-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JM7Xwq9Mdm/2Y38VbckFuq8oWNMlT9dxuc+4BWQdSiWG+moffhzwBvl/HRrDAwZH 59QKj4FFDwa4fqo9fCYR1w== 0001024739-98-000341.txt : 19980401 0001024739-98-000341.hdr.sgml : 19980401 ACCESSION NUMBER: 0001024739-98-000341 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN CAPITAL STRATEGIES LTD CENTRAL INDEX KEY: 0000817473 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521451377 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 814-00149 FILM NUMBER: 98584043 BUSINESS ADDRESS: STREET 1: 3 BETHESDA METRO CENTER STREET 2: SUITE 860 CITY: BETHESDA STATE: MD ZIP: 20814 BUSINESS PHONE: 3019516122 MAIL ADDRESS: STREET 1: 3 BETHESDA METRO CENTER STREET 2: SUITE 860 CITY: BETHESDA STATE: MD ZIP: 20814 10-K/A 1 ANNUAL REPORT As filed with the Securities and Exchange Commission on March 31, 1998 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A ----------- (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997; or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission file number __________ --------------------- AMERICAN CAPITAL STRATEGIES, LTD.
3 Bethesda Metro Center Suite 860 Delaware Bethesda, Maryland 20814 52-1451377 -------- --------------------------------------- ---------- (State or other jurisdiction of (Address of principal executive offices) (I.R.S. Employer incorporation or organization) Identification No.)
Registrant's telephone number, including area code: (301) 951-6122 Securities registered pursuant to Section 12(b) of the Act: Not Applicable Securities registered pursuant to section 12(g) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, $0.01 par value Nasdaq Stock Market per share Indicate by check mark whether the registrant (1) has filed all report to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter earlier period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ]. No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] On March 26, 1998, the aggregate market value of the Registrant's common stock held by nonaffiliates of the Registrant was approximately $224,000,000 based upon a closing price of the Registrant's common stock of $22.00 per share as reported on the NASDAQ National Market System on that date. (For this computation, the registrant has excluded the market value of all shares of its Common Stock reported as beneficially owned by executive officers and directors of the registrant and certain other stockholders; such an exclusion shall not be deemed to constitute an admission that any such person is an "affiliate" of the registrant.) On March 26, 1998, there were 11,068,767 shares of the Registrant's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE. The Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 14, 1998 is incorporated by reference into certain sections of Part III herein. Certain exhibits previously filed with the Securities and Exchange Commission are incorporated by reference into Part IV of this report. ================================================================================ EXPLANATORY STATEMENT This Amendment to Form 10-K amends and supersedes in its entirety the Form 10-K filed on March 30, 1998. Such prior Form 10-K was filed as a result of a printer's error and was not filed under instruction of the issuer. Such prior Form 10-K should be considered to be withdrawn. ================================================================================ PART I ITEM 1. BUSINESS OF THE COMPANY BACKGROUND American Capital Strategies, Ltd., a Delaware corporation (the "Company"), was incorporated in 1986 to provide financial advisory services to and invest in small and medium sized businesses. On August 29, 1997, the Company completed an initial public offering ("IPO") of 10,382,437 shares of its common stock ("Common Stock") and became a non-diversified, closed end investment company that has elected to be treated as a business development company ("BDC") under the Investment Company Act of 1940, as amended ("1940 Act"). On October 1, 1997, the Company began operations so as to qualify to be taxed as a regulated investment company (RIC) as defined in Subtitle A, Chapter 1, under Subchapter M of the Internal Revenue Code of 1986 as amended (the "Code"). As contemplated by these transactions, the Company materially changed its business plan and format from structuring and arranging financing for buyout transactions on a fee for services basis to primarily being a lender to and investor in small and medium sized companies. The Company continues to provides financial advisory services to businesses through ACS Capital Investments Corporation ("CIC"), a wholly-owned subsidiary. The Company had established itself as a leading firm in structuring and obtaining funding for management and employee buyouts of subsidiaries, divisions and product lines being divested by larger corporations through the use of an employee stock ownership plans ("ESOPs"). From its formation in 1986 through the IPO, the Company arranged 29 financing transactions aggregating over $400 million. BUSINESS The Company is a buyout and specialty finance company that is principally engaged in providing senior debt, subordinated debt and equity to companies in need of capital for employee buyouts, management buyouts, growth, acquisitions, liquidity and restructuring. The Company invests up to $20 million in each transaction and through its subsidiary, CIC, will arrange and secure capital for larger transactions. The Company's primary business objectives are to increase its net operating income and net asset value by investing its assets in senior debt, subordinated debt with detachable warrants and equity of small to medium sized businesses with attractive current yields and potential for equity appreciation. The Company's loans typically range from $1 million to $20 million, mature in five to ten years, and require monthly or quarterly interest payments at variable rates based on the prime rate plus a margin. The Company prices its debt and equity investments based on its analysis of each transaction. As of December 31, 1997 the weighted average effective interest on the Company's debt investments was 14.5% and dividend rate on the Company's preferred stock investment was 15% The Company also invests in common stock which may not provide a current yield but would share in the appreciation of the investment. At December 31, 1997, common stock investments represented 6.0% of the Company's portfolio and common stock investments excluding CIC was 7.6% of the Company's investment in non-publicly traded securities. The Company expects common stock investments to represent the smallest percentage of its portfolio. The Company's equity interests in small and medium sized businesses are purchased with the goal of disposing of such interests and realizing a gain within three to seven years. The opportunity to realize such gain may occur if the business recapitalizes its equity, either through a sale to new owners or makes a public offering of its equity. The Company generally does not have the right to require that a business undergo an initial public offering by registering securities under the Securities Act of 1933, but the Company generally does have the right to sell its equity interests in a public offering by the business to the extent permitted by underwriters. 1 In most cases, the Company also receives the right to require the business to purchase the warrants or stock held by the Company ("Put Rights") under various circumstances including, typically, the repayment of the Company's loans or debt securities. When no public offering is available, the Company may use its Put Rights to dispose of its equity interest in a business, although the Company's ability to exercise Put Rights may be limited or nonexistent if a business is illiquid. The Company makes available significant managerial assistance to its portfolio companies. Such assistance typically involves closely monitoring the operations of the company, participating in its board and management meetings, being available for consultation with its officers and providing organizational and financial guidance. Providing assistance to its borrowers serves as a control for the Company as well as provides an opportunity for the Company to assist in maximizing the operations of the borrower. Prior to the IPO, the Company established itself as a leading firm in structuring and obtaining funding for management and employee buyouts of subsidiaries, divisions and product lines being divested by larger corporations through the use of an ESOP. The selling entities have included Sunbeam Corporation, the U.S. Office of Personnel Management, American Premier Underwriters, Inc. (formerly Penn Central Corporation), Campbell Soup Company, Union Carbide Corporation, National Forge Company, Inc., Air Products Company, Ampco-Pittsburgh Corporation and British Petroleum Company. In most of the ESOP transactions structured by the Company, the employees agree to restructure their wages and benefits so that overall cash compensation is reduced while contributions of stock are made to an ESOP. The resulting company is structured so that the fair market value of stock contributed to the ESOP can be deducted from corporate income before paying taxes. Restructuring employee compensation together with the ESOP tax advantages has the effect of improving the cash flow of the ESOP company. The Company believes that its ESOP knowledge and experience and its ability to fund transactions positions the Company favorably in the market place. 2 The Company continues providing financial advisory services and structuring of transactions through its wholly-owned subsidiary CIC. The typical advisory engagement includes a monthly retainer and a performance fee contingent upon closing of the transaction or event which is the subject of the engagement. Management believes that future growth of CIC is attainable through adding additional professionals, by gaining additional market share and by realizing the benefits of what is expected to be an increasing client base, which should expand as a result of its relationship with the Company. The Company believes that, through the structuring and advisory business, it has established an extensive referral network comprised of venture capitalists, investment bankers, attorneys, commercial bankers and business and financial brokers. CIC is continuing the relationships with the referral network and the Company utilizes the referral network and CIC's client base as its primary sources of investment opportunities. LENDING AND INVESTMENT DECISION CRITERIA The Company reviews certain criteria in order to make investment decisions. The criteria listed below provide a general guide for the Company's lending and investment decisions, although not all criteria are required to be favorable in order for the Company to make an investment. Operating History. The Company focuses on target companies that have stable operating histories and are profitable or near profitable at existing operating levels. The Company reviews the target companies ability to service and repay debt based on its historical results of operations. The Company does not expect to lend or invest in start-up or other early stage companies. Growth. In addition to generating sufficient cash flow to service its debt, a potential recipient of the Company's financing generally is required to establish its ability to grow its cash flow. Anticipated growth will be a key factor in determining the value ascribed to any warrants and equity interests acquired by the Company. Liquidation Value of Assets. Although the Company does not operate as an asset-based lender, liquidation value of the assets collateralizing the Company's loans is an important factor in each credit decision. Emphasis is placed both on tangible assets (accounts receivable, inventory, plant, property and equipment) as well as intangible assets such as customer lists, networks, databases and recurring revenue streams. Experienced Management Team. The Company requires that each borrower have or promptly obtain a management team that is experienced and properly incentivized through a significant ownership interest in the borrower. The Company requires that a potential recipient of the Company's financing have a management team who have demonstrated the ability to execute the company's objectives and implement its business plan. 3 Exit Strategy. Prior to making an investment, the Company analyzes the potential for the target company to experience a liquidity event that will allow the Company to realize value for its equity position. Liquidity events include, among other things, an initial public offering, a private sale of the Company's financial interest, a sale of the company, or a purchase by the company or one of its stockholders of the Company's equity position. OPERATIONS Marketing and Origination Process. The Company and CIC have thirteen professionals responsible for originating loans and investments and providing financial assistance to small and medium sized businesses and intends to hire an additional five professionals by December 31, 1998. To originate financing opportunities, these professionals use an extensive referral network comprised of venture capitalists, investment bankers, unions, attorneys, accountants, commercial bankers, unions, business brokers and prospective or existing ESOP companies. The Company also has an extensive set of internet sites that it uses to attract financing opportunities. Approval Process. The Company's financial professionals review informational packages in search of potential financing opportunities and conduct a due diligence investigation of each applicant that passes an initial screening process. This due diligence investigation generally includes one or more on-site visits, a review of the company's historical and prospective financial information, interviews with management, employees, customers and vendors of the applicant, and background checks and research on the applicant's product, service or particular industry. Upon completion of the due diligence investigation, the financial professional creates a profile summarizing the target company's historical financial statements, industry and management team and analyzing its conformity to the Company's general investment criteria. The financial professional then presents this profile to the Company's Credit Committee, which is comprised of David Gladstone, Malon Wilkus and Adam Blumenthal, the Chairman, President and Executive Vice President, respectively, of the Company. The Company's Credit Committee and the Company's Board of Directors must approve each financing. Support Services. A commercial bank provides certain loan accounting and administrative services for the Company's investments and also acts as the custodian of the Company's portfolio assets pursuant to and in accordance with the 1940 Act. COMPETITION The Company's primary competitors include financial institutions and venture capital firms and other nontraditional lenders. Many of these entities have greater financial and managerial resources than the Company. Nevertheless, the Company believes that it competes effectively with these entities through, among other means, its responsiveness to the needs of its customers and its flexibility in structuring transactions. 4 EMPLOYEES As of March 26, 1998, the Company had twenty-four employees, thirteen of whom are professionals working on financings for small and medium sized businesses. The Company believes that its relations with its employees are excellent. The Company intends to continue maintaining a relatively low overhead by outsourcing many functions not directly related to marketing or underwriting its investments and the executive management of the Company. THE COMPANY'S OPERATIONS AS A BDC AND RIC As a BDC, the Company may not acquire any asset other than Qualifying Assets unless, at the time the acquisition is made, Qualifying Assets represent at least 70% of the value of the Company's total assets. The principal categories of Qualifying Assets relevant to the business of the Company are the following: (i) securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer is an eligible portfolio company. An eligible portfolio company is defined as any issuer that (a) is organized and has its principal place of business in the United States, (b) is not an investment company other than a small business investment company wholly-owned by the BDC and (c) does not have any class of publicly-traded securities with respect to which a broker may extend credit; (ii) securities received in exchange for or distributed with respect to securities described above, or pursuant to the exercise of options, warrants or rights relating to such securities; and (iii) cash, cash items, Government securities, or high quality debt securities maturing in one year or less from the time of investment. The Company may not change the nature of its business so as to cease to be, or withdraw its election as, a BDC unless authorized by vote of a majority, as defined in the 1940 Act, of the Company's shares. Since the Company made its BDC election, it has not made any substantial change in its structure or in the nature of its business. The Company operates so as to qualify as a RIC under the Internal Revenue Code of 1986 as amended. Generally in order to qualify as a RIC, the Company must distribute to shareholders in a timely manner, at least 90% of its "investment company taxable income" and 98% of its capital gain net income as defined by the code. The Company must derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans, gain from the sale of stock or other securities, or other income derived with respect to its business of investing in such stock or securities as defined by the code. Additionally, the Company must diversify its holdings so that (i) at least 50% of the value of the Company's assets consists of cash, cash items, government securities and other securities if such other securities of any one issuer do not represent more than 5% of the Company's assets and 10% of the outstanding voting securities of the issuer and (ii) no more than 25% of the value of the Company's assets are invested in the securities of one issuer (other than U.S. government securities), or of two or more issuers that are controlled by the Company and are engaged in the same or similar or related trades or businesses. 5 TEMPORARY INVESTMENTS Pending investment in other types of Qualifying Assets, the Company has invested its otherwise uninvested cash primarily in cash, cash items, government securities, agency paper or high quality debt securities maturing in one year or less from the time of investment in such high quality debt investments ("Temporary Investments") so that at least seventy percent (70%) of its assets are Qualifying Assets. Typically, the Company invests in U.S. Treasury bills. Additionally, the Company may invest in repurchase obligations of a "primary dealer" in government securities (as designated by the Federal Reserve Bank of New York) or of any other dealer whose credit has been established to the satisfaction of the Board of Directors. There is no percentage restriction on the proportion of the Company's assets that may be invested in such repurchase agreements. A repurchase agreement involves the purchase by an investor, such as the Company, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. Such interest rate is effective for the period of time during which the investor's money is invested in the arrangement and is related to current market interest rates rather than the coupon rate on the purchased security. The Company requires the continual maintenance by its custodian or the correspondent in its account with the Federal Reserve/Treasury Book Entry System of underlying securities in an amount at least equal to the repurchase price. If the seller were to default on its repurchase obligation, the Company might suffer a loss to the extent that the proceeds from the sale of the underlying securities were less than the repurchase price. A seller's bankruptcy could delay or prevent a sale of the underlying securities. LEVERAGE For the purpose of making investments other than Temporary Investments and to take advantage of favorable interest rates, the Company intends to issue in the future senior debt securities, up to the maximum amount permitted by the 1940 Act, which currently permits the Company, as a BDC, to issue senior debt securities and preferred stock (collectively, "Senior Securities") in amounts such that the Company's asset coverage, as defined in the 1940 Act, is at least 200% after each issuance of Senior Securities. Such indebtedness may also be incurred for the purpose of effecting share repurchases. As a result, the Company would become exposed to the risks of leverage. Although the Company has no current intention to do so, it has retained the right to issue preferred stock. As permitted by the 1940 Act, the Company may, in addition, borrow amounts up to five percent (5%) of its total assets for temporary or emergency purposes. 6 ITEM 2. PROPERTIES Neither the Company nor any of its subsidiaries owns any real estate or other physical properties materially important to the operation of the Company or any of its subsidiaries. The Company leases an aggregate of approximately 10,000 square feet of office space in four locations for terms ranging up to seven years. ITEM 3. LEGAL PROCEEDINGS Although the Company may, from time to time, be involved in litigation and claims arising out of its operations in the normal course of business, as of December 31, 1997, the Company was not presently a party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year ended December 31, 1997, there were no matters submitted to a vote of the Company's security holders through the solicitation of proxies or otherwise. 7 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Since the IPO, the Company has distributed and currently intends to continue to distribute 90% of its net operating income and net realized short-term capital gains, if any, on a quarterly basis to its shareholders. Net realized long-term capital gains may be retained to supplement the Company's equity capital and support growth in its portfolio, unless the Board of Directors determines in certain cases to make a distribution. There is no assurance that the Company will achieve investment results or maintain a tax status that will permit any specified level of cash distributions or year-to-year increases in cash distributions. The Common Stock is quoted on the Nasdaq Stock Market under the symbol ACAS. As of March 26, 1998, the Company had 49 stockholders of record and approximately 1300 beneficial owners. The following table sets forth the range of high and low bid prices of the Company's Common Stock as reported on the Nasdaq Stock Market and the dividends declared by the Company for the period from August 29, 1997, when public trading of the Common Stock commenced, through March 25, 1998.
BID PRICE --------- DIVIDEND HIGH LOW DECLARED ---- --- -------- 1997 Third Quarter (beginning August 29, 1997) . . $20.25 $18.50 $.00 Fourth Quarter. . . . . . . . . . . . . . . . 20.75 16.50 .21 1998 First Quarter (through March 26, 1998). . . . 22.25 17.25 .25
8 ITEM 6. SELECTED FINANCIAL DATA AMERICAN CAPITAL STRATEGIES, LTD. - -------------------------------------------------------------------------------- Selected Financial Data The selected financial data should be read in conjunction with the Company's financial statements and notes thereto. As discussed in Notes 1 and 2, the Company completed an initial public offering of its common stock on August 29, 1997 and on October 1, 1997 began to operate so as to qualify to be taxed as a RIC. As a result of the changes, the financial results of the Company for periods prior to October 1, 1997 are not comparable to periods commencing October 1, 1997 and are not expected to be representative of the financial results of the Company in the future.
Three Months| | Nine Months Ended | | Ended Year Ended December 31, December 31,| | September 30, ------------------------------------------- 1997 | | 1997 1996 1995 1994 1993 ---- | | ---- ---- ---- ---- ---- Total operating income ............ $ 2,796,667| | $ 2,900,801 $2,746,422 $2,705,632 $2,498,231 $1,882,158 Total operating expenses .......... 551,061| | 2,651,029 2,861,697 2,927,709 2,605,758 1,659,172 ------------| | ------------ ---------- ---------- ---------- ---------- Operating income (loss) | | before equity in earnings of | | unconsolidated operating | | subsidiary ..................... 2,245,606| | 249,772 (115,275) (222,077) (107,527) 222,986 Equity in earnings of | | unconsolidated operating | | subsidiary ..................... 24,213| | -- -- -- -- -- ------------| | ------------ ---------- ---------- ---------- ---------- Net operating income (loss) ...... 2,269,819| | 249,772 (115,275) (222,077) (107,527) 222,986 Change in unrealized | | appreciation on investments .... 167,573| | 5,321,421 483,665 370,696 956,294 (61,660) Realized gain (loss) | | on investments ................. --| | -- -- 66,148 (22,784) -- ------------| | ------------ ---------- ---------- ---------- ---------- Income before income taxes ....... 2,437,392| | 5,571,193 368,390 214,767 825,983 161,326 Provision for income taxes ....... --| | 2,128,610 159,251 57,381 421,664 (2,458) ------------| | ------------ ---------- ---------- ---------- ---------- Net increase in shareholders' | | equity resulting from | | operations .................... 2,437,392| | 3,442,583 209,139 157,386 404,319 163,784 ------------| | ------------ ---------- ---------- ---------- ---------- Per share data: | | Net operating | | income Basic ........ $ 0.21| | Diluted ...... $ 0.20| | Net increase in shareholders' | | equity resulting from | | operations Basic ........ $ 0.22| | Diluted ...... $ 0.21| | Cash dividends ................ $ 0.21| | | | Balance Sheet Data: | | Total assets .................. $150,705,354| | $154,322,393 $5,432,265 $4,382,994 $3,930,365 $2,821,611 Total shareholders' equity .... 150,651,900| | 150,538,951 3,371,651 2,945,659 2,571,446 1,850,509
9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION AMERICAN CAPITAL STRATEGIES, LTD. - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations All statements contained herein that are not historical facts including, but not limited to, statements regarding anticipated activity are forward looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors that could cause actual results to differ materially are the following: changes in the economic conditions in which the Company operates negatively impacting the financial resources of the Company; certain of the Company's competitors with substantially greater financial resources than the Company reducing the number of suitable investment opportunities offered to the Company or reducing the yield necessary to consummate the investment; increased costs related to compliance with laws, including environmental laws; general business and economic conditions and other risk factors described in the Company's report filed from time to time with the Securities and Exchange Commission. The Company cautions readers not to place undue reliance on any such forward looking statements, which statements are made pursuant to the Private Securities Litigation Reform Act 1995 and, as such, speak only as of the date made. The following analysis of the financial condition and results of operations of the Company should be read in conjunction with the Company's financial statements and the notes therein. As discussed in Notes 1 and 2, the Company completed an initial public offering (IPO) of its common stock on August 29, 1997 and on October 1, 1997 began to operate so as to qualify to be taxed as a regulated investment company (RIC). After the IPO, the Company changed its primary business plan and format from structuring and arranging financing for buyout transactions on a fee for services basis to being a lender to and investor in small and medium sized businesses. As a result of the changes, the Company's predominant source of operating income has changed from financial performance and advisory fees to interest and dividends earned from investing the Company's assets in debt and equity of businesses. Additionally, pursuant to RIC accounting requirements, effective October 1, 1997, the Company's accounting for its operating subsidiary, ACS Capital Investments Corp. (CIC), changed from a consolidated basis to the equity method. The financial results of the Company for the periods through September 30, 1997 are not comparable to periods commencing October 1, 1997 and are not expected to be representative of the financial results of the Company in the future. Accordingly, those periods are discussed separately. Results of Operations The Company's financial performance as reflected in its Statements of Operations is composed of four primary elements. The first element is "Net operating income (loss)," which for periods prior to October 1, 1997 (Pre-RIC) is the difference between the Company's revenue earned from arranging financing for small and medium sized businesses and other financial advisory work and its total operating expenses including ESOP contributions, depreciation and interest expense. For periods prior to October 1, 1997, ESOP contributions represented a significant component of total operating expenses. All required contributions to the Company's ESOP have been made by the Company, and further contributions will be made at the discretion of the Company's Board of Directors. Net operating income (loss) for periods commencing October 1, 1997 (Post-RIC) is primarily the interest and dividends earned from investing in debt and equity securities and the equity in earnings of its unconsolidated operating subsidiary less the operating expenses of the Company. The second element is "Change in unrealized appreciation of investments," which is the net change in the fair value of the Company's portfolio assets at the end of the period compared with their fair values at the beginning of the period or their stated costs, as appropriate. The third element is "Realized gain on investments," which reflects the difference between the proceeds from a sale or maturity of a portfolio investment and the cost at which the investment was carried on the Company's balance sheet. The fourth element is "Provision for income taxes," which reflects a statutory tax rate applied to the Company's GAAP pretax income for pre-RIC periods. Actual taxes paid have historically been lower than the provision primarily due to the temporary difference of the unrealized appreciation of investments which has resulted in a deferred tax liability on the Company's balance sheet. For post-RIC periods, the Company intends to operate so as to qualify to be taxed as a RIC. As long as the Company qualifies as a RIC, it will be able to take a deduction against its otherwise taxable income for certain dividends it pays, allowing it to substantially reduce or eliminate its corporate-level tax liability. As a result, the provisions for income taxes for post-RIC periods are expected to be minimal. As discussed above, as a RIC, the Company is required to account for investments in operating subsidiaries under the equity method, regardless of ownership interest. Accordingly, the Company's investment in CIC, which prior to RIC status was consolidated, is presented on the equity method effective October 1, 1997. Therefore, commencing on October 1, 1997, and consistent with the equity method of accounting, the portfolio companies owned by CIC are not reported separately by the Company. 10 Three months ended December 31, 1997 Operating results for the three months ended December 31, 1997 (post-RIC) are summarized as follows: Three Months Ended December 31, 1997 ----------------- Operating income ........................................... $2,796,667 Operating expenses ......................................... 551,061 Equity in earnings of unconsolidated operating subsidiary ..................................... 24,213 ---------- Net operating income ....................................... 2,269,819 Change in unrealized appreciation of investments ........................................... 167,573 ---------- Net increase in shareholders' equity resulting from operations ................................ $2,437,392 ========== Total operating income consisted of approximately $700,000 in loan processing fees and $200,000 in interest on non- publicly traded securities and $1.9 million in interest on government agency securities and overnight repurchase agreements. The loan fees were earned as a result of closing three investments in private companies totaling $20.5 million during the period. Operating expenses for the period consisted of $243,000 in salaries and benefits and $308,000 in general and administrative expenses. Equity in earnings of unconsolidated operating subsidiary represents CIC's results including the portfolio companies. For the three months ended December 31, 1997, CIC's results included $414,000 of operating income, $987,000 of operating expenses, $605,000 of unrealized appreciation of investment and $8,000 in tax provisions. The change in unrealized appreciation of investments as discussed in Note 2 to the financial statements is determined by the Company's Board of Directors. The change in unrealized appreciation of investments for the three month period is $167,000 which consists of an increase of $52,000 in the valuation of the government agency securities and an increase of $115,000 in the valuation of the investments in private companies. Nine months ended September 30, 1997 compared to nine months ended September 30, 1996 Nine Months Ended September 30, 1997 1996 ---- ---- Operating income .......................... $ 2,900,801 $ 1,757,972 Operating expenses ........................ 2,651,029 1,921,195 ----------- ----------- Net operating income (loss) ............... 249,772 (163,223) Change in unrealized appreciation of investments ............. 5,321,421 441,081 Provision for income taxes ................ 2,128,610 109,223 ----------- ----------- Net increase in shareholders' equity resulting from operations .............................. $ 3,442,583 $ 168,635 =========== =========== Total operating income was $2.9 million for the nine months ended September 30, 1997, compared to $1.8 million for the nine months ended September 30, 1996, a 65.0% increase. Financial advisory fees were $1.1 million and $1.3 million for the nine months ended September 30, 1997 and 1996, respectively. The decline in financial advisory fees was attributable to a relative increase in management attention to engagements producing financial performance fees, and to the IPO. Financial performance fees were $798,000 and $241,000 for the nine months ended September 30, 1997 and 1996, respectively. The increase in financial performance fees was associated with the Company's successful completion of an engagement to advise the Allied Pilots Association on the structuring of an employee option plan at American Airlines. Other operating income was $428,000 and $265,000 for the nine months ended September 30, 1997 and 1996, respectively. The increase in other operating income was attributable to a higher level of expense reimbursement for the Company. Included in total operating revenue for the nine months ended September 30, 1997 was interest income earned on investment securities and overnight repurchase agreements of $553,000. 11 Total operating expenses for the nine months ended September 30, 1997 and 1996 were $2.7 million and $1.9 million, respectively, an increase of 38.0%. Salaries and benefits for the nine months ended September 30, 1997 and 1996, were $1.2 million and $935,000, respectively, a 30.6% increase which was predominantly associated with increased levels of staffing. General and administrative expenses for the nine months ended September 30, 1997 and 1996, were $1.5 million and $772,000, respectively, a 96.1% increase primarily associated with the increased use of consultants by the Company. The increase in other expenses is attributable to a variety of expenses associated with potential transactions. For the nine months ended September 30, 1997 and 1996, interest expense was $60,000 and $21,000, respectively. The increase in interest expense relates to the Company's increased levels of working capital for the period in 1997 prior to the initial public offering. During the nine months ended September 30, 1997, the Company changed its evaluation of collectibility of a receivable from Martino's Bakery, Inc. due to Martino's improved financial condition, restructuring of repayment terms, and subsequent payment history. Therefore, the Company recorded a reversal in its provision for doubtful accounts totaling $177,000. During the nine months ended September 30, 1996, the Company had accrued $164,000 as a provision for doubtful accounts related to two companies, one of which was Martino's Bakery, Inc. For the nine months ended September 30, 1997 and 1996, the Company recorded net increases in unrealized appreciation of investments in its portfolio companies of $5.3 million and $441,000, respectively. Included in unrealized appreciation of investments during the first nine months of 1997 was $4.4 million associated with the acquisition of Biddeford Textile Company, formerly the blanket operation of the electric blanket manufacturing division of Sunbeam Products, Inc. Also included in unrealized appreciation of investments during the first nine months of 1997 was appreciation of $731,000 associated with the Company's investment in Mobile Tool International, Inc., appreciation of $356,000 associated with Four S Baking Company, Inc., and depreciation of $138,000 associated with Martino's Bakery, Inc. The following table sets forth the components of the change in unrealized appreciation of investments for the nine months ended September 30, 1997 and 1996: Nine Months Ended September 30, 1997 1996 ---- ---- Government Securities ...................... $ (26,720) -- Erie Forge and Steel, Inc. ................. -- $152,930 Four S Baking Company, Inc. ................ 355,675 (54,000) Indiana Steel & Wire Corporation ........... -- 6,792 Martino's Bakery, Inc. ..................... (138,250) 143,459 Mobile Tool International, Inc. ............ 731,111 191,900 Biddeford Textile Corporation .............. 4,399,605 -- ----------- -------- Change in Unrealized Appreciation of Investments ........................... $ 5,321,421 $441,081 =========== ======== The Company recorded provisions for income taxes for the nine months ended September 30, 1997 and 1996 of $2.1 million and $109,000, respectively. Unrealized appreciation (depreciation) of investments does not affect the actual tax paid by the Company. However, under GAAP, the Company provides for income taxes based on its GAAP pretax income, which includes unrealized appreciation (depreciation) of investments. Actual income taxes paid may differ substantially from the provision for income taxes. The Company accounted for this difference by recognition of the deferred tax liability shown on the balance sheet. Years ended December 31, 1996 and 1995 Year Ended December 31, 1996 1995 ---- ---- Operating income ............................. $2,746,422 $2,705,632 Operating expense excluding ESOP contribution .......................... 2,645,814 2,710,882 ESOP contribution ............................ 215,883 216,827 ---------- ---------- Total operating expense ...................... 2,861,697 2,927,709 ---------- ---------- Net operating loss before investment activity ........................ (115,275) (222,077) Change in unrealized appreciation of investments ............................. 483,665 370,696 Realized gain on investments ................. -- 66,148 Provision for income taxes ................... 159,251 57,381 ---------- ---------- Net increase in shareholders' equity resulting from operations .................. $ 209,139 $ 157,386 ========== ========== 12 Operating income consists predominantly of financial advisory fees, which are hourly or periodic fees earned by the Company for providing advice and analysis to small and medium sized businesses, and financial performance fees, which are fees earned on a contingent basis for structuring, financing, or executing transactions. During 1996, financial advisory fees and financial performance fees constituted 86.9% of total revenue; during 1995, financial advisory fees and financial performance fees constituted 90.1% of total revenue. During each of the years ended December 31, 1996 and 1995, the Company earned operating income of $2.7 million. Other components of operating income consisted primarily of expense reimbursements. Total operating expenses at the Company were $2.862 million in 1996, a 2.3% decrease from $2.928 million in 1995. Salaries and benefits, excluding ESOP contributions, were $1.5 million in 1995 and declined 28.1% to $1.1 million in 1996. The reduction in salaries and benefits is the result of an increased use of outside consultants in the Company's financial advisory work and the reduction in bonuses in 1996. General and administrative and other expenses increased 51% from $.9 million in 1995, to $1.3 million in 1996. The increased use of consultants was the primary reason for the increase in general and administrative expenses from 1995 to 1996. The Company's interest expense was $33,000 in 1996 and $37,000 in 1995. Interest expense is primarily associated with credit facilities used by the Company to support its working capital requirements and, beginning in 1996, to finance a portion of its investments in small and medium sized businesses. The Company's total borrowings under these facilities were approximately $430,000 at December 31, 1996 and $161,000 at December 31, 1995. In addition, the Company had a note payable to its President in the amount of $74,000 at December 31, 1996 and $66,000 at December 31, 1995. During 1995 and 1996, the Company has paid interest on its debt obligations to unrelated parties at rates ranging from 1.5% above the lender's base rate of interest to 3% above such rate. The rate of interest on the Company's note payable to its President was 4% above the prime rate of interest. The Company made ESOP contributions of $216,000 in 1996 and $217,000 in 1995. These contributions represent an allocation of the preferred stock held by the ESOP to the Company's employees which preferred stock was converted into common stock on a one for one basis on July 28, 1997. As a result, these contributions did not result in a cash outflow from the Company. These contributions were deductible for tax purposes and served to reduce the Company's tax obligations. At December 31, 1996, unearned ESOP shares totaled $117,000, and the Company's obligation to make further contributions to the ESOP was limited to that amount. When an investment is sold, disposed of, or liquidated, the difference between the ultimate value realized on the investment and its cost is shown as a realized gain or loss on the investment. The Company realized a gain of $66,000 in 1995 on the sale of an investment in a portfolio company. For the years ended December 31, 1996 and 1995, the Company recorded net increases in unrealized appreciation of investments of $484,000 and $371,000, respectively. Unrealized appreciation represents the periodic increases and decreases in the fair market value of the investments in the Company's portfolio. Fair market value is determined by the Board of Directors of the Company, taking into account recent independent third party valuations of these investments. The following chart sets forth the components of change in unrealized appreciation of investments for the years ended December 31, 1996 and 1995: Year Ended December 31, 1996 1995 ---- ---- Erie Forge and Steel, Inc. ................... $203,808 $(208,937) Four S Baking Company, Inc. .................. (81,000) 499,250 Indiana Steel & Wire Corporation ............. 9,057 (5,719) Martino's Bakery, Inc. ....................... 156,500 (18,250) Mobile Tool International, Inc. .............. 195,300 170,500 The C.M. Kemp Manufacturing Company(1) ................................. -- (66,148) -------- --------- Change in Unrealized Appreciation of Investments ............................. $483,665 $ 370,696 ======== ========= - ---------- (1) The Company's investment in the C.M. Kemp Manufacturing Company (Kemp) was sold in 1995 for a gain over the original cost of the investment. The Company had recorded unrealized appreciation in the amount of this gain prior to the sale and, thus, at the time of sale, Kemp was sold for the value at which it was then reflected on the Company's balance sheet. The Company then recorded depreciation of $66,000 in 1995 to reverse the unrealized appreciation and recognize the realized appreciation associated with the sale of Kemp. 13 During 1996 and 1995, the Company was taxed as a C Corporation. Unrealized appreciation (depreciation) of investments does not affect the actual tax paid by the Company. However, under GAAP, the Company provides for income taxes based on its GAAP pretax income, which includes unrealized appreciation (depreciation) of investments. The Company accounted for this difference by recognition of deferred tax provisions of $159,000 in 1996 and $57,000 in 1995. Financial Condition, Liquidity, and Capital Resources The Company received proceeds of $143.6 million in connection with its IPO which was completed on August 29, 1997. At December 31, 1997, the Company had $8.9 million in cash and cash equivalents and $112.8 million in investments in Federal agency securities. As a RIC, the Company is required to distribute annually 90% or more of its net operating income and net realized short-term capital gains to shareholders. While the Company will provide shareholders with the option of reinvesting their distributions in the Company, the Company anticipates having to borrow to obtain liquidity after the proceeds of the IPO have been fully invested in the debt and equity of small and medium sized businesses. No assurance can be given that such liquidity will be obtainable, or obtainable at interest rates favorable to the Company. Impact of The Year 2000 The "Year 2000 Issue" is the result of computer programs being written using two digits rather than four to define the applicable year. The Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruption of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company principally utilizes for its internal accounting and administrative requirements software written by third parties for sale to the public and not specifically written for the Company. Many of these software developers are reviewing and updating their programs to address the Year 2000 issue. The Company does not anticipate that it has significant exposure to the Year 2000 issue for its internal accounting and administrative software. The Company utilizes a commercial bank for loan processing and loan accounting. The Company will receive an assessment from the commercial bank of the potential for exposure and develop a plan to minimize or eliminate potential exposure in the loan processing and accounting area during 1998. The Company invests and will continue to invest in small and medium sized businesses. The Company will review the Year 2000 issue with the investee companies and make a determination of the potential impact. The Company currently cannot assess its exposure or the potential impact of the Year 2000 issue on its investees. 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - -------------------------------------------------------------------------------- Report of Independent Auditors Board of Directors American Capital Strategies, Ltd. We have audited the accompanying balance sheets of American Capital Strategies, Ltd., including the schedules of investments, as of December 31, 1997 and 1996, the related statements of operations, shareholders' equity and cash flows for the three months ended December 31, 1997, the nine months ended September 30, 1997, the years ended December 31, 1996 and 1995, and the financial highlights for the three months ended December 31, 1997. These financial statements and the financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material aspects, the financial position of American Capital Strategies, Ltd. at December 31, 1997 and 1996, and the results of its operations and its cash flows for the three months ended December 31, 1997, the nine months ended September 30, 1997, the years ended December 31, 1996 and 1995, and the financial highlights for the three months ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Washington, D.C. February 12, 1998 15 AMERICAN CAPITAL STRATEGIES, LTD. - -------------------------------------------------------------------------------- Balance Sheets
December 31, | | December 31, 1997 | | 1996 ---- | | ---- Assets (Note 2) | | Investments at fair value (cost or initial value of $133,274,408 and $905,748, respectively) .................................................. $133,415,261 | | $3,980,421 Cash and cash equivalents .................................................. 8,862,416 | | 322,664 Investment in unconsolidated operating subsidiary .......................... 6,868,880 | | -- Due from unconsolidated operating subsidiary ............................... 861,028 | | -- Interest receivable ........................................................ 643,687 | | -- Accounts receivable (net of allowance for doubtful accounts of | | $0 and $249,609, respectively) ........................................... -- | | 917,625 Income taxes receivable .................................................... -- | | 52,225 Property and equipment: | | Computer equipment ....................................................... -- | | 154,182 Office furniture and equipment ........................................... -- | | 96,827 Less: accumulated depreciation ........................................... -- | | (130,495) ------------ | | ---------- -- | | 120,514 Other ...................................................................... 54,082 | | 38,816 ------------ | | ---------- Total assets ............................................................... $150,705,354 | | $5,432,265 ============ | | ========== | | Liabilities and Shareholders' Equity | | Accounts payable and accrued liabilities ................................... $ 53,454 | | $ 322,252 Due to related parties ..................................................... -- | | 78,142 Deferred taxes ............................................................. -- | | 1,230,536 Notes payable .............................................................. -- | | 429,684 ------------ | | ---------- Total liabilities .......................................................... 53,454 | | 2,060,614 Shareholders' equity: | | Undesignated preferred stock, $0.01 par value, 90,000 and 5,000,000 shares | | authorized, respectively, 0 issued and outstanding ..................... -- | | -- Class A preferred stock, $50 par value, 0 and 10,000 shares authorized, | | respectively, and $0 and 6,857 issued and outstanding, respectively .... -- | | 1,419,399 Unearned ESOP shares ..................................................... -- | | (116,668) Common stock, $.01 par value, 20,000,000 and 2,985,900 shares authorized, | | and 11,068,767 and 481,058 issued and outstanding, respectively ........ 110,688 | | 4,811 Capital in excess of par value ........................................... 144,939,913 | | 10,407 Retained earnings ........................................................ -- | | 2,053,702 Undistributed net realized earnings ...................................... (54,624) | | -- Unrealized appreciation of investments ................................... 5,655,923 | | -- ------------ | | ---------- Total shareholders' equity ................................................. 150,651,900 | | 3,371,651 ------------ | | ---------- Total liabilities and shareholders' equity ................................. $150,705,354 | | $5,432,265 ============ | | ==========
See accompanying notes. 16 AMERICAN CAPITAL STRATEGIES, LTD. - -------------------------------------------------------------------------------- Schedule of Investments December 31, 1997
Industry Cost Fair Value -------- ---- ---------- Senior Debt--4.07% Four S Baking Company ................................... Baking $ 1,825,477 $ 1,825,477 BIW Connector Systems, LLC .............................. Manufacturing 3,890,000 3,890,000 ------------ ------------ Subtotal 5,715,477 5,715,477 Subordinated Debt--7.88% Four S Baking Company ................................... Baking 1,491,797 1,491,797 BIW Connector Systems, LLC .............................. Manufacturing 6,350,260 6,350,260 Westwinds Group Holdings, Inc. .......................... Restaurant 3,205,662 3,205,662 ------------ ------------ Subtotal ................................................ 11,047,719 11,047,719 Convertible Preferred Stock(2)--1.64% Four S Baking Company 15% dividend convertible into 51,390 shares of common stock or 10.89% of Co. ........ Baking 2,302,500 2,302,500 Common Stock Warrants(1)(2)--1.13% Four S Baking Company 15,390 shares 3.26% of Co. ........ Baking 461,700 577,125 BIW Connector Systems, LLC 8% of LLC .................... Manufacturing 652,000 652,000 Westwinds Group Holdings, Inc. 5% of Co. ................ Restaurant 350,000 350,000 ------------ ------------ Subtotal ................................................ 1,463,700 1,579,125 Subtotal--non-publicly traded securities--14.72% ........ 20,529,396 20,644,821 Government Securities--80.38% FHLB Discount Note due 2/4/98 ........................... 20,969,205 20,981,628 FHLB Discount Note due 3/6/98 ........................... 10,892,628 10,898,000 FHLB Discount Note due 4/1/98 ........................... 9,865,203 9,868,130 FNMA Discount Note due 4/24/98 .......................... 6,877,260 6,883,007 FFCB 5.90% due 6/2/98 ................................... 20,016,853 20,016,000 FHLB Discount Note due 6/8/98 ........................... 14,645,792 14,643,875 FHLB Discount Note due 8/20/98 .......................... 14,483,150 14,479,800 FNMA 5.71% due 9/9/98 ................................... 14,994,920 15,000,000 ------------ ------------ Total Investments ....................................... 112,745,011 112,770,440 Investment in Unconsolidated Operating Subsidiary--4.90% Investment ACS Capital Investments Corporation(1)(2)--100% of Co. ... Banking 402,700 6,868,880 ------------ ------------ Totals .................................................. $133,677,107 $140,284,141 ============ ============ Schedule of Investments December 31, 1996 Industry Cost Fair Value -------- ---- ---------- Common Stock(1) Erie Forge and Steel, Inc.... 120,773 Shares ............. Manufacturing $ 500,000 $ 2,736,418 Four S Baking Company........ 27,000 Shares ............. Baking 67,750 486,000 Indiana Steel & Wire Corporation................ 7,547 Shares ............. Manufacturing 42,914 58,869 Martino's Bakery, Inc........ 50,000 Shares ............. Baking 120,750 259,000 Mobile Tool International, Inc. ...................... 6,130 Shares ............. Manufacturing 74,334 440,134 ------------ ------------ Totals .................................................. $ 905,748 $ 3,980,421 ============ ============
- ---------- (1) Non-income producing (2) Affiliate See accompanying notes. 17 AMERICAN CAPITAL STRATEGIES, LTD. - -------------------------------------------------------------------------------- Statements of Operations
Three Months | | Nine Months Year Ended Ended | | Ended -------------------------- December 31, | | September 30, December 31, December 31, 1997 | | 1997 1996 1995 Operating Income (Note 2) Financial advisory fees ................................. -- | | $1,122,357 $1,738,295 $1,148,752 Financial performance fees .............................. -- | | 797,600 649,030 1,288,797 Interest income ......................................... $2,122,876 | | 553,267 -- -- Loan processing fees .................................... 653,568 | | -- -- -- Other ................................................... 20,223 | | 427,577 359,097 268,083 ---------- | | ---------- ---------- ---------- Total operating income .................................. 2,796,667 | | 2,900,801 2,746,422 2,705,632 | | Operating Expenses | | Salaries and benefits ................................... 243,142 | | 1,220,907 1,283,198 1,701,660 General, administrative and other ....................... 307,919 | | 1,514,122 1,282,195 851,314 Provision for (reversal of) doubtful accounts ........... -- | | (177,198) 224,329 302,283 Interest ................................................ -- | | 60,034 32,959 37,037 Depreciation and amortization ........................... -- | | 33,164 39,016 35,415 ---------- | | ---------- ---------- ---------- Total operating expenses ................................ 551,061 | | 2,651,029 2,861,697 2,927,709 ---------- | | ---------- ---------- ---------- Operating income (loss) before equity in earnings of | | unconsolidated operating subsidiary ................... 2,245,606 | | 249,772 (115,275) (222,077) Equity in earnings of unconsolidated operating | | subsidiary ............................................ 24,213 | | -- -- -- ---------- | | ---------- ---------- ---------- Net operating income (loss) ............................. 2,269,819 | | 249,772 (115,275) (222,077) Realized gain on investments ............................ -- | | -- -- 66,148 Change in unrealized appreciation of investments ........ 167,573 | | 5,321,421 483,665 370,696 ---------- | | ---------- ---------- ---------- Income before income taxes .............................. 2,437,392 | | 5,571,193 368,390 214,767 Provision for income taxes .............................. -- | | 2,128,610 159,251 57,381 ---------- | | ---------- ---------- ---------- Net increase in shareholders' equity resulting | | from operations ....................................... $2,437,392 | | $3,442,583 $ 209,139 $ 157,386 ========== | | ========== ========== ========== | | Net operating income per share Basic ......... $ 0.21 | | Diluted ....... $ 0.20 | | | | Net increase in shareholders' equity Basic ......... $ 0.22 | | resulting from operations per share Diluted ....... $ 0.21 | | | | Weighted average shares of Basic ......... 11,068,767 | | common stock outstanding Diluted ....... 11,405,385 | |
See accompanying notes. 18 AMERICAN CAPITAL STRATEGIES, INC. - -------------------------------------------------------------------------------- Statements of Shareholders' Equity
Unearned Common Stock Capital Preferred ESOP ------------------ in Excess of Retained Stock Shares Shares Amount Par Value Earnings ----- ------ ------ ------ --------- -------- Balance at December 31, 1994 ........... $ 1,419,399 $(549,378) 480,312 $ 4,804 $ 9,444 $ 1,687,177 Net increase in share- holders' equity result- ing from operations ....... -- -- -- -- -- 157,386 ESOP shares earned .......... -- 216,827 -- -- -- -- ----------- --------- --------- ------- ------------ ----------- Balance at December 31, 1995 ........... $ 1,419,399 $(332,551) 480,312 $ 4,804 $ 9,444 $ 1,844,563 Net increase in share- holders' equity result- ing from operations ......... -- -- -- -- -- 209,139 Options exercised ............. -- -- 746 7 963 -- ESOP shares earned ............ -- 215,883 -- -- -- -- ----------- --------- --------- ------- ------------ ----------- Balance at December 31, 1996 ........... $ 1,419,399 $(116,668) 481,058 $ 4,811 $ 10,407 $ 2,053,702 ----------- --------- --------- ------- ------------ ----------- Net increase in share- holders' equity result- ing from operations ....... -- -- -- -- -- 3,442,583 Contribution of common stock to ESOP ............. -- -- 529 5 7,930 (7,935) Conversion of preferred stock to common stock ..................... (1,419,399) -- 204,743 2,047 1,417,352 -- Issuance of common stock ..................... -- -- 10,382,437 103,825 143,504,224 -- ESOP shares earned .......... -- 116,668 -- -- -- -- ----------- --------- --------- ------- ------------ ----------- Balance at September 30, 1997 .......... $ -- $ -- 11,068,767 $110,688 $144,939,913 $ 5,488,350 =========== ========= ========== ======== ============ =========== ============================================================================================================ Effect of reorganization as a RIC (Note 2) ............ -- -- -- -- -- (5,488,350) Net increase in share- holders' equity result- ing from operations ....... -- -- -- -- -- -- Distributions ............... -- -- -- -- -- -- ----------- --------- --------- ------- ------------ ----------- Balance at December 31, 1997 ........... $ -- $ -- 11,068,767 $110,688 $144,939,913 $ -- =========== ========= ========== ======== ============ ===========
Undistributed Unrealized Total Net Realized Appreciation Shareholders' Earnings of Investments Equity -------- -------------- ------ Balance at December 31, 1994 ........... $ 2,571,446 Net increase in share- holders' equity result- ing from operations ......... 157,386 ESOP shares earned .......... 216,827 ----------- ---------- ------------ Balance at December 31, 1995 ........... $ 2,945,659 ----------- ---------- ------------ Net increase in share- holders' equity result- ing from operations ......... 209,139 Options exercised ............. 970 ESOP shares earned ............ 215,883 ----------- ---------- ------------ Balance at December 31, 1996 ........... $ 3,371,651 ----------- ---------- ------------ Net increase in share- holders' equity result- ing from operations ....... 3,442,583 Contribution of common stock to ESOP ............. -- Conversion of preferred stock to common stock ..................... -- Issuance of common stock ..................... 143,608,049 ESOP shares earned .......... 116,668 ----------- ---------- ------------ Balance at September 30, 1997 .......... $150,538,951 =========== ========== ============ ================================================================================= Effect of reorganization as a RIC (Note 2) ............ $5,488,350 Net increase in share- holders' equity result- ing from operations ....... $ 2,269,819 167,573 2,437,392 Distributions ............... (2,324,443) -- (2,324,443) ----------- ---------- ------------ Balance at December 31, 1997 ........... $ (54,624) $5,655,923 $150,651,900 =========== ========== ============
See accompanying notes. 19 AMERICAN CAPITAL STRATEGIES, LTD. - -------------------------------------------------------------------------------- Statements of Cash Flows
Three Months | | Nine Months Year Ended Ended | | Ended ----------------------------- December 31, | | September 30, December 31, December 31, 1997 1997 1996 1995 ---- | | ---- ---- ---- Operating activities (Note 2) | | Net increase in shareholders' equity resulting | | from operations .................................... $ 2,437,392 | | $ 3,442,583 $ 209,139 $ 157,386 Adjustments to reconcile net increase in | | shareholders' equity resulting from | | operations to net cash provided by | | (used in) operating activities: | | Depreciation and amortization .................. -- | | 32,332 39,016 35,415 Unrealized appreciation of investments ......... (167,537)| | (5,321,421) (483,665) (370,696) Realized gain on investments ................... -- | | -- -- (66,148) Net amortization of securities ................. (1,233,443)| | (337,159) -- -- Amortization of deferred finance costs ......... -- | | 3,357 11,088 7,332 Provision for deferred income taxes ............ -- | | 2,102,243 120,578 115,485 Loss on disposal of property | | and equipment ................................ -- | | -- 629 91 ESOP contribution .............................. -- | | 116,668 215,883 216,827 Increase in interest receivable ................ (206,946)| | (122,074) -- -- Provision for doubtful accounts ................ -- | | (177,198) 224,329 302,283 Increase in due from unconsolidated | | operating subsidiary ......................... (526,149)| | -- -- -- Increase in accounts receivable ................ -- | | 486,198 (865,311) (182,056) (Increase) decrease in income taxes receivable.. -- | | 24,554 100,922 (32,822) Decrease (increase) in other assets ............ 61,947 | | (112,483) 5,665 (3,554) Increase (decrease) in accounts payable and | | accrued liabilities .......................... (328,195)| | 128,419 227,930 29,538 Gain of unconsolidated operating subsidiary .... (24,213)| | -- -- -- ------------ | | ------------- --------- --------- Net cash provided by (used in) operating activities .... 12,856 | | 266,019 (193,797) 209,081 Investing activities | | Proceeds from sale or maturity of investments ........ 35,000,000 | | 60,000 -- 66,148 Purchase of investments .............................. (20,529,396)| | (482,889) (74,640) (6,674) Purchase of securities ............................... (16,592,667)| | (129,896,447) -- -- Purchases of property and equipment, | | net of disposals ................................... -- | | (28,415) (39,669) (20,304) ------------ | | ------------- --------- --------- Net cash provided by (used in) investing activities .... (2,122,063)| | (130,347,751) (114,309) 39,170 Financing activities | | Proceeds from notes payable .......................... -- | | 589,625 429,684 -- Principal payments of notes payable .................. -- | | (1,019,309) (160,833) (77,500) Increase in deferred finance costs ................... -- | | -- (4,000) (25,849) Increase (decrease) in due to related parties ........ -- | | (78,142) 5,920 10,893 Issuance of common stock ............................. -- | | 143,608,049 -- -- Options exercised .................................... -- | | -- 970 -- Distributions ........................................ (2,324,443)| | -- -- -- ------------ | | ------------- --------- --------- Net cash provided by (used in) financing activities .... (2,324,443)| | 143,100,223 271,741 (92,456) ------------ | | ------------- --------- --------- Net increase (decrease) in cash and cash equivalents ... (4,433,650)| | 13,018,491 (36,365) 155,795 Cash and cash equivalents at beginning of year ......... 13,296,066 | | 322,664 359,029 203,234 ------------ | | ------------- --------- --------- Cash and cash equivalents at end of year ............... $ 8,862,416 | | $ 13,341,155 $ 322,664 $ 359,029 ============ | | ============= ========= =========
See accompanying notes. 20 AMERICAN CAPITAL STRATEGIES, LTD. - -------------------------------------------------------------------------------- Financial Highlights
Three Months Ended December 31, 1997 ----------------- Per Share Data(1) Net asset value at beginning of the period $ 13.60 Net operating income 0.21 Net realized and unrealized gains on investments 0.01 ------------ Net increase in shareholders' equity from operations 0.22 Distribution of net investment income 0.21 ------------ Net asset value at end of period $ 13.61 Per share market value at end of period $ 18.125 Shares outstanding at end of period 11,068,767 Ratio/Supplemental Data Net assets at end of period $150,651,900 Ratio of operating expenses to average net assets(2) 1.46% Ratio of net operating income to net assets(2) 6.03%
- ---------- (1) Basic per share data (2) Amounts were annualized since the results are for a three-month period. See accompanying notes. 21 AMERICAN CAPITAL STRATEGIES, LTD. - -------------------------------------------------------------------------------- Notes to Financial Statements Note 1. Organization American Capital Strategies, Ltd. (the Company) is a Delaware corporation formed in 1986 to provide merchant banking services to and invest in small and medium sized businesses. On August 29, 1997, the Company completed an initial public offering (IPO) of 10,382,437 shares of common stock, and elected to be treated as a Business Development Company under the Investment Company Act of 1940, as amended. On October 1, 1997, the Company began operations so as to qualify to be taxed as a regulated investment company (RIC) as defined in Subtitle A, Chapter 1, under Subchapter M of the Internal Revenue Code. As contemplated by these transactions, the Company materially changed its business plan and format from structuring and arranging financing for buyout transactions on a fee for services basis primarily to being a lender to and investor in small and medium sized companies. As a result of the changes, the Company is operating as a holding company whose predominant source of operating income has changed from financial performance and advisory fees to interest and dividends earned from investing the Company's assets in debt and equity of businesses. The Company's investment objectives are to achieve current income from the collection of interest and dividends, as well as long-term growth in its shareholders' equity through appreciation in value of the Company's equity interests. The Company also provides financial advisory services to businesses through ACS Capital Investments Corporation (CIC), a wholly-owned subsidiary. The Company is headquartered in Bethesda, Maryland, and has offices in New York, Boston, Pittsburgh, San Francisco, and Savannah. Note 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements have been prepared in accordance with generally accepted accounting principles and for periods commencing with the Company's election to be treated as a RIC, in accordance with Article 6 of Regulation S-X of the Code of Federal Regulations. For the nine months ended September 30, 1997 and the years ended December 31, 1996 and 1995 the financial statements are prepared on a consolidated basis with the accounts of the CIC, the Company's wholly owned subsidiary. All intercompany transactions and balances were eliminated. Effective October 1, 1997, pursuant to RIC accounting requirements, CIC was deconsolidated, and, as a result, for the three months ended December 31, 1997 the Company accounted for its investment in CIC under the equity method. In connection with this change, the Company contributed the following assets and liabilities to CIC: Investment in Erie Forge and Steel ................................. $2,736,418 Other assets ....................................................... 791,228 Other liabilities .................................................. 68,996 Deferred tax liability ............................................. 3,332,771 As a result of these changes, the Company's financial statements for periods through September 30, 1997 (pre-RIC periods) are not comparable with the financial statements for periods commencing after October 1, 1997 (post-RIC periods). Valuation of Investments Investments are carried at fair value, as determined by the Board of Directors. Securities which are publicly traded are valued at the closing bid price on the valuation date. Debt and equity securities which are not publicly traded are valued at fair value as determined in good faith by the Board of Directors. In making such determination, the Board of Directors will value non-convertible debt securities at cost plus amortized original issue discount, if any, unless adverse factors lead to a determination of a lesser valuation. In valuing convertible debt, equity or other securities, the Board of Directors determines the fair value based on the collateral, the issuer's ability to make payments, the earnings of the issuer, sales to third parties of similar securities, the comparison to publicly traded securities and other pertinent factors. Due to the uncertainty inherent in the valuation process, such estimates of fair value 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. Cash and Cash Equivalents Cash and cash equivalents consist of demand, deposits and highly liquid investments with original maturities of three months or less. Cash and cash equivalents are carried at cost which approximates fair value. Interest and Dividend Income Recognition Interest income is recorded on the accrual basis to the extent that such amounts are expected to be collected. Original issue discount is amortized into interest income using the effective interest method. Dividend income is recognized on the ex-dividend date. 22 Financial Advisory and Performance Fee Recognition Financial advisory fees represent amounts received for providing advice and analysis to small and medium sized businesses and are recognized as earned based on hours incurred. Financial performance fees represent amounts received for structuring, financing, and executing transactions and are generally payable only if the transaction closes and are recognized as earned when the transaction is completed. Financial advisory and performance fees are for services provided by CIC. Loan Processing Fee Recognition Loan processing fees are recorded as income on the closing date of the related loan. Realized Gain or Loss and Unrealized Appreciation or Depreciation on Investments Realized gain or loss is recorded at the disposition of an investment and is the difference between the net proceeds from the sale and the cost basis of the investment. Unrealized appreciation or depreciation reflects the difference between the Board of Directors' valuation of the investments and the cost basis of the investments. Distributions to Shareholders Distributions to shareholders are recorded on the ex-dividend date. Federal Income Taxes The Company operates so as to qualify to be taxed as a RIC under the Internal Revenue Code. Generally, a RIC is entitled to deduct dividends it pays to its shareholders from its income to determine "taxable income." The Company has distributed and currently intends to distribute sufficient dividends to eliminate taxable income. Therefore, the statement of operations contains no provision for income taxes for the three months ended December 31, 1997. During the pre-RIC periods, the Company operated under Subchapter C of the Internal Revenue Code and calculated its tax provision pursuant to Statement of Financial Accounting Standards No. 109. Deferred income taxes were determined based on the differences between financial reporting and tax basis of assets and liabilities. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Property and Equipment Property and equipment is carried at cost and is depreciated using the straight-line method over the estimated useful lives of the related assets ranging from five to seven years. Management Fees The Company is self-managed and therefore does not incur management fees payable to third parties. Reclassifications Certain previously reported amounts have been reclassified to conform with the current financial statement presentation. Recent Accounting Pronouncements In February, 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," (SFAS 128). The Company adopted SFAS 128 for the three months ended December 31, 1997. The Company has not restated the earnings per share for prior periods since it is not meaningful due to the significant change in the Company's capital structure as a result of the IPO, and its change in operating activities to a RIC on October 1, 1997. In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130) was issued and is effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for the reporting and display of comprehensive income and its components (revenues, expenses, gains, losses) in a full set of general purpose financial statements. SFAS 130 requires the disclosure of an amount that represents total comprehensive income and the components of comprehensive income in a financial statement. The adoption of SFAS 130 is not expected to have a material impact on the financial statements of the Company. In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131) was issued and is effective for fiscal years beginning after December 15, 1997. SFAS 131 establishes standards for determining an entity's operating segments and the type and level of financial information to be disclosed in both annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The adoption of SFAS 131 is not expected to have a material impact on the financial statements of the Company. 23 Note 3. Investments Investments consists of securities issued by various agencies of the Federal government valued at $112,770,440 with maturities of less than one year from the date of purchase and securities issued by privately-held companies valued at $20,644,821. The securities issued by privately-held companies consists of senior loans, subordinated loans with equity warrants, convertible preferred stock and common stock. The loans have effective interest rates ranging from 9.5% to 20% and are payable in installments with final maturities from 5 to 7 years and are collateralized by assets of the borrower. The Company's investments in equity warrants and common stock are non-income producing. The net unrealized appreciation in investments for Federal income tax purposes is the same as for book purposes and none of the Company's investments are on non-accrual status. Note 4. Investment in Unconsolidated Operating Subsidiary As discussed in Note 2, CIC is an operating subsidiary of the Company and is accounted for under the equity method effective October 1, 1997. The investment in CIC is carried at fair value as determined by the Board of Directors. Condensed financial information for CIC at December 31, 1997 and for the three months then ended is as follows: Assets Investments in portfolio companies, at fair value.................................. $10,360,904 Other assets, net................................ 990,926 ----------- Total assets................................... $11,351,830 =========== Liabilities and Shareholder's Equity Deferred income taxes............................ $ 3,322,688 Due to parent.................................... 861,028 Other liabilities................................ 299,234 Shareholder's equity............................. 6,868,880 ----------- Total liabilities and shareholder's equity......... $11,351,830 =========== Total revenue...................................... $ 532,496 Operating expense.................................. 1,084,570 ----------- Net operating loss............................... (552,074) Unrealized appreciation of investments............. 605,045 Other.............................................. (28,758) ----------- Net income......................................... $ 24,213 =========== Note 5. Stock Option Plan The Company applies APB 25 and related interpretations in accounting for its stock-based compensation plan. In accordance with SFAS 123, "Accounting for Stock-Based Compensation," the Company elected to continue to apply the provisions of APB 25 and provide pro forma disclosure of the Company's net operating income and net increase in shareholders' equity resulting from operations calculated as if compensation costs were computed in accordance with SFAS 123. The Company is providing this information for the post-RIC period as discussed in Notes 1 and 2 and from the time the 1997 Stock Option plan was established by the Company. Three months ended December 31, 1997 ----------------- Net operating income as reported ...... $2,269,819 pro forma ........ $2,029,525 Net increase in shareholders' equity resulting from operations as reported ...... $2,437,392 pro forma ........ $2,197,098 The effects of applying SFAS 123 for providing pro forma disclosures are not likely to be representative of the effects on reported net operating income and net increase in shareholders' equity resulting from operations for future years. The Company estimated a fair value per option on the date of grant of $2.33 using a Black-Scholes option pricing model and the following assumptions; dividend yield 6.5%, risk free interest rate 6.5%, expected volatility factor .25, expected lives of the options of 7 years, and an annual forfeiture rate of 5%. The Company established the 1997 Stock Option Plan (the 1997 Plan) which provides for the granting of options to purchase common stock at a price of not less than the fair market value of the common stock on the date of issuance to employees of the Company. There are 1,328,252 shares available to be granted under the 1997 Plan. Upon closing the IPO, the Company granted 1,302,703 fixed options at $15.00 per share, the market value at the date of grant. During the three months ended December 31, 1997, 6,000 options were forfeited. Accordingly, at December 31, 1997, 1,296,703 of the granted options were outstanding. On November 6, 1997, the Board of Directors authorized the establishment of a stock option plan for the non- employee directors. The plan must receive shareholder approval at the annual meeting to be held on May 14, 1998 and approval from the Securities and Exchange Commission (SEC) before it becomes effective. Upon shareholder and SEC approval, the Board of Directors has authorized the Company to issue 15,000 options to each of the six non-employee directors. 24 Note 6. Related Parties ACS Partners I, L.P., was formed with a wholly owned subsidiary of the Company as sole general partner and several principals of the Company as limited partners to allow the principals the opportunity to co-invest in a transaction with the Company. Pursuant to the terms of the partnership agreement of ACS Partners I, L.P. , the Company through its wholly owned subsidiary as sole general partner has all discretion over the purchase, sale, restructuring and disposition of the assets of ACS Partners I, L.P. As of December 31, 1997, principals of the Company had invested $260,000 in ACS Partners I, L.P. As of December 31, 1996, the Company had a note payable to its president for approximately $74,000. The interest rate was based on prime plus 4%. The related interest expense for the nine months ended September 30, 1997 and the years ended December 31, 1996 and 1995 was approximately $6,000, $8,000 and $3,000, respectively. In August 1997, the Company repaid the note in full. The Company and CIC have entered into an expense sharing agreement whereby CIC reimburses the Company for expenses paid by the Company on CIC's behalf. Note 7. Notes Payable At December 31, 1996, the Company had a line of credit with a term conversion provision with a finance company. During the first two years of the agreement, the Company had the ability to borrow up to $500,000 with interest payable monthly. The balance outstanding after the initial two-year period was repayable as a term loan in equal monthly installments of principal plus accrued interest over three years. The interest rate was the finance company's base rate plus 1.5%. This arrangement was secured by accounts receivable, furniture, fixtures, equipment, and 56,270 shares of common stock in Erie Forge and Steel, one of the Company's investments. At December 31, 1996, the outstanding balance was approximately $283,000, and the interest rate was 9.75%. In July 1997, the Company repaid the outstanding balance and closed the line of credit. At December 31, 1996, the Company had a term loan commitment with a finance company in the amount $750,000 which was subject to a two-year draw down period ending in October 1997. The interest rate was the finance company's base rate plus 3%. This arrangement was secured by accounts receivable, furniture, fixtures, equipment, and the Company's investments in shares of common stock. At December 31, 1996, the outstanding balance was approximately $146,000, was due in 2001, and the interest rate was 11.25%. On May 30, 1997, certain terms of the above described loan were amended. The term loan commitment was increased from $750,000 to $1,000,000 and the draw down period was extended until May 1999. Interest only was assessed over a four year term from the date of the draw, and thereafter, monthly payments of principal and interest are payable until all outstanding amounts became fully due in May 2004. In August 1997, the Company repaid the outstanding balance of $636,000 and extinguished the note. During the nine months ended September 30, 1997 and the years ended December 31, 1996 and 1995, the cash paid for interest was approximately $88,000, $43,000 and $36,000, respectively. The weighted average interest rates, including amortization of deferred finance costs, for the years nine months ended September 30, 1997 and the years ended December 31, 1996 and 1995 were 16.9%, 17.3% and 13.7%, respectively. There was no outstanding debt at December 31, 1997. Note 8. Income Taxes Significant components of the Company's deferred tax liabilities and assets were as follows: December 31, 1996 ---- Deferred tax liabilities: Investments ............................................. $1,303,911 Depreciation ............................................ 21,393 ---------- 1,325,304 Deferred tax assets: Net operating loss carryforward ......................... 63,085 Alternative minimum tax ................................. 25,509 Other ................................................... 6,174 ---------- 94,768 ---------- Net deferred tax liabilities ............................ $1,230,536 ========== The components of the income tax provision were as follows: Year Ended December 31, 1996 1995 ---- ---- Current provision (benefit) ............................ $ 38,673 $(58,104) Deferred provision ..................................... 120,578 115,485 -------- -------- $159,251 $ 57,381 ======== ======== 25 The differences between taxes at the Federal statutory tax rate and the effective tax rate were as follows:
Nine Months Ended Year Ended September 30, December 31, 1997 1996 1995 ---- ---- ---- Statutory rate ................ $1,803,681 $125,253 $ 73,021 State taxes ................... 342,218 14,747 8,589 Change in valuation allowance ................... -- (25,509) (19,130) Other ......................... (17,289) 44,760 (5,099) ---------- -------- -------- Effective rate ................ $2,128,610 $159,251 $ 57,381 ========== ======== ========
During the nine months ended September 30, 1997 and years ended December 31, 1996 and 1995, cash paid for income taxes was approximately $2,000, $1,000 and $45,000, respectively. The aggregate gross and net unrealized appreciation over the cost for Federal income tax purposes was $7,413,705, $3,399,423 and $2,915,758 as of December 31, 1997, 1996 and 1995, respectively. The aggregate cost of securities for Federal income tax purposes were $132,870,434, $580,998 and $506,664 as of December 31, 1997, 1996 and 1995, respectively. As discussed in Note 1, the Company has historically been taxed under subchapter C and is currently operating so as to qualify and intends to file as a subchapter M corporation for Federal income tax purposes. The tax consequences of converting a corporation from taxation under subchapter C to subchapter M are uncertain. The Company has requested a ruling from the IRS to clarify the consequences of the conversion. The Company expects to receive a favorable ruling but there are no assurances that it will receive a favorable ruling. If the Company does not receive a timely favorable ruling, it intends to treat the conversion as a deemed sale which will result in a tax payment of approximately $3.1 million and will result in the Company declaring an additional dividend of approximately $5.9 million. Additionally, if the Company does not receive a timely favorable ruling it will reclassify the tax liability accrual on CIC's books from deferred to current. Note 9. Lease Commitments The Company has non-cancelable operating leases for office space and office equipment. The leases expire over the next seven years and contain provisions for certain annual rental escalations. Rent expense for operating leases for three months ended December 31, 1997, the nine months ended September 30, 1997 and the years ended December 31, 1996 and 1995, was approximately $73,000, $97,000, $101,000 and $95,000, respectively. Future minimum lease payments under non-cancelable operating leases at December 31, 1997 were as follows: 1998 ............................................................... $ 331,000 1999 ............................................................... 237,000 2000 ............................................................... 237,000 2001 ............................................................... 242,000 2002 and thereafter ................................................ 605,000 ---------- Total .............................................................. $1,652,000 ========== Note 10. Employee Stock Ownership Plan The Company maintains an ESOP, which includes all employees and is fully funded by the Company. Contributions are made at the Company's discretion up to the lesser of $30,000 or 25% of annual compensation expense for each employee. Employees are not fully vested until completing five years of service. The Company sponsors an employee stock ownership trust to act as the depository of employer contributions to the ESOP as well as to administer and manage the actual trust assets which are deposited into the ESOP. Note 11. Capital Stock In July, 1997, all unearned ESOP shares became earned and were allocated to the ESOP accounts of employees. Pursuant to the Company's Class A preferred stock declaration, the Class A preferred stock held by the ESOP was converted into common stock on a one share to one share basis. The Company also contributed an additional 529 shares of common stock to the ESOP. In August 1997, the Company increased its authorized shares of unallocated preferred stock to 5,000,000 and increased its authorized shares of common stock to 20,000,000. On August 27, 1997, the Company declared a stock split effective August 29, 1997, effected in the form of a stock dividend pursuant to which each outstanding share of common stock was effectively converted into 29.859 shares. Outstanding shares and per share amounts for all periods presented have been restated to reflect this stock split. 26 On August 29, the Company completed its IPO and sold 10,382,437 shares of its common stock at a price of $15.00 per share. Pursuant to the terms of the Company's agreement with the underwriter of the offering, the Company issued 442,751 common stock warrants (Warrants) to the underwriter. The Warrants have a term of five years from the date of issuance and may be exercised at a price of $15.00 per share. The Company distributed $2,324,443 or $0.21 per share to its shareholders for the three months ended December 31, 1997. For Federal income tax purposes, the distribution was 100% from ordinary income. Note 12. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share for the three months ended December 31, 1997. For all other periods, earnings per share is not presented since it is not considered meaningful due to the IPO and reorganization of the Company as a RIC. Three Months Ended December 31, 1997 ----------------- Numerator for basic and diluted net increase in shareholders' equity resulting from operations.............................. $ 2,437,392 Denominator for basic-weighted average shares......................................... 11,068,767 Employee stock options................................... 251,232 Warrants................................................. 85,386 ----------- Dilutive potential common shares......................... 333,618 ----------- Denominator for diluted.................................. 11,405,385 =========== Basic earnings per share................................. $ 0.22 Diluted earnings per share............................... $ 0.21 27 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTINGS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE 28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information in response to this Item is incorporated herein by reference to the information provided in the Company's Proxy Statement for its Annual Meeting of Shareholders to be held May 14, 1998 (the "1998 Proxy Statement") under the heading "Directors and Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION Information in response to this Item is incorporated herein by reference to the information provided in the 1998 Proxy Statement under the heading "Compensation of Directors and Executive Officers." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information in response to this Item is incorporated herein by reference to the information provided in the 1998 Proxy Statement under the heading "Security Ownership of Management and Certain Beneficial Owners." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information in response to this Item is incorporated herein by reference to the information provided in the 1998 Proxy Statement under the heading "Certain Transactions." 29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) The following financial statements are filed herewith: AMERICAN CAPITAL STRATEGIES, LTD. Report of Independant Public Accountant Balance Sheets as of December 31, 1997 and 1996 Schedule of Investments as of December 31, 1997 and 1996 Statement of Operations for the Three Months Ended Decemeber 31, 1997, the Nine Months September 30, 1997, and the Years Ended December 31, 1996 and 1995. Statement of Shareholders' Equity as of December 31, 1997, September 30, 1997, December 31, 1996 and 1995. Statement of Cash Flows for the Three Months Ended December 31, 1997, the Nine Months Ended September 30, 1997 and the Years Ended December 31, 1996 and 1995 Financial Highlights for the Three Months Ended December 31, 1997 Notes to Financial Statements (2) No financial statement schedules of the Company are filed herewith because (i) such schedules are not required or (ii) the information required has been presented in the aforementioned financial statement (3) The following exhibits are filed herewith or incorporated herein by reference
Exhibit Description ------- ----------- 3.1 American Capital Strategies, Ltd. Second Amended and Restated Certificate of Incorporation. Incorporated herein by reference to Exhibit a of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. 3.2 American Capital Strategies, Ltd. Second Amended and Restated Bylaws. Incorporated herein by reference to Exhibit b of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. 4.1 Instruments defining the rights of security holders: See Article IV of the Company's Second Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit a of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997). 4.2 Instruments defining the rights of security holders: See Section I of the Company's Second Amended and Restated Bylaws (incorporated herein by reference to Exhibit b of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997). 4.3 Dividend Reinvestment Plan of the Company. Incorporated herein by reference to Exhibit e of the Pre-Effective Amendment Number 2 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 29, 1997. *10.1 Form of American Capital Strategies, Ltd., First Amended and Restated Employee Stock Ownership Plan. Incorporated herein by reference to Exhibit i.1 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. *10.2 Form of American Capital Strategies, Ltd. 1997 Stock Option Plan. Incorporated herein by reference to Exhibit i.2 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. *10.3 Form of Employment Agreement between the Company and David Gladstone. Incorporated herein by reference to Exhibit i.3 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. *10.4 Form of Employment Agreement between the Company and Malon Wilkus. Incorporated herein by reference to Exhibit i.4 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. *10.5 Form of Employment Agreement between the Company and Adam Blumenthal. Incorporated herein by reference to Exhibit i.5 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. *10.6 Form of Employment Agreement between the Company and Stephen L. Hester. Incorporated herein by reference to Exhibit i.6 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. *10.7 Form of Employment Agreement between the Company and Roland Cline. Incorporated herein by reference to Exhibit i.7 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. *10.8 Form of Employment Agreement between the Company and John Erickson. 10.9 Form of Loan Accounting Agreement between the Company and Riggs Bank, N.A. Incorporated herein by reference to Exhibit j.1 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. 10.10 Custodial Agreement between the Company and Riggs Bank, N.A. Incorporated herein by reference to Exhibit j.2 of the Pre-Effective Amendment Number 2 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 29, 1997. 10.11 Form of Referral Agreement between the Company and Riggs Bank, N.A. Incorporated herein by reference to Exhibit k.1 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. 10.12 Form of Referral Agreement between the Company and NCB Development Corporation. Incorporated herein by reference to Exhibit k.2 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. 21 Subsidiaries of the Company. 24 Power of Attorney. 27 Financial Data Schedule.
- ----------- * Management Contract or Compensatory Plan or Arrangement (b) Reports on Form 8-K NONE (c) Exhibits. See the exhibits filed herewith (d) Additional financial statement schedules NONE 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN CAPITAL STRATEGIES, LTD. By: /s/ John R. Erickson -------------------------- John R. Erickson Vice President and Chief Financial Officer Date: March 31, 1998 31 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Title Date - ---- ----- ---- /s/ David J. Gladstone Chairman and Director March 31, 1998 - ---------------------- David J. Gladstone /s/ Malon Wilkus President and Director March 31, 1998 - ---------------- Malon Wilkus * Executive Vice President March 31, 1998 - ------------------- and Director Adam Blumenthal /s/ John R. Erickson Vice President and Chief March 31, 1998 - ----------------- Financial Officer John R. Erickson (Principal Financial and Accounting Officer) /s/ Stephen L. Hester Vice President and General March 31, 1998 - --------------------- Counsel Stephen L. Hester Director March __, 1998 - ------------------------ Robert L. Allbritton * Director March 31, 1998 - ------------------ Landon Butler * Director March 31, 1998 - ---------------- Neil M. Hahl * Director March 31, 1998 - --------------------- Phillip R. Harper * Director March 31, 1998 - ---------------- Stan Lundine Director March __, 1998 - -------------------- Stephen P. Walko
- ------------ * Executed by John R. Erickson on behalf of the indicated person pursuant to a power of attorney. 32 EXHIBIT INDEX
Exhibit Description - ------- ----------- 3.1 American Capital Strategies, Ltd. Second Amended and Restated Certificate of Incorporation. Incorporated herein by reference to Exhibit a of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. 3.2 American Capital Strategies, Ltd. Second Amended and Restated Bylaws. Incorporated herein by reference to Exhibit b of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. 4.1 Instruments defining the rights of security holders: See Article IV of the Company's Second Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit a of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997). 4.2 Instruments defining the rights of security holders: See Section I of the Company's Second Amended and Restated Bylaws (incorporated herein by reference to Exhibit b of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997). 4.3 Dividend Reinvestment Plan of the Company. Incorporated herein by reference to Exhibit e of the Pre-Effective Amendment Number 2 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 29, 1997. *10.1 Form of American Capital Strategies, Ltd., First Amended and Restated Employee Stock Ownership Plan. Incorporated herein by reference to Exhibit i.1 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. *10.2 Form of American Capital Strategies, Ltd. 1997 Stock Option Plan. Incorporated herein by reference to Exhibit i.2 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. *10.3 Form of Employment Agreement between the Company and David Gladstone. Incorporated herein by reference to Exhibit i.3 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. 33 *10.4 Form of Employment Agreement between the Company and Malon Wilkus. Incorporated herein by reference to Exhibit i.4 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. *10.5 Form of Employment Agreement between the Company and Adam Blumenthal. Incorporated herein by reference to Exhibit i.5 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. *10.6 Form of Employment Agreement between the Company and Stephen L. Hester. Incorporated herein by reference to Exhibit i.6 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. *10.7 Form of Employment Agreement between the Company and Roland Cline. Incorporated herein by reference to Exhibit i.7 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. *10.8 Form of Employment Agreement between the Company and John Erickson. 10.9 Form of Loan Accounting Agreement between the Company and Riggs Bank, N.A. Incorporated herein by reference to Exhibit j.1 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. 10.10 Custodial Agreement between the Company and Riggs Bank, N.A. Incorporated herein by reference to Exhibit j.2 of the Pre-Effective Amendment Number 2 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 29, 1997. 10.11 Form of Referral Agreement between the Company and Riggs Bank, N.A. Incorporated herein by reference to Exhibit k.1 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. 10.12 Form of Referral Agreement between the Company and NCB Development Corporation. Incorporated herein by reference to Exhibit k.2 of the Pre-Effective Amendment Number 1 to the Registration Statement on Form N-2 (File No. 333-29943) filed on August 12, 1997. 21 Subsidiaries of the Company. 24 Power of Attorney. 27 Financial Data Schedule.
- ---------- * Management Contract or Compensatory Plan or Arrangement 34 EX-10.8 2 EMPLOYMENT AGREEMENT Exhibit 10.8 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of __________, 1997 (the "Effective Date") by and between AMERICAN CAPITAL STRATEGIES, LTD., a Delaware corporation (the "Company"), and John R. Erickson (the "Employee"). W I T N E S S E T H: WHEREAS, upon executing this Agreement Employee will become the chief financial officer ("CFO") of the Company; and WHEREAS, it is in the interests of the Company that Employee's service continue to be available to the Company. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I Definitions and Interpretations 1.1. Definitions For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following terms shall have the following respective meanings: "Base Salary" shall have the meaning specified in Section 3.1. "Board of Directors" shall mean the Board of Directors of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Compensation Committee" shall mean the compensation committee of the Board of Directors. "Confidential Information" shall have the meaning specified in Section 5.1(a). "Disability" shall mean a physical or mental condition of Employee that, in the good faith judgment of not less than a majority of the Executive Committee, prevents Employee from being able to perform the services required under this Agreement and which results in the Employee becoming eligible for long-term disability benefits (if such benefits are provided by the Company). If any dispute arises as to whether a Disability has occurred, or whether a Disability has ceased and the Employee is able to resume duties, then such dispute shall be referred to a licensed physician appointed by the president of the Medical Society or similar organization in Washington, D.C., at the request of either party. The Employee shall submit to such examinations and provide information as such physician may request and the determination of such physician as to the Employee's physical or mental condition shall be binding and conclusive on the parties. The Company shall pay the cost of any such physician and examination. "Dispute" shall have the meaning specified in Article VI. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Executive Committee" shall mean the Executive Committee of the Board of Directors or such other entity as may be designated for a particular function by the Board of Directors. "Expiration Date" shall have the meaning specified in Section 2.2. "ISO Plan" shall have the meaning specified in Section 3.2. "Misconduct" shall mean one or more of the following: (i) the willful and continued failure by Employee to perform substantially Employee's duties described in Section 2.3 (other than any such failure resulting from Employee's incapacity due to physical or mental illness) after two (2) written notices of such failure have been given to Employee by the Company and Employee has had a reasonable period (not to exceed 15 days from the second notice) to correct such failure; (ii) the commission by Employee of acts that are dishonest and demonstrably injurious to the Company (monetarily or otherwise) in any material respect; or (iii) a material breach or violation by Employee of (a) any material provision of this Agreement or (b) any material Company employment policy, including its Stock Trading Policies and Procedures which the Company will publish from time to time, which, if capable of being remedied, remains unremedied for more than 15 days after written notice thereof is given to Employee by the Company. For purposes of this definition, no act or failure to act on Employee's part shall be considered "Misconduct" if done or omitted to be done by Employee in good faith and in the reasonable belief that such act or failure to act was in the best interest the Company or in furtherance of Employee's duties and responsibilities described in Section 2.3. "Notice of Termination" shall mean a notice purporting to terminate Employee's employment in accordance with Section 4.1 or 4.2. Such notice shall specify the effective date of such termination, which date shall not be less than 30 (one (1) day in the case of a termination by the Company for Misconduct) or more than 60 days after the date such notice is given. If such termination is by the Company for Disability or Misconduct, such notice shall set forth in reasonable detail the reason for such termination and the facts and circumstances claimed to provide a basis therefor. "Person" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust and an unincorporated organization. "Principal Bonus Plan" shall have the meaning specified in Section 3.2. "Term" shall have the meaning specified in Section 2.2. "Termination Date" shall mean the termination date specified in a Notice of Termination delivered in accordance with this Agreement. 2 1.2. Interpretations (a) In this Agreement, unless a clear contrary intention appears, (i) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision, (ii) reference to any Article or Section, means such Article or Section hereof, (iii) the words "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term, and (iv) where any provision of this Agreement refers to action to be taken by either party, or which such party is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such party. (b) The Article and Section headings herein are for convenience only and shall not affect the construction hereof. ARTICLE II Employment: Term, Positions and Duties, Etc. 2.1. Employment The Company agrees to employ Employee and Employee agrees to accept employment with the Company, in each case on the terms and conditions set forth in this Agreement. 2.2. Term of Employment Unless sooner terminated pursuant to Article IV, the term of Employee's employment under this Agreement (the "Term") shall commence on the Effective Date and shall continue until the first anniversary of the Effective Date (the "Expiration Date"); provided, however, that on each date during the Term, the Expiration Date shall be reset to the date one year after the date thereof, except that either party may terminate this Agreement by giving written notice that such daily extensions of the Term shall be discontinued in which case the Expiration Date shall be the date one year after the delivery of such notice. 2.3. Positions and Duties (a) While employed hereunder, Employee shall serve as the CFO of the Company and the Company shall use its best efforts to cause the Board of Directors to appoint the Employee to the position of Treasurer of the Company. As CFO and Treasurer of the Company Employee shall directly supervise the Controller of the Company and shall be responsible for developing management policy for financial control and treasury functions; analyzing and interpreting financial information pertaining to the Company's performance, making recommendations concerning business policy, resource allocation and business operations to improve Company financial performance; alerting the President and other managers to trends in the financial performance of the business that may require management action, determining Company requirements for financial analysis, planning, control and reporting systems that adequately monitor and provide financial insight into the operation of Company 3 business and developing appropriate systems to do so; forecasting capital requirements, identifying and analyzing capital sources, developing financial alternatives and determining the most advantageous financing methods, developing and maintaining working relationships with banks, financial institutions, investment firms, developing policies and specific plans for conducting Company relations with outside financial firms, maintaining financing contracts and arrangements; managing investor relations effort including quarterly and annual reports, maintaining relationships with stock analysts and assuming the role of chief financial spokesperson for the Company; managing all secondary debt and equity offerings; preparing or supervising the preparation of SEC filings (10-Q, 10-K, 8-K and other non recurring financial filings), monthly internal balance sheet, statement of operations, statement of cash flows, and statement of stockholder's equity; preparing monthly and quarterly financial analysis for the President and BOD; the annual budgeting process; the maintenance of financial systems; the dispersal of benefits and payroll; the development of benefit and payroll policies; the coordination of audits, tax and other services; the controls and review of corporate level disbursements; and other projects requested by the President (b) While employed hereunder, Employee shall (i) report directly to the President of the Company and (ii) observe and comply with all lawful policies, directions and instructions of the President which are consistent with the foregoing provisions of this paragraph (a). (b) While employed hereunder, Employee shall (i) devote substantially all of Employee's business time, attention, skill and efforts to the faithful and efficient performance of Employee's duties hereunder and (ii) not accept employment with any Person other than with the Company. Notwithstanding the foregoing, Employee may engage in the following activities so long as they do not interfere in any material respect with the performance of Employee's duties and responsibilities hereunder: (i) serve on corporate, civic, religious, educational or charitable boards or committees and (ii) manage Employee's personal investments. (c) While employed hereunder, Employee shall not knowingly prejudice, in any material respect, the reputation of the Company in the fields of business in which it is engaged or with the investment community or the public at large. ARTICLE III Compensation and Benefits 3.1. Base Salary (a) For services rendered by Employee under this Agreement, the Company shall pay to Employee an annual base salary ("Base Salary") of $125,000 evenly paid twice a month. Subject to paragraph (b) below, the President may adjust the amount of the Base Salary at any time as he may deem appropriate in his sole discretion. 4 (b) The amount of the Base Salary may not be decreased without the prior written approval of the Employee except that if the President increases the Base Salary as provided in the last sentence of paragraph (a) above, the President may thereafter decrease the Base Salary by an amount not to exceed the amount of such increase. 3.2 Principal Bonus Plan During the Term, the Company shall maintain and the Employee shall be entitled to participate in an annual incentive bonus plan open to Principals and the CFO and certain other employees of the Company (the "Principal Bonus Plan"), which will provide for the payment of cash bonuses to participants within 90 days of the end of each fiscal year based on the Company's financial performance for that year and other appropriate factors. Under the Principal Bonus Plan, Employee shall be eligible to earn a target bonus (the "Target Bonus") each year of up to 125% of Employee's Base Salary for such year based on criteria established by the Compensation Committee, and the performance of the Company against such criteria. The establishment of such criteria and of the necessary performance targets for partial or full earning of the Target Bonus shall be at the sole discretion of the Compensation Committee. 3.3 Long-term Incentive Compensation The Company has established a long-term incentive compensation plan, which provides key employees of the Company with ownership interests in the Company, as substantially set forth in Attachment A hereto (the "ISO Plan"). Under the ISO Plan, the Company shall use its best efforts to cause the Board of Directors to grant Employee options to purchase 25,000 shares of common stock of the Company, of which 5,000 options would be awarded immediately and the remaining 20,000 options would be subject to shareholders approval. One-third of such options will vest and become exercisable on each of the first three anniversaries of the grant of the options. To the extent permissible, such options shall be characterized as Incentive Stock Options as defined in Section 422 of the Code. Failing Board of Director or shareholder approval, the Company shall in good faith attempt to develop mutually agreeable alternative compensation. 3.4. Vacation While employed hereunder, Employee shall be entitled to vacation benefits in accordance with the vacation policy adopted by the Company from time to time for Principals. Unless changed by the President in a manner generally applicable to Principals of the Company, the Employee shall be entitled to three weeks of vacation in each of the first two years of employment with the Company, three weeks of vacation in each of the third and fourth years of employment with the Company and four weeks per year in the fifth and subsequent years of employment. Employee shall not be entitled to accumulate and carryover unused vacation time from year to year. 3.5. Other Benefits Employee shall be entitled to receive all employee benefits, fringe benefits and other perquisites that may be offered by the Company to its Principals as a group, including, without limitation, participation by Employee and, where applicable, Employee's dependents, in the various employee benefit plans or programs (including, without limitation, pension plans, 5 profit sharing plans, stock plans, health plans, life insurance, parking and disability insurance) generally provided to Principals of the Company, subject to meeting the eligibility requirements with respect to each of such benefit plans or programs. However, nothing in this Section 3.5 shall be deemed to prohibit the Company from making any changes in any of the plans, programs or benefits described herein, provided such changes apply to all similarly situated Principals. ARTICLE IV Termination of Employment 4.1. Termination by Employee Employee may, at any time prior to the Expiration Date, terminate Employee's employment hereunder for any reason by delivering a Notice of Termination to the President. Upon such termination, Employee shall be entitled only to those rights and payments payable under Section 4.3. All options of the Employee under the ISO Plan (or similar plan) which have not vested as of employee's Termination Date shall lapse and shall not be exercisable. All previously vested options shall remain exercisable for the shorter of 90 days following the Termination Date and their original term. All loans to the Employee in connection with the prior exercise of any options under the ISO Plan (or similar plan) shall be due the earlier of 90 days following the Employee's death and their original term. 4.2. Termination by the Company The President may, at any time prior to the Expiration Date, terminate Employee's employment hereunder for any reason by delivering a Notice of Termination to Employee. If such termination occurs during the first six months of employment by the Company for any reason other than Misconduct, the Employee shall be entitled to a severance amount of $60,000 and such rights and privileges as are set forth in section 4.3 and to no other rights and privileges which may be available hereunder upon a termination of employment. 4.3. Payment of Accrued Base Salary, Vacation Pay, etc. (a) Promptly upon the termination of Employee's employment for any reason (including death), the Company shall pay to Employee (or Employee's estate) a lump sum amount for (i) any unpaid Base Salary earned hereunder prior to the Termination Date, (ii) all unused vacation time accrued by Employee as of the Termination Date in accordance with Section 3.4, and (iii) all unpaid benefits earned or vested, as the case may be, by Employee as of the Termination Date under any and all incentive or deferred compensation plans or programs of the Company. (b) A termination of Employee's employment in accordance with this Agreement shall not alter or impair any of Employee's accrued rights or benefits as of the Termination Date under any employee benefit plan or program maintained by the Company, in each case except as provided therein or in any written agreement entered into between the Company and Employee pursuant thereto. 6 4.4. Additional Rights in Connection With Disability In the event that the Company terminates Employee by delivering a Notice of Termination to Employee stating that such Termination is by reason of a Disability, the Employee shall be entitled to the benefits and payments set forth in this Section 4.4: (a) Base Salary and Target Bonus. The Company shall continue to pay to Employee the Base Salary in effect as of the date on which the Notice of Termination was delivered for one (1) year following the Termination Date (such period being the "Continuation Period") which amount shall be reduced by any amount payable to Employee under any disability plan maintained by the Company for the benefit of Employee. In addition, the Employee shall be entitled to continue to participate in the Annual Bonus Plan for one (1) year following the Termination Date with the first anniversary of the Termination Date being the Expiration Date for purposes of Section 3.2. (b) Insurance Benefits, etc. The Company shall at all times during the Continuation Period, without charge to Employee or Employee's dependents, cause Employee and Employee's eligible dependents to be covered by and to participate in, to the fullest extent allowable under the terms thereof, all life, accidental death and dismemberment and health insurance plans and programs that may be offered to the Principals of the Company so that Employee will receive, at all times during the Continuation Period, the same benefits under such plans and programs as Employee would have been entitled to receive had Employee remained a Principal of the Company. In no event shall Employee's continuation period for purposes of Part 6 of Title I of the Employee Retirement Income Security Act of 1974, as amended ("COBRA"), begin prior to the end of Employee's coverage under the Company's group health plan as provided in this paragraph (b). (c) Options. All options of the Employee under the ISO Plan (or similar plan) which have not vested as of Employee's Termination Date and which would vest within one year of Employee's Termination Date shall vest and shall become immediately exercisable and shall remain exercisable by the Employee for the shorter of 18 months following the Employee's Termination Date and their original term. All other options shall expire. All loans to the Employee in connection with the prior exercise of any options under the ISO Plan (or similar plan) shall be due the earlier of 18 months following the Employee's Termination Date and their original term. Should the Employee's Disability end during the pendency of the Term, the Company may discontinue the payments contemplated by this Section 4.4 if it offers to reemploy Employee under the terms of this Agreement, but no such offer shall affect the terms of Section 4.4(c) above. 4.5. Additional Rights in Connection With Termination by the Company for Other than Misconduct or Disability In the event that the President terminates Employee's employment with the Company pursuant to Section 4.2 for other than Misconduct or a Disability, the Employee shall be entitled to the payments and benefits set forth in this Section 4.5: (a) Severance Payment. The Company shall pay to the Employee a severance payment equal to $60,000. In addition, the Employee shall be entitled to receive any Target Bonus for the year in which the Employee is entitled for the year in which the Termination occurs prorated through the 7 Employee's Termination Date. The amount payable to Employee under this paragraph (a) is in lieu of, and not in addition to, any severance payment due to or become due to Employee under any separate agreement or contract between Employee and the Company or pursuant to any severance payment plan, program or policy of the Company. (b) Options. All options of the Employee under the ISO Plan (or similar plan) which have not vested as of Employee's Termination Date shall lapse and shall not be exercisable. All previously vested options shall remain exercisable for the shorter of 90 days following the Termination Date and their original term. All loans to the Employee in connection with the prior exercise of any options under the ISO Plan (or similar plan) shall be due the earlier of 90 days following the Employee's termination and their original term. (c) Release. Notwithstanding anything in this Section 4.5 to the contrary, as a condition to the receipt of any benefit under this Section 4.5, Employee must first execute and deliver to the Company a release as set out in exhibit 4.5(d) hereto, releasing the Company, its officers, Board of Directors, employees and agents from any and all claims and from any and all causes of action of any kind or character that Employee may have arising out of Employee's employment with the Company or the termination of such employment, but excluding any claims and causes of action that Employee may have arising under or based upon this Agreement. 4.6. Additional Rights in the Event of Death In the event that the Employee's employment is terminated as a result of Employee's death, the Employee's estate or beneficiaries shall be entitled to the payments and benefits set forth in this Section 4.6: (a) Target Bonus. The Employee's estate shall be entitled to receive the Target Bonus that the deceased employee would have been entitled to have received in the year in which the death occurred. (b) Insurance Benefits, etc. The Company shall pay the cost for dependents of the Employee for insurance coverage that they are entitled to obtain from the Company following the Employee's death pursuant to COBRA for a period equal to two months multiplied by the number of full years (not to exceed nine) during which the Employee was employed by the Company. (c) Options. All options of the Employee under the ISO Plan (or similar plan) which have not vested as of Employee's death and which would vest within one year thereof shall vest immediately upon the Employee's death and shall remain exercisable by the Employee's estate for the shorter of 18 months following the Employee's death and their original term. All loans to the Employee in connection with the prior exercise of any options under the ISO Plan (or similar plan) shall be due the earlier of 18 months following the Employee's death and their original term. 4.7. Rights in the Event of Termination for Employee's Misconduct In the event that the Company terminates Employee's employment with the Company pursuant to Section 4.2 for Employee's Misconduct, Employee shall be entitled to the rights set forth in this Section 4.7 8 (a) Options. All options of the Employee under the ISO Plan (or similar plan) which have not vested as of employee's Termination Date shall lapse and shall not be exercisable. All previously vested options shall remain exercisable for the shorter of 90 days following the Termination Date and their original term. All loans to the Employee in connection with the prior exercise of any options under the ISO Plan (or similar plan) shall be due the earlier of 90 days following the Employee's death and their original term. (c) Release. Notwithstanding anything in this Section 4.7 to the contrary, as a condition to the receipt of any benefit under this Section 4.7, Employee must first execute and deliver to the Company a release as set out in exhibit 4.5(d) hereto, releasing the Company, its officers, Board of Directors, employees and agents from any and all claims and from any and all causes of action of any kind or character that Employee may have arising out of Employee's employment with the Company or the termination of such employment, but excluding any claims and causes of action that Employee may have arising under or based upon this Agreement. ARTICLE V Confidential Information and Non-Competition 5.1. Confidential Information (a) Employee recognizes that the services to be performed by Employee hereunder are special, unique, and extraordinary and that, by reason of such employment with the Company, Employee may acquire Confidential Information concerning the operation of the Company, the use or disclosure of which would cause the Company substantial loss and damages which could not be readily calculated and for which no remedy at law would be adequate. Accordingly, Employee agrees that Employee will not (directly or indirectly) at any time, whether during or after Employee's employment hereunder, (i) knowingly use for an improper personal benefit any Confidential Information that Employee may learn or has learned by reason of Employee's employment with the Company or (ii) disclose any such Confidential Information to any Person except (A) in the performance of Employee's obligations to the Company hereunder, (B) as required by applicable law, (C) in connection with the enforcement of Employee's rights under this Agreement, (D) in connection with any disagreement, dispute or litigation (pending or threatened) between Employee and the Company or (E) with the prior written consent of the Board of Directors. As used herein, "Confidential Information" includes information with respect to the Company's products, facilities and methods, research and development, trade secrets and other intellectual property, systems, patents and patent applications, procedures, manuals, confidential reports, product price lists, customer lists, financial information, business plans, prospects or opportunities; provided, however, that such term, shall not include any information that (x) is or becomes generally known or available other than as a result of a disclosure by Employee or (y) is or becomes known or available to Employee on a nonconfidential basis from a source (other than the Company) which, to Employee's knowledge, is not prohibited from disclosing such information to Employee by a legal, contractual, fiduciary or other obligation to the Company. (b) Employee confirms that all Confidential Information is the exclusive property of the Company. All business records, papers and documents kept or made by Employee while employed by the Company relating to 9 the business of the Company shall be and remain the property of the Company at all times. Upon the request of the Company at any time, Employee shall promptly deliver to the Company, and shall retain no copies of, any written materials, records and documents made by Employee or coming into Employee's possession while employed by the Company concerning the business or affairs of the Company other than personal materials, records and documents (including notes and correspondence) of Employee not containing proprietary information relating to such business or affairs. Notwithstanding the foregoing, Employee shall be permitted to retain copies of, or have access to, all such materials, records and documents relating to any disagreement, dispute or litigation (pending or threatened) between Employee and the Company. 5.2. Non-Competition (a) While employed hereunder and for the (i) a period of one (1) year thereafter or (ii) the period of two (2) years after the Termination Date, if this Agreement is terminated and the Employee is entitled to receive compensation and benefits under either Section 4.5 or Section 4.7 (the "Restricted Period"), Employee shall not, unless Employee receives the prior written consent of the Board of Directors, own a material interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, partner, stockholder, consultant or otherwise, (A) any Person (x) which competes with the Company in investing or consulting with small and medium sized businesses in the United States with regard to change of control transactions in which the transaction utilizes employee stock ownership plans, or (y) which provides or proposes to provide services to any Person which is a client of the Company as of the Termination Date or to which the Company has outstanding loans or in which the Company then has investments (including warrants or options), or (B) any potential client of the Company with which the Company has discussed a client, loan or investment relationship within 12 months prior to, as applicable, the end of Employee's employment or the Termination Date. It being understood that investments in mutual funds and Employee's current financial interest in Storage USA, Inc. is not prohibited by this section. (b) Employee has carefully read and considered the provisions of this Section 5.2 and, having done so, agrees that the restrictions set forth in this Section 5.2 (including the Restricted Period, scope of activity to be restrained and the geographical scope) are fair and reasonable and are reasonably required for the protection of the interests of the Company, its officers, directors, employees, creditors and shareholders. Employee understands that the restrictions contained in this Section 5.2 may limit Employee's ability to engage in a business similar to the Company's business, but acknowledges that Employee will receive sufficiently high remuneration and other benefits from the Company hereunder to justify such restrictions. (c) During the Restricted Period, Employee shall not, whether for Employee's own account or for the account of any other Person (excluding the Company), intentionally (i) solicit, endeavor to entice or induce any employee of the Company to terminate Employee's employment with the Company or accept employment with anyone else or (ii) interfere in a similar manner with the business of the Company. (d) In the event that any provision of this Section 5.2 relating to the Restricted Period or the areas of restriction shall be 10 declared by a court of competent jurisdiction to exceed the maximum time period or areas such court deems reasonable and enforceable, the Restricted Period or areas of restriction deemed reasonable and enforceable by the court shall become and thereafter be the maximum time period and/or areas. 5.3. Injunctive Relief Employee acknowledges that a breach of any of the covenants contained in this Article V may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach, any payments remaining under the terms of this Agreement shall cease and the Company shall be entitled to obtain a temporary restraining order or a preliminary or permanent injunction restraining Employee from engaging in activities prohibited by this Article V or such other relief as may be required to specifically enforce any of the covenants contained in this Article V. Employee agrees to and hereby does submit to in personam jurisdiction before each and every such court for that purpose. ARTICLE VI Dispute Resolution In the event a dispute shall arise between the parties as to whether the provisions of this Agreement have been complied with (a "Dispute"), the parties agree to resolve such Dispute in accordance with the following procedure: (a) A meeting shall be held promptly between the Parties, attended by (in the case of the Company) by one or more individuals with decision-making authority regarding the Dispute, to attempt in good faith to negotiate a resolution of the Dispute. (b) If, within 10 days after such meeting, the parties have not succeeded in negotiating a resolution of the Dispute, the parties agree to submit the Dispute to mediation in accordance with the Commercial Mediation Rules of the American Arbitration Association except that Disputes with regard to the existence of a Disability shall be resolved in accordance with the definition of the term "Disability" above. (c) The parties will jointly appoint a mutually acceptable mediator, seeking assistance in such regard from the American Arbitration Association if they have been unable to agree upon such appointment within 10 days following the 10-day period referred to in clause (b) above. (d) Upon appointment of the mediator, the parties agree to participate in good faith in the mediation and negotiations relating thereto for 15 days. (e) If the parties are not successful in resolving the Dispute through mediation within such 15-day period, the parties agree that the Dispute shall be settled by arbitration in accordance with the Expedited Procedures of the Commercial Arbitration Rules of the American Arbitration Association. (f) The fees and expenses of the mediator/arbitrators shall be borne solely by the non-prevailing party or, in the event there is no clear prevailing party, as the mediator/arbitrators deem appropriate. 11 (g) Except as provided above, each party shall pay its own costs and expenses (including, without limitation, attorneys' fees) relating to any mediation/arbitration proceeding conducted under this Article VI. (h) All mediation/arbitration conferences and hearings will be held in the greater Washington, D.C. area. (i) In the event there is any disputed question of law involved in any arbitration proceeding, such as the proper legal interpretation of any provision of this Agreement, the arbitrators shall make separate and distinct findings of all facts material to the disputed question of law to be decided and, on the basis of the facts so found, express their conclusion of the question of law. The facts so found shall be conclusive and binding on the parties, but any legal conclusion reached by the arbitrators from such facts may be submitted by either party to a court of law for final determination by initiation of a civil action in the manner provided by law. Such action, to be valid, must be commenced within 20 days after receipt of the arbitrators' decision. If no such civil action is commenced within such 20-day period, the legal conclusion reached by the arbitrators shall be conclusive and binding on the parties. Any such civil action shall be submitted, heard and determined solely on the basis of the facts found by the arbitrators. Neither of the parties shall, or shall be entitled to, submit any additional or different facts for consideration by the court. In the event any civil action is commenced under this paragraph (b), the party who prevails or substantially prevails (as determined by the court) in such civil action shall be entitled to recover from the other party all costs, expenses and reasonable attorneys' fees incurred by the prevailing party in connection with such action and on appeal. (j) Except as limited by paragraph (b) above, the parties agree that judgment upon the award rendered by the arbitrators may be entered in any court of competent jurisdiction. In the event legal proceedings are commenced to enforce the rights awarded in an arbitration proceeding, the party who prevails or substantially prevails in such legal proceeding shall be entitled to recover from the other party all costs, expenses and reasonable attorneys' fees incurred by the prevailing party in connection with such legal proceeding and on appeal. (k) Except as provided above, (i) no legal action may be brought by either party with respect to any Dispute and (ii) all Disputes shall be determined only in accordance with the procedures set forth above. ARTICLE VII Miscellaneous 7.1. No Mitigation or Offset The provisions of this Agreement are not intended to, nor shall they be construed to, require that Employee mitigate the amount of any payment provided for in this Agreement by seeking or accepting other employment, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by Employee as the result of employment by another employer or otherwise. Without limitation of the foregoing, the Company's obligations to make the payments to Employee required under this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set off, 12 counterclaim, recoupment, defense or other claim, right or action that the Company may have against Employee, except that the Company may deduct from any amount required to be reimbursed to the Company by Employee under Section 4.10 or Article VI(a) the amount of any payment which the Company is then required to make to Employee hereunder. 7.2. Assignability The obligations of Employee hereunder are personal and may not be assigned or delegated by Employee or transferred in any manner whatsoever, nor are such obligations subject to involuntary alienation, assignment or transfer. The Company shall have the right to assign this Agreement and to delegate all rights, duties and obligations hereunder as provided in Section 7.5. 7.3. Notices All notices and all other communications provided for in the Agreement shall be in writing and addressed (i) if to the Company, at its principal office address or such other address as it may have designated by written notice to Employee for purposes hereof, directed to the attention of the President with a copy to the Secretary of the Company and (ii) if to Employee, at Employee's residence address on the records of the Company or to such other address as Employee may have designated to the Company in writing for purposes hereof. Each such notice or other communication shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, except that any notice of change of address shall be effective only upon receipt. 7.4. Severability The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 7.5. Successors: Binding Agreement (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance reasonable acceptable to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used herein, the term "Company" shall include any successor to its business and/or assets as aforesaid which executes and delivers the Agreement provided for in this Section 7.5 or which otherwise becomes bound by all terms and provisions of this Agreement by operation of law. (b) This Agreement and all rights of Employee hereunder shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributes, devisees and legatees. If Employee should die while any amounts would be payable to Employee hereunder if Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance 13 with the terms of this Agreement to Employee's devisee, legatee, or other designee or, if there be no such designee, to Employee's estate. 7.6. Tax Matters. The Company shall withhold from all payments hereunder all applicable taxes (federal, state or other) which it is required to withhold therefrom unless Employee has otherwise paid (or made other arrangements satisfactory) to the Company the amount of such taxes. 7.7 Amendments and Waivers No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Employee and the President. No waiver by either party hereto at any time of any breach by the other party hereto of, or in compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 7.8. Entire Agreement, Termination of Other Agreements This Agreement is an integration of the parties' agreement and no agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 7.9. Governing Law THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND WITHOUT REGARD TO ITS CONFLICT OF LAWS PROVISION. 7.10. Counterparts This Agreement may be executed in or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written. AMERICAN CAPITAL STRATEGIES, LTD. By:_______________________________ Malon Wilkus, President EMPLOYEE: _________________________________ John R. Erickson EX-21 3 SUBSIDIARIES OF THE CORPORATE Exhibit 21 Subsidiaries of American Capital Strategies, Ltd. 1. ACS Capital Investments Corporation, a Delaware corporation 2. American Capital Strategies Labor Research, Inc., a Delaware corporation 3. ACS Genpar, Inc., a Delaware corporation EX-24 4 POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of American Capital Strategies, Ltd., a corporation organized under the laws of the state of Delaware (the "Company"), hereby constitutes and appoints David J. Gladstone, Malon Wilkus, Adam Blumenthal, John Erickson and Samuel A. Flax, and each of them (with full power to each of them to act alone), his or her true and lawful attorneys-in-fact and agents for him and her on his or her behalf and in his or her name, place and stead, in all cases with full power of substitution and resubstitution, in any hand and all capacities, to sign, execute and affix his or her seal to and file with the Securities and Exchange Commission (or any other governmental or regulatory authority) the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 or any other appropriate form and all amendments or supplements (including post-effective amendments) thereto with all exhibits and any and all documents required to be filed with respect thereto, relating to the filing of the Annual Report of the Company, and grants to each of them full power and authority to do and to perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully and to all intents and purposes as he himself or she herself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS HEREOF, the undersigned director and or officer has hereunto set his or her hand and seal, as of the date specified.
Signature Title Date - --------- ----- ---- - -------------------------- Director March 23, 1998 Robert L. Allbritton /s/ Adam Blumenthal Executive Vice President, March 23, 1998 - -------------------------- Director and Secretary Adam Blumenthal /s/ Landon Butler Director March 23, 1998 - -------------------------- Landon Butler /s/ John R. Erickson Chief Financial Officer March 23, 1998 - -------------------------- (Principal Accounting and John R. Erickson Financial Officer) /s/ David J. Gladstone Chairman of the Board of March 23, 1998 - -------------------------- Directors David J. Gladstone
/s/ Neil M. Hahl Director March 23, 1998 - -------------------------- Neil M. Hahl /s/ Philip R. Harper Director March 23, 1998 - -------------------------- Philip R. Harper /s/ Stephen L. Hester Vice President and General March 23, 1998 - -------------------------- Counsel Stephen L. Hester /s/ Stan Lundine Director March 23, 1998 - -------------------------- Stan Lundine - -------------------------- Director March 23, 1998 Stephen P. Walko /s/ Malon Wilkus President and Director March 23, 1998 - -------------------------- Malon Wilkus
EX-27 5 FINANCIAL DATA SCHEDULE
6 This schedule contains financial information extracted fromt the consolidated financial statement of American Capital Strategies, Ltd. for the year ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. 0000817473 American Capital Strategies, Ltd. 1 U.S. Dollars 12-MOS Dec-31-1997 Jan-01-1997 Dec-31-1997 1.000 133,677,107 140,284,141 1,504,715 54,082 8,862,416 150,705,354 0 0 53,454 53,454 0 145,050,601 11,068,757 481,058 0 54,624 0 0 5,655,923 150,651,900 0 2,122,876 698,184 551,061 2,122,876 0 167,573 2,437,392 0 2,324,443 0 0 0 0 0 0 0 0 0 0 0 0 551,061 77,011,776 13.60 0.21 0.01 0 .21 0 13.61 0.004 214,842 0.04
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