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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 31, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 000-28405
MEVC DRAPER FISHER JURVETSON FUND I, INC.
D/B/A MVC CAPITAL
(Exact name of the registrant as specified in its charter)
DELAWARE 94-3346760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3000 Sand Hill Road
Building 1, Suite 155
Menlo Park, California
(Address of principal 94025
executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 926-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Stock New York Stock Exchange
------------ ------------------------
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 file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of May 8, 2003, there were 16,152,600 shares of Registrant's common stock,
$.01 par value (the "Shares"), outstanding.
meVC Draper Fisher Jurvetson Fund I, Inc.
(A Delaware Corporation)
Index
Part I. Financial Information Page
Item 1. Financial Statements
Balance Sheets
- January 31, 2003 and October 31, 2002.................. 1
Statement of Operations
- For Period November 1, 2002 to January 31, 2003 and
the Period November 1, 2001 to January 31, 2002........ 2
Statement of Cash Flows
- For the Period November 1, 2002 to January 31, 2003
and the Period November 1, 2001 to January 31, 2002.... 3
Statement of Shareholders' Equity
- For the Period November 1, 2002 to January 31, 2003
and the Period November 1, 2001 to January 31, 2002.... 4
Selected Per Share Data and Ratios
- For the Period November 1, 2002 to January 31, 2003
and the Year ended October 31, 2002.................... 5
Schedule of Investments
- January 31, 2003....................................... 6
Notes to Financial Statements............................ 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 13
Item 3. Quantitative and Qualitative Disclosure about Market Risk. 23
Item 4. Controls and Procedures................................... 23
Part II. Other Information
Item 1. Legal Proceedings......................................... 25
Item 4. Submission of Matters to a Vote of Security Holders....... 25
Item 5. Other Information......................................... 27
Item 6. Exhibits and Reports on Form 8-K.......................... 27
SIGNATURE.................................................................. 28
Exhibits................................................................... 31
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
meVC DRAPER FISHER JURVETSON FUND I, INC.
BALANCE SHEETS
JANUARY 31, OCTOBER 31,
2003 2002
(Unaudited)
ASSETS
Investments in preferred/common stocks, $ 29,070,490 $ 50,116,026
at fair value (cost $129,325,858 and
$127,536,066, respectively), (Note 3)
Investments in debt instruments, at fair 15,452,677 -
value (cost $17,953,970 and $0,
respectively)(Note 3)
Investments in short-term securities, at 19,892,790 62,797,687
market value (cost $19,892,790 and
$62,800,088, respectively)
Cash and cash equivalents 98,604,329 78,873,485
(cost $98,604,329 and $78,873,485,
respectively)
Subordinated notes 1,827,475 4,077,474
(cost $6,327,474 and $6,327,474)
respectively)(Note 3)
Interest receivable 176,365 216,024
Prepaid expenses 346,540 50,672
Receivable for investments sold 379,632 379,632
-------------- --------------
TOTAL ASSETS $ 165,750,298 $ 196,511,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Custody/Accounting/Transfer Agency 4,906 7,500
Administration 25,236 11,250
Audit and tax fees 149,892 149,000
Legal fees 1,195,678 387,459
Director's fees 16,255 14,400
Employee compensation & benefits 148,471 57,279
Public relation fees 93,537 344,608
Other accrued expenses 182,279 153,027
-------------- --------------
TOTAL LIABILITIES $ 1,816,254 $ 1,124,523
-------------- --------------
SHAREHOLDERS' EQUITY
Common Stock, $0.01 par value;
150,000,000 shares authorized;
16,296,800 and 16,500,000 shares,
respectively, outstanding 162,968 165,000
Additional paid in capital 309,826,568 311,485,000
Accumulated deficit (146,055,492) (116,263,523)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY $ 163,934,044 $ 195,386,477
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 165,750,298 $ 196,511,000
============== ==============
NET ASSET VALUE PER SHARE $ 10.06 $ 11.84
-------------- --------------
The accompanying notes are an integral part of these financial statements
1
meVC DRAPER FISHER JURVETSON FUND I, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 1, 2002 NOVEMBER 1, 2001
TO JANUARY 31, 2003 TO JANUARY 31, 2002
INVESTMENT INCOME:
Interest income $ 566,055 $ 1,103,011
-------------- ----------------
OPERATING EXPENSES:
Management Fees - 1,595,699
Legal fees 1,098,970 -
Employee compensation & benefits 835,334 -
Facilities 232,206 -
Printing and postage 140,269 -
Consulting and public relation fees 90,410 -
Directors fees 86,369 -
Audit fees 42,017 -
Administration 37,562 -
Insurance 21,861 -
Miscellaneous fees 13,307 -
Custody/Accounting/Transfer Agency 12,361 -
Registration fees 10,304 -
-------------- ----------------
TOTAL OPERATING EXPENSES 2,620,970 1,595,699
-------------- ----------------
NET INVESTMENT LOSS (2,054,915) (492,688)
-------------- ----------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on
investments (152,845) (3,331,053)
Net unrealized loss on
investments (27,584,209) (17,933,494)
-------------- ----------------
Net realized and unrealized loss
on investments (27,737,054) (21,264,547)
-------------- ----------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (29,791,969) $ (21,757,235)
============== ================
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS PER SHARE $ (1.83) $ (1.32)
============== ================
DIVIDENDS DECLARED PER SHARE $ - $ 0.04
-------------- ----------------
The accompanying notes are an integral part of these financial statements
2
meVC DRAPER FISHER JURVETSON FUND I, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 1, 2002 NOVEMBER 1, 2001
TO JANUARY 31, 2003 TO JANUARY 31, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets $ (29,791,969) $ (21,757,235)
resulting from operations
Adjustments to reconcile net cash
provided by operating activities:
Realized loss 152,845 3,331,053
Net unrealized loss 27,584,209 17,933,494
Changes in assets and liabilities:
Management fee payable - (42,803)
Accounts payable 691,732 -
Prepaid expenses (295,868) -
Interest receivable 83,327 4,774
Investment purchased payable - 1,134,001
Purchases of preferred stock (1,999,997) (6,134,001)
Purchases of debt instruments (17,950,000) -
Purchases of short-term investments (44,145,816) (76,841,903
Purchases of cash equivalents (349,721,438) (266,565,709)
Sales of preferred stocks 57,365 6,670,281
Sales/maturities of short-term
investments 60,000,000 82,086,740
Sales/maturities of cash equivalents 376,726,918 267,567,311
-------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 21,391,308 7,386,003
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions - (728,690)
Re-purchases of capital stock (1,660,464) -
-------------- ---------------
NET CASH USED FOR FINANCING
ACTIVITIES (1,660,464) (728,690)
-------------- ---------------
Net change in cash and cash
equivalents for the period 19,730,844 6,657,313
-------------- ---------------
Cash and cash equivalents,
beginning of period 78,873,485 12,353,422
-------------- ---------------
Cash and cash equivalents,
end of period $ 98,604,329 $ 19,010,735
-------------- ---------------
The accompanying notes are an integral part of these financial statements
3
meVC DRAPER FISHER JURVETSON FUND I, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
ADDITIONAL TOTAL
COMMON PAID IN ACCUMULATED SHAREHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
BALANCE AT NOVEMBER 1, 2001 $ 165,000 $ 311,485,000 $ (57,178,444) $ 254,471,556
Distributions - - (728,690) (728,690)
Net decrease in net assets from operations - - (21,757,235) (21,757,235)
------------- ------------- --------------- ---------------
BALANCE AT JANUARY 31, 2002 $ 165,000 $ 311,485,000 $ (79,664,369) 231,985,631
============= ============= =============== ===========
BALANCE AT NOVEMBER 1, 2002 $ 165,000 $ 311,485,000 $ (116,263,523) $ 195,386,477
Shares Repurchased (203,200 shares) (2,032) (1,658,432) - (1,660,464)
Net decrease in net assets from operations - - (29,791,969) (29,791,969)
------------- ------------- --------------- ---------------
BALANCE AT JANUARY 31, 2003 $ 162,968 $ 309,826,568 $ (146,055,492) $ 163,934,044
------------- ------------- --------------- ---------------
The accompanying notes are an integral part of these financial statements
4
meVC DRAPER FISHER JURVETSON FUND I, INC.
SELECTED PER SHARE DATA AND RATIOS
FOR THE PERIOD FOR THE
NOVEMBER 1, 2002 YEAR ENDED
TO JANUARY 31, 2003 OCTOBER 31, 2002
(UNAUDITED)
$ $
Net asset value, beginning of period 11.84 15.42
------------- -----------------
Loss from investment operations:
Net investment loss (0.13) (0.19)
Net realized and unrealized loss
on investments (1.70) (3.35)
------------- -----------------
Total loss from investment operations (1.83) (3.54)
------------- -----------------
Less distributions from and in excess of:
Net investment income - (0.04)
------------- -----------------
Total distributions - (0.04)
------------- -----------------
Capital share transactions
Anti-dilutive effect of Share
Repurchase Program 0.05 -
Net asset value, end of period $ 10.06 $ 11.84
============= =================
Market Value, end of period $ 8.50 $ 7.90
============= =================
Discount -15.51% -33.28%
TOTAL RETURN - AT NAV (a) -15.03% -22.88%
TOTAL RETURN - AT MARKET (a) 7.59% -14.22%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $ 163,934 $ 195,386
Ratios to average net assets:
Expenses (b) 5.43% 3.02%
Net investment loss (b) -4.26% -1.37%
(a) Total return is historical and assumes changes in share price, reinvestments
of all dividends and distributions, and no sales charge. Total return for
periods of less than one year is not annualized.
(b) Annualized.
The accompanying notes are an integral part of these financial statements
5
meVC DRAPER FISHER JURVETSON FUND I, INC.
SCHEDULE OF INVESTMENTS
JANUARY 31, 2003
(UNAUDITED)
Date of
Initial
Description Shares/Principal Investment Cost Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
PREFERRED/COMMON STOCKS-17.73% (a, b, d, g) (NOTE 2,3,4,6)
Actelis Networks, Inc. Series C 1,506,025 May 2001 $ 5,000,003 $ 1,500,000
*AuctionWatch.com, Inc., Common Stock (c) 10,476 June 2000 5,500,000 -
*AuctionWatch.com, Inc., Series A (c) 6,443,188 Jan. 2002 1,134,001 1,134,001
*Blue Star Solutions, Inc.:
Common Stock 49,474 May 2000 3,999,999 -
Series C Preferred 74,211 May 2000 5,999,999 -
Series C Warrants, expire 5/26/03 136,054 May 2000 - -
*BlueStar Solutions Inc., Series D 4,545,455 Feb. 2002 3,000,000 1,500,000
*CBCA, Inc., Series E 5,729,562 Apr. 2002 11,999,990 8,000,000
Cidera, Inc., Series D (e) 857,192 Aug. 2002 3,750,001 -
DataPlay, Inc., Series D (e) 2,500,000 June 2001 7,500,000 -
*Endymion Systems, Inc., Series A 7,156,760 June 2000 7,000,000 1,000,000
*FOLIOfn, Inc., Series C 5,802,259 June 2000 15,000,000 2,000,000
Ishoni Networks, Inc., Series C 2,003,607 Nov. 2000 10,000,003 -
Lumeta Corporation, Series A 384,615 Oct. 2000 250,000 250,000
Lumeta Corporation, Series B 266,846 June 2002 156,489 156,489
MainStream Data, Series D 85,719 Aug. 2002 3,750,001 499,999
*Pagoo, Inc., Series A-1 1,956,026 July 2000 11,569,939 150,000
*Phosistor Technologies, Inc., Series B 6,666,667 Jan. 2002 1,000,000 -
*ProcessClaims, Inc., Series C 6,250,000 June 2001 2,000,000 2,000,000
*ProcessClaims, Inc., Series D 849,257 May 2002 400,000 400,000
*ProcessClaims, Inc.
Series E warrants, expire 12/31/05 873,362 May 2002 20 -
*SafeStone Technologies PLC, Series A 1,714,455 Dec. 2000 3,515,403 -
*SafeStone Technologies PLC, Series B 391,923 July 2002 500,000 250,000
ShopEaze Systems, Inc., Series B (f) 2,097,902 May 2000 6,000,000 -
*Sonexis, Inc., Series C 2,590,674 June 2000 10,000,000 2,000,000
*Sygate Technologies, Inc., Series D 9,756,098 Oct. 2002 4,000,000 4,000,000
The accompanying notes are an integral part of these financial statements
6
meVC DRAPER FISHER JURVETSON FUND I, INC.
SCHEDULE OF INVESTMENTS
JANUARY 31, 2003
(UNAUDITED)
Date of
Initial
Description Shares/Principal Investment Cost Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
*Yaga, Inc., Series A $ 4,000,000 Nov. 2000 $ 300,000 $ -
*Yaga, Inc.:
Series B 1,000,000 June 2001 2,000,000 230,000
Series B Warrants, expire 06/08/04 100,000 June 2001 - -
*0-In Design Automation, Inc., Series E 2,239,291 Nov. 2001 4,000,001 4,000,001
--------------- --------------
TOTAL PREFERRED/COMMON STOCKS 129,325,848 29,070,490
--------------- --------------
DEBT INSTRUMENTS-9.43% (a, b)
Arcot Systems, Inc. (i)
10.0000%, 12/31/2005 5,050,000 Dec. 2002 5,001,293 2,500,000
BS Management Limited (g)(h)
12.0000%, 03/17/2003 3,000,000 Dec. 2002 3,000,000 3,000,000
Intergral Development Corporation (i)
10.0000%, 12/31/2005 5,050,000 Dec. 2002 5,001,293 5,001,293
Synhrgy HR Technologies
12.0000%, 12/23/2005 5,000,000 Dec. 2002 4,951,384 4,951,384
Synhrgy HR Technologies, Series B-1 Warrant 43,750 Dec. 2002 - -
---------------- --------------
TOTAL DEBT INSTRUMENTS 17,953,970 15,452,677
---------------- --------------
SUBORDINATED NOTES-1.11% (a, b)
infoUSA, Inc.
6.000%, 09/29/2003 1,827,475 Dec. 2001 1,827,474 1,827,475
DataPlay, Inc. (e)
6.000%, 05/15/2005 2,000,000 May 2002 2,000,000 -
DataPlay, Inc. (e)
6.000%, 06/17/2005 500,000 June 2002 500,000 -
DataPlay, Inc. (e)
6.000%, 09/24/2005 200,000 Sept. 2002 200,000 -
DataPlay, Inc. (e)
6.000%, 08/16/2005 200,000 Aug. 2002 200,000 -
DataPlay, Inc. (e)
6.000%, 08/26/2005 400,000 Aug. 2002 400,000 -
DataPlay, Inc. (e)
6.000%, 09/03/2005 200,000 Sept. 2002 200,000 -
DataPlay, Inc. (e)
6.000%, 06/27/2005 1,000,000 June 2002 1,000,000 -
---------------- --------------
TOTAL SUBORDINATED NOTES 6,327,474 1,827,475
---------------- --------------
The accompanying notes are an integral part of these financial statements
7
meVC DRAPER FISHER JURVETSON FUND I, INC.
SCHEDULE OF INVESTMENTS
JANUARY 31, 2003
(UNAUDITED)
Date of
Initial
Description Shares/Principal Investment Cost Market Value
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES-12.13% (b)
U.S. GOVERNMENT & AGENCY SECURITIES-5.43% (b)
Fannie Mae Discount Note
1.2700%, 02/07/2003 3,900,000 Dec. 2002 $ 3,899,174 $ 3,899,174
Federal Home Loan Mortgage Discount Note
1.2200%, 02/11/2003 5,000,000 Jan. 2003 4,998,305 4,998,305
---------------- --------------
TOTAL U.S. GOVERNMENT & AGENCY SECURITIES 8,897,479 8,897,479
---------------- --------------
COMMERCIAL PAPER-6.71% (b)
Duetsche Bank
1.530%, 02/05/2003 7,000,000 Oct. 2002 7,000,004 7,000,004
NBNZ Intl.
1.3200%, 03/05/2003 4,000,000 Dec. 2002 3,995,307 3,995,307
---------------- --------------
TOTAL COMMERICAL PAPER 10,995,311 10,995,311
---------------- --------------
TOTAL SHORT-TERM SECURITIES 19,892,790 19,892,790
---------------- --------------
CASH AND CASH EQUIVALENTS-60.15% (b)
COMMERICAL PAPER-60.05% (b)
ABN Amro N.A.
1.2410%, 02/28/2003 3,300,000 Jan. 2003 3,296,931 3,296,931
ABN Amro N.A.
1.2520%, 03/18/2003 1,700,000 Jan. 2003 1,697,344 1,697,344
AIG Funding
1.2500%, 02/12/2003 5,800,000 Jan. 2003 5,797,785 5,797,785
ANZ Delaware, Inc.
1.2500%, 02/12/2003 1,600,000 Jan. 2003 1,599,063 1,599,063
Abbey National
1.2700%, 02/03/2003 5,800,000 Jan. 2003 5,799,591 5,799,591
Air Liquide
1.2700%, 02/06/2003 5,800,000 Jan. 2003 5,798,977 5,798,977
CBA Del Fin, Inc.
1.2650%, 02/06/2003 5,800,000 Jan. 2003 5,798,166 5,798,166
CDC Commerical
1.2600%, 02/20/2003 5,800,000 Jan. 2003 5,796,143 5,796,143
Citicorp
1.2300%, 02/25/2003 2,000,000 Jan. 2003 1,998,360 1,998,360
Danske Corp.
1.2700%, 02/05/2003 5,800,000 Jan. 2003 5,799,181 5,799,181
Fortis Funding
1.2400%, 03/06/2003 5,100,000 Jan. 2003 5,094,203 5,094,203
General Electric Capital Corp.
1.2700%, 02/11/2003 5,800,000 Jan. 2003 5,797,954 5,797,954
The accompanying notes are an integral part of these financial statements
8
meVC DRAPER FISHER JURVETSON FUND I, INC.
SCHEDULE OF INVESTMENTS
JANUARY 31, 2003
(UNAUDITED)
Date of
Initial
Description Shares/Principal Investment Cost Fair Value/Market Value
- -----------------------------------------------------------------------------------------------------------------------------------
Glaxosmith
1.2400%, 02/24/2003 5,000,000 Jan. 2003 $ 4,996,039 $ 4,996,039
HBOS Treas Svcs.
1.2600%, 02/04/2003 2,800,000 Jan. 2003 2,799,706 2,799,706
HBOS Treas Svcs.
1.2500%, 03/07/2003 2,000,000 Jan. 2003 1,997,639 1,997,639
NBNZ Intl.
1.2700%, 02/12/2003 1,900,000 Jan. 2003 1,899,263 1,899,263
Nestle Capital
1.2300%, 02/19/2003 4,000,000 Jan. 2003 3,997,540 3,997,540
Novartis Financial
1.2500%, 02/06/2003 5,800,000 Jan. 2003 5,798,993 5,798,993
Paccar Financial
1.2400%, 02/07/2003 5,500,000 Jan. 2003 5,498,863 5,498,863
SBC Communications
1.2600%, 02/21/2003 5,800,000 Jan. 2003 5,795,940 5,795,940
UBS Fin. Inc.
1.3200%, 02/18/2003 5,600,000 Jan. 2003 5,596,597 5,596,597
WestPac
1.2500%, 03/25/2003 5,800,000 Jan. 2003 5,789,528 5,789,528
---------------- --------------
TOTAL COMMERICAL PAPER 98,443,806 98,443,806
---------------- --------------
MONEY MARKET FUNDS-0.10% (b)
First American Prime Obligations Fund 160,523 Nov. 2002 160,523 160,523
TOTAL CASH AND CASH EQUIVALENTS 98,604,329 98,604,329
---------------- --------------
TOTAL INVESTMENTS-100.56% (b) $ 272,104,411 $ 164,847,761
================ ==============
(a) These securities are restricted from public sale without prior registration under the Securities Act of 1933. The Fund
negotiates certain aspects of the method and timing of the disposition of these investments, including registration rights and
related costs.
(b) Percentages are based on net assets of $163,934,044.
(c) As defined in the Investment Company Act of 1940, at January 31, 2003, the Fund was considered to have a controlling interest in
AuctionWatch, Inc.
(d) As defined in the Investment Company Act of 1940, all of the Fund's preferred and common stock and debt instrument investments
are in eligible portfolio companies except SafeStone Technologies PLC and BS Management Limited. The Fund makes available
significant managerial assistance to all of the portfolio companies in which it has invested.
(e) Company in bankruptcy/liquidation.
(f) Company in dissolution.
(g) Non-income producing assets.
(h) Subsequent to the end of the fiscal quarter, maturity date extended to September 30, 2003.
(i) Also received warrants to purchase a number of shares of preferred stock to be determined
upon exercise.
* Affiliated Issuers (Total Market Value of $26,683,962): companies in which the Fund owns at least 5% of the voting securities.
The accompanying notes are an integral part of these financial statements
9
MEVC DRAPER FISHER JURVETSON FUND I, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. These statements should be read in conjunction
with the financial statements and notes thereto included in the Fund's Annual
Report on Form 10-K for the year ended October 31, 2002, as filed with the
Securities and Exchange Commission on January 27, 2003 (File No. 814-00201). THE
FINANCIAL INFORMATION CONTAINED IN THIS REPORT HAS NEITHER BEEN AUDITED NOR
REVIEWED BY INDEPENDENT ACCOUNTANTS ON BEHALF OF THE FUND.
2. CONCENTRATION OF MARKET RISK
Financial instruments that subject the Fund to concentrations of market
risk consist principally of preferred stocks, subordinated notes, and debt
instruments, which represent approximately 28.27% of the Fund's net assets. As
discussed in Note 3 and Note 4, investments consist of securities in companies
with no readily determinable market values and as such are valued in accordance
with the Fund's fair value policies and procedures. The Fund's investment
strategy represents a high degree of business and financial risk due to the fact
that the investments include entities with little operating history or entities
that possess operations in new or developing industries. These investments are
subject to restrictions on resale because they were acquired from the issuer in
private placement transactions.
3. PORTFOLIO INVESTMENTS
During the quarter ended January 31, 2003, the Fund invested a total of
approximately $19.95 million in new and existing portfolio companies.
Approximately $17.95 million was invested in four new companies: BS Management
Limited, Synhrgy HR Technologies, Inc., Integral Development Corporation, and
Arcot Systems, Inc. Approximately $2.0 million was invested in two follow-on
investments in CBCA, Inc. The Fund also had one portfolio company exit event
with proceeds totaling approximately $33,000 and a realized loss totaling
approximately $178,000 from the final disbursement of assets from EXP, and had
one return of capital of approximately $25,000 from MediaPrise, Inc.
In connection with the Fund's $5.05 million Credit Facility with Arcot
Systems, Inc., the Fund also received warrants to purchase shares of Series E
Convertible Preferred Stock of Arcot Systems, Inc., equal to 3% of the
outstanding common stock on a fully diluted basis, at an exercise price of
approximately $0.97 per share, as adjusted. The warrants expire on December 31,
2009.
In connection with the Fund's $5.05 million Credit Facility with Integral
Development Corporation, the Fund also received warrants to purchase shares of
Series C Convertible Preferred Stock of Integral Development Corporation (or a
future round of Preferred Stock), equal to the number obtained by multiplying
the outstanding common stock by 0.030928, at an exercise price equal to the
price per share at which the Integral issues its next Preferred Stock, or if a
future financing does not occur before June 29, 2003, at an exercise price equal
to $0.70 per share. The warrants expire on December 31, 2009.
As further discussed in Note 6 below, a new Board of Directors was elected
at the Annual Meeting of Stockholders held on February 28, 2003. As a result,
the composition of the Valuation Committee changed, with the new Board electing
new members to serve on this committee (the "New Valuation Committee"). For the
quarter ended January 31, 2003, the New Valuation Committee of the Board of
Directors marked down the value of the Fund's investments in Actelis Networks,
Inc., Arcot Systems, Inc., BlueStar Solutions, Inc., CBCA, Inc., Endymion
Systems, Inc., FOLIOFN, Inc., Ishoni Networks, Inc., Lumeta Corporation, Pagoo,
Inc., Phosistor Technologies, Inc., ProcessClaims, Inc., SafeStone Technologies
PLC, Sonexis, Inc., Yaga, Inc., and DataPlay Inc., and wrote-off all of the
accrued interest from the DataPlay Promissory Notes. At October 31, 2002, the
10
fair value of all portfolio investments was $54.2 million with a cost of $133.9
million and at January 31, 2003 the fair value of the portfolio investments was
$46.4 million with a cost of $153.6 million.
4. COMMITMENTS AND CONTINGENCIES
The Fund occupies its office space pursuant to an operating lease, which is
scheduled to expire on October 31, 2005. Future payments under this lease total
$820,875, with annual minimum payments of $298,500. The Fund is attempting to
either buy-out this lease or sub-lease its existing office space, but there can
be no assurances such efforts will be successful, nor can the Fund accurately
predict the terms of any such transaction.
At January 31, 2003 and October 31, 2002, all of the Fund's investments in
preferred and common stocks totaling $29.1 million (17.7% of net assets) and
$50.1 million (25.6% of net assets), respectively, investments in debt
instruments totaling $15.5 million (9.4% of net assets) and $0.0, respectively,
and investments in subordinated notes totaling $1.8 million (1.1% of net assets)
and $4.1 million (2.1% of net assets), respectively, have been carried at fair
value as determined by the valuation committee of the Board of Directors, due to
the absence of readily ascertainable market values. Because of the inherent
uncertainty of valuation, these values may differ significantly from the values
that would have been used had a ready market for the investments existed and the
differences could be material.
5. CERTAIN REPURCHASES OF EQUITY SECURITIES BY THE ISSUER
During the quarter ended January 31, 2003, the Fund repurchased 203,200 of
its shares at an average price of approximately $8.12. Subsequent to January 31,
2003, the Fund repurchased 144,200 of its shares at an average price of
approximately $8.50. The Fund ceased repurchasing shares after the new Board of
Directors was elected on February 28, 2003. The Fund's repurchase of shares was
conducted according to a written plan for the purpose of satisfying the
provisions set forth in Rule 10b5-1 and Rule 10b-18 under the Securities
Exchange Act of 1934 (the "Exchange Act").
6. SUBSEQUENT EVENTS
On February 5, 2003, the Fund entered into an investment of $2,005,000 in
the form of a Credit Facility with Determine Software, Inc. ("Determine")
maturing on January 31, 2006. The transaction earns a floating rate of interest
at prime plus 5% per annum with a floor at 12% per annum on the outstanding
balance. The Fund also received warrants to purchase a future round of
convertible preferred stock. Determine is based in San Francisco, California.
On February 7, 2003, the Fund acquired various assets from Sand Hill
Capital Holdings, Inc. for the Fund's operations, including but not limited to,
furniture and systems hardware and software. The assets were purchased for
$24,000.
On February 13, 2003, the Fund entered into new Directors &
Officers/Professional Liability Insurance policies with a cost of approximately
$1.4 million. The cost will be reflected in subsequent quarters' expense
accruals, over the life of the policy, through February 2004.
The Fund's Annual Meeting of Shareholders was held on February 28, 2003 for
the following purposes: (i) to elect two directors to serve for the remainder of
the term to expire at the Annual Meeting of Stockholders to be held in 2004
("Proposal 1"); (ii) to elect two directors to serve for the remainder of the
term to expire at the Annual Meeting of Stockholders to be held in 2005
("Proposal 2"); (iii) to elect three directors to serve until the Annual Meeting
of Stockholders to be held in 2006 ("Proposal 3"); (iv) to consider a
stockholder proposal that the Fund's By-laws be amended to permit any
stockholder owning at least five percent of the outstanding common stock of the
Fund to demand that the Fund's Chairman, Vice Chairman, Chief Executive Officer,
or President call a special meeting of stockholders ("Proposal 4"); and (v) to
consider a stockholder proposal that the Board of Directors conduct a tender
offer for 25 percent of the outstanding shares of the Fund at an amount equal to
95 percent of the Fund's net asset value in any year that the Fund's discount
averages over 10 percent ("Proposal 5").
Of the 16,161,900 shares outstanding and entitled to vote, 9,943,539 were
represented at the meeting by proxy or in person.
11
Under Proposals 1, 2 and 3 the shareholders elected seven new directors:
Gerald Hellerman (1), Robert C. Knapp (1), Bruce W. Shewmaker (2), George Karpus
(2), Emilio Dominianni (3), Robert S. Everett (3), and Terry Feeney (3). All
members of the Board are not "interested persons" of the Fund ("Independent
Directors"), within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"). Proposals 4 and 5 were approved by shareholders but
are advisory and not binding on the Fund.
Although the former Board of Directors acknowledged, by press release, that
the new directors appeared to have won, and they had seen the proxies
demonstrating that the new directors had won, they declined to transfer control
over the Fund until formal certification of the vote by the inspector of
election on March 6, 2003. On that date, John Grillos, Chief Executive Officer
of the Fund, was officially terminated by the new Board of Directors.
On March 3, 2003, after the Annual Meeting, but prior to the transfer of
control by the former Board to the new Board, a former officer and director of
the Fund signed a document which purported to extend the maturity date of the
loan to BS Management from March 2003 to September 2003 and to modify other
terms of the loan which could result in the impairment of the Fund's rights as a
lender. The original March 2003 maturity date passed without payment to the Fund
of any principal or interest on the loan. The Fund believes that BS Management
is a shell corporation without material assets apart from its interest in the
loan and its proceeds. The Fund believes that approximately $2.8 million of the
loan remains unspent in an account at an Ireland law firm which advised the Fund
in the BS Management transaction. The new Board is taking steps intended to
recover the unspent proceeds of the loan. No assurance can be given as to
whether or when the Fund will be able to recover all or any part of this money.
On March 5, 2003, the Fund received early repayment of the INFOUSA, Inc.
promissory note and proceeds of $1,845,445 representing full repayment of the
note and outstanding accrued interest.
On March 6, 2003, Michael Stewart, acting Chief Financial Officer of the
Fund, and Nino Marakovic, Secretary of the Fund, resigned as officers of the
Fund.
On March 6, 2003, the Board appointed director nominee Robert S. Everett to
the CEO post on an interim basis. In connection with his appointment, Mr.
Everett decided not to serve as a director of the Fund.
On April 2, 2003, the portfolio company Auctionwatch changed its name to
Vendio Services, Inc.
On April 8, 2003, the New Valuation Committee marked down the Fund's
investment in BS Management by $1.5 million to $1.5 million.
On April 16, 2003, PricewaterhouseCoopers ("PwC") resigned as the
independent accountant of the Fund. The Fund is in the process of engaging new
independent accountants.
During the fiscal quarter ended April 30, 2003, and at the direction of the
new Board of Directors, the Fund has subsequently accrued $2,170,347 to
reimburse the legal and proxy solicitation fees of two major shareholders,
Millenco, L.P. and Karpus Investment Management, including their costs of
obtaining judgment against the Fund in the Delaware Chancery Court and costs
associated with the proxy process and the election of the new Board of
Directors. Additionally, a review is being made of the Fund's insurance policies
to determine what amounts, if any, may be recoverable by the Fund.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company and
its investment portfolio companies. Words such as MAY, WILL, EXPECT, BELIEVE,
ANTICIPATE, INTEND, COULD, ESTIMATE, MIGHT and CONTINUE, and the negative or
other variations thereof or comparable terminology, are intended to identify
forward-looking statements. Forward-looking statements are included in this
report pursuant to the "Safe Harbor" provision of the Private Securities
Litigation Reform Act of 1995. Such statements are predictions only, and the
actual events or results may differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those relating to investment
capital demand, pricing, market acceptance, the effect of economic conditions,
litigation and the effect of regulatory proceedings, competitive forces, the
results of financing and investing efforts, the ability to complete transactions
and other risks identified below or in the Fund's filings with the Commission.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events. The following analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
Financial Statements, the Notes thereto and the other financial information
included elsewhere in this report.
Selected Financial Data
- -----------------------
The following table sets forth, for the periods indicated selected
financial data:
- ---------------------------------- ----------------- ---------------
STATEMENT OF OPERATIONS DATA: QUARTER ENDED QUARTER ENDED
JANUARY 31, 2003 JANUARY 31, 2002
Total investment income $ 566,055 $ 1,103,011
Total operating expenses $ 2,620,970 $ 1,595,699
Net investment loss $(2,054,915) $ (492,688)
Net realized loss on investment transactions $ (152,845) $(3,331,053)
Net unrealized depreciation on investments $(27,584,209) $(17,933,494)
BALANCE SHEET DATA: QUARTER ENDED YEAR ENDED
JANUARY 31, 2003 OCTOBER 31, 2002
Total assets $165,750,298 $196,511,000
Total liabilities $ 1,816,254 $ 1,124,523
Total Shareholders Equity $163,934,044 $195,386,477
Net asset value per share $ 10.06 $ 11.84
Overview
- --------
The Fund is a non-diversified investment company that is regulated as a
business development company under the 1940 Act. The Fund provides equity and
debt financing to privately held companies which historically have consisted
primarily of information technology companies. The primary investment objective
is to achieve long-term capital appreciation in the value of its investments.
Historically the Fund's investing activities have focused on private equity
securities. Generally, private equity investments are structured as convertible
preferred stock. Generally, portfolio companies do not pay dividends and
consequently current income has not been a significant part of the equity
portfolio. Private equity investments typically range up to $10.0 million and
the Fund's goal had been for these investments to achieve liquidity within three
to five years. Typically a cash return on the investment is not received until a
liquidity event, i.e. such as a public offering or merger,
13
occurs. On September 30, 2002 the Fund announced a new strategy of investing its
capital in debt securities by providing debt financing to late stage venture
capital backed information technology companies. As noted in footnote 6, on
February 28, 2003 a new Board of Directors to the Fund was elected. The new
Board is currently assessing the Fund's investment strategy going forward.
Investment Income
- -----------------
Dividend and interest income for the quarters ended January 31, 2003 and
2002 were $566,000 and $1.1 million, respectively. The reduction in dividend and
interest income during the quarter ended January 31, 2003 was primarily the
result of the reduction of the Fund's cash due to investments in portfolio
securities, and due to the Fund's substantial payments for legal, consulting and
public relations expenses in support of the prior Board's unsuccessful
litigation and proxy solicitation efforts.
Operating Expenses
- ------------------
Operating expenses for the quarters ended January 31, 2003 and 2002 were
$2.6 million and $1.6 million, respectively.
From inception through June 19, 2002, the Fund operated under an advisory
agreement with meVC Advisers, Inc. (the "Former Adviser"). The Fund was charged
a management fee by the Former Adviser at an annual rate of 2.5% of the weekly
net assets of the Fund. The Former Adviser agreed to pay all Fund expenses above
and beyond the 2.5% paid to the Former Adviser by the Fund. The Former Adviser
resigned without notice on June 19, 2002 whereupon the Board of Directors for
the Fund voted to internalize all management and administrative functions of the
Fund. Consequently, since June 19, 2002, the Fund has directly paid all of its
own operating expenses in addition to legal fees and proxy solicitation expenses
of incumbent directors.
Subsequent to the resignation of meVC Advisers, the Fund determined that
meVC Advisers had not paid certain vendors for services performed on behalf of
the Fund, which meVC Advisers had agreed to pay. On August 30, 2002, the Fund
paid or accrued $463,535 in expenses to pay those vendors, which resulted in a
$0.028 decrease in net asset value per share. The Fund is considering legal
actions that it may take against meVC Advisers to recover these expenses and is
reviewing what reimbursements, if any, may be sought from the Fund's insurance
carriers.
Significant components of operating expenses for the quarter ended January
31, 2003 include legal fees of $1,098,970, salaries and benefits of $835,334,
facilities fees of $232,206, printing and postage fees of $140,269, consulting
and public relation fees of $90,410, directors' fees of $86,369 and audit fees
of $42,017. A significant portion of the Fund's legal and consulting and public
relations costs were associated with the Court of Chancery, New Castle County,
Delaware proceedings (Millenco LP vs. the Fund) and resultant contested proxy.
Realized Gain and Loss on Portfolio Securities
- ----------------------------------------------
For the quarter ended January 31, 2003, the Fund had a net realized loss of
$153,000. Such loss was realized mainly from the disbursement of assets from EXP
Systems, Inc. to its preferred shareholders.
For the quarter ended January 31, 2002, the Fund had a net realized loss of
$3.3 million. Such loss was realized mainly from the transaction involving the
assets of INFOUSA.com, Inc. being acquired by INFOUSA, Inc., the parent company
of INFOUSA.com, Inc. In return, the Fund received proceeds of $6.7 million on
its original investment of approximately $10.0 million, resulting in a realized
loss of $3.3 million for the Fund.
Unrealized Appreciation and Depreciation of Portfolio Securities
- ----------------------------------------------------------------
During the quarter ended January 31, 2003, the Fund had a net increase in
unrealized depreciation on investment transactions of $27.6 million. Such
depreciation resulted mainly from the New Valuation Committee's decision to mark
down the fair value of the Fund's investments in Actelis Networks, Inc., Arcot
Systems, Inc., BlueStar Solutions, Inc., CBCA, Inc., Endymion Systems, Inc.,
FOLIOFN, Inc., Ishoni Networks, Inc., Lumeta Corporation, Pagoo, Inc., Phosistor
Technologies, Inc., ProcessClaims, Inc. DataPlay, Inc., SafeStone Technologies
PLC, Sonexis, Inc. and Yaga, Inc. The New Valuation Committee decided to write
down the carrying value of the investments for a variety of reasons including,
14
but not limited to, portfolio company performance, prospects of a particular
sector, data on purchases or sales of similar interests of the portfolio
company, cash consumption, cash on-hand, valuation comparables, the likelihood
of a company being able to attract further financing, a third party valuation
event and limited liquidity options.
For the quarter ended January 31, 2003, the increase in the Fund's
accumulated deficit was $29.8 million and the total accumulated deficit since
inception is $146.1 million; the accumulated deficit is due primarily to the
Fund's mark down of the valuations of certain portfolio company investments, as
private companies experienced a decline in valuations for reasons similar to
that of public companies. Management expects the unrealized losses of the Fund's
investments in ShopEaze Systems, Inc. to be realized as soon as dissolution
papers are completed and signed by the company's respective inside investors.
For the quarter ended January 31, 2002, the Fund had a net increase in
unrealized depreciation of $18.0 million. Such depreciation also resulted mainly
from the Fund's mark down of the value of the Fund's investments in certain
portfolio companies. During the quarter ended January 31, 2002, the increase in
the Fund's accumulated deficit was $22.5 million and the total accumulated
deficit since inception was $79.7 million. Such deficit also resulted mainly
from the mark down of the value of the Fund's investments in certain portfolio
companies.
Portfolio Investments
- ---------------------
At January 31, 2003, the cost of equity investments held by the Fund to
date was $129.3 million, and their aggregate fair value was $29.1 million. In
addition the Fund held subordinated notes in portfolio companies with a cost of
$6.3 million and aggregate fair value of $1.8 million. Also, the fund held debt
instruments with a cost of $18.0 million and an aggregate fair value of $15.4
million. Management continues to evaluate opportunities for its current
portfolio companies to realize value for the Fund and its stockholders.
At January 31, 2003, the Fund had active investments in the following
portfolio companies:
0-IN DESIGN AUTOMATION, INC.
0-In Design Automation, Inc. ("0-In"), San Jose, California, is an
electronic design automation (EDA) company providing functional verification
products that help verify multi-million gate application specific integrated
circuit (ASIC) and system-on-chip (SOC) chip designs.
At October 31, 2002 and January 31, 2003, the Fund's investment in 0-In
consisted of 2,239,291 shares of Series E Preferred Stock at a cost of
approximately $4.0 million. At both October 31, 2002 and January 31, 2003, the
investment had been assigned a fair value of approximately $4.0 million, or
approximately $1.79 per share.
Mr. Gerhard, a director of the Fund through January 16, 2003, when he
resigned, served as a director of 0-In through March 8, 2003.
ACTELIS NETWORKS, INC.
Actelis Networks, Inc. ("Actelis"), Fremont, California, enables
telecommunications carriers and service providers to deliver high-speed,
high-quality broadband services over the existing copper wire infrastructure.
At October 31, 2002, the Fund's investment in Actelis consisted of
1,506,025 shares of Series C Preferred Stock at a cost of approximately $5.0
million. The investment was assigned a fair value of approximately $2.5 million,
or approximately $1.66 per share, at this date.
The New Valuation Committee marked down the carrying value of the Fund's
investment in Actelis, as of January 31, 2003, by writing down the investment by
$1.0 million to $1.5 million.
At January 31, 2003, the Fund's investment in Actelis consisted of
1,506,025 shares of Series C Preferred Stock at a cost of approximately $5.0
million. The investment has been assigned a fair value of $1.5 million, or
approximately $1.00 per share.
15
ARCOT SYSTEMS, INC.
Arcot Systems, Inc. ("Arcot"), Santa Clara, California, develops solutions
to address the challenges of securing e-business applications in Internet-scale
and transactional environments.
On December 30, 2002, the Fund entered into an investment of approximately
$5.0 million in the form of a Credit Facility with Arcot maturing on December
31, 2005. The note earns a floating rate of interest at prime plus 5% per annum
with a floor at 10% per annum and a ceiling at 12% per annum on the outstanding
balance of the note. In connection with the Fund's $5.05 million Credit Facility
with Arcot Systems, Inc., the Fund also received warrants to purchase shares of
Series E Convertible Preferred Stock of Arcot Systems, Inc., equal to 3% of the
outstanding common stock on a fully diluted basis, at an exercise price of
$0.9660 per share, as adjusted. The warrants expire on December 31, 2009.
The New Valuation Committee marked down the carrying value of the Fund's
investments in Arcot, as of January 31, 2003, by writing down the investment by
$2.5 million to $2.5 million.
At January 31, 2003, the Fund's investment in Arcot consisted of an
outstanding balance on the loan of $5.05 million with a cost of approximately
$5.0 million. The investment has been assigned a fair value of $2.5 million.
AUCTIONWATCH.COM, INC.
AuctionWatch.com, Inc. ("AuctionWatch"), San Bruno, California, enables
small businesses and entrepreneurs to build Internet sales channels by providing
software solutions to help these merchants efficiently market, sell and
distribute their products.
At October 31, 2002 and January 31, 2003, the Fund's investments in
AuctionWatch consisted of 10,476 shares of Common Stock and 6,443,188 shares of
Series A Preferred Stock at a cost of approximately $6.6 million. At both
October 31, 2002 and January 31, 2003, the investments had been assigned a fair
value of approximately $1.1 million, or $0.00 per share for the Common Stock and
approximately $0.18 per share for the Series A Preferred Stock, respectively.
Nino Marakovic, an employee of the Fund, serves as a director of
AuctionWatch.
BLUESTAR SOLUTIONS, INC.
BlueStar Solutions, Inc. ("BlueStar"), Cupertino, California, is a provider
of enterprise applications outsourcing services. BlueStar delivers complete
end-to-end services for managing SAP applications.
At October 31, 2002, the Fund's investments in BlueStar consisted of 74,211
shares of Series C Preferred Stock, 4,545,455 shares of Series D Preferred
Stock, 49,474 shares of Common Stock, and 136,054 warrants to purchase 136,054
shares of Series C Preferred Stock with a combined cost of approximately $13.0
million. The investments were assigned a fair value of $4.5 million, or
approximately $20.21 per share of the Series C Preferred Stock, approximately
$0.66 per share of the Series D Preferred Stock, $0.00 per share of the Common
Stock, and $0.00 per warrant.
The New Valuation Committee marked down the carrying value of the Fund's
investments in BlueStar, as of January 31, 2003, by writing down the Series C
Preferred Stock by $1.5 million to $0.0 and by writing down the Series D
Preferred Stock by $1.5 million to $1.5 million.
At January 31, 2003, the Fund's investments in BlueStar consisted of 74,211
shares of Series C Preferred Stock, 4,545,455 shares of Series D Preferred
Stock, 49,474 shares of Common Stock, and 136,054 warrants to purchase 136,054
shares of Series C Preferred Stock with a combined cost of approximately $13.0
million. The investments have been assigned a fair value of $1.5 million, or
$0.00 per share of the Series C Preferred Stock, approximately $0.33 per share
of the Series D Preferred Stock, $0.00 per share of the Common Stock, and $0.00
per warrant.
BS MANAGEMENT
On December 18, 2002, the Fund entered into an investment of $3.0 million
in the form of a Loan Agreement with BS Management maturing on March 17, 2003.
BS Management is based in the Isle of Man.
16
At January 31, 2003, the Fund's investment in BS Management has been
assigned a fair value of $3.0 million.
On March 3, 2003, prior to the transfer of control to the new Board but
after the Annual Meeting of Stockholders, the maturity date of the Loan
Agreement was extended to September 30, 2003.
In the fiscal quarter ended April 30, 2003, the New Valuation Committee
wrote down the value of BS Management by approximately $1.5 million to $1.5
million.
CBCA, INC.
CBCA, Inc. ("CBCA"), Oakland, California, has developed an automated health
benefit claims processing and payment system that includes full website
functionality.
At October 31, 2002, the Fund's investment in CBCA consisted of 4,774,636
shares of Series E Preferred Stock with a cost of approximately $10.0 million.
The investment was assigned a fair value of approximately $10.0 million, or
approximately $2.09 per share.
On December 20, 2002, the Fund entered into a follow-on investment of $1.0
million in CBCA, consisting of 477,463 shares of Series E Preferred Stock at
approximately $2.09 per share.
On December 31, 2002, the Fund entered into a follow-on investment of $1.0
million in CBCA, consisting of 477,463 shares of Series E Preferred Stock at
approximately $2.09 per share.
The New Valuation Committee marked down the carrying value of the Fund's
investments in CBCA, as of January 31, 2003, by writing down the Series E
Preferred Stock by $4.0 million to $8.0 million.
At January 31, 2003, the Fund's investment in CBCA consisted of 5,729,562
shares of Series E Preferred Stock with a cost of approximately $12.0 million.
The investment has been assigned a fair value of $8.0 million, or approximately
$1.40 per share.
John Grillos, the former Chief Executive Officer of the Fund, served as a
director of CBCA and resigned his directorship on March 6, 2003.
CIDERA, INC./MAINSTREAM DATA, INC.
Cidera, Inc. ("Cidera"), Laurel, Maryland, provides satellite-based
delivery of broadband content directly to Internet access points closest to the
end users. Mainstream Data, Inc. ("Mainstream"), Salt Lake City, Utah, builds
and operates satellite, Internet, and wireless broadcast networks for the
world's largest information companies. Mainstream Data networks deliver text
news, streaming stock quotations, and digital images to subscribers around the
world. Mainstream is a spin out from Cidera. At October 31, 2002, the Fund's
investment in Cidera consisted of 857,192 shares of Series D Preferred Stock
with a cost of approximately $7.5 million. The investment was assigned a fair
value of approximately $500,000, or approximately $0.58 per share.
At January 31, 2003, the Fund's investment in Cidera consisted of 857,192
shares of Series D Preferred Stock with a cost of approximately $3.75 million.
The investment has been assigned a fair value of $0.0, or $0.00 per share.
At January 31, 2003, the Fund's investment in Mainstream consisted of
85,719 shares of Series D Preferred Stock with a cost of approximately $3.75
million. The investment has been assigned a fair value of approximately
$500,000, or approximately $5.83 per share.
DATAPLAY, INC.
DataPlay, Inc. ("DataPlay"), Boulder, Colorado, developed new ways of
enabling consumers to record and play digital content.
At October 31, 2002, the Fund's total investment in DataPlay, with a cost
basis of $12.0 million, consisted of 2,500,000 shares of Series D Preferred
Stock and seven promissory notes with a combined cost of $4.5 million. The
investment had been assigned a fair value of approximately $2.25 million,
comprising $0.00 per share for the Series D Preferred Stock and 50% of the face
value of the promissory notes.
17
On November 20, 2002, DataPlay filed for bankruptcy under Chapter 11 of the
U.S. Code.
On January 15, 2003, the Valuation Committee marked down the remaining
value of the Fund's investment in all of the Promissory Notes issued by DataPlay
by $2.25 million and wrote off all of the accrued interest from the Notes.
At January 31, 2003, the Fund's total investment in DataPlay consisted of
2,500,000 shares of Series D Preferred Stock with a cost basis of $12.0 million
and seven promissory notes with a combined cost of $4.5 million. The investment
has been assigned a fair value of $0.0.
ENDYMION SYSTEMS, INC.
Endymion Systems, Inc. ("Endymion "), Oakland, California, is a single
source supplier for strategic, web-enabled, end-to-end business solutions that
help its customers leverage Internet technologies to drive growth and increase
productivity.
At October 31, 2002, the Fund's investment in Endymion consisted of
7,156,760 shares of Series A Preferred Stock with a cost of approximately $7.0
million. The investment was assigned a fair value of $2.0 million, or
approximately $0.28 per share.
The New Valuation Committee marked down the carrying value of the Fund's
investments in Endymion, as of January 31, 2003, by writing down the Series A
Preferred Stock by $1.0 million to $1.0 million.
At January 31, 2003, the Fund's investment in Endymion consisted of
7,156,760 shares of Series A Preferred Stock with a cost of approximately $7.0
million. The investment has been assigned a fair value of $1.0 million, at
approximately $0.14 per share.
FOLIOFN, INC.
FOLIOFN, Inc. ("FOLIOFN"), Vienna, Virginia, is a financial services
technology company that delivers leading-edge investment solutions to financial
services firms and investors.
At October 31, 2002, the Fund's investment in FOLIOFN consisted of
5,802,259 shares of Series C Preferred Stock with a cost of $15.0 million. The
investment was assigned a fair value of approximately $3.0 million, or
approximately $0.52 per share.
The New Valuation Committee marked down the carrying value of the Fund's
investments in FOLIOFN, as of January 31, 2003, by writing down the Series C
Preferred Stock by $1.0 million to $2.0 million.
At January 31, 2003, the Fund's investment in FOLIOFN consisted of
5,802,259 shares of Series C Preferred Stock with a cost of $15.0 million. The
investment has been assigned a fair value of $2.0 million, at approximately
$0.34 per share.
John Grillos, the former Chief Executive Officer of the Fund, served as a
director of FolioFN and resigned his directorship on March 10, 2003.
INFOUSA.COM, INC.
On June 2, 2000, the Fund invested $10.0 million in INFOUSA.com, Inc.
("INFOUSA.com"), consisting of 2,145,922 shares of Series B Convertible
Preferred Stock ("Series B Preferred Stock") at $4.66 per share.
On September 28, 2001, the Old Valuation Committee marked down the
valuation of the Fund's $10.0 million investment in the Series B Preferred Stock
issue of INFOUSA.com by $3.25 million to $6.75 million.
At October 31, 2001, the Fund's investment consisted of 2,145,922 shares of
Series B Preferred Stock at a cost of approximately $10.0 million. The
investment was assigned a fair value of $6.7 million, or approximately $3.15 per
share.
On December 29, 2001 the Fund agreed to the acquisition of the assets of
INFOUSA.com by INFOUSA, Inc., the parent company of INFOUSA.com. In return, the
Fund received proceeds of $6.7 million made up of $4.9 million in cash and $1.8
million in the form of a promissory note from INFOUSA, Inc. The Fund shall
receive interest on the unpaid principal balance of the Note at the rate of 6%
per annum, paid quarterly. The Note is due and payable on September 29, 2003.
The entire transaction resulted in a realized loss of $3.3 million for the Fund.
18
Subsequent to the end of the fiscal quarter, the Fund received early
repayment of the promissory note and proceeds of $1,845,445 representing full
repayment of the note and outstanding accrued interest.
INTEGRAL DEVELOPMENT CORPORATION
Integral Development Corporation ("Integral"), Mountain View, California,
is a developer of technology which enables financial institutions to expand,
integrate and automate their capital markets businesses and operations.
On December 30, 2002, the Fund entered into an investment of approximately
$5.0 million in the form of a Convertible Credit Facility with Integral maturing
on December 31, 2005. The transaction earns a floating rate of interest at prime
plus 5% per annum with a floor at 10% per annum and a ceiling at 12% per annum
on the outstanding balance, prior to conversion. In connection with the Fund's
$5.05 million Credit Facility with Integral Development Corporation, the Fund
also received warrants to purchase shares of Series C Convertible Preferred
Stock of Integral Development Corporation (or a future round of Preferred
Stock), equal to the number obtained by multiplying the outstanding common stock
by 0.030928, at an exercise price equal to the price per share at which the
Integral issues its next Preferred Stock, or if a future financing does not
occur before June 29, 2003, at an exercise price equal to $0.70 per share. The
warrants expire on December 31, 2009.
At January 31, 2003, the Fund's investment in Integral consisted of an
outstanding balance on the loan of $5.05 million with a cost of approximately
$5.0 million. The investment is being valued at approximately $5.0 million.
ISHONI NETWORKS, INC.
Ishoni Networks, Inc. ("Ishoni"), Santa Clara, California, is a developer
of technology that allows customer premises equipment manufacturers and service
providers to offer integrated voice, data and security services over a single
broadband connection to residential and business customers.
At October 31, 2002, the Fund's investment in Ishoni consisted of 2,003,607
shares of Series C Preferred Stock with a cost of approximately $10.0 million.
The investment was assigned a fair value of $2.5 million, or approximately $1.25
per share.
The New Valuation Committee marked down the carrying value of the Fund's
investments in Ishoni, as of January 31, 2003, by writing down the Series C
Preferred Stock by $2.5 million to $0.0.
At January 31, 2003, the Fund's investment in Ishoni consisted of 2,003,607
shares of Series C Preferred Stock with a cost of approximately $10.0 million.
The investment has been assigned a fair value of $0.0.
LUMETA CORPORATION
Lumeta Corporation ("Lumeta"), Somerset, New Jersey, is a developer of
network management, security, and auditing solutions. The company provides
businesses with a comprehensive analysis of their network security that reveals
the vulnerabilities and inefficiencies of their corporate intranets.
At October 31, 2002, the Fund's investment in Lumeta consisted of 384,615
shares of Series A Preferred Stock and 266,846 shares of Series B Preferred
Stock with a cost of approximately $406,000. The investment was assigned a fair
value of approximately $456,000, or approximately $0.70 per share for each the
Series A and B Preferred Stock.
The New Valuation Committee marked down the carrying value of the Fund's
investments in Lumeta, as of January 31, 2003, by writing down the Series A
Preferred Stock by $19,000 to its original cost of $250,000 and by writing down
the Series B Preferred Stock from $187,000 to approximately $156,000.
At January 31, 2003, the Fund's investment in Lumeta consisted of 384,615
shares of Series A Preferred Stock and 266,846 shares of Series B Preferred
Stock with a combined cost of approximately $406,000. The investments have been
assigned a fair value of approximately $406,000, or approximately $0.65 per
share of Series A Preferred Stock and approximately $0.59 per share of Series B
Preferred Stock.
19
PAGOO, INC.
Pagoo, Inc. ("Pagoo"), Lafayette, California, is a developer of Internet
voice technologies offering Internet services direct to the consumer.
At October 31, 2002, the Fund's investment in Pagoo consisted of 1,956,026
shares of Series A-1 Convertible Preferred Stock with a cost of approximately
$11.6 million. The investment was assigned a fair value of approximately
$170,000, or approximately $0.09 per share.
The New Valuation Committee marked down the carrying value of the Fund's
investment in Pagoo, as of January 31, 2003, by writing down the Series A-1
Convertible Preferred Stock to $150,000.
At January 31, 2003, the Fund's investment in Pagoo consisted of 1,956,026
shares of Series A-1 Convertible Preferred Stock with a cost of approximately
$11.6 million. The investment has been assigned a fair value of $150,000, or
approximately $0.08 per share.
Nino Marakovic, an employee of the Fund, serves as a director of Pagoo.
PHOSISTOR TECHNOLOGIES, INC.
Phosistor Technologies, Inc. ("Phosistor"), Pleasanton, California, designs
and develops integrated semiconductor components and modules for global
telecommunications and data communications networks.
At October 31, 2002, the Fund's investment in Phosistor consisted of
6,666,667 shares of Series B Convertible Preferred Stock with a cost of
approximately $1.0 million. The investment was assigned a fair value of
approximately $1.0 million, or approximately $0.15 per share.
The New Valuation Committee marked down the remaining carrying value of the
Fund's investments in Phosistor, as of January 31, 2003, by $1.0 million to
$0.0.
At January 31, 2003, the Fund's investment in Phosistor consisted of
6,666,667 shares of Series B Preferred Stock with a cost of approximately $1.0
million. The investment has been assigned a fair value of $0.0.
PROCESSCLAIMS, INC.
ProcessClaims, Inc. ("ProcessClaims"), Manhattan Beach, California,
provides web-based solutions and value added services that streamline the
automobile insurance claims process for the insurance industry and its partners.
At October 31, 2002, the Fund's investment in ProcessClaims consisted of
6,250,000 shares of Series C Preferred Stock, 849,257 shares of Series D
Preferred Stock, and 873,362 warrants to purchase 873,362 shares of Series E
Convertible Preferred Stock with a combined cost of approximately $2.4 million.
The investment was assigned a fair value of approximately $3.3 million, or
approximately $0.471 per share of Series C Preferred Stock, approximately $0.471
per share of Series D Preferred Stock, and $0.00 per warrant.
The New Valuation Committee marked down the carrying value of the Fund's
investments in ProcessClaims, as of January 31, 2003, by writing down the Series
C Preferred Stock by approximately $940,000 to $2.0 million.
At January 31, 2003, the Fund's investments in ProcessClaims consisted of
6,250,000 shares of Series C Preferred Stock, 849,257 shares of Series D
Preferred Stock, and 873,362 warrants to purchase 873,362 shares of Series E
Convertible Preferred Stock with a combined cost of approximately $2.4 million.
The investments were assigned a fair value of approximately $2.4 million, or
approximately $0.32 per share of Series C Preferred Stock, approximately $0.47
per share of Series D Preferred Stock, and $0.00 per warrant.
Nino Marakovic, an employee of the Fund, serves as a director of
ProcessClaims.
SAFESTONE TECHNOLOGIES PLC
SafeStone Technologies PLC ("SafeStone"), Old Amersham, UK, provides
organizations with secure access controls across the extended enterprise,
enforcing compliance with security policies and enabling effective management of
the corporate IT and e-business infrastructure.
At October 31, 2002, the Fund's investments in SafeStone consisted of
1,714,455 shares of Series A Preferred Stock and 391,923 shares of Series B
20
Preferred Stock with a combined cost basis of approximately $4.0 million. The
investments were assigned a fair value of $2.7 million, or approximately $1.28
per share for each of the Series A and B Preferred Stock.
The New Valuation Committee marked down the carrying value of the Fund's
investments in SafeStone, as of January 31, 2003, by writing down the remaining
carrying value of the Series A Preferred Stock by approximately $2.19 million to
$0.0 and by writing down the remaining carrying value of the Series B Preferred
Stock by approximately $250,000 to $250,000.
At January 31, 2003, the Fund's investments in SafeStone consisted of
1,714,455 shares of Series A Preferred Stock and 391,923 shares of Series B
Preferred Stock with a combined cost of approximately $4.0 million. The
investments have been assigned a fair value of $250,000, or $0.00 per share of
the Series A Preferred Stock and approximately $0.64 per share of the Series B
Preferred Stock.
SHOPEAZE SYSTEMS, INC.
ShopEaze Systems, Inc. ("ShopEaze"), Sunnyvale, California, partnered with
established retailers to help them build online businesses to complement their
existing brick-and-mortar businesses.
At October 31, 2002 and January 31, 2003, the Fund's investment in ShopEaze
consisted of 2,097,902 shares of Series B Preferred Stock with a cost of
approximately $6.0 million. At both October 31, 2002 and January 31, 2003, the
investment has been assigned a fair value of $0.0. ShopEaze ceased operations
during 2002.
SONEXIS, INC.
Sonexis, Inc. ("Sonexis"), Boston, Massachusetts, is the developer of a new
kind of conferencing solution - Sonexis ConferenceManager - a modular platform
that supports a breadth of audio and web conferencing functionality to deliver
rich media conferencing.
At October 31, 2002, the Fund's investment in Sonexis consisted of
2,590,674 shares of Series C Preferred Stock with a cost of approximately $10.0
million. The investment was assigned a fair value of $7.0 million, or
approximately $2.70 per share.
The New Valuation Committee marked down the carrying value of the Fund's
investment in Sonexis, as of January 31, 2003, by writing down the Series C
Preferred Stock by $5.0 million to $2.0 million.
At January 31, 2003, the Fund's investment in Sonexis consisted of
2,590,674 shares of Series C Preferred Stock with a cost of approximately $10.0
million. The investment has been assigned a fair value of $2.0 million, or
approximately $0.77 per share.
SYGATE TECHNOLOGIES, INC.
Sygate Technologies, Inc. ("Sygate"), Fremont, California, is a provider of
enterprise-focused security policy enforcement solutions which provide the
infrastructure to maintain an unbroken chain of control to IT Management.
At October 31, 2002 and January 31, 2003, the Fund's investment in Sygate
consisted of 9,756,098 shares of Series D Preferred Stock with a cost of
approximately $4.0 million. At both October 31, 2002 and January 31, 2003, the
investment was assigned a fair value of approximately $4.0 million, or
approximately $0.41 per share.
SYNHRGY HR TECHNOLOGIES, INC.
Synhrgy HR Technologies, Inc. ("Synhrgy"), Houston, Texas, provides human
resources technology and outsourcing services to Fortune 1000 companies.
On December 26, 2002, the Fund entered into an investment of approximately
$5.0 million in the form of a Credit Facility with Synhrgy HR Technologies, Inc.
("Synhrgy") maturing on January 3, 2006. The note earns a fixed rate of interest
at 12% per annum on the outstanding balance of the note. The Fund also received
43,750 warrants to purchase Series B-1 Preferred Stock.
At January 31, 2003, the Fund's investment in Synhrgy consisted of an
outstanding balance on the loan of $5.0 million with a cost of approximately
$4.95 million. The investment is being valued at approximately $4.95 million.
21
YAGA, INC.
Yaga, Inc. ("Yaga"), San Francisco, California, provides an advanced hosted
application service provider (ASP) platform that addresses emerging revenue and
payment infrastructure needs of online businesses. Yaga's sophisticated payment
and accounting application supports micropayments, aggregated billing and stored
value accounts while also managing royalty/affiliate accounting and split
payments.
At October 31, 2002, the Fund's investment in Yaga consisted of 300,000
shares of Series A Preferred Stock, 1,000,000 shares of Series B Preferred and
100,000 warrants to purchase 100,000 shares of Series B Preferred Shares with a
combined cost of $2.3 million. The investments were assigned a fair value of
$1.3 million, or $1.00 per share of Series A Preferred Stock and Series B
Preferred Stock and $0.00 per warrant.
The New Valuation Committee marked down the carrying value of the Fund's
investments in Yaga, as of January 31, 2003, by writing down the Series B
Preferred Stock by approximately $1.07 million to $230,000.
At January 31, 2003, the Fund's investment in Yaga consisted of 300,000
shares of Series A Preferred Stock, 1,000,000 shares of Series B Preferred and
100,000 warrants to purchase 100,000 shares of Series B Preferred Shares with a
combined cost of $2.3 million. The investments have been assigned a fair value
of $230,000, or $0.00 per share of the Series A Preferred Stock, approximately
$0.23 per share of the Series B Preferred Stock and $0.00 per warrant.
Liquidity and Capital Resources
- -------------------------------
At January 31, 2003, the Fund had $29.1 million of its $163.9 million in
net assets (the value of total assets less total liabilities) invested in
portfolio securities of 20 companies, $1.8 million in eight subordinated notes
which are also related to portfolio investments (but not included here as part
of the 20 companies valued at $29.1 million), $15.4 million in four debt
instruments related to portfolio investments, $19.9 million of its net assets
invested in temporary investments consisting of commercial paper and U.S.
government and agency securities, and $98.6 million in cash and cash
equivalents. The Fund considers all money market and all highly liquid temporary
cash investments purchased with an original maturity of three months or less to
be cash equivalents. Current balance sheet resources are believed to be
sufficient to finance anticipated future commitments.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Historically the Fund has invested in small companies, and its investments
are considered speculative in nature. The Fund's investments often include
securities that are subject to legal or contractual restrictions on resale that
adversely affect the liquidity and marketability of such securities. As a
result, the Fund is subject to risk of loss which may prevent our stockholders
from achieving price appreciation, dividend distributions and return of capital.
The portion of our portfolio consisting of investments in private companies
is also subject to valuation risk. The market value of the Fund's shares in
large part depends on the values of the Fund's investments and the prospects and
financial results of the companies in which the Fund invests. Many of the Fund's
investments are securities of private companies that are not publicly traded.
The financial and other information regarding the issuers of these securities
that is available to the Fund may be more limited than the information available
in the case of issuers whose securities are publicly traded. The board of
directors determines the fair value of these securities in accordance with
procedures deemed reasonable. However, fair value is an estimated and,
notwithstanding the good faith efforts of the Board of Directors to determine
the fair value of securities held by the Fund, there can be no assurance that
those values accurately reflect the prices that the Fund would realize upon
sales of those securities. Moreover, the prospects and financial condition of
the companies in which the Fund invests may change and these changes may have a
significant impact on the fair values of the Fund's investments. We value our
privately held investments based on a determination made by our Board of
Directors on a quarterly basis and as otherwise required in accordance with our
established fair value procedures. In the absence of a readily ascertainable
market value, the estimated values of our investments may differ significantly
from the values that would exist if a ready market for these securities existed.
Any changes in valuation are recorded in our statements of operations as "Net
unrealized gain (loss) on investments."
Investments in short term securities and cash and cash equivalents comprise
approximately 72.3% of the Fund's net assets at January 31, 2003, and are
subject to financial market risk, including changes in interest rates. The Fund
has invested a portion of its capital in debt securities, the yield and value of
which may be impacted by changes in market interest rates.
As noted in footnote 6, on February 28, 2003 a new Board of Directors to
the Fund was elected. The new Board is currently assessing its investment
strategy going forward.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures.
Within the 90 days prior to the filing date of this quarterly report on
Form 10-Q, the Fund carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures. This evaluation was
carried out under the supervision and with the participation of management,
including our current Chief Executive Officer, who also performs the functions
of a Chief Financial Officer (the CEO/CFO). Based upon that evaluation, the
CEO/CFO has concluded that our disclosure controls and procedures are adequate
and effective.
Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our CEO/CFO, as appropriate to allow timely decisions
regarding required disclosure.
23
(b) Changes in internal controls.
There have been no significant changes, including corrective actions with
regard to significant deficiencies or material weaknesses, in our internal
controls or in other factors that could significantly affect internal controls
subsequent to the date we carried out the evaluation discussed in paragraph (a)
above.
24
PART II. OTHER INFORMATION
- --------------------------
ITEM 1. LEGAL PROCEEDINGS
On February 20, 2002, Millenco LP ("Millenco"), a stockholder, filed a
complaint in the United States District Court for the District of Delaware on
behalf of the Fund against the former Advisor. The Fund was designated a
"nominal" defendant for purposes of effectuating the relief sought in the
complaint. The complaint alleges that the fees received by the former Advisor
for the year prior to the filing of the complaint were excessive, in violation
of Section 36(b) of the Investment Company Act of 1940. The former Advisor's
motions to dismiss the action or transfer it to California were both denied. The
case is in discovery.
On April 3, 2002, Millenco filed a complaint against the Fund in the Court
of Chancery, New Castle County, Delaware, seeking a judicial confirmation of the
stockholder vote of March 27, 2002, rejecting new investment advisory agreements
between the Fund and the former Advisor and between the Fund and the former
Sub-Advisor. On April 5, 2002, Millenco moved to accelerate the trial of the
case and later that day the Fund's Board of Directors acknowledged that the
proposals for shareholder approval of the advisory and sub-advisory agreements
had failed and that a stockholder's meeting would not be reconvened on this
matter. On July 30, 2002, Millenco filed an amended complaint against the Fund
and the Fund's directors in the Court of Chancery, New Castle County, Delaware,
seeking to (i) invalidate the election of two of the Fund's former directors,
John M. Grillos and Larry Gerhard, at the 2001 and 2002 Annual Meetings of
Stockholders, to three-year terms expiring 2004 and 2005, respectively; and the
election of former director Peter Freudenthal, at the 2001 Annual Meeting, to a
three-year term expiring 2004; and (ii) require the Fund to hold a special
Meeting of Stockholders, for the purpose of holding new elections to fill the
board seats currently held by Mr. Grillos and Mr. Gerhard and the board seat
vacated by Peter Freudenthal due to his resignation in June 2002.
On December 19, 2002, Vice Chancellor Lamb granted judgment for Millenco's
holding that the former directors had breached their fiduciary duty of
disclosure under Delaware law in connection with the 2001 and 2002 election of
directors and ordered the Fund to hold new elections for the seats held by
directors Grillos and Gerhard and former director Freudenthal. The election was
held on February 28, 2003, at which the Fund's new directors were elected.
On February 6, 2003 the Fund filed a complaint against Millennium Partners,
L.P., Millenco, L.P. and Karpus Management, Inc. (collectively "the
stockholders") in the United States District Court for the Southern District of
New York, alleging various violations of federal securities law primarily in
connection with the ongoing proxy contest between Millenco and the Fund's former
management. The complaint asked the Court for preliminary and permanent
injunctive relief aimed at limiting the stockholders voting rights at the
February 28, 2003 annual meeting of stockholders.
On February 24, 2003, after extensive discovery and an evidentiary hearing,
the United States District Court for the Southern District of New York denied
the Fund's motion for a preliminary injunction against the defendants finding
there was insubstantial likelihood of the Fund succeeding on any of the claims
asserted. On March 27, 2003, the Fund voluntarily dismissed the lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Fund's Annual Meeting of Stockholders was held on February 28, 2003 for
the following purposes:
(1) To elect two directors to serve for the remainder of the term to
expire at the Annual Meeting of Stockholders to be held in 2004
("Proposal 1");
(2) To elect two directors to serve for the remainder of the term to
expire at the Annual Meeting of Stockholders to be held in 2005
("Proposal 2");
(3) To elect three directors to serve until the Annual Meeting of
Stockholders to be held in 2006 ("Proposal 3");
25
(4) To consider a stockholder proposal that the Fund's By-laws be
amended to permit any stockholder owning at least five percent of
the outstanding common stock of the Fund to demand that the Fund's
Chairman, Vice Chairman, Chief Executive Officer, or President
call a special meeting of stockholders ("Proposal 4"); and
(5) To consider a stockholder proposal that the Board of Directors
conduct a tender offer for 25 percent of the outstanding shares of
the Fund at an amount equal to 95 percent of the Fund's net asset
value in any year that the Fund's discount averages over 10
percent ("Proposal 5").
Of the 16,161,900 shares outstanding and entitled to vote, 9,943,539 shares
were represented at the meeting by proxy or in person. The following table
identifies the matters voted upon at the meeting, the number of votes cast for,
against or withheld, as well as the number of abstentions, as to each such
matter, including a separate tabulation with respect to each nominee for office.
There were no broker non-votes.
MATTER VOTES FOR VOTES AGAINST VOTES
WITHHELD/ABSTAINED
Proposal 1:
- ----------
John M. Grillos 1,662,889 284,030
Michael H. Jordan 1,684,919 262,000
Gerald Hellerman 7,406,154 590,466
Robert C. Knapp 7,405,754 590,866
Proposal 2:
- ----------
Laurence R. Hootnick 1,685,970 260,949
Peter J. Locke 1,693,823 253,096
Bruce W. Shewmaker 7,406,654 589,966
George Karpus 7,411,754 584,866
Proposal 3:
- ----------
Frederick M. Hoar 1,686,354 260,565
Vincent H. Tobkin 1,693,822 253,097
James K. Sims 1,690,915 256,004
Emilio Dominianni 7,403,254 593,366
Terry Feeney 7,409,854 586,766
Robert S. Everett 7,406,854 589,766
Proposal 4: 7,794,529 1,678,994 470,016
- ----------
Proposal 5: 7,410,053 1,839,287 694,199
- ----------
Under Proposals 1, 2, 3, the shareholders elected seven new directors:
Gerald Hellerman, Robert C. Knapp, Bruce W. Shewmaker, George Karpus, Emilio
Dominianni, Terry Feeney, and Robert Everett. Gerald Hellerman, Robert C. Knapp,
Bruce W. Shewmaker, George Karpus, Emilio Dominianni, and Terry Feeney will
serve as members of the Board who are not "interested persons" of the Fund and
its affiliated persons ("Independent Directors"), within the meaning of the
Investment Company Act of 1940, as amended ("1940 Act"). On March 6, 2003, the
Board appointed director nominee Robert S. Everett to the CEO post on an interim
basis. In connection with his appointment, Mr. Everett has decided not to serve
as a director of the Fund. Proposals 4 and 5 are advisory and not binding on the
Fund.
26
ITEM 5. OTHER INFORMATION
On January 16, 2003, the Fund's prior Board of Directors amended the Fund's
By-laws such that any stockholder owning at least fifteen percent (15%) of the
outstanding common stock of the corporation may request that the Board of
Directors call a special meeting of stockholders.
On February 27, 2003, the Fund's prior Board of Directors amended the
Fund's By-laws to clarify the indemnification provisions for directors and
officers.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Exhibit
------------- ---------
3.1 Second Amended and Restated By-laws
99.1 Certification pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Other required Exhibits are included in this Form 10-Q or have been
previously filed in the Company's Registration Statement on Form N-2
(Reg. No. 333-92287).
(b) Reports on Form 8-K
During the quarter ended January 31, 2003, the Fund filed one
report on Form 8-K. The report, dated December 2, 2002, was filed to
report the Fund's commencement of doing business under the name
MVC Capital and to announce the hiring of an interim Chief Financial
Officer.
On March 11, 2003 the Fund filed a report on Form 8-K confirming the
election results following the Annual Meeting of Shareholders,
advising that John Grillos had been terminated as Chief Executive
Officer of the Fund and that Robert S. Everett had been appointed as
acting Chief Executive Officer.
On March 17, 2003 the Fund filed a report on Form 8-K advising that
Michael Stewart had resigned as acting Chief Financial Officer of the
Fund, and that the filing of the Form 10-Q quarterly report for the
period ended January 31, 2003 would be delayed, pending a full review
of the portfolio valuation by the New Valuation Committee appointed by
the Board of Directors.
On April 24, 2003, the Fund filed a report on Form 8-K advising
that PricewaterhouseCoopers LLP ("PwC"), the Fund's independent
accountants, had resigned. During the past two fiscal years of the
Fund and the subsequent interim period through April 16, 2003, there
have been no disagreements with PwC on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the
satisfaction of PwC would have caused them to make reference to the
subject matter of the disagreement in connection with their reports on
the financial statements. In addition, the report, as filed on Form
8-K, advised that the review of the Fund's portfolio valuation had
been conducted and as a result of this review, the fair value of many
of the Fund's holdings had been written down.
27
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed by the
undersigned, thereunto duly authorized.
MEVC DRAPER FISHER JURVETSON FUND I, INC.
Date: May 8, 2003 /s/ Robert S. Everett
---------------------------------------------
Robert S. Everett
Chief Executive Officer, and in the capacity
of the officer who performs the functions of
Principal Financial Officer.
CERTIFICATION
The undersigned, in his capacity as an officer of meVC Draper Fisher Jurvetson
Fund I, Inc., provides the following certification required by 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, and
17 C.F.R.ss.240.13a-14.
I, Robert S. Everett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of meVC Draper Fisher
Jurvetson Fund I, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's Board of
Directors (or persons performing the equivalent functions):
28
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated:
May 8, 2003 /s/ Robert S. Everett
-----------------------------------
Robert S. Everett
Chief Executive Officer
meVC Draper Fisher Jurvetson
Fund I, Inc.
I, Robert S. Everett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of meVC Draper Fisher
Jurvetson Fund I, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
29
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's Board of
Directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated:
May 8, 2003 /s/ Robert S. Everett
-----------------------------------
Robert S. Everett
In the capacity of the officer
who performs the functions of
Principal Financial Officer
meVC Draper Fisher Jurvetson
Fund I, Inc.
30
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
B Y L A W S
OF
meVC DRAPER FISHER JURVETSON
FUND I, INC.
(a Delaware Corporation)
TABLE OF CONTENTS
PAGE
Article 1 OFFICES............................................................1
1.1 Principal Office.................................................1
1.2 Additional Offices...............................................1
Article 2 MEETING OF STOCKHOLDERS............................................1
2.1 Place of Meeting.................................................1
2.2 Annual Meeting...................................................1
2.3 Special Meetings.................................................2
2.4 Action Without a Meeting.........................................3
2.5 Notice of Meetings...............................................3
2.6 Business Matter of a Special Meeting.............................3
2.7 List of Stockholders.............................................3
2.8 Organization and Conduct of Business.............................4
2.9 Quorum and Adjournments..........................................4
2.10 Voting Rights....................................................4
2.11 Majority Vote....................................................4
2.12 Record Date for Stockholder Notice and Voting....................5
2.13 Proxies..........................................................5
2.14 Inspectors of Election...........................................6
Article 3 DIRECTORS..........................................................6
3.1 Number; Election; Tenure and Qualifications......................6
3.2 Vacancies........................................................7
3.3 Resignation and Removal..........................................7
3.4 Powers...........................................................7
3.5 Place of Meetings................................................7
3.6 Annual Meetings..................................................8
3.7 Regular Meetings.................................................8
3.8 Special Meetings.................................................8
3.9 Quorum and Adjournments..........................................8
3.10 Action Without Meeting...........................................8
3.11 Telephone Meetings...............................................8
3.12 Waiver of Notice.................................................8
3.13 Fees and Compensation of Directors...............................9
3.14 Rights of Inspection.............................................9
3.15 Committees of Directors..........................................9
Article 4 OFFICERS..........................................................10
4.1 Officers Designated.............................................10
4.2 Appointment of Officers.........................................10
4.3 Subordinate Officers............................................10
4.4 Removal and Resignation of Officers.............................10
4.5 Vacancies in Offices............................................11
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4.6 Compensation....................................................11
4.7 The Chief Executive Officer.....................................11
4.8 The President...................................................11
4.9 The Vice President..............................................11
4.10 The Secretary...................................................11
4.11 The Assistant Secretary.........................................12
4.12 The Chief Financial Officer.....................................12
4.13 Bond............................................................12
4.14 Delegation of Authority.........................................12
Article 5 INDEMNIFICATION...................................................12
5.1 Right to Indemnification........................................12
5.2 Right to Advancement of Expenses................................14
5.3 Right of Indemnitee to Bring Suit...............................14
5.4 Non-Exclusivity of Rights.......................................15
5.5 Insurance.......................................................15
5.6 Indemnification of Employees and Agents of the Corporation......15
5.7 Nature of Rights................................................15
Article 6 CAPITAL STOCK.....................................................15
6.1 Certificates for Shares.........................................15
6.2 Signatures on Certificates......................................16
6.3 Transfer of Stock...............................................16
6.4 Registered Stockholders.........................................16
6.5 Lost, Stolen or Destroyed Certificates..........................16
Article 7 CERTAIN TRANSACTIONS..............................................17
7.1 Transactions with Interested Parties............................17
7.2 Quorum..........................................................17
Article 8 GENERAL PROVISIONS................................................17
8.1 Dividends.......................................................17
8.2 Dividend Reserve................................................17
8.3 Checks..........................................................18
8.4 Corporate Seal..................................................18
8.5 Fiscal Year.....................................................18
8.6 Execution of Corporate Contracts and Instruments................18
8.7 Representation of Shares of Other Corporations..................18
Article 9 AMENDMENTS........................................................18
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SECOND AMENDED AND RESTATED
B Y L A W S
OF
meVC DRAPER FISHER JURVETSON FUND I, INC.
(A DELAWARE CORPORATION)
ARTICLE 1
Offices
1.1 PRINCIPAL OFFICE. The initial registered office of the corporation
shall be 1209 Orange Street, Wilmington, Delaware, and the name of the initial
registered agent in charge thereof is The Corporation Trust Company.
1.2 ADDITIONAL OFFICES. The corporation may also have offices at such other
places, either within or without the State of Delaware, as the board of
directors may from time to time designate or the business of the corporation may
require.
ARTICLE 2
Meeting of Stockholders
2.1 PLACE OF MEETING. Meetings of stockholders may be held at such place,
either within or without of the State of Delaware, as may be designated by or in
the manner provided in these Bylaws, or, if not so designated, at the registered
office of the corporation or the principal executive offices of the corporation.
2.2 ANNUAL MEETING. Annual meetings of stockholders shall be held each year
at such date and time as shall be designated from time to time by the board of
directors and stated in the notice of the meeting. At such annual meeting, the
stockholders shall elect by a plurality vote the number of directors equal to
the number of directors of the class whose term expires at such meetings (or, if
fewer, the number of directors properly nominated and qualified for election) to
hold office until the third succeeding annual meeting of stockholders after
their election. The stockholders shall also transact such other business as may
properly be brought before the meetings.
To be properly brought before the annual meeting, business must be either
(a) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the board of directors or the Chief Executive Officer or
President, (b) otherwise properly brought before the meeting by or at the
direction of the board of directors or the Chief Executive Officer or President,
or (c) otherwise properly brought before the meeting by a stockholder of record.
In addition to any other applicable requirements, for business to be properly
brought before the annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a stockholder's notice must be delivered personally or deposited in
the United States mail, or delivered to a common carrier for transmission to the
recipient or actually transmitted by the person giving the notice by electronic
means to the recipient or sent by other means of written communication, postage
or delivery charges prepaid in all such cases, and received at the principal
executive offices of the corporation, addressed to the attention of the
Secretary of the corporation, not less than 60 days nor more than 90 days prior
to the scheduled date of the meeting (regardless of any postponements, deferrals
or adjournments of that meeting to a later date); PROVIDED, HOWEVER, that in the
event that less than 70 days' notice or prior public disclosure of the date of
the scheduled meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the earlier of (a)
the close of business on the 10th day following the day on which such notice of
the date of the scheduled annual meeting was mailed or such public disclosure
was made, whichever first occurs, and (b) two days prior to the date of the
scheduled meeting. A stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the stockholder proposing such business, (iii)
the class, series and number of shares of the corporation that are owned
beneficially by the stockholder, and (iv) any material interest of the
stockholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Section 2.2; provided, however,
that nothing in this Section 2.2 shall be deemed to preclude discussion by any
stockholder of any business properly brought before the annual meeting.
The Chief Executive Officer (or such other person presiding at the meeting
in accordance with these Bylaws) shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 2.2, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
2.3 SPECIAL MEETINGS. Special meetings of the stockholders may be called
for any purpose or purposes, unless otherwise prescribed by the statute or by
the Certificate of Incorporation, only at the request of the Chief Executive
Officer or President or by a resolution duly adopted by a majority of the board
of directors. Such request shall state the purpose or purposes of the proposed
meeting. Business transacted at any special meeting shall be limited to matters
relating to the purpose or purposes stated in the notice of meeting.
Any Stockholder owning at least fifteen percent (15%) of the outstanding
common stock of the corporation may request that the board of directors call a
special meeting of stockholders.
The request shall be in writing and shall state the purpose(s) of the
special meeting. The board of directors shall consider the stockholder's request
at the next meeting of the board of directors following its receipt of the
stockholder's request. If the board of directors determines to call a special
meeting, within five (5) business days of the determination of the board of
directors, the board of directors shall call such a meeting to be held at the
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corporation's principal office in the United States, on a date that shall be not
more than sixty (60) nor less than ten (10) days after the record date of such
meeting. Written notice of such meeting shall be sent not more than sixty (60)
nor less than ten (10) days, or such greater time period required by applicable
law, before the date of such meeting to each stockholder entitled to vote at
such meeting. The record date for such meeting shall be fixed by resolution of
the board of directors on a date not preceding the date of such resolution.
2.4 ACTION WITHOUT A MEETING. Any action which may be taken at any annual
or special meeting of the stockholders of this corporation may be taken without
a meeting, without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action or actions so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Such consent or
consents shall be delivered to the corporation by hand or certified mail, return
receipt requested, to its principal executive office, or to an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded.
2.5 NOTICE OF MEETINGS. Written notice of stockholders' meetings, stating
the place, date and time of the meeting and, in the case of a special meeting,
the purpose or purposes for which such special meeting is called, shall be given
to each stockholder entitled to vote at such meeting not less than ten (10) nor
more than sixty (60) days prior to the meeting.
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Whenever, under the provisions of Delaware law or of the Certificate of
Incorporation or of these Bylaws, notice is required to be given to any
stockholder it shall not be construed to mean personal notice, but such notice
may be given in writing, by mail, addressed to such director or stockholder, at
his or her address as it appears on the records of the corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail.
Whenever any notice is required to be given under the provisions of
Delaware law or of the Certificate of Incorporation or of these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
2.6 BUSINESS MATTER OF A SPECIAL MEETING. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice, except to the extent such notice is waived or is not required.
2.7 LIST OF STOCKHOLDERS. The officer in charge of the stock ledger of the
corporation or the transfer agent shall prepare and make, at least ten (10) days
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before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, at a place within the
city where the meeting is to be held, which place, if other than the place of
the meeting, shall be specified in the notice of the meeting. The list shall
also be produced and kept at the place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present in person
thereat.
2.8 ORGANIZATION AND CONDUCT OF BUSINESS. The Chief Executive Officer or,
in his or her absence, such person as the board of directors may have designated
or, in the absence of such a person, such person as may be chosen by the holders
of a majority of the shares entitled to vote who are present, in person or by
proxy, shall call to order any meeting of the stockholders and act as Chairman
of the meeting. In the absence of the Secretary of the corporation, the
Secretary of the meeting shall be such person as the Chairman appoints.
The Chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seems to him or her in order.
2.9 QUORUM AND ADJOURNMENTS. Except where otherwise provided by law or the
Certificate of Incorporation or these Bylaws, the holders of at least a majority
of the stock issued and outstanding and entitled to vote, present in person or
represented in proxy, shall constitute a quorum at all meetings of the
stockholders. The stockholders present at a duly called or held meeting at which
a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to have less than a quorum
if any action taken (other than adjournment) is approved by at least a majority
of the shares required to constitute a quorum. At such adjourned meeting at
which a quorum is present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If, however, a
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat who are present in person or
represented by proxy shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented.
2.10 VOTING RIGHTS. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.
2.11 MAJORITY VOTE. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation or of these Bylaws, a different vote is
required in which case such express provision shall govern and control the
decision of such question.
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2.12 RECORD DATE FOR STOCKHOLDER NOTICE AND VOTING.
---------------------------------------------
(i) For purposes of determining the stockholders entitled to notice of
any meeting or to vote, or entitled to receive payment of any dividend or
other distribution, or entitled to exercise any right in respect of any
change, conversion or exchange of stock or for the purpose of any other
lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days
before the date of any such meeting nor more than sixty (60) days before
any other action. If the board of directors does not so fix a record date,
the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the
day on which the meeting is held.
(ii) For purposes of determining the stockholders entitled to consent
to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten (10) days after the
date upon which the resolution fixing such record date is adopted by the
board of directors. If no record date has been fixed by the board of
directors, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by
the board of directors is required under Delaware law, shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by hand or certified
mail, return receipt requested, to its principal executive office, or to an
officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. If no record date has
been fixed by the board of directors and prior action by the board of
directors is required under Delaware law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be the close of business on the day on which the board of
directors adopts the resolution taking such prior action.
2.13 PROXIES. Every person entitled to vote for directors or on any other
matter shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the Secretary
of the corporation. A proxy shall be deemed signed if the stockholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the stockholder or the stockholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) revoked by the
person executing it, before the vote pursuant to that proxy, by a writing
delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of three years from the date of the proxy, unless
otherwise provided in the proxy.
-5-
2.14 INSPECTORS OF ELECTION. The corporation shall, in advance of any
meeting of stockholders, appoint one or more inspectors of election to act at
the meeting and make a written report thereof. The corporation may designate one
or more persons to act as alternate inspectors to replace any inspector who
fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability.
ARTICLE 3
Directors
3.1 NUMBER; ELECTION; TENURE AND QUALIFICATIONS. The board of directors of
the corporation shall consist of not less than three (3) members nor more than
seven (7) members and shall be divided into three classes, designated as Class
I, Class II and Class III, as nearly equal in number as possible. The initial
board of directors shall consist of three (3) members, with each Class
consisting of one (1) director, and the exact number of members of any future
board of directors, and the exact number of directors in each Class, shall be
determined from time to time by resolution of the board of directors.
Notwithstanding the foregoing, additional directorships resulting from an
increase in the number of directors shall be apportioned among the classes as
equally as possible.
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as directors. Nominations of persons for election
to the board of directors at the annual meeting, by or at the direction of the
board of directors, may be made by any nominating committee or person appointed
by the board of directors; nominations may also be made by any stockholder of
record of the corporation entitled to vote for the election of directors at the
meeting who complies with the notice procedures set forth in this Section 3.1.
Such nominations, other than those made by or at the direction of the board of
directors, shall be made pursuant to timely notice in writing to the Secretary
of the corporation. To be timely, a stockholder's notice shall be delivered
personally or deposited in the United States mail, or delivered to a common
carrier for transmission to the recipient or actually transmitted by the person
giving the notice by electronic means to the recipient or sent by other means of
written communication, postage or delivery charges prepaid in all such cases,
and received at the principal executive offices of the corporation addressed to
the attention of the Secretary of the corporation not less than 60 days nor more
than 90 days prior to the scheduled date of the meeting (regardless of any
postponements, deferrals or adjournments of that meeting to a later date);
provided, however, that, in the case of an annual meeting and in the event that
less than 70 days' notice or prior public disclosure of the date of the
scheduled meeting is given or made to stockholders, notice by the stockholder to
be timely must be so received not later than the earlier of (a) the close of
business on the 10th day following the day on which such notice of the date of
the scheduled meeting was mailed or such public disclosure was made, whichever
first occurs, or (b) two days prior to the date of the scheduled meeting. Such
stockholder's notice to the Secretary shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or reelection as a director,
(i) the name, age, business address and residence address of the person, (ii)
the principal occupation or employment of the person, (iii) the class, series
and number of shares of capital stock of the corporation that are owned
beneficially by the person, (iv) a statement as to the person's citizenship, and
(v) any other information relating to the person that is required to be
-6-
disclosed in solicitations for proxies for election of directors pursuant to
Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder; and (b) as to the stockholder giving the
notice, (i) the name and record address of the stockholder and (ii) the class,
series and number of shares of capital stock of the corporation that are owned
beneficially by the stockholder. The corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
corporation to determine the eligibility of such proposed nominee to serve as
director of the corporation. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the procedures
set forth herein.
In connection with any annual meeting, the Chief Executive Officer (or such
other person presiding at such meeting in accordance with these Bylaws) shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded.
Directors shall serve as provided in the Certificate of Incorporation.
Directors need not be stockholders.
3.2 VACANCIES. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election at which the term of the class to which they have been elected expires
and until their successors are duly elected and shall qualify, unless sooner
displaced. If there are no directors in office, then an election of directors
may be held in the manner provided by statute. In the event of a vacancy in the
board of directors, the remaining directors, except as otherwise provided by law
or these Bylaws, may exercise the powers of the full board of directors until
the vacancy is filled.
3.3 RESIGNATION AND REMOVAL. Any director may resign at any time by
delivering written notice to the corporation at its principal place of business
or to the Chief Executive Officer, President or Secretary. Such resignation
shall be effective upon receipt of such notice unless the notice specifies such
resignation to be effective at some other time or upon the happening of some
other event. Any director or the entire board of directors may be removed, but
only for cause, and only upon the affirmative vote of the holders of at least
seventy-five percent (75%) of shares then entitled to vote at an election of
directors, unless otherwise specified by law or the Certificate of
Incorporation.
3.4 POWERS. The business of the corporation shall be managed by or under
the direction of the board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things which are not by statute
or by the Certificate of Incorporation or by these Bylaws directed or required
to be exercised or done by the stockholders.
3.5 PLACE OF MEETINGS. The board of directors may hold meetings, both
regular and special, either within or without the State of Delaware.
-7-
3.6 ANNUAL MEETINGS. The annual meetings of the board of directors shall be
held immediately following the annual meeting of stockholders, and no notice of
such meeting shall be necessary to the board of directors, provided a quorum
shall be present. The annual meetings shall be for the purposes of organization,
and an election of officers and the transaction of other business.
3.7 REGULAR MEETINGS. Regular meetings of the board of directors may be
held without notice at such time and place as may be determined from time to
time by the board of directors.
3.8 SPECIAL MEETINGS. Special meetings of the board of directors may be
called by the Chief Executive Officer, President, Secretary, any Vice President
or by a majority of the board of directors upon one (1) day's notice to each
director and can be delivered either personally, or by telephone, express
delivery service (so that the scheduled delivery date of the notice is at least
one (1) day in advance of the meeting), telegram or facsimile transmission, and
on five (5) day's notice, by mail. The notice need not describe the purpose of
the special meeting.
3.9 QUORUM AND ADJOURNMENTS. At all meetings of the board of directors, a
majority of the directors then in office shall constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors, except as may otherwise be specifically provided by law or the
Certificate of Incorporation. If a quorum is not present at any meeting of the
board of directors, the directors present may adjourn the meeting from time to
time, without notice other than announcement at the meeting at which the
adjournment is taken, until a quorum shall be present. A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of directors, if any action taken is approved of by at least a
majority of the required quorum for that meeting.
3.10 ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate
of Incorporation or these Bylaws, any action required or permitted to be taken
at any meeting of the board of directors or of any committee thereof may be
taken without a meeting, if all members of the board of directors or committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the board of directors or committee.
3.11 TELEPHONE MEETINGS. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any member of the board of directors or any
committee may participate in a meeting by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.12 WAIVER OF NOTICE. Notice of a meeting need not be given to any
director who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
-8-
3.13 FEES AND COMPENSATION OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the board of directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, for service performed as directors, including the
expenses incurred in connection with their attendance at meetings of the board
of directors, and may be paid a fixed sum for attendance at each meeting of the
board of directors and/or a fixed or variable salary for their service as a
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.14 RIGHTS OF INSPECTION. Any director shall have the right to examine the
corporation's stock ledger, a list of its stockholders and its other books and
records for a purpose reasonably related to his or her position as a director.
3.15 COMMITTEES OF DIRECTORS.
(i) The board of directors may, by resolution passed by a majority of
the entire board of directors, designate one or more committees, each
committee to consist of one or more of the directors of the corporation.
The board of directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member
at any meeting of the committee.
(ii) In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or she or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member.
(iii) Any such committee, to the extent provided in the resolution of
the board of directors, shall have and may exercise all the powers and
authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation
to be affixed to all papers which may require it; but no such committee
shall have the power or authority in reference to amending the Certificate
of Incorporation (except that a committee may, to the extent authorized in
the resolution or resolutions providing for the issuance of shares of stock
adopted by the board of directors as provided in Section 151(a) of the
General Corporation Law of Delaware, fix any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any
other series of the same or any other class or classes of stock of the
corporation), adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to
the stockholders a dissolution of the corporation or a revocation of
dissolution, removing or indemnifying directors or amending the Bylaws of
the corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provides, no such committee shall have the power
or authority to declare a dividend or to authorize the issuance of stock or
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to adopt a certificate of ownership and merger. Such committee or
committees shall have such name or names as may be determined from time to
time by resolution adopted by the board of directors.
(iv) Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
ARTICLE 4
Officers
4.1 OFFICERS DESIGNATED. The officers of the corporation shall be chosen by
the board of directors and shall be a Chief Executive Officer, a Secretary and a
Chief Financial Officer or Treasurer. The board of directors may also appoint a
President, a Chief Operating Officer, a Chief Technical Officer, one or more
Vice Presidents, and one or more assistant Secretaries. Any number of offices
may be held by the same person, except as otherwise provided in the Certificate
of Incorporation or these Bylaws.
4.2 APPOINTMENT OF OFFICERS. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 4.3 or
4.5 of this Article 4, shall be chosen in such manner and shall hold their
offices for such terms as are prescribed by these Bylaws or determined by the
board of directors. Each officer shall hold his or her office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. This Section does not create any rights of employment or continued
employment. The corporation may secure the fidelity of any or all of its
officers or agents by bond or otherwise.
4.3 SUBORDINATE OFFICERS. The board of directors may appoint, and may
empower the Chief Executive Officer and/or President to appoint, such other
officers and agents as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the Bylaws or as the board of directors may from time to time
determine.
4.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of
an officer under any contract of employment, any officer may be removed, either
with or without cause, by an affirmative vote of the majority of the board of
directors, at any regular or special meeting of the board of directors, or,
except in case of an officer chosen by the board of directors, by any officer
upon whom such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
4.5 VACANCIES IN OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointment to that office.
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4.6 COMPENSATION. The salaries of all officers of the corporation shall be
fixed from time to time by the board of directors and no officer shall be
prevented from receiving a salary because such officer is also a director of the
corporation.
4.7 THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall preside
at all meetings of the stockholders and at all meetings of the board of
directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect. He or she shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the board of directors to some other officer or agent of the corporation.
4.8 THE PRESIDENT. The President shall, in the event there be no Chief
Executive Officer or in the absence of the Chief Executive Officer or in the
event of his or her disability or refusal to act, perform the duties of the
Chief Executive Officer, and when so acting, shall have the powers of and
subject to all the restrictions upon the Chief Executive Officer. The President
shall perform such other duties and have such other powers as may from time to
time be prescribed for him or her by the board of directors, the Chief Executive
Officer or these Bylaws.
4.9 THE VICE PRESIDENT. The Vice President (or in the event there be more
than one, the Vice Presidents in the order designated by the directors, or in
the absence of any designation, in the order of their election), shall, in the
absence of the President or in the event of his or her disability or refusal to
act, perform the duties of the President, and when so acting, shall have the
powers of and subject to all the restrictions upon the President. The Vice
President(s) shall perform such other duties and have such other powers as may
from time to time be prescribed for them by the board of directors, the
President or these Bylaws.
4.10 THE SECRETARY. The Secretary shall attend all meetings of the board of
directors and the stockholders and record all votes and the proceedings of the
meetings in a book to be kept for that purpose and shall perform like duties for
the standing committees, when required. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and special meetings of the board
of directors, and shall perform such other duties as may from time to time be
prescribed by the board of directors or the Chief Executive Officer, under whose
supervision he or she shall act. The Secretary shall have custody of the seal of
the corporation, and the Secretary, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it, and, when so
affixed, the seal may be attested by his or her signature or by the signature of
such Assistant Secretary. The board of directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing thereof by his or her signature. The Secretary shall keep, or cause to
be kept, at the principal executive office or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates issued for the same and the number and
date of cancellation of every certificate surrendered for cancellation.
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4.11 THE ASSISTANT SECRETARY. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order designated by the board of
directors (or in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as may
from time to time be prescribed by the board of directors.
4.12 THE CHIEF FINANCIAL OFFICER. The Chief Financial Officer (or Treasurer
if the chief financial and accounting officer has such title) shall have the
custody of the Corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by the board
of directors. The Chief Financial Officer shall disburse the funds of the
corporation as may be ordered by the board of directors, taking proper vouchers
for such disbursements, and shall render to the Chief Executive Officer and the
board of directors, at its regular meetings, or when the board of directors so
requires, an account of all his or her transactions as Chief Financial Officer
and of the financial condition of the corporation.
4.13 BOND. If required by the board of directors, any officer shall give
the corporation a bond in such sum and with such surety or sureties and upon
such terms and conditions as shall be satisfactory to the board of directors,
including without limitation a bond for the faithful performance of the duties
of such officer's office and for the restoration to the corporation of all
books, papers, vouchers, money and other property of whatever kind in such
officer's possession or under such officer's control and belonging to the
corporation.
4.14 DELEGATION OF AUTHORITY. The board of directors may from time to time
delegate the powers or duties of any officer to any other officers or agents,
notwithstanding any provision hereof.
ARTICLE 5
Indemnification
5.1 RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or an officer of the corporation or is or was serving at the request of
the corporation as a director, officer or trustee of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer or trustee or in any other capacity while serving as a
director, officer or trustee, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the General Corporation Law of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than such law permitted
the corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
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taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section 5.3 hereof with respect to proceedings to enforce
rights to indemnification, the corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the board of
directors of the corporation.
Notwithstanding the foregoing, no indemnification shall be provided hereunder to
an officer or director:
(a) who shall have been adjudicated, by the court or other body before
which the proceeding was brought, to be liable to the corporation or
its stockholders by reason of such officer's or director's willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office (collectively,
"disabling conduct"); or
(b) with respect to any proceeding disposed of (whether by settlement,
pursuant to a consent decree or otherwise) without an adjudication by
the court or other body before which the proceeding was brought that
such officer or director was liable to corporation or its stockholders
by reason of disabling conduct, unless there has been a determination
that such officer or director did not engage in disabling conduct by:
(i) at least a majority of those directors who are neither
"interested persons" of the corporation (as such term is defined
in Section 2(a)(19) of the Investment Company Act of 1940, as
amended ("1940 Act") nor are parties to the proceeding based upon
a review of readily available facts (as opposed to a full
trial-type inquiry); or
(ii) written advice of independent legal counsel based upon a review
of readily available facts (as opposed to a full trial-type
inquiry);
provided, however, that indemnification shall be provided hereunder to a
director or officer with respect to any proceeding in the event of (1) a final
decision on the merits by the court or other body before which the proceeding
was brought that the director or officer was not liable by reason of disabling
conduct, or (2) the dismissal of the proceeding by the court or other body
before which it was brought for insufficiency of evidence of any disabling
conduct with which such director or officer has been charged. For purposes of
this Section 5.1, a "director" or "officer" of the corporation includes any
person (i) who is or was a director or officer of the corporation, (ii) who is
or was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise, or
(iii) who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
5.2 RIGHT TO ADVANCEMENT OF EXPENSES. In addition to the right to
indemnification conferred in Section 5.1 hereof, an indemnitee shall also have
the right to be paid by the corporation the expenses (including attorney's fees)
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
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General Corporation Law of Delaware requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section 5.2 or otherwise; and provided, further, that (a)
such director or officer shall have provided appropriate security for such
undertaking, (b) the corporation is insured against losses arising out of any
such advance payments, or (c) either a majority of the directors who are neither
"interested persons" of the corporation (as such term is defined in Section
2(a)(19) of the 1940 Act) nor parties to the proceeding, or independent legal
counsel by means of written advice, shall have determined, based upon a review
of the readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such director or officer
will be found entitled to indemnification under this Article 5.
5.3 RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 5.1 or 5.2
hereof is not paid in full by the corporation within sixty (60) days after a
written claim has been received by the corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be twenty (20) days, the indemnitee may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that,
and (ii) in any suit brought by the corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the corporation shall be
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met any applicable standard for indemnification set forth in the General
Corporation Law of Delaware. Neither the failure of the corporation (including
its directors who are not parties to such action, a committee of such directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the General Corporation Law of Delaware, nor an
actual determination by the corporation (including its directors who are not
parties to such action, a committee of such directors, independent legal
counsel, or its stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the indemnitee has not met
the applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article 5 or otherwise shall be on the corporation.
5.4 NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the
advancement of expenses conferred in this Article 5 shall not be exclusive of
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any other right which any person may have or hereafter acquire under any
statute, the Certificate of Incorporation, these Bylaws, any agreement, vote of
stockholders or directors or otherwise.
5.5 INSURANCE. The corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of Delaware.
5.6 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The
corporation may, to the extent authorized from time to time by the board of
directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the corporation to the fullest extent of the provisions
of this Article 5 with respect to the indemnification and advancement of
expenses of directors and officers of the corporation.
5.7 NATURE OF RIGHTS. The rights conferred upon indemnitees in this Article
5 shall be contract rights and such rights shall continue as to an indemnitee
who has ceased to be a director, officer or trustee and shall inure to the
benefit of the indemnitee's heirs, executors and administrators. Any amendment,
alteration or repeal of this Article 5 that adversely affects any right of an
indemnitee or its successors shall be prospective only and shall not limit or
eliminate any such right with respect to any proceeding involving any occurrence
or alleged occurrence of any action or omission to act that took place prior to
such amendment or repeal.
ARTICLE 6
Capital Stock
6.1 CERTIFICATES FOR SHARES. The shares of the corporation shall be
represented by certificates or shall be uncertificated. Certificates shall be
signed by, or in the name of the corporation by the Chief Executive Officer, the
President or a Vice President and by the Chief Financial Officer, the Treasurer,
the Secretary or an Assistant Secretary of the corporation. Any or all of the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue. Certificates may be issued for partly paid
shares and in such case upon the face or back of the certificates issued to
represent any such partly paid shares, the total amount of the consideration to
be paid therefor, and the amount paid thereon shall be specified.
Within a reasonable time after the issuance or transfer of uncertificated
stock, the corporation shall send to the registered owner thereof a written
notice containing the information required by the General Corporation Law of the
State of Delaware or a statement that the corporation will furnish without
charge to each stockholder who so requests the powers, designations, preferences
and relative participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
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6.2 SIGNATURES ON CERTIFICATES. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
6.3 TRANSFER OF STOCK. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate of shares duly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer, it shall
be the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated share, such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
6.4 REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and to hold liable for calls
and assessments a percent registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
6.5 LOST, STOLEN OR DESTROYED CERTIFICATES. The board of directors may
direct that a new certificate or certificates be issued to replace any
certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing the issue of a new certificate or certificates, the
board of directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of the lost, stolen or destroyed certificate
or certificates, or his or her legal representative, to advertise the same in
such manner as it shall require, and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
ARTICLE 7
Certain Transactions
7.1 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the board of directors or committee thereof which authorizes the
contract or transaction or solely because the vote or votes of such director or
officer are counted for such purpose, if:
(a) the material facts as to such person's relationship or interest
and as to the contract or transaction are disclosed or are known to the
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board of directors or the committee, and the board of directors or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or
(b) the material facts as to such person's relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(c) the contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the board of directors,
a committee thereof, or the stockholders.
7.2 QUORUM. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the board of directors or of a
committee which authorizes the contract or transaction.
ARTICLE 8
General Provisions
8.1 DIVIDENDS. Dividends upon the capital stock of the corporation, subject
to any restrictions contained in the General Corporation Law of the State of
Delaware or the provisions of the Certificate of Incorporation, if any, may be
declared by the board of directors at any regular or special meeting. Dividends
may be paid in cash, in property or in shares of the capital stock, subject to
the provisions of the Certificate of Incorporation.
8.2 DIVIDEND RESERVE. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
8.3 CHECKS. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
8.4 CORPORATE SEAL. The board of directors may, by resolution, adopt a
corporate seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced. The seal may be altered from time to time by the board of
directors.
8.5 FISCAL YEAR. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
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8.6 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. The board of
directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation; such authority
may be general or confined to specific instances. Unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
8.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chief Executive
Officer, the President or any Vice President or the Secretary or any Assistant
Secretary of this corporation is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of any
corporation or corporations standing in the name of this corporation. The
authority herein granted to said officers to vote or represent on behalf of this
corporation any and all shares held by this corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officers.
ARTICLE 9
Amendments
The board of directors is expressly empowered to adopt, amend or repeal
these Bylaws, provided, however, that any adoption, amendment or repeal of these
Bylaws by the board of directors shall require the approval of at least
sixty-six and two-thirds percent (66-2/3%) of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any resolution providing for adoption, amendment or
repeal is presented to the board). The stockholders shall also have power to
adopt, amend or repeal these Bylaws, provided, however, that in addition to any
vote of the holders of any class or series of stock of this corporation required
by law or by the Certificate of Incorporation of this corporation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then outstanding shares of the stock
of the corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required for such adoption,
amendment or repeal by the stockholders of any provisions of these Bylaws.
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EXHIBIT 99.1
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Robert S. Everett, as Chief Executive Officer and in the capacity of the officer
who performs the functions of Principal Financial Officer, of meVC Draper Fisher
Jurvetson Fund I, Inc., a Delaware corporation (the "Registrant"), certifies
that:
1. The Registrant's quarterly report on Form 10-Q for the period ended January
31, 2003 (the "Form 10-Q") fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Chief Executive Officer and in the capacity of the officer who
performs the functions of Principal Financial Officer
meVC Draper Fisher Jurvetson Fund I, Inc.
/s/ Robert S. Everett
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Robert S. Everett
Date: May 8, 2003
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