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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period from Inception (May 23, 1996) to December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) FOR THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to_________________
Commission file number 000-21593
Western Pennsylvania Adventure Capital Fund
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 25-1792727
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2000 Technology Drive, Suite 150, Pittsburgh, PA 15219-3109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (412) 687-0977
Securities Registered Pursuant to Section 12 (b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock, $.01 Par Value None
Securities Registered Pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to the 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 the 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 the 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. ( )
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant at March 25, 1997: $0
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 25, 1997
Common stock, $.01 par value 250,000
Documents Incorporated by Reference: None
1
Western Pennsylvania Adventure Capital Fund
Table of Contents
Page No
-------
Part I
Item 1. Business 3
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
Part II
Item 5. Market for Registrant's Common Equity and Related 5
Stockholder Matters
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis of Financial Condition 6
and Results of Operations
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on Accounting 16
and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant 17
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial Owners and 22
Management
Item 13. Certain Relationships and Related Transactions 23
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on 24
Form 8-K
2
PART 1
Item I. Business
Western Pennsylvania Adventure Capital Fund (the "Registrant") was incorporated
in Pennsylvania on May 23, 1996. The Registrant does not currently conduct any
business operations. The Registrant is currently offering its common stock, par
value $0.01 (the "Common Stock") in an offering under Regulation E of the
Securities Act of 1933 (the "Offering"). The Registrant intends to invest the
net proceeds of the Offering primarily in the equity and/or debt securities (the
"Portfolio Securities") of development stage companies located in western
Pennsylvania (the "Portfolio Companies"). The Registrant will seek to identify
companies with annual sales of less than $1 million which, in the opinion of
management, have the potential within five years to achieve annual sales of at
least $5 million and an internal rate of return on invested capital in excess of
30%. However, the Registrant may invest in Portfolio Companies which have higher
initial sales or which do not meet these specified financial targets if
management of the Registrant otherwise believes that the investment offers the
potential for long-term capital appreciation. The Registrant does not have a
policy of investing any specified percentage of its assets in debt or equity
securities, and may invest 100% of its assets in either type of security.
The Registrant generally intends to invest from $50,000 to $250,000 per
Portfolio Company, but is not prohibited from making larger or smaller
investments if management of the Registrant believes that it is in the interest
of the Registrant to do so. For instance, the Registrant may make an initial
investment within the above range and later find it necessary to make a
"follow-on" investment if management determines that additional financing is
required to enable a particular Portfolio Company to continue its operations or
to complete an important contract or research and development project or the
like. Accordingly, although it is a policy of the Registrant to seek to
diversify its investments (as to Portfolio Companies as well as types of
industries), the Registrant is not prohibited from investing more than 10% of
its funds available for investment in the Portfolio Securities of a single
issuer or in Portfolio Companies engaged in a single industry. In certain
circumstances, the Registrant may invest in particular Portfolio Companies on an
installment, phase-in or staged basis with subsequent installments conditioned
upon the Portfolio Company achieving specified performance milestones.
The Registrant has no policy with respect to concentrating in a particular
industry or group of industries nor with respect to investing in a company with
any particular investing partner. The Registrant intends to invest all or
substantially all of its available assets (except assets invested in short-term
obligations) in companies which are headquartered or conduct significant
operations in western Pennsylvania. Furthermore, except for such short-term
investments, the Registrant intends initially to invest only in Portfolio
Companies which constitute "eligible portfolio companies" within the meaning
3
of such term under the Investment Company Act of 1940, as amended (the "1940
Act"). Generally, "eligible portfolio securities" are companies the securities
of which are not publicly-traded. However, the Registrant shall be permitted to
make additional investments (including "follow-on" investments) of up to 30% of
its assets in the Portfolio Securities of companies which are not "eligible
portfolio companies" so long as they were "eligible portfolio companies" when
the Registrant originally invested in them. Such investments may be made through
the exercise of warrants, the conversion of convertible debt securities, the
purchase of debt or equity securities from the issuer or any holder of such
securities or in any other manner permitted under the applicable provisions of
the 1940 Act and the investment policies of the Registrant.
Item 2. Properties
The Registrant does not own any properties, and operates out of shared office
space with The Enterprise Corporation of Pittsburgh, the Registrant's investment
advisor ("Enterprise").
Item 3. Legal Proceedings
There are no legal proceedings to which the Registrant is a party.
Item 4. Submission of Matters to a Vote of Security Holders
Enterprise, the Registrant's investment advisor and sole stockholder, in an
action taken by unanimous written consent on November 11, 1996, ratified the
appointment of Goff, Backa, Alfera & Company to audit the financial statements
of the Registrant as of and for the period from inception (May 23, 1996) to
December 31, 1996.
4
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Registrant's Common Stock is not traded on any national or regional
securities exchange, and the Registrant has no intention of causing the shares
to be qualified for listing on the NASDAQ National Market or Small Cap systems.
The Registrant's only stockholder as of March 25, 1997, was Enterprise. As of
March 25, 1997, the Registrant had received subscriptions for purchase of a
total of 884,100 shares of its Common Stock from 14 subscribers. The Registrant
is not permitted to accept any subscriptions unless it receives subscriptions
for at least 1,000,000 shares ($1 million). See "Financial Condition, Liquidity
and Capital Resources" in Item 7.
No dividends have been declared on the Registrant's Common Stock. Management
does not have as a policy the regular payment of dividends to investors.
Generally, Management intends to reinvest interest, dividends or other
distributions received from Portfolio Companies and any proceeds realized from
the sale of Portfolio Securities in new Portfolio Securities. There are no
dividend restrictions.
Item 6. Selected Financial Data
The Registrant was incorporated on May 23, 1996, and has had no active
operations. Its activities in 1996 consisted of start-up and syndication.
May 23, 1996
through
December 31, 1996
-----------------
Revenues $ 0
Organization costs $ 15,000
Net loss $ (106)
Net income per share --
Cash dividends $ 0
Total assets $ 15,418
Net asset (deficit) applicable to shares outstanding $(38,773)
Net asset (deficit) value per share $ (0.16)
Syndication costs $ 41,167
5
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The Registrant was incorporated on May 23, 1996. Its only activities in 1996
consisted of start-up and syndication. There were no revenues in 1996. Interest
charges and bank service fees amounted to $106, which resulted in a net loss of
$106.
The Registrant is soliciting subscriptions for the purchase of a minimum of
1,000,000 shares and a maximum of 5,000,000 shares of its Common Stock under an
offering circular dated November 7, 1996 (the "Offering Circular"). Under the
terms of the Offering Circular, shares are being offered at $1.00 per share,
with a minimum purchase of 10,000 shares per investor, subject to the discretion
of the Registrant to accept subscriptions for fewer shares. The shares are being
offered directly by the Registrant. There are no brokers, placement agents or
other persons who will receive commissions or placement fees from the sale of
shares under the Offering Circular.
Financial Condition, Liquidity and Capital Resources
The Registrant's liquidity and financial resources will be dependent upon the
sale of its Common Stock in the Offering. If the Registrant is successful in
obtaining subscriptions for 1,000,000 shares ($1 million), the proceeds from
sale of securities may be released to the Registrant from the escrow agent. If
successful, the Registrant expects to be in a position to begin investing in
Portfolio Securities. As of March 25, 1997, subscriptions for purchase of
884,100 shares of the Registrant's Common Stock have been received, and the
funds, $ 884,100, are being held by the escrow agent.
Inflation
The Registrant does not believe that inflation will have any significant effect
on the Registrant's operations or financial position.
6
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Financial Data
Page No.
--------
Report of Independent Certified Public Accountants 8
Financial Statements:
Statement of Assets and Liabilities, December 31, 1996 9
Statement of Operations, from the Date of Inception 10
(May 23, 1996) to December 31, 1996
Statement of Changes in Net Assets (Deficit), from the
Date of Inception (May 23, 1996) to December 31, 1996 11
Statement of Cash Flows, from the Date of Inception 12
(May 23, 1996) to December 31, 1996
Notes to Financial Statements 13
7
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholder
of the Western Pennsylvania Adventure Capital Fund
We have audited the accompanying statement of assets and liabilities of the
Western Pennsylvania Adventure Capital Fund (a Pennsylvania Corporation) as of
December 31, 1996, and the related statements of operation, changes in net
assets (deficit), and cash flows for the period from inception (May 23, 1996) to
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Western Pennsylvania
Adventure Capital Fund as of December 31, 1996, and the results of its
operations, the changes in its net assets, and its cash flows for the initial
period then ended in conformity with generally accepted accounting principles.
/s/ Goff, Backa, Alfera & Company
March 25, 1997
8
Western Pennsylvania Adventure Capital Fund
Statement of Assets and Liabilities
December 31, 1996
Assets
Cash $ 418
Organization Costs 15,000
Total Assets $15,418
=======
Liabilities
Accounts Payable $53,167
Demand Note Payable 1,000
Accrued Interest Payable 24
Total Liabilities $54,191
=======
Net Assets
Common Stock, Par Value $.01 Per $ 2,500
Authorized 10,000,000 Shares, Issued and
Outstanding 250,000 Shares
Syndication Costs (41,167)
Retained Deficit (106)
Net Assets (Deficit) Applicable to Shares Outstanding ($38,773)
========
Net Assets (Deficit) Value Per Share ($ 0.16)
========
See Independent Auditor's Report and notes to financial statements.
9
Western Pennsylvania Adventure Capital Fund
Statement of Operations
From the Date of Inception (May 23, 1996) to December 31, 1996
Revenues $ 0
Expenses:
Interest 24
Bank Charges 82
Total Expenses 106
Net Loss $(106)
Earnings Per Share $ 0
=====
See Independent Auditor's Report and notes to financial statements.
10
Western Pennsylvania Adventure Capital Fund
Statement of Changes in Net Assets (Deficit)
From the Date of Inception (May 23, 1996) to December 31, 1996
From Operations
Net Loss $ (106)
From Share Transactions:
Proceeds from Sale of Shares 2,500
Syndication Costs (41,167)
Net Decrease in Net Assets
Derived from Share Transactions (38,667)
Net Decrease in Net Assets (38,773)
Net Assets:
Beginning of Period 0
End of Period $(38,773)
========
See Independent Auditor's Report and notes to financial statements.
11
Western Pennsylvania Adventure Capital Fund
Statement of Cash Flows
From the Date of Inception (May 23, 1996) to December 31, 1996
Cash Flow from Operating Activities:
Operating Expenses Paid $ (82)
-------
Net Cash Used by Operating Activities (82)
-------
Cash Flow from Financing Activities:
Proceeds from Sale of Common Stock 2,500
Proceeds from Demand Note Payable 1,000
Payments of Syndication Costs (3,000)
-------
Net Cash Provided by Financing Activities 500
-------
Net Increase in Cash: 418
Cash at Beginning of Period 0
-------
Cash at End of Period $ 418
=======
See Independent Auditor's Report and notes to financial statements.
12
Western Pennsylvania Adventure Capital Fund
Notes to Financial Statements
December 31, 1996
Note 1 -- Summary of Significant Accounting Policies:
This summary of significant accounting policies of Western Pennsylvania
Adventure Capital Fund ("the Fund") is presented to assist in understanding the
Fund's financial statements. These accounting policies conform with generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
Nature of Operations
The Fund is a newly-formed Pennsylvania corporation, incorporated on May 23,
1996, which has conducted no significant business operations. The Fund has been
formed to become a Business Development Company ("BDC") and to be subject to the
applicable provisions of the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund intends to invest primarily in the equity and/or debt
securities of development stage companies located in western Pennsylvania. The
Fund will seek to make its investments in conjunction with a consortium of
investment partners such as individual investors, private non-profit or
for-profit companies or foundations, and federal, state or local public,
quasi-public or publicly-supported economic development organizations, agencies
or authorities which provide investment capital or low interest or other
financing for economic development.
The Fund's Board of Directors, which will be elected by the shareholders
annually, will have responsibility for management of the Fund, including
authority to select portfolio securities for investment by the Fund. The Board
will be advised by the officers of the Fund and by The Enterprise Corporation of
Pittsburgh ("Enterprise"), the Fund's investment advisor. Enterprise will screen
potential Portfolio Companies and present them to the Fund's Board for
investment consideration, conduct due diligence reviews of investment candidates
and manage the day-to-day operations of the Fund including, portfolio
management, preparing reports to shareholders and performing administrative
services. The recommendations of Enterprise as to investments are advisory only
and will not be binding on the Fund or its Board of Directors. Enterprise is a
private, non-profit consulting firm founded in 1983 for the purpose of assisting
entrepreneurs in developing new businesses in western Pennsylvania.
Enterprise will receive a fee equal to 5% of the aggregate amount of assets
invested by
13
the Fund in portfolio securities for providing investment advisory and
administrative services to the Fund. Enterprise may also receive compensation
from investment partners or members of any investment consortium that invests
with the Fund in portfolio securities, all on such basis as such other parties
and Enterprise shall agree.
Basis of Presentation -- Net Assets
The Fund is currently offering a total of 5,000,000 shares of its common stock,
par value $.01, at a price of $1.00 per share under Regulation E of the
Securities Act of 1933 (the "Offering"). In connection with its services in
organizing the formation and development of the Fund, Enterprise purchased
250,000 shares of common stock for $.01 per Share. If all 5,000,000 Shares are
sold in the Offering, the Shares held by Enterprise will represent 4.8% of the
issued and outstanding shares of the Fund. If less than 5,000,000 Shares are
sold in the Offering, the Fund shall have the right to repurchase from
Enterprise for $.01 per share such number of Shares as will result in
Enterprise's ownership percentage in the Fund immediately following the Offering
being 4.8%. The Shares purchased by Enterprise represent founder's shares.
Syndication Costs
Legal, accounting and other costs of $41,167 incurred in connection with the
Offering have been capitalized and reported as a permanent reduction of net
assets.
Start-Up and Organization Costs
A total of $15,000 was incurred in connection with the start-up and organization
of the Fund. These costs have been deferred and will be amortized ratably over a
period of 60 months from the date the Fund commences investment operations.
Note 2 -- Sale of Securities
As of December 31, 1996, the Fund had received subscriptions for 62,500 shares
of its common stock under the Offering. The proceeds from these subscriptions
must be deposited in an escrow account with the Fund's escrow agent, PNC Bank,
until such time as the escrow account reaches $1 million. At that time, the Fund
can withdraw the funds from the escrow account and begin to invest in portfolio
securities. If subscriptions for
14
1,000,000 shares ($1 million) have not been received and accepted by the Fund by
April 30, 1997 (subject to extension at the Fund's discretion to a date not
later than July 31, 1997), the Fund will terminate the Offering and return all
proceeds received by it to the subscribers. As of December 31, 1996, proceeds
received from subscribers under the Offering but not yet deposited with the
escrow agent totaled $62,500.
Note 3 -- Subsequent Events
As of March 25, 1997, the Fund had received subscriptions for 884,100 shares of
common stock under the Offering. The proceeds from these subscriptions totaled
$884,100 and were being held by the escrow agent.
Note 4 -- Demand Note Payable
On September 12, 1996, the Fund entered into a promissory note agreement with
Enterprise whereby Enterprise agreed to lend the Fund $1,000. The note is
payable upon demand and accrues interest at 8% per annum.
15
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None
16
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table and text sets forth the names and ages of all directors and
executive officers of the Registrant and their position and offices with the
Registrant. All of the directors will serve until the next annual meeting of the
stockholders and until their successors are elected and qualified or their
earlier death, retirement, resignation or removal. Officers serve at the
discretion of the Board of Directors. A brief description of the business
experience of each director and executive officer during the past five years and
an indication of directorships held by each director in other companies subject
to the reporting requirements under the federal securities laws are also
provided. There are no family relationships among directors and executive
officers.
Name Age Title Director Since
- ---- --- ----- --------------
G. Richard Patton 45 President, Chief Executive June 1, 1996
Officer and Director
Alvin J. Catz 58 Chief Financial Officer, June 1, 1996
Treasurer and Director
William F. Rooney 56 Secretary and Director June 1, 1996
Philip Samson 39 Director June 1, 1996
Douglas Schofield 51 Director June 1, 1996
G. Richard Patton, President, Chief Executive Officer and Director. Dr. Patton
holds a Ph.D. in Strategic Management and an M.S. in Industrial Administration
from the Krannert Graduate School of Management, Purdue University, and a B.S.
in Chemistry from the University of Michigan.
From 1978-1981, Dr. Patton was Vice President and Chief Administration Officer
of the Mellon Institute in Pittsburgh and a senior staff member of Energy
Productivity Center in Washington, D.C. In 1976, Dr. Patton was the recipient of
the first General Electric Award for Outstanding Research in the field of
strategic planning. He has also been elected Distinguished Professor by several
of the University of Pittsburgh Executive M.B.A. classes. In 1995 and 1996, he
was selected as a finalist in the Inc. Magazine Entrepreneur of the Year award
program. His publication topics and research interests
17
include strategy development, mergers and acquisitions, divestment, turn around
management and restructuring strategies, and entrepreneurship.
Dr. Patton has been a faculty member of the University of Pittsburgh's Joseph M.
Katz Graduate School of Business since 1976, and is currently an Associate
Professor. He teaches in the area of strategic management, planning and control
systems and entrepreneurship and new venture management in graduate and
executive programs. He also taught at Carnegie Mellon University's Graduate
School of Industrial Administration and at Chulalongkorn University's Graduate
Institute of business Administration in Bangkok, Thailand.
Dr. Patton is currently an active consultant, with clients that include Fortune
500 firms, family-owned firms, new ventures, and research and industry
associates in the U.S., Europe and Asia. His consulting activities include
executive development programs, strategy development, strategic planning systems
design and development, competitive analysis, technology and market assessment
and new venture analysis and start-up. He is also active in the venture capital
area and has been associated with or consulted on the founding, financing and
start-up of several new technology based companies. He also currently serves as
the Chairman of the Board for several companies.
During the past five years, Dr. Patton has invested in over 20 private
placements, including for companies engaged in such diverse businesses as
software design, fiber optics, corrugated container manufacture, copier
distribution and medical device design and production. The total raised for
these private placements has been in excess of $25 million.
Alvin J. Catz, Chief Financial Officer, Treasurer and Director. Mr. Catz is
currently a principal with Catz Consulting Associates, Inc. The firm offers
services in the areas of finance/accounting and computers/data processing. He is
actively involved in assisting new ventures in all aspects of their early stage
development including business plans, financing, organizational, and other
typical start-up related issues.
Mr. Catz has over 25 years of diversified business and financial experience
including management consulting, Fortune 500 Corporation Financial Officer, and
major certified public accounting firm management. Mr. Catz's background offers
an unusual combination of major mature company experience and dynamic smaller
growth company experience. This experience includes over five years as Corporate
Controller with H. J. Heinz Company in Pittsburgh, Pennsylvania. As Corporate
Controller, he was responsible for internal and external accounting and
financial reporting, accounting/internal control systems, financial policies,
and coordination of employee benefit plans.
18
Prior to joining Heinz in 1974, Mr. Catz served as Assistant Corporate
Controller for KDI Corporation ("KDI") in Cincinnati, Ohio, a conglomerate with
interests in defense, recreation, manufacturing and distribution. During his
five year association with KDI, its annual revenues grew $15 million to $135
million. His earlier experience includes serving as a Group Financial Manager
with Cincinnati Milacron, a major machine tool manufacturer based in Cincinnati,
Ohio. He began his business career with Peat, Marwick, Mitchell & Co., a major
certified public accounting firm.
Mr. Catz has a Master of Business Administration degree in Advanced Business
Economics from Xavier University, and a Bachelor of Business Administration
degree in Accounting from the University of Pittsburgh. He is a Certified Public
Accountant, and a member of the American Institute of Certified Public
Accountants and the Pennsylvania Institute of Certified Public Accountants. He
is a regular lecturer in the University of Pittsburgh's Graduate School of
Business. In addition, he has taught Financial Management in the University of
Pittsburgh's Graduate School of Business Management Program for Entrepreneurs.
During the past five years, Mr. Catz has invested in seven development stage
companies in western Pennsylvania. He has also assisted numerous development
stage companies in their fundraising efforts, including assisting in the
preparation of business plans and private placement memoranda.
William F. Rooney, Secretary and Director. Mr. Rooney is the founder and Vice
President of Sales for Transline Communications Corporation, an international
provider of voice and data services to the financial services industry between
the U.S. and major financial service centers in Europe, a position he has held
since its founding in 1992.
Mr. Rooney has over 25 years of experience in the telecommunications industry
including senior management and operating positions. From 1986 to 1994, Mr.
Rooney was Vice President of Sales for Republic Telecom Systems Corporation, a
telecommunications company specializing in multiplexer products ("Republic
Telecom"). In this capacity, he assisted Republic Telecom in the start-up phase
and helped to raise funding through venture capital firms. Republic Telecom was
successfully acquired by Netrix Corporation in 1994. He is also co-founder, Vice
President and Secretary for the East Coast Hockey League Toledo Storm, an
affiliate of the Detroit Red Wings, an NHL hockey team.
Mr. Rooney holds a B.S. degree in Industrial Management form LaSalle University
(1962) and an M.B.A. from Fordham University (1975).
Mr. Rooney is an active private investor and currently has investments in eight
early
19
stage, high technology companies in various industries.
Philip Samson, Director. Mr. Samson is President of Profitable Joint Solutions,
a consulting and investment firm wholly owned by Mr. Samson.
Mr. Samson's background includes several appointments within Mellon Bank. From
1981 to 1983, he worked for Mellon's Economics Department where he completed
advanced financial modeling assignments. In 1983, he joined Mellon's Corporate
Consulting Department where he managed a number of innovative projects including
designing a corporate credit scoring system, an internal credit network, a
retail bank strategy, and a profitability analysis and tactical plan for credit
cards. Mr. Samson became Vice President of Mellon's Credit Card Department in
1989. In this capacity, he was responsible for five portfolio purchases, as well
as structuring offerings that secured various affinity contracts. He also
initiated numerous profit improvements programs, including line increases,
incentive pricing, cross selling and related matters.
Additionally, in 1985, Mr. Samson acted as an advisor to Peter Ueberroth (then
Commissioner of Major League Baseball) to whom he contributed ideas which Mr.
Ueberroth incorporated in his proposals to the baseball players and owners
during the labor dispute in the summer of 1985. The commissioner was credited
with bringing a quick resolution to the dispute, with the baseball strike
lasting only two days. In 1992 and 1993, Mr. Samson was extensively quoted in
the financial and computer industry trade press, including a Fortune magazine
article titled "Computers That Learn By Doing" for his work involving the
financial application of neural networks.
Mr. Samson left Mellon Bank in 1993 to found Profitable Joint Solutions. In 1993
and 1994, Mr. Samson conceptualized, developed and implemented a 100% interest
rebate credit card offered by a major financial institution. This innovative
product has had a marked impact in the credit card industry.
Philip J. Samson holds an M.B.A. from Pennsylvania State University and a
Bachelor of Science degree in Engineering from the University of Maryland.
Douglas Schofield, Director. Dr. Schofield currently conducts business through
his own firm, Schofield Financing Counseling, providing financial advice to
individuals and families, and administrative services to families in the
handling of their financial affairs.
Dr. Schofield has sought throughout his career to build a strong foundation in a
variety of fields related to finance and planning. In addition to two years
working in an analytic and
20
planning capacity in the Federal Government (Transportation Department), Dr.
Schofield has 12 years experience in the banking industry. At Mellon Bank in
Pittsburgh, he managed the bank's investment strategy, managed foreign exchange
trading worldwide, and planned the bank's statewide expansion through the
acquisition of other banks. Thereafter, Dr. Schofield was employed by Equibank
and worked with the Chairman in a special capacity raising capital for the bank.
For the three years prior to forming his own firm, he worked as president in the
firm of French, Schofield & Associates providing comprehensive financial advice
to individuals and families.
Dr. Schofield received a Bachelors degree from Yale University with honors, in
1967, with a major in Chemistry and Chemical Engineering. He then attended
Harvard Business School and received an M.B.A. and a Doctorate in Strategic
Planning. Dr. Schofield has taught M.B.A. courses at Atlanta University and at
the University of Pittsburgh. He is the past President of the Harvard Business
School Association of Pittsburgh and has held several chair positions, as well
as served as trustee, for LaRoche College.
During the past five years, Dr. Schofield has invested in five development stage
companies in diverse industries. In addition, he has consulted extensively with
owners of closely-held companies during the past decade and has served on the
boards of two such companies during this period.
Section 16 (a) Beneficial Ownership Reporting Compliance
Each of the Registrant's directors and executive officers, G. Richard Patton,
Alvin J. Catz, William F. Rooney, Philip Samson, and Douglas Schofield and
Enterprise, a beneficial owner of more than 10% of the Registrant's Common
Stock, inadvertently failed to timely file Form 3s (reporting beneficial
ownership of the Registrant's Common Stock). This failure to timely file was
inadvertent, information concerning their acquisition of an interest in the
Registrant had previously been disclosed in other documents which were filed
with the Securities and Exchange Commission. None of the directors or executive
officers currently owns any shares of the Registrant's Common Stock, and
Enterprise did not trade any of the securities beneficially owned by it during
its brief period of noncompliance.
Item 11. Executive Compensation
No officer received any remuneration for serving as an officer of the Registrant
in 1996, and no director received any remuneration for serving as a director of
the Registrant in 1996. Each director will receive a $300 meeting attendance
fee. It is anticipated that
21
meetings will be held monthly.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Registrant's only stockholder as of December 31, 1996, was The Enterprise
Corporation of Pittsburgh, the Registrant's investment advisor.
Title Name and Amount and Percent
of Address of Nature of of
Class Beneficial Owner Beneficial Ownership Class
----- ---------------- -------------------- -----
Common The Enterprise $250,000 100%
Stock Corporation of
Pittsburgh
2000 Technology Drive
Suite 150
Pittsburgh, PA 15219-3109
22
Item 13. Certain Relationships and Related Transactions
None of the officers and directors of the Registrant have had any direct or
indirect material transactions involving the Registrant during the current
reporting period. All of the officers and directors are subscribers for the
purchase of common stock under the Registrant's Offering Circular dated November
7, 1996.
Enterprise serves as the Registrant's investment advisor. Enterprise will screen
potential Portfolio Companies and present them to the Registrant's Board for
investment consideration, conduct due diligence reviews of investment candidates
as directed by the Board, and provide staff to manage the day-to-day operations
of the Registrant including, portfolio management, preparing reports to
stockholders and performing administrative services.
In connection with its services in organizing the formation and development of
the Registrant, Enterprise purchased 250,000 shares of Common Stock for $.01 per
share. If all of the 5,000,000 Shares currently available for sale under the
Offering Circular are sold, these shares will represent 4.8% of the issued and
outstanding shares of the Registrant. If less than 5,000,000 shares are sold,
the Registrant shall have the right to repurchase from Enterprise for $.01 per
share such number of shares as will result in Enterprise's ownership percentage
being reduced to 4.8% of the then issued and outstanding shares of the
Registrant.
Enterprise will receive a fee equal to 5% of the aggregate amount of assets
invested by the Registrant in Portfolio Securities for providing investment
advisory and administrative services to the Registrant. Enterprise may also
receive compensation from investment partners or members of any investment
consortium that invest with the Registrant in Portfolio Securities, all on such
basis as such other parties and Enterprise shall agree, provided that in no
event, will Enterprise charge fees to such consortium members or investment
partners at rates lower, or on terms otherwise more favorable, than are offered
to the Registrant. Furthermore, none of the employees, officers or directors of
Enterprise will receive any compensation from any Portfolio Company by reason of
the Registrant or any other investor investing in such Portfolio Company's
securities upon the recommendation of Enterprise.
23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) The following financial statements and supplemental data are included
in Part II, Item 8:
Page No.
--------
Report of Independent Certified Public Accountants 8
Financial Statements:
Statement of Assets and Liabilities, December 31, 1996 9
Statement of Operations, from the Date of Inception 10
(May 23, 1996) to December 31, 1996
Statement of Changes in Net Assets (Deficit), from the 11 Date of
Inception (May 23, 1996) to December 31, 1996
Statement of Cash Flows, from the Date of Inception 12
(May 23, 1996) to December 31, 1996
Notes to Financial Statements 13
(2) All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
(3) Exhibits included herein:
*3 (a) -- Articles of Incorporation
**3 (b) -- By-Laws
10.1-- Investment Advisory Agreement dated as of 26
November 7, 1996, between the Registrant
and Enterprise
11-- Schedule of Computation of Net Income Per Share 32
27 -- Financial Data Schedule
24
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Registrant during the last
quarter of the period covered by this report.
* Incorporated by reference to the Registrant's Form 10 filed with the
Commission on October 21, 1996.
** Incorporated by reference to the Registrant's Notification on Form 1-E filed
with the Commission on September 6, 1996.
25
EXHIBIT 10.1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 7th day of November, 1996 by and between THE
WESTERN PENNSYLVANIA ADVENTURE CAPITAL FUND INC., a Pennsylvania Business
Development Company (the "Fund"), and THE ENTERPRISE CORPORATION, a Pennsylvania
nonprofit corporation (the "Manager").
WHEREAS, the Fund is a closed-end investment company that has elected to be
regulated as a business development company under section 54 of the Investment
Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Manager is exempt from registration under the Investment
Advisers Act of 1940 pursuant to section 203(b)(1) thereof ; and
WHEREAS, the Fund desires to retain the Manager to render management and
investment advisory services to the Fund in the manner and pursuant to the terms
set forth herein and the Manager desires to furnish such services.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. Duties of the Manager.
(a) Appointment of Manager. The Fund hereby appoints the Manager to act as
the manager and investment advisor of the Fund and to furnish, or cause to be
furnished, the administrative and investment advisory services described below,
subject to the supervision of the Board of Directors of the Fund and the Board's
general power to manage the business and affairs of the Fund, on the terms and
conditions set forth in this Agreement. The Manager hereby accepts such
appointment and agrees to render, or cause to be rendered, such services. The
Manager shall for all purposes herein be deemed to be an independent contractor
and shall, unless otherwise expressly provided or authorized, have no authority
to act for or represent the Fund in any way or otherwise be deemed an agent of
the Fund.
(b) Investment Advisory Services. The Manager will screen potential
investments for possible presentation to the Fund's Board of Directors. If the
Manager believes that an investment candidate satisfies the Fund's investment
criteria, the Manager will conduct such due diligence review as it deems
appropriate under the circumstances in order to be able to make preliminary
recommendations to the Board. In the event that the Board determines that the
Fund should pursue an investment candidate, the Manager will conduct further
discussions with the investment candidate and potential investment partners to
attempt to agree upon an investment structure or strategy. The Manager shall
from time
26
to time advise the Fund as to the advisability of any follow-on investments and
the sale or retention of any portfolio securities held by the Fund. The parties
understand and agree that, in order to maintain its eligibility for an exemption
under Section 203(b)(1) of the Investment Advisers Act of 1940, the Manager
cannot furnish advice or issue analyses or reports with respect to securities
listed or admitted to unlisted trading privileges on any national securities
exchange.
(c) Administrative Services. The Manager will provide the Fund with
necessary office space, telephones and other communications facilities and
personnel competent to perform administrative functions for the Fund; maintain
such books and records of the Fund as may be required by applicable Federal or
state law; supervise the preparation by third parties of tax returns and reports
of the Fund required by applicable law; prepare and, after approval by the Fund,
arrange for the distribution of reports to shareholders of the Fund as required
by applicable law; prepare, and, after approval by the Fund, arrange for the
filing of reports with the Securities and Exchange Commission and any state
securities commissions as may be required by applicable law; engage, subject to
approval of the Fund, such third parties as may be necessary to perform
functions for the Fund; and take such other action with respect to the Fund as
may be necessary for the management of its day-to-day affairs or required by
law.
Section 2. Allocation of Charges and Expenses.
(a) The Manager. The Manager shall pay for maintaining the staff and
personnel necessary to perform its obligations under this Agreement and shall,
at its own expense, provide the office space, equipment and facilities necessary
to enable it to provide the services which it is obligated to provide hereunder.
(b) The Fund. The Fund assumes and shall pay all other expenses of the
Fund, including without limitation, taxes, expenses for legal and auditing
services, costs of preparing and printing the Offering Circular and any annual,
interim or other reports of the Fund required to be filed with the Securities
and Exchange Commission and any state securities commissions as may be required
by applicable law, charges of any Fund custodian or transfer agent, fees and
expenses of Directors of the Fund, accounting and pricing costs (including the
calculation of the net asset value), insurance, interest, brokerage costs,
litigation and extraordinary or non-recurring expenses.
Section 3. Compensation of the Manager.
(a) Investment Management Fee. For the services rendered, the facilities
furnished and expenses assumed by the Manager, the Manager will receive a fee
equal to a 5% of the aggregate amount of assets invested by the Fund in
portfolio securities. Such fee shall be computed and paid on the date on which
the Fund makes any investment.
(b) Expense Limitations. In the event the operating expenses of the
27
Fund, including amounts payable to the Manager pursuant to Section 3(a) hereof,
for any fiscal year ending on a date on which this Agreement is in effect exceed
the expense limitations applicable to the Fund imposed by applicable state
securities laws or regulations thereunder, as such limitations may in effect
from time to time, the Manager shall reduce its management fee by an amount
equal to such excess or reimburse the Fund in the amount of such excess;
provided, however, to the extent that any such expense limitations are not
exceeded in any subsequent fiscal year, any amount previously withheld or
reimbursed from the Manager's management fee during a prior fiscal year shall be
promptly paid by the Fund to the Manager.
Section 4. Activities of the Manager. The services of the Manager to the
Fund are not to be deemed exclusive, the Manager being free to render services
to others. It is understood that directors, officers and employees of the
Manager are or may become interested in the Fund, as directors, officers,
employees and shareholders or otherwise.
Section 5. Effectiveness, Continuance and Termination of Agreement.
(a) Effectiveness. This Agreement shall become effective upon the due
execution of this Agreement by the Fund and the Manager and the approval of this
Agreement by a majority of the Fund's Directors.
(b) Continuance. This Agreement shall remain in effect for a period of one
year from the date of execution and from year to year thereafter provided that
such continuance is specifically approved at least annually by a majority of the
Fund's Directors or a majority of the outstanding voting securities of the Fund
(excluding, however, for purposes of calculating the majority, the shares held
by the Manager).
(c) Termination. This Agreement (i) may be terminated at any time without
penalty upon 60 days' prior written notice by either party to the other, (ii)
shall be terminated by the Fund if a majority of the Directors of the Fund or a
majority of the outstanding voting securities of the Fund vote to terminate this
Agreement (excluding, for purposes of calculating the majority, the shares held
by the Manager), and (iii) shall automatically terminate without penalty upon
its attempted assignment by the Manager. The Fund reserves the right to
terminate this Agreement at any time upon notice if the Manager breaches any of
its terms.
Section 6. Books and Records. The Manager hereby agrees that all records
which it maintains or causes to be maintained for the Fund are the property of
the Fund and further agrees to surrender promptly to the Fund any of such
records upon the Fund's request. The Company further agrees to preserve or cause
to be preserved for such periods such records as may be prescribed by the 1940
Act and the rules and regulations thereunder.
Section 7. Sub-contracts. The Manager may, from time to time, employ or
28
associate with itself such person or persons as it believes necessary to assist
it in carrying out its obligations under this Agreement.
Section 8. Indemnification.
(a) Indemnification of Manager. The Fund shall indemnify and hold harmless
the Manager and any person who controls the Manager against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), whether under the Securities Act
of 1933, the Securities Exchange Act of 1934 or the 1940 Act or any other
statute, Federal or state, or at common law, arising in connection with any
alleged untrue statement of a material fact or omission of a material fact
required to be stated in the Fund's Offering Circular, as from time to time
amended or supplemented, or any annual, interim or other reports or proxy
materials of the Fund, or which is necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Fund in connection
therewith by or on behalf of the Manager; provided, however, that in no case is
(i) the indemnity of the Fund in favor of the Manager and any such controlling
persons to be deemed to protect such Manager or any such controlling persons
thereof against any liability to the Fund or its security holders to which the
Manager or any such controlling person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of the reckless disregard of their obligations and duties
under this Agreement; and (ii) the Fund to be liable under the indemnity
agreement contained in this Section 8(a) with respect to any claim made against
the Manager or any such controlling persons, unless the Manager or such
controlling persons, as the case may be, shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Manager
or such controlling persons (or after the Manager or such controlling persons
shall have received notice of such service on any designated agent), but failure
to notify the Fund of any such claim shall not relieve the Fund from any
liability which it may have to the person against whom such action is brought
otherwise than on account of its indemnity agreement contained in this Section
8(a). The Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Fund elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Manager or such controlling persons who are defendants in the suit. In the event
the Fund elects to assume the defense of any such suit and retain such counsel,
the Manager or such controlling persons who are defendants in the suit shall
bear the fees and expenses of any additional counsel retained by them, but, in
case the Fund does not elect to assume the defense of any such suit, it will
reimburse the Manager or such controlling persons who are defendants in the suit
for the reasonable fees and expenses of any counsel retained by them. The Fund
shall promptly notify the Manager of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issuance or sale of any of the Fund's shares.
29
(b) Indemnification of Fund. The Manager shall indemnify and hold harmless
the Fund and each of its Directors and Officers and any person who controls the
Fund against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in Section 8(a) hereof, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to the Fund in writing by or on behalf of the Manager for
use in connection with the Fund's Offering Circular, as from time to time
amended or supplemented, or the annual, interim or other reports or proxy
materials of the Fund. In case any action shall be brought against the Fund or
any person so indemnified, in respect of which indemnity may be sought against
the Manager, the Manager shall have the rights and duties of the Fund as
provided in Section 8(a) hereof and the Fund and each person so indemnified
shall have the rights and duties of the Manager as provided in Section 8(a)
hereof.
Section 9. Services Not Exclusive. It is understood that the services of
the Manager are not exclusive, and nothing in this Agreement shall prevent the
Manager, or any affiliate of the Manager, from providing similar services to
other investment companies (whether or not their investment objectives and
policies are similar to those of the Fund) or from engaging in other activities.
When other clients of the Fund desire to purchase or sell a security at the same
time such security is purchased or sold for the Fund, it is understood that such
purchases and sales will be made in a manner designed to be as equitable as
possible to each client.
Section 10. Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 11. Definition of Certain Terms. The terms "a majority of the
outstanding voting securities", "assignment" and "interested person", when used
in this Agreement, shall have the respective meanings specified in the 1940 Act.
Section 12. Severability. If any provision of this Agreement shall be held
or made invalid or unenforceable by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected or impaired
thereby.
Section 13. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the Commonwealth of
Pennsylvania and the applicable provisions of the 1940 Act and the rules and
regulations thereunder. To the extent that the applicable law of the
Commonwealth of Pennsylvania, or any of the provisions herein, conflict with the
applicable provisions of the 1940 Act or the rules and regulations thereunder,
the latter shall control.
30
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
Attest: WESTERN PENNSYLVANIA
ADVENTURE CAPITAL FUND, INC.
/s/ John T. Freyhof By /s/ G. Richard Patton
- ---------------------------- --------------------------
Title: Director of Venture Development Title: President
Attest: THE ENTERPRISE CORPORATION
/s/ John T. Freyhof By /s/ Thomas N. Canfield
- ---------------------------- --------------------------
Title: Director of Venture Development Title: President & CEO
31
Western Pennsylvania Adventure Capital Fund
Schedule of Computation of Net Income Per Share
From the Date of Inception (May 23, 1996) to December 31, 1996
Not Applicable
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Western Pennsylvania Adventure Capital Fund has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized:
Western Pennsylvania Adventure Capital Fund
(Registrant)
By: s/ G. Richard Patton
G. Richard Patton
President, Chief
Executive Officer and
Director
Date: March 25, 1997
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:
/s/ Alvin J. Catz Chief Financial Officer, Date: March 25, 1997
- ----------------------- Treasurer, and Director
Alvin J. Catz
/s/ William F. Rooney Secretary and Director Date: March 25, 1997
- -----------------------
William F. Rooney
/s/ Philip Samson Director Date: March 25, 1997
- -----------------------
Philip Samson
/s/ Douglas F. Schofield Director Date: March 25, 1997
- -----------------------
Douglas F. Schofield
33