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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999 Commission File Number 33-94322
WINFIELD CAPITAL CORP.
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(Exact name of registrant as specified in its charter)
NEW YORK 13-2704241
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(State or other jurisdiction (IRS employer
of incorporation or organization) identification no.)
237 MAMARONECK AVENUE, WHITE PLAINS, NEW YORK 10605
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 949-2600
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Securities registered pursuant to Section 12(b) of the Act: None
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Name of each exchange
Title of each class on which registered
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Common Stock, par value $.01 per share ................ Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X] The aggregate market value of the voting stock held by
non-affiliates of the registrant as of June 21, 1999 was approximately
$96,965,000.
The number of outstanding shares of the registrant's common stock as of
June 21, 1999 was 5,255,904 shares.
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<PAGE>
RISKS
Pursuant to Section 64(b) of the Investment Company Act of 1940, we are
required to advise you annually that Winfield Capital Corp. (the "Company") is
engaged in a high risk business. Loans and other investments to small business
concerns are extremely speculative. Most of such concerns are privately held.
Even if a public market for the securities of such concerns exists, the loans
and other securities purchased by the Company are often restricted against sale
or other transfer for specified periods of time. Thus, such loans and other
investments have little, if any, liquidity, and the Company and you, as its
shareholders, must bear significantly larger risks, including possible losses on
such investments, than would be the case with traditional investment companies.
In addition, the Company's capital structure includes a large amount of
debt securities, mostly debentures issued to the Small Business Administration
at fixed interest rates. Therefore, unless and until the Company is able to
invest all or substantially all of the proceeds from such debt securities at
interest or at other returns that substantially exceed the carrying costs of
such debt securities, its operating results will be adversely affected, and that
can be expected to have a depressant effect on the market value of the Company's
shares of common stock.
<PAGE>
PART I
ITEM 1. BUSINESS.
Winfield Capital Corp. (the "registrant" or the "Company") was incorporated
as a New York corporation in 1972. It is a small business investment company
("SBIC") that was licensed by the Small Business Administration (the "SBA") in
1972 under the Small Business Investment Act of 1958, as amended (the "Small
Business Investment Act"). The Company is a non-diversified investment company
that has elected to be regulated as a business development company ("Business
Development Company"), a type of closed-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Company is
qualified as a "regulated investment company" for federal income tax purposes.
The Company's offices are located at 237 Mamaroneck Avenue, White Plains, New
York 10605. Its telephone number is (914) 949-2600.
As an SBIC, the Company uses funds borrowed from the SBA, together with its
own capital, to provide loans to, and to make equity investments in,
independently owned and operated business concerns that (i) do not have a net
worth in excess of $18 million and do not have average net income after federal
income taxes for the preceding two years of more than $6 million, or (ii) meet
size standards set by the SBA that are measured by either annual receipts or
number of employees, depending on the industry in which such concerns are
primarily engaged ("Eligible Concerns"). The types and dollar amounts of the
loans and other investments the Company may make are limited by the 1940 Act,
the Small Business Investment Act and the regulations of the SBA (the "SBA
Regulations"). The SBA is authorized to examine the operations of the Company,
and the Company's ability to obtain funds from the SBA is also governed by the
Small Business Investment Act and the SBA Regulations.
The Company has no independent investment advisor. The Company's loan and
other investment decisions are made by its officers, subject to the Company's
investment policies and objectives and oversight by its Board of Directors.
Historically, the Company has relied on the efforts of its officers to identify
new financing opportunities. Following its public offering late in 1995, the
Company expanded its marketing efforts and sought referrals from venture
capitalists, investment bankers, attorneys, accountants and commercial bankers.
Prior to its public offering, the Company's investments in portfolio companies
were generally structured as straight loans, or as loans with warrants to
purchase equity securities of the portfolio companies. After its public
offering, the Company has sought to make more investments in portfolio companies
with equity features than was the case heretofore. In connection with its loans
to portfolio companies with equity features, the Company has sought and will
continue to seek security interests in the assets of the borrower. To the extent
it deems necessary, the Company also seeks to obtain personal guaranties from
the principals of its borrowers and security interests in certain of the assets
of such principals.
CHARACTERISTICS OF THE COMPANY'S INVESTMENTS
The Company invests in all kinds and classes of securities of portfolio
companies, including, but not limited to, notes and bonds; straight,
subordinated, convertible and income debentures; preferred stock; common stock;
and options and warrants to purchase any of the foregoing. The Company does not
have a policy that limits the amount that may be invested in any kind or class
of security, except that it intends to invest approximately one-third of its
assets in straight loans or debt securities and two-thirds of its assets in
loans or debt securities with equity features, such as conversion rights and
warrants, or in direct equity investments (common stock and preferred stock).
When the Company's investments are structured as loans, they are evidenced
by promissory notes and often are accompanied by warrants to acquire equity
interests in the borrower for nominal consideration. The loans are usually
secured by assets of the borrower, which security interests frequently are
senior to any other financing the borrower may have in place. When appropriate,
a personal guaranty of a borrower's major stockholder or stockholders is sought,
which may also be secured by such stockholders' personal assets. The Company's
loans
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typically have a fixed rate of interest subject to the maximum rate allowed by
the SBA (see "SBA Regulation" below), although lower rates may be negotiated
depending on the creditworthiness of the borrowers and other relevant factors.
Typically, such loans require periodic payments of principal and interest which
fully amortize the loan at maturity, and mature in five years. In addition, the
Company intends to pursue bridge loan opportunities as and to the extent
permitted by the SBA Regulations. The Company's current management believes that
the performance of its investment portfolio could be enhanced by increasing the
Company's equity investments, relative to its loan portfolio. Accordingly, the
Company's management now seeks more financing opportunities with equity
participation and more investments with equity features than were made by the
Company heretofore. There can be no assurance that the Company will find such
opportunities on terms favorable to the Company.
INVESTMENT OBJECTIVES AND STRATEGIES
The Company seeks both current income and long-term growth in the value of
its assets. The Company's investments are made, and will continue to be made,
with the intention of having the loan repaid within five years and any equity
investment liquidated within 5 to 10 years. Situations may arise, however, where
the Company may hold an equity interest for a longer or shorter period.
Prior to May 2, 1995, when there was a change in management of the Company,
the Company's investments were made primarily in very small local retail and
service businesses. Under its current management, the Company focuses on
investments in privately held Eligible Concerns in growing industries, including
Internet-enabled businesses, computer hardware and software and consumer
products. There can be no assurance that the Company will be able to locate
investments in such industries on terms favorable to it. The Company
concentrates its investments in the Northeastern United States, but will
consider investments in other parts of the country if they are otherwise
consistent with the Company's loan and other investment selection criteria.
For the most part, the Company's existing portfolio companies are expansion
stage businesses, although some are start-up and development stage companies,
including some with negative net worth. Under the SBA Regulations, the Company
may not invest more than 20% of its "Private Capital" in any single company
without SBA approval. Under the Small Business Investment Act and the SBA
Regulations, "Private Capital" is defined as the total of paid-in capital, other
than capital obtained from federal sources, such as the SBA, and paid-in
surplus. Pursuant to current SBA Regulations, the Company is able to invest
approximately $2,200,000, or 20% of its Private Capital, in a single company. In
most instances, the Company participates in loans and other investments with
other investors. Through such participation, the Company has been able to become
a participant in transactions larger than would otherwise be possible under the
investment limit of 20% of its own Private Capital.
SELECTION OF LOAN AND OTHER INVESTMENT OPPORTUNITIES
Given its objective to emphasize equity investments, the Company uses the
following criteria in selecting investment opportunities:
Potentially Profitable Operations. The Company attempts to identify
companies that are profitable or that it believes are potentially
profitable.
Development Stage Companies. The Company attempts to identify and
invest in development stage companies, that is, companies with a product or
service that is beyond the testing stage. The Company generally will avoid
seed and start-up companies.
Experienced Management Team. The Company seeks portfolio companies
that have experienced management with a substantial ownership interest and
a demonstrated ability, or the potential, to accomplish the objectives set
forth in such companies' business plan.
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Liquidation Value of Assets. The Company is not an "asset-based"
lender, however, the value of assets securing its loans is an important
consideration in its credit decisions. Emphasis is placed on balance sheet
assets such as inventory, plant, property and equipment.
Growth. In addition to generating sufficient cash flow to service
prospective loans, the Company requires that prospective portfolio
companies have what management believes to be a good chance of achieving
substantial annual growth.
Exit Strategy. Another investment consideration is whether there is an
opportunity to liquidate the investment in a potential portfolio company.
Such opportunity generally would allow the Company to realize a gain on its
equity interests and include public offerings, sales of the portfolio
company or repurchases by the portfolio company of the Company's equity
interests.
CERTAIN NON-COMPLIANCE BY PORTFOLIO COMPANIES
Although the Company's agreements with its portfolio companies require them
to furnish the Company with periodic and/or annual financial statements and to
include financial and other covenants by its borrowers in its loan agreements,
certain of its portfolio companies fail to supply the financial statements or to
otherwise comply with the covenants required of them. The Company deals with
these failures on a case-by-case basis, and its actions are influenced by the
payment records of such companies.
The aggregate face amount of the Company's loans and the value of other
portfolio investments was $20,797,145 as of March 31, 1999 with loans and notes
receivable comprising 26% (87% were performing in accordance with their terms
and 13% were non-performing), equity interests 69% and assets acquired in
liquidation of defaulted loans 5%.
WRITE-OFFS
During the past three fiscal years, the Company has written off loans and
investments and disposed of, at a loss, assets acquired in liquidation, in the
aggregate amount of $825,439 as described in the following table:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
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1997 1998 1999
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<S> <C> <C> <C>
Amount written off ................................................. $68,950 $289,570 $466,919
Amount written off as a percentage of aggregate loans
and investments and assets acquired in liquidation
as of the beginning of the year .................................. 1.6% 6.2% 3.5%
</TABLE>
SBA FUNDING
The Small Business Investment Act and the regulations thereunder provide
for the purchase by the SBA of subordinated debentures issued by SBICs and the
guaranty by the SBA of debentures issued by SBICs to third parties. An SBIC can
issue such debentures in a principal amount up to either 200% or 300% of its
Private Capital, depending upon various factors.
Under the current SBA Regulations, the Company is considered to have, as of
March 31, 1999, Private Capital of approximately $11,000,000, which would enable
it to sell debentures to, or with a guaranty by, the SBA up to a maximum
principal amount of approximately $33,000,000 (300% of its Private Capital). The
Company's ability to sell such debentures is subject to the availability of SBA
program funds and other funding limitations and compliance with the SBA
Regulations. See "SBA Regulation" below.
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The SBA offers eligible SBICs the opportunity to sell "participating
securities" (preferred stock or debentures having interest payable only to the
extent of earnings) to the SBA or to entities that receive SBA guaranties in the
amount up to 200% of the SBIC's Private Capital. Although the Company has the
minimum amount of Private Capital necessary to be eligible for the SBA's
participating securities program (i.e., $10,000,000), the issuance of the
Debentures in the Company's public offering may disqualify the Company from
participating in the program under the provisions of the SBA Regulations and the
1940 Act. In addition, the Company believes that, to date, only partnerships
have been allowed to issue participating securities and that corporations may
not be allowed to issue participating securities.
SBA REGULATION
SBICs, such as the Company, are licensed by the SBA as part of a program
designed to stimulate the flow of private debt and/or equity capital to
"Eligible Concerns" and "Smaller Concerns." Under current SBA Regulations and
the Small Business Investment Act, an independently owned and operated business
concern that does not have a net worth in excess of $18 million and does not
have average net income after federal income taxes for the preceding two years
of more than $6 million, or meets size standards set by the SBA that are
measured by either annual receipts or number of employees, depending on the
industry in which such concern is primarily engaged, is eligible to receive
financial assistance from an SBIC (hence, it is referred to in this Form 10-K as
an "Eligible Concern"). The SBA Regulations also define a "Smaller Concern,"
which is a concern with a net worth of $6 million or less and average annual net
profits after taxes of $2 million or less, or depending on the industry in which
the concern operates, meets criteria based on the number of its employees or its
annual receipts. Commencing with its fiscal year ended March 31, 1996, the
Company was required by the SBA Regulations to earmark at least 10% of its
financing to Smaller Concerns and in each subsequent fiscal year to earmark at
least 20% of its financing to Smaller Concerns.
SBA Regulations place certain limitations on the terms of loans by SBICs.
The maximum maturity of these loans may not exceed 20 years and, subject to
certain exceptions, the minimum maturity is five years. A borrower from an SBIC
cannot be required during the first five years to repay, on a cumulative basis,
more principal than an amount calculated on a straight-line, five-year
amortization schedule. On straight loans (without equity features), an SBIC can
charge an interest rate up to 19% and on loans with equity features, an interest
rate up to 14%. Notwithstanding the above, an SBIC may charge more by first
computing a base rate using either the SBA debenture rate currently in effect
plus an applicable charge permitted by the SBA, or a base rate using the
weighted average cost of the SBIC's borrowings from the SBA and qualified third
party lenders such as banks. On loans with equity features, an SBIC may charge
interest equal to 6% above the base rate used and, in the case of a straight
loan, 11% interest above the base rate used.
SBICs may invest directly in the equity of its portfolio companies.
However, they may not become a general partner of a non-incorporated entity or
otherwise become jointly or severally liable for the general obligations of a
non-incorporated entity. An SBIC may acquire options or warrants in its
portfolio companies. Such options and warrants may also have redemption
provisions, subject to certain restrictions. In general, however, SBICs may not
control a portfolio company. "Control", for this purpose, is defined as the
ownership (or control) of a 50% interest in the outstanding voting securities of
a portfolio company if it is held by fewer than 50 shareholders, or if there are
50 or more shareholders, a 20% to 25% interest (depending on the holdings of
other shareholders of the portfolio company).
With certain limited exceptions, SBICs may not invest overseas, in real
estate or in passive businesses, that is, businesses which are not regular and
continuous.
REGULATION AS A BUSINESS DEVELOPMENT COMPANY
The Company is a closed-end, non-diversified investment company that has
elected to be regulated as a Business Development Company under the 1940 Act
and, as such, is subject to regulation under that Act. Among other things, the
1940 Act contains prohibitions and restrictions relating to transactions between
the Company and its affiliates, principal underwriters and affiliates of those
affiliates or underwriters and requires that a majority of
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the Company's directors be persons other than "interested persons," as defined
in the 1940 Act. In addition, the 1940 Act prohibits the Company from changing
the nature of its business so as to cease to be, or to withdraw its election as,
a Business Development Company unless so authorized by the vote of the holders
of a majority of its outstanding voting securities.
A Business Development Company is permitted, under specified conditions, to
issue multiple classes of indebtedness and one class of stock senior to the
Company's common stock (collectively, "Senior Securities," as defined in the
1940 Act) if the asset coverage, as defined in the 1940 Act, of any Senior
Security is at least 200% immediately after each such issuance and certain other
conditions are met. On the other hand, because the Company is an SBIC, the only
asset coverage requirement applicable to it would give the holders of its Senior
Securities constituting indebtedness, including the Debentures, the right to
elect a majority of the Board of Directors, if on the last business day of each
of 12 consecutive calendar months, the Company failed to maintain at least 100%
asset coverage. Also, while Senior Securities constituting preferred stock are
outstanding (other than preferred stock issued to or guaranteed by the SBA),
provision must be made to prohibit any distributions to shareholders or the
repurchase of such securities or shares unless the applicable asset coverage
ratios are met at the time of the distribution or repurchase. The Company may
also borrow amounts from banks evidenced by notes not to be publicly distributed
or for temporary purposes if the borrowing does not exceed 5% of the value of
its total assets. A loan is presumed to be for temporary purposes if it is
repaid within sixty days and is not extended or renewed.
Under the 1940 Act, a Business Development Company may not acquire any
asset, other than assets of the type listed in Section 55(a) of the 1940 Act
("Qualifying Assets") unless, when the acquisition is made, such Qualifying
Assets represent at least 70% of its total assets. The principal categories of
Qualifying Assets relevant to the business of the Company are the following:
(1) Securities purchased in transactions not involving any public offering
from the issuer of such securities, which issuer is an eligible
portfolio company. An "eligible portfolio company" is defined, in
pertinent part, in the 1940 Act as any issuer which:
(a) is organized under the laws of, and has its principal place
of business in, the United States;
(b) is not an investment company other than another SBIC that is
wholly-owned by the Company;
(c) and does not have any class of securities with respect to
which margin credit may be extended under federal law.
(2) Securities of any eligible portfolio company which is controlled by
the Business Development Company.
(3) Securities received in exchange for or distributed on or with respect
to securities described in item (1) or (2) above, or pursuant to the
exercise of options, warrants or rights relating to such securities.
(4) Cash, cash items, government securities, or high quality debt
securities maturing in one year or less from the time of investment.
In addition, a Business Development Company must have been organized (and
have its principal place of business) in the United States for the purpose of
making investments in the types of securities described in item (1) or (2) above
and, in order to count the securities as Qualifying Assets for the purpose of
the 70% test, the Business Development Company must either control the issuer of
the securities or make available to the issuer of the securities significant
managerial assistance. Making available significant managerial assistance means,
among other things, any arrangement whereby a Business Development Company,
through its directors, officers or employees, offers to provide, and, if
accepted, does so provide, significant guidance and counsel concerning the
management, operations or business objectives and policies of a portfolio
company; or in the case of an SBIC (such as the Company), making loans to a
portfolio company.
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FUNDAMENTAL AND OTHER INVESTMENT POLICIES
The Company's investment objectives are to achieve a high level of current
income from interest and long-term growth through equity interests in its
portfolio companies.
Fundamental Policies
In making investments and managing its portfolio, the Company will adhere
to the following fundamental policies, which may not be changed without the
approval of the holders of 50% or more of the Company's outstanding voting
securities, or the holders of 67% or more of the Company's outstanding voting
securities present at a meeting of security holders at which holders of 50% or
more of such securities are present in person or by proxy:
1. The Company will conduct its business so as to retain its status as an
SBIC and as a Business Development Company, and to qualify as a "regulated
investment company" (as defined under the Code). In order to retain its status
as an SBIC, the Company must limit its investments to Eligible Concerns and meet
the minimum financing obligations applicable to Smaller Concerns (see "SBA
Regulation"). In order to retain its status as a Business Development Company,
the Company may not acquire assets (other than non-investment assets necessary
and appropriate to its operations as a Business Development Company) if, after
giving effect to such acquisition, the value of its Qualifying Assets is less
than 70% of the value of its total assets. See "Regulation as a Business
Development Company". In order to qualify as a "regulated investment company,"
the Company is required, among other things, to diversify its holdings as
required under the Internal Revenue Code of 1986, as amended. The Company
qualified as a "regulated investment company" for the fiscal year ended March
31, 1999.
2. The Company will not borrow money except through the issuance of its
subordinated debentures, other debentures ranking on an equal basis with its
subordinated debentures, the SBA Debentures and through one or more bank lines
of credit.
3. The Company may issue preferred stock with such terms as the Board of
Directors may determine, subject to the requirements of the 1940 Act and the
Small Business Investment Act.
4. The Company will not (i) act as an underwriter of securities (except to
the extent it may be deemed to be an "underwriter" as defined in the Securities
Act of 1933, as amended (the "Securities Act") of securities purchased by it in
private transactions), (ii) purchase or sell real estate or interests in real
estate or real estate investment trusts (except that the Company may acquire
real estate which collateralizes its loans or guaranties of its loans upon
defaults of such loans and may dispose of such real estate as and when market
conditions permit), (iii) sell securities short, (iv) purchase securities on
margin (except to the extent that the registrant may be deemed to have done so
as a result of its acquisition of securities in connection with loans made to
portfolio companies which are funded with borrowed money), or (v) purchase or
sell commodities or commodity contracts, including futures contracts (except
where necessary in working out distressed loans or investments).
5. The Company may write or buy put or call options in connection with
loans to, and other investments in, portfolio companies, or rights to require
the issuer of such securities to repurchase such loans and other investments
under certain circumstances.
6. The Company has no policy with respect to concentration of investments
in a particular company, industry or groups of industries, except that it will
not loan money to, or invest in, any company if such loan or investment exceeds
20% of the Company's Private Capital, without SBA approval.
7. The Company may make straight loans and loans with equity features to
the extent permitted under the Small Business Investment Act and the 1940 Act.
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Other Investment Policies
The Company's investment policies described below are not fundamental
policies, and may be changed, subject to the Small Business Investment Act and
the SBA Regulations, by the Company's Board of Directors without shareholder
approval:
1. Except for subsidiaries organized by the Company to hold assets acquired
in foreclosures of defaulted loans, the Company will not acquire (i) 50% or more
of the outstanding voting securities of any issuer held by fewer than 50
shareholders, (ii) 25% or more of the outstanding voting securities of any
issuer having 50 or more shareholders, or (iii) 20% or more of the outstanding
voting securities of any issuer having 50 or more shareholders if, as a result
of such acquisition, the Company would hold a number of voting securities equal
to or greater than the largest other holding of such securities.
2. The Company will not invest in companies for the purpose of controlling
management of such companies.
3. The Company will not invest in finance companies, foreign companies,
passive businesses or real estate companies, except as permitted by the SBA.
4. The Company has no policy with respect to portfolio turnover. Moreover,
because borrowers have certain prepayment rights pursuant to SBA Regulations,
the Company cannot control or predict the frequency of portfolio turnover.
5. Pending the investment of its funds in Eligible Concerns (including
Smaller Concerns) or as otherwise permitted by the SBA, the Company may invest
its funds in direct obligations of, or obligations guaranteed as to principal
and interest by, the United States which mature in 15 months or less, repurchase
agreements with federally insured institutions with respect to such obligations
which mature in seven days or less, or certificates of deposit issued by a
qualified federally insured institution which mature in one year or less, or
will be deposited in a qualified federally insured institution in accounts which
may be subject to withdrawal restrictions not to exceed one year.
COMPETITION
Many entities, including banks, lending companies (including other SBICs),
venture capital funds and other sources of capital, compete for loan
originations and investments similar to those made by the Company. The Company's
competition is not limited to entities that operate in the same geographical
area as the Company, as many of the Company's competitors operate throughout the
United States. Furthermore, competition for loan origination has increased as
the financial strength of the banking community has improved over the last few
years. Many of the Company's competitors have far greater financial and
personnel resources than the Company. In addition, many other SBICs use
professional investment advisors to seek and evaluate potential investments. The
Company does not have an independent investment advisor nor does it intend to
retain one.
FACILITIES; PERSONNEL
The Company operates from rented quarters, consisting of approximately
2,000 square feet, located in a four story office building under a lease
expiring in November 2002. The lease is cancelable at the Company's option on 90
days prior written notice. Management considers that such quarters will be
adequate for the near term for the conduct of the Company's business. The
Company maintains its investment and business records at its executive offices.
As of June 21, 1999, the Company had four full-time employees (three of
whom are Messrs. Paul A. Perlin, Chief Executive Officer, David Greenberg,
Managing Director, and R. Scot Perlin, Chief Financial Officer, and one of whom
handles clerical matters). In addition to its salaried employees, the Company
has from time to time
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engaged the services of independent consultants as and when needed. The Company
considers its relations with employees to be satisfactory.
LEGAL PROCEEDINGS
From time to time in the ordinary course of business, the Company initiates
legal proceedings against borrowers in default and, where warranted, their
guarantors to seek payment of loan obligations and to take possession of
collateral. In the latter instances, these proceedings are sometimes followed by
court authorized liquidations. All such proceedings require outside counsel with
attendant professional fees and expenses.
The Company has never been named as a defendant in any material litigation.
ITEM 2. PROPERTIES.
For a description of the Company's loans and other investments as of March
31, 1999 and March 31, 1998 see Pages F-19 to F-23.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The registrant's common stock trades in the NASDAQ SmallCap Market under
the symbol, "WCAP". The registrant's common stock is listed on the Boston Stock
Exchange under the symbol, "WNF", but there has been no meaningful trading of
such securities on that Exchange since the registrant's initial public offering,
which was made on October 26, 1995. The warrants issued in connection with the
Company's initial public offering traded in the NASDAQ SmallCap Market and were
listed on the Boston Stock Exchange under the symbols "WCAPW" and "WNFW",
respectively. The reported high and low bid quotations for the registrant's
common stock and warrants on the NASDAQ SmallCap Market from April 1, 1997 to
June 21, 1999 were as follows:
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
--------------------- ----------------------
HIGH LOW HIGH LOW
--------------------- ----------------------
<S> <C> <C> <C> <C>
April 1 - June 30, 1997 ................. 1.9375 1.125 .625 .1875
July 1 - September 30, 1997 ............. 1.4375 1.1875 .1875 .0625
October 1 - December 31, 1997 ........... 1.4375 .625 .0625 .0625
January 1 - March 31, 1998 .............. 1.3125 .875 * *
April 1- June 30, 1998 .................. 1.625 1.00 * *
July 1 - September 30, 1998 ............. 8.50 1.375 * *
October 1 - December 31, 1998 ........... 7.125 1.5625 * *
January 1 - March 31, 1999 .............. 20.25 6.25 * *
April 1 - June 21, 1999 ................. 50.00 18.0625 * *
</TABLE>
- ---------------
* These warrants expired according to their terms on October 25, 1997.
The foregoing quotations reflect inter-dealer prices, without retail
markup, markdown or commission, and do not necessarily represent actual
transactions.
As of June 21, 1999, the Company estimates that its shares of common stock
are held by approximately 3,100 beneficial holders.
ITEM 6. SELECTED FINANCIAL DATA.
See Summary of Financial Information for the years ended March 31, 1999,
1998, 1997, 1996 and 1995 on the following page:
9
<PAGE>
<TABLE>
WINFIELD CAPITAL CORP.
SUMMARY OF FINANCIAL INFORMATION
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total investment income $ 839,897 $ 1,118,127 $ 1,436,957 $ 599,537 $ 290,972
Total investment expenses $ 2,052,031 $ 1,844,342 $ 1,731,499 $ 995,985 $ 674,903
Net realized gains (losses) on disposition of
investments $ 740,829 $ (184,206) $ 57,349 $ 77,550 $ (26,926)
Unrealized appreciation (depreciation)
on loans and investments $25,323,076 $(1,074,053) $ 581,745 $ (133,195) $ (120,000)
Net income (loss) $24,851,771 $(1,984,474) $ 344,552 $ (452,093) $ (530,857)
Earnings (loss) per share $ 4.95 $ (.40) $ .07 $ (.13) $ (.90)
Weighted average number of
shares outstanding 5,023,361 5,023,361 5,023,361 3,484,630 591,608
OTHER OPERATING DATA
Number of loans and other investments
outstanding at end of period 52 46 42 43 51
Number of loans and other investments
originated 13 16 7 3 3
Principal amount of loans and other
investments originated $ 9,420,696 $ 11,314,223 $ 3,959,335 $ 1,157,090 $ 287,115
Investment expenses as a percentage
of average net assets 8.1% 19.5% 16.6% 19.3% 216.0%
BALANCE SHEET DATA
Loans and investment portfolio
including assets acquired in
liquidation $45,311,218 $ 13,364,711 $ 4,908,905 $ 3,977,593 $ 3,724,118
Total assets $50,128,912 $ 18,233,115 $20,748,682 $15,852,084 $ 4,448,322
SBA debentures $15,300,000 $ 8,300,000 $ 8,900,000 $ 4,500,000 $ 3,750,000
Common stock (including additional
paid-in capital) $ 9,264,680 $ 9,492,599 $10,901,063 $10,901,063 $ 1,250,000
Realized retained earnings (deficit) $ (301,434) $ (58,048) $ (556,091) $ (318,898) $(1,019,450)
Total shareholders' equity $33,477,319 $ 8,625,548 $10,610,022 $10,265,470 $ 47,050
</TABLE>
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Years Ended March 31, 1999, 1998 and 1997
INVESTMENT INCOME
Investment income decreased by $278,230 from $1,118,127 for the year ended
March 31, 1998 to $839,897 for the year ended March 31, 1999, a decrease of
24.9%. This reflected principally $326,692 in decreased interest earned from
temporarily invested funds as a result of the Company's investments originated
(mostly non-income producing equity investments) and lower prevailing interest
rates. This was partially offset by increases in other income of $12,843,
reflecting higher earnings on commitment fees, interest from small business
concerns of $23,258 and loan processing fees of $12,361.
The Company's investment income decreased by $318,830 from $1,436,957 for
the year ended March 31, 1997 to $1,118,127 for the year ended March 31, 1998, a
decrease of 22.2%. This reflected principally $175,036 in decreased interest
earned from temporarily invested funds as a result of the Company's investments
originated (mostly non-income producing equity investments) and lower prevailing
interest rates. There was also a decrease in earnings from loan processing fees
and other income of $107,938 and $53,668, respectively, with the former
reflecting the higher percentage of new equity versus loan investments. There
are often no processing fees or commitment fees on equity investments.
INTEREST EXPENSE
Interest expense increased by $62,229 from $814,309 for the year ended
March 31, 1998 to $876,538 for the year ended March 31, 1999 due to the
increased indebtedness of $7,000,000 to the SBA. Interest expense increased by
$33,663 from $780,646 for the year ended March 31, 1997 to $814,309 for the year
ended March 31,1998, due to the increased indebtedness of $5,000,000 to the SBA
partially offset by the repayment of $600,000 to the SBA on September 1, 1997.
OPERATING EXPENSES
The Company's operating expenses consist of employee compensation and
benefits, rent, insurance, professional and consulting fees, marketing and
investment solicitation expenses and losses on loans receivable and assets
acquired in liquidation. The Company's operating expenses increased from
$1,030,033 for the year ended March 31, 1998 to $1,175,493 for the year ended
March 31, 1999, primarily as a result of an increase in professional fees of
$152,200 and smaller increases in depreciation and amortization of $18,839,
other operating costs of $7,405 and payroll and payroll related expenses of
$4,145. These increases were partially offset by a decrease in general and
administrative expenses of $37,129. The Company's operating expenses increased
from $950,853 for the year ended March 31, 1997 to $1,030,033 for the year ended
March 31, 1998, primarily as a result of increases in payroll and payroll
related expenses of $51,450 and in professional fees of $36,135.
11
<PAGE>
REALIZED GAINS OR LOSSES ON EQUITY INVESTMENTS
The Company realizes gains or losses on its equity investments or rights to
acquire equity investments upon the disposition or write-offs thereof. The
realized gain for the year ended March 31, 1999 of $740,829 primarily reflected
gains on equity securities of $1,213,016 principally offset by write-offs
totaling $466,919 and lesser miscellaneous net participant payments of $5,268.
The realized loss for the year ended March 31, 1998 of $184,206 included losses
on assets acquired in liquidation, write-offs and write-downs totaling $289,570
partially offset by a gain on the sale of equity and other portfolio assets
totaling $105,364.
UNREALIZED APPRECIATION OR DEPRECIATION OF LOANS AND INVESTMENTS.
As an investment company, the Company evaluates its investment portfolio
periodically to determine the fair value of the portfolio and, accordingly, does
not maintain an allowance for loan losses similar to commercial banks. Any
change in the fair value of loans and other investments is reflected in
unrealized appreciation or depreciation of loans and investments, but has no
impact on net investment income. There was unrealized appreciation on loans and
investments of $25,323,076 for the year ended March 31, 1999 (principally
reflecting the market price of equity investments in two publicly traded
portfolio companies) compared with unrealized depreciation of $1,074,053 for the
year ended March 31, 1998 and unrealized appreciation of $581,745 for the year
ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
In January 1998, the Company paid a non-refundable commitment fee of
$100,000 to the SBA to reserve $10,000,000 of SBA guaranteed debentures through
September 2002. During the year ended March 31, 1999, the Company drew down
$7,000,000 of such debentures bearing an interest rate of 6.24% per annum.
At March 31, 1999, the Company had cash and short-term bank money market
investments totaling $3,427,719. Subsequent to March 31, 1999, the Company drew
down an additional $3,000,000 of SBA debentures and received a proposal for a
$5,000,000 line of credit from Imperial Bank. The Company believes that its cash
and short-term investments, along with its remaining SBA funding commitment,
possible use of a bank line of credit and its ability to sell certain of its
publicly traded portfolio investments will be adequate to meet both the
investment opportunities that the Company anticipates and its working capital
needs through March 31, 2000.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 is effective for all quarters of fiscal years beginning after June
15, 2000. Management does not believe that the adoption of SFAS No. 133 will
have a material effect on the Company's financial statements and results of
operations.
YEAR 2000
Many computer software systems in use today cannot properly process
date-related information from and after January 1, 2000. This is not an exposure
for the Company since it does not currently rely on any particular software
program to track either its investment portfolio or to provide accounting
functions. In addition, the Company has inquired of its commercial banks and
other service providers as well as of its major portfolio companies to determine
if they will be prepared for the Year 2000. While all have indicated they are
taking the
12
<PAGE>
necessary steps to be in compliance, there can be no assurance that all exposure
will be eliminated. It is anticipated that the Company will incur no material
expenses related to the Year 2000 issue.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAGE
----
Report of Independent Accountants ........... F-1
Balance Sheets .............................. F-2
Statements of Operations .................... F-3
Statements of Shareholders' Equity .......... F-4
Statements of Cash Flows .................... F-5
Financial Highlights (Per Share Data
and Ratios/Supplemental Data) ............ F-6
Notes to Financial Statements ............... F-7 through F-18
Portfolio of Investments .................... F-19 through and F-23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to the registrant's definitive proxy statement to
be filed not later than 120 days after March 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the registrant's definitive proxy statement to
be filed not later than 120 days after March 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the registrant's definitive proxy statement to
be filed not later than 120 days after March 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the registrant's definitive proxy statement to
be filed not later than 120 days after March 31, 1999.
13
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements:
See Item 8 of Part II hereof.
(b) Financial Statement Schedules: The schedules specified under
Regulation S-X are either included elsewhere in this Form 10-K,
not applicable or are immaterial to the Company's financial
statements for each of the three years in the period ended March
31, 1999.
(c) Exhibits:
3(A). Certificate of Incorporation, as amended, incorporated by
reference to Exhibit 1(A) to the registrant's registration
statement in SEC File No. 33-94322.
3(B). Certificate of Amendment of Certificate of Incorporation,
incorporated by reference to Exhibit 1(B) to the
registrant's registration statement in SEC File No.
33-94322.
3(C). By-laws, as amended, incorporated by reference to Exhibit 2
to the registrant's registration statement in SEC File No.
33-94322.
4(A). Warrant Agreement, including Form of Warrant, incorporated
by reference to Exhibit 3(B) to the registrant's
registration statement in SEC File No. 33-94322.
4(B). Form of Debenture incorporated by reference to Exhibit 3(C)
to the registrant's registration statement in SEC File No.
33-94322.
4(C). Agency Agreement for the Debentures, incorporated by
reference to Exhibit 3(D) to the registrant's registration
statement in SEC File No. 33-94322.
10(A). Indemnification Agreement, incorporated by reference to
Exhibit 4 to the registrant's registration statement in
SEC File No. 33-94322.
10(B). Stock Option Plan, incorporated by reference to Exhibit 5
to the registrant's registration statement in SEC File No.
33-94322.
10(C). Registrant's License from SBA, incorporated by reference
to Exhibit 6 to the registrant's registration statement in
SEC File No. 33-94322.
10(D). Stock Purchase Agreement dated as of August 25, 1994, as
amended, incorporated by reference to Exhibit 7 to the
registrant's registration statement in SEC File No.
33-94322.
10(E)(1). Employment Agreement with Paul A. Perlin, incorporated
by reference to Exhibit 8(A) to the registrant's
registration statement in SEC File No. 33-94322.
10(E)(2). Stock Option Agreement with Paul A. Perlin,
incorporated by reference to Exhibit 8(B) to the
registrant's registration statement in SEC File
No. 33-94322
14
<PAGE>
10(G). Employment Agreement with David Greenberg, incorporated by
reference to Exhibit 9(C) to the registrant's registration
statement in SEC File No. 33-94322.
10(H). Lock-up Agreement with Officers and Directors,
incorporated by reference to Exhibit 9(D) to the
registrant's registration statement in SEC File No.
33-94322.
10(I). Employment Agreement with Paul A. Perlin, dated June 24,
1999 as of November 1, 1998.
10(J). Employment Agreement with David Greenberg, dated June 24,
1999 as of November 1, 1998.
11. Statement of Computation of Earnings (Loss) Per Share.
12. Letter of Joel Popkin & Company, P.C. to the Securities and
Exchange Commission dated June 5, 1997, incorporated by
reference to Item 7. (c) Exhibit 1 to the registrants's
Current Report on Form 8-K dated June 5, 1997 in SEC File
No. 33-94322.
27. Financial Data Schedule.
(d) No reports on Form 8-K were filed during the fourth quarter of the
registrant's fiscal year ended March 31, 1999.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
WINFIELD CAPITAL CORP.
Dated: June 25, 1999 By: /s/ PAUL A. PERLIN
----------------------------------------
PAUL A. PERLIN
CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: June 25, 1999 By: /s/ PAUL A. PERLIN
----------------------------------------
PAUL A. PERLIN
CHAIRMAN OF THE BOARD
(CHIEF EXECUTIVE OFFICER) AND DIRECTOR
Dated: June 25, 1999 By: /s/ R. SCOT PERLIN
---------------------------------------
` R. SCOT PERLIN
(CHIEF FINANCIAL OFFICER &
CHIEF ACCOUNTING OFFICER) AND
DIRECTOR
Dated: June 25, 1999 By: /s/ DAVID GREENBERG
----------------------------------------
DAVID GREENBERG
MANAGING DIRECTOR AND DIRECTOR
Dated: June 25, 1999 By: /s/ BRUCE A. KAUFMAN
----------------------------------------
BRUCE A. KAUFMAN
DIRECTOR
Dated: June 25, 1999 By: /s/ JOEL I. BARAD
----------------------------------------
JOEL I. BARAD
DIRECTOR
Dated: June 25, 1999 By: /s/ BARRY J. GORDON
----------------------------------------
BARRY J. GORDON
DIRECTOR
Dated: June 25, 1999 By: /s/ ALLEN L. WEINGARTEN
---------------------------------------
ALLEN L. WEINGARTEN
DIRECTOR
16
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
PAGE
---------
Report of Independent Accountants F-1
Balance Sheets
(At March 31, 1999 and 1998) F-2
Statements of Operations
(For each of the three years in the period ended March 31, 1999) F-3
Statements of Changes in Shareholders' Equity
(For each of the three years in the period ended March 31, 1999) F-4
Statements of Cash Flows
(For each of the three years in the period ended March 31, 1999) F-5
Financial Highlights F-6
Per Share Data
(For the years ended March 31, 1999 and 1998)
Ratios/Supplemental Data
(For the years ended March 31, 1999 and 1998)
Notes to Financial Statements F-7-F-18
Portfolio of Investments F-19-F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Winfield Capital Corp.
(A Small Business Investment Company licensed by
the U.S. Small Business Administration):
We have audited the accompanying balance sheets of Winfield Capital Corp. as of
March 31, 1999 and 1998, including portfolio of investments as of March 31, 1999
and 1998 and the related statements of operations, of changes in shareholders'
equity and of cash flows for each of the three years in the period ended March
31, 1999 and the financial highlights for the periods indicated thereon. These
financial statements and financial highlights are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and the financial
highlights 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 verification of investments owned as of
March 31, 1999 and 1998 by examination. 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 and the financial highlights referred
to above present fairly, in all material respects, the financial position of
Winfield Capital Corp. as of March 31, 1999 and March 31, 1998, and the results
of its operations and its cash flows for each of the three years in the period
ended March 31, 1999 and the financial highlights for the periods indicated
thereon, in conformity with generally accepted accounting principles.
/s/PRICEWATERHOUSECOOPERS
New York, NY
June 11, 1999
F-1
<PAGE>
WINFIELD CAPITAL CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
ASSETS: 1999 1998
------------ ------------
<S> <C> <C>
Investments, at value:
Loans and notes receivable (cost: $5,327,319 and $6,948,875,
respectively) $ 5,134,357 $ 6,598,875
Equity interests in small business concerns (cost: $14,342,312 and
$5,758,404, respectively) 39,954,775 6,051,901
Assets acquired in liquidation (cost: $1,127,514 and $1,466,435,
respectively) 222,086 713,935
------------ ------------
Total investments 45,311,218 13,364,711
Cash 3,427,719 848,777
Short-term marketable securities -- 3,462,587
Accrued interest receivable 135,007 164,556
Receivable from broker 782,624 --
Furniture and equipment (net of accumulated depreciation of $74,827
and $68,250, respectively) 12,797 18,615
Other assets (principally deferred debenture costs) 459,547 373,869
------------ ------------
Total assets $ 50,128,912 $ 18,233,115
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Debentures payable to the U.S. Small Business Administration $ 15,300,000 $ 8,300,000
Subordinated debentures payable 1,024,340 983,502
Accrued expenses 302,958 279,162
Deferred income 24,295 44,903
------------ ------------
Total liabilities 16,651,593 9,607,567
------------ ------------
Commitments and contingencies (Note 7)
Shareholders' equity:
Preferred stock - .001 par value; Authorized - 1,000,000 shares Issued and
outstanding - none
Common stock - $.01 par value; Authorized - 10,000,000
shares; Issued and outstanding - 5,023,361 shares at March 31, 1999
and 1998 50,234 50,234
Additional paid-in capital 9,214,446 9,442,365
Accumulated deficit (dated May 2, 1995) (301,434) (58,048)
Unrealized appreciation (depreciation) on investments, net 24,514,073 (809,003)
------------ ------------
Total shareholders' equity 33,477,319 8,625,548
------------ ------------
Total liabilities and shareholders' equity $ 50,128,912 $ 18,233,115
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
WINFIELD CAPITAL CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Investment income:
Interest from small business concerns $ 580,525 $ 557,267 $ 539,455
Interest from invested idle funds 193,139 519,831 694,867
Loan processing fees 51,408 39,047 146,985
Other income 14,825 1,982 55,650
------------ ------------ ------------
Total investment income 839,897 1,118,127 1,436,957
------------ ------------ ------------
Expenses:
Interest 876,538 814,309 780,646
Payroll and payroll related expenses 530,285 526,140 474,690
General and administrative expenses 225,551 262,680 259,043
Professional fees 341,624 189,424 153,289
Depreciation and amortization 48,610 29,771 19,933
Other operating costs 29,423 22,018 43,898
------------ ------------ ------------
Total investment expenses 2,052,031 1,844,342 1,731,499
------------ ------------ ------------
Investment loss - net (1,212,134) (726,215) (294,542)
------------ ------------ ------------
Realized gain (loss) on investments 740,829 (184,206) 57,349
Change in unrealized appreciation (depreciation) of
investments 25,323,076 (1,074,053) 581,745
------------ ------------ ------------
Gain (loss) on investments, net 26,063,905 (1,258,259) 639,094
------------ ------------ ------------
Net increase (decrease) in shareholders'
equity resulting from operations $ 24,851,771 $ (1,984,474) $ 344,552
============ ============ ============
Per share net increase (decrease) in shareholders'
equity resulting from operations
Basic $ 4.95 $ (0.40) $ 0.07
============ ============ ============
Diluted $ 4.54 $ (0.40) $ 0.07
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
WINFIELD CAPITAL CORP.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED (DEFICIT)
---------------------------- UNREALIZED
COMMON STOCK ADDITIONAL UNDISTRIBUTED NET UNDISTRI- APPRECIATION
---------------------------- PAID-IN NET INVESTMENT BUTED REALIZED (DEPRECIATION) ON
SHARES AMOUNT CAPITAL INCOME GAIN/(LOSS) INVESTMENTS-NET TOTAL
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - April 1, 1996 5,023,361 $ 50,234 $ 10,850,829 $ (318,898) $ (316,695) $ 10,265,470
Net increase in
shareholders'
equity resulting
from operations (237,193) 581,745 344,552
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance - March 31, 1997 5,023,361 50,234 10,850,829 (556,091) 265,050 10,610,022
Net decrease in
shareholders'
equity resulting
from operations (726,215) (184,206) (1,074,053) (1,984,474)
Reclassification
pursuant to SOP 93-2
as described in Note 2 (1,408,464) 1,282,306 126,158
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance - March 31, 1998 5,023,361 50,234 9,442,365 0 (58,048) (809,003) 8,625,548
Net increase in
shareholders'
equity resulting
from operations (1,212,134) 740,829 25,323,076 24,851,771
Reclassification
pursuant to SOP 93-2
as described in Note 2 (227,919) 1,211,148 (983,229)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance - March 31, 1999 5,023,361 $ 50,234 $ 9,214,446 $ (986) $ (300,448) $ 24,514,073 $ 33,477,319
============ ============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
WINFIELD CAPITAL CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net increase (decrease) in shareholders' equity
resulting from operations $ 24,851,771 $ (1,984,474) $ 344,552
Adjustments to reconcile net increase (decrease)
in shareholders' equity resulting from operations
to net cash used in operating activities:
Realized loss (gain) on investment (740,829) 184,206 (57,349)
Dividend reinvested (159)
Amortization of discount 40,838 40,837 40,837
Change in unrealized (appreciation)
depreciation on investments (25,323,076) 1,074,053 (581,745)
Depreciation and amortization of fixed assets 6,577 6,433 3,671
Amortization of debenture costs 70,762 52,067 45,016
(Increase) decrease in accrued interest receivable 29,549 (92,468) 4,636
Decrease in other assets 18,559 (6,724) 269
Increase in deferred income (20,608) 44,903
Increase (decrease) in accrued expenses 23,796 (16,833) 140,659
------------ ------------ ------------
Net cash used in operating activities (1,042,661) (698,159) (59,454)
------------ ------------ ------------
Investing activities:
Purchases of short-term marketable securities (1,201,919) (4,845,368) (14,683,274)
Proceeds from the maturity of short-term marketable
securities 4,664,506 13,491,055 10,706,149
Cost of assets acquired in liquidation (6,500)
Proceeds from sale of equity interests 377,907 105,198 376,299
Investments originated (9,420,696) (11,314,223) (3,959,335)
Proceeds from collection of loans 2,187,485 1,508,598 3,290,817
Acquisition of fixed assets (759) (13,199) (6,199)
Proceeds on sale of assets acquired in liquidation 196,579
Decrease in funds held in escrow (24,450)
------------ ------------ ------------
Net cash used in investing activities (3,203,397) (1,067,939) (4,299,993)
------------ ------------ ------------
Financing activities:
Proceeds from debentures payable to the SBA 7,000,000 5,000,000
Repayment of debentures payable to the SBA
and bank note (600,000) (605,000)
Debenture costs paid (175,000) (100,000) (131,250)
------------ ------------ ------------
Net cash provided by (used in) financing activities 6,825,000 (700,000) 4,263,750
------------ ------------ ------------
Increase (decrease) in cash 2,578,942 (2,466,098) (95,697)
Cash - beginning of year 848,777 3,314,875 3,410,572
------------ ------------ ------------
Cash - end of year $ 3,427,719 $ 848,777 $ 3,314,875
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 799,521 $ 749,723 $ 589,663
============ ============ ============
Supplemental schedule of non-cash
investing and financing activities:
Assets acquired in liquidation of loans $ 0 $ 688,809 $ 317,885
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
WINFIELD CAPITAL CORP.
FINANCIAL HIGHLIGHTS
YEARS ENDED MARCH 31,
--------------------------
1999 1998
----------- ----------
PER SHARE OPERATING PERFORMANCE
Shareholders' equity, beginning of period $ 1.71 $ 2.11
----------- ----------
Investment loss - net (0.24) (0.15)
Net realized and unrealized gain (loss)
on investments 5.19 (0.25)
----------- ----------
Total from investment operations 4.95 (0.40)
----------- ----------
Shareholders' equity, end of period $ 6.66 $ 1.71
=========== ==========
Per share market value, end of period $ 20.1875 $ 1.1875
=========== ==========
Shares outstanding, end of period 5,023,361 5,023,361
=========== ==========
RATIO/SUPPLEMENTAL DATA
Shareholders' equity, end of period $33,477,319 $8,625,548
Ratio of investment expenses
to average shareholders' equity 8.12% 19.50%
Ratio of investment loss, net
to average shareholders' equity (4.80%) (7.68%)
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
Years ended March 31, 1999, 1998 and 1997
1. ORGANIZATION:
Winfield Capital Corp. (the "registrant" or the "Company") was
incorporated as a New York corporation in 1972. The Company is a small
business investment company ("SBIC") that was licensed by the U.S. Small
Business Administration (the "SBA") in 1972 under the Small Business
Investment Act of 1958, as amended (the "Small Business Investment Act").
The Company is a non-diversified investment company that has elected to be
regulated as a business development company ("Business Development
Company"), a type of closed-end investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"). Beginning April 1, 1996,
the Company elected to be taxed as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended.
The Company uses funds borrowed from the SBA, together with its own
capital, to provide loans to, and make equity investments in,
independently owned and operated business concerns that, in accordance
with SBA Regulations, (i) do not have a net worth in excess of $18 million
and do not have average net income after federal income taxes for the
preceding two years of more than $6 million, or (ii) meet size standards
set by the SBA that are measured by either annual receipts or number of
employees, depending on the industry in which such concerns are primarily
engaged ("Eligible Concerns"). The Company invests in all kinds and
classes of securities of portfolio companies, including, but not limited
to, notes and bonds; straight, subordinated, convertible and income
debentures; preferred stock; common stock; and options and warrants to
purchase any of the foregoing. The Company seeks both current income and
long-term growth in the value of its assets. The Company's investments are
made, and will continue to be made, with the intention of having loans
repaid within five years and equity investments liquidated within 5 to 10
years. Situations may arise, however, where the Company may hold an equity
interest for a shorter or longer period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Valuation of Investments
Securities that are traded on a securities exchange or the NASDAQ National
Market System, which are not deemed to be restricted investments, are
valued at the security's last sales price on the last trading day of the
period. Securities traded over-the-counter are valued at the closing price
for the valuation date. A valuation discount is applied if the number of
securities held is substantial in relation to the average daily trading
volume.
CONTINUED
F-7
<PAGE>
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended March 31, 1999, 1998 and 1997
The Company's investments in restricted securities of public companies are
valued at the closing price on the valuation date less a discount rate of
10% to 40%, which is determined by the Board of Directors of the Company
(the "Board of Directors") based upon applicable factors such as resale
restrictions, contractual agreement, size of position held and trading
history of the portfolio company. In some cases, a discount of greater
than 40% may be used based upon applicable factors including, but not
limited to (by way of example): 1) whether the portfolio company will be
financially solvent at the time such restricted securities become freely
tradeable, 2) whether the Company has knowledge of material non-public
information about the portfolio company which it is not at liberty to
disclose in connection with its sale of the securities of such portfolio
company and 3) the risk that the portfolio company's securities might be
delisted from an exchange or automated trading market with published
trading reports.
Loans and other investments for which no public market exists are stated
at "fair value" as determined in good faith by the Board of Directors.
The carrying values of loans to small business concerns are based on the
Board of Directors' evaluation of the financial condition of the borrowers
and/or the underlying collateral. The values assigned are considered to be
amounts which could be realized in the normal course of business which
anticipates the Company holding the loans to maturity and realizing the
face value of the loans. The carrying value of loans normally corresponds
to cost less amortized original issue discount, if any, unless adverse
factors lead to a determination of value at a lower amount. In such
instances, the Company records an increase in unrealized depreciation of
investments to reduce the carrying value of such loans to a value, as
determined by the Board of Directors.
Investments in non-public companies securities (including equity
investments, warrants and convertible instruments) are recorded at fair
value as determined in good faith by the Board of Directors, after
consideration of all pertinent information, including factors such as
significant equity financing by sophisticated, unrelated new investors,
history of positive cash flows from operations, the market of comparable
publicly traded companies (discounted for illiquidity) and other pertinent
factors. The values assigned to these securities are based upon available
information and do not necessarily represent amounts which might
ultimately be realized, since such amounts depend on future circumstances
and cannot reasonably be determined until the individual positions are
liquidated.
Certain of the Company's loans are delinquent as to the required principal
and/or interest due under the respective loan agreements. Loans are
generally considered to be in default when they become 180 days past due
pursuant to SBA regulations. However, on a case by case
CONTINUED
F-8
<PAGE>
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended March 31, 1999, 1998 and 1997
basis, management will consider, based on available information, the
appropriateness of the continued accrual of interest and the carrying
value of the loan.
At March 31, 1999 and March 31, 1998, the investment portfolio included
investments totaling $15,507,529 and $13,108,959, respectively, whose
values had been estimated by the Board of Directors in the absence of
readily ascertainable market values. Because of the inherent uncertainty
of the valuations, the 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.
At March 31, 1999, all investments were in small business concerns located
in the United States of America.
Realized and Unrealized Gain or Loss
Realized gains or losses are recorded upon disposition of investments and
calculated as the difference between the proceeds from such dispositions
and the cost basis determined using the specific identification method.
The cost of investments that in the Board of Directors' judgment have
become permanently impaired, in whole or in part, are written off, and
such amounts are reported as realized losses.
All other changes in the valuation of portfolio investments are included
as changes in the unrealized appreciation or depreciation of investments
in the statement of operations.
Description of Loan Terms
The Company's loans to small business concerns range up to approximately
$2,000,000 in size, typically have a five-year maturity, and, in many
cases, are convertible into common stock or are accompanied by warrants to
purchase common stock of the borrower at a nominal exercise price, subject
in most cases to certain conditions.
The loans bear interest at rates ranging from 7.5% to 18.0%, per annum.
Interest is payable in monthly, quarterly, or semi-annual installments
with principal payments payable either over the term of the loan or at
maturity. These loans are generally collateralized by the assets of the
borrower, certain of which are subject to prior liens, and/or guarantees.
The Company seeks to maximize the difference, or "spread," between the
rate at which it borrows funds from the SBA and the rate at which it lends
these funds to small business concerns. Interest rates are subject to a
cap determined by the SBA.
The Company also participates in syndicated loans and equity investments.
Assets Acquired in Liquidation
Assets acquired in liquidation ("Liquidations") include those loan
balances for which collateral in real estate and other assets have
CONTINUED
F-9
<PAGE>
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended March 31, 1999, 1998 and 1997
been obtained by the Company and which have been or are in the process of
being liquidated. These Liquidations are carried at a value as determined
in good faith by the Board of Directors based upon amounts which the
Company expects to realize upon disposition of the collateral, on a
discounted basis, after reasonable selling expenses. The Company
capitalizes expenditures related to Liquidations subsequent to foreclosure
on the collateral, and accrued interest receivable as of the date of such
foreclosure, if the Board of Directors expects such amounts to be
recovered by the Company.
Deferred Debenture Costs
SBA debenture costs are amortized over ten years which represents the
terms of the SBA debentures.
Revenue Recognition
Interest income is recognized as it is earned on short-term marketable
securities and debt investments. Dividend income from equity investments
is recognized as of the ex-dividend date.
Deferred Income
Loan origination fees paid to the Company are deferred and amortized over
the terms of the respective loans. Upon prepayment of loans, loan
processing fees are recognized in full.
Furniture and Equipment
Furniture and equipment are carried at cost. The Company depreciates
furniture and equipment over the estimated useful life of 10 years using
the straight-line method except for computer equipment which is
depreciated under an accelerated method over five years.
Income Taxes
Effective April 1, 1996, the Company has elected to be taxed as a
regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code (the "Code"). If the Company, as a RIC, satisfies certain
requirements relating to the source of its income, the diversification of
its assets and the distribution of its net income, the Company is taxed as
a pass-through entity which acts as a partial conduit of income to its
shareholders.
In order to maintain its RIC status, the Company must in general: a)
derive at least 90% of its gross income from dividends, interest and gains
from the sale or disposition of securities b) meet investment
diversification requirements defined by the Code and c) distribute to
shareholders 90% of its net income (other than long-term capital gains).
Pursuant to Statement of Position 93-2, "Determination, Disclosure, and
Financial Statement Presentation of Income, Gain, and Return of Capital
Distributions by Investment Companies," ("SOP 93-2"), the Company may
periodically make reclassifications among certain of their capital
accounts as a result of timing and characterization of certain income and
capital gains distributions determined annually in accordance with federal
tax regulation.
CONTINUED
F-10
<PAGE>
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended March 31, 1999, 1998 and 1997
The reclassifications may result in reduction of capital. All
reclassifications have been reflected on the statements of changes in
shareholders' equity.
At March 31, 1999 and 1998, the aggregate gross unrealized depreciation of
investments was $1,098,390 and $1,102,500, respectively, and the aggregate
gross unrealized appreciation of investments was $25,612,463 and $293,497,
respectively, resulting in a net unrealized appreciation of $24,514,073
and a net unrealized depreciation of ($809,003), respectively.
Stock Options
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
("APB No. 25"). Under APB No. 25, compensation cost is measured as the
excess, if any, of the quoted market price of the Company's shares at the
date of grant over the exercise price of the option granted. No
compensation cost has been recognized in connection with the Company's
stock option plans. The Company provides additional pro forma disclosures
as required under Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock Based Compensation" (see Note 8).
Per Share Data
The Company adopted SFAS No. 128 "Earnings Per Share" which supersedes
Accounting Principles Board Opinion No. 15. Under SFAS No. 128, net
increase (decrease) in shareholders' equity per share is computed by
dividing net increase (decrease) in shareholders' equity by the weighted
average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock.
Risks and Uncertainties
Pursuant to Section 64(b)(1) of the Investment Company Act of 1940, the
Company is required to advise shareholders annually that the Company is
engaged in a high risk business. Loans and other investments to small
business concerns are extremely speculative. Most of such concerns are
privately held. Even if a public market for the securities of such
concerns exists, the loans and other securities purchased by the Company
are often restricted against sale or other transfer for specified periods
of time. Thus, such loans and other investments have little, if any,
liquidity, and the Company must bear significantly larger risks, including
possible losses on such investments, than would be the case with
traditional investment companies. The market value of public securities
may fluctuate significantly in response to several factors which are
beyond the Company's control.
CONTINUED
F-11
<PAGE>
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended March 31, 1999, 1998 and 1997
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expense during
the reporting period. The most significant estimates relate to the
valuation of non-public securities and restricted investments. Actual
results could differ from those estimates.
Newly Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No.133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. SFAS No. 133 is effective for all quarters of fiscal years
beginning after June 15, 2000. The Company believes the adoption of SFAS
No. 133 will not have a material impact on the financial statements.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash and Short-Term Marketable Securities
The carrying amount reported in the balance sheet for cash and short-term
marketable securities approximates fair value.
Debentures payable to the U.S. Small Business Administration
The carrying amount of the Company's debentures payable to the SBA
approximates fair value.
CONTINUED
F-12
<PAGE>
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended March 31, 1999, 1998 and 1997
4. DEBENTURES PAYABLE TO THE U.S. SMALL BUSINESS ADMINISTRATION:
Debentures payable to the SBA at March 31, 1999, with interest payable
semi-annually, consist of the following:
INTEREST RATE
AMOUNT DUE DATE (PER ANNUM)
--------------- --------------- -------------------
$ 300,000 6/1/99 8.950%
450,000 9/1/99 8.800%
300,000 6/1/00 9.300%
900,000 9/1/01 8.330%
750,000 9/1/05 6.875%
600,000 9/1/05 6.875%
5,000,000 6/1/06 7.710%
3,000,000 3/1/09 6.240%
4,000,000 3/1/09 6.240%
---------------
$ 15,300,000
===============
Under the terms of the debentures, the Company may not repurchase or
retire any of its capital stock, make any distributions to its
shareholders other than dividends out of retained earnings pursuant to SBA
regulations or increase officers' salaries without the prior written
approval of the SBA. In January 1998, the Company paid a non-refundable
commitment fee of $100,000 to the Small Business Administration to reserve
$10,000,000 of SBA Guaranteed Debentures through September 30, 2002. An
additional fee of $175,000 has been deducted with the draw down in January
1999 of $7,000,000 of SBA Debentures.
5. SUBORDINATED DEBENTURES:
In October 1995, in conjunction with its public offering of common stock,
the Company issued 6.5% subordinated debentures due in 2000 with warrants
attached. The debentures are unsecured, have no sinking fund provision and
are not issued under a trust agreement. At March 31, 1999 and 1998, the
debentures are carried, net of unamortized discount, as follows:
1999 1998
---------- -----------
Face value of debentures $1,089,000 $ 1,089,000
Less, unamortized discount 64,660 105,498
---------- -----------
$1,024,340 $ 983,502
========== ===========
CONTINUED
F-13
<PAGE>
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended March 31, 1999, 1998 and 1997
The debentures have been discounted to yield an effective interest rate of
8.0%. The warrants issued in connection with the unit offering were valued
at $.25 per warrant and expired on October 25, 1997.
6. TRANSACTIONS WITH AFFILIATES:
Mr. Stanley M. Pechman, the Company's former President, and Maple
Investors, Inc., a corporation whose shares are held in trust for members
of Stanley M. Pechman's family have on occasion participated with the
Company in portfolio investments. During 1999, 1998 and 1997, Mr. Pechman
and Maple Investors, Inc. were participants in loans of approximately
$86,000, $88,000, and $93,000, respectively. During the year ended March
31, 1998, certain officers and directors of the Company acquired
participations totaling $435,000 as part of a loan of $2,000,000 made to a
portfolio company which was satisfied by year end; the Company and all the
other participants received a beneficial interest in a warrant from such
Company, and they exercised the warrant in the year ended March 31, 1999
and received common stock.
7. COMMITMENTS:
The Company has operating leases on real property expiring through
November 30, 2002 with aggregate minimum rental commitments as follows:
FISCAL
YEAR ENDING MARCH 31,
------------- --------------
2000 $ 38,625
2001 39,988
2002 41,406
2003 28,251
--------------
$ 148,270
==============
Rent expense was $38,948, $35,579 and $38,274 for the years ended March
31, 1999, 1998 and 1997, respectively.
CONTINUED
F-14
<PAGE>
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended March 31, 1999, 1998 and 1997
8. STOCK OPTION PLAN:
In October 1995 and amended by shareholder vote in September 1997, the
Company adopted the 1995 stock option plan (the "Plan") by which 1,250,000
shares of common stock were reserved pursuant to the Plan. Under the Plan,
options intended to qualify as "incentive stock options" under Section 422
of the Code ("Qualified Options"), options not intended to qualify, stock
appreciation rights ("SARs") and shares of Restricted Common Stock may be
granted or issued.
Qualified Options granted to Eligible Employees under the Plan will be
exercisable at a price equal to the fair market value of the shares at the
time the Qualified Option is granted, or, if no such market value is
determinable, at the current net asset value of such shares, except with
respect to options granted to any employee who owns 10% or more of the
outstanding stock of the Company (a "10% stockholder"), the exercise price
may not be less than 110% of the current fair market value of the common
stock. If the aggregate fair market value (determined at the time the
Qualified Option is granted) of the shares exercisable for the first time
by any grantee during any calendar year exceeds $100,000, such excess
shares may not be treated as a Qualified Option. No Qualified Option may
be exercised more than 10 years after the date on which it is granted,
except that such period may not exceed five years in the case of an option
granted to a 10% stockholder.
Options not intended to qualify as "incentive stock options" under the
Code may be granted to Eligible Employees under the Plan and shall have
such exercise prices and such other terms and conditions as the Committee
may determine in its discretion, subject to the requirements of the 1940
Act.
The Plan is administered by the Board of Directors. The Board of Directors
will determine who is eligible to participate in the Plan and the number
of shares, if any, on which options are to be granted, the SARs, if any,
to be granted with respect to such options and the shares of restricted
Common Stock, if any, to be issued, to eligible parties.
Options granted under the Plan will not be transferable, other than by the
laws of descent and distribution, and during the grantee's life may be
exercised only by such grantee. All rights to exercise options will
terminate upon termination for cause of the holder's employment or
directorship.
The Plan also provides that shares of restricted Common Stock may be
granted to eligible employees on such terms and in such amounts as the
Committee determines. Such shares of Stock will be issued under a written
agreement which will contain restrictions on transfers thereof as may be
required by law and as the Committee may determine in its discretion.
CONTINUED
F-15
<PAGE>
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended March 31, 1999, 1998 and 1997
The Plan will terminate when there have been granted shares of Common
Stock and options on the total number of shares authorized by the Plan or
by action of the Board of Directors, but in no event later than June 12,
2005. The authorized number of shares may be increased, and the Plan's
date of termination may be extended, only by shareholder action.
Stock option transactions are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------- -------------------------
Shares Average Shares Average Shares Average
----------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1,249,572 1.16 458,572 $ 1.24 438,572 $ 1.23
Granted -- 791,000 1.11 20,000 1.53
Expired (64,286) 1.16
---------- ----------- -----------
Balance, March 31, 1,185,286 1.16 1,249,572 1.16 458,572 1.24
========== =========== ===========
Options
exercisable at March 31, 1,101,286 1.12 980,572 1.13 434,572 1.17
========== =========== ===========
</TABLE>
The Company applied the intrinsic value based method permitted by SFAS 123
in accounting for its stock-based compensation plans and awards.
Accordingly, no compensation expense has been recognized since the options
were granted with exercise prices equal to the market value of the common
stock on the date of grant. As of March 31, 1999 several options expired
but no options have been exercised.
Had the Company measured compensation expense under the fair value based
method for the stock options granted in 1999, 1998 and 1997, the Company's
net income and net income per share would have been reduced to the pro
forma amounts indicated below:
1999 1998 1997
------------ ------------ ----------
Net income - as reported $ 24,851,771 $ (1,984,474) $ 344,552
Net income - pro forma $ 24,851,771 $ (2,381,208) $ 332,435
Net income per share - as reported $ 4.95 $ (.40) $ .07
Net income per share - pro forma $ 4.95 $ (.47) $ .06
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants - expected volatility of 40%; risk-free
interest rate of approximately 6.1%; and expected lives ranging from 3 to
6 years.
CONTINUED
F-16
<PAGE>
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended March 31, 1999, 1998 and 1997
9. CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash of $3,427,719 at
March 31, 1999, invested with banks and which balances at times exceed
insurable limits.
10. EARNINGS (LOSS) PER COMMON SHARE:
The reconciliation of basic and diluted earnings (loss) per common share
computation is as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
1999 1998 1997
---------- ------------ ----------
<S> <C> <C> <C>
Basic and diluted earnings (loss) per common share
Net earnings (loss) available for common stock
equivalent shares deemed to have a dilutive effect $24,851,771 $(1,984,474) $ 344,552
========== =========== ==========
Earnings (loss) per common share
Basic $ 4.95 $ (0.40) $ 0.07
========== =========== ==========
Diluted $ 4.54 $ (0.40) $ 0.07
========== =========== ==========
Shares used in computation:
Basic
Weighted average common shares 5,023,361 5,023,361 5,023,361
========== =========== ==========
Diluted:
Weighted average common shares 5,023,361 5,023,361 5,023,361
========== =========== ==========
Common stock equivalents 453,300 (A) 191,932
---------- ----------- ----------
5,476,661 5,023,361 5,215,293
========== =========== ==========
</TABLE>
(A) For the year ended March 31, 1998 the effect of exercising the
outstanding stock options would have been antidilutive and,
therefore, the use of common stock equivalent shares was not
considered.
CONTINUED
F-17
<PAGE>
WINFIELD CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended March 31, 1999, 1998 and 1997
11. SUBSEQUENT EVENTS:
Subsequent to March 31, 1999, the Company borrowed $3,000,000 from the SBA
under the five year $10,000,000 commitment by the SBA (see Note 4).
Subsequent to March 31, 1999, the Company made six new equity investments
totaling approximately $2,544,000 (including $500,000 in Commerce One,
Inc., $516,000 in Modacad, Inc., $750,000 in Bluestone Software, Inc., and
$500,000 in Pseudo Programs, Inc.).
F-18
<PAGE>
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999
LOANS AND NOTES RECEIVABLES
<TABLE>
<CAPTION>
Loan % of
Maturity Interest Total
Company Name Industry Date Rate(%) Cost Value Investments
- ------------------------------------- ----------------- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
LOANS
Bob's Auto Body Shop (a) Auto Repairs 01-Mar-98 15.00 $ 10,023 $ 10,023 0.0%
Carpenito's Restaurant, Inc. (a)(d) Restaurant 01-Feb-01 12.00 135,563 135,563 0.3%
D&S Diner Rte 7 Cobleskill Diner Corp.(b) Restaurant 16-Oct-00 16.25 130,982 80,982 0.2%
Diversified Development, LLC Land Development 20-Jun-01 14.00 600,000 600,000 1.3%
Diversified Development, LLC Land Development 20-Jun-01 16.00 430,000 430,000 0.9%
Francis A. Lee, Inc. (a) Construction 01-Sep-97 15.00 66,186 56,186 0.1%
H. Lockings Corp. (a) Food Service 19-Jul-95 16.25 33,016 33,016 0.1%
HPA Monon Corp. Trailer Manufacturer 15-May-02 12.00 2,000,000 2,000,000 4.4%
Improved Drinking Water & Pool Co. (a) Swimming Pools 31-Dec-99 12.00 20,805 10,805 0.0%
Jerusalem Refrigeration Corp. Refrigeration 01-May-00 15.50 24,725 24,725 0.1%
NAI Technologies, Inc. (d) Computer Systems 15-Jan-01 12.00 400,000 400,000 0.9%
No-Name Deli/Grocery, Inc. (a) Food Service 28-Jul-93 16.50 142,928 52,928 0.1%
Phone Management Enterprises, Inc.(a) Communication 15-Aug-95 None 64,448 44,448 0.1%
Senior Housing Concepts Assisted Living 12-Mar-00 18.00 800,000 800,000 1.8%
NOTES RECEIVABLE
Barrier Motor Fuels, Inc. (d) Gas Retailing 01-Apr-99 15.00 112,688 112,688 0.2%
Gabriel Lamanna Real Estate 01-Mar-04 11.50 80,681 80,681 0.2%
Gisante Realty Corp. (a) Real Estate 08-Mar-96 11.00 12,962 0 0.0%
957 South Elmora, Inc. (a) Real Estate 01-Dec-04 7.50 103,280 103,280 0.2%
Vassar Development Corp. Real Estate 07-Apr-03 10.00 159,032 159,032 0.4%
------------ ------------ ------------
Total Loans and Notes Receivable $ 5,327,319 $ 5,134,357 11.3%
============ ============ ============
<FN>
(a) non-income producing or past due as to required principal and/or interest
(b) foreclosed upon during the year
(c) foreclosed upon subsequent to year end
(d) repaid subsequent to year end
</FN>
</TABLE>
See accompanying notes to the financial statements.
F-19
<PAGE>
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
LOANS AND NOTES RECEIVABLES
<TABLE>
<CAPTION>
Loan % of
Maturity Interest Total
Company Name Industry Date Rate(%) Cost Value Investments
- ------------------------------------- ----------------- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
LOANS
Bob's Auto Body Shop (a) Auto Repairs 01-Mar-98 15.50 $ 23,126 $ 23,126 0.2%
Buona Pasta, Ltd. (d) Food Service 31-Mar-98 12.00 57,775 57,775 0.4%
Carpenito's Restaurant, Inc. (a) Restaurant 01-Feb-01 12.00 149,382 119,382 0.9%
Cyberian Outpost Inc. (d) On-line Computer
Retailer 31-Oct-98 12.50 750,000 750,000 5.6%
DIA Annapolitan Senior Living, LLC (d) Assisted Living 28-Oct-98 16.00 600,000 600,000 4.5%
DIA Odenton Senior Living, LLC (d) Assisted Living 10-Aug-98 12.00 330,000 330,000 2.5%
D&S Diner Rte 7 Cobleskill Diner Corp. Restaurant 16-Oct-00 16.25 96,371 96,371 0.7%
Diversified Development, LLC Land Development 20-Jun-01 14.00 600,000 600,000 4.5%
Diversified Development, LLC Land Development 20-Jun-01 16.00 430,000 430,000 3.2%
Fishmarket Inn, Inc. (a) Restaurant 01-May-93 15.75 147,746 32,746 0.2%
Francis A. Lee, Inc. (a) Construction 01-Sep-97 15.00 63,071 63,071 0.5%
Global Network Communications, Inc.(a) Communication 01-Jun-99 13.50 37,847 37,847 0.2%
H. Lockings Corp. (a) Food Service 19-Jul-95 16.25 40,145 40,145 0.3%
HPA Monon Corp. Trailer Manufacturer 15-May-02 12.00 2,000,000 2,000,000 15.0%
Improved Drinking Water & Pool Co. (a) Swimming Pools 31-Dec-99 12.00 21,555 11,555 0.1%
Jerusalem Refrigeration Corp. Refrigeration 01-May-00 15.50 42,668 42,668 0.3%
NAI Technologies, Inc. Computer Systems 15-Jan-01 12.00 400,000 400,000 3.0%
No-Name Deli/Grocery, Inc. (a) Food Service 28-Jul-93 16.50 138,036 63,036 0.5%
Phone Management Enterprises, Inc.(a) Communication 15-Aug-95 None 67,506 47,506 0.4%
Schiattin Realty Corp. (a) Construction 15-Oct-92 16.00 120,949 20,949 0.2%
NOTES RECEIVABLE
Barrier Motor Fuels, Inc. Gas Retailing 01-Aug-99 15.00 119,304 119,304 0.9%
Courtney Properties (d) Real Estate 01-Dec-00 10.00 330,000 330,000 2.5%
Gabriel Lamanna Real Estate 01-Apr-04 11.50 91,086 91,086 0.7%
Gisante Realty Corp. (a) Real Estate 08-Mar-96 11.00 12,962 12,962 0.1%
957 South Elmora, Inc. Real Estate 01-Dec-04 7.50 115,314 115,314 0.8%
Vassar Development Corp. Real Estate 07-Apr-03 10.00 164,032 164,032 1.2%
------------- ------------ --------------
Total Loans and Notes Receivable $ 6,948,875 $ 6,598,875 49.4%
============= ============ ==============
<FN>
(a) non-income producing or past due as to required principal and/or interest
(b) foreclosed upon during the year
(c) foreclosed upon subsequent to year end
(d) repaid subsequent to year end
</FN>
</TABLE>
See accompanying notes to the financial statements.
F-20
<PAGE>
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999
EQUITY INTERESTS
<TABLE>
<CAPTION>
Company Name Industry Number of Shares
- ---------------------------------- ---------------------- ------------------------------------------------
<S> <C> <C>
Alliance National, Inc. Office Rental 65,000 Shares, Unregistered Common Stock
Commerce One, Inc. Enterprise 258,005 Shares, Unregistered Series D
Procurement Software Preferred Stock
Cool Zone, Inc. Cooling Systems 40,000 Shares, Unregistered Common Stock
Creative Foods, Inc. Specialty Baking Warrant to Purchase Common Stock
(formerly Desserts & Cafes, Inc.)
Cyberian Outpost, Inc. (b) On-Line Computer 466,330 Shares, Unregistered Common Stock
Retailer (from Series B Preferred Stock)
375,000 Shares, Unregistered Common Stock
(from Series C Preferred Stock)
489,130 Shares, Unregistered Series B
Common Stock (from Series B Preferred)
79,395 shares of Unregistered Common Stock
(from exercise of warrants)
Diversified Development, LLC. Land Development Warrant to Purchase Common Stock
Dowling, Residences LLC. Dormitory Preferred Return Units
Management
DRS Technologies, Inc. (b) Computer Systems Warrant to purchase 25,000 shares of Common Stock
(bought NAI Technologies, Inc.) (from exchange of NAI Technologies, Inc. warrant)
HPA Monon Corp. Trailer Manufacturer 625,000 Shares, Unregistered Convertible
Preferred Stock
Improved Drinking Water Swimming Pools 12.75% Preferred Stock, convertible
& Pool Co. into Common Stock
Independence Brewing Brewing 949,941 Shares, Restricted Common Stock
Company (b)
Internet Gift Registries, Inc. On-line Gift Registry 50,000 Shares, Series B Preferred Stock
Warrant to purchase 60,000 shares of common stock
Juno Online Services, Inc. (a) Internet Service and 261,846 Unregistered Common Stock shares
E-mail Provider (from Series B Preferred Stock)
Mpath Interactive, Inc. (a) Manages and owns 227,273 Shares Unregistered Common Stock (from
On-Line Communities Series E Preferred Stock)
NAI Technologies, Inc. Computer Systems Convertible Note into 200,000 Shares of
(bought by DRS Technologies, Inc.) Common Stock
New York Restaurant Owns and Manages 16,920 Shares, Unregistered Series A
Group, Inc. Restaurants Preferred Stock
Panebello USA Specialty Baking 20.1943% of Class A equity
(subordinated to Class B equity)
PNV. Net, Inc. In-Cab Cable TV 93,750 Shares, Unregistered Series C
(formerly Park N'View Inc.) and Phone Service Preferred Stock
Prio, Inc. (formerly SaveSmart, Inc.) On-line promotions 116,279 Shares, Unregistered Series F
and incentives Preferred Stock
RoweCom Inc. (a)(b) Intranet Knowledge 153,676 Shares, Unregistered Common Stock
Subscriptions (from Series C Preferred Stock)
SynQuest, Inc. Enterprise 40,300 Shares, Unregistered Series G
Optimization Software Preferred Stock
TeraStor Corporation Data Storage 485,437 Shares, Unregistered Series E
Technology Preferred Stock
Vivid Semiconductor, Inc. Semi-Conductor 440,000 Shares, Unregistered Series E
Manufacturer Preferred Stock
79,366 Shares, Unregistered Series F-1
Preferred Stock
WorldGate On-Line Access 93,897 Shares Unregistered Common Stock (from
Communications, Inc. (a) VIA TV Series B Preferred Stock)
Total Equity Interests
<CAPTION>
Cost or % of
Contributed Total
Company Name Value Value Investments
- ---------------------------------- --------------- ---------------- ---------------
<S> <C> <C> <C>
Alliance National, Inc. $ $ 58,500 0.1%
Commerce One, Inc. 900,000 900,000 2.0%
Cool Zone, Inc. 200,000 100,000 0.2%
Creative Foods, Inc. 4,847 0.0%
(formerly Desserts & Cafes, Inc.)
Cyberian Outpost, Inc. (b) 715,040 8,289,016 18.3%
1,000,000 6,665,625 14.7%
Cyberian Outpost, Inc. 750,000 8,694,286 19.2%
254,930 1,411,246 3.1%
Diversified Development, LLC.
Dowling, Residences LLC. 250,325 250,325 0.6%
DRS Technologies, Inc. (b)
(bought NAI Technologies, Inc.)
HPA Monon Corp.
Improved Drinking Water 25,000
& Pool Co.
Independence Brewing 4,755 45,787 0.1%
Company (b)
Internet Gift Registries, Inc. 500,000 500,000 1.1%
Juno Online Services, Inc. (a) 1,678,711 1,678,711 3.7%
Mpath Interactive, Inc. (a) 1,500,001 1,500,001 3.3%
NAI Technologies, Inc.
(bought by DRS Technologies, Inc.)
New York Restaurant 163,278 163,278 0.4%
Group, Inc.
Panebello USA
PNV. Net, Inc. 750,000 750,000 1.7%
(formerly Park N'View Inc.)
Prio, Inc. (formerly SaveSmart, Inc.) 500,000 500,000 1.1%
RoweCom, Inc. (a)(b) 1,500,000 4,692,881 10.4%
SynQuest, Inc. 250,263 250,263 0.6%
TeraStor Corporation 500,000 500,000 1.1%
Vivid Semiconductor, Inc. 1,650,000 1,386,000 3.0%
250,003 250,003 0.6%
WorldGate 1,000,006 1,364,006 2.9%
Communications, Inc. (a)
---------------- ---------------- ---------------
Total Equity Interests $ 14,342,312 $ 39,954,775 88.2%
================ ================ ===============
<FN>
(a) Share numbers have been updated to reflect conversions and splits subsequent to March 31, 1999
(b) Publicly traded at March 31, 1999
</FN>
</TABLE>
See accompanying notes to the financial statements.
F-21
<PAGE>
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
EQUITY INTERESTS
<TABLE>
<CAPTION>
Cost or % of
Contributed Total
Company Name Industry Number of Shares Value Value Investments
- -------------------------- ----------------- --------------------------------- ---------------------------- -------------
<S> <C> <C> <C> <C> <C>
Alliance National, Inc. Office Rental 65,000 Shares, Unregistered $ 58,500 0.4%
Common Stock
Cool Zone, Inc. Cooling Systems 40,000 Shares, Unregistered $ 200,000 $ 200,000 1.5%
Common Stock
Creative Foods, Inc. Specialty Warrant to Purchase Common 9,000 0.1%
(formerly Desserts Baking Stock
& Cafes, Inc.)
Cyberian Outpost, Inc. On-Line Computer 155,443.47 Shares, Unregistered 715,040 715,040 5.4%
Retailer Preferred Series B Stock
125,000 Shares, Unregistered 1,000,000 1,000,000 7.5%
Preferred Series C Stock
Warrant to Purchase 44,687.50
shares of Unregistered Common
Stock
Diversified Development, Land Warrant to Purchase Common
LLC. Development Stock
Dowling Residences, Dormitory Preferred Return Units 250,325 250,325 1.9%
LLC. Management
HPA Monon Corp. Trailer 625,000 Shares, Unregistered
Manufacturer convertible Preferred Stock
Improved Drinking Water Swimming Pools 12.75% Preferred Stock 25,000
& Pool Co. convertible into Common Stock
Independence Brewing Brewing 949,941 Shares, Restricted 4,755 55,752 0.4%
Company (b) Common Stock
NAI Technologies, Inc. (b) Computer Convertible Note into 200,000 Shares 200,000 1.5%
Systems of Common Stock, Warrant to
Purchase 100,000 Shares of
Common Stock
New York Restaurant Owns and 16,920 Shares, Unregistered 163,278 163,278 1.2%
Group, Inc. Manages Series A Preferred Stock
Restaurants
Panebello USA Specialty 20.1943% of Class A equity
Baking (subordinated to Class B equity)
Park N'View, Inc. In-Cab Cable 93,750 Shares, Unregistered 750,000 750,000 5.6%
TV and Phone Series C Preferred Stock
Service
Vivid Semiconductor, Inc. Semi-Conductor 440,000 Shares, Unregistered 1,650,000 1,650,000 12.3%
Manufacturer Series E Preferred Stock
WorldGate On-Line Access 140,846 Shares, Unregistered 1,000,006 1,000,006 7.5%
Communications, Inc. via TV Series B Preferred Stock
-------------- ------------- -------------
Total Equity Interests $ 5,758,404 $ 6,051,901 45.3%
============== ============= =============
<FN>
(b) Publicly traded at March 31, 1998
</FN>
</TABLE>
See accompanying notes to the financial statements.
F-22
<PAGE>
WINFIELD CAPITAL CORP.
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999 AND 1998
ASSETS ACQUIRED IN LIQUIDATION
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------------------------
% of Total
Company Name Cost Value Investments
- ------------------------------------------ --------------- --------------- ---------------
<S> <C> <C> <C>
Maypat Realty Corp. $ 162,063 $ 77,063 0.2%
Panebello USA 802,928 0 0.0%
The Partition Corp. 137,816 137,816 0.3%
Suburban Enterprises, Inc. 24,707 7,207 0.0%
--------------- --------------- ---------------
Total Assets Acquired in Liquidation $ 1,127,514 $ 222,086 0.5%
=============== =============== ===============
March 31, 1998
----------------------------------------------------
% of Total
Company Name Cost Value Investments
- ------------------------------------------ --------------- --------------- ---------------
Bashert Enterprises, Inc. $ 208,197 $ 158,197 1.1%
Hall Diner 104,907 19,907 0.1%
Keystone Terminal Operating Corp. 32,317 17,317 0.1%
Maypat Realty Corp. 162,063 77,063 0.6%
Panebello USA 802,928 302,928 2.3%
The Partition Corp. 131,317 131,317 1.0%
Suburban Enterprises, Inc. 24,706 7,206 0.1%
--------------- --------------- ---------------
Total Assets Acquired in Liquidation $ 1,466,435 $ 713,935 5.3%
=============== =============== ===============
</TABLE>
See accompanying notes to the financial statements.
F-23
WINFIELD CAPITAL CORP.
237 MAMARONECK AVENUE
WHITE PLAINS, NEW YORK 10605
(914) 949-2600
November 1, 1998
Mr. Paul A. Perlin
c/o Winfield Capital Corp.
237 Mamaroneck Avenue
White Plains, New York 10605
Dear Mr. Perlin:
This letter (the "Agreement") sets forth the agreement between you
and Winfield Capital Corp. (the "Company"), pursuant to which you are to
continue to be employed as Chief Executive Officer of the Company.
1. TERM. The term of this Agreement shall commence on the date
hereof (the "Effective Date") and shall continue until the close of business on
the day immediately preceding the two (2) year anniversary of the Effective Date
unless it is sooner terminated as provided herein.
2. NATURE OF ENGAGEMENT. You shall serve as part of the executive
management team of the Company and as the Company's Chief Executive Officer and
in that connection you shall perform such functions and duties commensurate with
the office of Chief Executive Officer which the Board of Directors may
reasonably assign to you from time to time.
3. SCOPE OF EMPLOYMENT. You will devote substantially all of your
time and efforts during normal business hours (other than vacation periods) to
the business of the Company; it being understood by the Company that you may be
on a regular basis engaging in other non-competitive business activities;
provided, however, that you may not make investments and/or loans that qualify
as the type of transaction that the Company, as a small business investment
company, may conclude, except as otherwise permitted pursuant to formal or
informal policies of the Company; and further provided, that you may not own, as
an investment, publicly traded securities of any corporation or other entity
which competes with the business of the Company if such securities, in the
aggregate, constitute more than 5% of any class of outstanding securities of
such corporation or other entity.
4. COMPENSATION.
(a) GENERAL. In consideration of your obligations hereunder,
the Company shall pay you a salary (the "Salary") at the rate of Two Hundred
Twenty-Five
- 1 -
<PAGE>
Thousand Dollars ($225,000) for the first twelve-month period hereunder, and at
the rate of Two Hundred Forty-Three Thousand Dollars ($243,000) for the second
twelve-month period hereunder, and in such case plus other benefits as are set
forth in Paragraph 6 of this Agreement.
(b) PAYMENT. Your Salary shall be payable at the annual rate
during the term hereof in equal installments not less frequently than monthly
and shall be subject to withholding for federal income taxes, social security
and where applicable, state and city income, unemployment compensation and all
other applicable taxes.
(c) DISABILITY. Disability is defined as a physical or mental
illness, incapacity or infirmity as the result of which you are unable to
perform your duties hereunder for a continuing period of at least six (6)
months, which physical or mental illness, incapacity or infirmity shall be
determined by a reputable licensed physician selected by you and approved by the
Company and who is Board-certified in the specialty most closely related to the
nature of the mental and/or physical disability alleged to exist.
5. AUTOMOBILE. Either on a purchase or lease basis (subject to a
maximum lease price of $750 a month plus excess lease mileage charges), the
Company will provide and maintain for your use during the term of this Agreement
one new automobile. The Company shall pay for automobile insurance, gasoline,
repair, garaging and upkeep expenses.
6. OTHER BENEFITS.
(a) BENEFIT PLAN. You shall be entitled to participate in all
pension, insurance, medical, disability, 401(k) and other employee benefit plans
and programs generally provided by the Company to its executive officers from
time to time. The Company shall pay the premiums on all major medical insurance
policies covering you and the members of your immediate family while you are
employed hereunder and will provide you with accident, health and life insurance
comparable to that maintained by the Company for its executive officers. In the
absence of any such plan, the Company will reimburse you for your costs in
obtaining medical, health and disability benefits. The Company will at all times
maintain for the benefit of your designated beneficiaries term life insurance on
your life in an amount equal to no less than $1,000,000, or, in lieu thereof, at
your option, pay an amount equal to the annual premium due on such term life
insurance to an insurance company of your choice with respect to any policy on
your life as you may designate.
(b) VACATION. You shall be entitled to six (6) weeks paid
vacation in each twelve-month period during the term hereof at such time as
shall be convenient for the Company and you. You shall be entitled to the
benefits of the Company's policies involving sick leave and holidays.
(c) EXPENSES. The Company shall pay or reimburse you for all
reasonable expenses paid by you during the term of this Agreement in the
performance of your duties hereunder (including, but not limited to, legal fees
incurred by you in connection with the execution of this Agreement and any fees
incurred, legal or otherwise, relating to enforcement of
- 2 -
<PAGE>
this Agreement), upon presentation of expense statements or vouchers or such
other supporting information as the Company may reasonably require from time to
time.
(d) SUPPORT STAFF. You will be entitled to receive
secretarial, clerical and other support services from the Company, including,
but not limited to, a private office.
(e) BONUS PLANS AND STOCK OPTION PLANS. If the Company adopts
any bonus plans and/or stock option plans that includes executive officers of
the Company, you will be eligible to participate in such plans on an equitable
basis.
7. TERMINATION.
(a) BY THE COMPANY "FOR CAUSE". If the Company terminates your
employment "for cause" you will be entitled to receive: (i) your accrued Salary
for the period ending on the effective date of the termination of your
employment, which amount shall be payable in the manner described in Paragraph
4(b); and (ii) any other compensation or benefit under any plan maintained by
the Company for its executive officers, and in which you were participating at
the time your employment was terminated, but only in accordance with the terms
of such plans.
(b) DEATH. If you die during the term of your employment
hereunder, the Company will pay your personal representatives, legatee,
appointee or distributee, as the case may be: (i) a $5,000 lump sum death
benefit payable within 30 days of the date of your death; (ii) your accrued
Salary for the period ending on the last day of the month in which your death
occurs which amount shall be payable in the manner described in Paragraph 4(b);
and (iii) any other compensation or benefit under any plan maintained by the
Company for its executive officers and in which you were participating at the
time of your death, but only in accordance with the terms of such plans.
(c) DISABILITY. Either you or the Company may terminate your
employment hereunder as a result of a Disability. If your employment is
terminated pursuant to this Paragraph 7(c), you will be entitled to receive: (i)
your accrued Salary paid in accordance with the provisions of Paragraph 4(b) for
the period ending on the effective date of the termination of your employment;
and (ii) any other compensation or benefit under any plan maintained by the
Company for its executive officers and in which you are participating, but only
in accordance with the terms of such plans.
(d) BY YOU. If you voluntarily terminate your employment with
the Company for any reason other than (i) as a result of your Disability
pursuant to Paragraph 7(c) or (ii) pursuant to Paragraph 8(a), you shall be
entitled to receive: (x) your accrued Salary for the period ending on the
effective date of the termination of your employment which amount shall be
payable in the manner described in Paragraph 4(b); and (y) any other
compensation or benefit under any plan maintained by the Company for its
executive officers, and in which you are participating, but only in accordance
with the terms of such plans.
- 3 -
<PAGE>
(e) BY THE COMPANY FOR ANY REASON OTHER THAN DEATH, DISABILITY
OR "FOR CAUSE" OR BY YOU PURSUANT TO PARAGRAPH 8(a). If the Company terminates
your employment for any reason other than Death, "for cause," or for Disability
pursuant to Paragraph 7(c), or if you terminate your employment with the Company
pursuant to Paragraph 8(a), you shall be entitled to receive: (i) your accrued
Salary for the period ending on the effective date of the termination of your
employment which amount shall be payable in the manner described in Paragraph
4(b); (ii) an amount equal to the balance of your Salary as provided under
Paragraph 4 for the remaining term of the Agreement commencing on the effective
date of the termination of your employment and ending on the Expiration Date;
and (iii) any other compensation or benefits under any plan maintained by the
Company for its executive officers, and in which you were participating at the
time your employment was terminated, but only in accordance with the terms of
such plans and programs. The amounts to which you shall be entitled under this
subparagraph (e) shall be paid to you in a lump sum within 10 days after the
termination of your employment; such amounts shall be deemed damages and not a
penalty.
(f) "FOR CAUSE". As used in this Agreement, the following
actions or events shall be the exclusive grounds for termination of your
employment "for cause": (i) your failure or refusal to perform your duties
hereunder (other than a failure or refusal resulting from your incapacity due to
physical and/or mental illness), which continues for a period of more than
twenty days after written notice by the Company to you of the acts constituting
such failure or refusal and provided that you are given an opportunity to
present such matter to the Board, (ii) your conviction of a felony directly and
materially affecting the Company, (iii) your inability to perform your duties
hereunder as a result of chronic alcoholism or drug addiction, (iv) your
conviction or any crime of dishonesty or theft involving the Company, or (v)
your gross negligence or willful misconduct.
8. ADDITIONAL PROVISIONS APPLICABLE TO TERMINATION.
(a) CERTAIN EVENTS CONSTITUTING TERMINATION WITHOUT CAUSE. For
purposes of Paragraph 7(e) hereof, you will be entitled to elect that the
Company shall have terminated your employment without cause upon the happening
of any of the following events: (i) a substantial diminution in your duties from
those currently performed by you, (ii) a substantial reduction in your authority
from that then currently exercised by you, (iii) a change in control of the
Company, whether it is caused by the acquisition of a majority of the
outstanding shares of Common Stock of the Company or a change in a majority of
the directors of the Company, to which you object, or (iv) any material failure
(other than a failure to make payments) by the Company to comply with any of the
provisions of this Agreement, which change or failure, as the case may be,
continues unremedied for thirty (30) days after you have given the Board written
notice of such change or failure which notice specifies in detail the change or
failure, as the case may be. You shall evidence such election by notice in
writing to the Company within 30 days after you receive notification of any of
such events; conversely, if you have concluded in good faith that any of the
events referred to in clauses (i) through (iv) hereof shall have occurred, you
shall be entitled to serve notice upon the Company and termination will be
deemed to have occurred under this subparagraph (a) if cure shall not have been
effected within 30 days after such notice.
- 4 -
<PAGE>
(b) NOTICE. Except in the case of termination "for cause"
which shall be effective immediately upon written notice thereof which
notification shall state the reasons for such termination, the party desiring to
terminate your employment hereunder shall notify the other party hereto in
writing at least 60 days before the effective date of the termination of your
employment hereunder which notification shall state the reasons for such
termination and the effective date of the termination of your employment.
9. CONFIDENTIALITY.
(a) Except as required by subpoena or judicial edict, during
your employment hereunder and thereafter for one year, you will not disclose,
communicate or divulge to any person (other than to officers or employees of the
Company whose duties require such knowledge or to officers or employees of other
entities if the purpose of such disclosure is to further the Company's business
with such entities and is reasonably required therefor) or use for your personal
benefit or the benefit of anyone other than the Company, any confidential
information employed in or proposed to be employed in the Company's business
which comes to or came to your knowledge in the course of or by reason of your
prior employment by the Company and which is not otherwise in the public domain.
(b) Upon the termination of your employment hereunder, you
promptly will deliver to the Company all memoranda records, reports and other
documents (and all copies thereof) relating to the Company's business, which you
may then possess or have under your control.
10. ADDITIONAL PROVISIONS.
(a) NON-ASSIGNABILITY. Neither you nor the Company may assign
this Agreement without the consent of the other party hereto.
(b) INTEREST. If the Company fails to pay you the compensation
provided in Paragraph 7 when due, all unpaid amounts owed by the Company to you
under such paragraph of this agreement shall bear interest at the lower of (i)
the rate of 2% over the rate publicly announced, from time to time, by The Chase
Manhattan Bank, N.A. in New York, New York as its "prime rate" or (ii) the
highest rate permitted by law, from the date due until paid.
(c) NOTICES. All notices or statements required or permitted
to be given hereunder shall be in writing and shall be given either personally,
or by mailing the same in a sealed envelope, first-class mail, postage prepaid
and either certified or registered, return receipt requested, addressed to the
Company at its principal offices and to you at your address set forth on page 1
hereof or at such other address as either party shall designate by notice to the
other in the manner provided herein for giving notice. All notices and
statements shall be deemed to have been given (i) on the date of delivery, if
delivered personally; (ii) one business day after delivery to a nationally
recognized courier service if marked for next business day delivery; or (iii)
five business days after the date of mailing, if mailed.
- 5 -
<PAGE>
(d) INJUNCTION. You agree that violations of Paragraph 9 may
cause irreparable injury to the Company for which the remedy at law is not
adequate, and the Company shall be entitled to preliminary, permanent and other
injunctive relief against any breach of the provisions of Paragraph 9.
(e) ARBITRATION. Except as provided in subparagraph (d)
hereof, any dispute or controversy arising out of or relating to this Agreement,
or any breach of this Agreement, shall be settled by arbitration to be held in
the City of New York in accordance with the rules then in effect of the American
Arbitration Association or any successor thereto. The arbitrator may grant
injunctive or other relief in such dispute or controversy. The decision of the
arbitrator shall be final, conclusive, and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction, and the parties irrevocably consent to the jurisdiction of
the New York State courts for this purpose. In any such arbitration, the parties
waive personal service of any process or other papers and agree that service
thereof may be made in accordance with Paragraph 10(c).
(f) AMENDMENTS. This Agreement may not be changed, amended,
terminated or superseded orally, but only by an agreement in writing, nor may
any of the provisions hereof be waived orally, but only by an instrument in
writing, in any such case signed by the party against whom enforcement of any
change, amendment, termination, waiver, modification, extension or discharge is
sought.
(g) HEADINGS. All descriptive headings of the several
paragraphs or subclauses of this Agreement are inserted for convenience only and
shall be given no effect in the construction of this Agreement.
(h) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(i) SEVERABILITY. If any provision of this Agreement, or part
thereof, is held to be unenforceable, the remainder of this Agreement and
provision, as the case may be, shall nevertheless remain in full force and
effect.
(j) ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the Company and you with respect to the
subject matter hereof.
(k) GOVERNING LAW. This Agreement and all of the provisions
hereof will be governed by and construed and enforced in accordance with the
laws of the State of New York as an agreement made and to be performed entirely
within such State.
(l) INDEMNIFICATION. For so long as you are an officer of the
Company, the Company shall not amend its bylaws or Certificate of Incorporation
so as to amend its existing policies as to indemnification of officers and
directors of the Company
- 6 -
<PAGE>
without your prior written consent; provided that you shall be deemed to have
given such consent with respect to any such amendment as may be required by law,
rule or regulation applicable to the Company.
If the foregoing is acceptable to you, kindly execute a copy of this
letter and return it to the Company, whereupon it shall become binding upon you
and the Company.
Very truly yours,
WINFIELD CAPITAL CORP.
By: /s/ DAVID GREENBERG
-------------------
David Greenberg
Managing Director
ACKNOWLEDGED AND
AGREED TO THIS 24TH DAY
OF JUNE, 1999, EFFECTIVE
AS OF THE EFFECTIVE DATE
By: /s/ PAUL A. PERLIN
--------------------
Paul A. Perlin
- 7 -
WINFIELD CAPITAL CORP.
237 MAMARONECK AVENUE
WHITE PLAINS, NEW YORK 10605
(914) 949-2600
November 1, 1998
Mr. David Greenberg
c/o Winfield Capital Corp.
237 Mamaroneck Avenue
White Plains, New York 10605
Dear Mr. Greenberg:
This letter (the "Agreement") sets forth the agreement between you
and Winfield Capital Corp. (the "Company"), pursuant to which you are to be
employed as a Managing Director of the Company.
1. TERM. The term of this Agreement shall commence on the date
hereof (the "Effective Date") and shall continue until the close of business on
the day immediately preceding the two (2) year anniversary of the Effective Date
unless it is sooner terminated as provided herein.
2. NATURE OF ENGAGEMENT. You shall serve as part of the executive
management team of the Company and as a Managing Director of the Company, and in
that connection you shall perform such functions and duties commensurate with
the office of a Managing Director which the Board of Directors may reasonably
assign to you from time to time, including, but not limited to, soliciting,
reviewing and recommending investment opportunities for the Company.
3. SCOPE OF EMPLOYMENT. You will devote substantially all of your
time and efforts during normal business hours (other than vacation periods) to
the business of the Company; it being understood by the Company that you may be
on a regular basis engaging in other non-competitive business activities;
provided, however, that you may not make investments and/or loans that qualify
as the type of transaction that the Company, as a small business investment
company, may conclude, except as otherwise permitted pursuant to formal or
informal policies of the Company; and further provided, that you may not own, as
an investment, publicly traded securities of any corporation or other entity
which competes with the business of the Company if such securities, in the
aggregate, constitute more than 5% of any class of outstanding securities of
such corporation or other entity.
4. COMPENSATION.
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<PAGE>
(a) GENERAL. In consideration of your obligations hereunder,
the Company shall pay you a salary (the "Salary") at the rate of One Hundred
Ninety-Eight Thousand Dollars ($198,000) for the first twelve-month period
hereunder, and at the rate of Two Hundred Seven Thousand Nine Hundred Dollars
($207,900) for the second twelve-month period hereunder, and in such case plus
other benefits as are set forth in Paragraph 6 of this Agreement.
(b) PAYMENT. Your Salary shall be payable at the annual rate
during the term hereof in equal installments not less frequently than monthly
and shall be subject to withholding for federal income taxes, social security
and where applicable, state and city income, unemployment compensation and all
other applicable taxes.
(c) DISABILITY. Disability is defined as a physical or mental
illness, incapacity or infirmity as the result of which you are unable to
perform your duties hereunder for a continuing period of at least six (6)
months, which physical or mental illness, incapacity or infirmity shall be
determined by a reputable licensed physician selected by you and approved by the
Company and who is Board-certified in the specialty most closely related to the
nature of the mental and/or physical disability alleged to exist.
5. AUTOMOBILE. Either on a purchase or lease basis (subject to a
maximum lease price of $750 a month plus excess lease mileage charges), the
Company will provide and maintain for your use during the term of this Agreement
one new automobile. The Company shall pay for automobile insurance, gasoline,
repair, garaging and upkeep expenses.
6. OTHER BENEFITS.
(a) BENEFIT PLAN. You shall be entitled to participate in all
pension, insurance, medical, disability, 401(k) and other employee benefit plans
and programs generally provided by the Company to its executive officers from
time to time. The Company shall pay the premiums on all major medical insurance
policies covering you and the members of your immediate family while you are
employed hereunder and will provide you with accident, health and life insurance
comparable to that maintained by the Company for its executive officers. In the
absence of any such plan, the Company will reimburse you for your costs in
obtaining medical, health and disability benefits. The Company will at all times
maintain for the benefit of your designated beneficiaries term life insurance on
your life in an amount equal to no less than $1,000,000, or, in lieu thereof, at
your option, pay an amount equal to the annual premium due on such term life
insurance to an insurance company of your choice with respect to any policy on
your life as you may designate.
(b) VACATION. You shall be entitled to six (6) weeks paid
vacation in each twelve-month period during the term hereof at such time as
shall be convenient for the Company and you. You shall be entitled to the
benefits of the Company's policies involving sick leave and holidays.
(c) EXPENSES. The Company shall pay or reimburse you for all
reasonable expenses paid by you during the term of this Agreement in the
performance of your
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<PAGE>
duties hereunder (including, but not limited to, legal fees incurred by you in
connection with the execution of this Agreement and any fees incurred, legal or
otherwise, relating to enforcement of this Agreement), upon presentation of
expense statements or vouchers or such other supporting information as the
Company may reasonably require from time to time.
(d) SUPPORT STAFF. You will be entitled to receive
secretarial, clerical and other support services from the Company, including,
but not limited to, a private office.
(e) BONUS PLANS AND STOCK OPTION PLANS. If the Company adopts
any bonus plans and/or stock option plans that includes executive officers of
the Company, you will be eligible to participate in such plans on an equitable
basis.
7. TERMINATION.
(a) BY THE COMPANY "FOR CAUSE". If the Company terminates your
employment "for cause" you will be entitled to receive: (i) your accrued Salary
for the period ending on the effective date of the termination of your
employment, which amount shall be payable in the manner described in Paragraph
4(b); and (ii) any other compensation or benefit under any plan maintained by
the Company for its executive officers, and in which you were participating at
the time your employment was terminated, but only in accordance with the terms
of such plans.
(b) DEATH. If you die during the term of your employment
hereunder, the Company will pay your personal representatives, legatee,
appointee or distributee, as the case may be: (i) a $5,000 lump sum death
benefit payable within 30 days of the date of your death; (ii) your accrued
Salary for the period ending on the last day of the month in which your death
occurs which amount shall be payable in the manner described in Paragraph 4(b);
and (iii) any other compensation or benefit under any plan maintained by the
Company for its executive officers and in which you were participating at the
time of your death, but only in accordance with the terms of such plans.
(c) DISABILITY. Either you or the Company may terminate your
employment hereunder as a result of a Disability. If your employment is
terminated pursuant to this Paragraph 7(c), you will be entitled to receive: (i)
your accrued Salary paid in accordance with the provisions of Paragraph 4(b) for
the period ending on the effective date of the termination of your employment;
and (ii) any other compensation or benefit under any plan maintained by the
Company for its executive officers and in which you are participating, but only
in accordance with the terms of such plans.
(d) BY YOU. If you voluntarily terminate your employment with
the Company for any reason other than (i) as a result of your Disability
pursuant to Paragraph 7(c) or (ii) pursuant to Paragraph 8(a), you shall be
entitled to receive: (x) your accrued Salary for the period ending on the
effective date of the termination of your employment which amount shall be
payable in the manner described in Paragraph 4(b); and (y) any other
compensation or benefit
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<PAGE>
under any plan maintained by the Company for its executive officers, and in
which you are participating, but only in accordance with the terms of such
plans.
(e) BY THE COMPANY FOR ANY REASON OTHER THAN DEATH, DISABILITY
OR "FOR CAUSE" OR BY YOU PURSUANT TO PARAGRAPH 8(a). If the Company terminates
your employment for any reason other than Death, "for cause," or for Disability
pursuant to Paragraph 7(c), or if you terminate your employment with the Company
pursuant to Paragraph 8(a), you shall be entitled to receive: (i) your accrued
Salary for the period ending on the effective date of the termination of your
employment which amount shall be payable in the manner described in Paragraph
4(b); (ii) an amount equal to the balance of your Salary as provided under
Paragraph 4 for the remaining term of the Agreement commencing on the effective
date of the termination of your employment and ending on the Expiration Date;
and (iii) any other compensation or benefits under any plan maintained by the
Company for its executive officers, and in which you were participating at the
time your employment was terminated, but only in accordance with the terms of
such plans and programs. The amounts to which you shall be entitled under this
subparagraph (e) shall be paid to you in a lump sum within 10 days after the
termination of your employment; such amounts shall be deemed damages and not a
penalty.
(f) "FOR CAUSE". As used in this Agreement, the following
actions or events shall be the exclusive grounds for termination of your
employment "for cause": (i) your failure or refusal to perform your duties
hereunder (other than a failure or refusal resulting from your incapacity due to
physical and/or mental illness), which continues for a period of more than
twenty days after written notice by the Company to you of the acts constituting
such failure or refusal and provided that you are given an opportunity to
present such matter to the Board, (ii) your conviction of a felony directly and
materially affecting the Company, (iii) your inability to perform your duties
hereunder as a result of chronic alcoholism or drug addiction, (iv) your
conviction or any crime of dishonesty or theft involving the Company, or (v)
your gross negligence or willful misconduct.
8. ADDITIONAL PROVISIONS APPLICABLE TO TERMINATION.
(a) CERTAIN EVENTS CONSTITUTING TERMINATION WITHOUT Cause. For
purposes of Paragraph 7(e) hereof, you will be entitled to elect that the
Company shall have terminated your employment without cause upon the happening
of any of the following events: (i) a substantial diminution in your duties from
those currently performed by you, (ii) a substantial reduction in your authority
from that then currently exercised by you, (iii) a change in control of the
Company, whether it is caused by the acquisition of a majority of the
outstanding shares of Common Stock of the Company or a change in a majority of
the directors of the Company, to which you object, or (iv) any material failure
(other than a failure to make payments) by the Company to comply with any of the
provisions of this Agreement, which change or failure, as the case may be,
continues unremedied for thirty (30) days after you have given the Board written
notice of such change or failure which notice specifies in detail the change or
failure, as the case may be. You shall evidence such election by notice in
writing to the Company within 30 days after you receive notification of any of
such events; conversely, if you have concluded in good faith that any of the
events referred to in clauses (i) through (iv)
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<PAGE>
hereof shall have occurred, you shall be entitled to serve notice upon the
Company and termination will be deemed to have occurred under this subparagraph
(a) if cure shall not have been effected within 30 days after such notice.
(b) NOTICE. Except in the case of termination "for cause"
which shall be effective immediately upon written notice thereof which
notification shall state the reasons for such termination, the party desiring to
terminate your employment hereunder shall notify the other party hereto in
writing at least 60 days before the effective date of the termination of your
employment hereunder which notification shall state the reasons for such
termination and the effective date of the termination of your employment.
9. CONFIDENTIALITY.
(a) Except as required by subpoena or judicial edict, during
your employment hereunder and thereafter for one year, you will not disclose,
communicate or divulge to any person (other than to officers or employees of the
Company whose duties require such knowledge or to officers or employees of other
entities if the purpose of such disclosure is to further the Company's business
with such entities and is reasonably required therefor) or use for your personal
benefit or the benefit of anyone other than the Company, any confidential
information employed in or proposed to be employed in the Company's business
which comes to or came to your knowledge in the course of or by reason of your
prior employment by the Company and which is not otherwise in the public domain.
(b) Upon the termination of your employment hereunder, you
promptly will deliver to the Company all memoranda records, reports and other
documents (and all copies thereof) relating to the Company's business, which you
may then possess or have under your control.
10. ADDITIONAL PROVISIONS.
(a) NON-ASSIGNABILITY. Neither you nor the Company may assign
this Agreement without the consent of the other party hereto.
(b) INTEREST. If the Company fails to pay you the compensation
provided in Paragraph 7 when due, all unpaid amounts owed by the Company to you
under such paragraph of this agreement shall bear interest at the lower of (i)
the rate of 2% over the rate publicly announced, from time to time, by The Chase
Manhattan Bank, N.A. in New York, New York as its "prime rate" or (ii) the
highest rate permitted by law, from the date due until paid.
(c) NOTICES. All notices or statements required or permitted
to be given hereunder shall be in writing and shall be given either personally,
or by mailing the same in a sealed envelope, first-class mail, postage prepaid
and either certified or registered, return receipt requested, addressed to the
Company at its principal offices and to you at your address set forth on page 1
hereof or at such other address as either party shall designate by notice to the
other in the manner provided herein for giving notice. All notices and
statements shall be
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<PAGE>
deemed to have been given (i) on the date of delivery, if delivered personally;
(ii) one business day after delivery to a nationally recognized courier service
if marked for next business day delivery; or (iii) five business days after the
date of mailing, if mailed.
(d) INJUNCTION. You agree that violations of Paragraph 9 may
cause irreparable injury to the Company for which the remedy at law is not
adequate, and the Company shall be entitled to preliminary, permanent and other
injunctive relief against any breach of the provisions of Paragraph 9.
(e) ARBITRATION. Except as provided in subparagraph (d)
hereof, any dispute or controversy arising out of or relating to this Agreement,
or any breach of this Agreement, shall be settled by arbitration to be held in
the City of New York in accordance with the rules then in effect of the American
Arbitration Association or any successor thereto. The arbitrator may grant
injunctive or other relief in such dispute or controversy. The decision of the
arbitrator shall be final, conclusive, and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction, and the parties irrevocably consent to the jurisdiction of
the New York State courts for this purpose. In any such arbitration, the parties
waive personal service of any process or other papers and agree that service
thereof may be made in accordance with Paragraph 10(c).
(f) AMENDMENTS. This Agreement may not be changed, amended,
terminated or superseded orally, but only by an agreement in writing, nor may
any of the provisions hereof be waived orally, but only by an instrument in
writing, in any such case signed by the party against whom enforcement of any
change, amendment, termination, waiver, modification, extension or discharge is
sought.
(g) HEADINGS. All descriptive headings of the several
paragraphs or subclauses of this Agreement are inserted for convenience only and
shall be given no effect in the construction of this Agreement.
(h) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(i) SEVERABILITY. If any provision of this Agreement, or part
thereof, is held to be unenforceable, the remainder of this Agreement and
provision, as the case may be, shall nevertheless remain in full force and
effect.
(j) ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the Company and you with respect to the
subject matter hereof.
(k) GOVERNING LAW. This Agreement and all of the provisions
hereof will be governed by and construed and enforced in accordance with the
laws of the State of New York as an agreement made and to be performed entirely
within such State.
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<PAGE>
(l) INDEMNIFICATION. For so long as you are an officer of the
Company, the Company shall not amend its bylaws or Certificate of Incorporation
so as to amend its existing policies as to indemnification of officers and
directors of the Company without your prior written consent; provided that you
shall be deemed to have given such consent with respect to any such amendment as
may be required by law, rule or regulation applicable to the Company.
If the foregoing is acceptable to you, kindly execute a copy of this
letter and return it to the Company, whereupon it shall become binding upon you
and the Company.
Very truly yours,
WINFIELD CAPITAL CORP.
By: /s/ PAUL A. PERLIN
-------------------
Paul A. Perlin
Chief Executive Officer
ACKNOWLEDGED AND
AGREED TO THIS 24TH DAY
OF JUNE, 1999, EFFECTIVE
AS OF THE EFFECTIVE DATE
By: /s/ DAVID GREENBERG
--------------------
David Greenberg
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EXHIBIT 11
<TABLE>
<CAPTION>
WINFIELD CAPITAL CORP.
STATEMENT OF COMPUTATION EARNINGS (LOSS) PER SHARE
Years Ended March 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Basic and diluted earnings (loss) per common share
Net earnings (loss) available for common stock
equivalent shares deemed to have a dilutive effect $24,851,771 $(1,984,474) $ 344,552
=========== =========== ===========
Earnings (loss) per common share
Basic $ 4.95 $ (0.40) $ 0.07
=========== =========== ===========
Diluted (A) $ 4.54 $ (0.40) $ 0.07
=========== =========== ===========
Shares used in computation
Basic:
Weighted average common shares 5,023,361 5,023,361 5,023,361
=========== =========== ===========
Diluted:
Weighted average common shares 5,023,361 5,023,361 5,023,361
=========== =========== ===========
Common stock equivalents 453,300 (A) 191,932
=========== =========== ===========
5,476,661 5,023,361 5,215,293
=========== =========== ===========
</TABLE>
- -------------------
(A) For the year ended March 31, 1998 the fully diluted computation per share
would be anti-dilutive and was not considered.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 20,797,145
<INVESTMENTS-AT-VALUE> 45,311,218
<RECEIVABLES> 0
<ASSETS-OTHER> 4,817,694
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,128,912
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 16,324,340
<OTHER-ITEMS-LIABILITIES> 327,253
<TOTAL-LIABILITIES> 16,651,593
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,264,680
<SHARES-COMMON-STOCK> 5,023,361
<SHARES-COMMON-PRIOR> 5,023,361
<ACCUMULATED-NII-CURRENT> (301,434)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,514,073
<NET-ASSETS> 33,477,319
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 773,664
<OTHER-INCOME> 66,233
<EXPENSES-NET> 2,052,031
<NET-INVESTMENT-INCOME> (1,212,134)
<REALIZED-GAINS-CURRENT> 740,829
<APPREC-INCREASE-CURRENT> 25,323,076
<NET-CHANGE-FROM-OPS> 26,063,905
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 24,851,771
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 876,538
<GROSS-EXPENSE> 2,052,031
<AVERAGE-NET-ASSETS> 25,265,542
<PER-SHARE-NAV-BEGIN> 1.71
<PER-SHARE-NII> (0.24)
<PER-SHARE-GAIN-APPREC> 5.19
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.66
<EXPENSE-RATIO> 8.12
[AVG-DEBT-OUTSTANDING] 11,059,026
[AVG-DEBT-PER-SHARE] 2.20
</TABLE>
