As
filed with the Securities and Exchange Commission on September 11,
2008
Securities
Act Registration No. 333-______________
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
N-2
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T
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REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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£
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PRE-EFFECTIVE AMENDMENT
NO.
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£
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POST-EFFECTIVE AMENDMENT
NO.
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MACC
Private Equities Inc.
580
Second Street, Suite 102
Encinitas,
California 92024
(760)
479-5080
Agent
For Service
Mr.
Derek Gaertner
580
Second Street, Suite 102
Encinitas,
California 92024
Copies
of Communications to:
David
E. Gardels, Esq.
Husch
Blackwell Sanders LLP
1620
Dodge Street, Suite 2100
Omaha,
NE 68102-1504
(402)
964-5000
Approximate Date of Proposed Public
Offering: As soon as practicable after the effective date of
this Registration Statement.
If any of
the securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box. T
It is
proposed that this filing will become effective (check appropriate
box):
£ when
declared effective pursuant to Section 8(c).
CALCULATION
OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Title of Securities
Being Registered
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Amount to be
Registered
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Proposed
Maximum Offering
Price Per Share (1)
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Proposed Maximum
Aggregate
Offering Price (1)
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Amount of
Registration Fee
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Common Stock, $.01 per
value
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821,541
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$1.81
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$1,486,989.21
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$58.44 (1)
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Subscription Rights
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821,541
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--
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--
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(2)
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(1)
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Estimated
for purposes of calculating the registration fee pursuant to Rule 457(c)
under the Securities Act of 1933, as amended (the “1933 Act”),
based on the average of the high and low price per share of Common Stock
on September
10, 2008 as reported on the Nasdaq Capital
Market.
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(2)
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Pursuant to Rule 457(g) of the 1933 Act, no
separate registration fee is required for the Subscription Rights as the
Rights are being registered in the same registration statement as the
Common Stock of the Registrant underlying the
Rights.
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The
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
Subject
to Completion
Preliminary
Prospectus dated September ____, 2008
The
information in this Prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This Prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
PROSPECTUS
821,541 Shares
of Common Stock
Issuable
upon the Exercise of Transferable Rights to Subscribe for such
Shares
______________
MACC
Private Equities Inc. (“MACC,” “we” or “us” ) is issuing to
its stockholders of record (“Record Date
Stockholders”) as of the close of business on __, 2008 (the
“Record Date”)
transferable rights (“Rights”) entitling
you to subscribe for an aggregate of 821,541 shares of common stock, $.01 par
value (“Common
Stock”), of MACC (such shares, together with all outstanding shares of
MACC’s Common Stock, “Shares”). You
will receive one Right for each three Shares you hold on the Record
Date. The number of Rights issued to you will be rounded up to the
nearest number of Rights. The Rights entitle you to subscribe for
Shares at the rate of one Share for every one Right held (the “Primary
Subscription”). The Rights further entitle you to subscribe,
subject to certain limitations and subject to allotment, for any Shares not
acquired by other holders in the Primary Subscription (the “Over-Subscription
Privilege”). The offering of the Rights (the “Offering”) will
expire at 5:00 p.m., Eastern time, on __, 2008 (the
“Expiration
Date”), unless extended by MACC. The Rights are transferable
and will be listed for trading on the Nasdaq Capital Market under the symbol
“MACCR.” The Shares trade on the Nasdaq Capital Market under the
symbol “MACC.”
The
subscription price for each Share to be issued pursuant to the Offering will be
95% of the volume-weighted average of the last reported bid price per Share on
the Nasdaq Capital Market on the Expiration Date and the four preceding business
days (the “Subscription
Price”). You will not know the actual Subscription Price at
the time of exercise. You therefore will be required initially to pay
for the Shares at the estimated Subscription Price of $__ per Share,
based on the volume-weighted average of the last reported bid price per share on
the Nasdaq Capital Market on the commencement date of the Offering and each of
the four preceding business days (“Estimated Subscription
Price”). Once you subscribe for Shares and your payment is
received, you will not be able to change your decision.
Stockholders
who do not exercise their Rights should expect that they will, at the completion
of the Offering, own a smaller proportional interest in MACC than they would if
they exercised. In addition, because the Subscription Price per Share
will be less than the net asset value per share on the Pricing Date, you will
experience an immediate dilution, which could be significant, of the aggregate
net asset value of your shares. This dilution will disproportionately
affect you if you do not exercise your Rights in full. MACC cannot
state precisely the extent of this dilution at this time because MACC does not
know what the net asset value per share will be when the Offering expires, what
the Subscription Price will be or what proportion of the Rights will be
exercised. See “Risk Factors – This Offering may
dilute the value of your Shares.”
The net
asset value per share at the close of business on September 30, 2005, September
30, 2006 and September 30, 2007 were $5.54, $4.71 and $4.67,respectively, and
the last reported bid price per share on the Nasdaq Capital Market on __, 2008 was
$__. MACC
does not have a dividend distribution policy, and does not currently pay to its
stockholders a minimum annual distribution. MACC has paid no
dividends in cash to its stockholders since inception in 1995.
MACC is a
non-diversified, closed-end management investment company that has elected to be
treated as a business development company (“BDC”) under the
Investment Company Act of 1940 (the “1940
Act”). The investment objective of MACC is to provide
stockholders with long-term capital appreciation by making new equity
investments in small- and micro-cap companies that qualify for investment by a
BDC under the 1940 Act. MACC’s mailing address is 580 Second Street,
Suite 102, Encinitas, California 92024; its telephone number is (760)
479-5080.
Investing
in our Common Stock involves risks, including the risk of leverage, that are
described in the “Risk Factors” section of this Prospectus beginning on page
25. Shares of closed-end investment companies have in the past
frequently traded at a discount to their net asset value. If our
Common Stock trades at a discount to net asset value, it may increase the risk
of loss for purchasers in this Offering.
_________________________
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Per
Share
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Total
(1)
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Public
offering price (2)
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$__.00
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$__
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Sales
load
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None
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None
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Proceeds,
before expenses, to us (3)
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$__
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$__
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(1)
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Assumes
all Rights are exercised at the Estimated Subscription
Price.
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(2)
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The
Estimated Subscription Price is computed as 95% of the volume-weighted
average of the last reported bid price of MACC’s Common Stock on the
Nasdaq Capital Market on __,
2008 and each of the four preceding business
days.
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(3)
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Before
deduction of Offering costs incurred related to this Offering, payable by
MACC, estimated to be $80,000. Funds received prior to the
final due date of the Offering will be deposited into a segregated
interest-bearing account (which interest will be paid to MACC) pending
proration and distribution of Shares. Interest on subscription
monies will be paid to MACC regardless of whether shares are issued by
MACC.
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Please
read this Prospectus before investing, and keep it for future
reference. The Prospectus contains important information about us
that a prospective investor should know before investing in our Common
Shares. A statement of additional information dated ___, 2008, as
supplemented from time to time (the “SAI”), containing
additional information about us, has been filed with the Securities and Exchange
Commission (“SEC”) and is
incorporated by reference in its entirety into this Prospectus. We
file annual, quarterly and current reports, proxy statements and other
information with the SEC. This information, in addition to the SAI,
is available free of charge by contacting us at 580 Second Street, Suite 102,
Encinitas, California 92024, or by telephone at (760) 479-5080. The
SEC also maintains a website at www.sec.gov that
contains such information. We do not maintain a website, and
accordingly, we do not make such information available in that
manner. You may also contact us at the above number regarding
shareholder inquiries or to request other information about us.
Neither
the SEC nor any state securities commission have approved or disapproved of
these securities or determined if this Prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The
date of this Prospectus is September ____, 2008.
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1
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7
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13
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15
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16
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17
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25
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34
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37
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38
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40
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43
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44
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47
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48
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53
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56
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57
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57
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57
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57
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_______________
You
should rely only on the information contained in this Prospectus. We have not
authorized any other person to provide you with different information or to make
any representations not contained in this Prospectus. If anyone provides you
with different or inconsistent information, you should not rely on it. We are
not making an offer to sell these securities in any jurisdiction where the offer
or sale is not permitted. You should assume that the information contained in
this Prospectus is accurate only as of the date on the front cover of this
Prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date. We will update the information in
this Prospectus to reflect any material changes occurring prior to the
completion of this offering.
This summary may not contain all of
the information that you may want to consider. You should read carefully the
information set forth under “Risk Factors” and other information included in
this Prospectus. The following summary is qualified by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Except where the context suggests otherwise, the terms “we,” “us,” “our,” “the
Company” and “Fund” refer to MACC Private Equities Inc. Throughout
this Prospectus we have assumed the issuance of 2,464,621 Rights and the
resulting sale of 821,541 shares of Common Stock at $__ per Share.
The
Company
MACC was
formed as a Delaware corporation on March 3, 1994. It is a
non-diversified, closed-end management investment company that has elected to be
treated as a BDC under the 1940 Act. The investment objective of MACC is to
provide stockholders with long-term capital appreciation by making new equity
investments primarily in small- and micro-cap companies that qualify for
investment by a BDC under the 1940 Act. MACC does not currently
pay to its stockholders a minimum annual distribution or other
dividend. MACC has paid no dividends in cash to its stockholders
since its inception.
As
discussed more fully in this Prospectus, investment in MACC involves a number of
significant and substantial risks, including:
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·
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risks
associated with MACC’s investments in small growth
companies;
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·
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risks
associated with MACC’s investments in higher risk securities of private
companies;
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·
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risks
associated with MACC’s investments in certain restricted and illiquid
securities;
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·
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the
fluctuation of MACC’s net asset value in connection with changes in the
value of its portfolio securities;
and
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·
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interest
rate risks on borrowed funds.
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No
assurance can be given that MACC will achieve its investment
objective. In addition, the Offering involves the risk of an
immediate dilution of the aggregate net asset value of your Shares.
The
Investment Adviser
Eudaimonia
Asset Management, LLC, a California limited liability company (“EAM” or the “Investment Adviser”),
with its executive offices at 580 Second Street, Suite 102, Encinitas,
California 92024, is the investment adviser to MACC under an Investment Advisory
Agreement dated April 29, 2008 (the “Advisory Agreement”)
is registered as an investment adviser under the Investment Advisers Act of
1940, as amended (the “Advisers Act”), and
is subject to the Advisers Act reporting and other
requirements. EAM currently is the investment manager of no
other funds, though it does manage $2.6 million of other assets under strategies
similar to that to be employed for all new portfolio investments made by MACC
after the effectiveness of the Advisory Agreement, which investments will be
made with the proceeds of this Offering (the “New
Portfolio”). EAM will be responsible for the selection,
structure and administration of MACC’s investment portfolios.
InvestAmerica
Investment Advisors, Inc., an Iowa corporation (“InvestAmerica” or the
“Subadviser”),
has been retained by MACC and EAM to serve as a subadviser to MACC under a
Subadvisory Agreement dated April 29, 2008 among MACC, EAM and InvestAmerica
(the “Subadvisory
Agreement”) and to manage its portfolio of investments in existence prior
to the effective date of the Advisory Agreement (the “Existing Portfolio”)
(including those assets previously held by MACC’s wholly-owned subsidiary,
MorAmerica Capital Corporation (“MorAmerica”), prior
to the merger of MorAmerica with and into MACC effective April 30, 2008 (the
“Merger”).
Together, the New Portfolio and the Existing Portfolio are referred to as the
“Total
Portfolio”). For additional information on the Adviser, the
Subadviser and the terms of their contracts, see “Fees and Expenses,” “The
Company—Our Adviser,” “The Company—Our Subadviser” and “Investment Advisory
Agreements, Certain Relationships and Related Transactions.”
Purpose
of the Offering
The Board
of Directors of MACC (the “Board”) has
determined that it is in the best interests of MACC and its stockholders to
increase the number of outstanding Shares and to increase MACC’s assets
available for investment, consistent with the long-term strategy to be
undertaken by EAM to grow the size of MACC and expand the universe of portfolio
companies in which it invests. EAM’s growth strategy for MACC
includes the following elements:
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●
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Making
New Portfolio investments in small companies which may not have access to
traditional means of financing through private investments in public
equities (so-called “Pipes”) and
registered direct offerings permissible for BDCs under the 1940
Act;
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●
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Investing
up to a maximum of 30% of the Total Portfolio in equity positions of
promising companies that are publicly-listed, with a focus on small- and
micro-cap companies;
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●
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Investing
on a limited basis (up to maximum of 10% of the Total Portfolio) in
private companies;
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●
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Recruiting
directors with diverse and broad financial and business
experience;
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●
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Undertaking
an investor relations strategy to obtain better market understanding of
MACC;
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●
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Diligently
focusing on internal growth through capital appreciation while retaining
income and capital gains, and obtaining additional equity capital to
reduce fixed expenses per Share, increase stockholder liquidity and
maximize stockholder value; and
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●
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Retaining
InvestAmerica on a transitional basis as a subadviser to efficiently
liquidate and maximize the value of the Existing
Portfolio.
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The Board
approved the Offering because it believes the Offering may:
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·
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increase
the level of market interest in MACC and the liquidity of the
Shares;
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·
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reduce
expenses per Share due to the spreading of fixed expenses over a larger
number of outstanding Shares and lower MACC’s expenses as a proportion of
net assets;
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·
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allow
MACC to achieve greater breadth in its investment portfolio by increasing
the total number and amount of portfolio investments;
and
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·
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provide
immediately-available funds to pursue MACC’s strategy for the New
Portfolio.
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The Board
considered the effect that the issuance of the Shares would have on the net
asset value per Share of MACC and also considered the dilutive effect on current
stockholders, particularly those who determine not to exercise their Rights to
purchase additional Shares. The Board considered that
non-participating stockholders would have the opportunity to sell their Rights
for cash and would derive a benefit if MACC invests additional amounts that earn
a return that exceeds the dilution, thus mitigating the dilutive effect of the
Offering on those stockholders. The Board believes that the Offering
will permit MACC to accomplish these objectives, while allowing stockholders an
opportunity to purchase additional Shares at a price below market value without
paying a brokerage commission. See “The Offering—The Purpose of the
Offering” below.
Corporate
Information
Our
offices are located at 580 Second Street, Suite 102, Encinitas, California
92024, and our telephone number is (760) 479-5080. See “The Company”
below and “Additional Information” in our SAI.
Key
Offering Terms
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Common
Stock offered by us
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821,541
shares of our Common Stock. See “Description of Capital Stock”
below.
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Rights
offered by us
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821,541
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Shares
outstanding after this Offering
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3,286,162
shares of our Common Stock.
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Number
of Rights Issued Per Existing Shares
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1
Right for each 3 Shares held
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Subscription
Ratio
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1
Right to buy 1 Share
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Estimated
Subscription Price
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$__
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Shares
outstanding at September 10, 2008
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2,464,621
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Key
Elements of the Offering
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One-For-Three
Offering
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The
Offering will give Record Date Stockholders the “right” to purchase one
new Share of MACC for every three Shares held on the Record
Date. For example, if you own 300 Shares on the announced
Record Date, you will receive 100 Rights entitling you to purchase 100 new
Shares of MACC. Stockholders will be able to exercise all
or some of their Rights. The number of Rights issued to a
Record Date Stockholder will be rounded up to the nearest number of
Rights. However, Record Date Stockholders who do not exercise
all of their Rights in the primary subscription will not be able to
participate in the Over-Subscription Privilege. See “The
Offering—Terms of the Offering” and “Over-Subscription Privilege”
below.
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Transferable
Rights
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The
Rights will be transferable, are expected be traded on the Nasdaq Capital
Market and will afford non-subscribing stockholders the option of selling
their Rights on the Nasdaq Capital Market or through the subscription
agent, Mellon Bank, N.A. (the “Subscription
Agent”). Selling the Rights allows a non-exercising
stockholder (a stockholder who does not wish to purchase additional Shares
in the Offering) the ability to offset some of the dilution which would
otherwise occur as a result of the Offering. In contrast,
in a non-transferable rights offering (an offering where the rights cannot
be traded), non-exercising stockholders would experience full
dilution. See “The Offering—Sale of Rights” below.
There
can be no assurance that a liquid trading market will develop for the
Rights or that the price at which such Rights trade will approximate the
amount of dilution otherwise realized by a non-exercising
stockholder. The period during which Rights will trade
will be limited and, upon the Expiration Date, the Rights will cease to
trade and will have no residual value.
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Subscription
Price
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Under
the Offering, new Shares will be sold at a price equal to 95% of the
volume-weighted average of the last reported bid price per Share on the
Nasdaq Capital Market on the Expiration Date and the four preceding
business days. Management believes that this pricing
formula (versus a higher or lower percentage discount or a pre-determined
fixed price) will provide an incentive to stockholders (as well as others
who might trade in the transferable Rights) to participate in the
Offering. See “The Offering—Terms of the Offering”
below.
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Over-Subscription
Privilege
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If
all of the Rights initially issued are not exercised by Record Date
Stockholders, any unsubscribed Shares will be offered to other Record Date
Stockholders and Rights holders who have exercised all Rights held by them
and who wish to acquire additional Shares. You must
exercise all of your Rights in order to participate in the
Over-Subscription Privilege. If available Shares are
insufficient to honor all over-subscriptions, the available Shares will be
allocated pro-rata among those who over-subscribe based on the number of
Rights held by them. See “The Offering—Over-Subscription
Privilege” below.
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How
to Subscribe
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· If
your existing Shares are held in a brokerage account or by a custodian
bank or trust company, contact your broker or financial adviser for
additional instructions on how to participate in the
Offering.
· If
your existing Shares are held of record by you, complete, sign and date
the enclosed Subscription Certificate.
· Make
your check or money order payable to “Mellon Investor Services LLC (acting
on behalf of Mellon Bank, N.A., the Subscription Agent)” in the amount of
$__ for
each Share you wish to buy including any Shares you wish to buy pursuant
to the Over-Subscription Privilege. This payment may be
more or less than the actual Subscription Price. Additional payment may be
required when the actual Subscription Price is
determined. You should mail the subscription certificate
and your payment in the enclosed envelope to the Subscription Agent in a
manner that will ensure receipt prior to 5:00 p.m., Eastern time, on __,
2008, unless extended. Its mailing address is P.O. Box
3315, South Hackensack, NJ 07606 or 480 Washington Blvd., Jersey City, NJ
07310.
Once
you subscribe for Shares and your payment is received, you will not be
able to change your decision. You will have no right to rescind
a purchase after the Subscription Agent has received the Subscription
Certificate or Notice of Guaranteed Delivery. See “The
Offering” below.
The
Subscription Agent will deposit all checks received by it prior to the
final due date into a segregated interest-bearing account pending
distribution of the shares from the Offering. All
interest will accrue to the benefit of MACC, and you will not earn
interest on payments submitted.
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Important
Dates
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Record
Date
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__,
2008
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Final
Date for Sales of Rights
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__
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Expiration
Date (Payment for Shares and Notices of Guaranteed Delivery
Due)
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__
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Due
Date for Delivery by Brokerage Firms or Custodian Banks of Payment and
Subscription Certificates to Subscription Agent pursuant to Notice of
Guaranteed Delivery
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__
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Mailing
of Shares and Confirmations of Purchases
of Shares
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__
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Additional
Terms
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The
Rights entitle you to subscribe for Shares at the rate of one Share for
every one Right held by you. You will receive one Right
for each three Shares you hold on the Record Date. These
Rights are transferable. The holders of the Rights may
exercise them at any time from the date of this Prospectus until 5:00
p.m., Eastern time, on __,
2008, unless extended.
In
addition, if a Record Date Stockholder or a purchaser of Rights subscribes
for the maximum number of Shares to which it is entitled, such holder may
also subscribe for Shares that were not otherwise subscribed for by other
stockholders. Shares acquired pursuant to the Over-Subscription Privilege
are subject to allotment, which is more fully discussed below under “The
Offering - Over-Subscription Privilege.” MACC will not
offer or sell in connection with the Offering any Shares that are not
subscribed for pursuant to the Primary Subscription or the
Over-Subscription Privilege.
No
fractional Rights will be issued.
The
Subscription Price per Share will be 95% of the volume-weighted average of
the last reported bid price per Share on the Nasdaq Capital Market on the
Expiration Date and each of the four preceding business
days. The Rights are transferable and will be listed for
trading on the Nasdaq Capital Market under the symbol
“MACCR.” There is no assurance that a market for the Rights
will develop.
Before
exercising your Rights, you should consider the factors described in this
Prospectus, including without limitation, the factors described under
“risk Factors” below and “Investment Objective and Policies” in the
SAI. These factors include the effects of the Offering and the
fact that shares of closed-end investment companies generally trade below
their net asset value. In addition, the Offering involves the
risk of an immediate dilution of the aggregate net asset value of your
Shares if you do not fully exercise your Rights. Dilution of
the aggregate net asset value of your Shares will also occur even if you
fully exercise your Rights.
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Other
Important Information
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Investment
adviser
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Eudaimonia
Asset Management, LLC. See “The Company” below and “Management
of the Company” in our SAI.
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Trading
Market
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Our
Shares trade on the Nasdaq Capital Market under the symbol
“MACC.” The Rights will also trade on the Nasdaq Capital Market
under the symbol “MACCR.”
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Leverage
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We
have existing debt incurred for purposes of providing capital to invest,
and we have granted a security interest in our assets in connection with
such borrowing. In the future, we may borrow additional funds
to make investments to the extent permitted by the 1940 Act, and we may
grant a security interest in our assets in connection with such
borrowings. We may use this practice, which is known as
“leverage,” to attempt to increase returns to our stockholders. However,
leverage involves significant risks and the costs of any leverage
transactions will be borne by our stockholders. See “Risk
Factors” below. With certain limited exceptions, we are only
allowed to borrow amounts such that our asset coverage, as defined in the
1940 Act, equals at least 200% after such borrowing. The amount of
leverage that we may employ will depend on our assessment of market
conditions and other factors at the time of any proposed
borrowing.
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Trading
at a discount
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Shares
of closed-end investment companies frequently trade at a discount to their
net asset value. The fact that our Shares have historically
traded, and will likely continue to trade, at a discount to our net asset
value is separate and distinct from the risk that our net asset value per
Share may decline. Our net asset value immediately following
this Offering will reflect reductions resulting from the amount of the
Offering expenses paid. This risk may have a greater effect on
investors expecting to sell their Shares soon after completion of this
Offering. We generally may not issue additional Shares at a
price below our net asset value (net of any sales load (underwriting
discount)) without first obtaining approval of our stockholders and
Board. We cannot predict whether our Shares will trade above,
at, or below net asset value. See “Net Asset Value” in our
SAI.
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Risk
factors
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Investing
in our Shares involves certain risks relating to our structure and our
investment objective that you should consider before deciding whether to
invest in our Shares. In addition, our Existing Portfolio
consists primarily of illiquid securities issued by privately-held
companies and we expect that our New Portfolio will consist primarily of
securities issued by thinly-traded companies. These investments
may involve a higher degree of business and financial risk than
investments in more liquid securities. Our portfolio companies
typically will require additional outside capital beyond our investment in
order to succeed, and we will compete with many other companies for
investment opportunities. In addition, we may borrow additional funds to
make our investments in portfolio companies. If we do borrow,
we will exposed to the risks of leverage, which may be considered a
speculative investment technique. Borrowings magnify the
potential for gain and loss on amounts invested and, therefore, increase
the risks associated with investing in our Shares.
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Also,
we are subject to certain risks associated with valuing our portfolio,
changing interest rates, accessing additional capital, fluctuating
quarterly results and operating in a regulated environment. See
“Risk Factors” below for a discussion of factors you should carefully
consider before deciding whether to invest in our
Shares.
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Available
information
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ANY
QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE METHOD OF SUBSCRIBING
FOR SHARES OR FOR ADDITIONAL COPIES OF THIS PROSPECTUS, SUBSCRIPTION
CERTIFICATES OR NOTICES OF GUARANTEED DELIVERY MAY BE DIRECTED TO THE
INFORMATION AGENT, MELLON BANK, N.A., TOLL FREE AT TELEPHONE NUMBER
1-877-279-4305, EMAIL ADDRESS __
OR THE MAILING ADDRESS OF 480 WASHINGTON BOULEVARD, JERSEY
CITY, NJ 07310. STOCKHOLDERS MAY ALSO CONTACT THEIR BROKERS OR
NOMINEES FOR INFORMATION WITH RESPECT TO THE OFFERING.
We
have filed with the SEC a registration statement on Form N-2 of which this
Prospectus is a part, including any amendments thereto and related
exhibits, under the 1933 Act, with respect to the Rights and our Shares
offered by this Prospectus. The registration statement contains additional
information about us and our Shares being offered by this
Prospectus.
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Our
Shares are registered under the Securities Exchange Act of 1934 (the Exchange Act”),
and we are required to file reports, proxy statements and other
information with the SEC. This information is available at the
SEC’s public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information
about the operation of the SEC’s public reference room by calling the SEC
at 1-800-SEC-0330. In addition, the SEC maintains an internet
website, at http://www.sec.gov, that contains reports, proxy and
information statements, and other information regarding issuers, including
us, that file documents electronically with
the SEC.
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The
Purpose of the Offering
The Board
has determined that it is in the best interests of MACC and its stockholders to
increase the number of outstanding Shares in order to increase the assets of
MACC available for investment and provide working capital for company
expenses. In reaching its decision, the Board noted that EAM’s
investment strategy for MACC includes making new equity investments primarily in
small- and micro-cap companies that qualify for investment by BDCs under the
1940 Act. The Board concluded that an increase in the assets of MACC
would permit MACC to take advantage of these additional investment
opportunities. The Board believes that the Offering will permit MACC
to accomplish these objectives, while allowing existing stockholders an
opportunity to purchase additional Shares at a price below market value without
paying a brokerage commission. The Board also believes that a larger
number of outstanding Shares and a larger number of stockholders could increase
the level of market interest in MACC and the liquidity of Shares.
The Board
considered that the Offering would have a dilutive effect on nonparticipating
stockholders and on stockholders who do not fully participate in the Offering,
and determined that dilutive effect will be mitigated because the Rights are
transferable, which will afford stockholders who do not exercise all of their
Rights the potential of receiving a cash payment upon sale of such
Rights. Further, nonparticipating stockholders will derive a benefit
from the Offering if it enables MACC to invest additional amounts that earn a
return that exceeds the dilution. The Board also considered the
effect that the issuance of the Shares would have on the net asset value of MACC
and determined that the long-terms benefit of the Offering outweighed any
immediate post-offering dilution. Additionally, the Board concluded
that increasing MACC’s total assets would reduce fixed expenses per Share due to
the spreading of fixed expenses over a larger asset base.
Consistent
with the approval granted by MACC’s stockholders at the 2008 Annual
Stockholders’ Meeting, the Board voted unanimously to authorize the
Offering. One of MACC’s directors who voted to authorize the
Offering is affiliated with EAM and, therefore, could benefit indirectly from
the Offering. Because the advisory fee payable by MACC to EAM
is based upon MACC’s net assets, to the extent to which the Offering increases
MACC’s net assets, the fees paid to EAM will correspondingly
increase. In addition to the director noted above, one of the other
four directors, Benjamin Jiaravanon, is also an “interested person” of MACC
within the meaning of the 1940 Act to the extent that Mr. Jiaravanon is deemed
to be the beneficial owner of a controlling interest in MACC, as described in
further detail below under “Investment Advisory Agreements, Certain
Relationships and Related Transactions – Control Persons and Principal Holders
of Securities”.
There can
be no assurances that MACC will realize any of the benefits or goals described
above in connection with the Offering. MACC has not previously made
any rights offerings, and it may, in the future and at its discretion, choose to
make additional rights offerings from time to time for a number of Shares and on
terms which may or may not be similar to this Offering. Any
such future rights offering will be made in accordance with the 1940
Act.
Terms
of the Offering
MACC is
issuing Rights to its Record Date Stockholders entitling them to subscribe for
an aggregate of 821,541 Shares. If all Rights are exercised, the
total number of Shares issued and outstanding will increase by approximately
33%. Record Date Stockholders, where the context requires, shall
include beneficial owners whose Shares are held of record by Cede & Co.
(“Cede”),
nominee for The Depository Trust Company (“DTC”), or by any
other depository or nominee (collectively, “Nominees”). In
the case of Shares held of record by Cede or any other Nominee, beneficial
owners for whom Cede or any other Nominee is the holder of record will be deemed
to be the holders of the Rights that are issued to Cede or such other Nominee on
their behalf. Each Record Date Stockholder will receive one Right for
each three Shares beneficially owned on the Record Date, and the Rights entitle
Record Date Stockholders and holders of Rights acquired during the period from
the commencement date of the Offering to the Expiration Date (the “Subscription Period”)
to acquire one Share for each Right held. No fractional Shares will
be issued. In addition, the Rights entitle each holder thereof to
subscribe, pursuant to the Over-Subscription Privilege, for any Shares not
acquired by exercise of Rights in the Primary Subscription. Rights
holders will have no right to rescind a purchase after the Subscription Agent
has received the Subscription Certificate or Notice of Guaranteed
Delivery. All Rights may be exercised until the Expiration
Date. (Record Date Stockholders and Rights holders purchasing Shares
are hereinafter referred to as “Exercising Rights
Holders”). No fractional Rights will be issued.
Shares
not subscribed for in the Primary Subscription will be offered, by means of the
Over-Subscription Privilege, to those Record Date Stockholders and Rights
holders who have exercised all Rights held by them and who wish to acquire more
than the number of Shares they are entitled to purchase pursuant to the exercise
of their Rights. Shares acquired pursuant to the Over-Subscription
Privilege are subject to allotment, as more fully discussed below under
“Over-Subscription Privilege.” For purposes of determining the
maximum number of Shares a stockholder may acquire pursuant to the Offering,
beneficial owners of Shares whose Shares are held of record by a Nominee will be
deemed to be the holders of the Rights that are issued to such Nominee on their
behalf.
There is
no minimum number of Rights which must be exercised in order for the Offering to
close.
The
number of Rights issued to a stockholder on the Record Date will be rounded up
to the nearest number of Rights. In the case of Shares of Common
Stock held of record by a Nominee, the number of Rights issued to the Nominee
will be adjusted to permit rounding up (to the nearest number of Rights) of the
Rights to be received by beneficial owners for whom the Nominee is the holder of
record only if the Nominee provides to MACC on or before the close of business
on __,
2008 a written representation of the number of Rights required for such
rounding.
Over-Subscription
Privilege
Shares
not subscribed for in the Primary Subscription (the “Excess Shares”) will
be offered, by means of the Over-Subscription Privilege, to those Exercising
Rights Holders who have exercised all exercisable Rights held by them and who
wish to acquire more than the number of Shares for which the Rights held by them
are exercisable. Exercising Rights Holders should indicate on the
Subscription Certificate, which they submit with respect to the exercise of the
Rights held by them, how many Excess Shares they are willing to acquire pursuant
to the Over-Subscription Privilege. If sufficient Excess Shares
remain, all over-subscription requests by Exercising Rights Holders will be
honored in full. If requests for Shares pursuant to the
Over-Subscription Privilege exceed the Excess Shares available, the available
Excess Shares will be allocated pro-rata among Exercising Rights Holders who
oversubscribe, based on the number of Rights held by such Exercising Rights
Holders.
Certain
affiliated persons of MACC intend to exercise the Over-Subscription
Privilege. Roth Capital Partners, LLC (“RCP”), an affiliate
of EAM, currently owns 3,250 Shares of MACC. Although there is no
written agreement in place, RCP has indicated its intent to subscribe for all
remaining Excess Shares that may be available to it pursuant to the
Over-Subscription Privilege. To the extent that such persons do so,
their exercise of the Over-Subscription Privilege will automatically increase
their proportionate voting power and share of MACC’s assets.
MACC WILL
NOT OFFER OR SELL IN CONNECTION WITH THE OFFERING ANY SHARES THAT ARE NOT
SUBSCRIBED FOR PURSUANT TO THE PRIMARY SUBSCRIPTION OR THE OVER-SUBSCRIPTION
PRIVILEGE.
Subscription
Price
The
Subscription Price for each Share to be issued pursuant to the Offering will be
95% of the volume-weighted average of the last reported bid price per Share on
the Nasdaq Capital Market on the Expiration Date and the four preceding business
days. Exercising Rights Holders will not know the actual Subscription
Price at the time of exercise and will be required initially to pay for the
Shares at the Estimated Subscription Price of $__ per Share
based on the last reported bid price of MACC’s Common Stock on __. The
actual Subscription Price may be more than the Estimated Subscription
Price. The net asset value per share at September 30, 2005, September
30, 2006 and September 30, 2007 and __,
2008 were $5.54, $4.71 and $4.67 and $__,
respectively, and the last reported bid price of a share on the Nasdaq Capital
Market on __, 2008 was
$__.
Expiration
of the Offering
The
Offering and the Rights will expire on the Expiration Date, unless extended by
MACC. MACC may make one or more extensions of the Offering, as
discussed below. Any extension of the Offering will be followed as
promptly as practicable by announcement thereof. Such announcement
will be issued no later than 9:00 a.m., Eastern time, on the next business day
following the previously scheduled Expiration Date. Without limiting
the manner in which MACC may choose to make such announcement, MACC will not,
unless otherwise required by law, have any obligation to publish, advertise or
otherwise communicate any such announcement other than by making a release to
the Dow Jones News Service or such other means of announcement as MACC deems
appropriate.
Subscription
Agent
The
Subscription Agent will receive for its administrative, processing, invoicing
and other services fees and expenses estimated to be approximately
$30,000. Questions regarding the Subscription Forms should be
directed to the Information Agent at 877-279-4305, (toll free) or 201-680-6579
(collect); stockholders may also consult their brokers or
Nominees. Completed Subscription Forms must be sent, together with
proper payment of the Estimated Subscription Price for all Shares subscribed for
in the Primary Subscription and the Over-Subscription Privilege, to the
Subscription Agent by one of the methods described
below. Alternatively, Notices of Guaranteed Delivery may be sent by
brokerage firms and custodian banks and trust companies exercising Rights on
behalf of Exercising Rights Holders whose Shares are held by such institutions
by facsimile to 201-680-4626 to be received by the Subscription Agent prior to
5:00 p.m., Eastern time, on the Expiration Date. Facsimiles should be
confirmed by telephone at 201-680-4860. MACC will accept only
properly completed and executed Subscription Certificates actually received at
any of the addresses listed below, prior to 5:00 p.m., Eastern time, on the
Expiration Date or by the close of business on the third business day after the
Expiration Date following timely receipt of a Notice of Guaranteed
Delivery.
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(1)
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BY FIRST CLASS
MAIL:
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Mellon
Investor Services LLC
Attn: Corporate
Actions Dept.
P.O. Box
3301
South
Hackensack, NJ 07606
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(2)
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BY OVERNIGHT COURIER
OR BY HAND:
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Mellon
Investor Services LLC
Attn: Corporate
Actions Dept., 27th
Floor
480
Washington Boulevard
Jersey
City, NJ 07310
DELIVERY
TO AN ADDRESS OTHER THAN ONE OF THE ADDRESSES LISTED ABOVE WILL NOT CONSTITUTE
VALID DELIVERY.
Method
for Exercising Rights
Rights
are evidenced by Subscription Certificates that, except as described below under
“Foreign Stockholders,” will be mailed promptly following the Record Date to
Record Date Stockholders or, if a stockholder’s Shares are held by Cede or any
other depository or Nominee on their behalf, to Cede or such depository or
Nominee. Rights may be exercised by completing and signing the
Subscription Certificate that accompanies this Prospectus and mailing it in the
envelope provided, or otherwise delivering the completed and signed Subscription
Certificate to the Subscription Agent, together with payment in full for the
Shares to be purchased at the Estimated Subscription Price by the Expiration
Date. Rights may also be exercised by contacting your broker, bank or
trust company which can arrange, on your behalf, to guarantee delivery of
payment and delivery of a properly completed and executed Subscription
Certificate pursuant to a Notice of Guaranteed Delivery by the close of business
on the third business day after the Expiration Date. A fee may be
charged by the broker, bank or trust company for this service. Completed
Subscription Certificates must be received by the Subscription Agent prior to
5:00 p.m., Eastern time, on the Expiration Date at one of the addresses set
forth above (unless the guaranteed delivery procedures are complied with as
described below under “Payment for Shares”). Exercising Rights
Holders will have no right to rescind their subscriptions after receipt of their
payment for Shares by the Subscription Agent.
Stockholders
Who are Record Owners
Stockholders
who are record owners can choose between two options to exercise their Rights as
described below under “Payment for Shares.” If time is of the
essence, option (2) under “Payment for Shares” below will permit delivery of the
Subscription Certificate and payment after the Expiration Date, provided that a
Notice of Guaranteed Delivery from a financial institution meeting certain
requirements has been received by the Subscription Agent prior to 5:00 p.m.,
Eastern time, on the Expiration Date, as described below.
Stockholders
Whose Shares are Held by a Nominee
Stockholders
whose Shares are held by a Nominee, such as a bank, broker or trustee, must
contact that Nominee to exercise their Rights. In such case, the
Nominee will complete the Subscription Certificate on behalf of the stockholder
and arrange for proper payment by one of the methods described below under
“Payment for Shares.”
Nominees
Nominees
who hold Shares for the account of others should notify the beneficial owners of
such Shares as soon as possible to ascertain such beneficial owners’ intentions
and to obtain instructions with respect to the Rights. If the beneficial owner
so instructs, the Nominee should complete the Subscription Certificate and
submit it to the Subscription Agent with the proper payment as described below
under “Payment for Shares.”
Payment
for Shares
Stockholders
who wish to acquire Shares pursuant to the Offering may choose between the
following methods of payment:
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1.
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An
Exercising Rights Holder may send the Subscription Certificate together
with payment (based on Estimated Subscription Price) for the Shares
subscribed for in the Primary Subscription and any additional Shares
subscribed for pursuant to the Over-Subscription Privilege to the
Subscription Agent. A subscription will be accepted when
payment, together with a properly completed and
executed Subscription Certificate, is received by the
Subscription Agent’s office at one of the addresses set forth above no
later than 5:00 p.m., Eastern time, on the Expiration Date. The
Subscription Agent will deposit all checks and money orders received by it
for the purchase of Shares into a segregated interest-bearing account (the
interest from which will accrue to the benefit of MACC) pending proration
and distribution of Shares. A PAYMENT PURSUANT TO THIS METHOD
MUST BE IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK OR BRANCH
LOCATED IN THE UNITED STATES, MUST BE PAYABLE TO MACC PRIVATE EQUITIES
INC. AND MUST ACCOMPANY A PROPERLY COMPLETED AND EXECUTED SUBSCRIPTION
CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE
ACCEPTED. EXERCISE BY THIS METHOD IS SUBJECT TO ACTUAL
COLLECTION OF CHECKS BY 5:00 P.M., EASTERN TIME, ON THE EXPIRATION
DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST
FIVE BUSINESS DAYS TO CLEAR, STOCKHOLDERS ARE STRONGLY URGED TO PAY, OR
ARRANGE FOR PAYMENT, BY MEANS OF A CERTIFIED OR CASHIER’S CHECK OR MONEY
ORDER.
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2.
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Alternatively,
an Exercising Rights Holder may acquire Shares, and a subscription will be
accepted by the Subscription Agent if, prior to 5:00 p.m., Eastern time,
on the Expiration Date, the Subscription Agent has received a Notice of
Guaranteed Delivery by facsimile or otherwise FROM A FINANCIAL INSTITUTION
THAT IS A MEMBER OF THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM, THE
STOCK EXCHANGE MEDALLION PROGRAM OR THE NEW YORK STOCK EXCHANGE MEDALLION
SIGNATURE PROGRAM guaranteeing delivery of (i) payment of the Estimated
Subscription Price for the Shares subscribed for in the Primary
Subscription and any additional Shares subscribed for pursuant to the
Over-Subscription Privilege, (ii) payment in full of any additional amount
required to be paid if the actual Subscription Price is in excess of the
Estimated Subscription Price, and (iii) a properly completed and executed
Subscription Certificate. The Subscription Agent will not honor
a Notice of Guaranteed Delivery unless a properly completed and executed
Subscription Certificate and full payment for the Shares based on the
Estimated Subscription Price is received by the Subscription Agent by the
close of business on the third business day after the Expiration
Date.
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On a date
within eight business days following the Expiration Date (the “Confirmation Date”),
the Subscription Agent will send to each Exercising Rights Holder (or, if Shares
are held by Cede or any other Nominee, to Cede or such other Nominee) (i) the
number of Shares purchased pursuant to the Primary Subscription, (ii) any refund
by MACC to such Exercising Rights Holder as a result of payment for Shares
pursuant to the Over-Subscription Privilege which the Exercising Rights Holder
is not acquiring or as an adjustment based on the actual Subscription Price as
determined on the Expiration Date, and (iii) a notice showing the amount payable
for the number of Shares, if any, acquired pursuant to the Over-Subscription
Privilege and any additional amount payable by such Exercising Rights Holder to
MACC based on the actual Subscription Price as determined on the Expiration
Date. Any payment required from Exercising Rights Holders must be
received by the Subscription Agent within seven business days after the
Confirmation Date. All payments by an Exercising Rights Holder must
be in U.S. dollars by money order or check drawn on a bank or branch located in
the United States and payable to MACC PRIVATE EQUITIES, INC.
WHICHEVER
OF THE TWO METHODS DESCRIBED ABOVE IS USED, ISSUANCE OF THE SHARES PURCHASED IS
SUBJECT TO COLLECTION OF CHECKS AND ACTUAL PAYMENT. IF A HOLDER OF
RIGHTS WHO SUBSCRIBES FOR SHARES PURSUANT TO THE PRIMARY SUBSCRIPTION OR
OVER-SUBSCRIPTION PRIVILEGE DOES NOT MAKE PAYMENT OF ANY AMOUNTS DUE BY THE
TENTH BUSINESS DAY AFTER THE CONFIRMATION DATE, MACC RESERVES THE RIGHT TO TAKE
ANY OR ALL OF THE FOLLOWING ACTIONS: (i) FIND OTHER EXERCISING RIGHTS HOLDERS TO
PURCHASE SUCH SUBSCRIBED AND UNPAID SHARES; (ii) APPLY ANY PAYMENT ACTUALLY
RECEIVED BY IT TOWARD THE PURCHASE OF THE GREATEST WHOLE NUMBER OF SHARES WHICH
COULD BE ACQUIRED BY SUCH HOLDER UPON EXERCISE OF THE PRIMARY SUBSCRIPTION
AND/OR OVER-SUBSCRIPTION PRIVILEGE; AND/OR (iii) EXERCISE ANY AND ALL OTHER
RIGHTS OR REMEDIES TO WHICH IT MAY BE ENTITLED INCLUDING, WITHOUT LIMITATION,
THE RIGHT TO SET OFF AGAINST PAYMENTS ACTUALLY RECEIVED BY IT WITH RESPECT TO
SUCH SUBSCRIBED SHARES.
THE
METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION
PRICE TO MACC WILL BE AT THE ELECTION AND RISK OF THE EXERCISING RIGHTS HOLDERS,
BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND PAYMENTS BE
SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND
THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO THE
SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., EASTERN TIME, ON
THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT
LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR
PAYMENT, BY MEANS OF CERTIFIED OR CASHIER’S CHECK OR MONEY ORDER.
All
questions concerning the timeliness, validity, form and eligibility of any
exercise of Rights will be determined by MACC, whose determinations will be
final and binding. MACC in its sole discretion may waive any defect
or irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or
accepted until all irregularities have been waived or cured within such time as
the Subscription Agent determines in its sole discretion.
The
Subscription Agent will not be under any duty to give notification of any defect
or irregularity in connection with the submission of Subscription Certificates
or incur any liability for failure to give such notification.
EXERCISING
RIGHTS HOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION AFTER RECEIPT OF
THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT, EXCEPT AS PROVIDED BELOW
UNDER “NOTICE OF NET ASSET VALUE DECLINE.”
Sale
of Rights
The
Rights are transferable until the Expiration Date. The Rights will be
listed for trading on the Nasdaq Capital Market under the symbol
“MACCR.” MACC will use its best efforts to ensure that an adequate
trading market for the Rights will exist, although no assurance can be given
that a market for the Rights will develop. It is anticipated that the
Rights will trade on the Nasdaq Capital Market on a when-issued basis commencing
on or about __, 2008
until approximately __, 2008 and
on a regular way basis thereafter until and including __, 2008, the
last business day prior to the Expiration Date.
Sales
Through Subscription Agent
Record
Date Stockholders who do not wish to exercise any or all of their Rights may
instruct the Subscription Agent to sell any unexercised
Rights. Subscription Certificates representing the Rights to be sold
must be received by the Subscription Agent on or before __, 2008 (or
if the Offering is extended, by two business days prior to the Expiration
Date). Upon the timely receipt by the Subscription Agent of
appropriate instructions to sell Rights, the Subscription Agent will use its
best efforts to complete the sale and will remit the proceeds of sale, net of
commissions, to the selling Record Date Stockholder. Any commissions
on sales of Rights will be paid by the selling Record Date
Stockholder. If the Rights can be sold, sales of such Rights will be
deemed to have been effected at the volume-weighted average price received by
the Subscription Agent on the day such Rights are sold. The
Subscription Agent will also attempt to sell all Rights which remain unclaimed
as a result of Subscription Certificates being returned by the postal
authorities to the Subscription Agent as undeliverable as of the fourth business
day prior to the Expiration Date. Such sales will be made, net of
commissions, on behalf of the nonclaiming Record Date
Stockholders. The Subscription Agent will hold the proceeds from
those sales for the benefit of such nonclaiming Record Date Stockholders, until
such proceeds are either claimed or escheated. There can be no
assurance that the Subscription Agent will be able to complete the sale of any
such Rights, and neither MACC nor the Subscription Agent has guaranteed any
minimum sales price for the Rights.
Other
Transfers
The
Rights will be evidenced by a Subscription Certificate and may be transferred in
whole by endorsing the Subscription Certificate for transfer in accordance with
the accompanying instructions. A portion of the Rights evidenced by a
single Subscription Certificate (but not fractional Rights) may be transferred
by delivering to the Subscription Agent a Subscription Certificate properly
endorsed for transfer, with instructions to register such portion of the Rights
evidenced thereby in the name of the transferee and to issue a new Subscription
Certificate to the transferee evidencing such transferred Rights. In
such event, a new Subscription Certificate evidencing the balance of the Rights,
if any, will be issued to the holder thereof or, if the holder thereof so
instructs, to an additional transferee. The signature on the
Subscription Certificate must correspond with the name as written upon the face
of the Subscription Certificate in every particular, without alteration or
enlargement, or any change whatsoever. A signature guarantee must be
provided by an “Eligible Guarantor Institution” as defined in Rule 17Ad-15 under
the Exchange Act, subject to the standards and procedures adopted by
MACC.
Record
Date Stockholders wishing to transfer all or a portion of their Rights should
allow at least five business days for (i) the transfer instructions to be
received and processed by the Subscription Agent; (ii) a new Subscription
Certificate to be issued and transmitted to the transferee or transferees with
respect to transferred Rights, and to the transferor with respect to retained
Rights, if any; and (iii) the Rights evidenced by such new Subscription
Certificate to be exercised or sold by the recipients
thereof. Neither MACC nor the Subscription Agent shall have any
liability to a transferee or transferor of Rights if Subscription Certificates
are not received in time for exercise or sale prior to the Expiration
Date.
Except
for the fees charged by the Subscription Agent (which will be paid by MACC), all
commissions, fees and other expenses (including brokerage commissions and
transfer taxes) incurred or charged in connection with the purchase, sale or
exercise of Rights will be for the account of the transferor of the Rights, and
none of such commissions, fees or expenses will be paid by MACC or the
Subscription Agent.
MACC
anticipates that the Rights will be eligible for transfer or exercise through
the DTC PSOP function and that the exercise of the Primary Subscription and the
Over-Subscription Privilege may be effected through the same facility (Rights
exercised through DTC are referred to as “DTC Exercised
Rights”). Holders of DTC Exercised Rights may exercise the
Over-Subscription Privilege in respect of such DTC Exercised Rights by
delivering their instructions to the Subscription Agent via the PSOP function,
at or prior to 5:00 p.m., Eastern time, on the Expiration Date, with payment of
the Estimated Subscription Price for the number of Shares for which the
Over-Subscription Privilege is to be exercised.
Delivery
of Share Certificates
Except as
described herein, certificates representing Shares acquired in the Primary
Subscription and Shares acquired pursuant to the Over-Subscription Privilege
will be mailed promptly after the Expiration Date once full payment for such
Shares has been received and cleared. Stockholders whose Shares are
held of record by Cede or by any other Nominee on their behalf or their
broker-dealer’s behalf will have any Shares acquired in the Primary Subscription
credited to the account of Cede or such other Nominee. Shares
acquired pursuant to the Over-Subscription Privilege will be certificated and
certificates representing such Shares will be sent directly to Cede or such
other Nominee. Stock certificates will not be issued for Shares credited to plan
accounts.
Foreign
Stockholders
SUBSCRIPTION
CERTIFICATES WILL NOT BE MAILED TO RECORD DATE STOCKHOLDERS WHOSE RECORD
ADDRESSES ARE OUTSIDE THE UNITED STATES (the term “United States” includes the
states, the District of Columbia, and the territories and possessions of the
United States) (“Foreign Record Date
Stockholders”). Each Foreign Record Date Stockholder will be sent written
notice of the Offering, provided that such provision of notice is consistent
with the laws of the jurisdiction to which such notice is to be sent. The Rights
to which such Subscription Certificates relate will be held by the Subscription
Agent for such Foreign Record Date Stockholders’ accounts until instructions are
received to exercise or sell the Rights. If no instructions have been received
by 5:00 p.m., Eastern time, on __, 2008,
which is three business days prior to the Expiration Date, the Rights of those
Foreign Record Date Stockholders will be transferred by the Subscription Agent,
who will either purchase the Rights or use its best efforts to sell the Rights.
The net proceeds, if any, from the sale of those Rights by the Subscription
Agent will be remitted to Foreign Record Date Stockholders.
Federal
Income Tax Consequences of the Offering
The U.S.
federal income tax consequences to holders of Shares with respect to the
Offering include as follows:
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·
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The
distribution of Rights to Record Date Stockholders will not result in
taxable income to them, nor will they realize taxable income as a result
of the exercise of the Rights. No loss will be realized if Rights expire
without being exercised.
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·
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The
basis of a Right to a Record Date Stockholder who exercises or sells the
Right is expected to be zero, since the Right’s fair market value on the
distribution date is expected to be less than 15% of the fair market value
on that date of the Shares with regard to which it is issued (unless the
holder elects with respect to all Rights received, by filing a statement
with his or her timely filed federal income tax return for the year in
which the Rights are received, to allocate the basis of the Share between
the Right and the Share based on their respective fair market values on
that date). The basis of a Right to a Record Date Stockholder who allows
the Right to expire will be zero, and the basis to anyone who purchases a
Right in the market will be its purchase
price.
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·
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An
Exercising Rights Holder’s basis for determining gain or loss on the sale
of a Share acquired on the exercise of Rights will be equal to the sum of
the Record Date Stockholder’s basis in the Rights, if any, plus the
Subscription Price per Share. An Exercising Rights Holder’s gain or loss
recognized on the sale or exchange of such a Share will be capital gain or
loss if the Share was then held as a capital asset and will be long-term
capital gain or loss if the Share was held for more than one
year.
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MACC is
required to withhold and remit to the U.S. Treasury 28% of reportable payments
paid on an account if its holder provides MACC with either an incorrect taxpayer
identification number or no number at all or fails to certify that he or she is
not subject to such withholding.
The
foregoing is only a general summary of the material U.S. federal income tax
consequences of the Offering under the Internal Revenue Code of 1986 (the “Code”), and Treasury
regulations presently in effect that are generally applicable to (i) Record Date
Stockholders that are “United States persons” within the meaning of the Code,
and (ii) any other Record Date Stockholder that would be subject to U.S. federal
income tax on the sale or exchange of the Shares acquired on exercise of the
Rights, and does not cover foreign, state or local taxes. The Code and those
regulations are subject to change by legislative or administrative action, which
may be retroactive. Record Date Stockholders and Exercising Rights
Holders should consult their tax advisers regarding specific questions as to
federal, state, local or foreign taxes. See “Certain U.S. Federal
Income Tax Considerations” below.
Notice
of Net Asset Value Decline
MACC has
undertaken to suspend the Offering until it amends this Prospectus if,
subsequent to the effective date of the Registration Statement, MACC’s net asset
value declines more than 10% from its net asset value as of that date. In such
event, the Expiration Date would be extended, and MACC would notify Exercising
Rights Holders of any such decline and thereby permit them to cancel their
exercise of Rights.
Employee
Plan Considerations
Stockholders
that are on tax-deferral arrangements, such as plans qualified under Code
section 401(a) (including corporate savings plans, 401(k) plans, and Keogh plans
of self-employed individuals), individual retirement accounts under Code section
408(a) (“IRAs”), Roth IRAs
under Code section 408A, and custodial accounts under Code section 403(b)
(collectively, “Retirement Plans”),
should be aware that additional contributions of cash to a Retirement Plan
(other than permitted rollover contributions or trustee-to-trustee transfers
from another Retirement Plan) in order to exercise Rights, when taken together
with contributions previously made, may result in, among other things, excise
taxes for excess or nondeductible contributions or the Retirement Plan’s loss of
its tax-favored status. Furthermore, the sale or transfer of Rights may be
treated as a distribution or result in other adverse tax consequences. In the
case of Retirement Plans qualified under Code section 401(a) and certain other
Retirement Plans, additional cash contributions could cause the maximum
contribution limitations of Code section 415 or other qualification rules to be
violated.
Retirement
Plans and other tax-exempt entities, including governmental plans, should also
be aware that if they borrow in order to finance their exercise of Rights, they
may become subject to the tax on unrelated business taxable income (“UBTI”) under Code
section 511. If any portion of an IRA or a Roth IRA is used as security for a
loan, the portion so used is also treated as distributed to the IRA or Roth IRA
owner, which may result in current income taxation and penalty
taxes.
The
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), contains
fiduciary responsibility requirements, and ERISA and the Code contain prohibited
transaction rules that may apply to the exercise of Rights by Retirement Plans.
Retirement Plans that are not subject to ERISA (such as governmental plans) may
be subject to state law restrictions that could affect the decision to exercise
or transfer Rights. Due to the complexity of these rules and the penalties for
noncompliance, stockholders that are on Retirement Plans should consult with
their counsel and other advisers regarding the consequences of their exercise of
Rights under ERISA, the Code, and, where applicable, state law.
The
following table is intended to assist you in understanding the various costs and
expenses that an investor in our Common Stock will bear directly or
indirectly. We caution you that the percentages in the table below
indicating annual expenses are estimates and may vary.
Stockholder
transaction expenses (as a percentage of Subscription Price):
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Sales
load
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0.00%
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Offering
expenses
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___%(1)
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Total
stockholder transaction expenses paid
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___%
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Annual
expenses following this Offering (as a percentage of net assets
attributable to Common Shares):
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Management
fees payable under Advisory Agreement
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__%(2)
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Incentive
fees payable under Advisory Agreement
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__%(3)
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Other
expenses
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__%(4)
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Interest
payments on borrowed funds
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__%(5)
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Total
annual expenses
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__%
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Example
The
following example demonstrates the projected dollar amount of total cumulative
expenses that would be incurred over various periods with respect to a
hypothetical investment in our Common Stock. These amounts are based
upon assumed offering expenses of 5% and our payment of annual operating
expenses at the levels set forth in the table above, except as indicated
below.
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1 Year
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3 Years
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5 Years
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10 Years
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You
would pay the following expenses on a $1,000 investment, assuming a 5%
annual return
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$__
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$__
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$__
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$__
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The
example and the expenses in the tables above should not be considered a
representation of our future expenses, and actual expenses may be greater or
less than those shown. Moreover, while the example assumes, as
required by the applicable rules of the SEC, a 5% annual return, our performance
will vary and may result in a return greater or less than 5%. The
example and fee table should not be considered as a representation of past or
future expenses or annual rates of return, which may be more or less than those
assumed for purposes of the example and fee table. The percentage for
“Other Expenses” set forth on the fee table is based on estimated amounts for
the current fiscal year.
__________
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(1)
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The
percentage reflects the aggregate expenses of the offering, which include
Subscription Agent fees, printing and professional fees, and are estimated
to be $80,000. The estimated offering expenses also consist of,
among other things, professional and printing
expenses.
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(2)
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Pursuant
to the Advisory Agreement, we pay EAM a management fee (the “Management
Fee”) equal to 2.0% of the Assets Under Management attributable to
each of (i) the Existing Portfolio and (ii) the New
Portfolio. For purposes of calculating the Management Fee,
“Assets Under Management” means the total value of MACC’s assets managed
by the EAM under the Advisory Agreement, less any cash balances and cash
equivalent investments of MACC that are not invested in debt or equity
securities of portfolio companies in accordance with our investment
objective, calculated as of the end of each month during the term of the
Advisory Agreement. Under the Subadvisory Agreement, EAM pays
InvestAmerica a management fee based on a portion of the Management Fee
paid to EAM by the MACC under the Advisory Agreement attributable to the
Existing Portfolio. The Subadvisory Agreement does not result
in any additional expense to MACC beyond the expenses associated with the
Advisory Agreement. During the first three months of the term
of the Subadvisory Agreement, EAM will pay InvestAmerica a management fee
equal to 75% of the Management Fee received by EAM under the Advisory
Agreement attributable to the Existing Portfolio. For the
remainder of the term of the Subadvisory Agreement, EAM will pay
InvestAmerica a management fee equal to 50% of the Management Fee received
by EAM under the Advisory Agreement attributable to the Existing
Portfolio. Please see “Management—Advisory Agreement” in the
SAI for a discussion of the factors the Board of Directors considered in
approving the terms of the Advisory Agreement and the Subadvisory
Agreement.
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(3)
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Pursuant
to the Advisory Agreement, we will pay our Adviser an incentive fee (the
“Incentive
Fee”) equal to 20% of the Net Capital Gains, before taxes,
attributable to the New Portfolio (which would include any follow-on
investments made to the Existing Portfolio) and 13.4% of the Net Capital
Gains, before taxes, attributable to the Existing
Portfolio. “Net Capital Gains,” as defined in the Advisory
Agreement, are calculated as realized capital gains minus the sum of
capital losses, less any unrealized depreciation recorded during the
year. Capital losses and realized capital gains are not
cumulative under the Incentive Fee computation. Payments for
Incentive Fees resulting from noncash gains (such as when stock
consideration is received) are deferred until such consideration is
actually monetized. Under the Subadvisory Agreement, EAM pays
InvestAmerica an incentive fee equal to 100% the Incentive Fee paid to EAM
by MACC under the Advisory Agreement attributable to the Existing
Portfolio.
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(4)
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“Other
expenses” include our estimated overhead expenses, including payments to
our transfer agent, our administrative agent and legal and accounting
expenses. The holders of our Common Stock indirectly bear the
cost associated with such other
expenses.
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(5)
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As
of June 30, 2008, MACC has an outstanding principal amount of $4,855,661
owing on a term loan (the “Term Loan”) in
the original principal amount of $6,250,000 obtained from Cedar Rapids
Bank & Trust Company (CRB&T). The
Term Loan has a stated maturity date of August 29, 2009 and is subject to
a variable interest rate based on an independent index. In
addition, under a revolving loan with CRB&T, MACC is permitted to
borrow up to $500,000 (the “Revolving
Loan”) for working capital purposes, including making follow-on
investments in the Existing Portfolio. Presently, no funds have
been drawn on the Revolving Loan. Though we presently do not
have any definitive plans to do so, we may utilize borrowed funds, in
addition to the Revolving Loan, to make investments, including before we
have fully invested the proceeds of this offering, to the extent we
determine that additional capital would allow us to take advantage of
additional investment opportunities, and if (i) the market for debt
financing presents attractively priced debt financing opportunities, and
(ii) our Board determines that leveraging our portfolio would be in our
best interests and the best interests of our stockholders. The
table above assumes we do not borrow any additional funds for investment
purposes.
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The
following selected financial data for the years 2003-2007 ending September 30 is
derived from MACC’s audited financial statements. The selected data
presented for the nine months ended June, 2008 and 2007 is derived from
unaudited financial statements of MACC, which, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations of MACC as of and for these periods. Results of operations
for the nine months ended June 30, 2008 are not necessarily indicative of the
results of operations that may be achieved for the full fiscal
year. The data should be read in conjunction with MACC’s financial
statements and notes thereto and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
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Nine Months Ended
June 30,
(Unaudited)
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Fiscal Years Ended
September 30,
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2008
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2007
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2007
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2006
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2005
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2004
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2003
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Investment
expense income, net
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$ | (399,203 | ) | (491,184 | ) | (786,487 | ) | (1,171,152 | ) | (1,855,902 | ) | (3,021,359 | ) | (1,917,391 | ) | |||||||||||||
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Net
realized (loss) gain on investments, net of tax
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691,540 | 213,377 | 1,351,456 | 3,645 | 3,672,664 | 3,021,176 | (3,600,749 | ) | ||||||||||||||||||||
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Loss
on litigation settlement
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--- | --- | --- | --- | --- | (1,277,263 | ) | --- | ||||||||||||||||||||
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Net
change in unrealized appreciation/ deprecation on investments and other
assets
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(989,652 | ) | 750,307 | (662,393 | ) | (879,234 | ) | 771,576 | (730,245 | ) | 2,607,548 | |||||||||||||||||
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Net
change in net assets from operations
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$ | (697,315 | ) | 472,500 | (97,424 | ) | (2,046,741 | ) | 2,588,338 | (2,007,691 | ) | (2,910,592 | ) | |||||||||||||||
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Net
change in net assets from operations per common Share
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(0.28 | 1) | 0.20 | 1 | (0.04 | 1) | (0.83 | 1) | 1.05 | 1 | (0.86 | 2) | (1.25 | 3) | ||||||||||||||
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Total
assets
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$ | 15,891,231 | 18,008,787 | 18,008,787 | 22,830,055 | 31,336,214 | 38,944,116 | 41,233,118 | ||||||||||||||||||||
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Total
long term debt
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$ | 4,855,661 | 6,108,373 | 6,108,373 | 10,790,000 | 16,790,000 | 25,790,000 | 27,940,000 | ||||||||||||||||||||
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(1)
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Computed
using 2,464,621 shares outstanding at June 30, 2008, June 30, 2007,
September 30, 2007, September 30, 2006 and September 30,
2005.
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(2)
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Computed
using 2,329,255 shares outstanding at September 30, 2004 and September 30,
2003.
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The
Company has presented the following disclosures pertaining to common
stockholders, as required by the AICPA Audit and Accounting Guide for Investment
Companies, for the years 2003-2007 ended September 30 and for the nine months
ended June 30, 2007 and June 30, 2008:
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Nine
Months
Ended June 30,
(Unaudited)
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Fiscal Years Ended
September 30,
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2008
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2007
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2007
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2006
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2005
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2004
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2003
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Per
Share Operating Performance
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(For
a share of capital stock outstanding throughout the
period):
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Net
asset value, beginning of period
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$ | 4.67 | 4.71 | 4.71 | 5.54 | 4.61 | 5.47 | 6.72 | ||||||||||||||||||||
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Income
from investment operations:
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Investment
expense, net
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(0.16 | ) | (0.19 | ) | (0.32 | ) | (0.48 | ) | (0.75 | ) | (1.30 | ) | (0.82 | ) | ||||||||||||||
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Net
realized and unrealized (loss) gain on investment
transactions
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(0.12 | ) | 0.39 | 0.28 | (0.35 | ) | 1.80 | 0.44 | (0.43 | ) | ||||||||||||||||||
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Conversion
of note payable and accrued interest to shares of common
stock
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--- | --- | --- | --- | (0.12 | ) | --- | --- | ||||||||||||||||||||
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Total
from investment operations
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(0.28 | ) | 0.20 | (0.04 | ) | (0.83 | ) | 0.93 | (0.86 | ) | (1.25 | ) | ||||||||||||||||
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Net
asset value, end of period
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$ | 4.39 | 4.91 | 4.67 | 4.71 | 5.54 | 4.61 | 5.47 | ||||||||||||||||||||
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Closing
bid price
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$ | 2.15 | 2.30 | 2.45 | 1.78 | 2.57 | 3.45 | 2.52 | ||||||||||||||||||||
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Total
return (1)
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Net
asset value basis (1)
(2)(3)
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(6.05 | ) % | 4.07 | (0.84 | ) | (14.98 | ) | 27.26 | (15.75 | ) | (18.59 | ) | ||||||||||||||||
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Market
price basis
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(12.24 | ) % | 29.21 | 37.64 | (30.74 | ) | (25.51 | ) | 36.90 | (25.88 | ) | |||||||||||||||||
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Net
asset value, end of period (in
thousands)
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$ | 10,823 | 12,091 | 11,521 | 11,618 | 13,665 | 10,738 | 12,746 | ||||||||||||||||||||
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Ratio
to average net assets (4):
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Investment
(expense) income, net (1) (2)
(3)
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(3.68 | ) % | (4.23 | ) | (6.71 | ) | (8.53 | ) | (15.81 | ) | (23.36 | ) | (13.43 | ) | ||||||||||||||
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Operating
and income tax expense (1)
(2)(3)
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10.48 | % | 10.42 | 15.22 | 18.46 | 37.86 | 43.53 | 31.24 | ||||||||||||||||||||
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(1)
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Total
return, which reflects the annual change in net assets, was calculated
using the change in net assets between the beginning and end of the
year. An individual common stockholder’s return may vary from
these returns.
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(2)
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MorAmerica’s
investment adviser agreed to a waive management fees during March and
April 2005. Due to the agreement, the investment adviser
voluntarily waived $103,867 as of September 30, 2005. Excluding
the effects of the waiver as of September 30, 2005, total return on a net
assets value basis would be 26.29%; the investment (expense) income, net
ratio would be (16.80)%; and the operating and income expense
ratio would be 38.96%.
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(3)
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MorAmerica’s
investment adviser agreed to a voluntary, temporary reduction in
management fees from January 1, 2003 through February 29,
2004. Due to the agreement, the investment adviser voluntarily
waived $87,092 of management fees as of September 30,
2004. Excluding the effects of the waiver as of September 30,
2004, total return on a net assets value basis would be (16.43)%; the
investment (expense) income, net ratio would be (24.11)%; and the
operating and income expense ratio would be
44.36%.
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(4)
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The
ratios of investment (expense) income, net to average net assets, of
operating and income tax expenses to average net assets and total return
are calculated for common stockholders as a
class.
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The
matters discussed in this Prospectus, as well as in future oral and written
statements by our management, that are forward-looking statements are based on
current management expectations that involve substantial risks and uncertainties
that could cause actual results to differ materially from the results expressed
in, or implied by, these forward-looking statements. Forward-looking
statements relate to future events or our future financial
performance. We generally identify forward-looking statements by
terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,”
“could,” “intends,” “target,” “projects,” “contemplates,” “believes,”
“estimates,” “predicts,” “potential,” or “continue” or the negative of these
terms or other similar words. Important assumptions include our ability to
originate new investments, achieve certain levels of return, the availability of
additional capital, and the ability to maintain certain debt to asset
ratios. In light of these and other uncertainties, the inclusion of a
projection or forward-looking statement in this Prospectus should not be
regarded as a representation by us that our plans or objectives will be
achieved. The forward-looking statements contained in this Prospectus
include statements as to:
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·
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our
future operating results;
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·
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our
business prospects and the prospects of our prospective portfolio
companies;
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·
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the
impact of investments that we expect to
make;
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·
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our
informal relationships with third
parties;
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·
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the
dependence of our future success on the general
economy
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the
ability of our portfolio companies to achieve their
objectives;
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·
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our
ability to make investments consistent with our investment objective,
including with respect to the size, nature and terms of our
investments;
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·
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our
regulatory structure;
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·
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our
ability to operate as a business development
company;
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·
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the
adequacy of our cash resources and working capital and our anticipated use
of proceeds;
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·
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the
timing of cash flows, if any, from the operations of our portfolio
companies; and
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For a
discussion of factors that could cause our actual results to differ from
forward-looking statements contained in this Prospectus, please see the
discussion under “Risk Factors.” You should not place undue reliance
on these forward-looking statements. The forward-looking statements made in this
Prospectus relate only to events as of the date on which the statements are
made. We undertake no obligation to update any forward-looking
statement to reflect events or circumstances occurring after the date of this
Prospectus. The forward-looking statements contained in this
Prospectus are excluded from the safe harbor protection provided by Section 27A
of the 1933 Act.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with our financial statements
and related notes and other financial information appearing elsewhere in this
Prospectus. In addition to historical information, the following discussion and
other parts of this Prospectus contain forward-looking information that involves
risks and uncertainties. Our actual results could differ materially from those
anticipated by such forward-looking information due to the factors discussed
under “Risk Factors,” “Forward-Looking Statements” and elsewhere in this
Prospectus.
Overview
With
respect to the New Portfolio, we will seek capital appreciation by making direct
equity investments in small public companies that are eligible for BDC
investment. These investments will be in small- and micro-cap growth
companies benefiting from positive fundamental change. These
investments will primarily be in the form of Pipes and registered direct
offerings. We also intend to invest in small- and micro-cap growth
companies that are listed and will be purchased on the national
exchanges. We seek to liquidate and maximize the value of the
Existing Portfolio. We have elected to be regulated as a BDC under
the 1940 Act, and as such, are subject to numerous regulations and restrictions,
as discussed elsewhere in this Prospectus.
Results
of Operations
Our
investment income includes income from interest, dividends and
fees. Investment expense, net represents total investment income
minus net operating expenses. The main objective of Existing
Portfolio company investments is to achieve capital appreciation and realized
gains in the Existing Portfolio. These gains and losses are not
included in investment expense, net.
Third
Quarter Ended June 30, 2008 Compared to Third Quarter Ended June 30,
2007
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For the three months ended
June 30,
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||||||||||||
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2008
|
2007
|
Change
|
||||||||||
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Total
investment income
|
$ | 281,861 | 253,152 | 28,709 | ||||||||
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Net
operating and income tax expense
|
(362,021 | ) | (330,592 | ) | (31,429 | ) | ||||||
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Investment
expense, net
|
(80,160 | ) | (77,440 | ) | (2,720 | ) | ||||||
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Net
realized gain on investments
|
686,047 | 309,357 | 376,690 | |||||||||
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Net
change in unrealized appreciation/ depreciation on investments and other
assets
|
(34,322 | ) | 270,950 | (305,272 | ) | |||||||
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Net
change in unrealized loss on other assets
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(40,628 | ) | (25,686 | ) | (14,942 | ) | ||||||
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Net
gain on investments
|
611,097 | 554,621 | 56,476 | |||||||||
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Net
change in net assets from operations
|
$ | 530,937 | 477,181 | 53,756 | ||||||||
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Net
asset value per share:
|
||||||||||||
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Beginning
of period
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$ | 4.18 | 4.71 | |||||||||
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End
of period
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$ | 4.39 | 4.91 | |||||||||
Total
Investment Income
During
the current fiscal year third quarter, total investment income was $281,861, an
increase of $28,709, or 11%, from total investment income of $253,152 for the
prior year third quarter. In the current year third quarter as
compared to the prior year third quarter, interest income decreased $81,203, or
41%, and dividend income increased $109,912, or 206%. The decrease in
interest income is the net result of (i) repayments of principal on debt
portfolio securities issued to us by four portfolio companies, (ii) an increase
in interest income due to an additional debt investment from the restructure in
one debt portfolio security, and (iii) a decrease in interest income on three
debt portfolio securities which have been placed on non-accrual of interest
status. In the current year third quarter, we received dividends on
two existing portfolio investments, as compared to dividend income received in
the prior year third quarter from three existing portfolio investments, however
the current year dividends were larger. We do not anticipate that our
dividend income will continue to increase in future periods.
Net
Operating Expenses
Net
operating expenses for the third quarter of the current year were $362,021, an
increase of $31,429, or 10%, as compared to net operating expenses for the prior
year third quarter of $330,592. Interest expense decreased $65,318,
or 41%, in the current year third quarter due to the repayment in the prior
fiscal year of $10,790,000 of borrowings (the “SBA Debentures”) from
the Small Business Administration (the “SBA”). Management
fees decreased $3,052, or 4%, in the current year third quarter due to the
decrease in capital under management. Professional fees increased
$72,433, or 270%, in the current year third quarter as compared to the prior
year third quarter due to expenses related to changes in the investment advisory
structure, the Merger and the exploration of capital raising options. Other
expenses increased $27,366, or 41%, in the current year third quarter as
compared to the prior year third quarter. The increase in other expenses is
primarily the result of an increase in expenses associated with compliance with
the Security and Exchange Commission (“SEC”)
regulations.
If the
Advisory Agreement had been in effect for fiscal year 2007, EAM would have
earned $442,062 in management fees, as compared to the $331,625 of management
fees earned by InvestAmerica during that time on a consolidated basis with
respect to the Total Portfolio under the Investment Advisory Agreements (the
“InvestAmerica
Advisory Agreements”) between MACC and InvestAmerica, and between
MorAmerica and InvestAmerica, both of which were in effect through and after the
third quarter of fiscal 2008. The aggregate amount of Management Fees
payable to EAM under the Advisory Agreement will increase as MACC makes
investments in the New Portfolio.
Also, as
described under “Fees and Expenses” and “Investment Advisory Agreements, Certain
Relationships and Related Transactions,” management fees payable
to InvestAmerica under the Subadvisory Agreement are payable by EAM out of
Management Fees paid by MACC to EAM under the Advisory Agreement attributable to
the Existing Portfolio. If the Subadvisory Agreement had been in
effect for fiscal year 2007, InvestAmerica’s management fee with respect to the
Existing Portfolio would have been $249,592, as compared to the $331,625 earned
by InvestAmerica on a consolidated basis under the InvestAmerica Advisory
Agreements with respect to the Existing Portfolio during that
time. The management fees payable under the Subadvisory Agreement
would have been less than the amounts payable under the InvestAmerica Advisory
Agreements because the Subadvisory Agreement management fee rate will be reduced
(i) first to 75% of the Management Fee payable to EAM under the Advisory
Agreement attributable to the Existing Portfolio during the first three months,
and (ii) second to 50% of the Management Fee payable to EAM under the Advisory
Agreement attributable to the Existing Portfolio after the three-month
period.
Investment
Expense, Net
For the
current year third quarter, we recorded investment expense, net of $80,160, as
compared to investment expense, net of $77,440 during the prior year third
quarter, an increase of $2,720, or 4%. The increase in investment
expense, net is the result of the decrease in investment income described above
and the increase in operating expenses described above.
Net
Realized Gain (Loss) on Investments
During
the current year third quarter, we recorded net realized gain on investments of
$686,047, as compared with net realized gain on investments of $309,357 during
the prior year third quarter. Management does not attempt to maintain
a comparable level of realized gains quarter to quarter but instead attempts to
maximize total investment portfolio appreciation through realizing gains in the
disposition of securities and investments in the New Portfolio. Under
the InvestAmerica Advisory Agreements, InvestAmerica earned an incentive fee
which is calculated as a percentage of the excess of MACC’s realized gains in a
particular period, over the sum of net realized losses and unrealized
depreciation during the same period. Under the Advisory Agreement,
EAM will likewise earn the Incentive Fee, which is calculated as a percentage of
the excess of MACC’s realized gains in a particular period, over the sum of net
realized losses and unrealized depreciation during the same
period. As a result, the timing of realized gains, realized losses
and unrealized depreciation can have an effect on the amount of the Incentive
Fee payable to EAM under the Advisory Agreement.
The
Advisory Agreement provides that EAM will earn the same amount of incentive fees
as InvestAmerica would have earned under the InvestAmerica Advisory Agreements
with respect to the Existing Portfolio. Thus, if the Advisory
Agreement had been in effect for fiscal year 2007, EAM would have earned
$143,732 in incentive fees, which is the same amount earned by InvestAmerica in
fiscal year 2007 under the InvestAmerica Advisory Agreements. As
described in more detail under “Fees and Expenses” and “Investment Advisory
Agreements, Certain Relationships and Related Transactions,” the Advisory Agreement
provides that MACC will pay EAM an Incentive Fee in an amount equal to 20.0% of
the net capital gains, before taxes, attributable only to the New Portfolio (not
the Existing Portfolio), as compared to the 13.4% payable to InvestAmerica under
the InvestAmerica Advisory Agreements. The higher Incentive Fee under
the Advisory Agreement will therefore increase the amount of incentive fees
payable to EAM in a given period only to the extent that MACC makes New
Portfolio investments and realizes net capital gains, before taxes, on the New
Portfolio.
Effective
April 29, 2008, the InvestAmerica Advisory Agreements were terminated and we
entered into the Advisory Agreement with EAM. Under
the Advisory Agreement, EAM earns an incentive fee which is calculated as a
percentage of the excess of our realized gains in a particular period, over the
sum of net realized losses and unrealized depreciation during the same
period. As a result, the timing of realized gains, realized losses
and unrealized depreciation can have an effect on the amount of the incentive
fee payable to EAM under the Advisory Agreement.
Also
effective April 29, 2008, we entered into the Subadvisory Agreement with EAM and
InvestAmerica, pursuant to which InvestAmerica will continue to manage the
Existing Portfolio. Under the terms of the Subadvisory Agreement, EAM
pays InvestAmerica an incentive fee based on a portion of the incentive fees
paid to EAM by us under the Advisory Agreement attributable to the Existing
Portfolio.
In
addition, as described under “Fees and Expenses” and “Investment Advisory
Agreements, Certain Relationships and Related Transactions,” incentive fees payable
to InvestAmerica under the Subadvisory Agreement are payable by EAM out of the
Incentive Fees attributable to the Existing Portfolio paid by MACC to EAM under
the Advisory Agreement. If the Subadvisory Agreement had been in
effect for fiscal year 2007, InvestAmerica’s earned incentive fee respecting the
Existing Portfolio would have been $143,732, which the same amount of incentive
fee that would have been earned by EAM under the Advisory Agreement respecting
the Existing Portfolio.
Changes
in Unrealized Depreciation/Appreciation of Investments and Other
Assets
Net
change in unrealized appreciation/depreciation on investments represents the
change for the period in the unrealized appreciation, net of unrealized
depreciation, on our total investment portfolio based on the valuation method
described under “Critical Accounting Policy”.
We
recorded net change in unrealized appreciation/depreciation on investments of
($34,322) during the current year third quarter, as compared to $270,950 during
the prior year third quarter. This net change resulted
from:
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|
●
|
No
unrealized appreciation during the current year third quarter, as compared
to unrealized appreciation in the fair value of two portfolio companies
totaling $466,300 during the prior year third
quarter.
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|
|
●
|
Unrealized
depreciation in the fair value of one portfolio company of $34,322 during
the current year third quarter, as compared to no unrealized depreciation
during the prior year third
quarter.
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|
|
●
|
No
reversal of unrealized appreciation during the current year third quarter,
as compared to the reversal of unrealized appreciation of $195,350 in one
portfolio company during the prior year third
quarter.
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Net
Change in Net Assets from Operations
We
experienced an increase of $530,937 in net assets for the third quarter of
fiscal year 2008, and the resulting net asset value per share was $4.39 as of
June 30, 2008, as compared to $4.67 as of September 30, 2007.
The
increase in net assets recorded during the current year third quarter was the
result of net realized gain on investments, as described above.
We have
six Existing Portfolio investments valued at cost, has recorded unrealized
appreciation on five Existing Portfolio investments, and has recorded unrealized
depreciation on eight Existing Portfolio investments. Quarterly
valuations can be affected by a portfolio company’s short term performance that
results in increases or decreases in unrealized depreciation and unrealized
appreciation for the quarter. Changes in the fair value of a
portfolio security may or may not be indicative of the long term performance of
the portfolio company.
With
respect to the Existing Portfolio, we are not currently making investments (but
may periodically make follow-on investments in Existing Portfolio companies), as
previously announced. As discussed in greater detail elsewhere in
this Prospectus, EAM’s investment strategy for us under the Advisory Agreement
is to make new equity investments in small- and micro-cap companies which
qualify for investment by BDCs under the 1940 Act. Under the
Subadvisory Agreement, InvestAmerica will continue to oversee the Existing
Portfolio. We will continue to prudently sell Existing Portfolio
investments and use the resulting proceeds to pay down the Term Loan, as further
described below. The ability to exit the Existing Portfolio
investments is affected by company performance and external factors unrelated to
the portfolio companies. These factors include sub prime lending,
credit contraction, inflationary pressures, high commodity prices, recessional
pressures, a slowing economy and current world tensions.
Nine
Months Ended June 30, 2008 Compared to Nine Months Ended June 30,
2007
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For the nine months ended
June 30,
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||||||||||||
|
2008
|
2007
|
Change
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||||||||||
|
Total
investment income
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$ | 736,163 | 720,422 | 15,741 | ||||||||
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Net
operating and income tax expense
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(1,135,366 | ) | (1,211,606 | ) | 76,240 | |||||||
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Investment
expense, net
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(399,203 | ) | (491,184 | ) | 91,981 | |||||||
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Net
realized (loss) gain on investments
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691,540 | 213,377 | 478,163 | |||||||||
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Net
change in unrealized appreciation/ depreciation on investments and other
assets
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(955,652 | ) | 750,307 | (1,705,959 | ) | |||||||
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Net
change in unrealized loss on other assets
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(34,000 | ) | --- | (34,000 | ) | |||||||
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Net
gain (loss) on investments
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(298,112 | ) | 963,684 | (1,261,796 | ) | |||||||
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Net
change in net assets from operations
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$ | (697,315 | ) | 472,500 | (1,169,815 | ) | ||||||
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Net
asset value per share:
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||||||||||||
|
Beginning
of period
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$ | 4.67 | 4.71 | |||||||||
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End
of period
|
$ | 4.39 | 4.91 | |||||||||
Total
Investment Income
During
the current fiscal year nine-month period, total investment income was $736,163,
an increase of $15,741, or 2%, from total investment income of $720,422 for the
prior year nine-month period. In the current year nine-month period
as compared to the prior year nine-month period, interest income decreased
$146,027, or 24%, and dividend income increased $161,762 or 162%. The
decrease in interest income is the net result of (i) repayments of principal on
debt portfolio securities issued to us by five Existing Portfolio companies,
(ii) an increase in interest income due to an additional debt investment from
the restructure of one debt portfolio security, (iii) an increase in interest
income on one debt portfolio security which had been on non-accrual of interest
status during the prior year nine-month period, but which made interest payments
during the current nine-month period prior to being placed again on non-accrual
of interest status, and (iv) a decrease in interest income on two debt portfolio
securities which have been placed on non-accrual of interest
status. Debt portfolio securities are placed on non-accrual of
interest status when the borrower is financially unable to make required
interest payments. In both the current year nine-month period and the
prior year nine-month period, we received dividends on three Existing Portfolio
investments; however, the current-year dividends were larger.
Net
Operating Expenses
Net
operating expenses for the nine-month period of the current year were
$1,135,366, a decrease of $76,240, or 6%, as compared to net operating expenses
for the prior year nine-month period of $1,211,606. Interest expense
decreased $230,223, or 41%, in the current year nine-month period due to the
repayment in the prior fiscal year of the SBA Debentures. Management
fees decreased $45,919, or 18%, in the current year nine-month period due to the
decrease in capital under management. Professional fees increased
$188,877, or 114%, in the current year nine-month period due to expense related
to changes in the investment advisory structure, the Merger and the exploration
of capital raising options. Other expenses increased $11,025, or 5%,
in the current year nine-month period as compared to the prior year nine-month
period. The increase in other expenses is the net result of (i) a
decrease in prepayment penalties incurred on the repayment of the SBA Debentures
during the prior year nine-month period, (ii) a decrease in administrative
expenses due to timing of payments, (iii) an increase in directors and officers
insurance, (iv) an increase in directors travel expenses, and (v) an increase in
expenses associated with compliance with SEC regulations.
Investment
Expense, Net
For the
current year nine-month period, we recorded investment expense, net of $399,203,
as compared to investment expense, net of $491,184 during the prior year
nine-month period, a decrease of $91,981, or 19%. The decrease in
investment expense, net is primarily the result of the decrease in net operating
expenses described above.
Net
Realized Gain on Investments
During
the current year nine-month period, we recorded net realized gain on investments
of $691,540, as compared with net realized gain on investments of $213,377
during the prior year nine-month period. Management does not attempt
to maintain a comparable level of realized gains quarter to quarter but instead
attempts to maximize total investment portfolio appreciation through realizing
gains in the disposition of securities. Under the InvestAmerica
Advisory Agreements (prior to their termination during the current year third
quarter), InvestAmerica earned an incentive fee calculated as a percentage of
the excess of our realized gains in a particular period, over the sum of net
realized losses and unrealized depreciation during the same
period. Similarly, under the Advisory Agreement, EAM is entitled to
earn an incentive fee which is calculated as a percentage of the excess of our
realized gains in a particular period, over the sum of net realized losses and
unrealized depreciation during the same period. As a result, the
timing of realized gains, realized losses and unrealized depreciation can have
an effect on the amount of the incentive fee payable to EAM under the Advisory
Agreement and to InvestAmerica under the InvestAmerica Advisory
Agreements.
Net
Change in Unrealized Appreciation/Depreciation of Investments and Other
Assets
Net
change in unrealized appreciation/depreciation on investments represents the
change for the period in the unrealized appreciation, net of unrealized
depreciation, on our total investment portfolio based on the valuation method
described under “Critical Accounting Policy.” We recorded net change
in unrealized depreciation on investments of ($955,652) during the current year
nine-month period, as compared to $750,307 during the prior year nine-month
period. This net change resulted from:
|
|
●
|
Unrealized
appreciation in the fair value of two portfolio companies totaling
$743,338 during the current year nine-month period, as compared to
unrealized appreciation in the fair value of five portfolio companies
totaling $1,520,657 during the prior year nine-month
period.
|
|
|
●
|
Unrealized
depreciation in the fair value of eight portfolio companies of $1,698,990
during the current year nine-month period, as compared to unrealized
depreciation in the fair value of five portfolio companies of $770,350
during the prior year nine-month
period.
|
The net
change in unrealized loss on other assets of $34,000 during the current year
nine-month period was recorded with respect to other securities which are
classified as other assets, as compared to no change in unrealized loss on other
assets during the prior year nine-month period.
Financial
Condition, Liquidity and Capital Resources
We rely
upon several sources to fund its operating and investment activities, including
our cash and money market accounts and the Revolving Loan, as further described
below.
As of
June 30, 2008, our cash and money market accounts totaled
$345,967. As reported elsewhere, MorAmerica Capital had entered into
(i) the Term Loan to refinance the SBA Debentures, which was assumed by us on
April 30, 2008 as a result of the Merger, and which has a current balance of
$4,855,661, and (ii) a revolving loan permitting MorAmerica Capital (now us) to
borrow up to $500,000, with Cedar Rapids Bank & Trust Company. As
of June 30, 2008, we believe that our existing cash and money market accounts,
the revolving loan, and other anticipated cash flows will provide adequate funds
for our anticipated cash requirements during fiscal year 2008, including
follow-on investments respecting the Existing Portfolio, interest payments on
the Term Loan and administrative expenses. With respect to the
Existing Portfolio, we are not making new investments, are prudently disposing
of Existing Portfolio assets and are using the resulting proceeds to pay down
the Term Loan. We anticipate commencing our new investment strategy
under the Advisory Agreement when it raises additional capital.
The
following table shows our significant contractual obligations for the repayment
of the Term Loan and other contractual obligations as of June 30,
2008:
|
Payments due by
period
|
||||||||||||||||||||
|
Contractual
Obligations
|
||||||||||||||||||||
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Total
|
Less than 1 Year
|
1-3 Years
|
3-5 Years
|
More than 5 Years
|
||||||||||||||||
|
Note
Payable
|
$ | 4,855,661 | --- | 4,855,661 | --- | --- | ||||||||||||||
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Incentive
Fees Payable
|
$ | 23,061 | 23,061 | --- | --- | --- | ||||||||||||||
We
currently anticipate that we will rely primarily on our current cash and money
market accounts and our cash flows from operations to fund our investment
activities in the Existing Portfolio and other cash requirements during fiscal
year 2008. With respect to its investment strategy under the Advisory
Agreement, our Board of Directors sought and received approval by the
shareholders for a proposal to issue rights to acquire shares of its Common
Stock as a means by which it may raise additional equity
capital. Although management believes these sources will provide
sufficient funds for us to meet its fiscal year 2008 investment level objective
and other anticipated cash requirements, there can be no assurances that our
cash flows from operations or cash requirements will be as
projected.
Portfolio
Activity
With
respect to the Existing Portfolio, we have invested in and lent to businesses
through investments in subordinated debt (generally with detachable equity
warrants), preferred stock and common stock. The total portfolio
value of investments in publicly and non-publicly traded securities was
$14,931,397 at June 30, 2008 and $16,704,954 at September 30,
2007. During the three months ended June 30, 2008, we invested
$52,000 in a follow-on investment portfolio company. As noted
elsewhere in this Prospectus, we intend to pursue an investment strategy
consisting of new equity investments in very small public companies that qualify
for investment by BDCs under the 1940 Act, and may continue to make follow-on
investments in its Existing Portfolio.
With
respect to the Existing Portfolio, we have frequently co-invested with other
funds managed by InvestAmerica. When it makes any co-investment with
these related funds, we follow certain procedures consistent with orders of the
SEC for related party co-investments to reduce or eliminate conflict of interest
issues. All of the $52,000 invested during the current year third
quarter represented co-investments with another fund managed by
InvestAmerica.
Critical
Accounting Policy
Investments
in securities that are traded in on a stock exchange are valued based on the
last quoted sale price on the valuation date (or if no sales occurred on the
valuation date, the closing bid price on that date). Securities
traded on the over-the-counter market are valued by taking the bid price on the
valuation date. Restricted and other securities for which quotations
are not readily available are valued at fair value as determined by our Board of
Directors. Among the factors considered in determining the fair value
of investments are the cost of the investment; developments, including recent
financing transactions, since the acquisition of the investment; the financial
condition and operating results of the portfolio company; the long-term
potential of the business of the portfolio company; market interest rates on
similar debt securities; overall market conditions and other factors generally
pertinent to the valuation of investments. However, because of the
inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the differences could be material.
In the
valuation process, MACC uses financial information received monthly, quarterly,
and annually from its portfolio companies which includes both audited and
unaudited financial statements. This information is used to determine
financial condition, performance, and valuation of the portfolio
investments.
Realization
of the carrying value of investments is subject to future
developments. Investment transactions are recorded on the trade date
and identified cost is used to determine realized gains and
losses. Under the provisions of SOP 90-7, the fair value of loans and
investments in portfolio securities on February 15, 1995, the fresh-start date,
is considered the cost basis for financial statement purposes.
Determination
of Net Asset Value
The net
asset value per share of MACC’s outstanding common stock is determined
quarterly, as soon as practicable after and as of the end of each calendar
quarter, by dividing the value of total assets minus total liabilities by the
total number of shares outstanding at the date as of which the determination is
made. See “The Company—Investment Valuation—Valuation Process” below,
and “Determination of Net Asset Value” in the SAI.
In
calculating the value of total assets, investments in securities that are traded
in on a stock exchange are valued based on the last quoted sale price on the
valuation date (or if no sales occurred on the valuation date, the closing bid
price on that date). Securities traded on the over-the-counter
market are valued by taking the bid price on the valuation date. All
other investments are valued at fair value as determined in good faith by the
Board. The Board has determined that all other investments will be
valued initially at cost, but such valuation will be subject to quarterly
adjustments and on such other interim periods as are justified by material
portfolio company events if the Board determines in good faith that cost no
longer represents fair value. See “The Company—Investment
Valuation—Valuation Process” below, and “Determination of Net Asset Value” in
the SAI.
Quantitative
and Qualitative Disclosure About Market Risk
MACC is
subject to market risk from changes in market prices of publicly traded equity
securities held from time to time in its consolidated investment
portfolio. At September 10, 2008, MACC had no publicly traded equity
securities in the Existing Portfolio. MACC is also subject to
financial market risks from changes in market interest rates. MACC
currently has an outstanding note payable to CRB&T under the Term Loan with
a variable interest rate that is based on an independent
index. Although this independent index is subject to changes, the
maximum increase or decrease in the interest rate at any one time will not
exceed 1.000 percentage points. General interest rate fluctuations may therefore
have a material adverse effect on MACC’s net investment income. In
addition, in the future, MACC may from time to time opt to draw on the Revolving
Loan of credit to fund cash requirements. These future borrowings
will have a variable interest rate based on an independent index that is subject
to changes; however, the maximum increase or decrease in the interest rate at
any one time will not exceed 1.000 percentage points.
Portfolio
Risks
Pursuant
to Section 64(b)(1) of the 1940 Act, a BDC is required to describe the risk
factors involved in an investment in the securities of such company due to the
nature of MACC’s investment portfolio. Accordingly, MACC states
that:
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|
●
|
MACC’s
New Portfolio will primarily consist of equity investments in smaller
company growth stocks. Investments in growth stocks involves
certain risks, in part, because the value of the securities is based upon
future expectations that may or may not be
met.
|
|
|
●
|
The
Existing Portfolio securities consist, and a large proportion of the New
Portfolio securities will consist, primarily of securities issued by
small, public and privately held companies. Generally, little
or no public information is available concerning the companies in which
MACC invests, and MACC must rely on the diligence of its Adviser and
Subadviser to obtain the information necessary for MACC’s investment
decisions. In order to maintain its status as a BDC, MACC must
invest at least 70% of its total assets in the types of portfolio
investments described in Section 55(a) of the 1940
Act. Typically, the success or failure of such companies
depends on the management talents and efforts of one person or a small
group of persons, so that the death, disability or resignation of such
person or persons could have a materially adverse impact on such
companies. Moreover, smaller companies frequently have smaller
product lines and smaller market shares than larger companies and may be
more vulnerable to economic downturns. Because these companies
will generally have highly leveraged capital structures, reduced cash
flows resulting from an economic downturn may adversely affect the return
on, or the recovery of, MACC’s investments. Investment in these
companies therefore involves a high degree of business and financial risk,
which can result in substantial losses and should be considered
speculative.
|
|
|
●
|
MACC’s
Existing Portfolio investments primarily consist of, and the majority of
our New Portfolio investments will primarily consist of, securities
acquired from the issuers in private transactions, which are usually
subject to restrictions on resale and are generally
illiquid. Often, no established trading market exists with
regard to such securities, and most of such securities are not available
for sale to the public without registration under the Securities Act,
which involves significant delay and
expense.
|
|
|
●
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The
Existing Portfolio investments of MACC are generally long-term in
nature. Some existing investments do not bear a current yield
and a return on such investments will be earned only after the investment
matures or is sold. Although most investments are structured so
as to return a current yield throughout most of their term, these
investments will typically produce gains only when sold in five to seven
years. There can be no assurance, however, that any of MACC’s
investments will produce current yields or
gains.
|
Operations
Risks
The New
Portfolio investments will primarily be in unregistered shares for which there
is typically no readily available market for sale. These investments
will typically require to be registered prior to sale. There is no
guarantee that unregistered shares will eventually be registered. In
addition MACC may not be able to liquidate these shares at the most advantageous
time due to the lack of an available market for unregistered
shares. In addition, unregistered shares sold in a private
transaction will typically sell at a discount to the price of publicly available
registered shares.
With
respect to the Existing Portfolio, MACC generally relies on portfolio investment
divestitures and liquidity events, as well as increases in fair value of
portfolio investments, to provide for increases in net asset value in any
period. MACC typically relies on the sale of portfolio companies in
negotiated transactions and on the initial public offering of portfolio company
securities to provide for portfolio investment divestitures and liquidity
events. Accordingly, a general contraction in the markets for
corporate acquisitions and/or initial public offerings could adversely affect
MACC’s ability to realize capital gains, if any, from the sale of its portfolio
company securities.
Interest
Rate Risks
MACC
faces several risks in relation to changes in prevailing market interest
rates. First, at June 30, 2008, MACC had outstanding $4,855,661 in
principal amount under the Term Loan, which matures in August of
2009. The Term Loan has a variable rate of interest, and accordingly,
changes in market interest rates will have an effect on the amount of interest
paid by MACC with respect to the note payable thereunder.
Second,
MACC generally structures portfolio investments to provide a current yield in
order to provide MACC with earnings stability. These investments
typically provide for a fixed preferred dividend or interest
rate. Although MACC is not currently making new investments, to the
extent that MACC makes portfolio investments over the next several years, MACC’s
total investment income may be adversely affected if there is a decrease in
market interest rates over the next several years.
Third,
many of MACC’s portfolio companies have or may issue debt senior to MACC’s
investment. The payment of principal and interest due on MACC’s
investment, therefore, will generally be subordinate to payments due on any such
senior debt. Moreover, senior debt typically bears interest at a
floating rate, whereas MACC’s investments generally do not. Any
increase in market interest rates may put significant economic pressure on those
portfolio companies that have issued senior debt which bears interest at a
floating rate. Accordingly, MACC’s ability to achieve net operating
income and generally to realize gains from its portfolio investments may be
adversely affected by an increase in market interest rates.
An
investment in our Common Stock should not constitute a complete investment
program for any investor and involves a high degree of risk. Due to
the uncertainty in our investments, there can be no assurance that we will
achieve our investment objective. You should carefully consider the risks
described below before making an investment decision. The risks set
forth below are the principal risk factors associated with an investment in
MACC, as well as those factors generally associated with an investment in a
company with investment objectives, investment policies, capital structure or
trading markets similar to MACC’s.
Risks
Related to Our Operations
Our
investments may be risky, and you could lose all or part of your
investment.
MACC is
designed for long-term investors. Investors should not rely on MACC
for their short-term financial needs. The value of the higher risk
securities in which we invest will be affected by general economic conditions;
the securities market; the markets for public offerings and corporate
acquisitions; specific industry conditions; and the management of the individual
portfolio companies. Additionally, we may not achieve our investment
objectives.
Our
Adviser has no experience managing a BDC, and will serve as investment adviser
to other accounts and funds, which may create conflicts of interest not in the
best interest of us or our stockholders.
Our
Adviser has no experience serving as an investment adviser to a
BDC. While our Adviser intends to allocate investment opportunities
in a fair and equitable manner consistent with our investment objectives and
strategies, and in accordance with its written allocation procedures so that we
will not be disadvantaged in relation to any other client, our Adviser’s
services under the Advisory Agreement are not exclusive. EAM is free
to furnish the same or similar services to other entities, including businesses
that may directly or indirectly compete with us, so long as our Adviser notifies
us prior to being engaged to serve as investment adviser to another fund and
further provided that any such investment management services and any
co-investments shall at all times be provided in strict accordance with rules
and regulations under the 1940 Act, our Adviser’s asset allocation policy
required thereunder and any exemptive order applicable to MACC. In
addition, the private accounts managed by our Adviser may make investments
similar to investments that we may pursue. Accordingly, our Adviser
may have obligations to other investors, the fulfillment of which might not be
in the best interests of us or our stockholders, and it is possible that our
Adviser might allocate investment opportunities to other client, and thus might
divert attractive investment opportunities away from us.
We
are dependent upon our Advisers’ key personnel for our future
success.
We depend
on the diligence, expertise and business relationships of our Adviser and
Subadviser. The Adviser and Subadviser will evaluate, negotiate,
structure, close and monitor our investments, subject to supervision by the
Board. The Advisory Agreement with EAM and Subadvisory Agreement with
InvestAmerica are short-term in nature and subject to cancellation on sixty
days’ notice. Our future success will depend on the continued service
of certain key individuals of the Adviser and Subadviser. The
departure of one or more of these key individuals could have a material adverse
effect on our ability to achieve our investment objectives and on the value of
our Common Stock. We will rely on certain employees of the Adviser
and Subadviser, who may devote significant amounts of their time to their
respective activities that are not related to MACC. To the extent
those employees of the Adviser and Subadviser who are not committed exclusively
to us are unable to, or do not, devote sufficient amounts of their time and
energy to our affairs, our performance may suffer.
The
Offering will provide a financial benefit to our Adviser.
Because
the Management Fee payable to our Adviser under the Advisory Agreement is based
on a percentage of our net assets, increasing our net assets through the
Offering will increase the amount of the Management Fees paid to our
Adviser.
The
Incentive Fee payable to our Adviser may create conflicting
incentives.
Our
Adviser will receive an Incentive Fee based, in part, upon net realized capital
gains on our investments. As a result, our Adviser may have an
incentive to pursue investments that are likely to result in capital gains as
compared to income-producing securities. Such a practice could result
in our investing in more speculative or long term securities than would
otherwise be the case, which could result in higher investment losses,
particularly during economic downturns or longer return cycles.
Potential
significant conflicts of interest may impact our investment
returns.
All of
our officers also serve in similar capacities with EAM, which serves as an
investment adviser to other accounts, and in the future may serve as investment
adviser to other investment funds. In that case, our officers may
have obligations to investors in those entities, the fulfillment of which might
not be in the best interests of MACC or its stockholders or that may require
them to devote time to services for such other entities, which could interfere
with the time available to provide services to MACC. Nonetheless, EAM
is of the opinion that any such efforts of its officers relative to MACC would
be synergistic with and beneficial to the affairs of both MACC and
EAM.
InvestAmerica
and its affiliates serve as investment advisers to other funds. As a
result of regulatory restrictions, we are not permitted to invest in any
portfolio company in which the Adviser, the Subadviser or any of their
respective affiliates currently has an investment. However, under the
terms of an exemptive order granted by the SEC, under certain specified
circumstances, we may invest (and make follow on investments) in portfolio
companies at the same time and on the same terms as InvestAmerica’s
affiliates. All such investments are reviewed by our independent
directors to assure conformity to the exemptive order.
In the
course of our investing activities, we pay Management and Incentive Fees to EAM
and InvestAmerica. As a result, holders of our Common Stock invest on
a “gross” basis and receive distributions on a “net” basis after expenses,
resulting in, among other things, a lower rate of return than one might achieve
through direct investments in our portfolio companies. Because of
this arrangement, there may be times when the management teams of either EAM or
InvestAmerica have interests which differ from those of our stockholders, giving
rise to a conflict. For example, if we borrow money or issue debt
instruments and thereby increase our assets, which in turn increases the
Management Fee payable to our Adviser, we simultaneously increase our expenses
to service such debt and thereby reduce our stockholders’ return on their
investment in MACC. Further, the use of leverage increases the
likelihood of gain (or loss) which amounts would be subject to the incentive fee
we pay to our Adviser. See “Investment Advisory Agreements, Certain
Relationships and Related Transactions.”
As
a BDC, we are subject to limitations on our ability to engage in certain
transactions with affiliates.
As a
result of our election to be regulated as a BDC, we are prohibited under the
1940 Act from knowingly participating in certain transactions with our
affiliates without the prior approval of our independent directors or the
SEC. The 1940 Act defines “affiliates” broadly to include (i) any
person that owns, directly or indirectly, 5% or more of our outstanding voting
securities, (ii) any person of which we own 5% or more of their outstanding
securities, (iii) any person who directly or indirectly controls us, (iv) our
officers, directors and employees, and (v) our Adviser and Subadviser, among
others, and we are generally prohibited from buying or selling any security from
or to such affiliate, absent the prior approval of our independent
directors. The 1940 Act also prohibits “joint” transactions with an
affiliate, which could include investments in the same portfolio company
(whether at the same or different times), without prior approval of our
independent directors. If a person acquires more than 25% of our
voting securities, we will be prohibited from buying or selling any security
from or to such person, or entering into joint transactions with such person,
absent the prior approval of the SEC.
If
our investments are deemed not to be qualifying assets, we could lose our status
as a BDC or be precluded from investing according to our current business
plan.
As a
result of our election to be regulated as a BDC, we must not acquire any assets
other than “qualifying assets” unless, at the time of and after giving effect to
such acquisition, at least 70% of our total assets are qualifying
assets. Generally, “qualifying assets” are (i) securities purchased
in private offerings from (a) “eligible portfolio companies” or from affiliates
of the eligible portfolio company, or (b) U.S.-organized companies which are not
investment companies having a class of securities for which a broker may extend
margin credit, if at the time of purchase, we own at least 50% of such company’s
equity and debt securities, and we are one of the 20 largest holders of the
company’s outstanding voting securities; (ii) securities of eligible portfolio
companies which we control; (iii) securities purchased in private offerings from
either a U.S.-organized company which is not an investment company with a class
of securities for which a broker may extend margin credit or from an affiliate
of such company, if the company is in reorganization, consummating a plan of
reorganization or insolvent; (iv) securities purchased in private offerings from
an eligible portfolio company if there is no market for such securities and if
prior to such purchase we own at least 60% of the company’s outstanding equity
securities; (v) securities received in exchange for or distributed on or with
respect to the securities described in (i) – (iv) above or pursuant to the
exercise of an option or warrant; (vi) cash, government securities or high
quality debt securities having maturities of one year or less; and (vii) our
office furniture, real estate or leases, deferred organizational and operating
expenses and our other noninvestment assets required for our operations as a
BDC.
“Eligible
portfolio companies” are generally companies which are organized in the United
States, are not investment companies, and which either: (i) do not have
securities for which a broker may extend margin credit, (ii) are controlled by a
BDC or a group including a BDC, (iii) are solvent and have assets under $4
million and capital and surplus of at least $2 million, or (iv) (A) do not have
a class of securities listed on a national securities exchange, or (B) do have a
class of securities listed on a national securities exchange, but have a market
capitalization below $250,000,000. See “Regulation—Qualifying Assets”
below.
If, for
example, we acquire debt or equity securities from an issuer that has
outstanding marginable securities at the time we make such an investment, or if
we acquire securities from an issuer which otherwise meets the definition of an
eligible portfolio company but we purchase the securities in a public offering,
these acquired assets cannot be treated as “qualifying assets.” The
failure of an investment to meet the definition of a qualifying asset could
preclude us from otherwise taking advantage of an investment opportunity we find
attractive. In addition, our failure to meet the BDC qualifying asset
requirements could result in the loss of BDC status, which would significantly
and adversely affect our business plan by, among other things, requiring us to
register as a closed-end investment company.
We
will be exposed to additional risks, including the typical risks associated with
leverage.
In
addition to the Term Loan and the Revolving Loan, we may borrow additional money
to increase our ability to make investments. Lenders from whom we may
borrow money or holders of our debt securities may have fixed dollar claims on
our assets that are superior to the claims of our stockholders, and we may grant
a security interest in our assets in connection with our debt. In the
case of a liquidation event, those lenders or note holders would receive
proceeds before our stockholders. In addition, debt, also known as
leverage, magnifies the potential for gain or loss on amounts invested and,
therefore, increase the risks associated with investing in our
securities. Leverage is generally considered a speculative investment
technique. If the value of our assets increases, then leveraging
would cause the net asset value attributable to our Common Stock to increase
more than it otherwise would have had we not leveraged. Conversely,
if the value of our assets decreases, leveraging would cause the net asset value
attributable to our Common Stock to decline more than it otherwise would have
had we not leveraged. Similarly, any increase in our revenue in
excess of interest expense on our borrowed funds would cause our net income to
increase more than it would without the leverage. Any decrease in our
revenue would cause our net income to decline more than it would have had we not
borrowed and invested such funds. Our ability to service any
additional debt that we incur will depend largely on our financial performance
and the performance of our portfolio companies and will be subject to prevailing
economic conditions and competitive pressures.
MACC had
an outstanding principal amount of $4,855,661 under the Term Loan on June 30,
2008. The Term Loan has a stated maturity date of August 29, 2009 and
is subject to a variable interest rate based on an independent
index. The current interest rate applicable to the Term loan is
6.0%.
The
annual return that must be generated on MACC’s portfolio in order to cover
annual interest payments is __%. The following table is provided to
assist shareholders in understanding the effects of leverage. The
calculations are based upon the actual interest expense incurred on the Term
Loan set out above and MACC’s pro forma net assets as of June 30, 2008 as
described elsewhere in this Prospectus. The figures provided are
hypothetical and actual returns may be greater or less than those appearing in
the table.
|
Assumed
Return on Portfolio
(Net of Expenses)
|
-10%
|
-5%
|
0%
|
5%
|
10%
|
|
Corresponding
Return
to Common
Stockholder
|
(__%)
|
(__%)
|
(__%)
|
__%
|
__%
|
We
operate in a highly competitive market for investment
opportunities.
We
compete with public and private funds, commercial and investment banks and
commercial financing companies to make the types of investments that we
make. Many of our competitors are substantially larger and have
considerably greater financial, technical and marketing resources than
us. For example, some competitors may have a lower cost of funds and
access to funding sources that are not available to us. In addition,
some of our competitors may have higher risk tolerances or different risk
assessments, allowing them to consider a wider variety of investments and
establish more relationships than us. Furthermore, many of our
competitors are not subject to the regulatory restrictions that the 1940 Act
imposes on us as a result of our election to be regulated as a BDC.
We
may allocate the net proceeds from this offering in ways with which you may not
agree.
We will
have significant flexibility in investing the net proceeds of this Offering and
may use the net proceeds from this Offering in ways with which investors may not
agree or for purposes other than those contemplated at the time of this Offering
or that are not consistent with our targeted investment
characteristics.
Our
quarterly results may fluctuate.
We could
experience fluctuations in our quarterly operating results due to a number of
factors, including the interest rates payable on the debt investments or the
dividend rates on the equity investments we make, the default rates on such
investments, the level of our expenses, variations in and the timing of the
recognition of realized and unrealized gains or losses and the degree to which
we encounter competition in our markets and general economic
conditions. As a result of these factors, results for any period
should not be relied upon as being indicative of performance in future
periods.
Our
portfolio may be concentrated in a limited number of portfolio
companies.
We intend
to make investments in a limited number of portfolio companies. One
or two of our portfolio companies may constitute a significant percentage of our
total portfolio, especially in the months following this Offering. An
inherent risk associated with this investment concentration is that we may be
adversely affected if one or two of our investments perform poorly or if we need
to write down the value of any one investment. Financial difficulty on the part
of any single portfolio company will expose us to a greater risk of loss than
would be the case if we were a more “diversified” company holding numerous
investments.
Because
our investments are and will continue to typically be privately-issued, they
typically will have limited liquidity, and thus their value is
decreased.
All of
our Existing Portfolio investments consist of, and most of our New Portfolio
investments will consist of, securities acquired directly from their issuers in
private transactions. They are usually subject to restrictions on
resale and are generally illiquid. Usually there is no established
trading market for such securities into which they could be sold. In
addition, most of the securities are not eligible for sale to the public without
registration under the 1933 Act, which would involve delay and
expense. Restricted securities generally sell at a price lower than
similar securities that are not subject to restrictions on sale.
Most
of our portfolio investments will be recorded at fair value as determined in
good faith by our Board. As a result, there is and will continue to
be uncertainty as to the value of our portfolio investments.
Pursuant
to the requirements of the 1940 Act, substantially all of our portfolio
investments will be recorded at fair value as determined in good faith by our
Board on a quarterly basis, and, as a result, there is uncertainty regarding the
value of our portfolio investments. At September 30, 2007,
approximately 93% of our total assets represented investments recorded at fair
value. Since there will typically be no readily ascertainable market
value for the investments in our portfolio, our Board will determine in good
faith the fair value of our investments pursuant to our valuation policy and a
consistently applied valuation process. See “The Company—Investment
Valuation” below.
There is
no single standard for determining fair value in good faith. As a result,
determining fair value requires that judgment be applied to the specific facts
and circumstances of each portfolio investment while employing a consistently
applied valuation process for the types of investments we intend to make. Unlike
banks, we are not permitted to provide a general reserve for anticipated loan
losses; we are instead required by the 1940 Act to specifically value each
individual investment and record unrealized depreciation for an investment that
we believe has lost value, including where collection of a debt security or
realization of an equity security is doubtful. Conversely, we will record
unrealized appreciation if we have an indication that the underlying portfolio
company has appreciated in value and, therefore, our security has also
appreciated in value, where appropriate. Without a readily
ascertainable market value and because of the inherent uncertainty of valuation,
fair value of our investments determined in good faith by the Board may differ
significantly from the values that would have been used had a ready market
existed for the investments, and the differences could be material.
We adjust
quarterly the valuation of our portfolio to reflect the Board’s determination of
the fair value of each investment in our portfolio. Any changes in
fair value are recorded in our statement of operations as “Net change in
unrealized depreciation/appreciation on investments.”
We
may not be able to elect pass-through tax treatment in the future as
planned.
Currently,
MACC is a taxable entity (a “C corporation”) in order to utilize net operating
loss carryforwards generated from a predecessor company as well as our operating
losses. In the future we may elect to qualify for pass-through tax
treatment contained in Subchapter M of the Code. Subchapter M
treatment essentially means that certain income is taxed at the stockholder
level only with no tax at the corporate level, although we may be subject to a
corporate level tax on certain built-in gains in existence at the time we would
first become subject to Subchapter M. It is possible that, for a
number of reasons, we may be unable to meet Subchapter M requirements, or that
we may also cease to qualify for pass-through treatment, or be subject to a four
percent excise tax, if we fail to make certain distributions. Under
the 1940 Act, we are not permitted to make distributions to stockholders unless
we meet certain asset coverage requirements with respect to money borrowed and
senior securities issued. Non-availability of pass-through tax
treatment may potentially have a materially adverse effect on the total return,
if any, obtainable from an investment in the MACC’s shares, once net operating
loss carryforwards are no longer available and the Subchapter M election has
become advantageous.
When
we are a debt or minority equity investor in a portfolio company, we may not be
in a position to control that portfolio company.
When we
make minority equity investments or invest in debt, we will be subject to the
risk that a portfolio company may make business decisions with which we may
disagree, and that the stockholders and management of such company may take
risks or otherwise act in ways that do not serve our interests. As a
result, a portfolio company may make decisions that could decrease the value of
our investments.
Our
portfolio companies may incur debt that ranks equally with, or senior to, our
investments in such companies.
Portfolio
companies in which we invest usually will have, or may be permitted to incur,
debt that ranks senior to, or equally with, our investments, including debt
investments. As a result, payments on such securities may have to be
made before we receive any payments on our investments. For example,
these debt instruments may provide that the holders are entitled to receive
payment of interest or principal on or before the dates on which we are entitled
to receive payments with respect to our investments. These debt instruments will
usually prohibit the portfolio companies from paying interest on or repaying our
investments in the event and during the continuance of a default under such
debt. In the event of insolvency, liquidation, dissolution,
reorganization or bankruptcy of a portfolio company, holders of debt instruments
ranking senior to our investment in that portfolio company would typically be
entitled to receive payment in full before we receive any distribution in
respect of our investment. After repaying its senior creditors, a
portfolio company may not have any remaining assets to use to repay its
obligation to us. In the case of debt ranking equally with our
investments, we would have to share on an equal basis any distributions with
other creditors holding such debt in the event of an insolvency, liquidation,
dissolution, reorganization or bankruptcy of the relevant portfolio
company.
Changes
in laws or regulations or in the interpretations of laws or regulations could
significantly affect our operations and cost of doing business.
We are
subject to federal, state and local laws and regulations and are subject to
judicial and administrative decisions that affect our operations, including loan
originations, maximum interest rates, fees and other charges, disclosures to
portfolio companies, the terms of secured transactions, collection and
foreclosure procedures and other trade practices. If these laws,
regulations or decisions change, we may have to incur significant expenses in
order to comply, or we may have to restrict our operations. In
addition, if we do not comply with applicable laws, regulations and decisions,
or fail to obtain licenses that may become necessary for the conduct of our
business, we may be subject to civil fines and criminal penalties, any of which
could have a material adverse effect upon our business, results of operations or
financial condition.
Risks
Related to the Existing Portfolio
An
investment strategy that includes privately-held companies presents certain
challenges, including the lack of available information about these companies, a
dependence upon the talents and efforts of only a few key portfolio company
personnel, a greater vulnerability to economic downturns and a greater inability
to liquidate our investments in an advantageous manner.
As a BDC,
we invest a portion of our assets in restricted securities issued by small,
private companies, some of which have operated at losses or have experienced
substantial fluctuations in operating results. There is generally
little or no publicly available information about such companies and we must
rely on the diligence of our Investment Advisor and Subadviser to obtain the
information necessary to invest in these companies. If our Adviser
and Subadviser are unable to obtain all material information about these
companies, including with respect to operational, regulatory, environmental,
litigation and managerial risks, our Adviser and Subadviser may not make a
fully-informed investment decision, and we may lose some or all of the money
invested in these companies. In addition, our Adviser and Subadviser
may inappropriately value the prospects of an investment, causing us to overpay
for such investment and fail to receive an expected or projected return on its
investment.
Typically,
such companies depend for their success on the management talents and efforts of
one person or a small group of persons, so that the death, disability or
resignation of such person or persons could have a materially adverse impact on
them. Moreover, smaller companies frequently have narrower product
lines and smaller market shares than larger companies and, therefore, may be
more vulnerable to competitors’ actions and market conditions, as well as
general economic downturns. Such companies may face intense
competition, including competition from companies with greater financial
resources, more extensive research and development, manufacturing, marketing and
service capabilities, and a larger number of qualified managerial and technical
personnel. Because these companies will generally have highly
leveraged capital structures, reduced cash flow resulting from an adverse
business development, shifts in customer preferences, or an economic downturn or
the inability to complete a public offering or other financing may adversely
affect the return on, or the recovery of, our investment in
them. Investment in such companies therefore involves a high degree
of business and financial risk, which can result in substantial losses and,
accordingly, should be considered highly speculative. No assurance
can be given that some of our investments will not result in substantial or
complete losses.
Substantially
all of these securities will be subject to legal and other restrictions on
resale or will otherwise be less liquid than publicly-traded
securities. The illiquidity of these investments may make it
difficult for us to sell such investments at advantageous times and prices or in
a timely manner. In addition, if we are required to liquidate all or
a portion of our portfolio quickly, we may realize significantly less than the
value at which we previously have recorded our investments. We also
may face other restrictions on our ability to liquidate an investment in a
portfolio company to the extent that we or one of our affiliates have material
non-public information regarding such portfolio company.
The
long-term character of our Existing Portfolio investments may negatively impact
their current return and capital gains.
Our
Existing Portfolio investments yield a current return for most of their lives,
but generally only produce a capital gain, if any, from an accompanying equity
feature (which typically consists of a warrant for the purchase of common equity
securities) after five to eight years. Both the current yield and a
capital gain must be achieved on most investments in order to meet our
investment goals. There can be no assurance that either a current
return or capital gain will actually be achieved on our
investments.
There
may be circumstances where our debt investments could be subordinated to claims
of other creditors or we could be subject to lender liability
claims.
If one of
our portfolio companies were to go bankrupt, even though we may have structured
our interest as senior debt, depending on the facts and circumstances, including
the extent to which we actually provided managerial assistance to that portfolio
company, a bankruptcy court might recharacterize our debt holding and
subordinate all or a portion of our claim to that of other
creditors. In addition, lenders can be subject to lender liability
claims for actions taken by them where they become too involved in the
borrower’s business or exercise control over the borrower. It is
possible that we could become subject to a lender’s liability claim, including
as a result of actions taken if we actually render significant managerial
assistance.
We
expect our debt investments will generally be unsecured and even if we make a
secured loan, if the assets securing a loan we make decrease in value, we may
not have sufficient collateral to cover losses.
We
believe our portfolio companies generally will be able to repay our debt
investments from their available capital, from future capital-raising
transactions or from cash flow from operations. We expect generally
that our debt investments that we make will be unsecured. However, in
the event we take a security interest in the available assets of a portfolio
company, there is a risk that the collateral securing our investment may
decrease in value over time, may be difficult to sell in a timely manner, may be
difficult to appraise and may fluctuate in value based upon the success of the
business and market conditions, including as a result of the inability of the
portfolio company to raise additional capital, and, in some circumstances, our
lien could be subordinated to claims of other creditors. In addition,
a deterioration in a portfolio company’s financial condition and prospects,
including its inability to raise additional capital, may be accompanied by a
deterioration in the value of the collateral for the
investment. Moreover, we may not have a first lien position on the
collateral. Consequently, the fact that investment is secured does
not guarantee that we will receive principal and interest payments according to
the investment’s terms or that we will be able to collect on the investment
should we be forced to enforce our remedies. In addition, a portion
of the assets securing our investment may be in the form of intellectual
property, if any, inventory and equipment and, to a lesser extent, cash and
accounts receivable. Intellectual property, if any, that is securing
our investment could lose value if, among other things, the company’s rights to
the intellectual property are challenged or if the company’s license to the
intellectual property is revoked or expires. Inventory may not be adequate to
secure our investment if our valuation of the inventory at the time we made the
loan was not accurate or if there is a reduction in the demand for the
inventory. Similarly, any equipment securing our loan may not provide us with
the anticipated security if there are changes in technology or advances in new
equipment that render the particular equipment obsolete or of limited value or
if the company fails to adequately maintain or repair the
equipment. Any one or more of the preceding factors could materially
impair our ability to recover principal in a foreclosure.
The
lack of liquidity in our investments may adversely affect our business, and if
we need to sell any of our investments, we may not be able to do so at a
favorable price. As a result, we may suffer losses.
The
Existing Portfolio generally consists of investments in debt securities with
terms of two to ten years, which we generally hold until maturity, and we do not
expect that our related holdings of equity securities in the Existing Portfolio
will provide us with liquidity opportunities in the near-term. We
expect that a majority of the New Portfolio will consist of companies whose
securities are not publicly-traded, and whose securities will be subject to
legal and other restrictions on resale or will otherwise be less liquid than
publicly-traded securities. The illiquidity of these investments may
make it difficult for us to sell these investments when desired. In
addition, if we are required to liquidate all or a portion of our portfolio
quickly, we may realize significantly less than the value at which we had
previously recorded these investments. As a result, we do not expect
to achieve liquidity in our investments in the near-term. However, to
maintain our election to be regulated as a BDC, we may have to dispose of
investments if we do not satisfy one or more of the applicable criteria under
the 1940 Act. Our investments are usually subject to contractual or
legal restrictions on resale or are otherwise illiquid because there is no
established trading market for such investments. The illiquidity of a
majority of our investments may make it difficult for us to dispose of them at a
favorable price, and, as a result, we may suffer losses.
We
will be exposed to risks associated with changes in interest rates.
Generally,
when market interest rates rise, the values of debt securities decline, and vice
versa. During periods of declining interest rates, the issuer of a
security may exercise its option to prepay principal earlier than scheduled,
forcing us to reinvest in lower yielding securities. This is known as
call or prepayment risk. Lower grade securities frequently have call
features that allow the issuer to repurchase the security prior to its stated
maturity. An issuer may redeem a lower grade obligation if the issuer
can refinance the debt at a lower cost due to declining interest rates or an
improvement in the credit standing of the issuer.
To
protect or maintain our existing portfolio investments, we may need to increase
our investments in existing portfolio companies.
Following
our initial investment, we may make additional debt and equity investments in
portfolio companies (“follow-on investments”) in order to increase our
investment in a successful portfolio company, to exercise securities that were
acquired in the original financing, to preserve our proportionate ownership when
a subsequent financing is planned or to protect our initial investment when such
portfolio company’s performance does not meet expectations.
We
may not have the funds to make additional investments in our portfolio
companies.
After our
initial investment in a portfolio company, we may be called upon from time to
time to provide additional funds to such company or have the opportunity to
increase our investment through the exercise of a warrant to purchase common
stock. There is no assurance that we will make, or will have
sufficient funds to make, follow-on investments. Additionally, we
will be subject to limitations relating to our BDC which may limit our ability
to make additional investments in portfolio companies. Any decisions
not to make a follow-on investment or any inability on our part to make such an
investment may have a negative impact on a portfolio company in need of such an
investment, may result in a missed opportunity for us to increase our
participation in a successful operation, or may reduce the expected yield on the
investment.
Risks
Related to the New Portfolio
We
will be exposed to market risks associated with investments in equity
securities.
Upon
implementation of our new investment strategy, we will ordinarily have
substantial exposure to common stocks and other equity securities in pursuing
our investment objective and policies. The market price of equity securities,
including common and preferred stocks, may go up or down, sometimes rapidly or
unpredictably. Equity securities may decline in value due to factors affecting
equity securities markets generally, particular industries represented in those
markets or the issuer itself, including the historical and prospective earnings
of the issuer and the value of its assets. The values of equity securities may
decline due to general market conditions which are not specifically related to a
particular company, such as real or perceived adverse economic conditions,
changes in the general outlook for corporate earnings, changes in interest or
currency rates or adverse investor sentiment generally. They may also decline
due to factors which affect a particular industry or industries, such as labor
shortages or increased production costs and competitive conditions within an
industry. Equity securities, and particularly common stocks, generally have
greater price volatility than bonds and other debt securities.
We
will be particularly sensitive to the risks associated with equity investments
in small-cap and micro-cap companies.
As
described above, our equity investments in the New Portfolio will be focused on
common stocks of small-cap and micro-cap companies. We will therefore be
particularly sensitive to the risks associated with small companies. The general
risks associated with equity securities are particularly pronounced for
securities issued by companies with small market capitalizations. Micro-cap and
other small capitalization companies may offer greater opportunities for capital
appreciation than larger companies, but may also involve certain special risks.
They are more likely than larger companies to have limited product lines,
markets or financial resources, or to depend on a small, inexperienced
management group. Securities of smaller companies may trade less frequently and
in lesser volume than more widely held securities and their values may fluctuate
more sharply than other securities. They may also trade in the over-the-counter
market or on a regional exchange, or may otherwise have limited liquidity. These
securities may therefore be more vulnerable to adverse developments than
securities of larger companies, and we may have difficulty establishing or
closing out our securities positions in smaller companies at prevailing market
prices. Also, there may be less publicly-available information about smaller
companies or less market interest in their securities as compared to larger
companies, and it may take longer for the prices of the securities to reflect
the full value of the issuers’ earnings potential or assets.
We
may engage in short selling, which creates the risk of a theoretically unlimited
loss.
We may
engage in short selling. Short selling involves selling securities
which may or may not be owned and borrowing the same securities for delivery to
the purchaser, with an obligation to replace the borrowed securities at a later
date. Short selling allows the investor to profit from declines in
securities. A short sale creates the risk of a theoretically
unlimited loss, in that the price of the underlying security could theoretically
increase without limit, thus increasing the cost of buying those securities to
cover the short position. There can be no assurance that the security necessary
to cover a short position will be available for purchase. Purchasing
securities to close out the short position can itself cause the price of the
securities to rise further, thereby exacerbating the loss.
Small-
and micro-cap companies may rely on inexperienced
management.
Small-
and micro-cap companies may be young companies with inexperienced
management. The lack of an experienced management team may prevent
such companies from meeting its goals, which may reduce the expected yield on
our investment.
Small
and micro-cap companies may rely on a small number of key employees, and if such
employees leave the company, the company’s performance may suffer.
The
success of small- and micro-cap companies may depend on a small number of key
employees. Such companies’ ability to retain its key employees will
be important to successful operation of such companies. The unexpected loss of
services of key employees, or the inability to recruit and retain qualified
personnel in the future, may have an adverse effect on a companies business and
financial results, which could devalue our investment.
Small-
and micro-cap companies may operate in areas where rapid technology developments
may renders their business obsolete.
New
technologies or improvements to old technologies may render the product lines of
small- and micro-cap companies obsolete. Because such companies may
not have diverse product lines, any technological development that renders a
product line obsolete may resulting a company having no product to market, which
will severely devalue such company’s securities. Such technological
developments may prevent us from meeting our expected return on investment and
may result in a complete loss of our investment.
Small-
and micro-cap companies may have relatively limited product lines, markets or
financial resources.
Small-
and micro-cap companies may have relatively limited product lines, markets
and/or financial resources. Therefore, such companies may be more
vulnerable to competitors’ actions and market conditions. Any action
by competitors or downturn in market conditions may directly impact a company’s
business and financial results. Such companies may face intense
competition, including competition from companies with greater financial
resources, more extensive research and development, manufacturing, marketing and
service capabilities. Such a decline in performance, may result in us
not meeting our expected return on investment, and may result in a complete loss
of investment.
The
securities of small- and micro-cap companies may be more volatile then other
securities.
Historically,
small- and micro-cap companies have been more volatile in price than larger
capitalized companies. Among the reasons for the greater price
volatility of these securities are the lower degree of liquidity in the markets
for such stocks, and the potentially greater sensitivity of such small- and
micro-cap companies to changes in or failure of management and in many other
changes in competitive, business, industry and economic conditions, including
risks associated with limited product lines, markets, management depth, or
financial resources. Such price volatility may result in us not
meeting our expected return on investment.
Small
and micro-cap companies may be unable to obtain the financing required to fund
necessary growth.
Small-
and micro- cap companies may require additional financing before such company
can develop a product line to a point of profitability. Companies
requiring additional capital may be unable to obtain such capital and as a
result may not achieve profitability, which may result in us not meeting our
expected return on investment and may result in a complete loss of
investment.
There
is limited liquidity in small and micro-cap companies.
The
liquidity of securities in small- and micro-cap companies may be more limited
than that of other companies. The lack of liquidity may result in us
not being able to dispose of the securities when we desire, which may result in
us not being able to achieve our expected return on investment and may result in
a complete loss of investment.
The
value of securities in small- and micro-cap companies may not follow the value
of larger companies or general economic conditions.
The value
of securities in small- and micro-cap companies may not follow the value of
larger companies or general economic conditions for a variety of reasons,
including, but not limited to, such companies having limited product lines
available, key employees misguiding the company or the company may not be able
to obtain needed financing. This may result in a small- or micro-cap
company’s performance suffering when the overall stock market is providing
favorable returns or when overall economic conditions are
favorable. As a result, our investment may not achieve our expected
return on value and we may suffer a complete loss of investment during favorable
economic conditions.
Risks
Related to this Offering
This
Offering may dilute the value of your Shares.
You may
experience an immediate dilution of the aggregate net asset value of your Shares
if you do not fully exercise your Rights pursuant to the
Offering. This is because the Subscription Price per Share will
likely be less than MACC’s net asset value per Share on the Expiration Date, and
the number of Shares outstanding after the Offering is likely to increase in a
greater percentage than the increase in the size of MACC’s
assets. In addition, if you do not fully exercise your Rights
you should expect that you will, at the completion of the Offering, own a
smaller proportional interest in MACC than would otherwise be the
case. Although it is not possible to state precisely the amount
of any such decrease in net asset value, because it is not known at this time
what the net asset value per share will be at the Expiration Date or what
proportion of the Shares will be subscribed, such dilution could be
significant. For example, assuming that
all Rights are exercised at the Estimated Subscription Price of $__, expenses
associated with the Offering were $80,000, and MACC’s net asset value otherwise
remained constant, MACC’s net asset value per Share on such date would be
reduced by approximately $__ per Share (or __%). Your ability to
transfer your Rights allows you to receive cash for such Rights should you
choose not to exercise them. However, it is not certain that a market
for the Rights will develop, and no assurance can be given as to the value, if
any, that such Rights will have.
The
price of our Common Stock may be volatile and may decrease
substantially.
The
trading price of our Common Stock following this offering may fluctuate
substantially. The price of the Common Stock that will prevail in the
market after this offering may be higher or lower than the price you pay and the
liquidity of our Common Stock may be limited, in each case depending on many
factors, some of which are beyond our control and may not be directly related to
our operating performance. These factors include the
following:
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changes
in the value of our portfolio of
investments;
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price
and volume fluctuations in the overall stock market from time to
time;
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significant
volatility in the market price and trading volume of securities of BDCs or
other financial services companies;
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our
inability to deploy or invest our
capital;
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fluctuations
in interest rates;
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any
shortfall in revenue or net income or any increase in losses from levels
expected by investors or securities
analysts;
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operating
performance of companies comparable to
us;
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changes
in regulatory policies or tax guidelines with respect to
BDCs;
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·
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losing
BDC status;
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·
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actual
or anticipated changes in our earnings or fluctuations in our operating
results or changes in the expectations of securities
analysts;
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general
economic conditions and trends;
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departures
of key personnel; or
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other
risks and uncertainties as may be detailed from time to time in our public
announcements and SEC filings.
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Investing
in our Common Stock may involve an above-average degree of risk.
The
investments we make may result in a higher amount of risk, volatility or loss of
principal than alternative investment options. Our investments in portfolio
companies may be highly speculative and aggressive, and therefore, an investment
in our Common Stock may not be suitable for investors with lower risk
tolerance.
Closed-end
investment companies’ shares usually trade below net asset value.
Shares of
closed-end investment companies like MACC frequently trade at a discount from
net asset value and MACC’s shares have historically traded at a discount from
net asset value. At __, the MACC’s shares traded at a __% discount to
their net asset value. This characteristic of shares of closed-end
investment companies is separate and distinct from the risk that MACC’s per
share net asset value will decline. In addition, due to the following
reasons, MACC is not only different from other closed-end funds, is a greater
risk than similar venture capital closed-end funds.
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First,
many closed-end funds generally are structured to produce annual dividends
to stockholders. MACC, however, does not presently pay
dividends but, rather, retains all income after taxes and expenses to
reduce debt or fund additional investments and thus create capital
appreciation. The return to holders of the our Common Stock is
thus anticipated to be long-term and capital in nature. The
Board will, however, consider payment of dividends in the future and
reserves the right to do so without stockholder
approval.
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Second,
due to several factors, including the small size of MACC relative to fixed
expenses, and the fact that much of the income of MACC arises through
capital gains rather than ordinary income, on a consolidated basis, MACC
has lost money (that is, had net investment expense, rather than new
investment income) in each of the last six years. Many similar
funds are structured to earn sufficient current income to achieve
operating income (investment income in excess of operating expenses) each
year.
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INVESTMENT ADVISORY AGREEMENTS, CERTAIN
RELATIONSHIPS AND
RELATED
TRANSACTIONS
Advisory
Agreements
We have
entered into the Advisory Agreement with EAM, an entity in which certain of our
officers also serve as managers and/or officers. EAM’s services under
the Advisory Agreement will not be exclusive, and it is free to furnish the same
or similar services to other entities, including businesses that may directly or
indirectly compete with us so long as its services to us are not impaired by the
provision of such services to others. In addition, the private
accounts managed by EAM may make investments similar to investments that we may
pursue, especially with respect to the New Portfolio. It is thus
possible that EAM might allocate investment opportunities to other clients, and
thus might divert attractive investment opportunities away from
us. However, EAM intends to allocate investment opportunities in a
fair and equitable manner consistent with our investment objectives and
strategies, so that we will not be disadvantaged in relation to any other EAM
client.
We have
also entered into the Subadvisory Agreement with
InvestAmerica. InvestAmerica’s services under the Subadvisory
Agreement will not be exclusive, and it is free to furnish the same or similar
services to other entities, including the InvestAmerica Managed Funds discussed
below that may directly or indirectly compete with us so long as its services to
us are not impaired by the provision of such services to others. In
addition, InvestAmerica Managed Funds may make investments similar to our
Existing Portfolio or we may make follow-on investments respecting the Existing
Portfolio. In all such cases, such investments will be governed by
the co-investment limitations described below.
EAM is
the investment adviser to MACC pursuant to the Advisory
Agreement. EAM is registered as an investment adviser under
California law and is subject to the reporting and other requirements
thereof. Such law also provides restrictions on the activities of
registered advisers to protect their clients from manipulative or deceptive
practices and restricts performance compensation. EAM’s address is
580 Second Street, Suite 102, Encinitas, California 92024.
As
described above in more detail under “Fees and Expenses,” the Advisory Agreement
provides that EAM is entitled to receive a Management Fee equal to a annual rate
of 2.0% of Assets Under Management attributable to MACC’s Total Portfolio,
payable monthly in arrears. In addition to the annual Management Fee
of 2.0% of Assets Under Management attributable to the Total Portfolio, EAM is
entitled to receive the Incentive Fee, which is an amount equal to (i) 20.0% of
the net capital gains, before taxes, attributable to MACC’s New Portfolio (which
would include any follow-on investments made to the Existing Portfolio) and (ii)
13.4% of the Net Capital Gains, before taxes, attributable to MACC’s Existing
Portfolio.
The
amount of the Incentive Fee and all incentive compensation, in any fiscal year,
may not exceed the limit prescribed by Section 205(b)(3) of the Advisers
Act. This section provides that the total fees will not exceed 20% of
the realized capital gains upon the assets of MACC over a specified period,
computed net of all realized capital losses and unrealized capital
depreciation. Under Section 5.2(a)(ii) of the Advisory Agreement, the
specified period is one year. In addition, the Board and our Advisor
intend to submit to the stockholders at the next annual meeting modifications to
the Advisory Agreement to change the Incentive Fee calculation to be paid
annually but calculated on a cumulative basis over the life of the
contract. These changes would become effective only after approval by
the Board and the stockholders. Under the Advisory Agreement, as with
all of MACC’s prior advisory agreements, the Incentive Fee has been calculated
on a “period to period” basis, meaning that changes in the value of portfolio
investments in subsequent periods do not retroactively affect Incentive Fee
calculations from prior periods. Modifying the calculation of the
Incentive Fee such that it is determined on a cumulative basis would mean that
subsequent changes in the value of portfolio investments would impact the
calculation of Incentive Fees on a cumulative basis over the life of the
Advisory Agreement.
Under the
terms of the Advisory Agreement, the Board has the responsibility to monitor the
value of the Total Portfolio consistent with the MACC’s valuation
procedures. These responsibilities include the appropriateness of and
the timing of recognizing unrealized depreciation, reversals of unrealized
depreciation, and capital losses and gains, which serves to mitigate the
inherent conflict associated with our Adviser’s interest in enhancing the amount
of Net Capital Gains with respect to the calculation of the Incentive
Fee.
The
Advisory Agreement has a term of two years, unless sooner terminated as
described below. After the initial two-year term, the Advisory
Agreement will continue in effect so long as such continuance is specifically
approved at least annually by the Board, including a majority of its directors
who are not interested persons of EAM, or by the vote of the holders of a
majority, as defined in the 1940 Act, of the outstanding shares of
MACC. The Advisory Agreement may be terminated by MACC at any time,
without payment of any penalty, on 60 days’ written notice to EAM if the
decision to terminate has been made by the Board or by the vote of a majority,
as defined in the 1940 Act, of the holders of a majority of the outstanding
shares of MACC. EAM may also terminate the Advisory Agreement on 60
days’ written notice to MACC provided that another investment advisory agreement
with a suitable investment adviser has been approved by the vote of the holders
of a majority, as defined in the 1940 Act, of the outstanding shares of MACC,
and by a majority of directors who are not parties to such agreement or
interested persons of any such party.
MACC, EAM
and InvestAmerica are also parties to the Subadvisory Agreement. From
MACC’s inception in 1995 through 2004, and then from July 2005 through April 29,
2008, InvestAmerica was the investment adviser to MACC and
MorAmerica. Pursuant to the Subadvisory Agreement, InvestAmerica has
been retained to monitor and manage the Existing Portfolio, including exits,
preparation of valuations, follow-on investment analysis and recommendations and
other portfolio management matters. InvestAmerica also currently
provides certain accounting and financial services for MACC. During
the first three months of the term of the Subadvisory Agreement, EAM will pay
InvestAmerica a management fee equal to 75% of the Management Fee received by
EAM under the Advisory Agreement attributable to the Existing
Portfolio. For the remainder of the term of the Subadvisory
Agreement, EAM will pay InvestAmerica a management fee equal to 50% of the
Management Fee received by EAM under the Advisory Agreement attributable to the
Existing Portfolio. The amount of the incentive fee payable by EAM to
InvestAmerica under the Subadvisory Agreement is 100% of the incentive fee
received by EAM under the Advisory Agreement attributable to the Existing
Portfolio. The Subadvisory Agreement does not result in any
additional expense to MACC. The address of the Subadviser is 101
Second Street S.E., Suite 800, Cedar Rapids IA 52401.
The
Subadvisory Agreement has a term of two years, unless sooner terminated as
described below. After the initial two-year term, the Subadvisory
Agreement will continue in effect so long as such continuance is specifically
approved at least annually by EAM and the Board, including a majority of its
directors who are not interested persons of EAM or InvestAmerica, or by vote of
the holders of a majority, as defined in the 1940 Act, of the outstanding voting
securities of MACC. The Subadvisory Agreement may be terminated by
EAM or MACC at any time, without payment of any penalty, on 60 days written
notice to InvestAmerica if the decision to terminate has been made by EAM or by
the Board or by vote of the holders of a majority, as defined in the 1940 Act,
of the outstanding voting securities of MACC. The Subadvisory
Agreement also may be terminated by InvestAmerica at any time, without payment
of any penalty, on 60 days’ written notice to EAM and MACC.
Under the
terms of the Advisory Agreement, we will bear all expenses not specifically
assumed by EAM and incurred in our operations, and we will bear the expenses
related to this Offering. The compensation, benefits and allocable
routine overhead expenses of all investment professionals of EAM, the Subadviser
and their staffs, when and to the extent engaged in providing us investment
advisory services, is provided and paid for by EAM and the Subadviser, and not
us. The expenses borne by us include:
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auditing
fees;
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all
legal expenses;
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legal
fees normally paid by portfolio
companies;
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appropriate
trade association fees;
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brochures,
advertising, marketing and publicity
costs;
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interest
on debt;
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directors’
and Board fees;
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any
fees owed or paid to the Company or fund
managers;
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any
and all expenses associated with property of a portfolio company taken or
received by us or on our behalf as a result of any investment in any
portfolio company;
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all
reorganization and registration
expenses;
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the
fees and disbursements of our counsel, accountants, custodian, transfer
agent and registrar;
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fees
and expenses incurred in producing and effecting filings with federal and
state securities administrators;
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costs
of periodic reports to, and other communications with our
stockholders;
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premiums
for the fidelity bond, if any, maintained by EAM pursuant to Section 17 of
the 1940 Act;
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premiums
for directors and officers insurance;
and
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any
other expenses incurred by or on behalf of us that are not expressly
payable by EAM under the Advisory
Agreement.
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Other
Investment Funds
Affiliates
of InvestAmerica serve as the investment advisers to other private venture
capital funds. Affiliates of InvestAmerica manage NDSBIC, L.P., an
SBIC, Lewis & Clark Private Equities, L.P., an SBIC, and Invest Northwest,
L.P. (collectively, the “InvestAmerica Managed
Funds”). Each of these to funds is headquartered in Cedar
Rapids, Iowa. Both NDSBIC, L.P. and Lewis & Clark Private
Equities, L.P. are SBICs and invest primarily in later stage
companies. NDSBIC, L.P. was organized in 1995, had $5,000,000 of
committed capital and currently owns approximately 20 portfolio
companies. Except for follow on investments, this fund is fully
invested. Lewis & Clark Private Equities, L.P. was founded in
2002, has committed capital of $11,989,899 and to date has approximately six
portfolio company investments. Invest Northwest is a private venture
capital limited partnership and was organized in 2004 with $10,000,000 of
committed capital.
EAM and
InvestAmerica may, from time to time, provide investment advisory services,
management consulting services and related services to other clients. The
determination regarding the existence of conflict of interest between any of
those clients and the Company, and the resolution of any such conflict, vests in
the discretion of the Board, subject to the requirements and resolution of the
1940 Act.
Existing
Portfolio Co-Investments with Adviser-Affiliated Funds
With
respect to the Existing Portfolio only, certain investments made by MACC have
been made in participation with other funds managed by affiliates of
InvestAmerica. Although MACC does not currently anticipate making
additional similar co-investments in the future, MACC may participate in certain
follow-on investments respecting the Existing Portfolio. Under an
existing exemptive order from the SEC (the “Order”), MACC is
presently permitted to make investments in InvestAmerica Managed Funds, subject
to the conditions set forth in the Order. The Order provides that
MACC must be offered the opportunity to invest in any investment (other than in
interim investments or marketable securities) that would be suitable for MACC
that is being presented to the InvestAmerica Managed Funds to the extent of an
amount proportionate to their respective consolidated assets or paid-in-capital
if SBICs are involved. All co-investments with the InvestAmerica
Managed Funds must receive specific advance approval by a majority of the
non-interested directors of MACC. Securities purchased in a joint
transaction by both MACC and the InvestAmerica Managed Funds will consist of the
same class of securities, including the same registration rights, if any, and
other rights related thereto, and will be purchased for the same unit
consideration, all as governed SBA regulations, if applicable, and the approval
of such transaction, including the determination by non-interested directors,
will take place during the same time period. Notwithstanding the
foregoing, MACC will not make any investment in the securities of any issuer in
which the InvestAmerica Managed Funds, but not MACC, have previously
invested.
Not all
investments that might be made by the InvestAmerica Managed Funds may be
suitable for investment by MACC, or vice versa. MACC will be given
the opportunity to dispose of any securities in which both the InvestAmerica
Managed Funds and MACC have invested in proportion to their holdings of such
securities. MACC will take advantage of such opportunity except to
the extent that a majority of the members of the Board, including a majority of
its independent directors, determines otherwise. In connection with
any such disposition, MACC will be required to bear no more than its
proportionate share of the transaction costs. MACC will be given
notice of any intention by an InvestAmerica Managed Fund to exercise any
conversion privilege or other right to acquire equity securities of an issuer in
the securities of which both an InvestAmerica Managed Fund and MACC have
invested.
Control
Persons and Principal Holders of Securities
As our
investment advisers, EAM, a California limited liability company located at 580
Second Street, Suite 102, Encinitas, California 92024, and InvestAmerica, a
Delaware corporation located at 101 Second Street S.E., Suite 800, Cedar Rapids
IA 52401, are deemed to control us, within the meaning of the 1940
Act. Additionally, Atlas Management Partners, LLC (“Atlas”), Bridgewater
International Group, LLC (“BIG”), Mr. Benjamin
Jiaravanon and Mr. Timothy Bridgewater control the Company through either direct
or beneficial ownership of 804,689 of the Company’s Shares, which as of the date
of this Prospectus comprise 32.65% of the Company’s issued and outstanding
stock. Atlas and BIG are organized under the laws of the State of
Utah.
Our
officers and directors, eight in number as a group, own 1,026,988 Shares
together, equal to 41.67% of our outstanding Common Stock. The
following table sets forth certain information as of, with respect to Common
Stock ownership of each person who owns of record or is known by us to own of
record or beneficially five percent or more of the Common Stock:
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Name and Address of Owner
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Number of Shares Owned Beneficially
Only
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Number of Shares Owned of Record
Only
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Number of Shares Owned Beneficially and of
Record
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Percent of Common Stock
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Atlas
Management Partners, LLC
(1)
One
South Main Street, Suite 1660,
Salt
Lake City, Utah 84133
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804,689 | 32.65 | % | |||||||||||||
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Bridgewater
International Group, LLC
(1)
10500
South 1300 West,
South
Jordan, Utah 84095
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804,689 | 32.65 | % | |||||||||||||
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Timothy
A. Bridgewater
(1)
10500
South 1300 West
South
Jordan, Utah 84095
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804,689 | 13,100 | 33.18 | % | ||||||||||||
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Benjamin
Jiaravanon
(1)
Ancol
Barat, J1 Ancol VIII, No.1
Jakarta
14430 Indonesia
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804,689 | 32.65 | % | |||||||||||||
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Geoffrey
T. Woolley
580
Second Street, Suite 102
Encinitas,
California 92024
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151,314 | 6.14 | % | |||||||||||||
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(1)
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The
foregoing information with respect to Atlas, BIG, Mr. Jiaravanon and Mr.
Bridgewater is based upon Amendment No. 1 to Schedule 13D, dated September
30, 2003, as subsequently amended February 13, 2004, April 28, 2005 and
April 30, 2005, filed by Atlas, BIG and others with the SEC (collectively,
the “Atlas Group
13D”). The Atlas Group 13D disclosed that control over
804,689 shares of Common Stock owned by BIG (the “BIG Shares”) is
governed by a Shareholder and Voting Agreement dated September 29, 2003
among Atlas, BIG and Kent Madsen (the “Shareholder
Agreement”). The term of the Shareholder Agreement
extends to March 1, 2010 and may be extended in certain circumstances;
however, the Shareholder Agreement may also be terminated at any time by
any party. Under the Shareholder Agreement, BIG appointed Atlas
as its limited proxy to vote the BIG Shares, but BIG retains all other
incidents of ownership of the stock, including beneficial ownership and
dispositive power. The Shareholder Agreement also provides
Atlas with certain rights of first refusal respecting the BIG Shares and
limits BIG’s ability to otherwise dispose of the BIG
Shares. Pursuant to a Mutual Release and Waiver of Claims and
Termination of Shareholder and Voting Agreements among Atlas, BIG and the
former managers of Atlas dated April 28, 2005 and filed as part of the
Atlas Group 13D, certain former managers of Atlas, including Geoffrey
Woolley (the Chairman of MACC’s Board) and Kent Madsen, no longer have any
interests in Atlas and have no voting rights respecting the BIG
Shares.
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As voting
Managing Director of Atlas, Mr. Bridgewater has shared control over the voting
power granted to Atlas under the Shareholder Agreement respecting the BIG
Shares, subject to the parties’ rights under the Shareholder
Agreement. Mr. Bridgewater is also Managing Director of BIG and in
that capacity has shared control over the voting power granted to Atlas under
the Shareholder Agreement respecting the BIG Shares, subject to the parties’
rights under the Shareholder Agreement. Mr. Bridgewater also
individually owns 13,100 shares of Common Stock, according to reports Mr.
Bridgewater has filed with the SEC pursuant to Section 16(a) of the Exchange
Act. As the sole Managing Member of BIG, Mr. Jiaravanon has shared
control over the voting power granted to Atlas under the Shareholder Agreement
respecting the BIG Shares, subject to the parties’ rights under the Shareholder
Agreement. BIG is a wholly owned subsidiary of Aleksin, a corporation
organized under the laws of the British Virgin Islands. Aleksin is a
wholly-owned subsidiary of Maze Industrial Ltd. (“Maze”), a corporation
organized under the laws of the British Virgin Islands. Maze is 100%
owned by Sumet Jiaravanon, an individual.
The net
proceeds from the sale of our Shares in this Offering (assuming the price per
share set forth on the front cover of this Prospectus) will be approximately $__
million after deducting our offering expenses, totaling $80,000, paid by
us. We will invest the net proceeds in securities consistent with the
following strategy for New Portfolio investments. We will seek
capital appreciation by making direct equity investments in small public
companies that are eligible for BDC investment. These investments
will be in small- and micro-cap growth companies benefiting from positive
fundamental change. These investments will primarily be in the form
of Pipes and registered direct offerings. We also intend to invest in
small- and micro-cap growth companies that are listed and will be purchased on
the national exchanges. We anticipate that substantially all of the
net proceeds of this Offering will be used as described above, within three
months; however, it could take a longer time to invest substantially all of the
net proceeds. We have not allocated any portion of the net proceeds
of this Offering to any particular investment. Pending such uses and
investments, we expect to invest proceeds primarily in cash, cash equivalents,
U.S. government securities and other high-quality debt investments that mature
in one year or less from the date of investment.
INVESTMENT OBJECTIVE AND POLICIES
General
In
addition to the 1940 Act requirements discussed below under
“Regulation—Qualifying Assets,” MACC has adopted the following additional
non-fundamental investment policies. These policies may be changed
from time to time by the Board, except that the election of MACC to be regulated
as a BDC may not be revoked without the approval of the holders of a majority of
the Common Stock.
Short-Term
Investment Policies
MACC’s
short-term investments are placed in the following investment instruments that
mature in one year or less from the date of investment:
|
|
·
|
Short
term treasury bills.
|
|
|
·
|
Insured
certificates of deposit in principal amounts not to exceed
$100,000.
|
|
|
·
|
Securities
issued by U.S. government, consisting of agency issues backed by the full
faith and credit of the federal government with maturities not to exceed
one year.
|
|
|
·
|
Commercial
paper rated Al or P1.
|
|
|
·
|
High
quality repurchase contracts relating to government backed
securities.
|
|
|
·
|
Money
market funds investing primarily in short-term U.S. government
securities.
|
Long
Term Investment Policies
In making
investments and managing its portfolio, MACC presently intends to adhere to the
following policies.
|
|
●
|
MACC
will generally seek to make equity investments in micro- and small-cap
companies that will result in capital appreciation to
MACC. These may include private investments in public companies
(so called “Pipes”) and registered direct offerings permissible for BDCs
under the 1940 Act, equity investments in publicly listed companies, and
on a limited basis equity investments or interest-bearing debt instruments
(with equity features) in private
companies.
|
|
|
●
|
MACC
will seek to at all times conduct its business so as to retain its status
as a BDC. In order to retain that status, MACC may not acquire
any assets other than “qualifying assets” unless, at the time of and after
giving effect to such acquisition, at least 70% of our total assets are
qualifying assets. Generally, “qualifying assets” are (i)
securities purchased in private offerings from (a) “eligible portfolio
companies” or from affiliates of the eligible portfolio company, or (b)
U.S.-organized companies which are not investment companies having a class
of securities for which a broker may extend margin credit, if at the time
of purchase, we own at least 50% of such company’s equity and debt
securities, and we are one of the 20 largest holders of the company’s
outstanding voting securities; (ii) securities of eligible portfolio
companies which we control; (iii) securities purchased in private
offerings from either a U.S.-organized company which is not an investment
company with a class of securities for which a broker may extend margin
credit or from an affiliate of such company, if the company is in
reorganization, consummating a plan of reorganization or insolvent; (iv)
securities purchased in private offerings from an eligible portfolio
company if there is no market for such securities and if prior to such
purchase we own at least 60% of the company’s outstanding equity
securities; (v) securities received in exchange for or distributed on or
with respect to the securities described in (i) through (iv) above or
pursuant to the exercise of an option or warrant; (vi) cash, government
securities or high-quality debt securities having maturities of one year
or less; and (vii) our office furniture, real estate or leases, deferred
organizational and operating expenses and our other noninvestment assets
required for our operations as a BDC. “Eligible portfolio
companies” are generally companies which are organized in the United
States, are not investment companies, and which either: (i) do not have
securities for which a broker may extend margin credit, (ii) are
controlled by a BDC or a group including a BDC, (iii) are solvent and have
assets under $4 million and capital and surplus of at least $2 million, or
(iv) (A) do not have a class of securities listed on a national securities
exchange, or (B) have a class of securities listed on a national
securities exchange, but have a market capitalization below
$250,000,000. See “Regulation—Qualifying
Assets.”
|
|
|
●
|
MACC
will not make any investment in the securities of any private company if,
after giving effect to that investment, the value of all the securities of
that company held by MACC will exceed ten percent of the value of MACC’s
total assets.
|
|
|
●
|
MACC
may borrow money and issue senior securities to the extent that the 1940
Act permits a BDC to do so, for the purpose of making investments, or for
temporary or emergency purposes. A BDC may issue and sell
senior securities if, immediately after such issuance or sale, the
securities will have asset coverage of at least 200
percent. MACC does not, however, intend to incur indebtedness
for borrowed money, so long as it holds cash, interim investments or
marketable securities in an amount sufficient to fund the amount of
investments (other than in interim investments or marketable securities)
and operating expenses projected to be made in the forthcoming twelve
months. At June 30, 2008, MACC had an outstanding principal
amount of $4,855,661 under the Term Loan from CRB&T and is permitted
to borrow up to $500,000 under the Revolving Loan, though we have not
presently made any drawings under the Revolving Loan. We may
also issue and sell senior securities, subject to 1940 Act
limitations. See “Regulation—Senior Securities (Leverage);
Coverage Ratio.” For the risks associated with the resulting
leverage, see “Risk Factors.”
|
|
|
●
|
MACC
will not (i) act as an underwriter of securities of other issuers (except
to the extent that it may be deemed an “underwriter” of securities
purchased, by it that must be registered under the 1933 Act before they
may be offered or sold to the public); (ii) purchase or sell real estate
or interests in real estate or real estate investment trusts (except that
MACC may purchase and sell real estate or interests in real estate in
connection with the orderly liquidation of investments, and may own the
securities of companies or participate in a partnership or partnerships
that are in the business of buying, selling or developing real estate);
(iii) purchase securities on margin (except to the extent that it may
purchase securities with borrowed money); (iv) write or buy put or call
options (except to the extent of warrants or conversion privileges in
connection with its growth financing and management buyout investments,
and rights to require the issuer of such investments or their affiliates
to repurchase them under certain circumstances); (v) engage in the
purchase or sale of commodities or commodity contracts, including futures
contracts; or (vi) acquire more than three percent of the voting stock of,
or invest more than five percent of its total assets in any securities
issued by, any other investment company, except as they may be acquired as
part of a merger, consolidation or acquisition of assets. As
with other investment policies, these policies may be changed without
stockholder approval (except that the BDC election of MACC may not be
changed without stockholder
consent).
|
Other
Policies
With
respect to the Existing Portfolio, MACC is focused on liquidating the Existing
Portfolio investments in a manner designed to seek maximum
value. Although MACC is no longer pursing the strategies used in
acquiring the Existing Portfolio, MACC retains the right to make follow-on
investments in Existing Portfolio companies to protect any current
investment.
MACC has
always provided advisory services to portfolio companies either directly or in
conjunction with co-investors. We will continue this policy of making
significant managerial assistance available to all portfolio
companies. These advisory services include but are not limited to
accepting or requiring board representation, providing executive hiring and
search advice, assisting to secure debt and equity financing relationships,
offering management advice and providing general oversight of portfolio
companies. The Chief Executive Officer and the Chief Financial
Officer of MACC will be available for and will provide these
services.
The
following is a list of the portfolio companies in which MACC (through
MorAmerica, which merged into MACC effective April 30, 2008) had an investment
at June 30, 2008. The portfolio companies are presented in three
categories — Manufacturing, Service and
Technology/Communications. All of the following portfolio
companies are “eligible portfolio companies” under the 1940 Act. MACC
makes available significant managerial assistance to all of these portfolio
companies. MACC generally receives rights to observe the meetings of the
portfolio companies’ board of directors, and may have one or more voting seats
on their boards. Other than our provision of managerial assistance to
such companies, there are no material business, professional or family
relationships between MACC’s officers and directors and any portfolio company,
or any portfolio company’s officers, directors or affiliates.
Manufacturing:
|
Portfolio Company
Name & Address
|
Nature
of Business
|
Title or Class of Security /
General Terms of Loan
|
Percentage of Class
|
Value
|
||||||||
|
Aviation
Manufacturing Group,
LLC
719
Walnut Street, P.O. Box 57
Yankton,
South Dakota 57078
|
Manufactures
flight-critical parts for
aircraft
(see
additional description of business below)
|
14%
debt security, due October 1, 2008 †
|
38.50 | % | $ | 616,000 | ||||||
|
154,000
preferred membership units
|
38.50 | % | 154,000 | |||||||||
|
154,000
membership units
|
21.18 | % | 550,777 | |||||||||
|
14%
note, due October 1, 2008
|
38.50 | % | 89,320 | |||||||||
|
68,445
membership units
|
21.18 | % | 244,782 | |||||||||
| $ | 1,654,879 | |||||||||||
|
Central
Fiber Corporation
4814
Fiber Lane
Wellsville,
Kansas 66092
|
Recycles and manufactures cellulose fiber products |
12%
debt security, due March 31, 2009
|
25.00 | % | $ | 205,143 | ||||||
|
12%
debt security, due March 31, 2009
|
25.00 | % | 53,079 | |||||||||
|
Warrant
to purchase 273.28 common shares
|
25.00 | % | -- | |||||||||
| $ | 258,222 | |||||||||||
|
DMTP
Acquisition Company
949
Bethel Road
Lebanon,
Missouri 65536
|
Manufactures
metal stampings and fabrications
(see
additional description of business below)
|
12%
debt security, due November 18, 2009
|
11.00 | % | $ | 1,371,507 | ||||||
|
19,853.94
shares Series A preferred †
|
11.00 | % | 195,231 | |||||||||
|
7,887.17
shares common †
|
10.50 | % | 126,742 | |||||||||
| $ | 1,693,480 | |||||||||||
|
Handy
Industries, LLC
702
South 3rd
Avenue
Marshalltown,
Iowa 50158
|
Manufacturer
of lifts for motorcycles, trucks
and industrial metal products
(see
additional description of business below)
|
12.5%
debt security, due October 2, 2007
|
22.90 | % | $ | 667,327 | ||||||
|
167,171
units Class B preferred †
|
22.90 | % | 68,528 | |||||||||
|
1,357
units Class A common
|
13.38 | % | -- | |||||||||
| $ | 735,855 | |||||||||||
|
Kwik-Way
Products, Inc.
500
57th
Street
Marion,
Iowa 52302
|
Manufactures automobile repair machines |
2%
debt security, due January 31, 2008 †
|
32.80 | % | $ | 1 | ||||||
|
2%
debt security, due January 31, 2008 †
|
19.30 | % | -- | |||||||||
|
38,008
common shares – non-cash†
|
21.80 | % | -- | |||||||||
|
29,340
common shares †
|
21.80 | % | -- | |||||||||
| $ | 1 | |||||||||||
|
Linton
Truss Corporation
1455
SW 4th
Avenue
Delray
Beach, Florida 33444
|
Manufactures residential roof and floor truss systems |
542.8
common shares †
|
2.114 | % | $ | -- | ||||||
|
400
shares Series 1 preferred †
|
50.00 | % | 340,000 | |||||||||
|
Warrants
to purchase 14.682% common shares †
|
20.906 | % | 15 | |||||||||
|
Warrants
to purchase 5.0% common shares
|
20.906 | -- | ||||||||||
| $ | 340,015 | |||||||||||
|
M.A.
Gedney Company
2100
Sloughton Avenue
Chaska,
Minnesota 55318
|
Pickle
processor
|
188,750
shares preferred †
|
1.75 | % | $ | 108,117 | ||||||
|
137,086
shares preferred
|
1.27 | % | -- | |||||||||
|
210,167
shares preferred
|
76.00 | % | -- | |||||||||
|
Warrant
to purchase 34,223 preferred shares †
|
2.93 | % | -- | |||||||||
|
112,780
shares preferred
|
1.95 | % | 31,883 | |||||||||
|
Warrant
to purchase 49,350 preferred shares
|
2.93 | % | -- | |||||||||
|
12%
debt security, due June 30, 2009
|
14.30 | % | 152,000 | |||||||||
| $ | 292,000 | |||||||||||
|
Magnum
Systems, Inc.
1250
Seminary Street
Kansas
City, Kansas 66103
|
Manufacturer
of industrial bagging equipment
(see
additional description of business below)
|
12%
debt security, due November 1, 2008
|
21.00 | % | $ | 574,163 | ||||||
|
48,038
common shares †
|
15.95 | % | 48,038 | |||||||||
|
292,800
shares preferred †
|
19.00 | % | 304,512 | |||||||||
|
Warrant
to purchase 56,529 common shares †
|
21.00 | % | 380,565 | |||||||||
| $ | 1,307,278 | |||||||||||
|
|
†
|
Presently
non-income producing.
|
Manufacturing
(continued:
|
Portfolio Company
Name & Address
|
Nature
of Business
|
Title or Class of Security /
General Terms of Loan
|
Percentage of Class
|
Value
|
||||||||
|
Pratt-Read
Corporation
1155
Railroad Avenue
Bridgeport,
Connecticut 06605
|
Manufacturer
of screwdriver shafts and handles
and other hand tools
(see
additional description of business below)
|
13,889
shares Series A Preferred †
|
27.78 | % | $ | 421,460 | ||||||
|
Warrants
to purchase 7.5% of common stock
|
10.06 | % | -- | |||||||||
|
7,718
shares Services A preferred †
|
27.78 | % | 234,097 | |||||||||
|
Warrants
to purchase 2.78% of common stock
|
10.06 | % | -- | |||||||||
|
13%
debt security, due July 26, 2007 †
|
27.78 | % | 250,020 | |||||||||
|
Warrants
to purchase 1.827% of common stock †
|
10.06 | % | -- | |||||||||
|
Warrants
to purchase 1,843 shares common stock
|
10.06 | % | -- | |||||||||
| $ | 905,577 | |||||||||||
|
Spectrum
Products, LLC‡
7100
Spectrum Lane
Missoula,
Montana 59808
|
Manufactures
equipment used in the construction,
operation and maintenance of commercial
swimming pools and spas
(see
additional description of business below)
|
13%
debt security, due January 1, 2008 †
|
36.94 | % | $ | 1,077,650 | ||||||
|
385,000
units Series A preferred †
|
36.95 | % | -- | |||||||||
|
35,073.50
units Series A
common†
|
31.57 | % | -- | |||||||||
|
17,536.75
units Class B preferred †
|
____
|
% | -- | |||||||||
| $ | 1,077,650 | |||||||||||
|
Superior
Holding, Inc.
1999
N. Amidon, Suite 335
Wichita,
Kansas 67203
|
Manufactures
industrial and commercial boilers
and shower doors, frames and enclosures
(see
additional description of business below)
|
6%
debt security, due April 1, 2010 †
|
26.00 | % | $ | 780,000 | ||||||
|
Warrant
to purchase 11,143 common shares †
|
26.00 | % | 1 | |||||||||
|
6%
debt security, due April 1, 2010 †
|
26.00 | % | 221,000 | |||||||||
|
121,457
common shares †
|
15.74 | % | 121,457 | |||||||||
|
6%
debt security, due April 1, 2010 †
|
26.00 | % | 308,880 | |||||||||
|
312,000
common shares †
|
15.74 | % | 3,120 | |||||||||
| $ | 1,434,458 | |||||||||||
|
Total
manufacturing
|
$ | 9,699,414 | ||||||||||
Service:
|
Portfolio Company
Name & Address
|
Nature
of Business
|
Title or Class of Security /
General Terms of Loan
|
Percentage of Class
|
Value
|
||||||||
|
Monitronics
International, Inc.
12801
North Stemmons
Freeway,
Suite 821
Dallas,
Texas 75234
|
Provides home security system monitoring services |
73,214
common shares †
|
0.218 | % | $ | 439,284 | ||||||
| $ | 439,284 | |||||||||||
|
Morgan
Ohare, Inc. ‡
701
Factory Road
Addison,
Illinois 60101
|
Provides
zinc electroplating and heat- treating
for fasteners and small stampings
(see
additional description of business below)
|
0%
debt security, due January 1, 2008 †
|
55.10 | % | $ | 1,068,750 | ||||||
|
10%
debt security, due January 1, 2008
|
55.10 | % | 343,750 | |||||||||
|
57
common shares †
|
47.35 | % | 1 | |||||||||
| $ | 1,412,501 | |||||||||||
|
SMWC
Acquisition Co., Inc. ‡
1700
West 25th
Street
Kansas
City, Missouri 64108
|
Steel
warehouse distribution and processing
|
13%
debt security due September 30, 2011
|
17.00 | % | $ | 96,250 | ||||||
|
12%
debt security due September 30, 2011
|
17.00 | % | 482,900 | |||||||||
| $ | 579,150 | |||||||||||
|
Warren
Family Funeral Homes, Inc.
520
SW 27th
Street
Topeka,
Kansas 66611
|
Provider
of value priced funeral services
|
Warrant
to purchase 231 common shares †
|
19.92 | % | $ | 134,008 | ||||||
|
Warrant
to purchase 115.5 common shares †
|
19.92 | % | 66,004 | |||||||||
| $ | 200,012 | |||||||||||
|
Total
Service
|
$ | 2,630,947 | ||||||||||
|
|
†
|
Presently
non-income producing.
|
|
|
‡
|
Indicates
that MACC owns 25% or more of the portfolio company’s outstanding
securities, meaning that MACC “controls” such company, within the meaning
of the 1940 Act.
|
Technology
& Communications:
|
Portfolio Company
Name & Address
|
Nature
of Business
|
Title or Class of Security /
General Terms of Loan
|
Percentage of Class
|
Value
|
||||||||
|
Feed
Management Systems, Inc.
6120
Earle Brown Dr., Ste. 300
Brooklyn
Center, Minnesota 55430
|
Batch
feed software and systems and business
to business internet services
(see
additional description of business below)
|
540,551
common shares†
|
17.83 | % | $ | 1,327,186 | ||||||
|
47,709
shares Series A preferred†
|
18.57 | % | 47,709 | |||||||||
|
66,600
shares Series A preferred†
|
18.57 | % | 66,600 | |||||||||
|
400,000
shares Series A preferred
|
18.57 | % | 400,000 | |||||||||
|
160,000
shares Series A preferred
|
18.57 | % | 160,000 | |||||||||
| $ | 2,001,495 | |||||||||||
|
MainStream
Data, Inc.
375
Chipeta Way, Suite B
Salt
Lake City, Utah 84108
|
Content
delivery solutions provider
|
322,763
shares Series A preferred†
|
8.00 | % | $ | 200,049 | ||||||
| $ | 200,049 | |||||||||||
|
Phonex
Broadband Corporation
6952
High Tech Drive
Midvale,
Utah 84047
|
Wholesales communications equipment and manufactures radio and television communications equipment |
1,855,302
shares Series A preferred†
|
12.00 | % | $ | 1 | ||||||
| $ | 1 | |||||||||||
|
Portrait
Display Labs, Inc.
6663
Owens Drive
Pleasanton,
California 94588
|
Designs and markets pivot enabling software for LCD computer monitors |
8%
debt security, due April 1, 2009
|
2.77 | % | $ | 375,950 | ||||||
|
8%
debt security, due April 1, 2012†
|
21.84 | % | 23,541 | |||||||||
|
Warrant
to purchase 1.092% common shares†
|
1.092 | % | -- | |||||||||
|
Warrant
to purchase 0.277% common shares
|
0.277 | % | -- | |||||||||
| $ | 399,491 | |||||||||||
|
Total
Technology & Communications
|
$ | 2,601,036 | ||||||||||
|
|
†
|
Presently
non-income producing.
|
Additional
Information Respecting Existing Portfolio Companies
The value
of MACC’s investments in the following Existing Portfolio companies represents
5% or more of the total value of MACC assets as of June 30,
2008. Certain additional information regarding these Existing
Portfolio companies follows.
|
|
●
|
Aviation
Manufacturing Group, LLC (“Freeman”): Freeman
is a Yankton, South Dakota based manufacturer of swaged and turned parts
for the commercial aerospace industry. Freeman primarily
produces swaged and turned parts for both OEM and replacement uses for US
commercial aircraft. The US commercial aircraft industry is
currently strong. Freeman is a very small company in a
multi-billion dollar industry and as such has less than a 5% market
share. Freeman has a number of key customers. Freeman is a
small company and does rely on a small, core management team for some of
its success.
|
|
|
●
|
Detroit
Tool Metal Products Co. (“DMTP”): DTMP
supplies a diverse customer base which is largely comprised by
agriculture, construction, and trucking. DTMP serves the needs
of end customers like Case, Deere and Paccar. The company does
have some impact from economic cycles and also from interest rate
shifts. DMTP does have some concentration within a few large
customers. However, its products are spread across diverse end
markets. DTMP does rely on its CEO with no internal replacement
identifiable. The company has a stable executive and operating
work force.
|
|
|
●
|
Handy
Industries, LLC (“Handy”): Handy
manufactures lifts for raising vehicles to various heights for ease of
repair work. Vehicles include motorcycles, snowmobiles, three
and four wheelers, golf carts, garden tractors and lawn
mowers. Handy also manufactures a line of replacement tailgates
for pickup trucks as well as a line of fuel and tool storage
products. The company is dependent on the recreational vehicle
market for most of its sales. Handy is small and relies
on several key management
personnel.
|
|
|
●
|
Magnum
Systems, Inc. (“Magnum”): Magnum
supplies a diverse array of end markets and customers with its broad
product offering. The only end market that exceeds 25% of sales
is the stable and desirable food sector, and no single customer exceeds 5%
of sales. Magnum has a stable executive team and a strong
CEO. There is reliance on the CEO, as there is no definable
replacement in the company. Magnum is leveraged to a degree and
access to capital is important, so interest rate shifts could have an
impact on the company.
|
|
|
●
|
Pratt-Read
Corporation (“Pratt-Read”): Pratt-Read
manufactures screwdriver handles, screwdriver blades, and completed
screwdrivers, as well as other hand tool products. It sells
products to retailers, industrial tool companies, and other manufacturers
of barrel tools. Pratt-Read is highly dependent on several
customers for the majority of its sales. The company also has
competition from other larger manufacturers and imports from
China. The company is dependent on its core management
team. Pratt-Read is highly leveraged and could be affected by
the current credit crisis in the banking
industry.
|
|
|
●
|
Spectrum
Products, LLC (“Spectrum”): Spectrum
is a manufacturer of pool equipment. The company’s primary
focus is on pool access and decking equipment—emphasizing access equipment
for the handicapped. Products manufactured by Spectrum include
handicap lifts, lifeguard chairs, ladders, starting platforms and other
similar products. The majority of the products are manufactured
using stainless steel. Spectrum has a diverse customer base and
relies on a few key management personnel. The majority of its
customers are commercial. Spectrum is a significant provider of
handicap access equipment that can be affected by government regulations,
specifically the implementation and enforcement of the handicap access
regulations for public and commercial
pools.
|
|
|
●
|
Superior
Holdings, Inc. (“Superior”): Superior
supplies large commercial boilers to commercial buildings, churches,
schools, and industrial plants. Superior serves a diverse
customer base which includes private commercial buildings as well as
municipalities and energy-related industrial plants. The
company is impacted by interest rate shifts and economic cycles, and it
has some concentration in sales in the energy side of the
business. On the commercial side, Superior serves a diverse
customer base. Superior does have reliance on the CEO, as there
is no identifiable replacement internally, and it has a stable work and
administrative work force.
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|
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●
|
Morgan
Ohare, Inc. (“Morgan”): Morgan
is very small heat treating and zinc plating
company. Primarily, it heat treats fasteners for the
automotive, housing and appliance industries. Morgan’s
processes include barrel and rock plating. Morgan is a very
small company in a very large market and has less than a 5% market
share. Morgan’s industry both nationally and internationally is
very competitive. Some of Morgan’s processes are licensed, and
such licensing appears secure. Morgan’s success is dependent
upon a small, core management team.
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|
|
●
|
Feed
Management Systems, Inc. (“Feed
Management”): Feed Management is a software company
providing management and tracking tools to the agricultural
market. The company has signed an agreement with a large
agricultural company which may result in their acquisition by this
company. Feed Management is dependent on licensed product for
development of its software. Feed Management is in the
development stage of a major upgrade of its products and this development
is key to its growth. The company also relies on a key group of
core managers for the successful implementation of its growth
strategy.
|
The
following table sets forth (i) our actual capitalization as of June 30, 2008,
and (ii) our capitalization as adjusted to reflect the issuance of 821,541
Rights and corresponding issuance and sale of 821,541 of our Shares offered
hereby at the price per share set forth on the front cover. You
should read this table together with “Use of Proceeds” and our statement of
assets and liabilities included elsewhere in this Prospectus.
|
Actual
June 30,
2008
(Unaudited)
|
As
Adjusted
(Unaudited)
|
|||||||
|
Net
Assets Applicable to Common Stockholders Consist of
|
||||||||
|
Capital
Stock, $0.01 par value, 10,000,000 Shares authorized; Shares issued and
outstanding actual (2,464,621) and as adjusted (3,286,162)
|
$ | 24,646 | $ | 32,862 | ||||
|
Additional
paid-in capital
|
$ | $ | ||||||
|
Net
assets applicable to common stockholders
|
$ | 10,823,495 | $ | |||||
Directors
and Officers
Our
business and affairs are managed under the direction of our
Board. Accordingly, our Board provides broad supervision over our
affairs, including supervision of the duties performed by our Adviser and
Subadviser. Certain employees of our Adviser are responsible for our
day-to-day operations. The names, ages and addresses of our directors
and specified executive officers, together with their principal occupations and
other affiliations during the past five years, are set forth below under
“Management of the Company—Directors and Officers” in the SAI. Each
director and officer will hold office for a one year term to which he is elected
and until his successor is duly elected and qualifies, or until he resigns or is
removed in the manner provided by law. Our Board consists of a
majority of directors who are not “interested persons” (as defined in the 1940
Act) of our Adviser, its affiliates or our Subadviser or its affiliates (the
“Independent
Directors”). The directors who are “interested persons” (as
defined in the 1940 Act) are referred to as “Interested Directors.”
Our
Adviser
EAM was
founded in 2007 by Travis Prentice, Montie L. Weisenberger and Joshua M.
Moss. EAM’s principals have managed assets under similar strategies
as those of the Company since 1997, and have continued such management upon the
effectiveness of EAM’s registration as an investment adviser. EAM has
not previously managed an investment company which has elected treatment as a
BDC. Because EAM was not engaged as our adviser until April, 2008, we
did not pay EAM and advisory fees in any of fiscal years 2005 –
2007.
Roth
Capital Partners, LLC (“RCP”) contributed the
operating capital to fund the founders’ business plan and holds a 49% interest
in EAM. Gordon J. Roth, who has served on MACC’s Board since 2000, is
the Chief Financial Officer of RCP and serves on the Board of Managers of
EAM.
Our
Subadviser
InvestAmerica
is a nationally-recognized private equity/venture capital investment management
group whose professionals have over 100 cumulative years of fund management
experience. The InvestAmerica brand was founded in 1985 with the establishment
of InvestAmerica Venture Group, Inc. Since 1985, InvestAmerica has successfully
managed and grown the InvestAmerica related private equity/venture funds with
investments throughout the United States. The InvestAmerica group is
headquartered in Cedar Rapids, Iowa with regional offices in Kansas City,
Missouri; Vancouver, Washington; Fargo, North Dakota and St. Paul,
Minnesota. InvestAmerica does not act as investment adviser with
respect to any other investment company, and our Board is not aware of any
financial condition of InvestAmerica that is reasonably likely to impair the
financial ability of InvestAmerica to fulfill its commitment to MACC under the
Subadvisory Agreement. Under prior advisory agreements, we paid
InvestAmerica investment advisory fees in the amounts of $1,316,421, $441,277
and $475,357 in the fiscal years 2005, 2006 and 2007, respectively.
Portfolio
Managers
Under the
Advisory Agreement and Subadvisory Agreement, representatives of EAM will be
responsible for the day-to-day management of the New Portfolio (the “EAM Portfolio
Managers”) and representatives of InvestAmerica will be responsible for
the day-to-day management of the Existing Portfolio (the “InvestAmerica Portfolio
Managers”).
With
respect to the New Portfolio, the planned equity investments in publicly-listed,
small- and micro-cap companies (up to a maximum of 30% of MACC’s total assets)
will be managed by Travis Prentice. The remaining portion the New
Portfolio will be governed by the investment decisions of an investment
committee consisting of the EAM Portfolio Managers. Buy and sell decisions will
be by consensus with Travis Prentice having final decision in case of a split
vote. Each member of the investment committee will have the authority
to trim positions (partial buys or sells) to ensure exposures stay in-line with
portfolio goals and regulatory requirements. The EAM Portfolio
Managers are as follows:
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●
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Travis
Prentice. Mr. Prentice is the President and Chief
Investment Officer of EAM, a firm he co-founded in 2007. In
addition, he serves as portfolio manager for the firm’s Micro Cap Growth
and Ultra Micro Cap Growth investment strategies. Prior to founding EAM,
Mr. Prentice was a Partner, Managing Director and Portfolio Manager with
Nicholas-Applegate Capital Management where he had lead portfolio
management responsibilities for their Micro and Ultra Micro Cap investment
strategies and a senior role in the firm’s US Micro/Emerging Growth
team. He brings ten years of institutional investment
experience from Nicholas Applegate where he originally joined in 1997. He
holds a Masters in Business Administration from San Diego State University
and a Bachelor of Arts in Economics and a Bachelor of Arts in Psychology
from the University of Arizona.
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●
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Montie L.
Weisenberger. Mr. Weisenberger is the Senior Vice
President and Portfolio Manager of EAM, a firm he co-founded in
2007. Mr. Weisenberger has primary portfolio management
responsibilities for the firm’s Small Cap Growth investment
strategy. Prior to founding EAM, Mr. Weisenberger was a Senior
Vice President and Portfolio Manager at Nicholas Applegate Capital
Management where he had lead portfolio management responsibilities for the
firm’s Traditional Small-to-Mid Cap Growth strategy and was a senior
member of the firm’s US Micro / Emerging Growth team since
2001. Prior to joining Nicholas Applegate Capital Management,
Mr. Weisenberger was a research analyst at Adams, Harkness & Hill, now
Cannacord Adams, an emerging growth investment bank located in Boston, MA.
Mr. Weisenberger also spent more than five years as a finance and
strategic management consultant, most recently as a manager with KPMG,
LLP. Mr. Weisenberger brings more than twelve years of combined
investment management and financial analysis experience to Eudaimonia
Asset Management. He holds a Masters in Business Administration
and a Masters in Health Administration from Georgia State University and a
Bachelor of Arts in Business Administration from Flagler
College.
|
With
respect to follow-on investments in the Existing Portfolio, investment decisions
require the approval of three out of four of the InvestAmerica Portfolio
Managers. The InvestAmerica Portfolio Managers are as
follows:
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●
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David R.
Schroder. Mr. Schroder has been President, Assistant
Secretary and a Director of InvestAmerica since
1994. In addition, he served as President and Secretary of MACC
from April, 2005 to April, 2008 and Chief Compliance Officer and Treasurer
of MACC from March, 2004 to April, 2005 and President, Secretary and a
Director of MACC from 1994 to 2004. He received a B.S.F.S. from
Georgetown University and an M.B.A. from the University of
Wisconsin.
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|
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●
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Robert A.
Comey. Mr. Comey has been Executive Vice President,
Treasurer, Assistant Secretary and a Director of InvestAmerica since
1994. In addition, he served as Chief Financial Officer,
Executive Vice President, Chief Compliance Officer, Treasurer and
Assistant Secretary of MACC from April, 2005 to April, 2008, Chief
Financial Officer, Executive Vice President, Treasurer and a Director of
MACC from 1994 to 2004, Director of MorAmerica from 1989-2004, Executive
Vice President and Assistant Secretary of MorAmerica from 1994 to 2004 and
Treasurer of MorAmerica from 1994 to April, 2005. He received
an A.B. in Economics from Brown University and an M.B.A. from Fordham
University.
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●
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Kevin F.
Mullane. Mr. Mullane has been Senior Vice President,
Assistant Secretary and a Director of InvestAmerica since
1994. In addition, he served as Senior Vice President of MACC
during the periods from April, 2005 to April, 2008 and 2000-2004 and was
Senior Vice President of MorAmerica from 1999 to 2004. He
received an M.B.A. and an M.S. in Business Administration, Emphasis in
Accounting, from Rockhurst Jesuit
University.
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●
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Michael H.
Reynoldson. Mr. Reynoldson has been Vice President of
InvestAmerica since 2001. In addition, he served as Vice
President of MACC from 2008 to 2008, Senior Vice President of MACC from
2000-2004 and Senior Vice President of MorAmerica from 1999 to
2004. He received an M.B.A. and an M.S. in Business
Administration, Emphasis in Accounting, from Rockhurst Jesuit
University.
|
The
section headed “Management of the Company—Portfolio Managers” in the SAI
contains additional information about our portfolio managers, including their
compensation, other accounts they manage, and their ownership of MACC
securities.
Potential
Exit Strategies
With
respect to our Existing Portfolio, we generally expect to hold most of our
subordinated and mezzanine debt investments until maturity or
repayment. We may, however, if circumstances are favorable, sell our
investments earlier if a liquidity event occurs, such as the sale or
recapitalization of a portfolio company or, in the case of an equity investment
in a company, its initial public offering. Occasionally and when
terms are favorable, we may also sell some or all of our subordinated debt,
mezzanine debt or equity interests in a portfolio company to a third party, such
as an existing investor in the portfolio company, through a privately negotiated
transaction.
With
respect to the New Portfolio, we generally expect to hold most of our securities
until they have reached fair value and/or the Portfolio Managers believe that
MACC’s capital would be best utilized in other opportunities. We
generally expect to hold unregistered shares until the securities have been
registered on public exchanges or become available to trade
over-the-counter. We may, however, if circumstances are favorable,
sell our unregistered shares earlier to a third party through a privately
negotiated transaction.
Ongoing
Portfolio Company Monitoring
Our
Adviser and Subadviser will each closely monitor each investment we make and
will maintain a regular dialogue with both the portfolio companies’ management
teams and any other significant stakeholders to determine progress relative to
meeting the company’s business plan and to assess the appropriate strategic and
tactical courses of action for the company. In addition,
representatives of our Adviser and Subadviser may participate in portfolio
company board meetings or serve as portfolio company directors, and will monitor
portfolio company performance through quarterly valuation procedures discussed
elsewhere in this Prospectus.
Managerial
Assistance
Our
Adviser and Subadviser will each make available, and will provide upon request,
significant managerial assistance to our portfolio companies. This
assistance may involve, among other things, monitoring the operations of our
portfolio companies, participating in board and management meetings, consulting
with and advising the management teams of our portfolio companies, assisting in
the formulation of their strategic plans, and providing other operational,
organizational and financial consultation. Involvement with each portfolio
company will vary based on a number of factors.
Investment
Valuation
General
Valuation Policy
Using
procedures established by our Board we value each investment as it is approved
for investment and then perform follow up valuation for each portfolio company
investment on a quarterly basis. Investments in securities that are
traded in on a stock exchange are valued based on the last quoted sale price on
the valuation date (or if no sales occurred on the valuation date, the closing
bid price on that date). Securities traded on the
over-the-counter market are valued by taking the bid price on the valuation
date. All other investments are valued at fair value as determined in
good faith by the Board. The Board has determined that such other
investments will be valued initially at cost, but such valuation will be subject
to quarterly adjustments and on such other interim periods as are justified by
material portfolio company events if the Board determines in good faith that
cost no longer represents fair value. Among the factors we consider
in determining the fair value of investments are the cost of the investment;
developments, including recent financing transactions, since the acquisition of
the investment; the financial condition and operating results of the investee;
the long-term potential of the business of the investee; market interest rates
for similar debt securities and other factors generally pertinent to the
valuation of investments.
Valuation
Process
The
Board has sole responsibility for determining the fair value of each
of the securities we hold. The fair value for each security is to be
determined pursuant to methodologies established solely by Board as set forth in
the Valuation Policy adopted August 20, 2008 (the “Valuation
Policy”).
The
Valuation Policy sets forth the following process to assist the Board in
determining the fair value of the securities we hold:
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·
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Investment Team
Valuation. The investment professionals of our
Investment Adviser and Subadviser responsible for the portfolio investment
(the “Investment
Team”) will initially propose a fair value for each portfolio
company or investment in accordance with the methodologies established by
the Board as set forth in the Valuation Policy. As a part of
this process, materials will be prepared containing their supporting
analysis (the “Investment Team
Valuation Report”).
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·
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Investment Committee
Valuation. Our Investment and Valuation Committee will
review the Investment Team Valuation Report and recommend valuations to be
considered by the Board.
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·
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Final Valuation
Determination. The Board will consider the recommended
valuations of the Investment and Valuation Committee, including supporting
documentation and analysis of the Investment Team, and determine the fair
value of each investment in good
faith.
|
Personnel
MACC has
no employees, but instead has contracted with EAM pursuant to the Advisory
Agreement to provide all management and operating activities. EAM
currently has seven employees who are
engaged in performing the duties and functions required by
MACC. These employees are not engaged solely in activities of
MACC. In addition, under the Subadvisory Agreement, InvestAmerica
employees provide management and operational support to MACC with respect to the
Existing Portfolio. InvestAmerica currently has four employees who
provide services on behalf of MACC. These employees are not engaged
solely in activities of MACC.
Properties
MACC’s
business activities are conducted from the offices of the Investment Adviser and
Subadviser. The use of office facilities, including office furniture, phone
services, computer equipment and files, are provided by the Investment Adviser
and Subadviser at their expense pursuant to the Advisory Agreement and the
Subadvisory Agreement.
TRADING AND NET ASSET VALUE INFORMATION
Net
Asset Value Information
The net
asset value per share of MACC’s outstanding Common Stock is determined
quarterly, as soon as practicable after and as of the end of each calendar
quarter, by dividing the value of total assets minus liabilities by the total
number of shares outstanding at the date as of which the determination is
made. Based on the consolidated balance sheet at June 30, 2008, the
net asset value per share is $4.39 per Share.
In
calculating the value of the total assets, investments in securities that are
traded in on a stock exchange are valued based on the last quoted sale price on
the valuation date (or if no sales occurred on the valuation date, the closing
bid price on that date). Securities traded on the
over-the-counter market are valued by taking the bid price on the valuation
date. Restricted and other securities for which quotations are not
readily available are valued at fair value as determined in good faith by our
Board of Directors. The Board has determined that such investments
are valued initially at cost, but such valuation is subject to quarterly
adjustments if the Board determines in good faith that cost no longer represents
fair value. The Board values loans and non-convertible debt
securities for which there exists no public trading market at cost plus
amortized original issue discount, if any, at the time such assets are acquired
and thereafter unless adverse factors lead to a determination of a lesser
value. In valuing convertible debt securities and equity securities
for which there exists no public trading market, the Board values such
investments at cost at the time of acquisition, and quarterly thereafter will
determine fair value on the basis of collateral, the issuer’s ability to make
payments, its earnings, prevailing interest rates and other pertinent
factors.
A
substantial portion of MACC’s assets consists of securities carried at fair
values determined in good faith by the Board. MACC’s independent
registered public accounting firm, KPMG LLP (“KPMG”) has reviewed
the procedures used by the Board in arriving at such valuation at September 30,
2007 and has inspected underlying documentation, and has expressed an opinion
that, in the circumstances, the procedures are reasonable and the documentation
is appropriate. KPMG’s opinion also indicates that because of the
inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the securities existed.
Trading
Information
Shares of
MACC’s Common Stock are traded on the Nasdaq Capital Market under the symbol
“MACC”. The following table sets forth, for the periods indicated,
high and low bid prices as quoted on Nasdaq, the net asset value per share at
the end of each quarter and the premium (discount) to net asset value at the end
of each quarter. The Nasdaq bid quotations represent prices between
dealers, do not include retail markups, markdowns or commissions, and may not
represent actual transactions. At the close of business on October
31, 2007, the bid price for shares of MACC’s common stock was
$2.50. The following high and low bid quotations for the shares
during each quarterly period ended on the date shown below of MACC’s fiscal
years 2007 and 2006 were taken from quotations provided to MACC by the Nasdaq
Capital Market:
|
High
|
Low
|
|||||||
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December
31, 2005
|
$ | 2.76 | 2.52 | |||||
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March
31, 2006
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3.99 | 2.52 | ||||||
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June
30, 2006
|
3.04 | 2.06 | ||||||
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September
30, 2006
|
2.21 | 1.75 | ||||||
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December
31, 2006
|
6.69 | 1.23 | ||||||
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March
31, 2007
|
2.73 | 1.85 | ||||||
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June
30, 2007
|
2.67 | 2.00 | ||||||
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September
30, 2007
|
2.50 | 1.86 | ||||||
Dividends
and Dividend Reinvestment Plan
MACC does
not currently pay dividends or any other form of distribution or return of net
asset value to stockholders and does not make Share purchases. MACC
does not currently have any type of dividend reinvestment plan.
CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS
The U.S.
federal income tax consequences to holders of Common Stock with respect to the
Offering will generally be as follows:
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|
·
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The
distribution of Rights to Record Date Stockholders will not result in
taxable income to such holders nor will such holders realize taxable
income as a result of the exercise of the
Rights.
|
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·
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The
basis of a Right will be (a) to a holder of Common Stock to whom it is
issued and who exercises or sells the Right is expected to be zero, since
the fair market value of the Right immediately after issuance is expected
to be less than 15% of the fair market value of the Common Stock with
regard to which it is issued (unless the holder elects, by filing a
statement with his timely filed income tax return for the year in which
the Rights are received, to allocate the basis of the Common Stock between
the Right and the Common Stock based on their respective fair market
values immediately after the Right is issued); (b) to a holder of Common
Stock to whom it is issued and who allows the Right to expire, zero; and
(c) to anyone who purchases a Right in the market, the purchase price for
a Right.
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·
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The
holding period of a Right received by a Record Date Stockholder includes
the holding period of the Common Stock with regard to which the Right is
issued.
|
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·
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Any
gain or loss on the sale of a Right will be treated as a capital gain or
loss if the Right is a capital asset in the hands of the seller. Such a
capital gain or loss will be long-term or short-term, depending on whether
the Right has been held for more than one year, after giving effect to the
rule set forth in the preceding bullet point. A Right issued with regard
to Common Stock will be a capital asset in the hands of the person to whom
it is issued if the Common Stock was a capital asset in the hands of that
person. If a Right is allowed to expire, there will be no loss realized
unless the Right had been acquired by purchase, in which case there will
be a loss equal to the basis in the
Right.
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·
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If
the Right is exercised by the Record Date Stockholder, the basis of the
Common Stock received will include the basis, if any, allocated to the
Right and the amount paid upon exercise of the
Right.
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·
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If
the Right is exercised, the holding period of the Common Stock acquired
begins on the date the Right is
exercised.
|
The
foregoing is only a summary of applicable federal income tax laws and does not
include any state or local tax consequences of the Offering. Holders of Rights
should consult their own tax advisors concerning the tax consequences of the
Offering.
Taxation
of MACC
Prior to
MACC’s inception, MACC’s predecessor and its affiliates accumulated substantial
net operating loss carryforwards for federal income tax purposes. At
September 30, 2007, the Company had net operating and capital loss carryforwards
for federal income tax purposes of approximately $18 million, which are
available to offset future federal taxable income, if any, through
2025. Approximately $16.5 million of the carryforwards are available
for the year ending September 30, 2008.
MACC
anticipates utilizing these net operating loss carryforwards for a number of
years. After MACC has utilized such net operating loss carryforwards,
MACC is contemplating making an election to be treated as a regulated investment
company under Subchapter M of the Code. RIC treatment essentially
means that certain income is taxed at the stockholder level only with no tax at
the corporate level, although certain built-in gains at the time of the election
may be subject to a corporate level tax at MACC.
Taxation
of Stockholders
Overview:
MACC does
not have a dividend distribution policy, and does not currently pay to its
stockholders a minimum annual distribution but, rather, retains all income after
taxes and expenses to reduce debt or fund additional investments and thus create
capital appreciation. MACC has paid no dividends in cash to its
stockholders since inception in 1995. The return to holders of our
Common Stock is thus anticipated to be long-term and capital in
nature. The Board will, however, consider payment of dividends in the
future and reserves the right to do so without stockholder
approval.
Any
distributions paid to stockholders by MACC from its ordinary income or its net
capital gains (“Regular Dividends”) will be taxable to stockholders as ordinary
income to the extent of MACC’s current or accumulated earnings and profits.
Distributions in excess of MACC’s earnings and profits will first reduce the
adjusted tax basis of a stockholder’s Shares and, after such adjusted tax basis
is reduced to zero, will constitute either short-term or long-term capital gains
(depending on a stockholder’s holding period for his Shares), assuming the
Shares are held as capital assets.
Under the
Jobs and Growth Tax Relief Reconciliation Act of 2003 (“JGTRRA”), special
rules apply to Regular Dividends paid to individual stockholders. Such Regular
Dividends, with respect to taxable years beginning on or after January 1, 2003
and ending on or before December 31, 2008, may be subject to tax at the rates
generally applicable to long-term capital gains for individuals (which under the
JGTRRA have been reduced to a maximum rate of 15% with respect to long-term
capital gains recognized in taxable years ending on or after May 6, 2003 and
before taxable years beginning after December 31, 2008), provided that the
individual stockholder meets certain holding period requirements. The maximum
long-term capital gains rate of 15% will generally apply to such portion of the
Regular Dividends paid by MACC to an individual stockholder in a particular
taxable year.
Corporate
stockholders which are otherwise eligible to claim the dividends received
deduction under section 243 of the Code can deduct 70% of such portion of a
dividend as is received with respect to their Shares as represent their
proportionate share of the eligible dividend income distributed by MACC. Capital
gains dividends do not qualify for the dividends received deduction under
section 243 of the Code.
Sale
of Shares:
On a sale
of Shares, a stockholder will realize taxable gain or loss depending upon the
amount realized on the sale and the stockholder’s basis for the Shares. That
gain or loss will be treated as capital gain or loss if the stockholder held the
Shares as capital assets and will be long-term capital gain or loss if the
Shares were held for more than one year. Any such loss will be disallowed to the
extent the Shares that were disposed of are replaced within a period of 61 days
beginning 30 days before and ending 30 days after the date of disposition. In
such a case, the basis of the acquired Shares will be adjusted to reflect the
disallowed loss. Any loss realized by a stockholder on the sale of Shares held
for six months or less will be treated as long-term, instead of short-term,
capital loss to the extent of any capital gain distributions received by the
stockholder on those Shares or any undistributed capital gains.
Backup
Withholding
MACC is
required to withhold federal income tax at the rate of 28% on all dividends,
capital gain distributions and repurchase proceeds payable to any individuals
and certain other noncorporate stockholders who fail to provide MACC with
certain information, including their correct taxpayer identification number, or
who otherwise (with respect to dividends and capital gain distributions) are
subject to backup withholding under section 3406 of the Code. Any amount
withheld under the backup withholding provisions may be credited against a
stockholder’s U.S. federal income tax liability.
Foreign
Withholding Taxes Imposed On MACC
Income
received by MACC from sources within foreign countries, and gains realized on
foreign securities, may be subject to withholding and other taxes imposed by
such countries, which would reduce MACC’s yield and/or total return. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes, and many foreign countries do not impose taxes on capital
gains from investments by foreign investors. It is impossible to determine the
rate of foreign tax in advance, because the amount of MACC’s assets to be
invested in various countries is not known.
Foreign
Stockholders of MACC
Regular
Dividends distributed by MACC to non-U.S. stockholders (which generally would
include non-resident alien individuals, foreign trusts and estates, foreign
corporations, and foreign partnerships, in each case as defined in section 7701
of the Code) will be subject to U.S. withholding taxes imposed at a flat rate of
30%, unless either (i) such non-U.S. stockholder is entitled to an exemption
from, or reduced rate of, withholding under an applicable income tax treaty, or
(ii) such Regular Dividends constitute income “effectively connected” with the
conduct of a trade or business within the United States (or, if required under
an applicable income tax treaty, are attributable to the conduct of a trade or
business carried on within the United States through a “permanent
establishment”) in respect of which the non-U.S. stockholder will be subject to
U.S. federal income taxes on its net income at applicable graduated rates. In
order to claim an exemption from, or reduced rate of, withholding under an
applicable income tax treaty with respect to Regular Dividends not subject to
U.S. income tax on a net income basis, a non-U.S. stockholder will be required
to furnish generally a U.S. Internal Revenue Service (“IRS”) Form W-8 BEN,
and such other information and documentation as is required under the
instructions to the Form W-8 BEN and applicable regulations prescribed by the
IRS, at the times and in the manner set forth therein. In the case of Regular
Dividends that are “effectively connected” with conduct of a trade or business
within the U.S. (or, if required under an applicable income tax treaty, are
attributable to a trade or business carried on within the U.S. through a
“permanent establishment”), a non-U.S. stockholder in order to demonstrate its
exemption from withholding taxes will be required to provide an IRS Form W-8
ECI, and such other information and documentation as is required under the
instructions to the Form W-8 ECI and applicable regulations prescribed by the
IRS, at the times and in the manner set forth therein. In addition, by providing
an applicable Form W-8, a non-U.S. stockholder identifies himself as being a
foreign rather than a U.S. person and, therefore, exempt from backup withholding
discussed above.
Non-U.S.
stockholders will not be subject either to U.S. federal income taxes or
withholding taxes in respect of Capital Gains Dividends, or gains on the sale or
exchange of their Shares, unless either (i) such gain is “effectively connected”
with the conduct of a U.S. trade or business, or (ii) in the case of an
individual, such non-U.S. stockholder is present in the U.S. for 183 days or
more during the taxable year.
Other
Tax Considerations
The
foregoing is only a summary of some of the important federal tax considerations
affecting MACC and its stockholders. Distributions may also be
subject to state, local and foreign taxes, depending on each stockholder’s
particular situation. Prospective stockholders thus are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in MACC.
The
following discussion is a summary of certain U.S. federal income tax
considerations affecting the Company and its stockholders. The
discussion reflects applicable federal income tax laws of the U.S. as of the
date of this prospectus, which tax laws may be changed or subject to new
interpretations by the courts or the Internal Revenue Service (the “IRS”), possibly with
retroactive effect. No attempt is made to present a detailed
explanation of all U.S. federal, state, local and foreign tax concerns affecting
the Company and its stockholders (including stockholders owning large positions
in the Company). The discussion set forth herein does not constitute
tax advice. Investors are urged to consult their own tax advisers to
determine the tax consequences to them of investing in the Company.
In
addition, no attempt is made to address tax concerns applicable to an investor
with a special tax status such as a financial institution, REIT, insurance
company, RIC, individual retirement account, other tax-exempt entity, dealer in
securities or non-U.S. investor (except to the extent discussed below under
“U.S. Federal Income Tax Considerations for Non-U.S.
Stockholders). Furthermore, this discussion does not reflect possible
application of the alternative minimum tax. Unless otherwise noted,
this discussion assumes the Common Shares are held by U.S. persons and that such
shares are held as capital assets.
Distributions
paid to you by the Company from its investment company taxable income are
generally taxable to you as ordinary income to the extent of the Company’s
earning and profits. Such distributions (if designated by the
Company) may qualify (provided holding period and certain other requirements are
met) (i) for the dividends received deduction in the case of corporate
stockholders under Section 243 of the Code to the extent that the Company’s
income consists of dividend income from U.S. corporations, excluding
distributions from tax-exempt organizations, exempt farmers’ cooperatives or
REITs or (ii) in the case of individual stockholders for taxable years beginning
on or prior to December 31, 2010, as qualified dividend income eligible to be
taxed at reduced rates under Section 1(h)(11) of the Code (which provided for a
minimum 15% rate) to the extent that the Company receives qualified dividend
income, and provided in each case certain holding period and other requirements
are met. Qualified dividend income is, in general, dividend income
from taxable domestic corporations and qualified foreign corporations (e.g.,
generally, foreign corporations incorporated in a possession of the United
States or in certain countries with a qualified comprehensive income tax treaty
with the United States, or the stock with respect to which such dividend is paid
is readily tradable on an established securities market in the United
States). A qualified foreign corporation generally excludes any
foreign corporation, which for the taxable year of the corporation in which the
dividend was paid, or the preceding taxable year, is a passive foreign
investment company. Distributions made to you from an excess of net long-term
capital gain over net short-term capital losses (“capital gain dividends”),
including capital gain dividends credited to you but retained by the Company,
are taxable to you as long-term capital gain if they have been properly
designated by the Company, regardless of the length of time you have owned our
Common Shares. The maximum tax rate on capital gain dividends
received by individuals is generally 15% (5% for individuals in lower brackets)
for such gain realized before January 1, 2011. Distributions in
excess of the Company’s earnings and profits will be treated by you, first, as a
tax-free return of capital, which is applied against and will reduce the
adjusted tax basis of your shares and, after such adjusted tax basis is reduced
to zero, will constitute capital gain to you (assuming the shares are held as a
capital asset). Under current law, the maximum 15% tax rate on
long-term capital gains and qualified dividend income will cease to apply for
taxable years beginning after December 31, 2010; beginning in 2011, the maximum
rate on long-term capital gains is scheduled to revert to 20%, and all ordinary
dividends (including amounts treated as qualified dividends under the law
currently in effect) would be taxed as ordinary income. Generally,
not later than 60 days after the close of its taxable year, the Company will
provide you with a written notice designating the amount of any qualified
dividend income or capital gain dividends and other distributions.
Sales and
other dispositions of the Company’s Common Stock generally are taxable
events. You should consult your own tax adviser with reference to
your individual circumstances to determine whether any particular transaction in
the Company’s Common Stock is properly treated as a sale or exchange for federal
income tax purposes, as the following discussion assumes, and the tax treatment
of any gains or losses recognized in such transactions. The sale or
other disposition of shares of the Company will generally result in capital gain
or loss to you equal to the difference between the amount realized and your
adjusted tax basis in the Common Shares sold or exchanged, and will be long-term
capital gain or loss if the shares have been held for more than one year at the
time of sale. Any loss upon the sale or exchange of common shares
held for six months or less will be treated as long-term capital loss to the
extent of any capital gain dividends received (including amounts credited as an
undistributed capital gain dividend) by you with respect to such
shares. A loss realized on a sale or exchange of shares of the
Company generally will be disallowed if other substantially identical common
shares are acquired within a 61-day period beginning 30 days before and ending
30 days after the date that the shares are disposed. In such case, the basis of
the shares acquired will be adjusted to reflect the disallowed
loss. Present law taxes both long-term and short-term capital gain of
corporations at the rates applicable to ordinary income of
corporations. For non-corporate taxpayers, short-term capital gain
will currently be taxed at the rate applicable to ordinary income, currently a
maximum of 35%, while long-term capital gain generally will be taxed at a
maximum rate of 15%. Capital losses are subject to certain
limitations.
Dividends
and other taxable distributions are taxable to you even though they are
reinvested in additional shares of the Company. If the Company pays you a
dividend in January that was declared in the previous October, November or
December to stockholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the Company
and received by you on December 31 of the year in which the dividend was
declared.
Although
the Board will consider payment of dividends in the future and reserves the
right to do so without stockholder approval, the Company presently retains for
reinvestment all net capital gains. The Company may designate such
retained amounts as undistributed capital gains in a notice to stockholders who,
if subject to U.S. federal income tax on long-term capital gains, (i) will be
required to include in income as long-term capital gain, their proportionate
shares of such undistributed amount, and (ii) will be entitled to credit their
proportionate shares of the federal income tax paid by the Company on the
undistributed amount against their U.S. federal income tax liabilities, if any,
and to claim refunds to the extent the credit exceeds such
liabilities. If such an event occurs, the tax basis of shares owned
by a stockholder of the Company will, for U.S. federal income tax purposes,
generally be increased by the difference between the amount of undistributed net
capital gain included in the stockholder’s gross income and the tax deemed paid
by the stockholders.
The
Company is required in certain circumstances to backup withhold at a current
rate of 28% on taxable dividends and certain other payments paid to
non-corporate holders of the Company’s shares who do not furnish the Company
with their correct taxpayer identification number (in the case of individuals,
their social security number) and certain certifications, or who are otherwise
subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld from payments made to you may be refunded
or credited against your U.S. federal income tax liability, if any, provided
that the required information is furnished to the IRS.
U.S.
Federal Income Tax Considerations for Non-U.S. Stockholders
The
following discussion is a general summary of the material U.S. federal income
tax considerations applicable to a Non-U.S. stockholder. A Non-U.S.
stockholder is a beneficial owner of shares of the Company’s common stock other
than a U.S. stockholder. A U.S. stockholder is a beneficial owner of
shares of the Company’ common stock that is for U.S. federal income tax
purposes:
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a
citizen or individual resident of the United
States;
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a
corporation or other entity treated as a corporation for U.S. federal
income tax purposes, created or organized in or under the laws of the
United States or any state thereof or the District of
Columbia;
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a
trust or an estate, the income of which is subject to U.S. federal income
taxation regardless of its source;
or
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a
trust with respect to which a court within the United States is able to
exercise primary supervision over its administration and one or more U.S.
stockholders have the authority to control all of its substantial
decisions.
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This
summary does not purport to be a complete description of the income tax
considerations for a Non-U.S stockholder. For example, the following
does not describe income tax consequences that are assumed to be generally known
by investors or certain considerations that may be relevant to certain types of
holders subject to special treatment under U.S. federal income tax
laws. This summary does not discuss any aspects of U.S. estate or
gift tax or state or local tax.
As
indicated above, the Company may in the future elect to be treated as a RIC for
U.S. Federal income tax purposes. As a RIC, distributions of the
Company’s “investment company taxable income” to Non-U.S. Stockholders would be
subject to withholding of U.S. federal income tax at a 30% rate (or lower rate
provided by an applicable income tax treaty) to the extent of our current and
accumulated earnings and profits unless the distributions are effectively
connected with a U.S. trade or business of the Non-U.S. stockholder, and, if an
income tax treaty applies, are attributable to a permanent establishment in the
United States of the Non-U.S. stockholder, in which case the distributions will
be subject to federal income tax at the rates applicable to U.S.
persons. In the case that the income is treated as effectively
connected with a U.S. trade or business, the Company would not be required to
withhold federal tax if the Non-U.S. stockholder complies with applicable
certification and disclosure requirements. Special certification
requirements apply to a Non-U.S. stockholder that is a foreign partnership or a
foreign trust, and such entities are urged to consult their own tax
advisers.
Assuming
that our dividend income is not treated as effectively connected to a U.S. trade
or business of the Non-U.S. stockholder, “Interest-related dividends” and
“short-term capital gain dividends” paid to the Company’s Non-U.S. stockholders
will not be subject to withholding of U.S. federal income tax if the
requirements below are satisfied. The amount of “interest-related
dividends” that the Company may pay each year is limited to the amount of
“qualified interest income” that the Company receives during that year, less the
amount of expenses properly allocable to such interest
income. “Qualified interest income” includes, among other items,
interest paid on debt obligations of a U.S. issuer, interest paid on deposits
with U.S. banks and any “interest-related dividends” from another
RIC. The exemption from withholding tax on “interest-related
dividends”, however, does not apply to distributions to a Non-U.S. stockholder
(i) that has not complied with applicable certification requirements, (ii) of
interest on an obligation issued by the Non-U.S. stockholder or by an issuer of
which the Non-U.S. stockholder is a 10% stockholder, (iii) that is within
certain foreign countries that have inadequate information exchange with the
United States, or (iv) of interest paid by a person that is a related person of
the Non-U.S. stockholder and the Non-U.S. stockholder is a controlled foreign
corporation. The amount of “short-term capital gain dividends” that
the Company may pay each year generally is limited to the excess of the
Company’s net short-term capital gains over our net long-term capital losses,
without any reduction for expenses allocable to such gains. The
exemption from U.S. tax on “short-term capital gain dividends”, however, does
not apply with respect to an individual Non-U.S. stockholder who is present in
the United States for 183 days or more during the taxable year of the
distribution. If the Company’s income for a taxable year includes
“qualified interest income” or “net short-term capital gains,” the Company may
designate dividends as “interest-related dividends” or “short-term capital gain
dividends” by written notice mailed to Non-U.S. stockholders not later than 60
days after the close of its taxable year. These provisions apply to
dividends paid with respect to taxable years beginning on or after January 1,
2005 and will cease to apply to dividends paid with respect to taxable years
beginning after December 31, 2007. No assurance can be given that
Congress will not repeal these provisions prior to their scheduled
expiration.
Actual or
deemed distributions of the Company’s net capital gains to a Non-U.S.
stockholder, and gains realized by a Non-U.S. stockholder upon the sale of the
Company’s common stock, will not be subject to withholding of U.S. federal
income tax and generally will not be subject to U.S. federal income tax (i)
unless the distributions or gains, as the case may be, are effectively connected
with a U.S. trade or business of the Non-U.S. stockholder and, if an income tax
treaty applies, are attributable to a permanent establishment maintained by the
Non-U.S. stockholder in the United States or (ii) the Non-U.S. stockholder is an
individual, has been present in the United States for 183 days or more during
the taxable year, and certain other conditions are satisfied.
If the
Company distributes its net capital gains in the form of deemed rather than
actual distributions (which the Company may do in the future), a Non-U.S.
stockholder will be entitled to a federal income tax credit or tax refund equal
to the stockholder’s allocable share of the tax the Company pay on the capital
gains deemed to have been distributed. In order to obtain the refund,
the Non-U.S. stockholder must obtain a U.S. taxpayer identification number and
file a federal income tax return even if the Non-U.S. stockholder would not
otherwise be required to obtain a U.S. taxpayer identification number or file a
federal income tax return. For a corporate Non-U.S. stockholder,
distributions (both actual and deemed), and gains realized upon the sale of our
common stock that are effectively connected with a U.S. trade or business may,
under certain circumstances, be subject to an additional “branch profits tax” at
a 30% rate (or at a lower rate if provided for by an applicable income tax
treaty).
A
Non-U.S. stockholder who is a non-resident alien individual, and who is
otherwise subject to withholding of federal income tax, may be subject to
information reporting and backup withholding of federal income tax on dividends
unless the Non-U.S. stockholder provides us or the dividend paying agent with an
IRS Form W-8BEN (or an acceptable substitute form) or otherwise meets
documentary evidence requirements for establishing that it is a Non-U.S.
stockholder or otherwise establishes an exemption from backup
withholding.
Non-U.S.
persons should consult their own tax advisers with respect to the U.S. federal
income tax and withholding tax, and state, local and foreign tax consequences of
an investment in the Common Shares.
The
foregoing is a general and abbreviated summary of the provisions of the Code and
the treasury regulations in effect as they directly govern the taxation of the
Company and its stockholders. These provisions are subject to change by
legislative and administrative action, and any such change may be retroactive.
Stockholders are urged to consult their tax advisers regarding specific
questions as to U.S. federal, foreign, state, local income or other
taxes.
We have
elected to be regulated as a BDC under the 1940 Act and accordingly are subject
to the regulations and restrictions described below. A BDC is a
unique kind of investment company that primarily focuses on investing in or
lending to private companies and providing managerial assistance to
them. A BDC generally provides stockholders with the ability to
retain the liquidity of a publicly-traded security, while sharing in the
possible benefits of investing in privately-held or thinly traded public and
privately-owned companies. The 1940 Act contains prohibitions and restrictions
relating to transactions between BDCs and their directors and officers and
principal underwriters and certain other related persons, and the 1940 Act
requires that a majority of our Board consist of Independent
Directors.
Qualifying
Assets
Under the
1940 Act, we may not acquire any asset other than assets of the type listed in
Section 55(a) of the 1940 Act, or “qualifying assets,” unless at the time the
acquisition is made, qualifying assets represent at least 70% of our total
assets. Generally speaking, the principal categories of qualifying
assets relevant to our business are the following:
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Securities
purchased in transactions not involving any public offering from the
issuer of the securities, which issuer (subject to certain limited
exceptions) is an eligible portfolio company, or from any person who is,
or has been during the preceding 13 months, an affiliated person of an
eligible portfolio company. An “eligible portfolio company” is
defined in the 1940 Act as any issuer
that:
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is
organized under the laws of, and has its principal place of business in,
the United States; and
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is
not an investment company (other than an SBIC wholly owned by the BDC) or
a company that would be an investment company but for certain exceptions
under the 1940 Act; and
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satisfies
any of the following:
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does
not have any class of securities with respect to which a broker or dealer
may extend margin credit;
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is
controlled by a BDC or a group of companies including a BDC, and the BDC
has an affiliated person who is a director of the eligible portfolio
company;
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is
a small and solvent company having total assets of not more than $4
million and capital and surplus of not less than $2 million;
or
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does
not have any class of securities listed on a national securities exchange;
except that an eligible portfolio company may have a class of securities
listed on a national securities exchange, so long as its market
capitalization—computed by use of the price at which the issuer’s common
equity was last sold, or the average price of the bid and asked prices of
such common equity, in the principal market for such common equity as of a
date within 60 days prior to the date of acquisition by the BDC—is below
$250,000,000.
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Securities
of any eligible portfolio company that we
control.
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Securities
purchased in a private transaction from a U.S. issuer that is not an
investment company and is in bankruptcy and subject to
reorganization.
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Securities
of an eligible portfolio company purchased from any person in a private
transaction if there is no ready market for such securities and we already
own 60% of the outstanding equity of the eligible portfolio
company.
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Securities
received in exchange for, or distributed on or with respect to, securities
described above, or pursuant to the exercise of warrants or rights
relating to such securities.
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Cash,
cash equivalents, U.S. government securities or high-quality debt
securities maturing in one year or less from the time of
investment.
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Securities
purchased in transactions not involving any public offering from an
issuer, or from any person who is an officer or employee of the issuer, if
(A) the issuer (i) is organized under the laws of, and has its principal
place of business in, the United States, (ii) is not an investment company
(other than a SBIC wholly owned by the BDC) or a company that would not be
an investment company but for certain exceptions under the 1940 Act), and
(iii) is not an eligible portfolio company because it has a class of
securities listed on a national securities exchange, and (B) at the time
of such purchase we own at least (i) 50% of the greatest number of equity
securities of such issuer and securities convertible into or exchangeable
for such securities and 50% of the greatest amount of debt securities of
such issuer held by us at any point in time during the period when such
issuer was an eligible portfolio company, and (ii) we are one of the 20
largest holders of record of such issuers outstanding voting
securities.
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We may
invest up to 30% of our total assets in assets that are non-qualifying assets
and are not subject to the limitations referenced above. These
investments may include, among other things, investments in high yield bonds,
bridge loans, distressed debt, commercial loans, private equity, securities of
non-qualifying public companies or secondary market purchases of otherwise
qualifying assets. If the value of non-qualifying assets should at
any time exceed 30% of our total assets, we will be precluded from acquiring any
additional non-qualifying assets until such time as the value of our qualifying
assets again equals at least 70% of our total assets. See “Risk
Factors — If our investments are deemed not to be qualifying assets, we could
lose our status as a BDC or be precluded from investing according to our current
business plan.”
Significant
Managerial Assistance
Under the
1940 Act, a BDC must be organized and have its principal place of business in
the United States and must be operated for the purpose of making investments in
the types of securities described above. However, in order to count
portfolio securities as qualifying assets for the purpose of the 70% test, a BDC
must either control the issuer of the securities or must offer to make available
to the issuer of the securities (other than small and solvent companies
described above) “significant managerial assistance,” as defined in the 1940
Act. Making available significant managerial assistance means, among
other things, any arrangement whereby a BDC, through its directors, officers or
employees, offers to provide, and, if accepted, does so provide, significant
guidance and counsel concerning the management, operations or business
objectives and policies of a portfolio company through monitoring or portfolio
company operations, selective participation in board and management meetings,
consulting with and advising a portfolio company’s officers, or other
organizational or financial guidance. We offer and will continue to
offer to provide significant managerial assistance to each of our portfolio
companies as required under the 1940 Act. In addition, we may in the
future charge for providing such managerial assistance.
Temporary
Investments
Pending
investments in other types of qualifying assets, as described above, a BDC’s
investments may consist of cash, cash equivalents, U.S. government securities or
high quality debt securities maturing in one year or less from the time of
investment. There is no other percentage restriction on the
proportion of our assets that may be so invested.
Determination
of Net Asset Value
The net
asset value per share of our outstanding Common Stock will be determined
quarterly, as soon as practicable after, and as of the end of, each fiscal
quarter. The net asset value per Share will be equal to the value of
our total assets minus liabilities and any preferred securities outstanding,
divided by the total number of Shares outstanding at the date as of which such
determination is made. Fair value is determined in good faith by our
Board pursuant to a valuation policy. See “Investment Policies and
Techniques—Valuation Process,” and “Determination of Net Asset Value” in the
SAI.
Senior
Securities (Leverage); Coverage Ratio
We are
permitted, only under specified conditions, to issue multiple classes of
indebtedness and one class of security senior to our Shares if our asset
coverage, as defined in the 1940 Act, is equal to at least 200% immediately
after each such issuance. In addition, while any senior securities
remain outstanding, we must make provisions to prohibit any distribution to our
stockholders or the repurchase of such securities unless we meet the applicable
asset coverage ratios at the time of the distribution or repurchase. For a
discussion of the risks associated with any issuance of debt or senior
securities, which is referred to as “leverage,” see “Risk Factors — Risks
Related to Our Operations.”
Derivative
Securities
The 1940
Act limits the amount of derivative securities that we may issue and the terms
of such securities. We do not have, and do not anticipate having,
outstanding derivative securities relating to our Shares.
Code
of Ethics
We and
our Adviser and Subadviser are each required to maintain a Code of Ethics
pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for
personal investments and restricts certain personal securities
transactions. Personnel subject to the Codes of Ethics may invest in
securities for their personal investment accounts, including securities that may
be purchased or held by us, so long as such investments are made in accordance
with the Codes of Ethics.
Privacy
Principles
We are
committed to maintaining the privacy of our stockholders and safeguarding their
non-public personal information. The following information is
provided to help you understand what personal information we collect, how we
protect that information and why, in certain cases, we may share information
with select other parties.
Generally,
we do not receive any non-public personal information relating to our
stockholders, although certain non-public personal information of our
stockholders may become available to us. We do not disclose any
non-public personal information about our stockholders or former stockholders to
anyone, except as required by law or as is necessary in order to service
stockholder accounts (for example, to a transfer agent).
We
restrict access to non-public personal information about our stockholders to
employees of our Adviser and Subadviser with a legitimate business need for the
information. We maintain physical, electronic and procedural safeguards designed
to protect the non-public personal information of our stockholders.
Compliance
Policies and Procedures
We have
written policies and procedures reasonably designed to prevent violation of the
federal securities laws, and are required to review these compliance policies
and procedures annually for adequacy and effective implementation and to
designate a Chief Compliance Officer to be responsible for administering the
policies and procedures. Derek Gaertner has been appointed by our
Board to serve as our Chief Compliance Officer.
Exchange
Act Compliance
We are
subject to the reporting and disclosure requirements of the Exchange Act,
including the filing of quarterly, annual and current reports, proxy statements
and other required items, including the provisions of the Sarbanes-Oxley Act of
2002 (“SOX”)
requiring reports on Section 404 internal controls over financial
reporting.
Sarbanes-Oxley
Act of 2002
SOX
imposes a wide variety of regulatory requirements on publicly-held companies and
their insiders. For example:
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pursuant
to Rule 13a-14 of the Exchange Act, our Chief Executive Officer and Chief
Financial Officer must certify the accuracy of the financial statements
contained in our periodic reports;
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pursuant
to Item 307 of Regulation S-K, our periodic reports must disclose our
conclusions about the effectiveness of our disclosure controls and
procedures;
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pursuant
to Rule 13a-15 of the Exchange Act, our management must prepare a report
regarding its assessment of our internal control over financial reporting,
which must be audited by our independent registered public accounting
firm; and
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pursuant
to Item 308 of Regulation S-K and Rule 13a-15 of the Exchange Act, our
periodic reports must disclose whether there were significant changes in
our internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
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SOX
requires us to review our current policies and procedures to determine whether
we comply with SOX and the regulations promulgated thereunder. We
will continue to monitor our compliance with all regulations that are adopted
under SOX and will take actions necessary to ensure that we so
comply.
Withdrawal
We may
not change the nature of our business so as to cease to be, or withdraw our
election as, a BDC, unless authorized by vote of a “majority of the outstanding
voting securities,” as defined in the 1940 Act. The 1940 Act defines
“a majority of the outstanding voting securities” as the lesser of (i) 67% or
more of the voting securities present at such meeting if the holders of more
than 50% of our outstanding voting securities are present or represented by
proxy, or (ii) 50% of our voting securities.
Other
We will
be periodically examined by the SEC for compliance with the 1940
Act. We maintain a bond issued by a reputable fidelity insurance
company to protect us against larceny and embezzlement, which bond covers our
officers, the Adviser and the Subadviser. We will not protect any
director or officer against any liability to our stockholders arising from
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person’s office.
We are
authorized to issue up to 10,000,000 Shares of Common Stock, $.01 par value per
share. As of September 10, 2008, we have 2,464,621 shares of Common
Stock issued and outstanding. Our Board may, without any action by
our stockholders, amend our Certificate of Incorporation from time to time to
increase or decrease the aggregate number of shares of Common Stock or the
number of shares of Common Stock that we have authority to
issue. Under Delaware law, our stockholders generally are not liable
for our debts or obligations.
The
following table provides information about our outstanding capital stock as of
September 10, 2008:
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Title of
Class
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Amount
Authorized
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Amount
Held
by the
Company or for
its
Account
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Amount
Outstanding
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Common
Stock
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10,000,000
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0
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2,464,621
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The
holders of Common Stock are entitled to one vote per share on all matters
submitted for action by the stockholders. There is no provision for cumulative
voting rights with respect to the election of directors. Accordingly, although
no individual holder as of owns more than 50% of the shares of Common Stock, a
small number of holders whose combined share total is greater than 50% can, if
they choose to do so, elect all of the directors. In such event, the
holders of the remaining shares will not be able to elect any directors. The
holders of Shares of Common Stock are entitled to receive dividends, when, as
and if declared by the Board, out of funds legally available therefore. In the
event of liquidation, dissolution or winding up of MACC, the holders of Common
Stock are entitled to share ratably in all assets remaining available for
distribution to them after payment of liabilities and after provision has been
made for each class of stock, if any, having preference over the Common Stock.
Holders of shares of Common Stock, as such, have no conversion, preemptive or
other subscription rights, and there are no redemption provisions applicable to
the Common Stock. All of the outstanding shares of Common Stock are, and the
shares of Common Stock offered hereby, when issued against the consideration set
forth in this Prospectus, will be, fully-paid and non-assessable.
Section
203 of the Delaware Corporation Law
MACC is
subject to the “business combination” statute of the Delaware General
Corporation Law. In general, this statute prohibits a publicly held
Delaware corporation from engaging in various “business combination”
transactions with any “interested stockholder,” unless (i) the transaction is
approved by the Board prior to the date the interested stockholder obtained such
status, (ii) upon the consummation of the transaction which resulted in the
stockholder becoming an “interested stockholder,” the “interested stockholder”
owned at least 85 percent of the voting stock of MACC outstanding at the time
the transaction commenced, excluding for purposes of determining the number of
shares outstanding, those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to such plans
will be tendered in a tender or exchange offer, or (iii) on or subsequent to
such date the “business combination” is approved by the Board and authorized at
an annual or special meeting of the stockholders by the affirmative vote of 66
2/3 percent of the outstanding voting stock that is not owned by the “interested
stockholder.” A “business combination” includes mergers, asset sales
and other transactions resulting in financial benefit to a
stockholder. An “interested stockholder” is a person who, together
with affiliates and associates, owns (or within three years, did own) 15 percent
or more of a corporation’s voting stock. The statute could prohibit
or delay mergers or other takeover or change in control attempts with respect to
MACC and, accordingly, may discourage attempts to acquire MACC.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
KPMG LLP,
666 Grand Avenue, 2500 Ruan Center, Des Moines, IA 50309, serves as our
independent registered public accounting firm. KPMG LLP provides
audit and audit-related services, tax return preparation and assistance and
consultation in connection with review of our filings with the SEC.
ADMINISTRATOR, CUSTODIAN, TRANSFER AGENT AND
REGISTRAR
Pursuant
to the Advisory Agreement with EAM, we have engaged EAM to perform the
administrative services necessary for our operation, including without
limitation providing us with equipment, clerical, book keeping, fund accounting
and record keeping services. These services are included in the
management fee we pay our Investment Adviser equal to 0.20% of our Assets Under
Management. The address of EAM is 580 2nd Street, Suite 102,
Encinitas, California 92024. Our securities and other assets are held
under a custody agreement with U.S. Bank National Association (with respect to
New Portfolio assets), whose address is __ and, with respect to
Existing Portfolio assets, under a custody agreement with Cedar Rapids Bank and
Trust, whose address is 500 1st Ave.
NE, Suite 100, Cedar Rapids, IA 52401. The transfer agent and
registrar for our Common Stock is BNY Mellon Shareowner Services, whose address
is 480 Washington Boulevard, 27th Floor,
Jersey City, New Jersey 07310.
Certain
legal matters in connection with the securities offered hereby will be passed
upon for us by Husch Blackwell Sanders LLP, 1620 Dodge Street, Suite 2100,
Omaha, Nebraska 68102-1504.
We have
filed with the SEC a registration statement on Form N-2, together with all
amendments and related exhibits, under the Securities Act, with respect to our
Common Shares and Rights offered by this Prospectus. The registration statement
contains additional information about us, the Rights and our Common Shares being
offered by this Prospectus. We will file with or submit to the SEC
annual, quarterly and current periodic reports, proxy statements and other
information meeting the informational requirements of the Exchange
Act. You may inspect and copy these reports, proxy statements and
other information, as well as the registration statement of which this
Prospectus forms a part and the related exhibits and schedules, at the Public
Reference Room of the SEC at 100 F. Street, N.E., Washington, D.C.
20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an internet website that contains reports, proxy and information
statements and other information filed electronically by us with the SEC which
are available on the SEC’s website at http://www.sec.gov. Copies of
these reports, proxy and information statements and other information may be
obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference
Section, Washington, D.C. 20549-0102.
821,541
Shares of Common Stock
Issuable
upon the Exercise of Transferable Rights to Subscribe for such
Shares
_______________
PROSPECTUS
_______________
September ____, 2008
MACC
Private Equities Inc.
STATEMENT
OF ADDITIONAL INFORMATION
September
____, 2008
MACC
Private Equities Inc., a Delaware corporation (“MACC,” “the Company,” “we” or “us”), a
non-diversified, closed-end management investment company that has elected to be
treated as a Business Development Company (“BDC”) under the
Investment Company Act of 1940, as amended (the “1940
Act”).
This
Statement of Additional Information (“SAI”), relating to
the Company’s issuance of Rights to purchase its Common Stock, does not
constitute a prospectus, but should be read in conjunction with the Company’s
Prospectus relating thereto dated ___, 2008. This SAI does not
include all information that a prospective investor should consider before
acquiring the Rights and purchasing Common Shares, and investors should obtain
and read the Company’s Prospectus prior to acquiring the Rights and purchasing
Common Shares. A copy of the Prospectus may be obtained without
charge from the Company by calling (760) 479-5075. You also may
obtain a copy of the Company’s Prospectus on the Securities and Exchange
Commission’s web site (www.sec.gov).
The
information in this SAI is not complete and may be changed. We may
not issue the Rights or Common Stock until our registration statement, of which
the Prospectus and this SAI form a part, is declared effective by the
SEC. This SAI is not an offer to sell either the Rights or our Common
Stock and we are not soliciting an offer to buy the Rights or our Common Stock
in any state where such offer or sale is not permitted.
No person
has been authorized to give any information or to make any representations not
contained in the Prospectus or in this SAI in connection with the offering made
by the Prospectus, and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company. The
Prospectus and this SAI do not constitute an offering by the Company in any
jurisdiction in which such offering may not lawfully be
made. Capitalized terms not defined herein are used as defined in the
Prospectus. This SAI is dated September ____, 2008.
SUBJECT
TO COMPLETION
PRELIMINARY
STATEMENT OF ADDITIONAL INFORMATION
DATED
SEPTEMBER ____, 2008
TABLE
OF CONTENTS
|
USE
OF PROCEEDS
|
1
|
|
INVESTMENT
OBJECTIVES AND POLICIES
|
1
|
|
MANAGEMENT
OF THE COMPANY
|
3
|
|
PORTFOLIO
TRANSACTIONS AND BROKERAGE
|
16
|
|
CERTAIN
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND THE DELAWARE
CORPORATION LAW
|
17
|
|
NET
ASSET VALUE
|
19
|
|
PROXY
VOTING POLICIES
|
20
|
|
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
|
20
|
|
|
|
|
ADMINISTRATOR,
CUSTODIAN, TRANSFER AGENT AND REGISTRAR
|
20
|
|
|
|
|
ADDITIONAL
INFORMATION
|
20
|
|
INDEX
TO FINANCIAL STATEMENTS
|
1
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
2
|
USE
OF PROCEEDS
The net
proceeds from the sale of our Shares in the Offering (assuming the price per
share on the front cover of this Prospectus) will be approximately $__ million
after deducting our offering expenses, totaling $80,000, paid by
us. We will invest the net proceeds in securities consistent with the
following strategy for New Portfolio investments. We anticipate that
substantially all of the net proceeds of this Offering will be used as described
above, within three months; however, it could take a longer time to invest
substantially all of the net proceeds. We have not allocated any
portion of the net proceeds of this Offering to any particular investment.
Pending such uses and investments, we expect to invest proceeds primarily in
cash, cash equivalents, U.S. government securities and other high-quality debt
investments that mature in one year or less from the date of
investment.
INVESTMENT
OBJECTIVES AND POLICIES
Investment
Objective
MACC’s
objective is to provide stockholders with long-term capital appreciation by
making new equity investments primarily in small- and micro-cap companies that
qualify for investment by a BDC under the 1940 Act while efficiently liquidating
and maximizing the value of the Existing Portfolio. We will seek capital
appreciation by primarily making direct equity investments in small public
companies that are eligible for BDC investment. These investments
will be in small- and micro-cap growth companies benefiting from positive
fundamental change. These investments will primarily be in the form
of Pipes and registered direct offerings. Subject to BDC limitations,
we also intend to invest in small- and micro-cap growth companies that are
listed and will be purchased on national securities exchanges.
Investment
Policies
Our Board
has adopted the following nonfundamental investment policies. These
policies may be changed from time to time by the Board, except that MACC’s
election to be regulated as a BDC may not be revoked without the approval of a
majority of the holders of the Common Stock. Under normal
circumstances and subject to our BDC limitations, we intend to invest the
following percentages of our total assets in the following types of
securities:
|
|
●
|
up
to 100% in restricted securities purchased directly from issuers, all of
which may be illiquid securities;
|
|
|
●
|
up
to 100% in small companies which may not have access to traditional means
of financing, through Pipes and registered direct offerings permissible
for BDCs under the 1940 Act;
|
|
|
●
|
up
to 30% in equity positions of promising companies that are
publicly-listed, with a focus on small- and micro-cap companies;
and
|
|
|
●
|
up
to 10% in private companies.
|
Our
ability to achieve the above percentages of investments will initially be
dependent upon the pace at which we are able to liquidate our Existing Portfolio
and raise additional assets to invest.
Under
normal circumstances and subject to BDC limitations, (i) we will not invest more
than 25% of our total assets in the securities of any single issuer, except with
respect to other registered investment companies, (ii) we will not purchase more
than three percent of the total outstanding stock of any issuer, (iii) we will
not invest more than five percent of the value of our total assets in any single
issuer, and (iv) we will not invest more than ten percent of the value of our
assets in securities of other issuers in the aggregate.
The
following are our fundamental investment limitations set forth in their
entirety. We may not:
|
|
●
|
issue
senior securities, except as permitted by the 1940 Act and the rules and
interpretive positions of the SEC
thereunder;
|
|
|
●
|
borrow
money, except as permitted by the 1940 Act and the rules and interpretive
positions of the SEC thereunder;
|
|
|
●
|
make
loans, except by the purchase of debt obligations, by entering into
repurchase agreements or through the lending of portfolio securities and
as otherwise permitted by the 1940 Act and the rules and interpretive
positions of the SEC thereunder;
|
|
|
●
|
invest
25% or more of our total assets in any particular
industry;
|
|
|
●
|
underwrite
securities issued by others, except to the extent that we may be
considered an underwriter within the meaning of the 1933 Act in the
disposition of restricted securities held in our
portfolio;
|
|
|
●
|
purchase
or sell real estate unless acquired as a result of ownership of securities
or other instruments, except that we may invest in securities or other
instruments backed by real estate or securities of companies that invest
in real estate or interests therein;
and
|
|
|
●
|
purchase
or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except that we may purchase or sell
options and futures contracts or invest in securities or other instruments
backed by physical commodities.
|
As used
for the purpose of each nonfundamental investment policy above, the term “total
assets” includes assets obtained through leverage. Unless otherwise
stated, these investment restrictions apply at the time of purchase, and we will
not be required to reduce a position due solely to market value
fluctuations.
Leverage
Once the
proceeds of the Offering have been substantially invested in securities that
meet our investment objective, we may decide to fund continued investment
activities through the borrowing of additional money and the issuance of
preferred stock and debt securities which represent the leveraging of our Common
Stock. The issuance of additional Common Stock would enable us to
increase the aggregate amount of our leverage. Presently, we do not
anticipate using leverage in New Portfolio activities. However, we
reserve the right at any time, if we believe that market conditions are
appropriate, to use leverage to the extent permitted by the 1940 Act (50% of
total assets for preferred stock and 33.33% of our total assets for debt
securities).
As of
June 30, 2008, we are leveraged through borrowings under the Term Loan in the
outstanding principal amount of $4,855,661, or 30.6% of our total assets
(including the proceeds of such leverage). Our asset coverage ratio
as of June 30, 2008 was 323%. We anticipate that we will
eliminate all leverage upon the full liquidation of the Existing
Portfolio.
The use
of leverage creates an opportunity for increased income and capital appreciation
for common stockholders, but at the same time creates special risks that may
adversely affect common stockholders. Because our Adviser’s fee is
based upon a percentage of our total assets, which includes borrowing proceeds,
our Adviser’s fee will be higher when we are leveraged. Therefore,
our Adviser has a financial incentive to use leverage, which will create a
conflict of interest between our Adviser and our common stockholders, who will
bear the costs and risks of our leverage. There can be no assurance
that a leveraging strategy, if employed, would be successful during any period
in which it is used. The use of leverage involves risks, which can be
significant.
We do not
anticipate utilizing interest rate transactions for hedging purposes to attempt
to reduce the interest rate risk arising from our current or potential use of
leverage.
Portfolio
Turnover
Our
annual portfolio turnover rate may vary greatly from year to year. Although we
cannot accurately predict our annual portfolio turnover rate, it is not expected
to exceed 100% under normal circumstances. Portfolio turnover rate is
not considered a limiting factor in the execution of investment decisions for
us. A higher turnover rate results in correspondingly greater brokerage
commissions and other transactional expenses that we bear.
Brokerage
Allocation and Other Practices
Subject
to policies established by our Adviser and approved by our Board, we do not
expect to execute transactions through any particular broker or dealer, but we
will seek to obtain the best net results for us, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), size of order, difficulty of execution and operational facilities of
the firm and the firm’s risk and skill in positioning blocks of
securities. While we will generally seek reasonably competitive trade
execution costs, we will not necessarily pay the lowest spread or commission
available. Subject to applicable legal requirements, we may select a broker
based partly on brokerage or research services provided to us. In
return for such services, we may pay a higher commission than other brokers
would charge if our Adviser determines in good faith that such commission is
reasonable in relation to the services provided.
MANAGEMENT
OF THE COMPANY
Directors
and Executive Officers
Our
business and affairs are managed under the direction of our
Board. Accordingly, our Board provides broad supervision over our
affairs, including supervision of the duties performed by our Adviser and
Subadviser. Certain employees of our Adviser are responsible for our
day-to-day operations. The names, ages and addresses of our Directors
and specified executive officers, together with their principal occupations and
other affiliations during the past five years, are set forth
below. Each Director and officer will hold office for a one year term
to which he is elected and until his successor is duly elected and qualifies, or
until he resigns or is removed in the manner provided by law. Our
Board consists of a majority of Independent Direrectors. The
Directors who are “interested persons” (as defined in the 1940 Act) are referred
to as “Interested Directors.” The address for all Company Officers
and Directors is 580 2nd Street, Suite 102, Encinitas, California
92024. None of our Directors or officers serve as director for any
other companies which (i) have a class of securities registered under section 12
of the Exchange Act, (ii) are subject to section 15(d) of the Exchange Act, or
(iii) are registered investment companies under the 1940 Act; and MACC only has
one investment portfolio.
Interested
Directors:
|
Name
and Age
|
Position(s) Held with the
Company
|
Term of Office and Length of Time
Served
|
Principal Occupation(s)
During Past 5 Years
|
|||
|
Benjamin
Jiaravanon, 37 (1)
|
Director
|
Since
February, 2004
|
President
and CEO, Central Proteina Prima (manufacturer of animal, poultry and fish
feeds), since 2004; President, Strategic Planning Group, Charoen Pokphand
Indonesia (agribusiness conglomerate), 2002 - 2004; Associate, Direct
Investments Group, Merrill Lynch, 1996 - 2002. Mr. Jiaravanon
received his Bachelor of Science degree in industrial management from
Carnegie Mellon University.
|
|||
|
Gordon
J. Roth,
53
(2)
|
Director
|
Since
2000
|
CFO
and Chief Operating Officer, Roth Capital Partners, LLC (independent
investment banking firm specializing in small-cap companies),
2000-present; Chairman, Roth & Company, P.C. (public accounting firm
located in Des Moines, Iowa), 1990-2000. Prior to that, Mr. Roth was a
partner at Deloitte & Touche, a public accounting firm, in Des
Moines.
|
|
(1)
|
To
the extent that BIG may be deemed to be in control of the MACC as a result
of its beneficial ownership of our Common Stock, Mr. Jiaravanon, as the
sole Managing Member of BIG, may be an “interested person” of the MACC, as
that term is defined in Section 2(a)(19) of the 1940
Act.
|
|
(2)
|
As
a member of the Board of Managers of EAM, Mr. Roth is an “interested
person” of MACC, as that term is defined in Section 2(a)(19) of the 1940
Act.
|
Independent
Directors:
|
Name
and Age
|
Position(s) Held with the
Company
|
Term of Office and Length of Time
Served
|
Principal Occupation(s)
During Past 5 Years
|
|||
|
Geoffrey
T. Woolley, 48
|
Director
and Chairman of the Board
|
Director
since 2003, elected Chairman April, 2004
|
Executive
Chairman, Kreos Capital Limited (founded in 1997 by Mr. Woolley to
introduce “venture leasing,” an asset-backed debt instrument with equity
participation to the European and Israeli markets); Founding Partner,
Dominion Ventures, Inc.; Managing Member, Hild Partners, LLC;
Director: BH Thermal Corp, University Opportunity Fund and Utah
Capital Investment Corporation; Chairman of the Board: MorAmerica,
University Venture Fund, Hild Assets, Ltd. and Unitus Equity Fund;
Advisor: Polaris Ventures and Von Braun & Schreiber Private
Equity. Mr. Woolley holds an M.B.A. from the University of Utah
and a B.S. in Business Management with a Minor in Economics from Brigham
Young University.
|
|||
|
James
W. Eiler, 56
|
Director
|
Since
January, 2008
|
Principal,
Eiler Capital Advisors (Investment Banking), since 2007; Managing
Director, First National Investment Bank (Investment Banking), 2007;
Managing Partner, Cybus Capital Markets (Investment banking), 2004-2007;
Senior Vice President, John Deere Credit (Agricultural Financial
Services), 1999-2004. Mr. Eiler holds an M.S. in Ag Economics
and a B.S. in Ag Business from Iowa State University.
|
|||
|
Michael
W. Dunn, 59
|
Director
|
Since
1994
|
Director,
MorAmerica since 1994; C.E.O. (since 1980), President and CEO and Director
(since 1983), Farmers & Merchants Savings Bank of Manchester,
Iowa.
|
Company
Officers:
|
Name
and Age
|
Position(s) Held with the
Corporation
|
Term of Office and Length of Time
Served
|
Principal Occupation(s)
During Past 5 Years
|
|||
|
Travis
Prentice, 33
|
President
and CEO
|
Since
April, 2008
|
President
and Chief Investment Officer of EAM, a firm he co-founded in
2007. In addition, he serves as portfolio manager for the
firm’s Micro Cap Growth and Ultra Micro Cap Growth investment strategies.
Prior to founding EAM, Mr. Prentice was a Partner, Managing Director and
Portfolio Manager with Nicholas-Applegate Capital Management where he had
lead portfolio management responsibilities for their Micro and Ultra Micro
Cap investment strategies and a senior role in the firm’s US
Micro/Emerging Growth team. He brings ten years of
institutional investment experience from Nicholas Applegate where he
originally joined in 1997. He holds a Masters in Business Administration
from San Diego State University and a Bachelor of Arts in Economics and a
Bachelor of Arts in Psychology from the University of
Arizona.
|
|||
|
Derek
Gaertner, 36
|
Chief
Financial Officer and Chief Compliance Officer
|
Since
April, 2008
|
Vice
President and Chief Operating/ Compliance Officer of EAM. Prior
to joining EAM in 2007, Mr. Gaertner was the Chief Financial Officer of
Torrey Pines Capital Management, a global long/short equity hedge fund
located in San Diego, California. He was also responsible for
overseeing the firm’s regulatory compliance and operations
functions. Prior to joining Torrey Pines Capital Management in
2004, Mr. Gaertner was a Tax Manager with PricewaterhouseCoopers
LLP. He has over 8 years of public accounting experience in
both the audit and tax departments. Mr. Gaertner is a Certified
Public Accountant and has a Bachelors of Science in Accounting from the
University of Southern California and Masters of Science in Taxation from
Golden Gate University, San Francisco.
|
|||
|
Montie
L. Weisenberger,
40
|
Treasurer
and Secretary
|
Since
April, 2008
|
Senior
Vice President and Portfolio Manager of EAM, a firm he co-founded in
2007. Mr. Weisenberger has primary portfolio management
responsibilities for the firm’s Small Cap Growth investment
strategy. Prior to founding EAM, Mr. Weisenberger was a Senior
Vice President and Portfolio Manager at Nicholas Applegate Capital
Management where he had lead portfolio management responsibilities for the
firm’s Traditional Small-to-Mid Cap Growth strategy and was a senior
member of the firm’s US Micro / Emerging Growth team since
2001. Prior to joining Nicholas Applegate Capital Management,
Montie was a research analyst at Adams, Harkness & Hill, now Cannacord
Adams, an emerging growth investment bank located in Boston, MA. Mr.
Weisenberger also spent more than five years as a finance and strategic
management consultant, most recently as a manager with KPMG,
LLP. Mr. Weisenberger brings more than twelve years of combined
investment management and financial analysis experience to Eudaimonia
Asset Management. He holds a Masters in Business Administration
and a Masters in Health Administration from Georgia State University and a
Bachelor of Arts in Business Administration from Flagler
College.
|
Common
Stock Ownership of Directors
The
following table represents, as of September 10, 2008 and based upon the closing
price as reported by Nasdaq on September 10, 2008, the dollar range value of
equity securities beneficially owned (as that term is defined in Rule
16a-1(a)(2) of the Exchange Act) by each Director of MACC. In the
table, “Interested Director Nominee” indicates Directors who do not meet the
definition of “independent director” provided in the rules applicable to
companies listed on the Nasdaq Capital Market. In contrast,
“Independent Directors” do meet such qualification.
|
Name of
Independent Director
|
Dollar Range of Equity
Securities in MACC
|
Aggregate Dollar Range†
of Equity Securities in all
Funds
in Fund Complex
|
|
Michael
W. Dunn
|
Over
$100,000
|
Over
$100,000
|
|
James
W. Eiler
|
$10,001
- $50,000
|
$10,001
- $50,000
|
|
Geoffrey
T. Woolley
|
Over
$100,000
|
Over
$100,000
|
|
Name of
Interested Director
|
Dollar Range of Equity
Securities in MACC
|
Aggregate Dollar Range†
of Equity Securities in all
Funds
in Fund Complex
|
|
Benjamin
Jiaravanon
|
Over
$100,000
|
Over
$100,000
|
|
Gordon
J. Roth
|
$10,001
- $50,000
|
$10,001
- $50,000
|
† MACC
only consists of one investment portfolio.
Audit
Committee
The Board
has a standing Audit Committee which makes recommendations to the Board
regarding the engagement of the independent auditors for audit and non-audit
services; evaluates the independence of the auditors and reviews with the
independent auditors the fee, scope and timing of audit and non-audit
services. The Audit Committee also is charged with monitoring our
Policy Against Insider Trading and Prohibited Transactions and our Code of
Conduct. The Audit Committee presently consists of Michael W. Dunn
(Chair), Geoffrey T. Woolley and James W. Eiler. Each member of the
Audit Committee is considered “independent” under applicable NASDAQ listing
standards. The Board has determined that James W. Eiler is an Audit
Committee financial expert. The Audit Committee held four meetings in
Fiscal Year 2007.
Investment
and Valuation Committee
The
Investment and Valuation Committee assists the full Board with the periodic
valuation of our investment securities and with oversight of our investment
portfolio and evaluates any proposed revisions to our investment policy. The
Investment and Valuation Committee also assures compliance with our valuation
policy and policies regarding investments made in participation with other funds
managed by InvestAmerica, with entities controlling, controlled by or under
common control with InvestAmerica, and with other affiliates. The
voting members of the Investment and Valuation Committee presently include
Michael W. Dunn, James W. Eiler and Gordon Roth. Mr. Dunn and Mr.
Eiler are independent under NASDAQ listing standards. The Investment
and Valuation Committee did not hold any meetings in Fiscal Year
2007.
Corporate
Governance and Nominating Committee
The
Corporate Governance/Nominating Committee was appointed by the Board to identify
and recommend approval of all Director nominees to be voted on at the Annual
Stockholders’ Meetings, to recommend corporate governance guidelines for the
Corporation, to lead the Board in its annual review of the Board’s performance,
and to recommend to the Board nominees for each committee of the
Board. On December 22, 2003, the Board approved the Corporate
Governance/Nominating Committee Charter, which was subsequently revised on
February 28, 2006.
The
Corporate Governance/Nominating Committee may seek input from other Directors or
senior management in identifying candidates. Under our Amended and
Restated Bylaws, stockholders desiring to nominate persons for election as
Directors or to propose other business for consideration at an annual meeting
must notify the Secretary of MACC in writing not less than 60 days, nor more
than 90 days, prior to the date on which MACC first mailed its proxy materials
for the prior year’s annual meeting.
The
qualifications used in evaluating Director candidates include but are not
limited to: independence, time commitments, attendance, business judgment,
management, accounting, finance, industry and technology knowledge, as well as,
personal and professional ethics, integrity and values. In addition, as set
forth in its Charter, the Corporate Governance/Nominating Committee believes
that having directors with relevant experience in business and industry,
government, finance and other areas is beneficial to the Board as a
whole. The Corporate Governance/Nominating Committee further reviews
the qualifications of any candidate in the context of the current composition of
the Board and the needs of MACC. The same identifying and evaluating procedures
apply to all candidates for director nomination, whether nominated by
stockholders or by the Corporate Governance/Nominating Committee. The
Corporate Governance/Nominating Committee has approved all of the nominees for
Director identified above.
The
Corporate Governance/Nominating Committee also: (i) oversees the formulation of,
and recommends for adoption to the Board, a set of corporate governance
guidelines; (ii) periodically reviews and reassesses the corporate
governance guidelines and recommends appropriate changes to the Board for
approval; (iii) reviews and approves annually the MACC’s compensation program
for service on the Board or any of its committees; (iv) performs an annual
assessment of the Board’s performance and periodically reports its Board
assessments to the Board; (v) annually reviews and assesses its Charter and
makes recommendations of appropriate changes to the Board; (vi) performs
periodic reviews of all Board committee structure and governance charters; (vii)
recommends appropriate changes to Board committee composition and responsibility
to the Board; and (viii) reviews any conflicts of interest.
The
Corporate Governance/Nominating Committee consists of Geoffrey T. Woolley
(Chair), James W. Eiler and Michael Dunn. All members of the
Corporate Governance/Nominating Committee are considered “independent” under
applicable NASDAQ listing standards. The Corporate
Governance/Nominating Committee held two meetings in Fiscal Year
2007.
Compensation
of Directors
The
compensation of our Directors is governed by a compensation policy adopted via
resolution of the Board on February 24, 2004 and amended on July 18, 2006 (as
amended, the “Compensation
Policy”). The Compensation Policy provides that: (i) Directors
of MACC who are also officers or directors of our investment adviser receive no
compensation for serving on the Board; (ii) the Chairman of the Board receives
an annual retainer of $24,000; (iii) all other outside Directors receive an
annual retainer of $8,000; (iv) all outside Directors other than the Chairman of
the Board receive $1,000 for each Board meeting attended (whether such
attendance is in person or by telephone) if the meeting is scheduled as an
in-person meeting and $500 for each Board meeting attended by telephone if the
meeting is scheduled to be held by teleconference; (v) all Directors other than
the Chairman of the Board receive $250 for each committee meeting attended
(whether such attendance is in person or by telephone) if the committee meeting
is scheduled as an in-person meeting and $250 for each committee meeting
attended by telephone if the meeting is scheduled to be held by teleconference;
and (vi) we reimburse all reasonable expenses of the Directors and the Chairman
of the Board in attending Board and committee meetings. Directors’
meetings are normally held on a quarterly basis, with additional meetings held
as needed. All Director compensation is payable quarterly, in
arrears.
The
following table sets forth the details of the compensation paid to Directors
during Fiscal Year 2007. MACC does not compensate its executive
officers. For purposes of the following table, the Fund Complex (as
that term is defined in Item 22(a)(1)(v) of Schedule 14A adopted under the
Exchange Act) consisted solely of the MACC and MorAmerica during Fiscal Year
2007. MACC presently maintains no pension or retirement plans for its
Directors.
|
Name and
Position
|
Aggregate
Compensation
From
MACC and Fund Complex (1)
|
|
Geoffrey
T. Woolley
Chairman
of the Board
|
$24,000
|
|
Benjamin
Jiaravanon, Director
|
$0
|
|
Jasja
De Smedt Kotterman, Director (2)
|
$14,000
|
|
Michael
W. Dunn, Director
|
$14,000
|
|
Gordon
J. Roth, Director
|
$13,750
|
______________________
|
|
(1)
|
Consists
only of directors’ fees (including compensation for serving on the Board
of MorAmerica) and does not include reimbursed expenses. MACC
presently maintains no pension or retirement plans for its
Directors.
|
|
|
(2)
|
Ms.
Kotterman did not stand for re-election at the 2008 Annual
Meeting.
|
Compensation
of Executive Officers
We have
no employees and do not pay any compensation to any of our
officers. We have not compensated our executive officers in any of
the last three fiscal years. We do not provide any of bonus, stock
options, stock appreciation rights, non-equity incentive plans, non-qualified
deferred compensation or pension benefits to our executive
officers. Further, we have no agreements with any officer pertaining
to change in control payments. All of our officers and staff are
employed by EAM, which pays all of their cash compensation.
Our
Adviser
EAM was
founded in 2007 by Travis Prentice, Montie L. Weisenberger and Joshua M.
Moss. EAM’s principals have managed assets under similar strategies
as proposed for MACC since 1997, and have continued such management upon the
effectiveness of EAM’s registration as an investment adviser. EAM has
not previously managed an investment company which has elected treatment as a
BDC.
RCP
contributed the operating capital to fund the EAM founders’ business plan and
holds a 49% interest in EAM. Gordon J. Roth, who has served on MACC’s
Board since 2000, is the Chief Financial Officer of RCP and serves on the Board
of Managers of EAM. Together, EAM’s employees hold the remaining 51%
interest in EAM. These employees include Travis Prentice, Derek
Gaertner and Montie Weisenberger, each of whom also serves as an executive
officer of MACC and are therefore “affiliated persons” of MACC under Section
2(a)(3) of the 1940 Act. Travis Prentice is the President and Chief
Executive Officer of MACC and is President, Chief Investment Officer and a
Manager of EAM. Derek Gaertner is the Chief Financial Officer and
Chief Compliance Officer of MACC and is the Vice President, Chief Operating
Officer and Chief Compliance Officer of EAM. Montie Weisenberger is
the Treasurer and Secretary of MACC and is the Vice President and a Manager of
EAM.
Our
Subadviser
InvestAmerica
is a nationally recognized private equity/venture capital investment management
group with over 100 cumulative years of fund management experience. The
InvestAmerica brand was founded in 1985 with the establishment of InvestAmerica
Venture Group, Inc. Since 1985, InvestAmerica has successfully managed and grown
the InvestAmerica related private equity/venture funds with investments
throughout the United States. The InvestAmerica group is
headquartered in Cedar Rapids, Iowa with regional offices in Kansas City,
Missouri; Vancouver, Washington; Fargo, North Dakota and St. Paul,
Minnesota. InvestAmerica does not act as investment advisor with
respect to any other registered investment company, and our Board is not aware
of any financial condition of InvestAmerica that is reasonably likely to impair
the financial ability of InvestAmerica to fulfill its commitment to MACC under
the Subadvisory Agreement.
Portfolio
Managers
EAM
Portfolio Managers
The EAM
Portfolio Managers, Messrs. Prentice and Weisenberger, are compensated by EAM
through a mix of fixed salaries, benefits (including 401(k) plan), bonuses and
profit sharing. Each EAM Portfolio Manager receives a base salary
which increases pro-rata in proportion to the revenue growth of EAM up to a
maximum salary compensation of three times their base salary. Messrs.
Moss and the other employees of EAM (excludes Messrs. Prentice and Weisenberger)
are available for a bi-annual bonus. The bi-annual bonus pool is
determined as percentage of EAM’s revenues above a minimum base
amount. The amount of Messrs. Moss’s bi-annual bonus will be
determined by EAM’s Board of Managers. As of September 10,
2008, neither of the EAM Portfolio Managers held any MACC equity
securities. All three EAM Portfolio Managers also hold an ownership
and profits interest in EAM. The following table
provides information about the other accounts managed on a day-to-day basis by
each EAM Portfolio Manager as of May 31, 2008, none of which pay a performance
fee:
|
Number
of Accounts
|
Total
Assets of Accounts
|
|||||||
|
Travis
Prentice
|
||||||||
|
Registered
investment companies
|
0 | $ | 0 | |||||
|
Other
pooled investment vehicles
|
0 | $ | 0 | |||||
|
Other
accounts
|
2 | $ | 2,000,000 | |||||
|
Montie L.
Weisenberger
|
||||||||
|
Registered
investment companies
|
0 | $ | 0 | |||||
|
Other
pooled investment vehicles
|
0 | $ | 0 | |||||
|
Other
accounts
|
1 | $ | 1,000,000 | |||||
InvestAmerica
Portfolio Managers
The
InvestAmerica Portfolio Managers, Messrs. Comey, Schroder, Mullane and
Reynoldson are compensated by InvestAmerica by fixed salaries, benefits
(including 401(k) plan) and bonuses. The InvestAmerica Portfolio
Managers are compensated by InvestAmerica by fixed salaries, benefits (including
401(k) plan) and bonuses. Bonuses are paid on a fixed basis if an
incentive fee is earned from MACC.
The
following table provides information about the other accounts managed on a
day-to-day basis by each InvestAmerica Portfolio Manager as of August 15,
2008:
|
Name of Manager
|
Number of Accounts
|
Total Assets of Accounts
|
Number of Accounts Paying a Performance
Fee
|
Total Assets of Accounts Paying a Performance
Fee
|
||||||||||||
|
Robert
A. Comey
|
||||||||||||||||
|
Registered
investment companies
|
0 | $ | -- | 0 | $ | -- | ||||||||||
|
Other
pooled investment vehicles
|
3 | $ | 44,751,853 | 3 | $ | 44,751,853 | ||||||||||
|
Other
accounts
|
0 | $ | -- | 0 | $ | -- | ||||||||||
|
David
R. Schroder
|
||||||||||||||||
|
Registered
investment companies
|
0 | $ | -- | 0 | $ | -- | ||||||||||
|
Other
pooled investment vehicles
|
3 | $ | 44,751,853 | 3 | $ | 44,751,853 | ||||||||||
|
Other
accounts
|
0 | $ | -- | 0 | $ | -- | ||||||||||
|
Kevin
F. Mullane
|
||||||||||||||||
|
Registered
investment companies
|
0 | $ | -- | 0 | $ | -- | ||||||||||
|
Other
pooled investment vehicles
|
3 | $ | 44,751,853 | 3 | $ | 44,751,853 | ||||||||||
|
Other
accounts
|
0 | $ | -- | 0 | $ | -- | ||||||||||
| 0 | $ | -- | 0 | $ | -- | |||||||||||
|
Michael
H. Reynoldson
|
||||||||||||||||
|
Registered
investment companies
|
0 | $ | -- | 0 | $ | -- | ||||||||||
|
Other
pooled investment vehicles
|
2 | $ | 40,195,430 | 2 | $ | 40,195,430 | ||||||||||
|
Other
accounts
|
0 | $ | -- | 0 | $ | -- | ||||||||||
The
following table represents, as of September 10, 2008 and based upon the closing
price as reported by Nasdaq on September 10, 2008, the dollar range value of
MACC equity securities beneficially owned (as that term is defined in Rule
16a-1(a)(2) of the Exchange Act) by each InvestAmerica Portfolio
Manager:
|
Name of
Portfolio Manager
|
Dollar Range of
Equity Securities of
MACC
|
|
Robert
A. Comey
|
Over
$100,000
|
|
David
R. Schroder
|
Over
$100,000
|
|
Kevin
F. Mullane
|
$10,001
-$50,000
|
|
Michael
H. Reynoldson
|
None
|
Advisory
Agreement
Pursuant
to the Advisory Agreement, our Adviser will be subject to the overall
supervision and review of our Board, provide us with investment research, advice
and supervision and will furnish us continuously with an investment program,
consistent with our investment objective and policies. Our Adviser
will provide, on behalf of MACC, any managerial assistance requested by our
portfolio companies. Our Adviser also will determine from time to
time what securities we will purchase, what securities will be held or sold,
what portions of our assets will be held uninvested as cash or in other liquid
assets, subject always to the provisions of the Company’s Certificate of
Incorporation, Bylaws, and our registration statement under the 1933
Act. Our Adviser will maintain books and records with respect to all
of our transactions, and will regularly report to our Board on our investments
and performance.
Our
Adviser, in accordance with the Advisory Agreement, will also (i) determine the
composition of our portfolio, the nature and timing of the changes therein and
the manner of implementing such changes; (ii) identify, evaluate and negotiate
the structure of our investments; (iii) perform due diligence on prospective
portfolio companies; (iv) monitor our investments; (v) provide us
with such other investment advisory, research and related services as we may,
from time to time, reasonably require for the investment of our
funds.
Our
Adviser’s services to us under the Advisory Agreement will not be exclusive, and
our Adviser is free to furnish the same or similar services to other entities,
including businesses which may directly or indirectly compete with us, so long
as our Adviser notifies us prior to being engaged to serve as investment adviser
to another fund and further provided that any such investment management
services and any co-investments shall at all times be provided in strict
accordance with rules and regulations under the 1940 Act, our Adviser’s asset
allocation policy required thereunder and any exemptive order applicable to
MACC. Under the Advisory Agreement and to the extent permitted by the
1940 Act, our Adviser will also provide on our behalf significant managerial
assistance to portfolio companies to which we are required to provide such
assistance under the 1940 Act and who require such assistance from
us.
Payment
of Our Expenses
Under the
terms of the Advisory Agreement, we will bear all expenses not specifically
assumed by EAM and incurred in our operations, and we will bear the expenses
related to this Offering. The compensation, benefits and allocable
routine overhead expenses of all investment professionals of EAM, the Subadviser
and their staffs, when and to the extent engaged in providing us investment
advisory services, is provided and paid for by EAM and the Subadviser, and not
us. The expenses borne by us include:
|
|
·
|
auditing
fees;
|
|
|
·
|
all
legal expenses;
|
|
|
·
|
legal
fees normally paid by portfolio
companies;
|
|
|
·
|
appropriate
trade association fees;
|
|
|
·
|
brochures,
advertising, marketing and publicity
costs;
|
|
|
·
|
interest
on debt;
|
|
|
·
|
directors’
and Board fees;
|
|
|
·
|
any
fees owed or paid to the Company or fund
managers;
|
|
|
·
|
any
and all expenses associated witproperty of a portfolio company taken or
received by us or on our behalf as a result of any investment in any
portfolio company;
|
|
|
·
|
all
reorganization and registration
expenses;
|
|
|
·
|
the
fees and disbursements of our counsel, accountants, custodian, transfer
agent and registrar;
|
|
|
·
|
fees
and expenses incurred in producing and effecting filings with federal and
state securities administrators;
|
|
|
·
|
costs
of periodic reports to, and other communications with our
stockholders;
|
|
|
·
|
premiums
for the fidelity bond, if any, maintained by EAM pursuant to Section 17 of
the 1940 Act;
|
|
|
·
|
premiums
for directors and officers insurance;
and
|
|
|
·
|
any
other expenses incurred by or on behalf of us that are not expressly
payable by EAM under the Advisory
Agreement.
|
Duration
and Termination
The
Advisory Agreement was approved by our Board on January 16, 2008 and by our
stockholders at the 2008 annual meeting held on April 29,
2008. Unless terminated earlier as described below, it will continue
in effect for a period of two years from April 29, 2008. It will
remain in effect from year to year thereafter if approved annually by our Board
or by the affirmative vote of the holders of a majority of our outstanding
voting securities, and, in either case, upon approval by a majority of our
Directors who are not interested persons or parties to the Advisory
Agreement. The Advisory Agreement will automatically terminate in the
event of its assignment. The Advisory Agreement may be terminated by us without
penalty upon not more than sixty (60) days’ written notice to our
Adviser. The Advisory Agreement may also be terminated by our Adviser
without penalty upon not less than sixty (60) days’ written notice to
us.
Liability
of the Adviser
The
Advisory Agreement provides that our Adviser will not be liable to us in any way
for any error in judgment or mistake of law made by our Adviser in connection
with any investment made by or for MACC so long as such error or mistake was not
made in bad faith or as a result of gross negligence or willful
misconduct. In performing the services under the Advisory Agreement,
our Adviser is deemed to be our agent for purposes of the indemnification
provisions of our Bylaws, subject, however, to the same limitations as though
our Subadviser were a director or officer of MACC. Our Adviser will be liable to
us for a material breach or default of our Adviser’s obligations under the
Advisory Agreement, violations of law or for conduct that would preclude it from
being indemnified under the indemnification provisions of our
Bylaws.
Advisory
Fees
Pursuant
to the Advisory Agreement, we will pay EAM a management fee equal to 2.0% of the
Assets Under Management attributable to each of (i) the Existing Portfolio and
(ii) the New Portfolio. For purposes of calculating the management
fee, “Assets Under Management” means the total value of MACC’s assets managed by
the Investment Adviser under the Advisory Agreement, less any cash balances and
cash equivalent investments of MACC that are not invested in debt or equity
securities of portfolio companies in accordance with our investment objectives,
calculated as of the end of each month during the term of the Advisory
Agreement.
Pursuant
to the Advisory Agreement, we will pay EAM an Incentive Fee equal to 20% of the
Net Capital Gains, before taxes, attributable to the New Portfolio (which would
include any follow-on investments made to the Existing Portfolio) and 13.4% of
the Net Capital Gains, before taxes, attributable to the Existing
Portfolio. “Net Capital Gains,” as defined in the Advisory Agreement,
are calculated as realized capital gains minus the sum of capital losses, less
any unrealized depreciation recorded during the year.
The
amount of the incentive fee and all incentive compensation, in any fiscal year,
may not exceed the limit prescribed by Section 205(b)(3) of the Advisers Act.
This section provides that the total fees will not exceed 20% of the realized
capital gains upon the assets of MACC over a specified period, computed net of
all realized capital losses and unrealized capital
depreciation. Under Section 5.2(a)(ii) of the Advisory Agreement, the
specified period is one year. In addition, the Board and EAM intend
to submit to the stockholders at the next annual meeting modifications to the
Advisory Agreement to change the incentive fee calculation to be paid annually
but calculated on a cumulative basis over the life of the
contract. These changes would become effective only after approval by
the Board and the stockholders. Under the Advisory Agreement, as with
all of the Company’s prior advisory agreements, the incentive fee has been
calculated on a “period to period” basis, meaning that changes in the value of
portfolio investments in subsequent periods do not retroactively affect
incentive fee calculations from prior periods. Modifying the
calculation of the incentive fee such that it is determined on a cumulative
basis would mean that subsequent changes in the value of portfolio investments
would impact the calculation of incentive fees on a cumulative basis over the
life of the advisory contract.
As noted
above, the Incentive Fee may not exceed 20% of realized capital gains from year
to year, computed net of all realized capital losses and unrealized capital
depreciation. The following examples are intended to assist in an
understanding of how changes in the value of portfolio investments over time
affect the calculation of the incentive fee under the Advisory
Agreement. These examples are not intended as an indication of our
expected performance.
Examples
of Incentive Fee Calculation
Example
1
Assumptions
|
|
Year 1:
|
$5
million investment made and November 30 fair market value (“FMV”) of
investment determined to be $5
million
|
|
|
Year 2:
|
November
30 FMV of investment determined to be $6
million
|
|
|
Year 3:
|
November
30 FMV of investment determined to be $4
million
|
|
|
Year 4:
|
Investment
sold for $7 million
|
The
impact of these changes in FMV of the investment, if any, on the incentive fee
calculation would be:
|
Year1:
|
No
impact
|
|
|
Year 2:
|
No
impact (even though the FMV of the investment was determined to have
increased in the second year, for purposes of calculating the incentive
fee, there can be no realization of any increases in FMV until the
investment is actually sold and the gain is
realized)
|
|
|
Year 3:
|
Reduce
base amount on which the incentive fee is calculated by $2
million
|
|
|
Year 4:
|
The
incentive fee is calculated on the $2 million realized capital gain over
the original cost of the investment
|
Example
2
Assumptions
|
|
Year 1:
|
$5
million investment made in company A (“Investment A”),
and $5 million investment made in company B (“Investment B”)
and November 30 FMV of each investment determined to be $5
million
|
|
|
Year 2:
|
November
30 FMV of Investment A is determined to be $6 million and FMV of
Investment B is determined to be $4
million
|
|
|
Year 3:
|
November
30 FMV of Investment A is determined to be $3 million and FMV of
Investment B is determined to be $5
million
|
|
|
Year 4:
|
November
30 FMV of Investment A is determined to be $4 million and FMV of
Investment B is determined to be $6
million
|
|
|
Year 5:
|
Investment
A is sold for $3 million and Investment B is sold for $7
million
|
The
impact of these changes in FMV of the investment, if any, on the incentive fee
calculation would be:
|
|
Year 1:
|
No
impact
|
|
|
Year 2:
|
Reduce
base amount on which the incentive fee is calculated by $1 million (even
though the FMV of Investment A was determined to have increased in the
second year, for purposes of calculating the incentive fee, there can be
no realization of any increases in FMV until the investment is actually
sold and the gain is realized, but the unrealized capital depreciation on
Investment B of $1 million reduces the net amount of FMV for both
investments)
|
|
|
Year 3:
|
Reduce
base amount on which the incentive fee is calculated by $2 million (the
unrealized capital depreciation on Investment A, calculated based upon the
original FMV and accordingly reduced by $2 million; no effect is given for
the increase in FMV for Investment
B)
|
|
|
Year 4:
|
No
effect is given for the increase in value on Investment A; and there is no
change due to the increase in FMV of Investment
B
|
|
|
Year 5:
|
Capital
loss on Investment A of $2 million is realized and $2 million of realized
capital gain on Investment B is
realized
|
Board Approval of the Advisory
Agreement
Our
Board, including a majority of the Independent Directors, reviewed and approved
the Advisory Agreement on January 16, 2008. In addition, the Advisory
Agreement was approved by our stockholders at the annual meeting held on April
29, 2008.
At its
meeting on January 16, 2008, the Board evaluated, among other things, written
information provided by EAM as required under Section 15(c) of the 1940 Act (the
“EAM 15(c)
Materials”), and answers to questions posed by the Board to
representatives of EAM. The EAM 15(c) Materials consisted of, among
other things, a management fee comparison versus a peer group of substantially
similar funds (the “Peer Group”), and a
comparison of the total expense ratios versus the Peer Group’s expense
ratios. Specifically, the Board noted that the total management fees
contemplated in the Advisory Agreement and the Subadvisory Agreement and the
estimated expense ratio of MACC compared favorably to the Peer Group’s advisory
fees and expense ratios.
The Board
also noted that EAM does not contemplate employing breakpoints in its fee
arrangement, which would benefit stockholders as MACC grows, because as
investments in new portfolio companies grow, EAM will be required to expend
greater resources to manage our portfolio, including hiring additional
staff. The Board carefully evaluated EAM 15(c) Materials, and was
advised by legal counsel with respect to its deliberations. The Directors
discussed the EAM 15(c) Materials and EAM’s oral presentation and any other
information that the Board received at the meeting, and deliberated on the
appointment of EAM as investment adviser to the MACC and the terms of the
Advisory Agreement in light of this information. In its
deliberations, the Board did not identify any single piece of information that
was all-important, controlling or determinative of its
decisions. Based on its review of the EAM 15(c) Materials and the
discussions with EAM, the Board determined that the terms of the Advisory
Agreement are consistent with the best interests of MACC and its stockholders,
and would enable us to receive high quality services at a cost that is
appropriate, reasonable, and in the best interests of MACC and its
stockholders. The Board made these determinations on the basis of the
following factors and conclusions:
|
|
·
|
The
advisory fees payable to and profits to be realized by EAM under the
Advisory Agreement, which the Board concluded (i) were reasonable in
comparison to the fees charged by other portfolio managers of funds of
similar size having similar investment strategies, and (ii) were in the
middle range of the comparisons to the Peer Group identified for the
Board;
|
|
|
·
|
The
nature, quality and extent of the advisory services to be provided by EAM,
including its reputation, expertise and resources in domestic financial
markets, especially the small- and micro-cap stocks that are intended to
comprise the New Portfolio, which the Board concluded would benefit MACC
by achieving above-average performance (as compared to other portfolio
managers of similar asset classes using similar strategies for portfolios
of similar size) and would assist in raising new assets and creating
stockholder value;
|
|
|
·
|
The
potential to generate investor and market enthusiasm through the
appointment of EAM to serve as adviser to MACC, which the Board concluded
would benefit MACC and its
stockholders;
|
|
|
·
|
A
description of EAM’s business, which the Board concluded demonstrated the
appropriate level of expertise and size, which would benefit MACC by
providing the level of service the Board expects to receive from its
portfolio manager;
|
|
|
·
|
Biographical
information respecting EAM’s personnel, which the Board concluded
demonstrated the appropriate level of experience and qualification of EAM
personnel;
|
|
|
·
|
EAM’s
financial condition, including its balance sheet, which the Board
concluded demonstrated that EAM is able to perform its obligations under
the New Advisory Agreement and otherwise service the needs of its
clients;
|
|
|
·
|
The
investment performance of EAM’s principals with respect to all accounts
with similar investment strategies, which the Board concluded demonstrated
that such investment strategies and principles have shown superior
performance over time;
|
|
|
·
|
EAM’s
brokerage practices (including any soft dollar arrangements), which the
Board concluded that (i) EAM will not utilize directed brokerage in its
management of MACC, (ii) EAM does not inappropriately concentrate its
brokerage allocation, and (iii) EAM pays commission rates which are
comparable to industry custom;
|
|
|
·
|
EAM’s
portfolio transaction practices, which the Board concluded demonstrated
that EAM appropriately allocates investment opportunities among its
clients and seeks to treat its clients
fairly;
|
|
|
·
|
The
overall high quality of the personnel, operations, financial condition,
investment management capabilities, methodologies, and performance of EAM,
which the Board concluded demonstrated that EAM will be able to perform as
it anticipates, which will enable MACC to attract and enhance
assets;
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A
description of EAM’s internal compliance program, which the Board
concluded demonstrated that (i) EAM devotes an appropriate level of time
and resources to detecting, preventing and remedying violations of the
federal securities laws, and (ii) EAM intends to appropriately utilize
outside auditors to audit its compliance
functions;
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Any
possible conflicts of interest arising out of a relationship with EAM,
which the Board concluded that EAM does not now have, and does not
anticipate having in the future, any revenue sharing arrangements, but
that to the extent RCP participates in any transactions concerning MACC,
such participation will be subject to limitations imposed by the 1940
Act;
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The
benefits to be realized by EAM as a result of its management of the New
Portfolio, which the Board concluded would be limited to its receipt of
the management fee and incentive fee described above, and would not
provide other benefits such as soft dollars to EAM;
and
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The
terms of the Advisory Agreement, which the Board concluded were at least
or more beneficial to MACC as compared to agreements respecting similar
levels of service for similar levels of advisory
fees.
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Based on
the information reviewed and the discussions among the members of our Board, our
Board, including all of our Independent Directors, approved the Advisory
Agreement and concluded that the fees payable thereunder were reasonable in
relation to the services to be provided.
Subadvisory
Agreement
Under the
Subadvisory Agreement, InvestAmerica has been retained to monitor and manage the
Existing Portfolio, including exits, preparation of valuations and other
portfolio management matters. InvestAmerica also currently provides
certain accounting and financial services for MACC. Under the
Advisory Agreement and to the extent permitted by the 1940 Act, InvestAmerica
will also provide on our behalf significant managerial assistance to Existing
Portfolio companies to which we are required to provide such assistance under
the 1940 Act and who require such assistance from us.
InvestAmerica’s
services to us under the Subadvisory Agreement will not be exclusive, and
InvestAmerica is free to furnish the same or similar services to other entities,
including businesses which may directly or indirectly compete with us, provided
that any such investment management services and any co-investments shall at all
times be provided in strict accordance with rules and regulations under the 1940
Act, our Adviser’s asset allocation policy required thereunder and any exemptive
order applicable to MACC.
Payment
of Our Expenses
We will
bear all expenses not specifically assumed by our Subadviser and incurred in our
operations, and we will bear the expenses related to this
offering. The compensation, benefits and allocable routine overhead
expenses of all investment professionals of our Subadviser and its staff, when
and to the extent engaged in providing us investment advisory services, is
provided and paid for by our Subadviser and not us. The expenses that
may be borne by us or our Adviser include:
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reasonable
expenses for travel at the direction of us or our
Adviser;
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expenses
required to be paid by us under the Advisory
Agreement;
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any
expenses related to transferring management of MACC to our Adviser,
including expenses of moving records to the offices of our Adviser;
and
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expenses
of duplicating files necessary for the services to be performed by our
Subadviser under the Subadvisory
Agreement.
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Liability
of the Subadviser
The
Subadvisory Agreement provides that our Subadviser will not be liable to us or
our Adviser in any way for any error in judgment or mistake of law made by our
Subadviser in connection with any investment made by or for MACC so long as such
error or mistake was not made in bad faith or as a result of gross negligence or
willful misconduct. Our Subadviser will not be liable for any action
or omission on the part of our Adviser arising out of the Subadvisory Agreement
or the Advisory Agreement. In performing the services under the
Subadvisory Agreement, our Subadviser is deemed to be our agent for purposes of
the indemnification provisions of our Bylaws, subject, however, to the same
limitations as though our Subadviser were a director or officer of
MACC. Our Subadviser will be liable to us for a material breach or
default of our Subadviser’s obligations under the Subadvisory Agreement,
violations of law or for conduct that would preclude it from being indemnified
under the indemnification provisions of our Bylaws.
Duration
and Termination
The
Subdvisory Agreement was approved by our Board on January 16, 2008 and by our
stockholders at the 2008 annual meeting held on April 29, 2008. Unless
terminated earlier as described below, it will continue in effect for a period
of two years from April 29, 2008. It will remain in effect from year
to year thereafter if approved annually by our Board or by the affirmative vote
of the holders of a majority of our outstanding voting securities, and, in
either case, upon approval by a majority of our Directors who are not interested
persons or parties to the Subadvisory Agreement. The Subadvisory
Agreement may be terminated by EAM or MACC at any time, without payment of any
penalty, on 60 days written notice to InvestAmerica if the decision to terminate
has been made by EAM or by the Board of MACC or by vote of the holders of a
majority, as defined in the 1940 Act, of the outstanding voting securities of
MACC. The Subadvisory Agreement also may be terminated by
InvestAmerica at any time, without payment of any penalty, on 60 days’ written
notice to EAM and MACC.
Subadvisory
Fees
Under the
Subadvisory Agreement, EAM would pay InvestAmerica management fees and incentive
fees based on a portion of the management fees and incentive fees paid to EAM by
MACC under the Advisory Agreement attributable to the Existing
Portfolio. The Subadvisory Agreement would not result in any
additional expense to MACC beyond the expenses associated with the Advisory
Agreement.
During
the first three months of the term of the Subadvisory Agreement, EAM will pay
InvestAmerica a management equal to 75% of the management fee received by EAM
under the New Advisory Agreement attributable to the Existing
Portfolio. For the remainder of the term of the Subadvisory
Agreement, EAM will pay InvestAmerica a management fee equal to 50% of the
management fee received by EAM under the Advisory Agreement attributable to the
Existing Portfolio.
The
amount of the incentive fee payable by EAM to InvestAmerica under the
Subadvisory Agreement is 100% of the incentive fee received by EAM under the New
Advisory Agreement attributable to the Existing Portfolio.
Board
Approval of the Subadvisory Agreement
The Board
evaluated, among other things, written information provided by InvestAmerica as
required under Section 15(c) of the 1940 Act (the “InvestAmerica 15(c)
Materials”), and answers to questions posed by the Board to
representatives of InvestAmerica. The Board noted that InvestAmerica
has served as investment adviser or subadviser to the Companies since 1995 and
is uniquely familiar with the Existing Portfolio—the assets for which
InvestAmerica will render investment subadvisory services under the Subadvisory
Agreement.
The Board
carefully evaluated InvestAmerica 15(c) Materials, and was advised by legal
counsel with respect to its deliberations. The Directors discussed the
InvestAmerica 15(c) Materials and InvestAmerica’s oral presentation and any
other information that the Board received at the meeting, and deliberated on the
appointment of InvestAmerica as investment subadviser to MACC and the terms of
the Subadvisory Agreement in light of this information. In its
deliberations, the Board did not identify any single piece of information that
was all-important, controlling or determinative of its
decisions. Based on its review of the InvestAmerica 15(c) Materials
and the discussions with InvestAmerica and EAM, the Board determined that the
terms of the Subadvisory Agreement are consistent with the best interests of
MACC and its stockholders, and would enable us to receive high quality services
at a cost that is appropriate, reasonable, and in the best interests of MACC and
our stockholders. The Board made these determinations on the basis of
the following factors:
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A
description of InvestAmerica’s business, which the Board concluded
demonstrated the appropriate level of expertise and size, which would
benefit the Corporation by providing the level of service the Board
expects to continue to receive from the portfolio manager of the Existing
Portfolio;
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Biographical
information respecting InvestAmerica’s personnel, which the Board
concluded demonstrated the appropriate level of experience and
qualification of InvestAmerica’s
personnel;
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InvestAmerica’s
financial condition, including its balance sheet, which the Board
concluded demonstrated that InvestAmerica is able to perform its
obligations under the Subadvisory Agreement and otherwise service the
needs of its clients;
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The
nature, quality and extent of the advisory services to be provided by
InvestAmerica, including its reputation, expertise and resources in
domestic financial markets, especially with respect to the Existing
Portfolio, which the Board concluded would benefit MACC by continuing the
management of the Existing Portfolio in the same
fashion;
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The
advisory fees payable to and profits to be realized by InvestAmerica under
the Subadvisory Agreement, which the Board concluded (i) were reasonable
in comparison to the fees charged by other portfolio managers of funds of
similar size having similar investment strategies (ii) were in the low to
middle range of the comparisons to the Peer Group identified for the Board
and (iii) would not result in any added expense to
MACC;
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InvestAmerica’s
brokerage practices (including any soft dollar arrangements), which the
Board concluded that (i) InvestAmerica will not utilize directed brokerage
in its management of MACC, (ii) InvestAmerica does not inappropriately
concentrate its brokerage allocation, and (iii) InvestAmerica pays
commission rates which are comparable to industry
custom;
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InvestAmerica’s
portfolio transaction practices, which the Board concluded demonstrated
that InvestAmerica appropriately allocates investment opportunities among
its clients and seeks to treat its clients
fairly;
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The
overall high quality of the personnel, operations, financial condition,
investment management capabilities, methodologies, and performance of
InvestAmerica, which the Board concluded demonstrated will enable MACC to
achieve stockholder value with respect to the Existing
Portfolio;
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A
description of InvestAmerica’s internal compliance program, which the
Board concluded demonstrated that InvestAmerica devotes an appropriate
level of time and resources to detecting, preventing and remedying
violations of the federal securities
laws;
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Any
possible conflicts of interest arising out of a relationship with
InvestAmerica, which the Board concluded that InvestAmerica does not now
have, and does not anticipate having in the future, any problematic
conflicts of interest;
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The
benefits to be realized by InvestAmerica as a result of its management of
the Existing Portfolio, which the Board concluded would be limited to its
receipt of the management fee and incentive fee described above, and would
not provide other benefits such as soft dollars to InvestAmerica;
and
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The
terms of the Subadvisory Agreement which the Board concluded were at least
or more beneficial to MACC as compared to agreements respecting similar
levels of service for similar levels of advisory
fees.
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Conflicts
of Interests
Our
Adviser and Subadviser have a conflict of interest in allocating potentially
more favorable investment opportunities to other funds and clients that they
advise. Although the Adviser and Subadviser do not presently plan to
do so, they may also create other funds or advise other funds having similar
characteristics as the Company. Our Adviser and Subadviser may also
have an incentive to make investments in one fund, having the effect of
increasing the value of a security in the same issuer held by another fund,
which in turn may result in a fee being paid to our Adviser or Subadviser by
that other fund. Our Adviser and Subadviser have written allocation
policies and procedures that they will follow in addressing any
conflicts. When two or more clients advised by our Adviser seek to
purchase or sell the same securities, the securities actually purchased or sold
will be allocated among the clients on a good faith equitable basis by our
Adviser in its discretion and in accordance with each client’s investment
objectives and our Adviser’s procedures. In some cases, this system
may adversely affect the price or size of the position we may obtain or
sell. In other cases, our ability to participate in larger volume
transactions may produce better execution for us.
Our
Adviser will evaluate a variety of factors in determining whether a particular
investment opportunity or strategy is appropriate and feasible for a relevant
client account at a particular time. Because these considerations may
differ when applied to us and other relevant client accounts in the context of
any particular investment opportunity, our investment activities may differ
considerably from those of other clients of our Adviser.
Situations
may occur when we could be disadvantaged because of the investment activities
conducted by our Adviser for its other accounts. Such situations may
be based on, among other things, the following: (i) legal or internal
restrictions on the combined size of positions that may be taken for us or the
other accounts, thereby limiting the size of our or their position; (ii) the
difficulty of liquidating an investment for us or the other accounts where the
market cannot absorb the sale of the combined position; or (iii) limits on
co-investing in private placement securities under the 1940 Act.
Under the
1940 Act, we and our affiliates are generally precluded from co-investing in
negotiated private placements of securities. Except as permitted by
law, our Adviser will not co-invest its other clients’ assets in negotiated
private transactions in which we invest. To the extent we are
precluded from co-investing, our Adviser will allocate private investment
opportunities among its clients, including but not limited to us, based on
allocation policies that take into account several suitability factors,
including the size of the investment opportunity, the amount each client has
available for investment and the client’s investment
objectives. These allocation policies may result in the allocation of
investment opportunities to an affiliated company rather than to
us.
Indemnification
of Directors and Officers
The
Delaware General Corporation Law gives Delaware corporations broad powers to
indemnify their present and former directors and officers and those of
affiliated corporations against expenses incurred in the defense of any lawsuit
to which they are made parties by reason of being or having been such directors
or officers, subject to specified conditions and exclusions, gives a director or
officer who successfully defends an action the right to be so indemnified. Such
indemnification is not exclusive of any other right to which those indemnified
may be entitled under any bylaw, agreement, vote of stockholders or
otherwise.
Our
Certificate of Incorporation authorizes the Company, to the maximum extent
permitted by Delaware law and the 1940 Act, to obligate itself to indemnify any
present or former director or officer or any individual who, while a director or
officer of the Company and at the request of the Company, serves or has served
another corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or other enterprise as a director, officer, partner
or trustee, from and against any claim or liability to which that person may
become subject or which that person may incur by reason of his or her service in
any such capacity and to pay or reimburse his or her reasonable expenses in
advance of final disposition of a proceeding. Our Bylaws obligate the
Company, to the maximum extent permitted by Delaware law and the 1940 Act, to
indemnify any present or former director or officer or any individual who, while
a director of the Company and at the request of the Company, serves or has
served another corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise as a director,
officer, partner or trustee and who is made, or threatened to be made, a party
to the proceeding by reason of his or her service in that capacity from and
against any claim or liability to which that person may become subject or which
that person may incur by reason of his or her status as a present or former
director or officer of the Company and to pay or reimburse his or her reasonable
expenses in advance of final disposition of a proceeding. The
Certificate of Incorporation and Bylaws also permit the Company to indemnify and
advance expenses to any person who served a predecessor of the Company in any of
the capacities described above and any employee or agent of the Company or a
predecessor of the Company.
Code
of Ethics
The
Company, the Adviser and the Subadviser have each adopted a Code of Ethics under
Rule 17j-1 of the 1940 Act, which is applicable to the officers, Directors and
designated employees of the Company, the Adviser and the Subadviser
(collectively, the “Codes of
Ethics”). Subject to certain limitations, the Codes of Ethics
permit those officers, Directors and designated employees of the Company, the
Adviser and the Subadviser (the “Covered Persons”) to
invest in securities, including securities that may be purchased or held by the
Company. The Codes of Ethics contain provisions and requirements
designed to identify and address certain conflicts of interest between personal
investment activities of Covered Persons and the interests of the investment
advisory clients of the Adviser and the Subadviser such as the
Company. Among other things, the Codes of Ethics prohibit certain
types of transactions absent prior approval, impose time periods during which
personal transactions may not be made in certain securities, and requires
submission of duplicate broker confirmations and statements and quarterly
reporting of securities transactions. Exceptions to these and other
provisions of the Codes of Ethics may be granted in particular circumstances
after review by appropriate personnel.
The Codes
of Ethics can be reviewed and copied at the SEC’s Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling the SEC at (202) 942-8090. The Codes of Ethics
are also available on the EDGAR database on the SEC’s internet site at
www.sec.gov, and, upon payment of a duplicating fee, by electronic request at
the following e-mail address: publicinfo@sec.gov or by writing the SEC’s Public
Reference Section, Washington, D.C. 20549-0102.
PORTFOLIO
TRANSACTIONS AND BROKERAGE
The
Adviser is responsible for decisions to buy and sell securities for the Company,
the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions. When the Company
purchases securities listed on a stock exchange, those transactions will be
effected through brokers who charge a commission for their
services. The Company also may invest in securities that are traded
principally in the over-the-counter market. In the over-the-counter
market, securities generally are traded on a “net” basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of such securities usually includes a mark-up to the
dealer. Securities purchased in underwritten offerings generally
include, in the price, a fixed amount of compensation for the manager(s),
underwriter(s) and dealer(s). The Company will also purchase
securities including debt and mezzanine securities directly from an issuer, in
which case no commissions or discounts will be paid.
Payments
of commissions to brokers who are affiliated persons of the Company (or
affiliated persons of such persons) will be made in accordance with Rule 17e-1
under the 1940 Act. Commissions paid on such transactions would be
commensurate with the rate of commissions paid on similar transactions to
brokers that are not so affiliated.
The
Adviser may, consistent with the interests of the Company, select brokers on the
basis of the research, statistical and pricing services they provide to the
Company and the Adviser’s other clients. Such research, statistical
and pricing services must provide lawful and appropriate assistance to the
Adviser’s investment decision-making process in order for such research,
statistical and pricing services to be considered by the Adviser in selecting a
broker. These research services may include information on securities
markets, the economy, individual companies, pricing information, research
products and services and such other services as may be permitted from time to
time by Section 28(e) of the Exchange Act. Information and research
received from such brokers will be in addition to, and not in lieu of, the
services required to be performed by the Adviser under the Advisory
Agreement. A commission paid to such brokers may be higher than that
which another qualified broker would have charged for effecting the same
transaction, provided that the Adviser determines in good faith that such
commission is reasonable in terms either of the transaction or the overall
responsibility of the Adviser to the Company and its other clients and that the
total commissions paid by the Company will be reasonable in relation to the
benefits to the Company over the long-term. The advisory fees that
the Company pays to the Adviser will not be reduced as a consequence of the
Adviser’s receipt of brokerage and research services. To the extent
that portfolio transactions are used to obtain such services, the brokerage
commissions paid by the Company will exceed those that might otherwise be paid
by an amount which cannot be presently determined. Such services
generally may be useful and of value to the Adviser in serving one or more of
its other clients and, conversely, such services obtained by the placement of
brokerage business of other clients generally would be useful to the Adviser in
carrying out its obligations to the Company. While such services are
not expected to reduce the expenses of the Adviser, the Adviser would, through
use of the services, avoid the additional expenses that would be incurred if it
should attempt to develop comparable information through their own
staff.
One or
more of the other accounts that the Adviser manages may own from time to time
some of the same investments as the Company. Investment decisions for
the Company are made independently from those of other accounts; however, from
time to time, the same investment decision may be made for more than one
account. When two or more accounts seek to purchase or sell the same
securities, the securities actually purchased or sold will be allocated among
the accounts on a good faith equitable basis by the Adviser in its discretion in
accordance with the accounts’ various investment objectives. In some
cases, this system may adversely affect the price or size of the position
obtainable for the Company. In other cases, however, the ability of
the Company to participate in volume transactions may produce better execution
for the Company. It is the opinion of the Company’s Board that this
advantage, when combined with the other benefits available due to the Adviser’s
organization, outweigh any disadvantages that may be said to exist from exposure
to simultaneous transactions.
It is
expected that the annual portfolio turnover rate of the Company will be not
exceed 100%. Because it is difficult to predict accurately portfolio
turnover rates, actual turnover may be higher or lower. Higher
portfolio turnover results in increased costs, including brokerage commissions,
dealer mark-ups and other transaction costs on the sale of securities and on the
reinvestment in other securities.
CERTAIN
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND
THE
DELAWARE CORPORATION LAW
The
following description of certain provisions of our Certificate of Incorporation
and Bylaws is only a summary. For a complete description, please
refer to our Certificate of Incorporation and Bylaws that have been filed as
exhibits to our registration statement.
Our
Certificate of Incorporation and Bylaws include provisions that could delay,
defer or prevent other entities or persons from acquiring control of us, causing
us to engage in certain transactions or modifying our
structure. These provisions, all of which are summarized below, may
be regarded as “anti-takeover” provisions. Such provisions could
limit the ability of our stockholders to sell their shares at a premium over the
then-current market prices by discouraging a third party from seeking to obtain
control of us. In addition to these provisions, we are incorporated
in Delaware and therefore expect to be subject to Section 203 of Delaware
General Corporation Law. Section 203 of Delaware General Corporation
Law governs business combinations with interested stockholders, and also could
have the effect of discouraging, delaying or preventing a change in
control. The existence of these provisions may negatively impact the
price of our common stock and may discourage third party bids. These provisions
may reduce any premiums paid to our stockholders for shares of our common stock
that they own. In addition, certain provisions of the 1940 Act may
serve to discourage a third party from seeking to obtain control of
us.
Number
and Classification of our Board; Election of Directors
Our
Certificate of Incorporation and Bylaws provide that the number of directors may
be established only by our Board pursuant to the Bylaws. Our Bylaws
provide that the number of directors shall be five. Each Director
shall hold office until the annual meeting of the stockholders for the year in
which his or her term expires and until his or her successor shall be elected
and shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
Vacancies
on Board; Removal of Directors
Our
Bylaws provide that if the office of any Director becomes vacant by reason of
death, resignation, disqualification, removal or other cause, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his or her successor is elected and
qualified, subject to any applicable requirements of the 1940
Act.
Section
141(k) of Delaware General Corporation Law provides that any director or the
entire board of directors may be removed, with or without cause, by the holders
of a majority of the shares then entitled to vote at an election of
directors.
Amendment
of Certificate of Incorporation and Bylaws
Our
Certificate of Incorporation and Bylaws provide that the Board or our
stockholders have the power to make, alter, amend or repeal any provision of our
Bylaws.
No
Stockholder Action By Written Consent; Advance Notice of Director Nominations
and New Business
Our
Certificate of Incorporation and Bylaws provide that stockholder action can be
taken only at an annual or special meeting of our stockholders. They also
prohibit stockholder action by written consent in lieu of a meeting. These
provisions may have the effect of delaying consideration of a stockholder
proposal until the next annual meeting.
Our
Bylaws provide that with respect to an annual meeting of our stockholders,
nominations of persons for election to our Board and the proposal of business to
be considered by our stockholders may be made only (i) pursuant to our notice of
the meeting, (ii) by or at the direction of our Board or (iii) by a stockholder
who is entitled to vote at the meeting and who has complied with the advance
notice procedures of our Bylaws. With respect to special meetings of
our stockholders, only the business specified in our notice of the meeting may
be brought before the meeting. Nominations of persons for election to
our Board at a special meeting may be made only (i) pursuant to our notice of
the meeting, (ii) by or at the direction of our Board, or (iii) by a stockholder
who is entitled to vote at the meeting and who has complied with the advance
notice provisions of our Bylaws, provided that our Board has determined that
Directors will be elected at such special meeting.
Limitation
of Liability of Directors and Officers; Indemnification and Advancement of
Expenses
Delaware
General Corporation Law allows a corporation to eliminate the personal liability
of directors of a corporation to the corporation or to any of its stockholders
for monetary damage for a breach of his fiduciary duty as a director, except in
the case where the director breached his duty of loyalty, failed to act in good
faith, engaged in intentional misconduct or knowingly violated a law, authorized
the payment of a dividend or approved a stock repurchase in violation of
Delaware corporate law or obtained an improper personal benefit. Our Certificate
of Incorporation and Bylaws, contain provisions that eliminates directors’
personal liability as set forth above, except in cases of a director’s willful
misfeasance, bad faith, gross negligence or reckless disregard of such
director’s duties involved in the conduct of the office of director to the
maximum extent permitted by Delaware law, subject to the requirements of the
1940 Act.
Delaware
General Corporation Law gives Delaware corporations broad powers to indemnify
their present and former directors and officers and those of affiliated
corporations against expenses incurred in the defense of any lawsuit to which
they are made parties by reason of being or having been such directors or
officers, subject to specified conditions and exclusions, gives a director or
officer who successfully defends an action the right to be so indemnified. Such
indemnification is not exclusive of any other right to which those indemnified
may be entitled under any bylaw, agreement, vote of stockholders or otherwise.
Our Certificate of Incorporation and Bylaws, provide for indemnification
authorized by the Delaware General Corporation Law, except to the extent that a
person has committed willful misfeasance, bad faith, gross negligence or
reckless disregard in the conduct of such person’s duties to or for
us.
Our
Certificate of Incorporation authorizes us, and our Bylaws obligate us, to the
maximum extent permitted by Delaware law and subject to the requirements of the
1940 Act, to indemnify any present or former Director or officer or any
individual who, while a Director or officer and at our request, serves or has
served another corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise as a director,
officer, partner or trustee and who is made, or threatened to be made, a party
to the proceeding by reason of his or her service in any such capacity from and
against any claim or liability to which that person may become subject or which
that person may incur by reason of his or her service in any such capacity and
to pay or reimburse their reasonable expenses in advance of final disposition of
a proceeding. Our obligation to indemnify any director, officer or
other individual, however, is limited by the 1940 Act and Investment Company Act
Release No. 11330, which, among other things, prohibit us from indemnifying any
Director, officer or other individual from any liability resulting directly from
the willful misconduct, bad faith, gross negligence in the performance of duties
or reckless disregard of applicable obligations and duties of the directors,
officers or other individuals and require us to set forth reasonable and fair
means for determining whether indemnification shall be made.
These
provisions do not limit or eliminate our rights or the rights of any of our
stockholders to seek nonmonetary relief such as an injunction or rescission in
the event any of our directors or officers breaches his or her
duties. These provisions will not alter the liability of our
directors or officers under federal securities laws.
Business
Combinations
We are
subject to the “business combination” statute of the Delaware General
Corporation Law. In general, this statute prohibits a publicly held
Delaware corporation from engaging in various “business combination”
transactions with any “interested stockholder,” unless (1) the transaction is
approved by the Board prior to the date the interested stockholder obtained such
status, (2) upon the consummation of the transaction which resulted in the
stockholder becoming an “interested stockholder,” the “interested stockholder”
owned at least 85 percent of the voting stock of MACC outstanding at the time
the transaction commenced, excluding for purposes of determining the number of
shares outstanding, those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the Plan
will be tendered in a tender or exchange offer, or (3) on or subsequent to such
date the “business combination” is approved by the Board and authorized at an
annual or special meeting of the stockholders by the affirmative vote of 66 2/3
percent of the outstanding voting stock that is not owned by the “interested
stockholder.” A “business combination” includes mergers, asset sales
and other transactions resulting in financial benefit to a
stockholder. An “interested stockholder” is a person who, together
with affiliates and associates, owns (or within three years, did own) 15 percent
of more of a corporation’s voting stock. The statute could prohibit
or delay mergers or other takeover or change in control attempts with respect to
MACC and, accordingly, may discourage attempts to acquire MACC.
NET
ASSET VALUE
We will
determine the net asset value (“NAV”) of our Common
Stock on a quarterly basis and at such other times as our Board may
determine. We will make our NAV available for publication
quarterly. The NAV per Share equals our NAV divided by the number of
outstanding Common Stock. Our NAV equals the value of our total
assets (the value of the securities held plus cash or other assets, including
interest accrued but not yet received) less: (i) all of our liabilities
(including accrued expenses and current income taxes); (ii) accumulated and
unpaid dividends on any outstanding preferred stock; (iii) the aggregate
liquidation preference of any outstanding preferred stock; (iv) accrued and
unpaid interest payments on any outstanding indebtedness; (v) the aggregate
principal amount of any outstanding indebtedness; and (vi) any distributions
payable on our Common Stock.
Valuation
Methodologies
We may
invest a substantial portion of our assets in securities for which there
generally will not be a readily available market price. Therefore,
our Board may value these investments at fair value in good
faith. There is no single standard for determining fair value in good
faith. As a result, determining fair value requires that judgment be applied to
the specific facts and circumstances of each investment while employing a
consistently applied valuation process. Many of our investments may
generally be subject to restrictions on resale and generally have no established
trading market. Because of the type of investments that we will make
and the nature of our business, our valuation process will require an analysis
of various factors. Our fair value methodology includes the
examination of, among other things, the underlying investment performance,
financial condition, and market changing events that impact
valuation. We intend to determine fair value to be the amount for
which an investment could be exchanged in an orderly disposition over a
reasonable period of time between willing parties other than in a forced or
liquidation sale.
Using
procedures established by our Board we value each investment as it is approved
for investment and then perform follow up valuation for each portfolio company
investment on a quarterly basis. Investments in securities that are
traded in on a stock exchange are valued based on the last quoted sale price on
the valuation date (or if no sales occurred on the valuation date, the closing
bid price on that date). Securities traded on the
over-the-counter market are valued by taking the bid price on the valuation
date. All other investments are valued at fair value as determined in
good faith by the Board. The Board has determined that such other
investments will be valued initially at cost, but such valuation will be subject
to quarterly adjustments and on such other interim periods as are justified by
material portfolio company events if the Board determines in good faith that
cost no longer represents fair value. Among the factors considered by the
Company in determining the fair value of investments are the cost of the
investment; developments, including recent financing transactions, since the
acquisition of the investment; the financial condition and operating results of
the investee; the long-term potential of the business of the investee; market
interest rates for similar debt securities and other factors generally pertinent
to the valuation of investments.
The
Company will undertake a multi-step valuation process each quarter in connection
with determining the fair value of our investments, as follows:
The
Valuation Policy provides the following process to assist the Board in
determining the fair value of the securities we hold:
|
|
·
|
Investment Team
Valuation. The investment professionals of our Adviser
and Subadviser responsible for the portfolio investment (the “Investment
Team”) will initially propose a fair value for each portfolio
company or investment in accordance with the methodologies established by
the Board as set forth in the Valuation Policy. As a part of
this process, materials will be prepared containing their supporting
analysis (the “Investment Team
Valuation Report”).
|
|
|
·
|
Investment Committee
Valuation. Our Investment and Valuation Committee will
review the Investment Team Valuation Report and recommend valuations to be
considered by the Board.
|
|
|
·
|
Final Valuation
Determination. The Board will consider the recommended
valuations of the Investment and Valuation Committee, including supporting
documentation and analysis of the Investment Team, and determine the fair
value of each investment in good
faith.
|
The Board
is ultimately and solely responsible for determining the fair value of the
investments in good faith. Determination of fair values involves
subjective judgments and estimates. The notes to our financial
statements will refer to the uncertainty with respect to the possible effects of
such valuations, and any change in such valuations, on our financial
statements.
PROXY
VOTING POLICIES
SEC-registered
investment advisers that have the authority to vote proxies for their clients
are required to adopt policies and procedures reasonably designed to ensure that
the advisor votes proxies in the best interests of its
clients. Registered advisers also must maintain certain records on
proxy voting. MACC has adopted Proxy Voting Polices and Procedures,
which have also been adopted by EAM and InvestAmerica. In some cases,
MACC invests in securities that do not generally entitle MACC to voting rights
in our portfolio companies. When MACC does have voting rights, they
are delegated to EAM and InvestAmerica under our Advisory
Agreements.
In
determining how to vote, our advisors will take into account the interests of
MACC and its stockholders well as any potential conflicts of
interest. The compliance officer of each of our advisors will
implement procedures to identify and deal with any conflicts of
interest. The advisors will report regularly to the Board regarding
any conflicts of interest and resolution of those conflicts as well as any other
issues arising under the proxy policy and any recommended changes to the proxy
policy. The advisors will also keep detailed records of the
administration of the proxy policy, which are available to MACC upon
request. Information about how we have voted proxies relating to our
portfolio securities during the most recent 12-month period ending June 30 is
available without charge, upon request, by calling (760) 479-5080.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP,
666 Grand Avenue, 2500 Ruan Center, Des Moines, IA 50309, serves as our
independent registered public accounting firm. KPMG LLP provides
audit and audit-related services, tax return preparation and assistance and
consultation in connection with review of our filings with the SEC.
ADMINISTRATOR,
CUSTODIAN, TRANSFER AGENT AND REGISTRAR
Pursuant
to the Advisory Agreement between us and EAM, we have engaged EAM to perform the
administrative services necessary for our operation, including without
limitation providing us with equipment, clerical, book keeping, fund accounting
and record keeping services. These services are included in the
management fee we pay our Investment Adviser equal to equal to 0.20% of our
Assets Under Management. The address of EAM is 580 2nd Street, Suite
102, Encinitas, California 92024. Our securities and other assets are
held under a custody agreement with U.S. Bank National Association (with respect
to New Portfolio assets), whose address is __ and, with respect to Existing
Portfolio assets, under a custody agreement with Cedar Rapids Bank and Trust,
whose address is 500 1st Ave.
NE, Suite 100, Cedar Rapids, IA 52401. The transfer agent and
registrar for our Common Stock is BNY Mellon Shareowner Services, whose address
is 480 Washington Boulevard, 27th Floor,
Jersey City, New Jersey 07310.
ADDITIONAL
INFORMATION
A
Registration Statement on Form N-2, including amendments thereto, relating to
the Rights and Common Shares offered pursuant to the Prospectus, has been filed
by the Company with the SEC. The Company’s Prospectus and this SAI do
not contain all of the information set forth in the Registration Statement,
including any exhibits and schedules thereto. Please refer to the
Registration Statement for further information with respect to the Company and
the offering of the Rights and the Common Shares. Statements
contained in the Company’s Prospectus and this SAI as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to a Registration Statement, each such statement being qualified
in all respects by such reference. Copies of the Registration
Statement may be inspected without charge at the SEC’s principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from the
SEC upon the payment of certain fees prescribed by the SEC.
INDEX
TO FINANCIAL STATEMENTS
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-2
|
|
FINANCIAL
STATEMENTS
|
|
|
Audited
September 30, 2007 Consolidated Financial Statements
|
|
|
Consolidated
Balance Sheet
|
F-3
|
|
Consolidated
Statement of Operations
|
F-4
|
|
Consolidated
Statements of Changes in Net Assets
|
F-5
|
|
Consolidated
Statement of Cash Flows
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
|
Unaudited
June 30, 2008 Consolidated Financial Statements
|
|
|
Condensed
Consolidated Balance Sheet
|
F-12
|
|
Condensed
Consolidated Statements of Operations
|
F-13
|
|
Condensed
Consolidated Statements of Cash Flows
|
F-14
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
F-15
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE
BOARD OF DIRECTORS AND SHAREHOLDERS
MACC
PRIVATE EQUITIES INC.:
We
have audited the accompanying consolidated balance sheet of MACC Private
Equities Inc. and subsidiary (the Company), including the consolidated schedule
of investments, as of September 30, 2007, and the related consolidated statement
of operations for the year then ended, the consolidated statements of changes in
net assets for each of the years in the two-year period then ended, and the
consolidated statement of cash flows for the year then ended, and the
financial highlights for each of the years in the five-year period then
ended. These consolidated 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements and 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
confirmation or examination of securities owned as of September 30, 2007 or
other procedures where confirmation or examination was not possible. 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 consolidated financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of MACC Private Equities Inc. and subsidiary as of September 30, 2007,
the results of their operations for the year then ended, the changes in their
net assets for each of the years in the two-year period then ended, the results
of their cash flows for the year then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with U. S.
generally accepted accounting principles.
/s/ KPMG
LLP
Des
Moines, Iowa
December
21, 2007
MACC
PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEET
SEPTEMBER
30, 2007
|
Assets
|
||||
|
Loans
and investments in portfolio securities, at market or fair value (note
2):
|
||||
|
Unaffiliated
companies (cost of $2,301,385)
|
$ | 2,095,665 | ||
|
Affiliated
companies (cost of $13,007,879)
|
11,595,183 | |||
|
Controlled
companies (cost of $3,040,043)
|
3,014,106 | |||
|
Cash
and money market accounts
|
822,295 | |||
|
Interest
receivable
|
268,598 | |||
|
Other
assets (note 1)
|
212,940 | |||
|
Total
assets
|
$ | 18,008,787 | ||
|
Liabilities
and net assets
|
||||
|
Liabilities:
|
||||
|
Note
payable (note 3)
|
$ | 6,108,373 | ||
|
Incentive
fees payable (note 5)
|
252,130 | |||
|
Accounts
payable and other liabilities
|
127,474 | |||
|
Total
liabilities
|
6,487,977 | |||
|
Net
assets (note 3):
|
||||
|
Common
stock, $.01 par value per share; authorized 10,000,000 shares; issued and
outstanding 2,464,621 shares
|
24,646 | |||
|
Additional
paid-in-capital
|
13,140,517 | |||
|
Unrealized
depreciation on investments (note 2)
|
(1,644,353 | ) | ||
|
Total
net assets
|
11,520,810 | |||
|
Commitments
and contingency (note 5)
|
||||
|
Total
liabilities and net assets
|
$ | 18,008,787 | ||
|
Net
assets per share
|
$ | 4.67 | ||
SEE
ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MACC
PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF OPERATIONS
YEAR
ENDED SEPTEMBER 30, 2007
|
Investment
income:
|
||||
|
Interest
|
||||
|
Unaffiliated
companies
|
$ | 52,362 | ||
|
Affiliated
companies
|
587,390 | |||
|
Controlled
companies
|
129,591 | |||
|
Other
|
98,230 | |||
|
Dividends
|
||||
|
Affiliated
companies
|
129,054 | |||
|
Total
investment income
|
996,627 | |||
|
Operating
expenses:
|
||||
|
Interest
expenses (note 3)
|
799,041 | |||
|
Management
fees (note 5)
|
331,625 | |||
|
Incentive
fees (note 5)
|
143,732 | |||
|
Professional
fees
|
271,650 | |||
|
Other
|
307,559 | |||
|
Total
operating expenses
|
1,853,607 | |||
|
Investment
expense, net before tax expense
|
(856,980 | ) | ||
|
Income
tax benefit (note 4)
|
70,493 | |||
|
Investment
expense, net
|
(786,487 | ) | ||
|
Realized
and unrealized loss on investments and other assets (note
2):
|
||||
|
Net
realized gain (loss) on investments:
|
||||
|
Unaffiliated
companies
|
(134,044 | ) | ||
|
Affiliated
companies
|
1,485,500 | |||
|
Net
change in unrealized depreciation/appreciation investments
|
(662,393 | ) | ||
|
Net
gain on investments
|
689,063 | |||
|
Net
change in net assets from operations
|
$ | (97,424 | ) | |
SEE
ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MACC
PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CHANGES IN NET ASSETS
YEARS
ENDED SEPTEMBER 30, 2007 AND 2006
|
2007
|
2006
|
|||||||
|
Operations:
|
||||||||
|
Investment
expense, net
|
$ | (786,487 | ) | (1,171,152 | ) | |||
|
Net
realized gain on investments
|
1,351,456 | 3,645 | ||||||
|
Net
change in unrealized depreciation/appreciation on investments and other
assets
|
(662,393 | ) | (879,234 | ) | ||||
|
Net
change in net assets from operations
|
(97,424 | ) | 2,046,741 | |||||
|
Net
assets:
|
||||||||
|
Beginning
of period
|
11,618,234 | 13,664,975 | ||||||
|
End
of period
|
$ | 11,520,810 | 11,618,234 | |||||
SEE
ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MACC
PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF CASH FLOWS
YEAR
ENDED SEPTEMBER 30, 2007
|
Cash
flows from operating activities:
|
||||
|
Decrease
in net assets from operations
|
$ | (97,424 | ) | |
|
Adjustments
to reconcile decrease in net assets from operations to net cash provided
by operating activities:
|
||||
|
Net
realized and unrealized loss on investments, net of incentive
fees
|
(612,858 | ) | ||
|
Net
realized and unrealized gain on other assets
|
67,527 | |||
|
Proceeds
from disposition of and payments on loans and investments in portfolio
securities
|
3,062,958 | |||
|
Purchases
of loans and investments in portfolio securities
|
(65,000 | ) | ||
|
Change
in interest receivable
|
90,119 | |||
|
Change
in other assets
|
968,467 | |||
|
Change
in accrued interest, deferred incentive fees payable,accounts payable and
other liabilities
|
(42,217 | ) | ||
|
Total
adjustments
|
3,468,996 | |||
|
Net
cash provided by operating activities
|
3,371,572 | |||
|
Cash
flows from financing activities:
|
||||
|
Proceeds
from note payable
|
6,250,000 | |||
|
Note
repayment
|
(141,627 | ) | ||
|
Debt
repayment
|
(10,790,000 | ) | ||
|
Net
cash used in financing activities
|
(4,681,627 | ) | ||
|
Net
decrease in cash and cash equivalents
|
(1,310,055 | ) | ||
|
Cash
and cash equivalents at beginning of period
|
2,132,350 | |||
|
Cash
and cash equivalents at end of period
|
$ | 822,295 | ||
|
Supplemental
disclosure of cash flow information - Cash paid during the period for
interest
|
$ | 710,939 | ||
|
Supplemental
disclosure of noncash investing and financing information – Assets
received in exchange of securities
|
$ | 206,100 | ||
SEE
ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MACC
PRIVATE EQUITIES INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
|
(1)
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICES AND RELATED
MATTERS
|
|
(a)
|
Basis
of Presentation
|
The
consolidated financial statements include the accounts of MACC Private Equities
Inc. (“MACC”) and its wholly owned subsidiary, MorAmerica Capital Corporation
(‘MorAmerica Capital”). MACC and MorAmerica Capital (together, the “Company”)
are qualified as business development companies under the Investment Company Act
of 1940. All material intercompany accounts and transactions have been
eliminated. The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for investment companies.
On
February 15, 1995, the Company consummated a plan of reorganization as confirmed
by the United States Bankruptcy Court for the Northern District of Iowa on
December 28, 1993. As of February 15, 1995, the Company adopted fresh-start
reporting in accordance with American Institute of Certified Public Accountants
(AICPA) Statement of Position (SOP) 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code, resulting in the Company’s assets and
liabilities being adjusted to fair values.
|
(b)
|
Use
of Estimates
|
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America 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 consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
|
(c)
|
Cash
Equivalents
|
For
purposes of reporting cash flows, the Company considers certificates of deposit
and U. S. treasury bills with maturities of three months or less from the date
of purchase and money market accounts to be cash equivalents. At September 30,
2007, cash equivalents consisted of $519,929 of money market funds.
|
(d)
|
Loans
and Investments in Portfolio
Securities
|
Investments
in securities that are traded in the over-the-counter market or on a stock
exchange are valued by taking the average of the close (or bid price in the case
of over-the-counter equity securities) for the valuation date and the preceding
two days. Restricted and other securities for which quotations are not readily
available are valued at fair value as determined by the Board of Directors.
Among the factors considered by the Company in determining the fair value of
investments were the cost of the investment; developments, including recent
financing transactions, since the acquisition of the investment; the financial
condition and operating results of the investee; the long-term potential of the
business of the investee; market interest rates for similar debt securities and
other factors generally pertinent to the valuation of investments. However,
because of the inherent uncertainty of valuation, those estimated values may
differ significantly from the values that would have been used had a ready
market for the securities existed, and the differences could be
material.
Realization
of the carrying value of investments is subject to future developments (see note
2). Investment transactions are recorded on the trade date. Identified cost is
used to determine realized gains and losses. Under the provisions of SOP 90-7,
the fair value of loans and investments in portfolio securities on February 15,
1995, the fresh-start date, is considered the cost basis for financial statement
purposes.
|
(e)
|
Other
Assets, Net
|
Other
assets include notes and securities received from the sale of portfolio
investments with a value of $99,671 at September 30, 2007, deferred fees on the
note payable of $31,180, which are amortized over the life of the loan, prepaid
taxes and insurance of $79,779 and other receivables of $2,310.
MACC
PRIVATE EQUITIES INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
|
(f)
|
Revenue
Recognition
|
Dividend
income is recognized on the ex-dividend date and interest income is accrued on a
daily basis.
Debt
obligations may be placed on non-accrual status and related interest income may
be reduced by ceasing current accruals and writing off interest receivables when
the collection of all or a portion of interest has become doubtful based on
consistently applied procedures. A debt obligation is removed from
non-accrual status when the issuer resumes interest payments or when
collectability of interest is reasonably assured.
In
conjunction with the investment process, the Company negotiates non-refundable
processing fees with many companies it evaluates for
investment. These fees are compensation for time and efforts of the
investment advisory personnel and for reimbursement of expenses related to the
due diligence, and are recognized as income when received.
In-kind
interest income is recorded in connection with debt to equity conversions or in
the case of certain debt security reorganizations.
|
(g)
|
Income
Taxes
|
MACC and
MorAmerica Capital are members of a consolidated group for income tax
purposes.
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the consolidated financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis and net operating and capital loss carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in the period that includes the enactment
date.
|
(h)
|
Disclosures
About Fair Value of Financial
Instruments
|
Statement
of Financial Accounting Standards (SFAS) No. 107, Disclosures About Fair Value
of Financial Instruments, requires that disclosures be made regarding the
estimated fair value of financial instruments, which are generally described as
cash, contractual obligations, or rights to pay or receive cash. The carrying
amount approximates fair value for certain financial instruments because of the
short-term maturity of these instruments, including cash and money market,
deferred incentive fees payable, accrued interest, accounts payable and other
liabilities.
Portfolio
investments are recorded at fair value. The consolidated schedule of investments
discloses the applicable fair value and cost for each security investment, which
aggregated to $16,704,954 and $18,349,307, respectively, at September 30,
2007.
|
|
(i)
|
Regulations
|
As an
SBIC during fiscal 2007, MorAmerica Capital was required to comply with the
regulations of the SBA (“SBA Regulations”). As of December 19, 2007,
MorAmerica Capital is no longer subject to SBA Regulations, having paid in full
all outstanding SBA debt and voluntarily surrendering its license to operate as
an SBIC.
|
|
(j)
|
Recent
Accounting Pronouncements
|
In
September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements." This statement defines fair value, establishes a
framework for measuring fair value in U.S. generally accepted accounting
principles (GAAP), and expands disclosures about fair value measurements. The
provisions of SFAS No. 157 are effective as of the beginning of the first fiscal
year that begins after November 15, 2007. We are evaluating the effect, if any,
the adoption of SFAS No. 157 will have on our consolidated financial
statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities including an amendment of FASB
Statement No. 115.” This statement permits entities to choose to
measure many financial instruments and certain other items at fair
value. The provisions of SFAS No. 159 are effective as of the
beginning of the first fiscal year that begins after November 15,
2007. We are evaluating the effect, if any, the adoption of SFAS No.
159 will have on our consolidated financial statements.
MACC
PRIVATE EQUITIES INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
In June
2007, the AICPA issued Statement of Position 07-1, “Clarification of the Scope
of the Audit and Accounting Guide” Investment Companies and “Accounting by
Parent Companies and Equity Method Investors for Investments in Investment
Companies.” SOP 07-1 provides guidance for determining whether
an entity is within the scope of the AICPA Audit and Accounting Guide,
“Investment Companies.” Statement of Position 07-1 is effective for
financial statements issued for fiscal years beginning on or after December 15,
2007.
|
(2)
|
LOANS
AND INVESTMENTS IN PORTFOLIO
SECURITIES
|
Loans and
investments in portfolio securities include debt and equity securities in small
business concerns located throughout the continental United States, with a
concentration in the Midwest. The Company determined that the fair value of its
portfolio securities was $16,704,954 at September 30, 2007.
The
Company acquired its portfolio securities by direct purchase from the issuers
under investment representation and values the securities on the premise that,
in most instances, they may not be sold without registration under the
Securities Act of 1933. The price of securities purchased was determined by
direct negotiation between the Company and the seller. All portfolio securities
are considered to be restricted in their disposition and illiquid at September
30, 2007.
|
(3)
|
NOTES
PAYABLE
|
MorAmerica
Capital repaid its SBA guaranteed debentures by entering into a term loan in the
amount of $6,250,000 with Cedar Rapids Bank & Trust Company during fiscal
2007. This note is a variable interest rate note secured by a
Security Agreement, Commercial Pledge Agreement and a Master Business Loan
Agreement. The note has a stated maturity of August 28,
2009.
MorAmerica
Capital has also obtained a revolving line of credit of $500,000 from Cedar
Rapids Bank & Trust Company for the purpose of providing working
capital. As of September 30, 2007, $0 were drawn on this line of
credit. Availability of these funds will terminate on August 29,
2009. Principal will be payable in one payment on August 28,
2009.
|
(4)
|
INCOME
TAXES
|
Income
tax expense differed from the amounts computed by applying the United States
federal income tax rate of 34% to pretax loss due to the following (rounded to
thousands):
|
Computed
“expected” tax expense
|
$ | (57,000 | ) | |
|
Increase
(reduction) in income taxes resulting from:
|
||||
|
Nontaxable
dividend income
|
(24,000 | ) | ||
|
Decrease
in excess tax accrual
|
(70,000 | ) | ||
|
Change
in the beginning of the period valuation allowance for deferred tax
assets
|
81,000 | |||
|
Income
tax expense/(benefit)
|
$ | (70,000 | ) |
The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets at September 30, 2007 are as follows (rounded to
thousands):
|
Deferred
tax assets:
|
||||
|
Net
operating and capital loss carryforwards
|
$ | 7,289,000 | ||
|
Unrealized
depreciation on investments
|
1,070,000 | |||
|
Other
|
644,000 | |||
|
Total
gross deferred tax assets
|
9,003,000 | |||
|
Less
valuation allowance
|
(8,904,000 | ) | ||
|
Net
deferred tax assets
|
99,000 | |||
|
Deferred
tax liabilities:
|
||||
|
Equity
investments
|
22,000 | |||
|
Other
assets received in lieu of cash
|
(121,000 | ) | ||
|
Net
deferred tax assets
|
$ | --- | ||
MACC
PRIVATE EQUITIES INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
The net
change in the total valuation allowance for the year ended September 30, 2007
was an increase of $96,000. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers projected future taxable income and tax
planning strategies in making this assessment. In order to fully realize the
gross deferred tax assets, the Company will need to generate future taxable
income of approximately $20 million prior to the expiration of the loss
carryforwards in 2008-2025.
At
September 30, 2007, the Company has net operating and capital loss carryforwards
for federal income tax purposes of approximately $18 million, which are
available to offset future federal taxable income, if any, through
2025. Approximately $16.5 million of the carryforwards are available
for the year ending September 30, 2008.
|
(5)
|
MANAGEMENT
AGREEMENTS
|
|
(a)
|
MACC
|
MACC has
an investment advisory agreement (the “Agreement”) with InvestAmerica Investment
Advisors, Inc. (“IAIA”). Three of MACC’ officers are officers and
stockholders of IAIA. The management fee is equal to an annual rate
of 1.5% of Assets Under Management (as defined in the Agreement), payable in
arrears. The management fee is calculated excluding assets managed for
MorAmerica Capital. In addition to the management fee, MACC contracted to pay an
incentive fee of 13.4% of MACC Net Capital Gains (as defined in the Agreement),
before taxes. The Agreement may be terminated by either party upon
sixty days’ written notice. Total management fees under the Agreement amounted
to $735 for the year ended September 30, 2007. There were no incentive fees
accrued or paid under the Agreement in 2007.
|
|
(b)
|
MorAmerica
Capital
|
MorAmerica
Capital has a separate investment advisory agreement (the MorAmerica Capital
Agreement) with IAIA. The MorAmerica Capital Agreement may be terminated by
either party upon sixty days written notice. Under the MorAmerica
Capital Agreement, the management fee is equal to 1.5% of the Capital Under
Management (as defined in the MorAmerica Capital Agreement) on an annual basis,
but in no event more than 1.5% per annum of the Assets Under Management (as
defined in the MorAmerica Capital Agreement), payable in arrears. In
addition to the management fee, MorAmerica Capital contracted to pay IAIA 13.4%
of the net Capital Gains (as defined in the MorAmerica Capital Agreement),
before taxes, on investments in the form of an incentive fee. Capital
losses and realized capital gains are not cumulative under the incentive fee
computation. Payments for incentive fees resulting from noncash gains are
deferred until the assets are sold. Total management fees under the MorAmerica
Capital Agreement amounted to $330,890 for the year ended September 30, 2007.
Incentive fees earned and paid under the MorAmerica Capital Agreement were
$143,732 and $0, respectively, for the year ended September 30,
2007. Included in incentive fees earned of $143,732 are approximately
$27,617 of incentive fees related to noncash gains which are being deferred as
described above.
As a
condition to the approval by the SBA of the MorAmerica Capital Agreement, the
SBA required, and MorAmerica Capital entered into, a subordination agreement
among it, the SBA and IAIA (the “Subordination Agreement”) effective July 21,
2005 providing that MorAmerica Capital’s payment to IAIA, and IAIA’s receipt of,
incentive fees be subordinated to MorAmerica Capital’s repayment of all
obligations owing to the SBA. Those obligations included the
repayment of all outstanding SBA debentures and MorAmerica Capital’s agreement,
along with certain other SBA licensees, to reimburse the SBA for any losses the
SBA may incur in connection with the settlement of an arbitration proceeding
which was concluded in late 2004 (collectively, the
“Obligations”). The Subordination Agreement provided that: (i)
MorAmerica Capital may not pay IAIA incentive fees unless and until MorAmerica
Capital’s Obligations to the SBA are satisfied, and (ii) to the extent (A) the
incentive fees have been escrowed under the MorAmerica Capital Agreement because
MorAmerica Capital’s capital has been impaired as provided in Section 5.2(c)(ii)
of the MorAmerica Capital Agreement, and (B) MorAmerica Capital is delinquent in
repaying the SBA any amounts respecting SBA debentures, the SBA may require
MorAmerica Capital to pay any so escrowed funds to the SBA to satisfy any
arrearage respecting SBA debentures. The Subordination Agreement did
not, however, affect: (i) IAIA’s ability to earn the incentive fees, (ii)
MorAmerica Capital’s payment to IAIA of management fees under the MorAmerica
Capital Agreement, or (iii) any other terms of the MorAmerica Capital
Agreement. At September 30, 2007, MorAmerica Capital had repaid its
outstanding SBA debentures. As of November 7, 2007, all of the
Obligations have been paid in full, the Subordination Agreement has been
terminated and on November 30, 2007 all MorAmerica Incentive Fees that
previously had been escrowed were disbursed to IAIA.
MACC
PRIVATE EQUITIES INC. AND SUBSIDIARY
Condensed
Consolidated Balance Sheets
|
June 30, 2008
(Unaudited)
|
September 30, 2007
|
|||||||
|
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 345,967 | 822,295 | |||||
|
Loans
and investments in portfolio securities, at market or fair
value:
|
||||||||
|
Unaffiliated
companies (cost of $2,281,494 and $2,301,385)
|
1,637,026 | 2,095,665 | ||||||
|
Affiliated
companies (cost of $12,270,802 and $13,007,879)
|
10,804,221 | 11,595,183 | ||||||
|
Controlled
companies (cost of $2,979,106 and $3,040,043)
|
2,490,150 | 3,014,106 | ||||||
|
Interest
receivable
|
312,237 | 268,598 | ||||||
|
Other
assets
|
301,630 | 212,940 | ||||||
|
Total
assets
|
$ | 15,891,231 | 18,008,787 | |||||
|
Liabilities
and net assets
|
||||||||
|
Liabilities:
|
||||||||
|
Note
payable
|
$ | 4,855,661 | 6,108,373 | |||||
|
Incentive
fees payable
|
23,061 | 252,130 | ||||||
|
Accounts
payable and other liabilities
|
189,014 | 127,474 | ||||||
|
Total
liabilities
|
5,067,736 | 6,487,977 | ||||||
|
Net
assets:
|
||||||||
|
Common
stock, $.01 par value per share; authorized 10,000,000 shares; issued and
outstanding 2,464,621 shares
|
24,646 | 24,646 | ||||||
|
Additional
paid-in-capital
|
13,398,854 | 13,140,517 | ||||||
|
Unrealized
depreciation on investments
|
(2,600,005 | ) | (1,644,353 | ) | ||||
|
Total
net assets
|
10,823,495 | 11,520,810 | ||||||
|
Total
liabilities and net assets
|
$ | 15,891,231 | 18,008,787 | |||||
|
Net
assets per share
|
$ | 4.39 | 4.67 | |||||
See
accompanying notes to unaudited condensed consolidated financial
statements.
MACC
PRIVATE EQUITIES INC. AND SUBSIDIARY
Condensed
Consolidated Statements of Operations
(Unaudited)
|
For the three months ended June 30,
2008
|
For the three months ended June 30,
2007
|
For the nine months ended June 30,
2008
|
For the nine months ended June 30,
2007
|
|||||||||||||
|
Investment
income:
|
||||||||||||||||
|
Interest
|
||||||||||||||||
|
Unaffiliated
companies
|
$ | 8,263 | 12,394 | 25,189 | 41,727 | |||||||||||
|
Affiliated
companies
|
101,248 | 144,720 | 407,061 | 415,740 | ||||||||||||
|
Controlled
companies
|
8,952 | 29,129 | 39,942 | 89,029 | ||||||||||||
|
Other
|
72 | 13,495 | 2,341 | 74,064 | ||||||||||||
|
Dividends
|
||||||||||||||||
|
Affiliated
companies
|
163,326 | 53,414 | 261,624 | 99,862 | ||||||||||||
|
Other
income
|
--- | --- | 6 | --- | ||||||||||||
|
Total
investment income
|
281,861 | 253,152 | 736,163 | 720,422 | ||||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Interest
expenses
|
93,377 | 158,695 | 330,304 | 560,527 | ||||||||||||
|
Management
fees
|
75,107 | 78,159 | 205,200 | 251,119 | ||||||||||||
|
Professional
fees
|
99,263 | 26,830 | 353,959 | 165,082 | ||||||||||||
|
Other
|
94,274 | 66,908 | 245,903 | 234,878 | ||||||||||||
|
Total
operating expenses
|
362,021 | 330,592 | 1,135,366 | 1,211,606 | ||||||||||||
|
Investment
expense, net
|
(80,160 | ) | (77,440 | ) | (399,203 | ) | (491,184 | ) | ||||||||
|
Realized
and unrealized gain (loss) on investments and other
assets:
|
||||||||||||||||
|
Net
realized gain on investments:
|
||||||||||||||||
|
Unaffiliated
companies
|
101,616 | 309,357 | 107,109 | 213,377 | ||||||||||||
|
Affiliated
companies
|
584,431 | --- | 584,431 | --- | ||||||||||||
|
Net
change in unrealized appreciation/depreciation on
investments
|
(34,322 | ) | 270,950 | (955,652 | ) | 750,307 | ||||||||||
|
Net
change in unrealized gain on other assets
|
(40,628 | ) | (25,686 | ) | (34,000 | ) | --- | |||||||||
|
Net
gain (loss) on investments
|
611,097 | 554,621 | (298,112 | ) | 963,684 | |||||||||||
|
Net
change in net assets from operations
|
$ | 530,937 | 477,181 | (697,315 | ) | 472,500 | ||||||||||
See
accompanying notes to unaudited condensed consolidated financial
statements.
MACC
PRIVATE EQUITIES INC. AND SUBSIDIARY
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
For the nine months ended June 30,
2008
|
For the nine months ended June 30,
2007
|
|||||||
|
Cash
flows (used in) from operating activities:
|
||||||||
|
Net
change in net assets from operations
|
$ | (697,315 | ) | 472,500 | ||||
|
Adjustments
to reconcile net change in net assets from operations to net cash provided
by operating activities:
|
||||||||
|
Net
realized and unrealized loss (gain) on investments
|
264,112 | (750,307 | ) | |||||
|
Net
realized and unrealized loss (gain) on other assets
|
34,000 | (213,377 | ) | |||||
|
Proceeds
from disposition of and payments on loans and investments in portfolio
securities
|
1,561,445 | 1,052,031 | ||||||
|
Purchases
of loans and investments in portfolio securities
|
(52,000 | ) | (65,000 | ) | ||||
|
Change
in interest receivable
|
(43,639 | ) | 160,663 | |||||
|
Change
in other assets
|
(122,690 | ) | 894,105 | |||||
|
Change
in accrued interest, deferred incentive fees payable,accounts payable and
other liabilities
|
(167,529 | ) | 118,958 | |||||
|
Net
cash provided by operating activities
|
776,384 | 1,669,573 | ||||||
|
Cash
flows from financing activities:
|
||||||||
|
Note
repayment
|
(1,252,712 | ) | --- | |||||
|
Debt
repayment
|
--- | (2,000,000 | ) | |||||
|
Net
cash used in financing activities
|
(1,252,712 | ) | (2,000,000 | ) | ||||
|
Net
decrease in cash and cash equivalents
|
(476,328 | ) | (330,427 | ) | ||||
|
Cash
and cash equivalents at beginning of period
|
822,295 | 2,132,350 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 345,967 | 1,801,923 | |||||
|
Supplemental
disclosure of cash flow information -
|
||||||||
|
Cash
paid during the period for interest
|
$ | 318,103 | 369,075 | |||||
|
Supplemental
disclosure of noncash investing and
|
||||||||
|
Financing
information -
|
||||||||
|
Assets
received in exchange of securities
|
$ | --- | 84,000 | |||||
See
accompanying notes to unaudited condensed consolidated financial
statements.
MACC
PRIVATE EQUITIES INC.
Notes
to Unaudited Condensed Consolidated Financial Statements
|
(1)
|
Basis
of Presentation
|
The
accompanying unaudited condensed consolidated financial statements include the
accounts of MACC Private Equities Inc. (“MACC,” “we” or “us”) and our
wholly-owned subsidiary MorAmerica Capital Corporation (“MorAmerica Capital”)
which have been prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”) for investment
companies. All material intercompany accounts and transactions have
been eliminated in consolidation. Effective April 30, 2008,
MorAmerica Capital was merged with and into MACC (the “Merger”). As
a result of the Merger, MACC has assumed all of MorAmerica Capital’s assets and
liabilities. Because MorAmerica was a wholly-owned subsidiary of MACC
prior to the Merger, the Merger had no impact on the consolidated financial
statements.
The
financial statements included herein have been prepared in accordance with GAAP
for interim financial information and instructions to Form 10-Q and Article 6 of
Regulation S-X. The financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of MACC
Private Equities Inc. and MorAmerica Capital as of and for the year ended
September 30, 2007. The information reflects all adjustments
consisting of normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the results of operations for
the interim periods. The results of the interim period reported are
not necessarily indicative of results to be expected for the
year. The balance sheet information as of September 30, 2007 has been
derived from the audited balance sheet as of that date.
|
(2)
|
Critical
Accounting Policy
|
Investments
in securities that are traded in on a stock exchange are valued based on the
last quoted sale price on the valuation date (or if no sales occurred on the
valuation date, the closing bid price on that date). Securities
traded on the over-the-counter market are valued by taking the bid price on the
valuation date. Restricted and other securities for which quotations
are not readily available are valued at fair value as determined by our Board of
Directors. Among the factors considered in determining the fair value
of investments are the cost of the investment; developments, including recent
financing transactions, since the acquisition of the investment; financial
condition and operating results of the investee; the long-term potential of the
business of the investee; market interest rates for similar debt securities;
overall market conditions and other factors generally pertinent to the valuation
of investments. However, because of the inherent uncertainty of
valuation, those estimated values may differ significantly from the values that
would have been used had a ready market for the securities existed, and the
differences could be material.
In the
valuation process, we use financial information received monthly, quarterly, and
annually from our portfolio companies which includes both audited and unaudited
financial statements. This information is used to determine financial
condition, performance, and valuation of the portfolio investments.
Realization
of the carrying value of investments is subject to future
developments. Investment transactions are recorded on the trade date
and identified cost is used to determine realized gains and
losses. Under the provisions of SOP 90-7, the fair value of loans and
investments in portfolio securities on February 15, 1995, the fresh-start date,
is considered the cost basis for financial statement purposes.
MACC
PRIVATE EQUITIES INC.
Notes
to Unaudited Condensed Consolidated Financial Statements
|
(3)
|
Financial
Highlights (Unaudited)
|
|
For the nine months ended June 30,
2008
|
For the nine months ended June 30,
2007
|
|||||||
|
Per
Share Operating Performance
|
||||||||
|
(For
a share of capital stock outstanding throughout the
period):
|
||||||||
|
Net
asset value, beginning of period
|
$ | 4.67 | 4.71 | |||||
|
Income
from investment operations:
|
||||||||
|
Investment
expense, net
|
(0.16 | ) | (0.19 | ) | ||||
|
Net
realized and unrealized gain (loss) on investment
transactions
|
(0.12 | ) | 0.39 | |||||
|
Total
from investment operations
|
(0.28 | ) | 0.20 | |||||
|
Net
asset value, end of period
|
$ | 4.39 | 4.91 | |||||
|
Closing
bid price
|
$ | 2.15 | 2.30 | |||||
|
For the nine months ended June 30,
2008
|
For the nine months ended June 30,
2007
|
|||||||
|
Total
return:
|
||||||||
|
Net
asset value basis
|
(6.05 | ) % | 4.07 | |||||
|
Market
price basis
|
(12.24 | ) % | 29.21 | |||||
|
Net
asset value, end of period (in
thousands)
|
$ | 10,823 | 12,091 | |||||
|
Ratio
to weighted average net assets:
|
||||||||
|
Investment
expense, net
|
3.68 | % | 4.23 | |||||
|
Operating
and income tax expense
|
10.48 | % | 10.42 | |||||
The
ratios of investment expense, net to average net assets, of operating and income
tax expenses to average net assets and total return are calculated for common
stockholders as a class. Total return, which reflects the annual
change in net assets, was calculated using the weighted average change in net
assets between the beginning of the current fiscal year and end of the current
year period. An individual common stockholders’ return may vary from
these returns.
|
(4)
|
Recent
Accounting Pronouncements
|
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This
statement defines fair value, establishes a framework for measuring fair value
in GAAP, and expands disclosures about fair value measurements. The provisions
of SFAS No. 157 are effective as of the beginning of the first fiscal year that
begins after November 15, 2007. We are evaluating the effect, if any,
the adoption of SFAS 157 will have on our consolidated financial
statements.
In
February 2007 the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement No.
115.” This statement permits entities to choose to measure many financial
instruments and certain other items to be measured at fair value. The
provisions of SFAS No. 159 are effective as of the beginning of the first fiscal
year that begins after November 15, 2007. We are evaluating the
effect, if any, the adoption of SFAS 159 will have on our consolidated financial
statements.
In June
2007, the AICPA issued Statement of Position 07-1, “Clarification of the Scope
of the Audit and Accounting Guide Investment Companies and
Accounting by Parent Companies and Equity Method Investors for Investments in
Investment Companies.” SOP 07-1 provides guidance for determining
whether an entity is within the scope of the AICPA Audit and Accounting Guide
Investment
Companies. Statement of Position 07-1 is effective for
financial statements issued for fiscal years beginning on or after December 15,
2007. We are evaluating the effect, if any, the adoption of SOP 07-1
will have on our consolidated financial statements.
MACC
PRIVATE EQUITIES INC.
____________________________
STATEMENT
OF ADDITIONAL INFORMATION
____________________________
___,
2008
Part
C — Other Information
Item
25. Financial
Statements and Exhibits
|
|
1.
|
Financial
Statements:
|
The
Registrant’s financial statements, as follows, are filed herewith: (i) audited
consolidated balance sheet, consolidated statement of operations, consolidated
statements of changes in net assets and consolidated statements of cash flows,
all dated September 30, 2007, including notes to the financial statements and
report of the Registrant’s independent registered public accounting firm
thereon; and (ii) unaudited consolidated condensed statements of operations and
condensed consolidated statements of cash flows, each dated June 30, 2008,
including notes to the financial statements. The Registrant’s
unaudited consolidated condensed statements of operations and condensed
consolidated statements of cash flows, dated June 30, 2008, including notes to
the financial statements, will be filed with a pre-effective amendment to the
Registrant’s Registration Statement.
|
|
2.
|
Exhibits:
|
|
Exhibit No.
|
Description of Document
|
|
a.
|
Certificate
of Incorporation, as amended (incorporated by reference to Registrant’s
Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1997 filed May 14, 1997, File No. 000-24412)
|
|
b.
|
Second
Amended and Restated Bylaws (incorporated by reference to exhibit 3(ii) of
Registrant’s Current Report on Form 8-K filed March 4, 2008, File No.
814-00150)
|
|
c.
|
Inapplicable
|
|
d.1
|
Form
of Subscription Certificate †
|
|
d.2
|
Form
of Notice of Guaranteed Delivery for Shares of Common
Stock†
|
|
e.
|
Inapplicable
|
|
f.1
|
Business
Loan Agreement dated August 30, 2007 with Cedar Rapids Bank and Trust
Company, as amended by Omnibus Amendment Consent and
Waiver dated as of April 29, 2008 (incorporated by reference to
exhibit 10(i).1 of Registrant’s Current Report on Form 8-K filed September
6, 2007, File No. 814-00150)
|
|
f.2
|
Commercial
Pledge and Security Agreement dated August 30, 2007 with Cedar Rapids Bank
and Trust Company, as amended by
Omnibus Amendment Consent and Waiver dated as of
April 29, 2008 (incorporated by reference to exhibit 10(i).3 of
Registrant’s Current Report on Form 8-K filed September 6, 2007 File No.
814-00150)
|
|
f.3
|
Commercial
Security Agreement dated August 30, 2007 with Cedar Rapids Bank and Trust
Company, as amended by Omnibus Amendment Consent and Waiver dated as of
April 29, 2008 (incorporated by reference to exhibit 10(i).4 of
Registrant’s Current Report on Form 8-K filed September 6, 2007, File No.
814-00150)
|
|
f.4
|
Promissory
Note dated August 30, 2007 in favor of Cedar Rapids Bank and Trust
Company, as amended by Omnibus Amendment Consent and Waiver
dated as of April 29, 2008 (incorporated by reference to
exhibit 10(i).5 of Registrant’s Current Report on Form 8-K filed September
6, 2007, File No. 814-00150)
|
|
f.5
|
Promissory
Note dated August 30, 2007 in favor of Cedar Rapids Bank and Trust
Company, as amended by Omnibus Amendment Consent and
Waiver dated as of April 29, 2008 (incorporated by reference to
exhibit 10(i).6 of Registrant’s Current Report on Form 8-K filed September
6, 2007, File No. 814-00150)
|
|
f.6
|
Omnibus Amendment Consent
and Waiver dated as of April 29, 2008 among MACC Private Equities
Inc., MorAmerica Capital Corporation and
Cedar Rapids Bank and
Trust (incorporated by reference to
Exhibit 10.3 of Registrant’s Current Report on Form 8-K filed May 1, 2008,
File No. 814-00150)
|
|
g.1
|
Investment
Advisory Agreement with Eudaimonia Asset Management, LLC dated April 29,
2008 (incorporated by reference to exhibit 10.1 of Registrant’s Current
Report on Form 8-K filed May 1, 2008, File No.
814-00150)
|
|
g.2
|
Investment
Subadvisory Agreement with InvestAmerica Investment Advisors, Inc. dated
April 29, 2008 (incorporated by reference to exhibit 10.2 of Registrant’s
Current Report on Form 8-K filed May 1, 2008, File No.
814-00150)
|
|
h.
|
Inapplicable
|
|
i.
|
Inapplicable
|
|
j.1
|
Safekeeping
Agreement with Cedar Rapids Bank and Trust Company dated September 1, 2007
(incorporated by reference to exhibit 10(i).9 of Registrant’s Current
Report on Form 8-K filed September 6, 2007, File No.
814-00150)
|
|
j.2
|
Custody
Agreement with U.S. Bank National Association †
|
|
j.3
|
Form
of Information and Subscription Agent Agreement
|
|
k.1
|
Inapplicable
|
|
l.
|
Opinion
of Husch Blackwell Sanders LLP †
|
|
m.
|
Inapplicable
|
|
n.
|
Consent
of Independent Registered Public Accounting Firm
†
|
|
o.
|
Inapplicable
|
|
p.1
|
Inapplicable
|
|
q.
|
Inapplicable
|
|
r.1
|
Code
of Ethics of the Company (incorporated by reference to Registrant’s Annual
Report on Form 10-K for the period ended September 30, 2006 filed December
28, 2006, File No. 814-00150)
|
|
r.2
|
Code
of Ethics of Eudaimonia Asset Management, LLC
|
|
r.3
|
Code
of Ethics of InvestAmerica Investment Advisors,
Inc.
|
_____________________________
|
†
|
To
be filed by amendment.
|
Item
26. Marketing
Arrangements
None.
Item
27. Other Expenses
and Distribution
The
following table sets forth the estimated expenses to be incurred in connection
with the offering described in this Registration Statement:
|
FINRA
filing fee
|
$ | -- | ||
|
Securities
and Exchange Commission fees
|
$ | * | ||
|
Nasdaq
Capital Market Listing Fees
|
$ | * | ||
|
Directors’
fees and expenses
|
$ | -- | ||
|
Accounting
fees and expenses
|
$ | -- | ||
|
Legal
fees and expenses
|
$ | 30,000 | ||
|
Printing
expenses
|
$ | 10,000 | ||
|
Information
and Subscription Agent’s fees and expenses
|
$ | 30,000 | ||
|
Miscellaneous
|
$ | 9,000 | ||
|
Total
|
$ | * |
____________
|
|
*
|
To
be filed by amendment
|
Item
28. Persons
Controlled by or Under Common Control
As our
investment advisers, EAM, a California limited liability company located at 580
Second Street, Suite 102, Encinitas, California 92024, and InvestAmerica, a
Delaware corporation located at 101 Second Street S.E., Suite 800, Cedar Rapids
IA 52401, are deemed to control us.
Control
over 804,689 shares of our Common Stock, representing 32.65% of our outstanding
Shares as of August 15, 2008 (the “BIG Shares”) owned by
Bridgewater International Group, LLC, a Utah limited liability company located
at 10500 South 1300 West, South Jordan, Utah 84095 (“BIG”) is governed by
a Shareholder and Voting Agreement dated September 29, 2003 among Atlas
Management Partners, LLC, a Utah limited liability company located at One South
Main Street, Sutie 1660, Salt Lake City, Utah 84133 (“Atlas”), BIG and Mr.
Kent Madsen (the “Shareholder
Agreement”). Under the Shareholder Agreement, BIG appointed
Atlas as its limited proxy to vote the BIG Shares, but BIG retains all other
incidents of ownership of the stock, including beneficial ownership and
dispositive power. The Shareholder Agreement also provides Atlas with
certain rights of first refusal respecting the BIG Shares and limits BIG’s
ability to otherwise dispose of the BIG Shares. Pursuant to a Mutual
Release and Waiver of Claims and Termination of Shareholder and Voting
Agreements among Atlas, BIG and the former managers of Atlas dated April 28,
2005, certain former managers of Atlas, including Geoffrey Woolley (the Chairman
of MACC’s Board) and Kent Madsen, no longer have any interests in Atlas and have
no voting rights respecting the BIG Shares.
As voting
Managing Director of Atlas, Mr. Timothy Bridgewater has shared control over the
voting power granted to Atlas under the Shareholder Agreement respecting the BIG
Shares, subject to the parties’ rights under the Shareholder
Agreement. Mr. Bridgewater is also Managing Director of BIG and in
that capacity has shared control over the voting power granted to Atlas under
the Shareholder Agreement respecting the BIG Shares, subject to the parties’
rights under the Shareholder Agreement. Mr. Bridgewater also
individually owns 13,100 shares of Common Stock, according to reports Mr.
Bridgewater has filed with the SEC pursuant to Section 16(a) of the Exchange
Act. As the sole Managing Member of BIG, Mr. Sumet Jiaravanon has
shared control over the voting power granted to Atlas under the Shareholder
Agreement respecting the BIG Shares, subject to the parties’ rights under the
Shareholder Agreement. BIG is a wholly-owned subsidiary of Aleksin, a
corporation organized under the laws of the British Virgin
Islands. Aleksin is a wholly-owned subsidiary of Maze Industrial Ltd.
(“Maze”), a
corporation organized under the laws of the British Virgin
Islands. Maze is 100% owned by Sumet Jiaravanon, an
individual.
Item
29. Number of
Holders of Securities
As of __,
2008, the number of record holders of each class of securities of the Registrant
was:
|
Title of
Class
|
Number of Record
Holders
|
|
Common
Stock ($.01 par value)
|
__
|
Item
30. Indemnification
Section
102 of Delaware General Corporation Law allows a corporation to eliminate the
personal liability of directors of a corporation to the corporation or to any of
its stockholders for monetary damage for a breach of his fiduciary duty as a
director, except in the case where the director breached his duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or knowingly
violated a law, authorized the payment of a dividend or approved a stock
repurchase in violation of Delaware corporate law or obtained an improper
personal benefit. Our Certificate of Incorporation and Bylaws,
contain a provision that eliminates directors’ personal liability as set forth
above, except in cases of a director’s willful misfeasance, bad faith, gross
negligence or reckless disregard of such director’s duties involved in the
conduct of the office of director.
Section
145 of Delaware General Corporation Law gives Delaware corporations broad powers
to indemnify their present and former directors and officers and those of
affiliated corporations against expenses incurred in the defense of any lawsuit
to which they are made parties by reason of being or having been such directors
or officers, subject to specified conditions and exclusions, gives a director or
officer who successfully defends an action the right to be so indemnified. Such
indemnification is not exclusive of any other right to which those indemnified
may be entitled under any bylaw, agreement, vote of stockholders or otherwise.
Our Certificate of Incorporation and Bylaws, provide for indemnification
authorized by Section 145 of the Delaware General Corporation Law, except to the
extent that a person has committed willful misfeasance, bad faith, gross
negligence or reckless disregard in the conduct of such person’s duties to or
for us.
Our
obligation to indemnify any director, officer or other individual, however, is
limited by the 1940 Act and Investment Company Act Release No. 11330, which,
among other things, prohibit us from indemnifying any Director, officer or other
individual from any liability resulting directly from the willful misconduct,
bad faith, gross negligence in the performance of duties or reckless disregard
of applicable obligations and duties of the directors, officers or other
individuals and require us to set forth reasonable and fair means for
determining whether indemnification shall be made.
Item
31. Business and
Other Connections of Investment Adviser
Byron
Roth serves on EAM’s Board of Managers and is also an officer and Manager of
RCP, which owns a 49% interest in EAM. Gordon Roth serves on EAM’s
Board of Managers and is also an officer of RCP.
The
InvestAmerica Portfolio Managers also serve in various capacities with the
following companies which are under common control with or are affiliated with
InvestAmerica: InvestAmerica Venture Group, Inc. (provides management and
investment services to a private investment partnership, the Iowa Venture
Capital Fund, L.P.); InvestAmerica N.D. Management, Inc. (provides management
and investment services to NDSBIC, L.P., an SBIC); InvestAmerica ND, L.L.C.
(general partner of NDSBIC, L.P.); InvestAmerica L&C Management, Inc.
(provides management and investment services to Lewis & Clark Private
Equities, L.P., an SBIC (“Lewis”));
InvestAmerica L&C, LLC (general partner of Lewis); InvestAmerica NW
Management, Inc. (provides management and investment services to Invest
Northwest, L.P. (“NWLP”) (private
venture capital fund); and InvestAmerica NW, LLC (general partner of
NWLP).
Item
32. Location of
Accounts and Records
The
Registrant’s accounts, books, and other documents are maintained at the offices
of the Registrant, at the offices of the Registrant’s investment adviser,
Eudaimonia Asset Management, LLC, 580 Second Street, Suite 102, Encinitas,
California 92024; at the offices of the custodians, Cedar Rapids Bank and Trust,
500 1st Ave.
NE, Suite 100, Cedar Rapids, IA 52401 and U.S. Bank National Association,
______; and at the offices of the transfer agent, BNY Mellon Shareowner
Services, 480 Washington Boulevard, 27th Floor,
Jersey City, New Jersey 07310.
Item
33. Management
Services
Not
applicable.
Item
34. Undertakings
1. The
Registrant undertakes to suspend the Offering until the Prospectus is amended if
(1) subsequent to the effective date of its registration statement, the net
asset value declines more than ten percent from its net asset value as of the
effective date of the registration statement or (2) the net asset value
increases to an amount greater than its net proceeds as stated in the
Prospectus.
|
|
2.
|
Not
applicable.
|
|
|
3.
|
Not
applicable.
|
|
|
4.
|
The
Registrant undertakes
|
(a)
to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(1) to
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(2) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and
(3) to
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
|
(b)
|
that,
for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of those securities at that time shall be deemed to be the
initial bona fide offering thereof;
and
|
|
(c)
|
to
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
|
5. The
Registrant is filing this Registration Statement pursuant to Rule 430A under the
1933 Act and undertakes that: (a) for the purposes of determining any liability
under the 1933 Act, the information omitted from the form of Prospectus filed as
part of a registration statement in reliance upon Rule 430A and contained in the
form of Prospectus filed by the Registrant under Rule 497(h) under the 1933 Act
shall be deemed to be part of the Registration Statement as of the time it was
declared effective; (b) for the purpose of determining any liability under the
1933 Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering thereof.
6. The
Registrant undertakes to send by first class mail or other means designed to
ensure equally prompt delivery, within two business days of receipt of an oral
or written request, its Statement of Additional Information.
7. Insofar
as indemnification for liability arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in this City of Encinitas and State of
California on the 11th day of September, 2008.
|
MACC
Private Equities Inc.
|
||
|
By:
|
/s/ Travis
Prentice
|
|
|
Travis
Prentice,
|
||
|
President
and CEO
|
||
The
undersigned directors and officers of MACC Private Equities Inc. hereby
constitute and appoint Travis Prentice and Derek Gaertner our true and lawful
attorney-in-fact with full power to execute in our name and behalf, in the
capacities indicated below, this Registration Statement on Form N-2 and any and
all amendments thereto, including post-effective amendments to the Registration
Statement and to sign any and all additional registration statements relating to
the same offering of securities as this Registration Statement that are filed
pursuant to Rule 462(b) of the Securities Act of 1933, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and thereby ratify and confirm that such
attorney-in-fact shall lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the date
indicated.
|
Name
|
Title
|
Date
|
||
|
/s/ Derek Gaertner
|
Chief
Financial Officer and Chief Compliance Officer
|
September
11, 2008
|
||
|
Derek
Gaertner
|
(Principal
Financial and Accounting Officer)
|
|||
|
/s/ Travis Prentice
|
President
and CEO
|
September
11, 2008
|
||
|
Travis
Prentice
|
(Principal
Executive Officer)
|
|||
|
/s/ Michael W. Dunn
|
Director
|
September
11, 2008
|
||
|
Michael
W. Dunn
|
||||
|
/s/ James W. Eiler
|
Director
|
September
11, 2008
|
||
|
James
W. Eiler
|
||||
|
/s/ Benjamin Jiaravanon
|
Director
|
September
11, 2008
|
||
|
Benjamin
Jiaravanon
|
||||
|
/s/ Gordon J. Roth
|
Director
|
September
11, 2008
|
||
|
Gordon
J. Roth
|
||||
|
/s/ Geoffrey T. Woolley
|
Chairman
of the Board
|
September
11, 2008
|
||
|
Geoffrey
T. Woolley
|
Exhibit
Index
|
Exhibit No.
|
Description of Document
|
|
a.
|
Certificate
of Incorporation, as amended (incorporated by reference to Registrant’s
Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1997 filed May 14, 1997, File No. 000-24412)
|
|
Second
Amended and Restated Bylaws (incorporated by reference to exhibit 3(ii) of
Registrant’s Current Report on Form 8-K filed March 4, 2008, File No.
814-00150)
|
|
|
c.
|
Inapplicable
|
|
Form
of Subscription Certificate †
|
|
|
d.2
|
Form
of Notice of Guaranteed Delivery for Shares of Common
Stock†
|
|
e.
|
Inapplicable
|
|
f.1
|
Business
Loan Agreement dated August 30, 2007 with Cedar Rapids Bank and Trust
Company, as amended by Omnibus Amendment Consent and
Waiver dated as of April 29, 2008 (incorporated by reference to
exhibit 10(i).1 of Registrant’s Current Report on Form 8-K filed September
6, 2007, File No. 814-00150)
|
|
f.2
|
Commercial
Pledge and Security Agreement dated August 30, 2007 with Cedar Rapids Bank
and Trust Company, as amended by
Omnibus Amendment Consent and Waiver dated as of
April 29, 2008 (incorporated by reference to exhibit 10(i).3 of
Registrant’s Current Report on Form 8-K filed September 6, 2007 File No.
814-00150)
|
|
f.3
|
Commercial
Security Agreement dated August 30, 2007 with Cedar Rapids Bank and Trust
Company, as amended by Omnibus Amendment Consent and Waiver dated as of
April 29, 2008 (incorporated by reference to exhibit 10(i).4 of
Registrant’s Current Report on Form 8-K filed September 6, 2007, File No.
814-00150)
|
|
f.4
|
Promissory
Note dated August 30, 2007 in favor of Cedar Rapids Bank and Trust
Company, as amended by Omnibus Amendment Consent and Waiver
dated as of April 29, 2008 (incorporated by reference to
exhibit 10(i).5 of Registrant’s Current Report on Form 8-K filed September
6, 2007, File No. 814-00150)
|
|
f.5
|
Promissory
Note dated August 30, 2007 in favor of Cedar Rapids Bank and Trust
Company, as amended by Omnibus Amendment Consent and
Waiver dated as of April 29, 2008 (incorporated by reference to
exhibit 10(i).6 of Registrant’s Current Report on Form 8-K filed September
6, 2007, File No. 814-00150)
|
|
f.6
|
Omnibus Amendment Consent
and Waiver dated as of April 29, 2008 among MACC Private Equities
Inc., MorAmerica Capital Corporation and
Cedar Rapids Bank and
Trust (incorporated by reference to
Exhibit 10.3 of Registrant’s Current Report on Form 8-K filed May 1, 2008,
File No. 814-00150)
|
|
Investment
Advisory Agreement with Eudaimonia Asset Management, LLC dated April 29,
2008 (incorporated by reference to exhibit 10.1 of Registrant’s Current
Report on Form 8-K filed May 1, 2008, File No.
814-00150)
|
|
|
Investment
Subadvisory Agreement with InvestAmerica Investment Advisors, Inc. dated
April 29, 2008 (incorporated by reference to exhibit 10.2 of Registrant’s
Current Report on Form 8-K filed May 1, 2008, File No.
814-00150)
|
|
|
h.
|
Inapplicable
|
|
i.
|
Inapplicable
|
|
Safekeeping
Agreement with Cedar Rapids Bank and Trust Company dated September 1, 2007
(incorporated by reference to exhibit 10(i).9 of Registrant’s Current
Report on Form 8-K filed September 6, 2007, File No.
814-00150)
|
|
|
j.2
|
Custody
Agreement with U.S. Bank National Association †
|
|
j.3
|
Form
of Information and Subscription Agent Agreement
|
|
k.1
|
Inapplicable
|
|
l.
|
Opinion
of Husch Blackwell Sanders LLP †
|
|
m.
|
Inapplicable
|
|
n.
|
Consent
of Independent Registered Public Accounting Firm †
|
|
o.
|
Inapplicable
|
|
p.1
|
Inapplicable
|
|
q.
|
Inapplicable
|
|
Code
of Ethics of the Company (incorporated by reference to Registrant’s Annual
Report on Form 10-K for the period ended September 30, 2006 filed December
28, 2006, File No. 814-00150)
|
|
|
r.2
|
Code
of Ethics of Eudaimonia Asset Management, LLC
|
|
r.3
|
Code
of Ethics of InvestAmerica Investment Advisors,
Inc.
|
______________________________
|
†
|
To
be filed by amendment.
|