annual internal rate of return between 15% and 20% depending on the year of
redemption.
As part of the transaction, the Company acquired a common stock purchase
warrant exercisable for 1,177 shares of common stock at $.10 per share
representing 15% of the portfolio company's common stock, if exercised. The
warrant expires in April 2003 contains anti-dilution provisions and is
detachable and transferable. After April 2003, the Company has the right to put,
and the portfolio company has the right to call, annually, in multiples of 20%,
the common stock for which the warrant is exercisable. The redemption price of
such shares is 15% of the fair market value of the portfolio company as of the
date of the exercise of the put or the call, as determined by a professional
appraiser selected by the Company and the portfolio company.
- In May 1997, the Company purchased $175,000 of redeemable preferred
stock of a portfolio company engaged in the sale, assembly and servicing of
voting machines for governmental entities. The preferred stock carries an annual
cumulative dividend rate of 13%. The Company's preferred stock is redeemable
quarterly at par by the portfolio company commencing September 1997. Commencing
in May 2002, the Company has the right to put its preferred stock to the
portfolio company, at par.
As part of the transaction, the Company acquired a common stock purchase
warrant exercisable, only if the holder owns shares of the redeemable preferred
stock, for 194 shares of common stock, at $1 per share, incrementally over a
four-year period from its issuance representing 16% of outstanding shares of
common stock. The warrant contains anti-dilution provisions and is transferable.
In July 1997, it purchased an additional $175,000 of the same series of
preferred stock and acquired a second common stock purchase warrant exercisable
at $1 per share for 44 shares of common stock representing 3% of the outstanding
common stock of the portfolio company. This warrant contains anti-dilution
provisions and is transferable and detachable. The shares issuable on exercise
of both warrants are subject to a put in favor of the Company exercisable
between June 2002 and June 2007 at the greater of the "fair market value" (as
specifically defined in the warrant) of such shares or the value as determined
by an independent appraisal.
10
<PAGE> 16
INVESTMENT POLICIES
The Company's investment policies have been adopted by the Board of
Directors and are implemented by the Executive Committee. The Company attempts
to ensure that its asset portfolio exhibits safety and soundness, while, at the
same time, provides for equity features that will permit it to achieve rewards
commensurate with a venture capital investment.
Traditional lenders require certain standards before affirmatively
considering a loan. Among others, these standards include debt service coverage
ratios, profit history, adequate working capital and collateral security.
Venture capital investing takes a different approach. The Company includes these
factors in its decision-making process, but significant weight is given to
product, market size, growth potential, capability of management and potential
exit strategies for the equity portion of the Company's investment. To identify
an exit strategy, Management carefully studies the portfolio company's growth
potential, as well as historical financial performance.
The Company's investments in Small Business Concerns will continue to be
direct equity investments and secured and unsecured loans, generally with equity
participation rights in the form of common stock purchase warrants or preferred
stock or debentures convertible into an equity interest. The Company may also
guarantee all or a portion of the indebtedness of a portfolio company to other
lending institutions. The Company's policy does not require that it make only
secured loans, but Management believes that most loans should be collateralized.
Although the Company has made no investments in start-up businesses, each
applicant is reviewed on an individual basis. Any application for investments in
start-up businesses are considered on criteria including, risk/reward,
management, evaluation of success, liquidation value and the like.
A SBIC provides for a flexible investing format. SBIC financings can range
from making long-term secured loans to providing equity capital. The Company has
operated, and anticipates continuing to operate, in the middle of these two
strategies with an eye to achieving a balanced portfolio of both equity
investments and debt structured to meet the needs of the Small Business Concern.
The Company initiates its investment and lending decisions by analyzing
traditional criteria for making any equity investment or granting any credit --
character, collateral, growth potential, capacity to repay, financial and credit
history and other factors. After an initial screening of potential portfolio
companies based on these factors, Management recommends to the Executive
Committee investments in those Small Business Concerns it believes will be
successful and contribute to the bottom line of the Company. In general,
although obviously involving substantially more risk, investing in small
emerging companies can mean higher growth rates in revenues and profits than
investing in larger, more established firms. The Company seeks to invest in a
wide range of businesses -- from high as well as low technology companies to
manufacturing and service companies.
ASSET/RISK MANAGEMENT
Investment in an enterprise, whether by debt or equity, necessarily
involves the risk that the debt will not be repaid or that the equity feature
will be illiquid even if the portfolio company performs and the underlying value
is present. Losses will occur. Management attempts to minimize losses by several
strategies:
- Limitation on investments in one borrower. Although SBA
regulations allow up to 20% of a SBIC's Regulatory Capital to be committed to
one portfolio company, Company policy allows an investment to approach this
outside limit only in rare circumstances.
- Appropriate underwriting standards. Management analyzes each
application or proposed transaction. If analysis does not reveal an investment
quality deal, the rejection is handled at the Management level. Management
examines numerous proposals for every one recommended to the Executive
Committee.
11
<PAGE> 17
- Executive Committee Approval. If the investment appears to
Management to meet Company standards of an appropriate return on investment,
redemption of equity and repayment, then it is presented to the Executive
Committee for additional evaluation. Because the Company's Board of Directors
does not meet frequently enough to consider individual loan requests, it has
formed the seven-member Executive Committee to approve all investments. See
"Management." At varying times, Directors are asked to attend Executive
Committee meetings on an ad hoc basis when the agenda includes transaction
approval.
- Documentation. The Company requires extensive transactional
documentation. Documentation requirements are outlined from the beginning and
tickler files and checklists are used at the management level to ensure
continued compliance with investment and loan covenants.
- Monitoring. Management closely monitors the performance of
each portfolio company. Merely requiring the submission of financials on a
periodic basis does not suffice in venture capital investing. The Company
believes that, by the time financials are submitted and analyzed, many problems
may be out of control and beyond solution. Frequent monitoring is the Company's
policy.
- Default Covenants. Generally, the Company's investment
documents contain covenants allowing it, in the event certain financial
standards are not met or maintained, to acquire control of the board of
directors of the portfolio company, and replace its management if necessary.
INVESTMENT VALUATION POLICY
The Board of Directors has delegated to the Executive Committee the sole
responsibility for determining the asset value of each of the Company's equity
investments and loans and of its portfolio in the aggregate. The Company's
valuation policy is to provide a consistent basis for establishing the asset
value of its portfolio and has adopted the SBIC valuation policy of the SBA. The
Company's policy is that equity investments be held for five to seven years and
loans for a minimum of five years (as required by SBA Regulations) or until
maturity. Key elements of the Company's valuation policy follow.
EQUITY VALUATION
Investment cost is presumed to represent asset value except as otherwise
indicated. Valuation is reduced if a portfolio company's performance has
significantly deteriorated. If the factors that led to the reduction in
valuation are overcome, the valuation may be restored.
When a company has been self-financing in, and has had positive cash flow
from operations for, at least the past two fiscal years, asset value may be
increased based on price/earnings ratios, cash flow multiples and other
appropriate financial measures of any similar publicly-traded companies,
discounted for illiquidity. If the chosen valuation ceases to be meaningful, it
may be restored to a cost basis, or, in the event of significant deterioration
in performance or potential, to a valuation below cost to reflect impairment.
With respect to portfolio companies likely to face bankruptcy or discontinue
operations for some other reason, liquidating value may be employed. This value
may be determined by estimating the realizable value (often through professional
appraisals or firm offers to purchase) of all assets and then subtracting all
liabilities and all associated liquidation costs.
Warrants are valued at the excess of the value of the underlying
security over the exercise price.
DEBT VALUATION
Loans are valued in an amount not greater than cost, with unrealized
depreciation recognized when value is impaired. The valuation of loans and
associated interest receivables on interest-bearing securities reflects the
portfolio company's current and projected financial condition and operating
results, its payment history and its ability to generate sufficient cash flow to
make payments when due.
12
<PAGE> 18
When a valuation relies more heavily on assets than earnings, additional
criteria are considered, including, the value of the collateral, the priority of
the Company's security interest, the net liquidation value of collateral and the
personal integrity and overall financial condition of the owners of the
business. An appropriate downward adjustment is recognized when collection is
doubtful. Collection is presumed to be in doubt when one or both of the
following conditions occur (i) interest payments are more than 120 days past due
or (ii) the portfolio company is in bankruptcy, is insolvent or substantial
doubt exists about its ability to continue as a going concern. The carrying
value of interest-bearing securities is not adjusted for changes in interest
rates. The valuation of convertible debt may be adjusted to reflect the value of
the underlying equity security net of the conversion price.
SOURCES OF FUNDS
In the foreseeable future, the Company intends to continue to use only the
cash portion of its Private Capital to invest in, or to provide financing to,
portfolio companies. If the Company requires additional cash, it holds
$2,006,000 of demand notes representing the unpaid purchase price of Common
Stock. See footnote 2 "Capitalization." Even after investing the required
percentage of its Leveragable Capital, the Company does not anticipate issuing
SBA Debentures or SBA Participating Securities until the cash portion of its
Private Capital is substantially exhausted. Moreover, it does not anticipate
borrowing from banks or other financial institutions.
FUNDAMENTAL INVESTMENT POLICIES
The following policies of the Company with respect to the activities
described below are matters of fundamental policy in accordance with Sections
8(b) and 13(a) of the Investment Act. These policies may not be changed without
the approval of the lesser of (i) 67% of the Company's shares present or
represented at a shareholders' meeting at which the holders of more than 50% of
such shares are present or represented or (ii) more than 50% of the outstanding
shares of the Company.
(a) The Company is permitted to issue the maximum amount of SBA Debentures or
SBA Participating Securities permitted by the SBA Act and SBA Regulations. The
Company has not issued any SBA Debentures or SBA Participating Securities and
does not anticipate doing so in the foreseeable future.
(b) The Company is permitted to borrow money only for the purpose of investing
in, and making loans to, Small Business Concerns. It is, however, permitted to
finance the acquisition of capital assets used in its ordinary business
operations.
(c) The Company is not permitted to engage in the business of underwriting the
securities of other issuers. It anticipates that all or substantially all of its
investments in Small Business Concerns will be in securities that may not be
sold to the public without registration under the Securities Act. All of the
Company's current equity investments in Small Business Concerns are so
restricted.
(d) The Company is prohibited from concentrating more than 30% of the value of
its assets, determined at the time an investment is made, exclusive of U.S.
government securities, in securities issued by companies engaged primarily in
the same industry.
(e) The Company is prohibited from engaging in the business of purchasing or
selling real estate. The Company may bring mortgage foreclosure actions and take
title to and possession of property with respect to which it is the mortgagee in
accordance with applicable mortgage foreclosure laws. Additionally, the Company
may purchase office facilities, although, at present, it leases its office
facilities.
(f) The Company is not permitted to engage in the purchase or sale of
commodities or commodity contracts.
(g) The Company is permitted to make loans to Small Business Concerns to the
extent allowed by the SBA Act and SBA Regulations.
13
<PAGE> 19
OTHER INVESTMENT POLICIES
The Company's policies with respect to the following matters are not
fundamental policies and may be changed, subject to the SBA Act and SBA
Regulations, by the Company's Executive Committee without shareholder approval.
(a) The Company may make investments in equity and debt securities of Small
Business Concerns as approved by the Executive Committee. The Company has no
strict policy regarding the percentage of its assets that may be invested in any
specific type of security.
(b) The Company follows SBA Regulations prohibiting investment in any single
Small Business Concern and its affiliates exceeding 20% of the Company's
Regulatory Capital.
(c) As permitted by SBA Regulations, the Company may purchase (a) up to 49% of
the voting securities of a Small Business Concern if the Small Business Concern
has less than 50 shareholders or (b) up to 19% (and in certain situations up to
25%) of the voting securities of a Small Business Concern if the Small Business
Concern has 50 or more shareholders.
(d) Except where necessary to protect an investment, the Company does not invest
in companies for the purpose of exercising control of management and does not
intend to do so in the future. SBA Regulations prohibit SBICs from controlling a
Small Business Concern except where necessary to protect its investment.
(e) The Company does not invest in securities of other investment companies and
does not intend to do so in the future.
(f) The Company intends to hold its portfolio debt securities for a minimum of
five years as required by SBA Regulations or until maturity. It anticipates
retaining its equity investments from five to seven years.
COMPETITION
The Company competes with venture capital investors, venture capital
investment firms and other SBICs that, like the Company, take equity positions
in Small Business Concerns. The Company also competes, to a limited extent, with
commercial banks and commercial finance companies. Most of its competitors have
substantially more assets and capital than the Company. The Company, however,
believes that, because of its size and structure, it can tailor equity
investment or loan terms and conditions to a borrower's needs and circumstances
better than many of its larger competitors.
EMPLOYEES
As of August 31, 1997, the Company had two full-time and one part-time
employees. Depending on the market for its services, the Company may need to
hire additional employees in the future.
14
<PAGE> 20
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, addresses, ages and positions
with the Company of all Executive Officers and Directors of the Company. Also
set forth below is information concerning the principal occupation and
background for each person named in the table.
POSITION AND OFFICES
NAME AND ADDRESS AGE WITH THE COMPANY
James E. Andrews.................. 59 Director
109 East 40th Street
Norfolk, VA 23504
Donna C. Bennett.................. 36 Director
500 East Plume Street
Norfolk, VA 23510
J. W. Whiting Chisman, Jr......... 56 Member of Executive
226 Creekview Lane Committee and Director
Hampton, VA 23669
Jeffrey R. Ellis.................. 53 Director
513 Kerry Lane
Virginia Beach, VA 23451
Eric L. Fox....................... 51 Member of Executive
One Commercial Place Committee and Director
Norfolk, VA 23510 and Secretary/Treasurer
Roger L. Frost.................... 65 Director
1700 Grove Court
Norfolk, VA 23503
Ernest F. Hardee.................. 57 Member of Executive
100 E. 15th Street Committee and Director
Norfolk, VA 23510
Henry U. Harris, III.............. 45 Director
500 E. Main Street
Suite 1500
Norfolk, VA 23510
Matthew James..................... 42 Director
200 High Street, Suite 200
Portsmouth, VA 23704
J. Alan Lindauer.................. 58 Chairman of Executive
300 East Main Street Committee, Director, President
Suite 1380 and Chief Executive Officer
Norfolk, VA 23510
15
<PAGE> 21
POSITION AND OFFICES
NAME AND ADDRESS AGE WITH THE COMPANY
Robert I. Low..................... 60 Member of Executive
P.O. Box 3297 Committee and Director
Norfolk, VA 23514
Harold J. Marioneaux, Jr.......... 42 Director
504 Mill Stone Road
Chesapeake, VA 23320
Peter M. Meredith, Jr............. 45 Member of Executive
P.O. Box 11265 Committee and Chairman
Norfolk, VA 23517 of the Board of Directors
Augustus C. Miller................ 63 Director
1000 E. City Hall Avenue
Norfolk, VA 23504
Paul F. Miller.................... 66 Director
2400 Washington Avenue
Newport News, VA 23607
Juan M. Montero, II............ 55 Director
2147 Old Greenbrier Road
Chesapeake, VA 23320
R. Scott Morgan, Sr............. 51 Director
5101 Cleveland Street
Virginia Beach, VA 23462
James W. Noel, Jr.............. 41 Director
224 Ballard Street
P.O. Box 612
Yorktown, VA 23690
Thomas A. O'Grady.............. 40 Director
201 N. Main Street
Suite B
Suffolk, VA 23434
Richard G. Ornstein............ 55 Member of Executive
524 Fisherman's Bend Committee and Director
Virginia Beach, VA 23451
Richard A. Schreiber........... 56 Director
36076 Lankford Highway,
P.O. Box 395
Belle Haven, VA 23306
Jordan E. Slone................ 35 Director
500 E. Main Street, #820
Norfolk, VA 23510
16
<PAGE> 22
James E. Andrews has served as a director of the Company since May 1997. Since
1974, Mr. Andrews has been the principal owner of Anzell Automotive, Inc., an
automotive repair firm and franchisor of automotive repair shops.
Donna C. Bennett has served as a Director of the Company since September 1996.
She is a Vice-President of Signet Bank and has been employed since 1985 with
Signet Bank in various capacities.
J. W. Whiting Chisman, Jr. has served as a Director of the Company since May
1994. Since 1988, he has been President of Dare Investment Company, a land
developer and investor in equities.
Jeffrey R. Ellis has served as a Director of the Company since September 1997.
Between 1973 and 1986, Mr. Ellis was the President and Chief Executive Officer
of Ridgewell Caterers, Inc. Since 1986, he has been a private investor.
Eric L. Fox has served as a Director of the Company since July 1993 and as
Secretary/Treasurer since September 1996. In 1975, Mr. Fox joined the
investment firm of Kidder, Peabody & Co. which was acquired by Paine Webber
in 1995. He is currently a Vice-President of Paine Webber.
Roger L. Frost has served as a Director of the Company since May 1997. Between
1956 and 1997, he was an accountant with Goodman & Company, a firm of Certified
Public Accountants, from which he retired as a senior partner in 1997.
Ernest F. Hardee has served as a Director of the Company since September 1997.
Since 1963, he has been President and Chief Executive Officer of Hardee Realty
Corporation, a real estate brokerage firm. He also serves as a director of
Branch Bank & Trust Corp.
Henry U. Harris, III has served as a Director of the Company since September
1997. Since 1980, he has been Portfolio Manager of Virginia Investment
Counselors, Inc., a financial consulting firm, of which he is now President.
Since 1991, he has been the vice-chairman of the Board of Directors of Heritage
Bank & Trust.
Matthew James has served as a Director of the Company since July 1993. Since
1990, Mr. James has been Director of Economic Development for the City of
Portsmouth, Virginia.
J. Alan Lindauer has served as a Director and as a Chairman of the Executive
Committee of the Company since July 1993 and since March 1994 as its President
and Chief Executive Officer. Since 1986, Mr. Lindauer has been President of
Waterside Management, Inc., a business consulting firm. Mr. Lindauer is a
Certified Management Consultant.
Robert I. Low has served as a Director of the Company since July 1993. Mr. Low
is a senior partner of Goodman & Company, a firm of Certified Public
Accountants. He has been with that firm since 1961.
Harold J. Marioneaux, Jr. has served as a Director of the Company since
November 1994. Since 1981, he has been licensed as a dental surgeon and since
1993 has acted as a certified financial planner.
Peter M. Meredith, Jr. has served as a Director of the Companyand as Chairman of
the Board of Directors since May 1994. Since 1974, he has served in various
executive capacities with Meredith Construction Company, Inc. Since 1994, he
has been the Chairman of the Board of Directors of Heritage Bank.
Augustus C. Miller has served as a Director of the Company since August 1994.
Since 1977, he has been President and Chief Executive Officer of Miller Oil Co.,
Inc., a distributor of fuels.
Paul F. Miller has served as a Director of the Company since May 1994. Since
1987, he has served as Director of Planning and Development for the City of
Newport News, Virginia.
Juan M. Montero, II has served as a Director of the Company since July 1995.
Since 1972, he has engaged in the private practice of general and thoracic
surgery.
17
<PAGE> 23
R. Scott Morgan has served as a Director of the Company since September 1997.
Since 1995, Mr. Morgan has been Executive Vice President and Corporate Banking
Manager with the Corporate Banking Group of Branch Bank & Trust Corp. Between
1985 and 1995, he was employed in various capacities with Commerce Bank.
James W. Noel, Jr. has served as a Director of the Company since August 1994.
Since 1993, Mr. Noel has been the Executive Director of the York County
Industrial Development Authority. Between 1979 and 1993, he served in various
capacities with the City of Portsmouth, Virginia.
Thomas A. O'Grady has served as a Director of the Company since May 1997. In
1996, he was appointed Director of Economic Development of the City of Suffolk,
Virginia. Between 1989 and 1996, he was Director of Development for Forward
Hampton Roads and was responsible for marketing and prospect development for the
five-city region of Chesapeake, Norfolk, Portsmouth, Suffolk and Virginia Beach,
Virginia.
Richard G. Ornstein has served as a Director of the Company since September
1997. Since 1964, Mr. Ornstein has been privately engaged in real estate
management and development .
Richard A. Schreiber has served as a Director of the Company since May 1995.
Since 1994, he has been President and Chief Executive Officer of the Virginia
Eastern Shore Corporation, which is engaged in development of business for the
Eastern Shore of Virginia. Between 1980 and 1994, he was Vice-President and
Chief Executive Officer of Colonial Williamsburg Hotel Properties, Inc.
Jordan E. Slone has served as a Director of the Company since July 1995. Since
1985, Mr. Slone has been Chairman and Chief Executive Officer of the Harbor
Group Companies, a diversified real estate and financial services firm.
REMUNERATION
The aggregate remuneration paid by the Company during the fiscal year
ended June 30, 1997, with respect to each officer and Director of the Company
whose aggregate remuneration exceeded $30,000, is set forth below.
<TABLE>
<CAPTION>
CAPACITIES IN WHICH AGGREGATE
NAME OF INDIVIDUAL REMUNERATION WAS RECEIVED REMUNERATION
- ------------------ -------------------------- -------------
<S> <C> <C>
J. Alan Lindauer Chairman of Executive Committee, $52,000
Director, President and Chief Executive
Officer
</TABLE>
Mr. Lindauer was elected President and Chief Executive Officer of the
Company in March 1994. Since then, his compensation has been paid to Waterside
Management, Inc., a corporation of which he was and is the sole owner
("Waterside"). Beginning July 1, 1997, such compensation was increased to
$78,000 per year. Before July 1997, no other officer or Director of the Company
received any remuneration. "See "Executive Committee."
MANAGEMENT CONTRACT
Mr. Lindauer is engaged by the Company as its President and Chief
Executive Officer under a management contract entered into as of July 1997. The
Company pays Waterside an annual fee of $78,000 to provide Mr. Lindauer's
services, reimburses expenses incurred in performing services for the Company
and provides health insurance benefits for Mr. Lindauer. The term of the
management contract is five years. The agreement contains provisions protecting
the Company against competition from Mr. Lindauer in Eastern Virginia for a
two-year period after termination of his employment.
EXECUTIVE COMMITTEE.
In December 1993, the Board of Directors amended the Company's Bylaws and
constituted the Executive Committee, delegating the power to establish loan
policies for the Company and to make final decisions on equity and debt
investments submitted by Management. The members of the Executive Committee are
Messrs. Fox, Hardee, Lindauer, Low, Meredith, Chisman and Ornstein.
18
<PAGE> 24
Beginning in July 1997, its members have been paid $50 for each committee
meeting attended.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of August 31,
1997 as to each person who holds or controls 5% or more of the outstanding
Common Stock:
<TABLE>
<CAPTION>
AMOUNT PERCENT OF
NAME AND ADDRESS TITLE OF CLASS TYPE OF OWNERSHIP OWNED CLASS
- ---------------- -------------- ----------------- ------ ----------
<S> <C> <C> <C> <C>
Branch Bank & Trust Common Beneficially and of 35,000 6.15
Company of Virginia Record
5101 Cleveland Street
Virginia Beach, VA
23465
J. Alan Lindauer Common Beneficially Only (1) 40,000 7.03
300 East Main Street Beneficially and of Record 1,200 .21
Suite 1380
Norfolk, VA 23510
All officers and directors Common Beneficially Only(1)(2)(3)(4)(5)(6) 80,000 14.06
as a group (12 persons) Beneficially and of Record 60,200 10.58
</TABLE>
- -----------------------------------
(1) Includes 40,000 shares held by Hometown Bank & Co. for J. Alan Lindauer
Profit Sharing Plan.
(2) Includes 10,000 shares held by Meredith Realty Company, L.L.C., of which Mr.
Meredith is a member.
(3) Includes 10,000 shares held by Pomar Holding Company, L.L.C., of which Mr.
Meredith is a member.
(4) Includes 10,000 shares held by Goodman & Company 401(k) Profit Sharing Plan
for the benefit of Mr. Frost.
(5) Includes 5,000 shares held by DanSan, a general partnership, of which Mr.
Harris is one of two general partners.
(6) Includes 5,000 shares held by Juan M. Montero II M.D. P.C. Profit Sharing
and Money Purchase Pension Plan for benefit of Dr. Montero.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 1,500,000 shares
of Common Stock, par value $1 per share, and 25,000 shares of Preferred Stock,
par value $1 per share. As of the date of this Prospectus, there are issued and
outstanding 568,900 shares of Common Stock held of record by 87 shareholders.
Assuming the sale of all the Shares, there will be 1,368,900 shares of Common
Stock outstanding. There are no outstanding shares of Preferred Stock. The
following description is qualified in its entirety by reference to the Company's
Articles of Incorporation and Bylaws, which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Cumulative voting in
the election of directors is not permitted. Holders of Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
of the Company out of legally available funds. In the event of liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to participate ratably in the assets remaining after payment of and provision
for liabilities. Holders of Common Stock have no conversion, preemptive or other
rights to subscribe for additional shares or other securities and there are
19
<PAGE> 25
no redemption or sinking fund provisions with respect to such shares. All of the
outstanding shares of Common Stock are, and the Shares will be on issuance,
fully paid and nonassessable. Without the consent of the SBA, the Company is
prohibited from redeeming Common Stock. Redemption is, in any event, prohibited
if it would render the Company insolvent.
The rights, preferences and privileges of holders of Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock that the Company may designate and issue
in the future.
PREFERRED STOCK
The Board of Directors has the authority, without further action of
shareholders of the Company, to issue up to an aggregate of 25,000 shares of
Preferred Stock in one or more series and to fix or determine the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series, including dividend rates, conversion rights, voting
rights, terms of redemption price or prices, liquidation preferences and the
number of shares constituting any series or the designation of such series.
The Board of Directors, without shareholder approval, has the power to
issue Preferred Stock with voting and conversion rights that could adversely
affect the voting power of holders of Common Stock. The issuance of Preferred
Stock, although providing desirable flexibility in raising additional Private
Capital and other corporate purposes, may have the effect of discouraging,
delaying or preventing a change in control of the Company. There are currently
no issued or outstanding shares of Preferred Stock and the Company has no
present plans to issue any shares of Preferred Stock.
LIMITATIONS ON TRANSFERS OF SHARES
There is currently no public market for the Company's Common Stock and
there is little likelihood that an active trading market will develop in the
near future as a result of this Offering. The Registration Statement of which
this Prospectus is a part has been registered with the Commission under the
Securities Act and, as such, the Shares will be freely tradable under federal
securities laws. Notification filings of this Offering, however, will be made in
only a limited number of states, and the Shares may not be sold or otherwise
transferred to persons who are residents of any state in which notification
filings have not been made unless a notification filing is subsequently made or
there exists an exemption from the applicable state's registration requirements
with respect to such sale or transfer.
The Company intends to apply for listing of the Common Stock on the
NASDAQ SmallCap Market when, and if, the Company meets the following listing
requirements: $4 million of total assets, $2 million of total shareholders'
equity, a minimum bid price of $3 per share and a minimum of two market makers.
To date, the Company has not contacted any potential market makers for the
Common Stock and there can be no assurance that the Company will be able to
interest brokers or dealers in acting as market makers for the Common Stock. No
assurance can be given when or whether the Common Stock will qualify for listing
on the NASDAQ SmallCap Market.
TRANSFER AGENT
The Company acts as its own transfer agent.
20
<PAGE> 26
SHARES ELIGIBLE FOR FUTURE SALE
All of the 568,900 shares of Common Stock currently outstanding were
offered and sold by the Company in a series of private transactions in reliance
on exemptions from registration under the Securities Act. Accordingly, all of
such shares are "restricted securities," as defined by Rule 144 under the
Securities Act and cannot be resold without registration under the Securities
Act except in reliance on or as permitted by Rule 144 or another applicable
exemption from such registration. In general, under Rule 144, a person (or
persons whose shares are required to be aggregated), including any affiliate of
the Company, who beneficially owns restricted shares for a period of at least
one year is entitled to sell, within any three-month period, shares equal in
number to the greater of (i) 1% of the then outstanding shares of Common Stock
or (ii) the average weekly trading volume of the same class of shares during the
four calendar weeks preceding the filing of the required notice of sale with the
Commission. The seller must also comply with the notice and manner of sale
requirements of Rule 144, and there must be current public information available
about the Company. In addition, any person (or persons whose shares are required
to be aggregated) who is not, at the time of sale, or during the preceding three
months, an affiliate of the Company, and who has beneficially owned restricted
shares for at least two years, can sell such shares without regard to notice,
manner of sale, public information or the volume limitations described above.
Shares of Common Stock have been eligible for resale under Rule 144, depending
on their date of issue, since February 1995 (assuming the other requirements of
Rule 144 are met).
No prediction can be made as to the effect, if any, that future sales of
restricted shares of Common Stock, or the availability of such Common Stock for
sale, will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the then prevailing
market price of the Common Stock.
In addition, the Company may issue additional shares of Common Stock in
the future. No prediction can be made as to the effect, if any, that future
issuances of Common Stock may have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of such Common Stock,
or the perception that such sales may occur, could adversely affect the then
prevailing market price of the Common Stock.
PLAN OF DISTRIBUTION
The Company is offering to sell, on a best efforts basis, 800,000 shares
of Common Stock at $12.50 per share. This Offering will begin on the date of
this Prospectus and continue until all of the Shares are sold or until the
Registration Statement of which this Prospectus is part is no longer effective.
Subject to applicable federal and state securities laws, the Company's
employees will participate in the selling effort. The Company does not
anticipate paying any underwriting discounts or commissions, will not compensate
employees in connection with the sale of the Shares and intends to comply with
Rule 3a4-1 under the Securities and Exchange Act of 1934 so as not to require
such employees or other "associated persons," as defined, to be registered as
broker-dealers. Where required by state securities laws, the Company will engage
authorized agents to sell the Shares who generally will be compensated for sales
made.
The Company may also attempt to engage brokers or dealers who are
members of the National Association of Securities Dealers to sell the Shares.
Although the Company has had preliminary discussions with several brokers or
dealers, no broker or dealer has been retained by the Company, and no broker or
dealer is under any obligation to purchase any Shares. Accordingly, the Company
cannot predict (i) if any brokers or dealers will participate in this Offering
or (ii) the number of Shares that may be sold by brokers or dealers. In the
event that any broker or dealer effects sales of Shares accounting for 5% or
more of the total Shares, the Company will amend this Prospectus to identify
such broker or dealer. If Shares are sold by such brokers or dealers, the
Company anticipates paying a commission within the range of 5% to 12% of the
offering price of the Shares sold. The Company anticipates entering into a
selected dealer agreement with any broker or dealer who sells Shares in this
Offering. Such agreement is expected to provide for the payment of the
commissions described above and, because such brokers or dealers may be deemed
to be underwriters as that term is defined in the Securities Act, further
provide for indemnification of such broker or dealer by the Company against
certain liabilities, including liabilities under the Securities Act.
21
<PAGE> 27
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is only a general summary of some of the
federal tax principles applicable to the Company and to an investment in the
Shares. It does not purport to be a complete description of the tax
considerations applicable to such an investment. Prospective investors should
consult their own tax advisers with respect to the tax considerations pertaining
to their purchase of the Shares.
Congress created SBICs to serve as privately-owned stock corporations
that are designed to furnish capital to Small Business Concerns. In connection
with this legislation, Congress provided special tax benefits to SBICs
operating under the SBA Act and their shareholders.
A shareholder's loss sustained on the sale or exchanges or worthlessness
of stock in a SBIC is not a capital loss, but a fully deductible ordinary loss.
For the purpose of the net operating loss deduction, the loss is considered
attributable to the shareholder's trade or business. Because these losses are
treated as noncapital losses, they are not subject to the limitation that
capital losses must be offset against capital gains. There is no annual limit on
the amount of loss a shareholder may receive. In addition, there is no fixed
limit on the amount of stock a SBIC may issue. There is no requirement that
gains and losses from dispositions of the stock be netted so that gains and
losses in any one taxable year on dispositions of stock may result in both
capital gains and ordinary losses. A loss is treated as a business loss for
purposes of the net operating loss deduction of the Internal Revenue Code (the
"Code"). Thus, if the loss is not fully used in the year it is incurred, the
excess may be carried over.
Corporations generally get a 70% deduction for dividends received from
taxable domestic corporations. Under the Code, however, a SBIC gets a 100%
deduction for "dividends" received from taxable domestic corporations. Certain
types of dividends are excluded from this special deduction, including dividends
received from mutual savings banks, cooperative banks, domestic building and
loan associations, real estate investment trusts and regulated investment
companies.
A SBIC's loss on the sale, exchange or worthlessness of "stock received
pursuant to the conversion privilege of convertible debentures" is a fully
deductible ordinary business loss. Because such transactions are not considered
to be a sale or exchange of a capital asset, the gain or loss from the sale or
exchange of a bond, debenture, note or certificate or other evidence of
indebtedness by a SBIC is treated as an ordinary gain or loss. Because these
losses are treated as noncapital losses, they are not subject to the limitation
that capital losses must be offset by capital gains. Thus, they are treated as
ordinary losses that may be offset by ordinary income. Generally, under the
Code, a SBIC is exempt from the personal holding company tax if the SBIC is (i)
licensed by the SBA and (ii) actively engaged in the business of providing funds
to Small Business Concerns under the SBA Act. This exemption does not apply,
however, if at any time during the taxable year, a shareholder of the SBIC owns,
directly or indirectly (a) a 5% or more proprietary interest in a Small Business
Concern to which the SBIC provides funds or (b) 5% or more of the value of the
outstanding stock of the Small Business Concern. In applying these 5% tests,
ownership by members of a individual's family (as defined in Code) is treated as
ownership by that individual.
LEGAL OPINIONS
Clark & Stant, P.C., 900 Columbus Center, Virginia Beach, Virginia
23452, will render an opinion on the validity of the issuance of the Shares for
the Company.
EXPERTS
The financial statements for the fiscal years ended June 30, 1997 and
1996 and the period July 13, 1993 (inception) through June 30, 1996 included in
this Prospectus have been so included in reliance on the report of Hoffman,
Morrison & Fitzgerald, P.C., independent accountants, given on the authority of
the firm as experts in auditing and accounting.
22
<PAGE> 28
EASTERN VIRGINIA SMALL BUSINESS
INVESTMENT CORPORATION
FINANCIAL STATEMENTS
FROM JULY 13, 1993 (Date of Inception)
TO JUNE 30, 1996
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1997
(unaudited)
WITH
INDEPENDENT ACCOUNTANTS' REPORT
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT ACCOUNTANTS' REPORT F-2
FINANCIAL STATEMENTS:
Balance sheet at June 30, 1997 and September 30, 1997 (unaudited) F-3
Statements of operations for the years ended June 30, 1997 and
1996 and for the period July 13, 1993 (date of inception) to
June 30, 1996 and for the three months ended September 30, 1997
and 1996 (unaudited) F-4
Statements of changes in stockholders' equity for the years ended
June 30, 1997 and 1996 and for the period July 13, 1993 (date
of inception) to June 30, 1996 and for the three months ended
September 30, 1997 and 1996 (unaudited) F-5
Statements of cash flows for the years ended June 30, 1997 and
1996 and for the period July 13, 1993 (date of inception) to
June 30, 1996 and for the three months ended September 30, 1997
and 1996 (unaudited) F-6
NOTES TO FINANCIAL STATEMENTS F-7 - F-15
</TABLE>
F-1
<PAGE> 29
INDEPENDENT ACCOUNTANTS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
EASTERN VIRGINIA SMALL BUSINESS INVESTMENT CORPORATION
Norfolk, Virginia
We have audited the accompanying balance sheet of EASTERN VIRGINIA SMALL
BUSINESS INVESTMENT CORPORATION as of June 30, 1997, and the related statements
of operations, stockholders' equity and cash flows for the years ended June 30,
1997 and 1996 and for the period July 13, 1993 (date of inception) to June 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 of securities owned as of June 30, 1997. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EASTERN VIRGINIA SMALL BUSINESS
INVESTMENT CORPORATION as of June 30, 1997, and the results of its operations
and its cash flows for the years ended June 30, 1997 and June 30, 1996, and for
the period July 13, 1993 (date of inception) to June 30, 1996, in conformity
with generally accepted accounting principles.
As explained in the note B, the financial statements include securities valued
at $1,532,726 at June 30, 1997 (39% of total assets), whose values have been
estimated by the Executive Committee of the Board of Directors in the absence of
readily ascertainable market values. We have reviewed the procedures used by the
Executive Committee in arriving at its estimate of value of such securities and
have inspected underlying documentation, and , in the circumstances, we believe
that procedures are reasonable and the documentation appropriate. 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.
HOFFMAN, MORRISON & FITZGERALD, P.C.
McLean, Virginia
August 2, 1997 except Note H
which is as of September 26, 1997
<PAGE> 30
EASTERN VIRGINIA SMALL BUSINESS
INVESTMENT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Investments in equity securities at fair value,
cost of $1,140,000 at June 30, 1997 and
$ at September 30, 1997 $ 1,532,726 $
Cash and cash equivalents 2,329,148
Interest receivable 5,729
Income taxes receivable 16,162
------------ ---------
3,883,765 -
Property and equipment:
Furniture and fixtures 32,231
Leasehold improvements 20,766
------------ ---------
52,997 -
Less: accumulated depreciation (3,038)
------------ ---------
49,959 -
Other assets:
Deferred costs, (net of accumulated
amortization of $3,016 at June 30, 1997 and
$ at September 30, 1997) 38,626
------------ ---------
$ 3,972,350 $ -
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable and accrued expenses $ 931 $
Deferred income taxes 131,332
------------ ---------
Total liabilities 132,263 -
Commitments - -
Stockholders' Equity:
Common stock, $1 par value, 1,500,000 shares
authorized, 568,900 shares issued and outstanding 568,900
Preferred stock, $1 par value, 25,000 shares
authorized, no shares issued and outstanding - -
Additional paid-in capital 5,041,100
Net unrealized appreciation on investments 238,094
Undistributed accumulated earnings (deficit) (2,007) -
Stockholders' notes receivable (2,006,000)
------------ ---------
Total stockholders' equity 3,840,087 -
------------ ---------
$ 3,972,350 $ -
============ =========
Net asset value per common share $ 6.75 $
============ =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 31
EASTERN VIRGINIA SMALL BUSINESS
INVESTMENT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months
Cumulative Ended
Year Ended June 30, from inception September 30,
------------------- (July 13, 1993) to ----------------------
1996 1997 June 30, 1996 1996 1997
--------- --------- ------------------ ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING INCOME:
Interest on loans $ - $ 9,430 $ - $ $
Dividends - - -
-------- -------- --------- --------- ---------
- 9,430 -
Interest on cash
equivalents 42,262 166,573 51,217
-------- -------- -------- --------- ---------
Total interest and
dividends 42,262 176,003 51,217
Other income 17,255 37,450 17,255
-------- -------- -------- --------- ---------
Total operating
income 59,517 213,453 68,472
OPERATING EXPENSES:
Management fees 16,549 52,000 16,549
Salary and benefits 27,071 41,965 27,071
Legal and accounting 3,962 33,678 17,962
Rent 1,633 20,919 3,658
Insurance - 17,257 -
SBA audit expense fee - 7,450 -
Depreciation and
amortization - 6,054 -
Custodial fees - 2,917 -
Office expense 3,539 - 5,347
Other operating
expenses 7,023 23,136 25,215
-------- -------- -------- --------- ---------
Total operating
expenses 59,777 205,376 95,802
-------- -------- -------- --------- ---------
Net operating income
(loss) before
net change in
unrealized
appreciation on
investments
and provision for
income taxes (260) 8,077 (27,330) - -
Provision (benefit) for
income taxes (7,346) (11,780) (5,466)
-------- -------- -------- --------- ---------
NET OPERATING INCOME 7,086 19,857 (21,864) - -
Change in unrealized
appreciation on
investments, net of
provision
for income taxes of
$154,632
for June 30, 1997 - 238,094 -
-------- -------- -------- --------- ---------
NET INCOME (LOSS) $ 7,086 $ 257,951 $ (21,864) $ $
======== ======== ======== ========= =========
Net income per common
share $ 0.96 $ 0.46 $ $
======== ======== ========= =========
Weighted average number
of common shares and
common share equivalents
outstanding 7,386 562,117
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 32
EASTERN VIRGINIA SMALL BUSINESS
INVESTMENT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------------------- Additional
Shares Shares Paid-In
Subscribed Amount Issued Amount Capital
-------------- ------------------------ --------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 13, 1993
Issuance of common stock to founders 5,400 $ 5,400 $ 48,600
Common stock subscribed 29,900 $ 29,900 269,100
Stock issuance costs incurred in connection with
proposed private placement (66,000)
Collections on stock subscription receivable
Net operating income (loss)
------------- ----------- --------- ----------- -----------
BALANCE, JUNE 30, 1994 29,900 29,900 5,400 5,400 251,700
Common stock issued pursuant to March 1994
private placement 2,400 2,400 39,600
Stock issuance costs incurred in connection with
private placement (13,000)
Common stock subscribed 354,700 354,700 3,192,300
Collections on stock subscriptions receivable
Net operating income (loss)
------------- ----------- --------- ----------- -----------
BALANCE, JUNE 30, 1995 384,600 384,600 7,800 7,800 3,470,600
Common stock issued pursuant to March 1994
private placement (529,600) (529,600) 529,600 529,600
Common stock subscribed 250,400 250,400 2,253,600
Common stock subscriptions cancelled (79,400) (79,400) (737,100)
Collections on stock subscriptions receivable
Issuance of shareholders' notes receivable
Net operating income (loss)
------------- ----------- --------- ----------- -----------
BALANCE, JUNE 30, 1996 26,000 26,000 537,400 537,400 4,987,100
Common stock issued pursuant to March 1994
private placement (26,000) (26,000) 31,500 31,500 54,000
Proceeds from shareholders' notes receivable
Net operating income (loss)
Net unrealized appreciation on
investments
------------- ----------- --------- ----------- -----------
BALANCE, JUNE 30, 1997 - - 568,900 568,900 5,041,100
Net operating income
Net unrealized appreciation on investments
------------- ----------- --------- ----------- -----------
BALANCE, SEPTEMBER 30, 1997 (UNAUDITED) - $ - 568,900 $ 568,900 $ 5,041,100
============= =========== ========= =========== ===========
<CAPTION>
Net Unrealized Undistributed
Appreciation Accumulated Stock Shareholders' Total
On Earnings Subscriptions Notes Stockholders'
Investments (Deficit) Receivable Receivable Equity
--------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 13, 1993
Issuance of common stock to founders $ - $ - $ - $ $ 54,000
Common stock subscribed (299,000) -
Stock issuance costs incurred in connection with
proposed private placement (66,000)
Collections on stock subscription receivable 21,000 21,000
Net operating income (loss) (1,929) (1,929)
----------- -------- ----------- ----------- -----------
BALANCE, JUNE 30, 1994 - (1,929) (278,000) 7,071
Common stock issued pursuant to March 1994
private placement 42,000
Stock issuance costs incurred in connection with
private placement (13,000)
Common stock subscribed (3,547,000) -
Collections on stock subscriptions receivable 308,800 308,800
Net operating income (loss) (27,021) (27,021)
----------- -------- ----------- ----------- -----------
BALANCE, JUNE 30, 1995 - (28,950) (3,516,200) - 317,850
Common stock issued pursuant to March 1994
private placement
Common stock subscribed (2,504,000) - -
Common stock subscriptions cancelled 819,000 2,500
Collections on stock subscriptions receivable 5,201,200 5,201,200
Issuance of shareholders' notes receivable (2,016,000) (2,016,000)
Net operating income (loss) 7,086 7,086
----------- -------- ----------- ----------- -----------
BALANCE, JUNE 30, 1996 - (21,864) - (2,016,000) 3,512,636
Common stock issued pursuant to March 1994
private placement 59,500
Proceeds from shareholders' notes receivable 10,000 10,000
Net operating income (loss) 19,857 19,857
Net unrealized appreciation on
investments 238,094 238,094
----------- -------- ----------- ----------- -----------
BALANCE, JUNE 30, 1997 238,094 (2,007) - (2,006,000) 3,840,087
Net operating income
Net unrealized appreciation on investments
----------- -------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1997 (UNAUDITED) $ 238,094 $ (2,007) $ - $ (2,006,000) $ 3,840,087
=========== ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 33
EASTERN VIRGINIA SMALL BUSINESS
INVESTMENT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months
Cumulative Ended
Year Ended June 30, from inception September 30,
------------------------- (July 13, 1993) -----------------------
1996 1997 to June 30, 1996 1996 1997
----------- ------------- ---------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net operating income and change in
unrealized appreciation on investments $ 7,086 $ 257,951 $ (21,864) $ $
Loans made - (400,000) -
Investments made - (1,140,000) -
Principal collected on loans made - 400,000 -
Adjustments to reconcile net operating
income and change in unrealized
appreciation on investments
to cash used in operating
activities:
Change in unrealized
appreciation on investments - (392,726) -
Depreciation and amortization - 6,054 -
Deferred income taxes (17,500) 148,832 (17,500)
Increase (decrease) in cash due
to changes in:
Interest receivable - (5,729) -
Income taxes receivable - (16,162) -
Accounts payable and
accrued expenses 16,682 (114,058) 114,989
Income taxes payable 6,538 (8,393) 8,393
----------- ----------- --------- --------- ---------
Net cash provided by
(used in) operations 12,806 (1,264,231) 84,018
----------- ----------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from notes receivable
- shareholders - 65,000 -
Decrease in restricted cash
held for stock subscriptions 405,611 - -
Purchase of property and - (52,997) -
equipment
Increase in organization costs (31,109) (390) (41,252)
----------- ----------- --------- --------- ---------
Net cash provided by
(used in) investing
activities 374,502 11,613 (41,252)
----------- ----------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from issuance of
common stock 3,185,200 5,000 3,534,000
Proceeds from short term debt 19,000 - 19,000
Curtailments of short term debt - (19,000) -
----------- ----------- ---------- --------- ---------
Net cash flow provided
by (used in) financing
activities 3,204,200 (14,000) 3,553,000
----------- ----------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
3,591,508 (1,266,618) 3,595,766
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 4,258 3,595,766 -
----------- ----------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
YEAR $ 3,595,766 $ 2,329,148 $3,595,766 $ $
=========== =========== ========= ========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Stock was issued in the amount of $2,016,000 in partial exchange for notes
receivable in 1996.
Stock was issued in the amount of $55,000 in partial exchange for notes
receivable in 1997.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 34
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Eastern Virginia Small Business Investment
Corporation ( "the Company") was incorporated in the Commonwealth of
Virginia on July 13,1993 and is a diversified closed-end investment
company licensed by the Small Business Administration ( the "SBA") as a
Small Business Investment Corporation ("SBIC") under the Small Business
Investment Act of 1958, as amended ( the "SBA Act"). The Company makes
equity investments in, and provides loans to, small business concerns,
principally in the eastern Virginia region, to finance their growth,
expansion and development.
The Company operated as a development stage company through its fiscal year
ended June 30, 1996. The Company made its first investment in November
1996, and subsequently made four other investments in the fiscal year ended
June 30, 1997.
Beginning on March 21, 1994, the Company issued in a private placement
1,000,000 shares of its common stock for $1,000 per share ( $1 par value )
pursuant to a private placement memorandum. As of June 30, 1996, the
Company closed the offering, ultimately issuing 568,300 shares of common
stock with aggregate net cash proceeds, after $79,000 of offering costs,
of $3,598,000.
On July 28,1995, the Company submitted its application to the SBA and on
May 14, 1996 was granted a license to operate as a SBIC.
Basis of Presentation and Use of Estimates - These financial statements are
prepared in accordance with generally accepted accounting principles. In
preparing financial statements in conformity with generally accepted
accounting principles, management is required to make assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all highly liquid
securities purchases with insignificant interest rate risk and original
maturities of three months or less at the acquisition date to be cash
equivalents. Cash and cash equivalents consisted of the following at:
<TABLE>
<CAPTION>
June 30, 1997 September 30, 1997
------------- ------------------
(unaudited)
<S> <C> <C>
Cash $ 19,678 $
Certificate of Deposit 100,000
Repurchase agreements 2,209,470
--------- ----------
Total $2,329,148 $
========= ==========
</TABLE>
F-7
<PAGE> 35
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On June 30, 1997, the Company had purchased $2,209,470 of overnight
repurchase agreements collateralized by U.S. government securities under
agreements to resell on July 1, 1997. Due to the short-term nature of the
agreements, the Company did not take possession of the securities which
were instead held for the Company by a bank.
Investment Valuation- Investments are carried at value, as determined by
the Executive Committee of the Board of Directors. The Company through its
Board of Directors has adopted the Model Valuation Policy, as published by
the SBA, in Appendix III to Part 107 of Title 12 of the Code of Federal
Regulations (the "Policy"). The Policy, among other things, presumes that
loans and investments are acquired with the intent that they are to be held
until maturity or disposed of in the ordinary course of business. Interest
-bearing securities are valued in an amount not greater than cost, with
unrealized depreciation being recognized when value is impaired. Equity
securities of private companies are presumed to represent cost unless the
performance of the portfolio company, positive or negative, indicates
otherwise in accordance with the Policy guidelines. Equity securities of
publicly traded companies are generally valued at their quoted market price
discounted for the effect of restrictions on the sale of such securities.
Discounts range from 0 % to 40%.
Realized and Unrealized Gain or Loss on Investments - Realized gains or
losses are recorded upon disposition of investments, calculated on the
difference between the proceeds and the cost basis determined using the
specific identification method. All other changes in the value of
investments, including any provision for losses, are included as changes in
the unrealized appreciation or depreciation in the statement of operations.
Recognition of Interest and Dividend Income - Interest income is recorded
on the accrual basis to the extent that management anticipates that such
amounts will be collected. In all other cases, an entry is made to accrue
interest, but the unpaid interest is monitored, and interest is recorded
upon receipt. Dividend income is recognized on the ex-dividend date or the
record date.
Income taxes - Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes. Deferred taxes are recognized for
differences between the basis of assets and liabilities for financial
statement and income tax purposes. The differences relate primarily to the
treatment of start-up expenses and the appreciation of the Company's
investments. The deferred tax assets and liabilities represent the future
tax return consequences of those differences, which will either be taxable
or deductible when the assets and liabilities are recovered.
F-8
<PAGE> 36
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation and amortization - Property and equipment are stated at
cost. Depreciation is determined using the straight-line method over
estimated useful lives ranging from five to seven years.
Leasehold improvements are amortized over the life of the related
lease.
Deferred Costs - Deferred costs of $41,642, which consist of incorporation
costs and expenses, SBA license application fees and professional fees, are
being amortized over a sixty-month period.
Net Income Per Common Share - The computation of net income per common
share is based on the weighted average number of common shares and common
share equivalents outstanding during the period.
B. INVESTMENTS
As of June 30, 1997 and September 30, 1997, investments in small business
concerns were as follows:
<TABLE>
<CAPTION>
June 30, 1997 September 30, 1997
--------------- ------------------
Cost Value Cost Value
----- ------ ----- ------
(unaudited)
<S> <C> <C> <C> <C>
Financial Services Company, located
in eastern Virginia purchased 700
shares of its 1996 Preferred Stock
in November 1996, par value $1,000
per share, annual cumulative
preferred dividend of 10%, payable
annually within fifteen days from
the anniversary purchase date, for
an aggregate purchase of $700,000.
The Company also received a stock
purchase warrant exercisable
for the purchase of 125 shares of
Voting Common Stock at $1.00 per
share. The Company made a short
term secured loan of $50,000 in
October 1996 at an annual rate
of interest of 10%. The note
was paid in full, with accrued
interest of approximately $490
in November 1996. $700,000 $874,410 $ $
</TABLE>
F-9
<PAGE> 37
B. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
June 30, 1997 September 30, 1997
--------------- ------------------
Cost Value Cost Value
----- ------ ----- ------
(unaudited)
<S> <C> <C> <C> <C>
High Tech Communications Company,
located in Chicago, Illinois - loan
made on December 23, 1996 for
$350,000, secured by collateral of
an affiliate company, 10% annual
interest rate, payable quarterly,
five year term. The loan was paid in
full, with accrued interest of
approximately $8,900, in March 1997.
The Company was also granted a stock
purchase warrant exercisable from the
date of grant at originally $1.50 per
share for the purchase of 245,000 shares
of Voting Common Stock. In June 1997, the
exercise price was reduced to
$1.02 per share in exchange for
the Company agreeing to exercise
the warrant. In February 1997,
in consideration for release of
certain collateral, the
portfolio company agreed to
grant the Company an additional
warrant to purchase 56,000
shares of Voting Common Stock
exercisable at $2.00 per share. $ - $208,891 $ $
Finance Company, located in eastern
Virginia - purchased 500 shares of its
Convertible Preferred Stock in January,
1997, par value $280 per share,
annual cumulative dividend rate
of 9%, for an aggregate purchase
price of $140,000. 140,000 146,300
Meat Processing Company, located in
eastern Virginia - purchased 125 shares
of its 1997 Preferred Stock in April
1997, par value $1,000 per share,
annual dividend rate of 10%, for an
aggregate investment of $125,000. The
Company was also granted a stock purchase
warrant exercisable from the date of
grant at $.10 per share for the
purchase of 1,177 Voting Common
Shares. 125,000 128,125
</TABLE>
F-10
<PAGE> 38
B. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
June 30, 1997 September 30, 1997
--------------- ------------------
Cost Value Cost Value
----- ------ ----- ------
(unaudited)
<S> <C> <C> <C> <C>
Sales and Service Company,
located in eastern Virginia -
purchased 100 shares of its
Series A Redeemable Preferred
Stock on May 30, 1997, par
value $1,750 per share, annual
cumulative dividend rate of
13%, for an aggregate purchase
price of $175,000. The Company
was also granted a stock
purchase warrant exercisable
from the date of grant at $1.00
per share for the purchase of
up to 4% of the outstanding
Voting Common Shares. $ 175,000 $ 175,000 $ $
--------- --------- ------- --------
$1,140,000 $1,532,726 $ $
========= ========= ======= ========
</TABLE>
C. STOCKHOLDERS' NOTES RECEIVABLE
In connection with the Company's private placement memorandum, dated March
21, 1994, the Company sold shares of common stock to accredited investors
for 50% of the subscription price paid in cash and the balance financed by
a non-interest bearing demand recourse promissory note. The Company holds
the issued shares as collateral for the note until the note is paid in
full. Other investors that purchased shares in this private placement
elected to pay all cash for their shares at the time of issuance. As of
June 30, 1997 and September 30, 1997, $2,006,000 and $________,
respectively, of these notes were outstanding.
F-11
<PAGE> 39
D. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Three months
Year ended June 30, ended
-------------------- September 30,
1997 1996 1997
------ ------- -------------
(unaudited)
<S> <C> <C> <C>
Current income tax expense
(benefit) $ (5,980) $ 10,154 $
Deferred income tax expense
(benefit) 148,832 (17,500)
-------- ------- ----------
142,852 (7,346)
Amount included in change in
unrealized appreciation on
investments (154,632) -
-------- ------- ----------
Total income tax benefit $ (11,780) $ (7,346) $
======== ======= ==========
</TABLE>
In accordance with Regulation S-X, Article 6, the income tax expense
associated with the unrealized appreciation in investments is shown as a
reduction of the unrealized appreciation in investments.
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
September 30,
June 30,1997 1997
------------ -------------
(unaudited)
<S> <C> <C>
Deferred tax assets:
Depreciation and amortization $ 23,300 $
Less: valuation allowance -
-------- --------
Total net tax provision
(benefit) 23,300
-------- --------
Deferred tax liabilities:
Appreciation in investments 154,632
-------- --------
Total deferred income tax
liability $131,332 $
======== ========
</TABLE>
F-12
<PAGE> 40
E. RELATED PARTY TRANSACTIONS
During the fiscal years ended June 30, 1997 and 1996, the Company paid to a
company owned by an officer and director of the Company management fees of
$52,000 and $16,000, respectively, and expenses associated with his role
with the Company. This expense is classified in management fees in the
accompanying statements of operations.
During fiscal year June 30, 1996, an officer and director of the Company
loaned $19,000 to the Company, non-interest bearing . The amount was repaid
on July 31, 1996.
F. COMMITMENTS
The Company leases office space under a non-cancelable operating lease,
dated August 20,1996. The office lease provides for a term of five years
and two months commencing on November 1, 1996 and ending on December 31,
2001, with increases in the base rental rate in years 1998 through 2001.
On February 1, 1997, the Company entered into a sub-lease agreement with a
company in which it has invested. The sub-lease agreement provides for the
same term as the prime lease, except that this sub-lease may be terminated
by either party on 90 days notice.
Minimum future lease payments under the non-cancelable operating lease, and
the offsetting anticipated sub-lease income, are as follows for each of the
years ending June 30:
<TABLE>
<CAPTION>
Prime Sub-lease
Lease Income Net
----- ------ ---
<S> <C> <C> <C> <C>
1998 $ 26,262 $ 8,575 $17,687
1999 27,586 8,995 18,591
2000 28,824 9,415 19,409
2001 30,102 9,835 20,267
2002 15,372 5,880 9,492
------- ----- ------
$128,146 $42,700 $85,446
======= ====== ======
</TABLE>
Net rent expense for the years ended June 30, 1997 and 1996 was $20,918
and $1,633, respectively, and is included in operating expenses in the
accompanying statements of operations.
F-13
<PAGE> 41
G. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents. The Company maintains its cash accounts in a commercial bank
located in Virginia. Cash balances are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000 per financial institution. At
June 30, 1997, the Company had approximately $22,000 in uninsured cash
balances with a bank.
Cash equivalents are principally maintained in U.S. government securities.
These cash equivalents are not insured by the FDIC, but are collateralized
by the underlying assets of the federal government. At June 30, 1997, these
cash equivalents totaled $2,209,470.
H. SUBSEQUENT EVENTS
In July 1997, the Company exercised the stock purchase warrant of the high
tech communications company, as described in Note B, for 245,000 shares of
Voting Common Stock at $1.02 per share, for an additional investment of
$249,900.
In July 1997, the Company also purchased an additional $175,000 of the
Series A Preferred Stock of the sales and service company, as described in
Note B, and acquired an additional common stock purchase warrant,
exercisable at $1.00 per share, for 44 shares of common stock.
On September 8, 1997, the Board of Directors authorized the Company to
issue and sell to the public up to 800,000 shares of common stock at
$12.50 per share subject to the required affirmative vote of the
stockholders of the Company. The Company has not engaged a broker or
dealer for this transaction. If successful with this offering, the Company
intends to apply for listing of its common stock on the NASDAQ Small Cap
Market, when and if, the Company meets the listing requirements.
The Board of Directors has submitted to a vote of the stockholders the
amendment of the Company's Articles of Incorporation authorizing an
increase in the number of authorized shares of common stock from 25,000
shares to 1,500,000 shares and declaring a one hundred-for-one stock split
prior to the effective date of the proposed public offering. The stock
split is to be implemented by a stock dividend of 99 shares for each share
outstanding to shareholders of record on September 10, 1997, payable on the
filing of the Certificate of Amendment of its Articles of Incorporation.
Shareholders' equity has been restated to give retroactive recognition to
the stock split for all periods presented by reclassifying from additional
paid-in-capital to common stock the par value of the additional shares
arising from the split. In addition, all references to numbers of shares,
per share amounts and market prices of common stock have been restated to
reflect the stock split.
F-14
<PAGE> 42
H. SUBSEQUENT EVENTS (CONTINUED)
As of July 1997, the Company entered into a management contract with a
company owned by the Company's President and Chief Executive Officer. The
contract is for a five year term with an annual fee of $78,000 payable
monthly, plus health insurance benefits. The contract also contains a
non-compete provision for two years after the termination of the contract
in the southeastern Virginia territory.
F-15
<PAGE> 43
================================================================================
No person is authorized in connection with any offer made hereby to give any
information or to make any representation not contained in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any security
other than the shares of Common Stock offered hereby, nor does it constitute an
offer to sell or a solicitation of any offer to buy any of the securities
offered hereby to pay any person in any jurisdiction in which it is unlawful to
make such an offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstances create any implication
that the information contained herein is correct as of any date subsequent to
the date hereof.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.........................2
Summary Financial Information..............3
Risk Factors...............................5
Use of Proceeds............................7
Dividend Policy............................7
Capitalization ............................8
Business...................................9
Management................................15
Principal Shareholders....................19
Description of Capital Stock..............19
Shares Eligible for Future Sale...........21
Federal Income Tax Considerations.........22
Index to Financial Statements............F-1
</TABLE>
----------------------
Until __________, 1997 (25 days after the commencement of this Offering)
all persons effecting transactions in Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus.
================================================================================
================================================================================
800,000 SHARES
EASTERN VIRGINIA
SMALL BUSINESS
INVESTMENT
CORPORATION
A Small Business Investment Corporation
COMMON STOCK
----------------------
PROSPECTUS
----------------------
______________________, 1997
================================================================================
<PAGE> 44
PART III
ITEM 29. MARKETING ARRANGEMENTS
Not applicable
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities covered hereby, other than underwriting discounts and commissions and
compensation to authorized agents, are, subject to future contingencies,
estimated to be as follows:
SEC Registration Fee...................... $3,030
Legal Fees and Expenses................... *
Accounting Fees and Expenses.............. *
Blue Sky Fees and Expenses................ *
Printing Expenses......................... *
Miscellaneous............................. *
Total................................ $200,000
=======
- ------------------------
*To be filed by amendment
ITEM 31. RELATIONSHIP WITH REGISTRANT OF EXPERTS NAMED IN REGISTRATION STATEMENT
Not applicable.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
Between February 1994 and February 1997, the Registrant sold 568,900
shares of Common Stock, par value $1 per share, for $5,689,000. There were no
principal underwriters. All securities were sold pursuant to exemptions under
the Securities Act of 1933 to five founders, 79 "accredited investors" and three
"non-accredited" investors, as defined in the Securities Act of 1933 (the
"Securities Act"), as follows:.
S-1
<PAGE> 45
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME OF SHAREHOLDER DATE OF PURCHASE COMMON STOCK PURCHASED
- ------------------- ---------------- ----------------------
<S> <C> <C>
Hansen, Eugene W........................................................... February 7, 1994 200
Fox, Eric L................................................................ February 7, 1994 100
Lindauer, J. Alan.......................................................... February 7, 1994 100
Richardson, Philip W. ..................................................... February 7, 1994 100
Baker, Samantha L.......................................................... February 7, 1994 100
Hansen, Eugene W., IRA Prudential Securities Custodian..................... May 6, 1994 4,800
Meredith, Peter M., Jr..................................................... November 14, 1994 500
Lindauer, J. Alan.......................................................... November 14, 1994 500
Davenport & Co. of Va., Inc. fbo Eugene W. Hansen, IRA..................... December 5, 1994 400
Low, Robert I.............................................................. December 10, 1994 500
Fox, Eric L................................................................ February 2, 1995 500
Meredith Realty Holding Company, L.L.C..................................... June 30, 1996 10,000
Chisman, J. W. W. ,Jr...................................................... June 30, 1996 10,000
Industrial Development Authority of York County............................ June 30, 1996 5,000
White, Corbin B............................................................ June 30, 1996 5,000
JFR Reinsurance Co., Ltd................................................... June 30, 1996 5,000
Miller, Augustus C......................................................... June 30, 1996 10,000
Virginia Beach Federal Savings Bank........................................ June 30, 1996 10,000
Kavadias, Gabriel ......................................................... June 30, 1996 5,000
Santiago, Gloria A. ....................................................... June 30, 1996 500
William A. Gooch Trust..................................................... June 30, 1996 10,000
Nelson, J. Brock........................................................... June 30, 1996 500
Scott & Stringfellow, Inc. fbo Victor Cabanas, MD IRA ..................... June 30, 1996 5,000
Uy, Gregorio C. ........................................................... June 30, 1996 5,000
Miller, Jerrold L.......................................................... June 30, 1996 5,000
Irwin, R. Thomas Dobson Revocable Living Trust............................. June 30, 1996 5,000
Santos, Amelia L........................................................... June 30, 1996 5,000
Commerce Bank.............................................................. June 30, 1996 35,000
Hampton Roads Chamber Foundation........................................... June 30, 1996 5,000
Ornstein, Yevrah........................................................... June 30, 1996 5,000
Ornstein, Richard G........................................................ June 30, 1996 10,000
James C. Nocito, Inc. Profit Sharing....................................... June 30, 1996 5,000
Farrell, Paul J. & Lynne G................................................. June 30, 1996 5,000
Andrews, J. E.............................................................. June 30, 1996 10,000
York Oil Company Profit Sharing............................................ June 30, 1996 5,000
Rogelio F. Arcuino, MD Profit Sharing Plan................................. June 30, 1996 10,000
Garden Capital Acquisitions, L.L.C......................................... June 30, 1996 5,000
Domestic Virginia Partnership.............................................. June 30, 1996 5,000
Irving, D. P............................................................... June 30, 1996 5,000
AutoInfo Finance of Virginia, Inc.......................................... June 30, 1996 20,000
Davis Oil Company Employee Trust........................................... June 30, 1996 11,000
Portsmouth Industrial Foundation........................................... June 30, 1996 5,000
The Manfred and Sonya Bloch Revocable Trust................................ June 30, 1996 5,000
Hall, Joseph B............................................................. June 30, 1996 10,000
Old Dominion University Research Foundation................................ June 30, 1996 10,000
Old, William W............................................................. June 30, 1996 5,000
Patten, Donald N........................................................... June 30, 1996 5,000
Resource Bank.............................................................. June 30, 1996 5,000
</TABLE>
S-2
<PAGE> 46
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME OF SHAREHOLDER DATE OF PURCHASE COMMON STOCK PURCHASED
- ------------------- ---------------- ----------------------
<S> <C> <C>
Signet Bank................................................................. June 30, 1996 10,000
Old Point National Bank..................................................... June 30, 1996 5,000
Cooper, David J............................................................. June 30, 1996 5,000
Smith, L.A. Jr.& V. K....................................................... June 30, 1996 2,000
Goodloe, Norman............................................................. June 30, 1996 20,000
Kayes, Micheal T............................................................ June 30, 1996 5,000
Pallet, Claude Stanley...................................................... June 30, 1996 3,000
Pomar Holding Company, L.L.C................................................ June 30, 1996 10,000
Mastracco, Vincent J. , Jr.................................................. June 30, 1996 5,000
Juanarena, Douglas B........................................................ June 30, 1996 8,000
Chisman, J. W. W., Jr....................................................... June 30, 1996 1,000
J. Daniel Ballard & Henry U. Harris III..................................... June 30, 1996 5,000
Ehrenzeller, Charles F...................................................... June 30, 1996 5,000
Ellis, Jeffrey R............................................................ June 30, 1996 5,000
Rumsey, Carl C.............................................................. June 30, 1996 1,000
Divaris, Gerald S........................................................... June 30, 1996 1,000
Levin. Eugene M............................................................. June 30, 1996 2,500
Ross, Jess G. & Jeanne P.................................................... June 30, 1996 6,000
Dr. Gerald Einhorn, Ltd. Defined Benefit Plan............................... June 30, 1996 2,500
Freidberg, Marvin S......................................................... June 30, 1996 2,500
Viola, Pat J................................................................ June 30, 1996 1,700
Pariser, Carol O............................................................ June 30, 1996 1,600
Viola, Emil A............................................................... June 30, 1996 1,700
Stern, Russell T., Jr....................................................... June 30, 1996 15,000
Haynes, Patrick J., III..................................................... June 30, 1996 15,000
Hearring, William J......................................................... June 30, 1996 5,000
Lindauer, J. Alan........................................................... June 30, 1996 600
Hansen, Eugene W............................................................ June 30, 1996 200
Davenport & Co. of Va., Inc. c/f
Eugene W. Hansen, IRA.................................................... June 30, 1996 14,300
Mauer, Anne R............................................................... June 30, 1996 3,300
Hines, Angus I., III........................................................ June 30, 1996 3,400
Stulb, Marilyn H............................................................ June 30, 1996 3,300
Fox, Eric L................................................................. June 30, 1996 4,500
Santoro, Frank J............................................................ June 30, 1996 5,000
Meredith, Peter M., Jr...................................................... June 30, 1996 500
Williamson, B. Yeh.......................................................... June 30, 1996 5,000
Virginia Eastern Shore Sustainable Development Corporation.................. June 30, 1996 5,000
J. M. Peterson & E. S. Lifland Trustees, Roger Frost 401(k) Plan............ June 30, 1996 5,000
Industrial Development Authority of the City of Suffolk,
Virginia, Inc........................................................... June 30, 1996 3,000
Economic Development Authority of the City of Newport
News, Virginia.......................................................... June 30, 1996 5,000
Industrial Development Authority of the City of Hampton,
Virginia................................................................ June 30, 1996 5,000
Hometown Bank & Co. for J. Alan Lindauer Profit Sharing Plan................ June 30, 1996 40,000
</TABLE>
S-3
<PAGE> 47
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME OF SHAREHOLDER DATE OF PURCHASE COMMON STOCK PURCHASED
- ------------------- ---------------- ----------------------
<S> <C> <C>
Montero, Juan M. II MD P.C. Profit Sharing and Money
Purchase Pension Plan .................................................. June 30, 1996 5,000
Falk, Charles E. Sr......................................................... July 17, 1996 5,000
Marioneaux, Stephanie J. & Harold J......................................... July 17, 1996 5,000
Angus I. Hines, Inc......................................................... July 17, 1996 10,000
Low, Robert I............................................................... August 28, 1996 1,500
Hamlin, Janet Hale ......................................................... September 24, 1996 2,500
Friedman, Leslie H.......................................................... September 24, 1996 2,500
Goodman & Company 401(k) Profit Sharing Plan for
Roger L. Frost.......................................................... February 1, 1997 5,000
-------
Total Number of Shares Outstanding 568,900
=======
</TABLE>
The aggregate cash proceeds of Common Stock in the private placement
were $3,677,000. The terms of the private placement permitted "institutional
investors," as defined by SBA Regulations (substantially equivalent to
"accredited investors" as defined in Rule 501 of Regulation D under the
Securities Act) to purchase shares of Common Stock by paying 50% of the
purchase price in cash and the balance by a non-interest bearing recourse demand
promissory note, secured by the purchased Common Stock. There were no
underwriting discounts or commissions. The Registrant received $2,006,000 in
such notes.
The Common Stock was sold pursuant to an exemption from registration
under Section 4(2) of the Securities Act and Rule 506 of Regulation D. This
exemption was available because sales of the shares (i) were made to no more
than 35 non-accredited investors who, either alone or with their purchaser
representatives, had such knowledge and experience in financial and business
matters to evaluate the merits of an investment of the Registrant, (ii) were not
made pursuant to any general solicitation or general advertising and (iii) were
subject to limitations on resale pursuant to Rule 502(d) of Regulation D.
ITEM 33. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not applicable.
ITEM 34. UNDERTAKINGS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act") may be permitted to directors, officers
and controlling persons of the undersigned registrant, the registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the mater
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement is reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(H)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
S-4
<PAGE> 48
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements (incorporated by reference to the Prospectus
under the caption "Index To Financial Statements"). All other schedules are
omitted because they are not applicable or the required information is shown in
the financial statements or the notes thereto.
<TABLE>
<CAPTION>
(b) Exhibits
<S> <C>
(1) Amended and Restated Articles of Incorporation of the Registrant, as filed in
Virginia on _________________. *
(2) Amended and Restated Bylaws of the Registrant.*
(3) Exhibit (1) is incorporated by reference.
(4) None.
(5) Exhibits (1) and (2) are incorporated by reference.
(6) None.
(7) Management Agreement, dated as of July 1, 1997, between the
Registrant and Waterside Management, Inc.*
(8) The Registrant's license from the Small Business Administration.*
(9) None.
(10) None.
(11) Opinion of Clark & Stant, P.C.*
(12) Not applicable.
(13) Financial Data Schedule
(14) Consent of Hoffman, Morrison & Fitzgerald. P.C.
</TABLE>
-----------------------------
*To be filed by amendment
S-5
<PAGE> 49
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Norfolk, and the
Commonwealth of Virginia, on the 30th day of September, 1997.
EASTERN VIRGINIA SMALL BUSINESS
INVESTMENT CORPORATION
By:/s/ J. Alan Lindauer
----------------------------------------------
J. Alan Lindauer
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
constitutes and appoints J. Alan Lindauer, Eric L. Fox and Peter M. Meredith,
Jr., and each of them individually, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully as he might or
could do in person, hereby ratifying and confirming all that each said
attorney-in-fact and agent or his substitute may lawfully do or cause to be done
by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James E. Andrews Director September.30, 1997
- ---------------------------------
James E. Andrews
/s/ Donna C. Bennett Director September 30, 1997
- ---------------------------------
Donna C. Bennett
/s/ J. W. Whiting Chisman, Jr. Member of Executive Committee September 30, 1997
- --------------------------------- and Director
J. W. Whiting Chisman, Jr.
/s/ Jeffrey R. Ellis Director September 30, 1997
- ---------------------------------
Jeffrey R. Ellis
/s/ Eric L. Fox Member of Executive Committee September 30, 1997
- --------------------------------- Member, Director and Secretary/Treasurer
Eric L. Fox
/s/ Roger L. Frost Director September 30, 1997
- ---------------------------------
Roger L. Frost
/s/ Ernest F. Hardee Member of Executive Committee September 30, 1997
- --------------------------------- and Director
Ernest F. Hardee
/s/ Henry U. Harris, III Director September 30, 1997
- ---------------------------------
Henry U. Harris, III
</TABLE>
S-6
<PAGE> 50
<TABLE>
<S> <C> <C>
/s/ Matthew James Director September 30, 1997
- ---------------------------------
Matthew James
/s/ J. Alan Lindauer Member of Executive Committee September 30, 1997
- --------------------------------- and President
J. Alan Lindauer
/s/ Robert I. Low Member of Executive Committee September 30, 1997
- --------------------------------- and Director
Robert I. Low
/s/ Harold J. Marioneaux, Jr. Director September 30, 1997
- -------------------------------
Harold J. Marioneaux, Jr.
/s/ Peter M. Meredith, Jr. Chairman of the Board of September 30, 1997
- -------------------------------- Directors, Member of Executive
Peter M. Meredith, Jr. Committee and Director
/s/ Augustus C. Miller Director September 30, 1997
- -------------------------------
Augustus C. Miller
/s/ Paul F. Miller Director September 30, 1997
- ------------------------------
Paul F. Miller
/s/ Juan M. Montero, II Director September 30, 1997
- ------------------------------
Juan M. Montero, II
/s/ R. Scott Morgan, Sr. Director September 30, 1997
- ------------------------------
R. Scott Morgan, Sr.
/s/ James W. Noel, Jr. Director September 30, 1997
- ------------------------------
James W. Noel, Jr.
/s/ Thomas A. O'Grady Director September 30, 1997
- ------------------------------
Thomas A. O'Grady
/s/ Richard G. Ornstein Member of Executive Committee September 30, 1997
- ------------------------------ and Director
Richard G. Ornstein
/s/ Richard S. Schreiber Director September 30, 1997
- ------------------------------
Richard A. Schreiber
/s/ Jordan E. Slone Director September 30, 1997
- ------------------------------
Jordan E. Slone
</TABLE>
S-7
<PAGE> 1
EXHIBIT 14
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form N-5 of our
report included herein dated August 2, 1997, relating to the financial
statements of EASTERN VIRGINIA SMALL BUSINESS INVESTMENT CORPORATION and to the
reference of our Firm under the caption "Experts" in the Prospectus.
/s/ HOFFMAN, MORRISON & FITZGERALD, P.C.
HOFFMAN, MORRISON & FITZGERALD, P.C.
McLean, VA
September 30, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 1,140,000
<INVESTMENTS-AT-VALUE> 1,532,726
<RECEIVABLES> 0
<ASSETS-OTHER> 21,891
<OTHER-ITEMS-ASSETS> 2,417,733
<TOTAL-ASSETS> 3,972,350
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 132,263
<TOTAL-LIABILITIES> 132,263
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,838,080
<SHARES-COMMON-STOCK> 568,900
<SHARES-COMMON-PRIOR> 537,400
<ACCUMULATED-NII-CURRENT> (2,007)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 238,094
<NET-ASSETS> 3,840,087
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 176,003
<OTHER-INCOME> 0
<EXPENSES-NET> 205,376
<NET-INVESTMENT-INCOME> 257,857
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 238,094
<NET-CHANGE-FROM-OPS> 19,857
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,500
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 228,832
<ACCUMULATED-NII-PRIOR> (21,864)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 205,376
<AVERAGE-NET-ASSETS> 3,676,362
<PER-SHARE-NAV-BEGIN> 6.53
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.75
<EXPENSE-RATIO> 17.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
