PUBLIC
VERSION
UNITED STATES OF AMERICA BEFORE FEDERAL TRADE COMMISSION
In the Matter of
)
)
Thermo
Electron
Corporation,
)
Docket FileNo.
No. 061
C-4170 0187
)
a corporation.
)
)
__________________)
’[Q)[l[h
Pursuant
P [h [h [h
[h
)
[h
[h
[h
[h [h
Commission
[h
to Section 2.41(f) of the Federal
Trade
("Commission") Rules
of Practice
and Procedure,
16 C.F.R.
§
)[h (2006),
and
Paragraph
II.A.
of the Decision
and Order contained
in
the Agreement
Containing
Consent.
Orders
("Decision
and
Order"), which following
the public comment
period
has been
finally
approved
by the Commission, Respondent
petitions the Commission to
Thermo
Electron
Corporation
("Thermo")
hereby
approve
the divestiture of the
CVE
Business
(as
defined
in
the Decision
and Order)
to
Riverlake
Equity
Partners, L.P.
("Riverlake")
and, in part owing to the acquisition of certain indirect
ownership
interests,
to
MVC
Capital,
Inc.
("MVC").
A
Share
Purchase
Agreement
dated
January
25, 2007
("SPA"),
has been entered
into
between Thermo
Fisher Scientific
Inc.
("Thermo"),
Erie
U.K.
Limited
and Robbins
Scientific
Corporation,’
both of which are wholly
owned
Erie
U.K. Limited
is
the
legal
and
beneficial
Scientific
Corporatim is the
in
legal
and beneficial
as in
defined
the Decision
right,
title
and Order
interest
Thermo’s
and
Genevac.
"
owner of issued share
capital
of
Genevac Limited, and
of
ins
entities
all
owner of the issued share
In the Decision
capital
Genevac
Inc.
is
Both
are of
and Order, the CVE Business
defined as
PUBLIC
VERSION
subsidiaries
of Thermo, and Riverlake.
The executed
SPA
and
all
schedules,
attachments
and
related
agreements
are
attached
hereto
as
Confidential
Exhibit
1.
MVC
will
acquire
certain
indirect
debt and equity interests
it
will
provide
in
connection
with the
acquisition
B
to Act, as § 18.
in
the
CVE
Business
in
exchange
for the
financing
of the
CVE
Business.
On September
Orders that included
21,
2006,
Thermo
executed
an
Agreement
Containing
Consent
the Decision
and
Order and an
Order to
Hold Separate
and Maintain
Assets (collectively,
the
"Consent
Agreement")
settle
the Commission’s
charges
that
the
proposed
acquisition
by Thermo
of Fisher Scientific
International,
Inc.
would
violate
Section
5
of the Federal Trade
Commission
amended,
15
U.S.C.
§ 45,
and
Section
7
of the Clayton
Act, as amended,
15 U.S.C.
On
October
17,
2006,
the
Commission
accepted
the Consent
Agreement
for
public comment,
and following
2006.
the public comment
period,
the Consent Agreement
became
final
on December
11,
On November
Fisher
9,
2006,
Thermo
consummated
its
acquisition
of
Fisher.
is
now
a wholly owned
subsidiary of Thermo, and
Thermo’s new corporate
name
is
Thermo
Fisher Scientific
Inc.
Because
this
petition
and
its
attachments
contain
confidential
and
competitively
sensitive
business
information
relating
to
the divestiture
of the
CVE
and cause
Business
�
the
the disclosure of which
may
prejudice Thermo, Riverlake
and
MVC
harm
to
ongoing
competitiveness
of the
CVE
Business,
and impair Thermo’s
ability
to
comply with
its
obligations
under
the Consent
Agreement
�
Thermo
has
redacted such
confidential
information
from the public version
of this
petition
and
its
attachments.
Pursuant to
Sections
2.41(0(4)
and
4.9(c)
of the Commission’s
Rules
of Practice
and
2
PUBLIC
VERSION
Procedure,
16 C.F.R.
§
.4
and
its
&
4.9(c)
(2006), Thermo
requests that
the
confidential
version
of this petition
attachments
and
the information
contained
herein
be
accorded
confidential
treatment.
The
confidential
version
of this
petition
should
be
accorded
such
confidential
treatment
under
5
U.S.C.
§
552
and
Section
4.
10(a)(2)
of the
miss
confidential 7(A),
Rules
of Practice
and
Procedure,
16
C.F.R.
§
4.10(a)(2)
(2006).
The
version
of this petition
is
also
exempt
from disclosure under
Exemptions
4,
7(B), and 7(C) of the Freedom
of Information
Act,
5
U.S.C.
§
552(b)(4),
552(b)(7)(A),
552(b)(7)(B),
&
as
552(b)(7)(C),
and
the
-Scot
Improvements Act of 1976, Thermo
amended,
15
U.S.C.
§
l
later will
Antitrust
desires
to
complete
the proposed
divestiture
of the
CVE
Business
as
soon
as possible,
following
Commission approval
of the proposed
divestiture
buyer.
Thermo
and Riverlake
intend
to
close
the divestiture
no
than
10 business
days
after
Commission and
EU
approval.
Prompt consummation
further
the purposes
of the
Decision
and Order and
is
in
the interests
of the public,
Riverlake,
MVC
and Thermo,
because
it
will
allow Riverlake
to
move
forward
with
its
business plans
for
the competitive
operation
of the
CVE
Business.
Thermo
accordingly
requests
that
the Commission
promptly
commence
Rules
the
period
of public comment
and
pursuant
to
Section
2.41(f)(2)
of the
Commission’s
of Practice
Procedure,
16 C.F.R.
§ 2.41(f)(2)
(2006), limit the
public comment
period to
the
customary
30-day
period,
and
grant this petition
by
approving
the divestiture
of the
CVE
Business
to
Riverlake
pursuant
to
the
above
the close of
referenced
SPA
and,
if
deemed
a buyer,
to
MVC
as
soon
as practicable
after
the public
comment
period.
3
PUBLIC
VERSION
I.
The
Share Purchase
Agreement
Is
Final and Consistent
with the Decision
and
Order’s
Terms .[h
of the Decision and Order requires
Paragraph
Thermo
to
divest
the
CVE
Business within
150
days
of the date
on which
Thermo
’s
acquisition
of Fisher
is
consummated
(i.e.,
November
9,
2006).
Pursuant to
this
requirement,
Thermo
has
diligently
sought a buyer
that
would be acceptable
to the
Commission,
through an extensive
auction
process.
During
that
process,
Thermo contacted
________________________________________________
All
such parties were
given an
opportunity to
participate
in the
process,
provided there
was no obvious reason
that
such party
could not ultimately
be
"approvable"
as
a buyer of the
CVE
Business.
Potential
buyers were
encouraged
to participate
in the process
and
submit bids
Of
the
On
Thermo and
January 25, 2007,
Thermo
entered
into
an
SPA
with Riverlake,
pursuant to
which
its
two wholly
owned
subsidiaries
are selling
100% of
the
capital shares
of
Genevac
(which
comprises the
CVE
Business) to Riverlake
or an entity
or
entities
that
are
wholly
owned
and
controlled
by Riverlake and/or MVC.
The executed
SPA
is
attached
hereto
as
Confidential
Exhibit
1.
Thermo
selected
Riverlake
as the potential
buyer because
Riverlake
(1) has
a
compelling
strategic
fit
between
SP
Industries,
which
Riverlake
is
the ultimate
parent
entity
of,
and
the
CVE
Business,
(2) indicated
that
it
would
require
minimal
transitional
services,
ensuring
4
PUBLIC
VERSION
a smooth
and
clean
separation
from Thermo,
(3) intends
to
retain the
management team of
the
CVE
Business and
to
continue
the
U.S.
and
U.K.
Genevac
operations
as
is,
(4) has
the
financing
capability
to
make
the acquisition
and
fmancial
viability
to
maintain and
enhance
the
CVE
Business as a strong,
competitive
business,
and
(5) offered
a reasonable
valuation
of the
business.
The SPA
that
Thermo
entered
into
with Riverlake
complies with the requirements
of Paragraph
h
of the Decision
and
Order.
Paragraph
.A[
requires
that
Respondent
divest
the
CVE
Business,
absolutely
and
in
good
faith.
Pursuant to the SPA,
Riverlake
(and as
described below, to a limited
extent,
MVC)
See
will acquire
100% of
the share
capital
of Genevac
(which
comprises the
CVE
Business).
SPA
§
2.1.
*
*
*
As demonstrated above
and
in the
accompanying
SPA, Thermo has entered
into
an agreement
relating
to the
divestiture
of the
CVE
Business that fully complies
with the
Commission’s
Decision and
Order.
Accordingly,
Thermo hereby
seeks
Commission approval of
be a buyer,
the
proposed
divestiture
of the
CVE
Business to Riverlake
and,
if
deemed
to
MVC,
pursuant to Paragraph
II.A.
of the Decision
and
Order.
IL
The
Proposed
Acquirer or Acquirers
B
Are
limited 5
iate[h Buyers for the
CVE
Business
Riverlake
is
a limited
partnership organized
under
Delaware
law.
Riverlake
is
managed
by Riverlake
Partners
LLC, a
liability
company
organized
under
Delaware
law.
Riverlake
focuses on investments
in traditional
economy
Riverlake
manufacturing,
distribution
and
service
businesses.
As of December
31,
2006,
controlled four
companies
with total revenues
of
million and
with total
debt and
equity capital
of $90
PUBLIC
VERSION
million.
One of the four companies �
involved
in
Riverlake’s
current portfolio
�
SP
Industries,
Inc.
("SP
Industries")
is
in the
production,
development,
marketing
and
sale
of
laboratory
equipment products
and
services.
Although
Riverlake
is
making
the acquisition
of the
CVE
Business,
Riverlake
is
the
ultimate parent
entity
of SP Industries,
and
its
intent
is
to
operate
SP
Industries
and the
CVE
Business
together
and,
as
soon
as practicable
following
its
acquisition
of the
CVE
Business,
to
combine
the
CVE
Business
with
SP
Industries.
SP
Industries’
products,
described
below,
are
sold to similar
customers
and
in
similar
channels
as
the centrifugal
vacuum
evaporators
("CVEs")
produced
and sold by the
CVE
Business.
SP
Industries
does not need
to
establish
itself in this
industry:
it
already
is
well-established
and
has
significant
relationships
with
customers
who
are
also
buying
and
using the Genevac
CVE
products.
To complete
the acquisition,
Riverlake
will
obtain
fmancing from
MVC,
and,
in
combination,
will
provide
a bridge
loan to
newly formed
entities
("Newco")
to
acquire
the
CVE
Business.
Riverlake
and
MVC
below.
will
provide
this
funding
in
return for certain
interests
described
in
more
detail
The bridge
loan will make
it
possible for
Riverlake
to
recapitalize
Genevac
under
SP
Industries
(i.e.,
Genevac
will
become
a
subsidiary of SP Industries)
within
six
months
afler
the completion
of the
acquisition.
R
Below
we
describe
,[h
SP
Industries
and
MVC.
Riverlake
is
a private equity fund
focused
on
traditional
economy
manufacturing,
distribution
and
service
businesses,
specializing
in
equity and
equity
related
debt
investments
in
lower
middle
market-sized
companies.
It
has offices
in
Portland,
Oregon,
and Chicago,
Illinois,
and
has a national network of partners and
6
2[h
of
its
R
in
PUBLIC
VERSION
was
launched
in
2003 by Erik Krieger and
Jim Lawson.
At the time
founding,
Krieger already
had nearly two decades
of experience
advising
corporations
on mergers and
acquisitions
as a
co-founder
of an
investment
bank
specializing
technology.
Lawson
similarly
had an extensive
21-year
background
in
identifying and
making
successful
investments
as
a co-founder
of a Chicago-based
investment
banking
firm focusing
on the
sale
side.
For Krieger,
transitioning
to
Riverlake
meant being
able
to
move from
pure investments
to
"focus
exclusively
on acquiring
and operating
businesses."
Riverlake’s team combines
extensive
deal-making
skills
with
operational
experience.
This
experience
spans
over 40
years of combined
efforts
advising
and
investing
in
complex and sophisticated financing and
debt and
M&A
transactions
including
leverage
buyouts,
going
public,
private
equity capital
investments,
cross
border
acquisitions
and
strategic
technology
and
asset
partnerships.
Riverlake
has the fmancial
wherewithal
and
investment
and
operational
experience to make
this
acquisition,
and
the acquisition
of the
CVE
Business by Riverlake
will
assure
that
the
CVE
and
Business,
which
will benefit
from operational
synergies
of SP Industries,
remains strong
an effective
competitor
in the research,
development,
production,
sale,
and
service
of high-performance
ugal[h
vacuum
evaporators.
The Audited
Financial
Statements
of Riverlake,
dated December 31, 2005
and
2004, are attached
hereto
as
Confidential
Exhibit
2.
S [Q3[S[U
SP
Industries,
which
is
headquartered
in
Warminster,
Pennsylvania,
is
a
3
2 ]
leading
designer,
manufacturer,
and
marketer
of laboratory research and process
website
is
www.riverlakeparlners.com.
is
website
www.spindustxies.com.
7
PUBLIC
VERSION
equipment,
glassware
and
components,
and
configured
to
order manufacturing
equipment.
It
was established
in
1982 by
Trivest,
Inc.
and
Prudential Capital to complete
the
acquisitions
of the following
long-established entities: Wilmad, LabGlass,
VirTis,
and
other operating
divisions
of Manor
Care, Inc.
Subsequent
acquisitions
have
included
Lurex
Manufacturing
in
1990,
Hotpack
in
1993,
Hull in 1997,
Reliance
Glass
Company
in
1999
and
most recently FTS Systems
in
2006.
On March Memorandum
31,
2005,
SP
Industries
was acquired
by Riverlake.
A
copy of the
Offering
distributed
in
connection
with that
sale
is
annexed hereto
as
Confidential
Exhibit
3.
As Riverlake
stated
publicly
upon
its
acquisition of SP:
"SP
Industries
is
an
ideal
platform business
for
Riverlake.
. . .
It
includes
a superior,
committed management
team,
large
market
position in
many of
to
its
product
offerings,
international
presence,
and a
significant
infrastructure
build upon.
. .
(Press
Release,
Riverlake
Partners,
dated
April
5,
2005,
available
at
www.riverlakepartners.com.)
SP
Industries’
product
brands, such
as
ir
Wilmad
LabGlass,
Hotpack,
Hull,
and
FTS,
are
widely
recognized
names
in
the
laboratory products
market.
Wilmad
LabGlass
branded
products
include
laboratory glassware,
NMR
It
sample
tubes and accessories,
spectroscopy
supplies,
flow tubes,
and
custom glassware.
of applications
also
manufactures
precision fabricated
glass
components
for
a variety
(including
lasers,
medical
instruments, fiber optics
and microwave).
VirTis equipment
products
include
laboratory freeze
dryers,
pilot
plant and
production
scale
lyophilizers,
mechanical
homogenizers,
ultrasonic
cell disrupters,
and
fermenters.
It
also
has
a broad
range
of freeze
drying
accessories
including freeze
drying
flasks.
8
PUBLIC
VERSION
Hotpack
manufactures
under-counter
and
floor
model glassware washers,
glassware
dryers,
tissue
culture
incubators,
vacuum
ovens, stability
chambers,
and
laboratory
steam
sterilizers
(autoclaves).
Hull makes standard
and
customized
laboratory products.
Its
freeze
drying
systems
are
engineered
and
manufactured
to
pharmaceutical
cGMP
standards.
It
also
rebuilds freeze
dryers and fabricates
their
sub-components:
ASME
certified
chambers
and
condensers,
heat transfer
shelves,
refrigeration
skids,
vacuum
isolation
valves,
and
autoloaders
for
vial
handling.
Hull provides
complete
project
support
from
specification
through
engineering,
fabrication,
servicing,
and
parts.
In
October
2006,
SP
Industries
acquired
FTS
Systems, which
is
a leading
manufacturer
of precision thermal
control systems,
including systems
such
as
the
innovative
SMART
freeze drying cycle
development
technology.
FTS’ family of products
includes
a full line of freeze
drying products,
thermal
control and temperature
forcing
systems,
controlled rate
freezers
and
NMR
to the
sample
coolers.
With
the
acquisition
of FTS,
Riverlake
reaffirmed
its
commitment
industry,
stating
that
the acquisition was
"an
example of the commitment of Riverlake
and
its
partners
to
SP and
sends
a strong
signal
to
our employees
and
the
market
that
SP
Industries
is
committed
to
profitable
growth."
(Press
Release,
SP
Industries,
SF
Industries Announces
Acquisition
of FTS Systems, dated
October
16,
2006,
available
at
www.spindustries.com.)
The brands and
products
identified
above
are
complemented
by SP
a number
Industries’
service
and
support
group,
SP TechCare.
SP TechCare
provides
of
services
including
preventive
maintenance
programs,
validation
and
calibration
services,
equipment
upgrades,
factory installations
and emergency
repair
services.
9
PUBLIC
VERSION
SP
Industries
markets
its
products
to
laboratory and
production
facilities
within
pharmaceutical,
biotechnology,
industrial,
academic,
and governmental
organizations around
the
world.
Accordingly,
SP
Industries
has established
relationships
with a majority
of the largest
pharmaceutical
and
biotechnology
companies,
highlighted
by
the
fact
that
SP’s equipment and
glassware
is
utilized
in
more than
,0
laboratories
and
manufacturing
locations
worldwide.
Some
of SP’s customers
include:
Abbott
Laboratories,
Bayer,
Coming, Dow, DuPont, As a
of SP
Eastman,
Novartis,
Pfizer,
VWR
International,
Fisher and
Wyeth.
result
Industries’
strong
brands and
extensive
customer
reach,
SP
maintains
an attractive
market
position in a number
of key product
offerings,
including
laboratory
freeze
dryers,
magnetic
spectroscopy
tubes,
precision bore glass
products,
and
stability
chambers.
SP
Industries
classifies
its
business
into
two general product
based
segments,
Research
Products
and
Process
Equipment,
which
are
on
differing
sales
channel
dynamics and
customer-buying
processes.
In
addition,
SP TechCare
was formed
in
early
2001
to
focus on the increasing demand
by customers
for
up-front
installation
and
value-
added
after
market customer
support, and
post-sale
product
and
warranty
support.
As of March
31,
2006,
SP
Industries
had
million in revenues.
For the
fiscal
year to end
on March
31,
2007,
revenues
are
estimated
to
be
5
million.
It
employs
the
450
full-time
employees.
(See
SP
Industries’
consolidated
fmancial
statements
for
year-ended
March
R
31, In
2006,
attached
hereto
as
Confidential
Exhibit
4.)
Acquisition
addition to
SP
Industries,
Riverlake’s
current
portfolio
consists
of three
other companies.
Riverlake
acquired
(1)
Hawkins
and E-Z Messenger
Legal-Support
10
PUBLIC
VERSION
Providers,
LLC
(HELP,
LLC), which provides
legal
support
services
(2)
Fluid
Logic,
LLC, which produces
high quality
colloidal
silicas
and
(3)
Advanced
Decorative
Systems,
which manufactures
automotive
instrument dials
and
appliques.
None
of the three
portfolio
companies
above
is
in
the same
industry as Genevac
and none makes or
sells
any
products
that
compete with Genevac’s
products
and
services.
As described
above,
SP
itself
does
not
make, market or
sell
any
CVE
products.
However,
we
note that
SP
sells
other
complementary research and
laboratory products
that
are
purchased
and
used
by some
of
the same
customers
that
purchase
and use
CVE
products.
While under
Riverlake’s
control,
SP
Industries
has grown
from 375
employees
to
450
full-time
employees.
SP’s revenues
grew by
7%
from
fiscal
year 2005 to
fiscal
year 2006.
From
fiscal
year 2006 to fiscal year 2007,
revenues
are
projected
to
grow
since
by
2002 and
and
Under the management
leadership of Charles
Grant,
who
has
been
the
CEO
who
also
is
an
operating
partner of Riverlake,
SP has undertaken
several
growth
cost reduction
initiatives.
Some
of these initiatives
include
the closure
and
sale
of
underutilized
facilities
in
Tennesse,
New
from
York and
Pennsylvania,
the improvement in SP’s
service
business
by
shifting
away
third-party
vendors
to
internal
staff,
and
the
upgrading
of personnel.
M
MVC,
managed,
a publicly
traded
company
listed
on the
,[h
is
an
externally
non-diversified
closed-end
management
investment
be regulated
as
a business
development
4[h
capital to
of the fiscal
M
is
company
that
has elected to
based
in
Purchase,
New
York,
provides
equity and
debt
investment
fund growth,
acquisitions
and
4
2006,
was
internally
is
advised
through
the
end
year ended website
October
31,
2006.
Effective
November
1,
MVC
externally
managed by TTG
Advisers.
MVC’s
l[Q.com.
11
PUBLIC
VERSION
recapitalizations
of small and middle-market
companies
in
a variety
of
industries.
Its
investment
objective
is
to
maximize
total
return
from capital
appreciation
and/or
income.
MVC
had $279 million in
portfolio
investments
and
had
$237.6
million of net assets
as
of
November
30,
2006.
MVC
consummating
and middle
’s
investment
team has
significant
experience
in identifying
and
acquisitions
and extensive
experience
in
working with
privately
held small
market
companies.
The
investment
team has developed
across a broad
both
in-depth
knowledge
and
an
extensive
network of contacts
range
of
industries.
Moreover,
members
of
MVC
’s
investment
team have
the experience
of investing
in
and
managing
businesses
during
both recessionary
and
expansionary
periods,
through
full
interest
rate
cycles and a broad
range
of financial
market
conditions.
MVC
is
headed by
Michael Tokarz,
investment
Chairman and
Portfolio
Manager,
who
has over
30 years of lending
and
experience.
MVC’s
portfolio
investments
include,
among
others,
Vestal
Manufacturing
Enterprises,
Octagon
Credit Investors,
LLC,
Baltic
Motors Corporation, Dakota Machines
Growers
Pasta
Company,
Impact
Confections,
Inc.,
Timberland
& Irrigation,
Labs,
Inc. In
Inc.,
Vitality
Foodservice,
Inc.,
Amersham
Corporation
and
Summit
Research
addition,
MVC
is
also
an
investor in SP Industries.
MVC
provided
$10.5
million in senior debt and
subordinated
debt to
support
the buyout
of SP Industries
by Riverlake
and
SP
Industries
management.
A
list
of
MVC’s
entire
current portfolio
is
provided
in
its
most recently
filed
Form 10-K
from SP
for
the fiscal year end
October
31,
2006,
which
is
attached
as
Exhibit
6.
Apart
Industries,
none of the companies
in
which
The
2007.
list
of investments
in Exhibit
6
includes
all
of
MVC’s
i
�
MVC
has investments
is
in
the same
both debt and
equity
�
through
January
4,
12
PUBLIC
VERSION
industry as Genevac
and none makes or
sells
any products
that
compete with Genevac’s
market
products
and
services.
As shown above,
SP
Industries
does
not produce,
or
sell
any
products
that
compete
with the
F[h
CVE
pay Thermo
In addition,
at
Business.
to
[h
the
Riverlake
will
million to
acquire,
through
Newco,
the
capital
stock
of Genevac.
Riverlake
will
fund
an
additional
approximately
million of cash
to
be used
closing to
pay
for
transaction fees and support
any near-term and
working
capital
needs
of Genevac.
To finance
the
consideration, Riverlake
MVC
will
contribute
a
bridge
loan
ion[h
and
and
million in cash,
respectively.
Riverlake
will
fund
its
portion of the bridge
loan with
existing
committed
capital
as
well as
with commitments
from
current
Riverlake
SP
Industries
co-investors.
MVC
will
fund
1
before
its
portion of the
bridge
loan with
existing
committed
capital.
The
loan will
carry a rate
of
per
annum
payable
on
the
last
day
of each
month and can be repaid
at
any
time
maturity
without
any
prepayment
penalties.
To acquire which
the
shares of Genevac,
Riverlake
will
create
an
entity
or entities
("Newco"),
will
acquire
100%
of the capital
shares of Genevac.
Newco
will
have
two types of
capital
stock:
Class
A Common
rights.
and Class B Common. Only Class
A
At
Common
the
shares will hold
voting
Class
B Common
of Genevac,
will
be
non-voting
shares.
time
Newco
acquires
the entire
share capital
Riverlake
will
obtain
90.10%
of the Class
A
shares of Newco,
MVC
will
obtain
9.90%
of the Class
A Common
shares of
Newco
consist
and
MVC
will
obtain
100%
of the Class
B Common
shares.
Newco’s
Board
will
of two
members
designated
by Riverlake
and two members
designated
by
MVC.
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PUBLIC
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Riverlake
’s
intention
is
to
integrate
Genevac
into
the
operations
and
the
capital
structure
of SP Industries.
Within
six
months following
Riverlake
the indirect
acquisition
by
Riverlake
and
MVC
SP
of the
capital
stock
of Genevac,
intends
to
recapitalize
Genevac
into
Industries.
Numerous
strategic
synergies
and
opportunities
exist
for
SP
Industries
and
Genevac
in
combination,
including
(1)
enhancing
their
position in the
life
science research
industry with
a broadened
product
portfolio,
(2)
strengthening
the global manufacturing
reach
of the combined
businesses with
complimentary
customer
service
and
support
in
both
the
U.S.
and
in
Europe,
(3)
strengthening
the
combined
management
and
team and expanding
employee
growth opportunities across and
channels with
the
businesses,
(4)
leveraging
complementary
marketing
sales
strong direct
O
and
sales
relationships.
Riverlake’s
principals
SP
Industries’
management
have
significant
investment
and operational experience
and
are
appropriate
buyers
of the
CVE
Business.
Riverlake’s
general
partners
are
Erik
J.
Krieger,
Robert
B.
Barr and Lawrence
J.
Lawson
III.
Charles
L.
Grant
is
its
operating
partner.
These
individuals
have
extensive
experience
in
the identification,
evaluation
and
acquisition
of
new
business opportunities.
As
previously
mentioned,
Chuck
Grant
is
also
the
CEO
of SP
Industries,
and
even
prior
to
his
tenure
at
SP
Industries,
had
significant
leadership
experience
through
his
positions at other
companies.
In
addition,
SP
Industries’
other
management
has extensive
experience
in
the
laboratory equipment
industry through
their
experience
at
SP and
prior
employment
backgrounds.
14
PUBLIC
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Erik
J.
Krieger
is
a general partner and
the
managing
member of
Riverlake.
As mentioned previously he
is
also
one
of the founding
partners
of Riverlake.
Prior
to
forming
Riverlake,
Krieger played
a key leadership role in Pacific
Crest Securities,
a firm
he
co-founded
and
one
that
is
recognized
as
one
of the nation’s
leading
independent
technology
investment
banking
boutiques.
Krieger began his investment
banking
career at
Security Pacific
Bank
and
thereafter
was an
investment
banker
at
PaineWebber,
Inc.
in
New
to
York and
at
Paine Webber’s
Mergers and Acquisitions Group
in
Chicago.
In
addition
Pacific
Crest,
Krieger has guided
a number
of companies
as
either
an
investor or a
director,
including
Applied
Research,
CLEANPAK
Foods.
International,
Inc.,
Morrow Snowboard
Corporation
and Wholesome
and
Hearty
He
currently
serves as Chairman of JEB,
Inc.
and
is
on the board
of
directors
of,
among
others,
Pacific
Crest Securities,
HELP,
Inc.,
Fluid Logic,
Inc.
and SP
Industries.
Robert
B.
Barr
is
a general
partner and
is
a
member
of Riverlake’s
Investment
Committee.
Barr
is
a co-founder
of Lincoln
International,
a private
equity
investment
firm with offices
in
Chicago,
Los Angeles,
New
York,
Frankfurt and Paris.
Prior
to
founding
Lincoln
in
1996,
Barr helped to
establish
and
served as a senior officer
of
the
Chicago
office
of Peers
& Co.,
an
international
mergers
and
acquisitions
advisory
firm
formed
in
collaboration
with the Long
Term
Credit Bank
of Japan
and
Kemper economic
Financial.
Prior
to
joining Peers
& Co.,
Barr worked
for
Data Resources,
Finance
Inc.,
an
consulting
firm,
and
thereafter
for
Paine Webber’s
Corporate
Group and
Mergers and
Acquisitions
Group,
respectively,
in
New
is
York and
Chicago
from 1979
to
1990.
Lawrence
J.
Lawson
I
a general partner and a managing
member of
Lawson
also
Riverlake
and
serves as a
member
of Riverlake
’s
Investment
Committee.
is
a
15
PUBLIC
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co-founder
of Lincoln
International.
Prior
to
co-founding
Lincoln,
Lawson
helped to
establish
the Chicago office
of Peers
&
Co. and
before
then worked
for
KPMG
New
and
thereafter
was a member of Paine Webber’s
Corporate
Finance
Group
in
York and
Chicago.
Lawson
currently serves on the
Board of Directors and
is
a
member of the
audit
committee
of Bell Industries,
Inc.,
a publicly
traded company.
He
also
serves on the board
of directors
of JEB,
Inc.
Charles
L.
("Chuck")
Grant
is
an operating
partner of Riverlake
and
is
President
& Chief
Executive
Officer
of SP
Industries.
Grant has
served as President/CEO
of SP
since October
2002.
Mr.
Grant
has over 30
years of leadership and
executive
experience
and 20 years served
executive
in
global markets.
Prior
to
joining SP
Industries,
Mr.
Grant
served in an
capacity
from 1993-2002
with
SPX
Corporation
(SPX),
a multi-
industry company
located
in
Charlotte,
NC
whose segments
and
include
industrial
services,
technology
and
communications,
flow technology
service
solutions.
From 1998
to
2001,
Mr.
Grant
was president of the motors
and
material handling
group
of
SPX and
fractional
served as chief executive
officer
of two companies
GS
Electric,
which produced
Stock
horsepower motors
and
generated
$100 million in annual revenue and
China.
Equipment
Co.,
located in Cleveland,
OH
with a joint venture
in
From 2001
to
2002,
Mr.
Grant
was president of SPX
’s
fluid
and material handling
products
group
where he had
full profit
and
loss
responsibility
for
a group
of four global manufacturing
businesses
with sales
of
$450
million.
These
entities
included:
Marley Cooling
tower
Technology,
located
in
Kansas
City,
KS, which manufactured
cooling
solutions
Stock
Equipment Company,
located
in
Cleveland,
OH, which
produced
material handling
equipment
Resolite Company,
located
in Pittsburgh,
PA, which manufactured
fiberglass
components
and
C&M
16
PUBLIC
VERSION
Conveyors,
located
in Indianapolis,
IN,
which produced
conveying
systems for pulp
and
paper
industries.
Mr.
Grant
also
held various
positions
as president,
vice
president and
chief financial
officer
of several
other companies
in
NJ
and
PA.
He
currently
serves on the
board
of directors
of Columbus
Insurance
and
Lab Products
Association.
Mr.
Grant
holds
a
MBA
from Columbia University
and
a
BS
in
accounting
from Northeastern
University.
Wayne
Industries.
Miller
is
the Director
of Growth
&
Business
Development
at
SP
Mr.
Miller joined
SP
in
March
2003 with over 30 years of
life
science
experience
including
marketing
laboratory consumables,
analytical
instruments,
laboratory
equipment,
and process consumable
and equipment.
and
Before
joining SP Industries,
Mr.
Miller had significant
experience
in sales
marketing
for
other well
known
laboratory
equipment companies,
Sciences
such
as
Curtin
Matheson
Scientific,
Sherwood
Medical,
Gelman
(which
specialized in
filters
for filtration
and
separation
techniques
in
the
laboratory
and was
later
acquired
by
Pall
Corporation),
and
Osmonics
(which
was
later
acquired
by GE).
Lee Royle
joined
SP
Industries
in
April 2003 and
is
the Treasurer
and
Director
of
Human
Mr.
Resources
of SP Industries.
After graduating
from the University
of
Bridgeport,
Royle
began
his
career as a certified
public accountant
in
public
accounting
with Price Waterhouse,
and
has served as vice
president of fmance,
chief
fmancial
officer,
and
controller
of several public and
private
companies.
In
addition,
Mr.
Royle
served as chief executive
officer
of Baseline,
an
information
processing
company,
for
eight years.
Harry
,[h
joined
SP
Industries
in
March
2004,
and
is
the Controller
of Planning
and
Analysis of SP Industries.
After graduating
from King’s College, Mr.
17
PUBLIC
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MacLacklin
began
his
career as a certified
public accountant
in
public accounting
with
Pricewaterhouse
Coopers.
He
has over five
years of auditing
experience,
focused
mainly
on
small,
privately
held companies.
During
his
last
three
years
at
PricewaterhouseCoopers,
he
served as the lead auditor for SP
Industries.
Robert
Hoesly
is
the Director
of Sales of SP Industries,
joining SP
Industries
in
January 2004 with
over 25
years of sales
and
marketing
experience.
Prior
to
joining SP
Industries,
Mr.
Hoesly held various
positions
at
DentalEZ
Group,
including
vice president
of sales,
vice president of marketing,
and
director
of corporate
communications.
In
,[h
Mr.
Hoesly spent 17 years with Mettler Toledo, and instruments
one
of the global leaders
in
the
laboratory equipment
industry,
in role
of marketing
manager,
regional
sales
manager,
M
MVC
product
manager,
and
sales
representative.
is
an
appropriate
buyer
for the
CVE
Business.
It
has an
experienced,
seasoned
team of investment
professionals
who
have
significant
experience
in identifying
and
consummating
investments
and
nurturing and
guiding
portfolio
companies.
MVC’s
senior management
has
combined
experience
of over
75
years
in
lending,
private
equity
and
investment
banking.
MVC’s
senior management
is
identified
below.
Michael Tokarz,
and
Chairman and
Portfolio
Manager,
has over
30
years of
lending
investment
experience.
He (BA
has raised
over $3
billion
of public equity of
for
U.S.
and
foreign corporations.
Tokarz
(Economics)
and
MBA,
University
Illinois
at
Urbana),
was a General
Partner
for
17 years with
Kohlberg
ra
over $25
Roberts
&
in
Co.
While
at
KKR,
various
he
invested
over
$3.5 billion
of equity and
arranged
billion
financing
for
KKR
companies.
His
experience
also
includes
12 years in commercial
banking
18
PUBLIC
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with
Continental
Illinois
Bank
during
which he grew the bank’s
ran the bank’s
Miami
office
from
start-up
into
the most profitable
office
of the bank and
New
and
East Coast
operations.
Tokarz has
expertise
in
all
levels
of the
capital
structure
and
transaction types,
with
over
30
private
equity venture
capital
investments
and
over
25
private
equity
investments.
He
has nurtured
numerous
companies
to
initial
public offerings
and
public
status.
Bruce
Shewmaker,
the
Managing
Director
of
MVC,
has extensive
knowledge
of and experience
with business
development
companies.
He
designed
and
managed
the
first
BDC
structured as a partnership,
launched
two U.S. geographically
fund focused
focused
venture
funds,
and he managed
the largest
international
enterprise
on the Russian
Federation.
Shewmaker’s
experience
includes
a diverse range
of transactions,
from start
ups to turnarounds
to
buyouts.
He worked
to
at Irving
Trust and
Chase Bank,
where he was
involved
in
commercial lending
large
and
small borrowers
at
Merrill
Lynch
Technology
Ventures,
where he engaged
in
tax advantaged
financing of research
and
development
projects
and he was one
of the founding
partners
of Merrill
Lynch
Venture
Capital.
Shewmaker
has
extensive
experience
in
investment
banking
transaction and
strategic
planning.
He
has participated
in
more than 50 IPOs co-managed
by E*Offering
and he
Corp., he
designed
an
internet-based global investment
banking
network,
coordinated
the
management
of private
assets
with
a large
capital
markets
division.
Puneet
,[h
and
Vice
President,
has
over
11
years of experience
in private
equity and leveraged
corporate
fmance.
He
is
the
Chief Marketing
Officer
of
MVC,
Sanan
responsible
for
fund-raising,
marketing,
deal
origination,
execution
and
monitoring.
also
serves as a director
on
the
boards
of Impact
Confections,
Timberland
Machines
&
19
PUBLIC
VERSION
Irrigation,
Turf Products
and
Summit
Research
Labs.
Sanan’s
prior
experience
includes
Cadigan Investment
Partners,
where he was involved
in originating,
analyzing, structuring
and
financing
middle-market
leveraged
and
management
buyouts
and
recapitalization
transactions
UBS
Warburg
and
Paine Webber,
where he executed
leveraged
buyout
deals
on the
sell-side
and provided
financing
and
advisory
services
to
private
equity funds
and
Legg Mason,
where he performed
buy-side
research.
Shivani
Khurana,
Vice
President,
has
over nine years of experience
in private
equity,
mezzanine,
debt restructuring,
leveraged
fmance,
investment
banking
and
investment
management.
and
At
MVC,
Khurana’s
responsibilities
include
deal sourcing,
execution
monitoring
of portfolio
companies.
She
serves as a director
on the boards of
Impact
Confections,
Turf Products
and
Summit
Research
Labs.
Prior
experience
includes
Cadigan Investment
and
Partners,
where
Khurana was involved
in originating,
analyzing,
structuring
financing
middle-market
leveraged
and
management
buyouts
and
recapitaliztion
transactions.
She
also
worked
at
Wachovia
Securities,
where she was
involved
in
restructuring
and
turnaround
financing and
leverage
fmance,
Merrill
Lynch,
where she was engaged
she was
in
investment
banking,
and
Al-Ahlia
Investment
Company,
where
engaged
in
investment
management.
In
accordance
with the provisions
of the Decision
and
Order,
Thermo has given
an opportunity to
Riverlake
a
list
of
all
Knowledgeable
Employees
and
is
allowing Riverlake
interview
such
employees
and
to inspect
the
personnel
files
and
other
documentation
relating
to
such employees.
Moreover,
Thermo
is
providing Riverlake
with the opportunity to meet with
the
Knowledgeable
Employees,
outside
of Thermo’s
presence,
and to make
offers
of
employment to
all
such
employees.
Riverlake
intends
to
offer
employment to
the
entire
20
PUBLIC
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workforce
of the
CVE
Business.
Finally, the
SPA
specifically
incorporates
the
provisions
of the
Decision
and
Order prohibiting
Thermo,
for
two
years
from the Effective
Date
of Divestiture,
from
soliciting, hiring
or entering
into
any arrangement
for the services
of
all
or
any of the Key
Employees,
and
for
a period of one
year from the Effective
Date
of Divestiture,
from directly
or
indirectly
soliciting,
negotiating,
hiring
or entering
into
any arrangement
for the
services
of
all
or
any of the Knowledgeable
Employees.
Riverlake
sees
tremendous opportunity
of the
in this
transaction not only to
maintain
the
competitiveness
CVE
Business
but
to
enhance
it,
by supporting
continued
product
development and by
cross-selling
Genevac
and
SP Products
to
the
expanded
and
combined
customer
base.
Ill.
The Proposed
Divestiture Agreement
in
Wifi
Achieve
the Purposes
of the Decision
and
Order and Result
No Harm
divestiture
to
Competition
The proposed
achieve
of the
CVE
Business,
as
embodied
in the
SPA,
will
the
purposes
of the Decision
and
Order.
Riverlake
and
its
subsidiary,
SP
Industries,
are
experienced in the laboratory
equipment
and
life
sciences
research
industry,
with a proven
track
record of successfully
operating
and
enhancing
not
only SP but the other
businesses
it
has
acquired
in the past.
Riverlake
and
MVC
enjoy a strong
financial
positions
that
will
enable them
to
complete
this
acquisition,
continue
the operation
of the
CVE
Business and
enhance
its
competitiveness
in the
market for
CVE
products and
services.
Combining
the
CVE
Business
with Riverlake’s
and
MVC’s
Decision
experience and
fmancial
wherewithal
will
ensure that the objectives
of the Commission’s
and
Order will be realized.
The proposed
divestiture
will result
in
no
harm
to
competition.
Neither Riverlake
nor SP nor
MVC currently
competes
in
any market,
as
defmed
in
the
Commission’s
Complaint,
21
in
which the
CVE
Business
operates.
Consequently,
there
is
no overlap
between
the operations
of Riverlake,
SP or
MVC
and
the
CVE
Business,
and the proposed
divestiture
does
not raise any
competitive
issue.
In sum, the proposed divestiture
will
remedy
any anticompetitive
effects
that
could
result
from the Acquisition.
The
SPA
will
achieve
the Commission’s
stated
purposes
of
ensuring
the continued
use of the
CVE
Business
in
the same
business
in
which
it
had been
engaged
at
the time of the announcement
of the proposed Acquisition
and remedying the
lessening
of competition
as
alleged
in the
Commission’s
C
Thermo
Business
as soon
as
Complaint.
For the foregoing
reasons,
respectfully
requests
that
the
Commission
approve the proposed
divestiture
of the
CVE
to
Riverlake,
as
embodied
in the
SPA
and, if
deemed
to
be a buyer,
to
MVC
practicable.
Respectfully
submitted,
David
S.
Neil! Lipton, Rosen
Wachte!l, 51 West
& Katz
52nd
Street
New
York,
New
York
10019
(212) 403-1000
Counsel
for
Thermo
Electron
Corporation
Dated:
January 31, 2007
22
C
The
facts
[h
[h [h [h .
the
and information
Fisher
true, Scientific correct,
related Inc.,
its
in
foregoing
Petition,
its
insofar are,
as to
they the
pertain
to
Thermo
subsidiaries,
and
assets,
best
of
my
knowledge,
and complete.
Pursuant
States
to
28
U.S.C.
that
§
1746,
I
certify
is
under
true
penalty
of perjury
under
the
laws
of the United
of America
the foregoing
and
Seth
H.
Hoogasian
Vice
President,
Senior
General
Inc.
Counsel
& Secretary
Thermo
Fisher Scientific
Executed
on January 31, 2007
24
C
The
facts
PUBLIC
VERSION
[h
[h [h [h .
the
and information
Equity
Partners, correct,
related L.P.,
its
in
foregoing
Petition,
insofar
its
as
they
to
pertain
the
to
Riverlake
affiliates,
subsidiaries,
and
assets,
are,
best of
my
knowledge,
true,
and
complete.
Pursuant to 28
States
U.S.C.
that
§
1746,
I
certify
is
under
true
penalty
of perjury under
the laws
of the United
of America
the
foregoing
and
correct.
I Charles
Charles
L.
L.
Grant
Riverlake
Equity
Partners,
L.P.
Executed
on January
31,
2007
24
C
The
facts
[h
[h
[h i
insofar as
and information
Inc.,
its
related
in the
foregoing
its
Petition, are, to
they pertain to
MVC
true,
Capital, correct,.
affiliates,
subsidiaries,
and
assets,
the best of
my
knowledge,
and complete.
Pursuant
States
to
28 U.S.C.
that
§
1746,
I
certify
is
under
true
penalty
of perjury under
the
laws
of the United
of America
the foregoing
and
correct.
J
/
[E ([
Shapiro-R
& Corporate
Inc.
Vice President
Secretary
MVC
Capital,
Executed
on January
[
1
2007
,
W/1
07
PUBLIC VERSION
EXHIBIT
1
FROM THE PUBLIC RECORD VERSION]
PUBLIC
VERSION
EXHIBIT
2
FROM THE PUBLIC RECORD VERSION]
PUBLIC
VERSION
EXHIBIT
3
FROM THE PUBLIC RECORD VERSION]
PUBLIC
VERSION
EXHIBIT
4
FROM THE PUBLIC RECORD VERSION]
T
of
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
L
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal
year
ended
October
31,
2006
or
0
TRANSITION REPORT PURSUANT TO SECTION OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition
13
OR 15(d)
period
from
to
Commission
file
number 814�00201
MVC Capital,
(Exact
Inc.
its
name
of registrant
as
specified
in
charter)
Delaware
(State
or
other
jurisdiction
of
I.
94�3346760
Employer
No.)
incorporation
or
organization)
ifi[Qc
10577
(Zip offices)
287
Purchase,
Bowman Avenue, New York
executive
Code)
(Address of principal
Registrant’s
telephone
(914)
number, including 701�0310
to
area
code
Securities
registered
pursuant
Section
12(b) of the Act:
Name
of Each
Title
Exchange on
of Each Class
Which
Registered
Common
Stock
Securities to section
New York
registered
Stock
Exchange
pursuant
12(g)
of the Act:
None
(Title
of class)
(Title
of
class)
Indicate Act.
Act.
I
Yes
by check
mark
if
the
0 0
No
I
mark
if
registrant
is
a
well�known
seasoned
issuer,
as
defined
in
Rule 405
of
the
Securities
by check
the
Yes
No
1
Act of 1934
registrant
is
not
required
to
file
reports
pursuant
to
Section
13
or Section
15(d)
of
the
Indicate Securities
file
by check Exchange
mark whether
the
registrant the
(1)
has
12
filed
all
reports (or for
required
to
be
filed
by
that
Section the
13
or
15(d)
of
the to
during
subject
preceding
to
months
such
shorter past
period
days.
registrant
was
required
such
reports),
and
(2)
has been
such
filing
requirements pursuant
to the
ifi
for the
90
Yes
E
No
0. of
Indicate chapter) information
is
by check
not
mark
if
disclosure
of
delinquent
filers
to
Item 405
of Regulation knowledge,
S�K (
229.405
this
contained
herein,
and
will
not
be
contained, in Part
best
of
registrant’s or
in definitive to this
proxy
or
statements
incorporated by mark whether
the
reference
of
this
Form 10�K
filer
any
in
amendment
Rule
I
Form 10�K.
0
Indicate Act).
by check
registrant
is
an
accelerated
(as
defined
2b�2 of
the
Yes
No 0.
by check mark whether
the registrant
is
Indicate Act).
a shell
company
(as defined
in
Rule
1
2b�2
of
the
Exchange
Yes
0
No
INC.,
Source:
MVC CAPITAL,
10�K,
January
10,
2007
Approximate
of the
aggregate
recently stock
market
value
of
common
second Stock
officers
stock quarter:
held
by
non�affiliates
of
the
registrant the basis
as
of
the
last
business share,
day
Fund’s of
the
most
completed on
the
fiscal
$76,500,125
(the
computed on been
April
on
of $12.29
per
closing
price
this
common
only,
all
New
York
Exchange of
the
"NYSE")
have
30, as
2006.
For purposes
of
calculating
amount
directors
and
executive
registrant
treated
affiliates.
There were
19,096,256
shares
of
the
registrant’s
common
stock,
$01
par
value,
outstanding
as
of
January
8,
2007.
DOCUMENT
RATED[h
of Shareholders
BY REFERENCE:
incorporated
l
Proxy
14.
Statement
for the
Fund’s
Annual
Meeting
2006,
by
reference
in Part
Ill,
Items
10,
I
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
MVC
Capital,
Inc.
(A Delaware
Corporation)
Index
ee
I I I I
Item
[U[
[U[
[h [h
Legal Market Purchases
Part
I
[U[
[h
[h Matters
to a
3
23
[U[
Submission
Vote
[h
Security
[U[
for Registrant’s
I I I I I
Item
[h
Selected
[h
[h
Ouantitative Financial Directors
[h[h
[h Equity
Financial
P
[h
[h
Stockholder Matters and
23 23
I
24 27
Financial
Common
Eouity and Related
Management’s
Discussion
and Analysis [h
Condition
and
Results
28 and
[U[h
[U[
Statements
[U[h
Controls and
II I I1 I
[U[h [U[h [U[h
and
Executive
Security Certain Principal
Ownership
Relationships
[h
Executive [h
[h o[Q [h PI [h
Oualitative Disclosure
about Market
[h
58 63 94
and
Officers
Certain
Beneficial
and Related Fees and
Accounting
[h [h [h
Owners
and
[h
the
96 96 96 96 96
SIGNATURES
Certifications
C
Item
[h
Exhibits,
Financial
Statements,
PI [h
2
97 103
[h [h
[h [h
Executive Executive
Officer and Officer and
[h [h
Financial Financial
Source:
MVC CAPITAL,
.,[h
10�K,
January
10,
2007
T
of
Part
I
Factors
That May Affect Annual
Report laws
its
Future on
Results contains certain
substantial
This
the federal
Form 10�K
involve
forward�looking
statements
within future
the
meaning of
securities
that
uncertainties results risk
and
could
risks. differ
The Fund’s
materially
results
may
in
differ
materially
from
historical
results result
and actual
of
certain
from those projected
in
the forward�looking Factors" of
this section
statements Readers
as a
factors.
These
factors
are described
the "Risk
section
below.
should
report
entitled
"Management’s
should
to also
Discussion
to the considerations described in the pay particular attention and Analysis of Financial Condition and Results of
Operations."
files,
Readers
filed,
carefully
review
the
risk
factors Securities
described
in
the other
documents the Fund
(the
or has In
this
from time
Report
time with the United
States
and Exchange
Commission
"SEC").
Annual
refer to
the Inc.
"Fund"
MVC
"we"
and "TTG
Advisers"
on Form 10�K, unless otherwise indicated, "MVC Capital," "we," "us," "our" or Inc. and its wholly�owned Capital, subsidiary company, MVC Financial Services, or the "Adviser" refers to The Tokarz Group Advisers LLC. Unless the context
refers to
dictates
otherwise,
also
TTG
Advisers
acting
on behalf of
MVC
Capital.
Item
1.
Business
General
MVC
has elected
Capital, to
Inc.
is
an
as
externally a
managed,
non�diversified
closed�end under
debt the
be
regulated Act").
business
Capital
development provides
company
and
Investment
management investment company Company Act of 1940, as
capital to
that
amended
and
(the
"1940
MVC
take
equity
investment of
fund
growth,
located to
acquisitions in the
recapitalizations
of
small
and middle�market
the
companies and
in a variety stock
industries
primarily or rights traded
United
States.
Our investments
senior
can
form of
or
common "MVC."
preferred
and
warrants
stock
is
acquire
equity
interests,
and subordinated
loans, the
convertible
securities.
Our common
fiscal year,
on
the
New York
Stock Exchange
("NYSE")
under
symbol
During
the the
MVC
managed investment
Advisers October
company.
Effective
November
to
1 2006,
Fund
is
externally
was an internally managed by The Tokarz Group
Capital
LLC (’TFG
31,
Advisers") pursuant "Advisory
an Investment
Advisory
and
Management
Agreement,
dated
2006
the
(the
Agreement").
in operation since
Although February long�term
shareholders appreciation
Fund has been
2000,
the
year 2003
directors.
2003,
shareholders for the to
elected
an
entirely
new board of
2003,
objective objective
marked a new beginning for the Fund. In The board of directors developed a new of
to the
strategy
Fund.
a
In
September
upon
the
recommendation Fund of seeking
to
board
of
directors,
voted
and/or capital
adopt
new investment
prior in the
for the
maximize long�term
total return capital
from
capital
income.
The Fund’s
had been
limited industries.
seeking
appreciation objective,
from
venture a
investments
information
technology
equity
Consistent with our broader
financing to small
we
adopted
more
in a
flexible variety
investment of
industries.
strategy
of providing
the
and
of the
debt
and middle�market
also objective
companies
With and
recommendation
board
of
directors,
shareholders
voted and
to
appoint Michael
strategy
Tokarz
stabilize the
as the
Chairman
existing
Portfolio Prior
Manager
to the
to
lead
the
implementation of our
new
and
to
portfolio.
arrival
of Mr.
declines
a[Qr
from
and
his
November
2003,
Fund
had experienced
three quarters
significant operations
valuation
investments team,
new management team made by the former Fund posted
losses
in
management
third quarter of
team.
After
of
under
the
new management
quarters
the
a profitable a profit
for fiscal
2004
reversing for fiscal
a trend
of 12 consecutive
of
to
net
investment
in
and earned of
the
last
approximately
since
$18,000 2004
year 2004.
net
The Fund has continued
income
of $5.7
be
profitable
each
eight
quarters
fiscal
posting
annual
the
operating in net the
million
and
$3.9
million
in fiscal years
2005
at
and 2006,
the
respectively. fiscal
Similarly, to
change
as
assets
resulting
from and
operations to
increased
from
$11.6
as of
million
end of
2004
$26.3
million
of
end of
fiscal
2005,
increasing
$47.3
million
the
end
of
fiscal
2006. year 2006,
represented a
Fiscal eight
very
positive
year
is
for the
Fund.
The Fund made
six
sixteen
new investments
and
three
and
follow�on
investments 2005
in fiscal
2006,
which
an
increase
from 2004.
million
new investments
follow�on
million
investments
of capital fiscal
in fiscal
and seven
to
new investments
$53.8 Turf
million Products, Auto"),
in fiscal
The Fund committed
in fiscal
a total
of $166.3
in fiscal
2006,
compared
include:
and
$60.7
2005
and
2004,
Inc.
respectively. ("S
2006
new investments
("Henry"),
LLC
Storage
("Turf’),
Strategic
Outsourcing,
Company
SIA
BM Auto
("BM
Canada,
LLC
U
The
Henry
("Storage
Canada"),
Phoenix
Coal
3
Source:
MVC CAPITAL,
INC.,
�K,
January
10,
2007
T
of
Corporation
("Total
("Phoenix"), PreVisor,
Harmony
Inc.
Pharmacy
& Health
Marine ("Summit"), 2006
Center,
Inc.
("Harmony
Pharmacy"), BP,
Total
Safety
U.S.,
Inc.
Safety"),
("PreVisor"),
Exhibition
Corporation
auto
("Marine"),
Velocitius
B.V.
Innovative
("Velocitius"),
Summit Research
("Innovative Brands"). SP,
Labs,
Inc.
Octagon,
MOTOL
BENT
("BENT"),
Baltic,
and
Brands
LLC
The
fiscal
follow�on
investments
include:
Dakota,
SGDA,
Amersham, Timberland,
The und
fiscal
Harmony,
include:
and
Velocitius.
2005
investments ("SGDA"),
JDC
Lighting, ("SP"),
LLC BP
("JDC"),
Clothing, Vestal,
SGDA
LLC
and
Sanierungsgesellschaft
fur
Deponien
Altasten
mbH
SP
Industries,
Inc.
("BP"), Impact. Inc.
Ohio
Medical
Corporation
("Ohio"),
Amersham
fiscal
Corporation investments
("Amersham"),
include: Vestal
Timberland, Manufacturing
The
Investors, ("Dakota"), Vitality
2004
Enterprises,
("Vestal"), Pasta Inc.
Octagon
Credit Inc.
LLC
("Octagon"),
Confections, Inc.
Baltic
Motors
Corporation
("Baltic"),
Dakota
Growers
Company,
Impact
Foodservice,
Inc.
("Impact"),
Timberland
Machines
& Irrigation,
that are consistent that banks,
("Timberland"),
and
("Vitality").
We
with
funds,
continue
to
perform due from
diligence
and seek
new investments
income.
with our
objective
of
maximizing
private other to
total return equity
capital
appreciation banks,
and/or
We
believe
we have
extensive firms,
relationships
firms,
investment
industry
business
brokers,
commercial
accounting
several
law
firms,
hedge
investment provide
currently loan us
firms,
professionals opportunities.
and
management
teams of
companies,
which
can
continue
with investment working on an
We
equity
are
active
pipeline
of
potential
new investment
and upon $25
the
opportunities. each,
We
expect
that
our
and
investments
smaller a specific
will generally or greater equity
range between of
asset capital
$3
million
million particular
though
we may
While
of the
occasionally
invest
amounts and debt
depending mix, no
investment. the or
Fund
does
not
adhere
invested
to
allocation than
more
than
25%
of
value
our
total assets issuers that
may be
are
in the
securities are
of one
issuer
(other
U.S.
government
trades are
securities),
of two
as
or the
more
close
controlled
by
us
and
engaged
in the
same
are
or similar or related typically illiquid
or businesses
of
of each
quarter.
Our
portfolio
company
seek
investments
to invest in
and
made through
strong,
privately
negotiated
transactions.
We
generally interest
companies
tax
with
a history
of
predictable,
positive
EBITDA
(net
income
before
net
expense, income investments
to acquire
expense,
consist interests,
depreciation
and and
amortization). stock, loans, other
Our
interests
portfolio
company
the
currently equity
of
common
and
preferred
forms of
equity securities.
and warrants
31,
or rights
senior
subordinated was
and
convertible
At October
gross assets
2006,
value
of
all
investments
million assets senior
in portfolio
companies
the
approximately
$275.9
million
and our of
were
approximately
million
$347.0
gross
in
compared
to
value $201.4
of investments
million at
in portfolio 31,
companies
approximately $122.3
and
of approximately
loans
October
2005.
stated
We
to ten
expect
that
our investments
there are
and
subordinated
debt
will
generally security believe
have
in that or
terms of
three
years.
However,
are they not,
no
constraints will not be,
on
rated
the
maturity
or duration
of any but
our
if
portfolio.
Our debt
investments were
rated,
and
typically
by any
(rated
rating
agency, "Baa3"
we
such
investments
would
In
be below
addition,
investment
grade
lower
limit in
than
by
Moody’s
including
lower
debt
than that
"BBB�"
has
not
by been
Standard
rated
& Poor’s).
16,
we may
invest
without
debt of any
rating,
by any
nationally
recognized
the in the
statistical
rating
organization.
On
July
is
2004,
Fund formed
Delaware and
a
wholly�owned
its
subsidiary,
MVC
provide
Financial advisory,
Services,
Inc.
("MVCFS").
and
other or firms
MVCFS
services business are
incorporated
principal
purpose and
other
is
to
administrative private equity
to the
Fund,
Fund’s
portfolio
companies does
not
entities
(including
other
development
into
companies).
the
The Fund
all
hold
MVCFS
have
the
for
investment
eliminated
purposes.
The
results
of
MVCFS
consolidated
Fund and
has
the
inter�company
to the
accounts any of Act be
been
in consolidation.
Our board of
the
directors
authority
change 1940
to
strategies us
described altering or
in this report
without
seeking
approval
of our
shareholders.
However, such
that as
prohibits a business
from
changing
our investment
objective,
strategies
or
policies
we cease
a business
development company,
securities.
company,
the
nor can
of
we
the
voluntarily holders of a
withdraw
"majority",
our
as
election
to
be
regulated
development
voting
without
approval
defined
all
in the
1940
not
Act,
of our outstanding
in securities in
Substantially liquid
amounts
invested or held
of
portfolio
companies
account. at
are
invested
in short�term, 31,
highly the
money market investments
in
cash
in an
interest
bearing were
As of October
$66.2
million.
2006,
Fund’s
investments
short�term
securities,
cash
equivalents
and cash
valued
4
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Corporate
History
And
Offices
The Fund was organized on December Jurvetson Fund Inc. On March 31, 2000,
I,
2,
1999.
Prior raised
to
July
2004,
million
our
in
name was
an
4, initial
meVC
public the
Draper
Fisher
the
Fund
$330
offering
whereupon
it
it
commenced commenced
operations
as
a
closed�end under
the
investment
company.
Capital.
On December
2002,
Fund
announced
had
doing
a
business
name
a
MVC
We
elected
are to
Delaware
regulated
corporation as a business
and
non�diversified
closed�end under
the
management
1940
Act.
investment
July 16,
be
development
company
On
2004,
company that has the Fund formed
MVCFS.
The Fund
the
is
has been
"internally
managed," 2006.
Effective
i.e.,
has
had
no investment
1,
adviser to
from June
the
2002
through
the the
end of
fiscal
year ended
October31,
November
serves as the
2006, pursuant investment 2006
Advisory
Agreement,
Fund
externally
managed by TTG
approved on
All the
Advisers, the
7,
which
Fund’s
adviser.
The Advisory Agreement
at the
is
was of
unanimously
by
independent
directors
is
on
May
30,
and by
shareholders that
annual by
meeting
shareholders
September
the
2006.
ITO
Advisers
the
a registered
investment
adviser that
controlled
Mr. Tokarz. Fund
to as
of
individuals
(including
Fund’s
are
investment
professionals)
had
been
are
employed expected
selection entitled to
by
the
of
fiscal
year ended Fund.
the
October
It is
31,
2006
now employed
that the
by
TTG
Advisers and
strategy section
continue process "Our
provide remain
services the
to the
currently
anticipated
Fund’s
investment
the
and
will
same
under
is
externalized
management
to
structure.
Accordingly,
below
Investment
All but
Strategy"
currently
expected
remain of
the
applicable current the
to the
Fund under
were
external
management.
at
one
of
the
independent of
the
members
board of
directors
first
elected
its
the
February
28,
2003
Annual
Meeting
shareholders, a
replacing
previous
board
for the
of
directors
in in
entirety.
The new board of
2003, upon With and
the the Portfolio
directors
then worked
of the of the the his
on developing board board of of
new long�term
shareholders shareholders
strategy
Fund. our
Then,
September
recommendation recommendation
directors, directors,
voted
also
to
adopt
to
new investment
as
objective.
voted
appoint Mr. Tokarz and
to stabilize the
Chairman
Manager
2006,
the
to lead
implementation of our team of
its
new
objective
and
strategy structure
existing
portfolio.
Mr. Tokarz
and
shareholders voting in
managed the Fund
that
the
Fund
under
the
an
internal
through
(with
October
31,
2006.
votes
On September
cast
7,
approved provided
Advisory Fund
to
Agreement be
over
92%
by
that
of
the
on
the
agreement took
All effect
favor)
for the
is
externally
managed
adviser
TTG
is
Advisers. controlled
The agreement
by Mr. Tokarz. by
to the
on
November
1 2006. TTG
the
Advisers
a registered
investment
that
of
the as
individuals the fiscal
(including
Fund’s
31,
investment 2006
are
professionals)
had
been
previously are
employed expected
Fund
to
of
year ended
the
October
now employed
by
TFG
Advisers and
continue
provide
services
to
Fund.
office
is
Our number
filings audit
principal (914)
executive
located
is
at
287
Bowman
Form
I
Avenue,
Purchase, Copies
New York
of
the
10577
and our telephone
regulatory
is
701�0310.
Our website
regulatory
http://www.mvccapital.com.
filings
Fund’s
annual
filings,
on
Form 10�K,
quarterly
on
0�Q,
Form 8�K,
and from
other
regulatory
code
of
ethics,
committee
charter,
compensation
committee
charter,
nominating
corporate
governance
free
committee
charge.
charter,
corporate
governance
guidelines,
and privacy
policy
may be obtained
our
website,
of
Our Investment On November
to
Strategy
6,
2003, Mr. Tokarz
objective
assumed
(i.e.,
his
current
positions
as
Chairman
capital
and
Portfolio
Manager.
We
seek
implement
our investment
a
to
maximize
total return
from
appreciation
and/or
income)
include senior
through and
making
broad range
other
of
private equity
investments
interests
in a variety
of
industries. to
The investments
equity 31,
can
common
and
sixteen
preferred
stock, loans,
forms of
and
the
warrants
or rights
acquire
interests, the
subordinated
or convertible eight
securities.
During
fiscal year a
ended
October
2006, of
Fund
to
made
these
new investments
investments.
and
follow�on
investments,
committing
total
of $166.3
million
capital
Prior
to the capital
adoption
of our
current
investment
capital
objective,
the
Fund’s
in
investment
objective
had
been
to
achieve
long�term investments companies.
appreciation thus previously 31,
from venture focused 2006, on
investments
in equity consisted
information
technology
companies.
The Fund’s
had
investments of our
assets
and debt
securities
of information
the
technology former
legacy
As of October
team
to try
2.42%
of investments
are,
made by
seeking on
to
Fund’s
management
investments
pursuant and
to the
prior
investment
returns.
objective.
We
however,
capitalize
manage
these
realize
maximum
We
generally
seek
to
opportunities
to realize
cash
5
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
returns other
on
these
investments
when
presented
with
a potential
"liquidity
event,"
i.e.,
a
sale,
public
offering,
merger
or
reorganization.
Our new
investment
return
portfolio
investments small and
are
made pursuant
income. Under
to
to
our
new
in
objective
and
strategy.
We
the
are
concentrating to
our
total
efforts capital in
on
middle�market
and/or
companies
that,
our
view,
provide
opportunities
maximize
to invest,
from
appreciation portfolio
our investment any
approach,
we have
authority required the
without
to
limit,
any one
as
company,
subject
diversification
limits that
may be
in order
for us
continue
to
qualify as
a "regulated (the
investment
company"
("RIC")
under
Subchapter
M
of
Internal
Revenue
Code of
1986,
amended
in the
"Code").
equity
is
We
purchases, equity
participate capital. and/or
private
business
generally to
by
providing
negotiated
equity
/or[
long�term
debt
note
investment
Our
financing financings. to
generally
used
or
fund
growth,
a lead firms.
buyouts, investor
acquisitions, in
recapitalizations,
bridge
financing
We
invest
may
led
may not be
equity
such
transactions invest
and
may
to
also
provide
and debt
companies
by
private
We
generally
in private access
companies,
public capital. serve
though,
from time
also seek
to time, to
we may
in small
public
companies
establishing fund(s). also
that
may
lack
adequate
We
may
achieve
our investment
equity or other
objective
by
a subsidiary
fact,
or subsidiaries
that
would
as general
partner
to a private
investment
I
during 2006,
a portfolio
we
established private equity or debt
MVC
Partners, held
LLC
by
31,
for this purpose. financial
Additionally, or other
we may
investment
31,
acquire
of
existing
investments
institutions
funds.
At October cash
2006,
October
of
31,
2005
net
and October
consisted
2004,
the
the
fair
value
of
the
invested
portion
(excluding
and short�term
securities)
our
assets
of
following:
Fair Value
as
a Percentage
of
Our
Net
Assets
Asof
October
31,
Asof
October
31,
Asof
October
31,
Type
of
Investment
2
Loans and
credit facilities
[U[h
Semor/Subordinated
55
98%
2881%
23.10%
23
80%
Common
Warrants
Preferred
Stock
39.40%
26.54%
046%
Stock 13.79% 6
089%
7.96%
048%
16.64%
Other Equity Investments Other Rights
all
77%
078%
0.00%
048%
0.00%
highly these
0.00%
amounts
not invested or held in in securities
Substantially liquid
of
portfolio
companies
account. net
are
invested
in short�term, 31,
money
market were
investments
at
cash
in
an
interest or
bearing
As of October
2006,
investments The
valued
portfolio
approximately investments
$66.2
million
27.94%
of
assets.
current
has
in a variety services, also
of
industries
including products, in a variety
food
and food
service,
value�added and
including
distribution, information
industrial technology.
manufacturing,
financial
consumer
automotive
dealerships, areas
The
and
current
portfolio
has investments
of geographical
United
States,
Europe,
Asia.
Market.
financial
We
have
developed and
and maintained
private
relationships
with
intermediaries,
including
investment
banks,
services
companies
these
mezzanine
and
equity able
sponsors, to strengthen
through our
which
position a
we source investment
as
opportunities. transactions capital
if
Through
in
relationships,
we have been
capital,
an
of
investor. additional
For
the
which
we may provide debt
an
equity
sponsor
Private
can provide
source
also
equity
a
portfolio
own due
leadership
diligence to the
findings portfolio Criteria.
additional financing. company requires when assessing a new investment
equity
sponsors and
they
assist
us
in
confirming and
our
opportunity,
may provide
assistance
company’s
Prospective
management
investments
criteria currently
throughout
are evaluated
our investment by by
not the
period.
Investment
investment
in
team
based
upon
criteria to
be modified from time investment
�
to time.
The
being used
but are
management
limited
to,
determining whether view
of:
that may make an
in a
prospective
portfolio
company
niches highly offered
include,
management’s
Businesses
�
with
secure
market
and
predictable
profit
margins
�
The presence or availability of The line of products or services
�
qualified
management
market
teams
and
their
potential
The presence of
a
sustainable
competitive
advantage
6
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
�
Favorable
�
industry
and
competitive dynamics
the business.
and
Stable
free
cash
flow of
Due
portfolio landscape, applicable, tax,
diligence
includes
a
thorough
review
and
analysis
of
the
business
plan
and
operations the
of
a potential
company. and meet
We
generally current
perform
financial
and
operational customers,
due
diligence,
study
industry In
and competitive
addition, as
with
and former employees, independent
accountants
suppliers consultants
and/or to
competitors.
we engage
and
attorneys,
and
other
assist
with
legal,
environmental,
accounting Investment
marketing
due
diligence.
Sourcing.
Mr. Tokarz
and
the
other
investment
professionals
have
established
an
extensive
network
includes:
of
investment
�
referral relationships.
Our network
investors
of relationships
with
investors,
lenders
and
intermediaries
private
�
mezzanine
and
equity
investment
�
banks
business
�
brokers and
acquisition
merger
�
advisors and
financial
�
services
companies and
banks,
law
firms
accountants.
Allocation
of Investment which was
Opportunities.
I
the
allocating
investment
opportunities, 31,
TFG
in equal
Advisers adheres
the
to the of the
following board
of
policy, directors, or
(ii)
approved
will
by
board
to the
of
directors
all
on October
2006:
(1) absent
(i)
consent and
the
TTG
net
Advisers
or other
allocate
Fund
investment
are (a)
opportunities to
mezzanine
debt
lesser
securities
equity
"non�debt" $25
I
investments
that
expected companies
be
to
or less than
of
10% of
revenues
entity
the
Fund’s
assets
or
million and any
or private
(b) issued
by
U.S. or a
with by
the
is
less than
$150
million a
in or
(2)
notwithstanding with
Item
fund
not
affiliated to
IT
Advisers
MVC
regard
Partners, to the
managed LLC,
Fund,
if
co�managed
subsidiary
TTG
Advisers and
person
is
of
Fund ("MVC
sourced by
a
Partners"),
permitted affiliated obligation
make an
seek
with
to
T
investment,
without
such
investment Item
person
shall
or entity
not
Advisers and consent hold of
a
MVC
the majority
Partners and of of
directors
(3)
notwithstanding
required
1,
TTG
to the
Advisers
not
have
an
the
board
nor be
to allocate securities"
Fund any
the
equity
investment Act) of
the
where
relevant
the
investor
would
the
outstanding
is
"voting in
its
(as
defined by
Partners.
1940
company,
provided
that
such
investment
to
allocated,
entirety,
to
MVC
Co�Investments.
specified conditions
The Fund
set forth in
is
permitted
co�invest
in certain
portfolio Securities
companies
with
its
affiliates,
subject (the are
to
an exemptive exemptive
order
obtained
from
the
and Exchange by
the
Commission
its
"SEC").
required
Under
to
the
terms
of the the
order, are
portfolio not
companies
purchased of
the
Fund and
affiliates
be approved
by
directors other
who
"interested
persons" by
the
Fund
(the
"Independent
Directors")
and
are
required
to satisfy
certain
conditions
established
SEC.
Investment
portfolio including
Structure. or
its
Portfolio
affiliates.
company
the
will be negotiated with the prospective company investments typically directly The investment professionals will structure the terms of a proposed investment, security to
purchase of
the
price,
the
type of
be purchased company’s seek
or
financing
to
be provided
potential the
and
the
future
involvement board
the of
Fund
The
the
and
affiliates
in the
portfolio will at the
business the
(including
representation as to
on
its
directors).
investment
portfolio
professionals
to structure
terms of
investment
provide
for
capital
needs
of
company
that
and
same
time seek
to
maximize
suitable
the
Fund’s
total return.
Once we have determined management
structure portfolio and, in certain
a prospective other capital
portfolio providers,
company
such
is
is
for investment,
we work
capital other
with
the to in the
cases,
as
senior, junior to
and/or
equity
providers, capital
an
investment.
We
capital
negotiate structure.
on
how our investment
expected
relate
relative
to the
company’s
We
our
make
preferred see
and
a
common
invest
equity
investments
to profit that has
in
companies
the
as
a part a
of our
investing
activities,
particularly returns.
when we
At
a times,
unique
opportunity in that
from
are the
growth
of
company
a
and
the
potential several
to
enhance above
we may
companies
undergoing
potential to
a restructuring
but have
of
the
attributes
and
management
team
we
believe
achieve
successful
turnaround.
Preferred
7
Source:
MVC CAPITAL,
NC
10�K,
January
10,
2007
T
of
equity
investments by
the
may be
Fund.
structured
with
a
dividend
yield,
which
may provide
us
with
a current
return,
if
earned
and
received
Our The
senior,
subordinated
is
and mezzanine over
debt investments of
several the
are
tailored
to the
facts to
and seek
circumstances
to protect
of
the
deal.
specific
structure risk in the
negotiated
a period
weeks
and
is
designed
to require
our
rights
and
manage our
negative
transaction.
We
may
structure
debt instrument
calls,
restrictive
affirmative
and
covenants, are
default not,
penalties, typically
lien protection, will not be,
equity
take
control
provisions but
and board
that
if
observation.
Our
debt investments investments lower
than
and
rated
by any grade
rating quality to as
agency,
(rated
we
believe
such
were
rated,
they
would
be below
investment
lower
than
"Baa3"
by
Moody’s
or
"BBB�"
by Standard
& Poor’s,
are
commonly
typically
referred
"junk
bonds").
Our mezzanine
carry a fixed rate
debt investments
interest. in the vary.
structured interest�only
as
subordinated payments
to ten
loans
(with years
or
without
warrants)
that
of
The
later
loans years,
may have
with
in the
early
and
payments and
of both
principal
principal amortization
and
interest
maturities
of
three
years,
although
debt
maturities
schedules
Our mezzanine
interest in the
debt investments company.
may
thus,
include
equity
features, rights
such
receive
as
warrants
or options
to
buy
a minority require additional
portfolio cost
Any
and
warrants as the
or other portfolio
we
with our debt
in value,
securities
generally
only
a
nominal
to exercise,
company
the
appreciates warrants return to
we may achieve
and
sale
investment event�driven
warrants.
return puts.
from
this equity
interest.
We
may
structure
provide minority rights
the appreciation
provisions
and
We
may seek
to
achieve
additional
investment
from
of our
Under buyout
controlled
certain
circumstances, In addition to
we
our
transaction. portfolio
more than 50% of the common stock may acquire common equity investment, we may also provide
senior loans,
of
a
company
in
a
control
additional stock.
capital
to the
company
in the
form of
subordinated
debt
or preferred
We
securities,
fund
new investments
current
using
cash, of
the
reinvestment of accrued and dividend income
opt to
interest
and dividends
the receipt
in
debt and
equity security
or the
reinvestment
interest
through
of
a debt
or equity in a
(payment�in�kind
or equity acquire security,
income).From time
in lieu
to time,
we may
in
also
reinvest a
accrued
interest
receivable
new debt
of
receiving the
such of
interest
cash
and funding
stock, of
subsequent
debt, or as
investment.
We
may
also to
investments
shares
through
issuance
purchase
the benefit
of our
common
or preferred
common or preferred stock. The issuance
to access the public
warrants
consideration
representing
rights us
our
stock
may provide
offering,
with
of
the
raising
equity benefit
without having
of the elimination
capital
markets
to
in
an underwritten
including
added
of any commissions
a business in
payable
underwriters.
Providing managerial
received
Management
investments,
Assistance. to the
As
development
company,
portfolio. In
we
are
required to the
to
make
significant
assistance
available
companies
generate
our investment
fee
addition
interest
and dividends
transaction,
from our and
we
often
additional
income
for the
structuring, to
diligence,
administration,
management
services
and
financial
guarantees
we provide
our
portfolio
companies
through
the
MVCFS. In some cases, officers, directors and employees of the Fund or the wholly�owned subsidiary Adviser may serve as members of the board of directors of portfolio companies. The Fund may provide guidance and
Fund
or
our
management
financing investors
assistance
to portfolio
companies
or
with
respect
to
such
plans
matters
as budgets, events
profit
goals,
business
and
strategy,
management
a
additions public
replacements
and
for liquidity generate private
for portfolio fee firms
company
for providing business
such
as
merger
other
or
initial
offering. to for
MVCFS
entities,
may
also
additional equity
income
or other
administrative
and
management
(as
it
services
other
including
development
companies
currently
does
Brantley
Capital
Corporation).
Portfolio
Company
be
attractive
Monitoring.
candidates
We
monitor our
portfolio
companies
closely
to
determine
their
whether
or not
they
continue
operations portfolio
to
for further
investment.
Specifically,
we monitor
would
decline
ongoing
performance investments
in
and
and
provide guidance
that,
and
view,
assistance
where
appropriate. to
We
well
additional
companies
in
our
do
not
continue
believe
show
promise.
However,
in the future.
we may make follow on
investments
in portfolio
companies
that
we
for
may perform
equity
We
have
follow
established a
procedures
monitoring
rating
and
for
all
loan
investments. the
The investment
portfolio investments.
professionals
developed
multi�dimensional
flexible
system
of
Fund’s
These
rating
8
Source:
MVC CAPITAL,
INC.,
�K,
January
10,
2007
T
of
grids the
are
updated
regularly
and reviewed
(the
by
the
Portfolio
Manager,
together
at
with
the
investment
to
team.
Additionally, valuation
Fund’s
Valuation
for
Committee
portfolio
"Valuation and
to
Committee")
discuss
meets
least
quarterly,
review
a written
memorandum
Compliance Fund’s
each
company
the
business policies
updates.
Furthermore,
the
Fund’s
as they
Chief
relate to the
Officer
administers in portfolio
Fund’s
compliance
and
procedures,
specifically
investments
companies.
generally
We
public
exit
our investments of
a portfolio
when Our
a liquidity equity
event
takes
place,
such
as
the
sale,
recapitalization after the
if
or
initial
offering warrants,
company.
includes
holdings,
including
shares
underlying
to
sell
warrants,
exercise
of such
typically a public
registration
rights
which
would
allow
us
the
securities
the
portfolio
company
completes
offering.
Investment
outlined
Approval
Procedures. conduct one
Generally, to four
prior
to
approving
any
new
and
investment, structuring
we
follow
the
process
is
below.
We
usually
months
the
of due
of
diligence
before an investment
this process
considered
longer
for approval.
However,
depending
on
type
investment
being
contemplated,
may be
or shorter.
The
typical
key
steps
in
our investment
deal
approval person
or
process
are:
�
Initial
investment
screening
by
present
investment
proposal
team
containing
�
Investment
written)
�
professionals entire
an investment
key
terms and understandings
(verbal
and
to the
investment
Officer rules
team
reviews
the
Our Chief Compliance
and
�
proposed
investment
for
compliance
with
the
1940
Act,
the
Code
all
other
relevant professionals
and
regulations with
authorization as to
Investment
�
are
provided can
call a
commence
necessary,
due diligence
to: (i)
Any investment
(
�
professional
meeting,
deemed
or to
review
the
due
diligence
reports
review
all
the
investment
is
structure
and terms
the
(iii)
obtain
is
any
other
information
a rating
deemed relevant
system which and
business tests
stability.
Once
several
due
diligence
completed, but
as not the
proposed
to,
investment
flow,
rated
using
factors
including,
limited
cash
EBITDA
the
growth,
management
future
not
We
�
use
this rating
system
base
line for tracking that the
investment investment
in the will
Our Chief Compliance Officer confirms 1940 Act, the Code or any other applicable
�
proposed
or
cause
us
to
violate
the
rule
regulation
Mr. Tokarz
�
approves
is
the
transaction
and
The investment
funded.
Employees
At October
13 individuals, 31,
2006,
Michael investment
Tokarz and of
served
portfolio
as
Chairman
& Portfolio
located in the
Manager
of
the
Fund and we employed
and
including
staff.
management
are All as
professionals,
operations
professionals office.
administrative that
Substantially
all
these
individuals
Purchase,
New York
the
We
believe
our
relations
with our employees had been
are
are
excellent. the
of of
the
individuals fiscal
(including
Fund’s
investment
professionals)
that
employed
to
by
Fund
to
the
year ended
to the
October
by
TFG
Advisers and
expected
continue
provide
services
Fund.
31, 2006 are now employed The Fund no longer has any direct
employees.
Operating During equipment,
other costs
Expenses
the fiscal
year ended and
the other
October
31,
2006,
costs including
the
Fund bore
to fees
the
costs
of
obtaining
office
space,
facilities,
personnel
relating transfer to
administrative operations,
necessary and
conduct
the
Fund’s
the
business.
The Fund
Directors
costs of costs
also fees
bears
Fund’s
expenses
of
Independent expenses
litigation
of and
hiated[
agents,
registrars reports to
and
disbursing
agents
legal
and accounting
custodian
printing of
mailing proxy
materials
and
shareholders
NYSE
9
fees
fees
costs
disposing
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
of investments
other
including properly
brokerage payable
of
fees the
and Fund.
commissions For
the
and
other
extraordinary 31,
or
nonrecurring expenses expenses
and
tax
expenses
by
year ended
October
2006,
operating
including
expense
constituted
6.85%
average
net
assets.
Under
extent the for the
the
externalized in
structure, services
all
investment
to
professionals
of
TTG
Advisers and
the
its
staff,
when and
to the
engaged
providing and
routine not
required
be provided of such
that
by
TrG
Advisers under
to
Advisory
are
Agreement, provided and
and
paid
compensation by
overhead by
the
expenses except
personnel
or
allocable
such
services,
TTG
to
Advisers and
the cost
Fund,
costs
expenses firm
advisors,
relating
to the
following by
items
are
borne
by
Fund:
(i)
and expenses
including the
of any independent
agents, consultants
valuation or other
(ii)
expenses
incurred
TTG
and
Advisers
affairs for
payable
the
third parties, in
in
monitoring on
to
financial
its
legal
Fund
and
monitoring
Fund’s
the the
investments by
and
performing due
diligence party
prospective
portfolio services the fees shall for
companies,
require services not the are
provided,
however, approval
to
retention
TFG
Advisers of any
shall
is
third
perform such
withheld) to
if
advance expected
additional finance
of
board
(which once
the
approval
third
not be unreasonably approved, on
such
will
if
exceed
$30,000 from
the
party
any expenditure
other
such
third party costs,
require to
approval Fund’s
board
or to
(iii)
interest
its
payable
tax
debt and
(iv)
direct of the
borrowing Fund’s
any,
incurred
the
investments
advisory the costs
(xi)
maintain
status
(vi)
offerings
common
any
(viii)
stock
and
other
securities
(v)
investment between
(ix) all
and
management
its
fees
fees
and payments agent and
due under
custodial securities
administration
agreement fees
local
Fund and
of
administrator and
listing fees
(vii)
transfer
fees
federal
and
state
registration state
registration
the
Fund’s
shares
(xii)
on any
costs
exchange and
reports, filing
(x) federal, reports
and
taxes
independent
directors’
and expenses
the
of
preparing
or other
documents
notices
required to
by governmental
including
bodies
printing
(including
SEC)
other
(xiii)
costs the cost
of any of
the
proxy
fidelity direct
statements
or other
stockholders,
and
mailing costs and long any
(xiv)
Fund’s
(xv)
bond,
costs
directors
and
officers/errors
and omissions
liability
insurance, mailing,
insurance
premiums
of
and expenses and
outside the
of
administration,
auditors
legal allocable
costs
(
of
in
including the the costs cost
printing,
distance
telephone,
copying, independent
a special
and
expenses
associated space)
with of
the
the
establishment
purpose Chief
to
vehicle
(xvii)
portion Secretary fiscal
(excluding not
fifty
office
Fund’s
year,
Chief
Financial
Officer, (xviii) related
Compliance
a
Officer in
and any
an amount
the
to
exceed
percent
(ii)
$100,000, of
the
per
in the travel
aggregate and
other in
subject
cap
of $150,000
year of
Fund,
to
is
unreimbursed by
(e.g.,
meals) out�of�pocket
expenses
if
(subject
item
above)
incurred clients
IT
TTG
and
travel
Advisers
Advisers, (xix)
all
sourcing investments
then the
for the
Fund Fund
provided
fifty
that,
the
its
investment
allocable
sourced
for
multiple
of
Fund
shall
only reimburse by
the in
percent
of with
pro
rata portion
of such
expenses
(including
other
expenses
incurred
connection
to
administering incurred
the in
Fund’s
business
and
other
out�of�pocket
to a portfolio
expenses
(subject
item
(ii)
above)
providing
significant
managerial
assistance
company).
Valuation
of
Portfolio
Securities
Pursuant
if
to
the
requirements of
are
the
1940
Act,
at
we value our
market of
portfolio
securities
at their current
market
values
or,
market
quotations generally
not
not
readily
available, readily
their estimates
of
fair
values.
Because
these
our
portfolio
company
at
investments accordance independent
of
do
have
ascertainable
values,
we
record
investments
directors
fair value also hire or
in
with Valuation Procedures
consultants to
adopted
by our board
directors.
Our board of
may
review
our Valuation Procedures
or to
conduct
an independent
valuation
of one
more
our
portfolio
investments.
Pursuant
three
to
our Valuation
Directors)
if
Procedures,
fair
the
Valuation Committee of
portfolio
(which
is
currently
comprised
of
basis in the per (or
Independent
frequently,
determines
appropriate
valuations the
more
deemed
as
under
circumstances). (loss)
company investments on a quarterly in valuation are recorded Any changes
Currently,
statements share
is
of
operations
"Net
unrealized a
gain
on
investments." fair values
our
as
net the
asset
value recent value
("NAY")
quarter
calculated in the
and next
published on
monthly
per share.
basis.
(If
The
determined
of
most
to
fair
end
are
reflected,
calculated
NAV
the
Valuation Committee
determines
an
10
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,2007
T
of
investment published
more
frequently per share.)
than
quarterly,
the
most
recently
determined
fair value
would
be
reflected
in the
NAV
The Fund
securities the date
calculates other assets
our
NAV
per
share the
by
subtracting
all
liabilities
from
the
total
value
of our of our
portfolio stock
and of
and
dividing
result
by
the
total
number of outstanding
shares
common
on
valuation.
At October
fair
31,
2006,
approximately
79.50%
of
our
total
assets
represented
portfolio
investments
recorded
at
value.
Initially,
Fair in
Value
Investments and by
the the
held
by
the
Fund
are
valued
view,
at
cost
(absent
the
existence value).
of circumstances During
the period that a
warranting, Fair other
management’s
is
Valuation Committee’s Fund,
its
a different to
initial
Value
Investment must be
held
original
cost
may cease
be
the
represent to
an
appropriate
fair
valuation, values. Rather,
and
the
factors
considered.
No
pre�determined assessments
formula can based upon
applied at
determine
the
Valuation Committee
makes
in
fair
value
value
period
which
Securities willing
of
the
portfolio other than
company
in a forced the
sale,
could
be
sold
an
sale
orderly ("Fair
disposition Value").
or,
over
a reasonable
of time between
the
parties,
is
or liquidation the
The
in
liquidity cases,
event whereby
the
initial
Fund
exits of
an investment
portfolio
generally
merger,
the
recapitalization
some
public
offering
the
company.
Valuation There expressed Value of
a
Methodology
is
no one
a
methodology
of values, security, traded
to
determine
the
Fair
Value
derives
and, a
in
fact,
for
any
portfolio
security,
Fair
Value
may be
Fair
as
range
from which
the
Fund
single the
estimate portfolio
of
Fair
Value.
To determine
results
the
portfolio publicly factors.
Valuation Committee
analyzes
company’s
financial
and
available, audited as
projections, well as other
comparables
generally
when
available,
precedent
practicable,
exit transactions portfolio
in the
market
to
when
The Fund
requires,
where
and/or
companies upcoming
the
provide annual
fiscal year.
and more
regular
unaudited of our
financial
statements,
annual
projections
for the
The
valuation
fair
value
portfolio that
securities
is
inherently readily
subjective. ascertainable
Because market used had
of
inherent
uncertainty
of
fair
of
portfolio differ
securities the fair
do
not
have
values, a
our
estimate
of
fair
value
may
significantly securities. disposition
from
market
reflect
value
that
would
fees
have
been
ready
market
existed
for the
Such
of
values
also
do
not
brokers’
or other
selling
costs
which
might
become
payable
on
such
investments.
Equity
are
Securities.
at
The Fund’s
equity
interests
in portfolio analysis
companies of
fair
for
which
there
is
no
liquid factors,
public
market
as All
valued
Fair
Value.
The Valuation Committee’s
flow(s), to net
value
may
include
various value
such
multiples
of
EBITDA, may be
cash
income,
revenues upon
or in limited the particular to
instances
book
or liquidation
value.
of
these
factors actual
subject
adjustments
based
circumstances
of
a portfolio
company
or the to
Fund’s
previous
investment
position.
For example,
adjustments
EB1TDA
or related
may
take
into
account
compensation
owners
or acquisition,
recapitalization,
or restructuring
items.
The Valuation Committee
discounted Committee
well as for illiquidity
may look
other the size
to
private
merger and
practices portfolio the
acquisition in
statistics,
public Value.
trading
multiples
and
factors,
or industry
determining
Fair
The Valuation
may
other
also
consider
it
and
scope
of
a
any
factors
deems
resale
relevant
in assessing positions.
value.
and weaknesses, as company and its specific strengths The determined Fair Values may be discounted to
account
for restrictions
on
and
minority
Generally, available
is
the
value upon
of our most
at
equity recent
interests closing
in public public the
companies
price.
for
which
market
securities security.
quotations that carry
are
readily restrictions
based
typically
the
market
Portfolio
certain
on
sale
are
valued
a discount
from and
public
market
value
of
the
Loans
a
and Debt
value or
Securities.
For
loans
debt of
the
securities, portfolio
Fair
Value
generally
approximates
indicate a
cost
unless Fair
there
is
reduced
or overall
financial
condition
company
or other
factors
lower
Value
for the
loan
debt
security.
Generally, portfolio convertible
in arriving ability
at
a
Fair
Value
for a
debt
the
security
or a loan, considers the
the
its
Valuation Committee underlying of
the assets.
focuses on
respect to
the a
company’s
debt
to
service
and repay
debt and
also
With
the
security,
the
Valuation
Committee
analyzes
excess
value
of
underlying
security
11
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
over
the
conversion
price
as
if
if
the
security
was
converted
is
when
not
the
conversion
convertible,
feature the
is
"in
the
money"
appropriate
is
(appropriately in valuing the
discounted underlying
the
restricted).
is
If the
security
currently
use of an
security to service
discount the the debt.
security
typically
considered. focuses
If the the
value
of
the
underlying
ability
less than
conversion
price,
Valuation
Committee
on
portfolio
company’s
securities debt
and
repay with
equity a
When
security,
the the
Fund
receives
nominal
its
cost
in
warrants
the
or free
equity
("nominal
cost
equity") cost
debt
at
Fund
allocates
cost
basis
investment
between
securities
and nominal
the
time of
origination.
Interest Origination,
income
closing
is
recorded
on
an
accrual
basis
to the
extent
that
such
amounts
are
expected
are
to
be
collected. into
and/or terms of
closing the
fees
associated loans. closing
with investments
in portfolio of a loan are
companies
or
accreted
income
over
the
respective
applicable origination,
Upon
and
the
prepayment
debt
as
security,
any prepayment Prepayment
penalties
and unamortized
are
loan loans
commitment
fees
recorded
income.
premiums For which
recorded debt
on
when
and
received.
loans,
securities,
preferred
securities
with
contractual to the
payment�in�kind
loan
interest
or dividends, preference
if
represent
contractual
interest/dividends maturity, that
if
accrued
will not
and added
balance
or liquidation
that
generally
becomes
valuation
due
at
the the
Fund
accrue payment�in�kind
interest
is
interest/dividends
the
portfolio
company
indicates interest interest
payment�in�kind of
the portfolio to the
not
collectible. the
However,
the
Fund
not
may accrue
in question. All the
payment�in�kind payment�in�kind
the
health
company
principal
and
underlying
securities
is
are to
that
has been
added
balance
or capitalized
subject
ratification
by
Valuation Committee.
Custodian
US Bank
securities.
National Association
principal business
is
the
primary
the
custodian
(the
"Primary
is
Custodian") North
of
the
Fund’s
Drive,
portfolio Suite 302,
The
office
of
Primary Custodian
1555
River Center
Milwaukee,
WI
53212.
Transfer
Agent and Distribution Agent
employs Computershare and
to act Ltd. as as
its
The Fund
records, principal process
transfer
agent
to
record in the
transfers
of
the
shares,
maintain proxy
plan.
distributions office
agent
is
for
each
participant Street,
Fund’s
dividend
reinvestment
The
business
of such
company
250
Royall
Canton,
Massachusetts
02021.
Risk
Factors
In the
normal Fund’s
course of
operations that contain
its
business, portfolio
the
Fund,
in
an
effort
to
keep
its
shareholders issue
and
the
public
informed
either to in
about
writing
the
and
or
of
investments,
may from time�to�time
information. projected or
certain these
statements,
or orally, plans
business
or strategies
may contain forward�looking of the Fund or portfolio companies,
or anticipated anticipated statements results are to benefits
Generally, or anticipated
statements
relate
benefits
or consequences
to
of
such
the
plans
or strategies, or projections
results.
projected
of
new
follow�on
securities future
investments
or other
made by or
of
are the
be
made by
and
Fund,
involving
purchases
are not
or sales
of of
aspects
Fund’s
to risks
operating uncertainties operations
Forward�looking could cause
actual
guarantees
performance
and
subject the
that
differ
materially. to a
As noted elsewhere
uncertainties,
in this report,
Fund’s
and
portfolio the
of investments
control
subject
number of
of which,
price
risks,
and
other
influences, materially
many of
affect
which
the
are
outside
of
the
Fund, or
its
and
any one
the
or a
combination
of which,
stock,
could
results
of
the
Fund’s
the
operations,
NAV,
to
market
accurate.
of
its
common
and whether
forward�looking
statements
made by
in a
Fund
Capital
ultimately
prove
a
be
Investing objective.
MVC
involves
number of
that
significant
risks
relating
to
our
business objective.
and
In
investment
addition, the
As
result,
there are
can
be no assurance
to
we
in
will
achieve
our investment
stock.
following
risk factors
applicable
an investment
our
common
12
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
BUSINESS
Business of
the risks
are
risks risks
that
are associated
risks
with
general business
with
conditions,
the
economy,
and
the
operations
securities.
Fund.
Business
are not
associated
our
specific
ments[h
in
or
an
offering
of our
We depend
objective.
on key personnel
of
TTG
Advisers,
especially
Mr.
Tokarz,
seeking
to
achieve
our investment
We
lose
depend
to
on
the
continued
services
of Mr. Tokarz
and
certain
it
other
key
management
impact
the
personnel. operations
If
we were
and
to
access lose
any of
these
personnel,
particularly the
Mr. Tokarz,
of
could
negatively
our
we
could
business
opportunities.
Upon
to serve the
effectiveness
the
Advisory
has
Agreement,
into
Fund’s
employment with
agreement pursuant following Agreement However, impact
the to
with Mr. Tokarz which
was
terminated. as
However,
the
Mr. Tokarz
Portfolio
entered
an agreement twenty�four Furthermore,
the
TTG
Advisers months
he has agreed
1,
Fund’s
Manager
extraordinary
initial
for the
full
calendar the
November may
there not
is
2006,
absent
be
terminated a risk that to
by
’
occurrence
of certain the
events.
Advisory Agreement.
significantly
Advisers during
expertise
two�year
term of Fund,
Advisory could
still
Mr. Tokarz’s
its
may be
unavailable
to the
which
Fund’s
ability
achieve
investment
objective.
Our investment Our
for the future
adviser,
TTG
Advisers,
is
a newly�formed
extent
entity.
success depends
structuring,
to a significant closing,
on
the of
services
of our investment on
the
adviser.
We
of
is
are
dependent
final
selection,
and monitoring
identifies,
our investment
structures, operations. capital. as of the
diligence
and
skill
of our newly
investments,
formed and has
the a
investment
services
it
adviser.
TTG
Advisers
evaluates, results of
monitors and Because
provides
significantly
impact
has
our
’
disposes
our
Advisers and
newly
formed,
it
limited
operating professionals
history that
and
currently
limited
equity
However,
fiscal
Mr. Tokarz
the 31,
Fund’s 2006
are
investment employed
by
’
had been
are
employed
to
by
the
Fund
to
year ended
to the
October
now
Advisers and
expected
continue
provide
services
Fund.
Our returns may be
industry
substantially
lower than
the
average
returns
historically
realized
by
the
private
equity
as a whole. performance of
the not indicative
Past
private
equity
industry the
is
necessarily
of
that
sector’s
future
performance,
will
nor
is
it
necessarily the are rates
a
good
proxy
for predicting realized related
returns private
of
the
Fund.
We
cannot
as a
guarantee
that
we
meet
overall
or
exceed
returns
of
return
historically factors
by
to
the
equity as a
industry
whole.
Additionally,
our
impacted
by
certain
our
structure
publicly�traded
business
development
company,
including:
�
the
lower
return
we
are
likely
to
realize
on
short�term
liquid
investments
during
the
period
in
which
we
are
identifying
�
potential disclosure as
investments, required
and of
business
the
periodic
development
portfolio
companies, companies.
which
could
result
in the
Fund being
less attractive
an
investor
to certain
potential
Substantially
all
of our
portfolio the
investments values 1940
these
are recorded
portfolio
at
"fair
value"
and,
as a
result,
there
is
a degree
of
uncertainty Pursuant
ascertainable
regarding
to the
carrying
of our
Act,
investments.
requirements of
values,
the
because
at
our
portfolio in
company
investments
do
not
have
readily
market
we
record
investments
fair value
accordance
with Valuation Procedures
adopted by our board At October
fair
of
directors.
31,
2006,
approximately 79.50%
of our
total
assets
represented
portfolio
investments
recorded
at
value.
There
that
is
no be
single applied
standard to the
for
determining
facts for the
fair value
in
good
faith.
As
a result,
determining
fair
value
requires a
judgment
specific process
and
circumstances
of each
portfolio
investment
specifically
while employing
value
consistently
applied
valuation
types
of investments
we make.
We
each
individual
13
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
investment where
and
record
unrealized
depreciation
for an equity a
investment
security
is
that
we
believe
has
become we
impaired, record
including unrealized
collection
if
of
a loan
or realization indication
of an
doubtful.
Conversely,
that the
will
appreciation appreciated readily
we have an
value
and,
(based
on
significant has
development)
also appreciated uncertainty
underlying where
portfolio
company
Without of our
for the
has a
in
therefore, value
our
equity
security
in value,
appropriate.
fair
ascertainable
market
differ the
and because from be
the
of
the
inherent that
of
fair valuation,
value
investments
investments,
may
and
significantly
values
would
have
been
used
had
a
ready
market
existed
differences
could
material.
Pursuant
three
to
our
valuation
procedures, reviews,
our Valuation Committee and determines
fair
(which
valuations
is
currently
comprised
basis
of
(or
in
Independent
if
Directors)
considers the
on
a
quarterly are
more
statements
frequently,
deemed
as
appropriate
under
circumstances). appreciation
Any changes
(depreciation)
in valuation investments."
recorded
the
of
operations
"Net
change
in unrealized
on
Economic Many
slowdowns These of
recessions
or downturns
in
could
impair
our
portfolio
companies
and harm our operating may be company
in susceptible to to
results.
the
companies
which
we have
made
or will
make investments
the ability a
economic
event. assets.
or recessions.
An
lead
economic
slowdown may
losses in
affect
of
a
engage
net
in a liquidity
conditions
could
to financial
our
portfolio
and
decrease
our by
revenues,
income
and
Our
conditions. private
overall
business
of making of an
active
private
equity
investments
may be
equity
affected
current
and
future the slow,
market amount which markets such of could could
The absence
investment
to the
mezzanine
lending a
result,
or private the In
environment
may slow may
in the events
equity
activity
generally.
As
pace
of our investment
significant
activity
impact have an
our
ability
achieve our investment
valuations affect the
objective.
addition, the
changes
capital involving
effect
on
of
private
companies and timing
and on of any
potential realized
for liquidity
companies.
This could
amount
gains
on
our
investments.
We may
not
realize
gains
in
from our
and
equity
investments.
When we
well.
invest also
mezzanine
directly
senior
debt
equity
securities, securities.
We
may
and
invest gains
in various
we may Our goal
In
acquire
is
warrants
to
or other
equity
securities equity
as
ultimately the equity
dispose of such
interests in
realize
upon
our
and,
disposition in
fact,
of such
decline
interests. in value.
However,
addition,
interests
we
receive
or invest or
may
not in
appreciate
in value
may
the
equity
securities
we
receive
in which it would be advantageous on resale to resell. may be subject to restrictions during periods that we do realize on Accordingly, we may not be able to realize gains from our equity interests, and any gains of any equity interests may not be sufficient to offset any other losses we experience. disposition invest
the
The
market
for
private
equity
investments
can
be highly
ability
competitive. to participate
In
in
some
cases,
our
status
as a regulated
business
development competition
company
in
may hinder our
activities affiliates
investment
other
opportunities.
We
small
face
our
investing
from
of
private
equity
funds,
business
service
development
financial business of portfolio
companies,
investment
banks,
investment
large
industrial,
technology, investors.
and
companies,
business
investment company,
companies,
are required
wealthy
individuals quarterly
and
foreign
As
a regulated description
development companies
requirement.
we
to disclose securities. this
the
name and
business are not
and
the
value
of any
portfolio
Many
and
not
of our competitors hinder our
subject
to this disclosure portfolio investor to a
Our
obligation
to disclose
information
current
could
future, subject
ability us
to invest
in certain as
companies. given
Additionally,
other than
regulations, a private than
may make
to the
less attractive
a potential
portfolio
company
greater
equity
fund
same
regulations.
Furthermore, more
difficult
some of our
to
competitors have purchase precluded
resources
we
do.
Increased prices.
competition
a result
would
make
it
for us
or originate
investments
certain
at attractive
As
of
this competition,
sometimes
we may be
from making
investments.
14
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Loss
of pass�through have operated
tax
treatment would
as a
We
to qualify qualify
if
P
substantially
reduce
net
assets
and income
available
for
dividends.
If
we meet
source
tax
of
income,
diversification
and
distribution for
requirements,
we
tax
will
for effective
pass�through
to to
treatment. these
We
would
cease In
to qualify
such
difficulty
pass�through meeting
before or the
treatment to
we were
unable
comply our
with
requirements.
addition, cases
we
may have
requirement
receiving
make
cash
distributions representing
shareholders
If
because
fail
in certain as a
without
such whether
to the
income.
or
we
to qualify
it,
RIC,
we may recognize income we will have to pay
reduce
the
corporate�level
taxes
on
all
of
our income
not
we
distribute
which
would
as a
substantially
amount
subject
of income
to
available
for distribution
our
shareholders.
Even
not
if
we
qualify
RIC,
we
generally
will
at
be
least
a corporate�level
income
generally
tax
on
income
to a
we do
distribute. tax.
Moreover,
if
we do not
distribute
98%
of
our income,
we
will
be
subject
4%
excise
Changes
in the
law or
regulations
that
govern
in the
us could laws
have
a material
that
impact
on
our
business.
We
and
are
regulated
by
the
SEC.
affect
Changes our
or regulations
govern
business
development
companies
RICs may
significantly
business.
Results
may
fluctuate
and may not be
will fluctuate
indicative
of future you
performance.
not
Our
be
operating
results
and,
therefore,
should
In
rely to
on
current the
or historical
period
results
to
indicative factors
of our performance could volume of cause and
operating fee
in future results earned,
reporting to
periods.
addition
many of
above�cited
in the in
risk factors,
other
fluctuate
including, in
among
to
others,
variations variations
investment
the
origination recognition
income
unrealized
variation or losses,
timing of prepayments, degree which
and
timing
in
of
the
realized
and
gains
the
we encounter
competition
our markets
and
general
economic
conditions.
Our common stock price can be The
higher control or trading price than
volatile.
of our
the price
common
you pay
related
stock for to
may
fluctuate
substantially.
The
price
of the
lower
your our
shares,
depending
on
many
These
factors, factors
common some of which
include the
stock are
may be
our
beyond
and
may not be
and volume
directly
operating
performance. market
following:
�
price
�
fluctuations in the
in the
overall
stock
from time of
to
time of
business
significant or other
�
volatility
market
price
and
trading
volume
securities
development
companies
financial resulting equity
services
companies
trading in derivative securities, or tax in securities related to
volatility
from
our
common
positions
stock
including
puts,
calls,
long�term
�
participation policies
or
LEAPs,
with
or short respect
trading
changes
�
in regulatory or anticipated
guidelines earnings
to business in
development
results
companies
or
or
RICs
actual
changes
our
or fluctuations
our
operating
changes
in the
expectations
�
of
securities
analysts and trends
or
general
�
economic
conditions
loss
�
of a major funding source of key
personnel.
departures
We
are
subject
to
market
discount
risk.
As with any
sold, losses the the price the at the
stock,
the
price
of our
shares
will
fluctuate original
with market
investment.
conditions
and
other
factors.
If shares gains
are or
received sale
may be more
shares will of
sale.
or less than not
the
Whether
but will
investors
will realize
upon
of our
depend
directly of
upon
our
NAy,
be
depend by such
upon
the
market
price
of
shares
time
Since
shares
the
market
price
our
shares
will
affected
factors
as the other
relative
demand
for
and supply of
the
in the
market,
general
market
and economic
conditions
and
factors
15
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
b
shares
our
control, recently
we cannot
traded
at
predict a
whether
to
the
shares
will trade
at,
below
shares,
or as
above
well
our
NAy.
of often
Although
other
our
have
premium
our
at
y,[
historically, to their
our
as those
closed�end over
time.
investment
companies,
have
frequently
traded
a discount
NAy,
which
discount
fluctuates
We
have
not
established to
a
minimum
dividend
future.
payment
level
and we cannot
assure
you of our
ability
to
make
distributions
our shareholders
that in
in the
We
the
cannot
assure
we
cash
will
achieve
investment
results to
that
will
allow
us
is
to
make cash
by,
distributions
or things,
year�to�year
increases
distributions. In
Our
addition, to
ability the
make
distributions
test
impacted
to will us
among
other
risk factors
described
in this report. limit will
asset
coverage
applicable
as a
business
at
development our board such
other to
company
directors as
can and
our
ability
make
distributions.
Any
distributions
be
made
the
discretion status
of
of
depend
of
on
our
earnings,
our
financial
condition, to
maintenance
time.
of our
assure
RIC
and
factors
our board
to
directors
may deem
relevant
from time
We
cannot
you of our
ability
make
distributions
our
shareholders.
We
have
borrowed
and may continue
the risk
to
borrow
money,
in us.
which
magnifies
the
potent
talfor
gain or
loss
on
amounts
invested
and may increase
have borrowed and
of
investing
We
amounts
may continue
forward.
to
borrow
also
investment
objective and,
going
Borrowings,
increase the
to the 1940 Act limits) in seeking to achieve our money (subject known as leverage, the potential for gain or loss on magnify associated
invested
therefore,
can 1940
in
risks
with
investing
in
our
securities.
Under
or "issue
the senior
provisions Securities"
of
the
Act,
we
are
permitted, that
as a asset
business
development
as
company, 1940
to Act, to
borrow
equals satisfy of
at
money
least this
only of
amounts
securities. to
such
our
coverage, assets
defined
in the
200%
test.
after
each
issuance
senior
If the
value
of our
of
declines, and,
we may be unable
depending on
the
If that
happens,
a
we may be
required
sell at
a portion a
our investments
sales
nature
our
leverage,
repay
portion
of our indebtedness
issue senior fixed
time
when such
to,
may be disadvantageous.
companies
superior to the
We
Lenders
may borrow
of
these shareholders. stock to
from, and
debt
securities claims
banks,
insurance that are
and
the
other
lenders. of
senior
securities If the
have
dollar
on
our
assets
claims
our
to
common common
consolidated
value
of our
assets
it
increases,
then
leveraging
would
cause
NAV
if
attributable the value
our
increase
more
sharply
than
would cause our
have
had
to
we
not
leveraged.
Conversely,
than
it
of our have payable
leverage, than
it
assets leveraged.
decreases,
leveraging
would
in
NAV
decline
more
in
sharply
otherwise would
interest the
had on
we
the
not
Similarly,
any
increase net
consolidated
income
to increase
excess of
consolidated
it
borrowed
funds would
in
cause
our
investment would
income cause
net
more than
income
ability to
would
without
while any decrease would have had
our
consolidated
income
a decline a
investment
affect
decline
more
sharply stock
we
not
is
borrowed.
generally
Such
could
negatively
our
to
make common
dividend
payments.
Leverage
considered
speculative
investment
technique.
Changes Because
before net
in interest
rates
may
affect
our
cost
of
capital
and
net
operating income.
to
we have
and
rate
borrowed
unrealized
and
may continue
or losses,
to
borrow
money we
not
make
investments,
our
net
investment
income
realized
at
gains
or net rate
investment
at
income,
invest
between
assurance
the
which
we borrow
change of
in
funds
and
the
which would
may be dependent upon the these funds. As a result, there
material
difference
can be no
net into
that a
significant In
market
interest
rates
have
a
adverse
effect
on our
investment investments
increase,
income.
that
periods
declining return.
interest In
rates,
we may have
sharply
difficulty
investing rates,
our borrowed
cost
capital
offer
an
appropriate
periods
of
rising interest a
our
of funds
would
which and
could
equity to
reduce
capital
our
net
investment our
income.
We
may use
combination
utilize
of long�term
and short�term
facilities
borrowings means
to finance financing.
investing
activities.
We
may
our short�term
are
credit
as a
to bridge
long�term
debt.
Our long�term
interest
fixed�rate
investments
financed
in
primarily effort to
with
limit
equity
and long�term exposure
extent
fixed�rate
We
may use
Such
rate risk
management
various
techniques
interest
an
our
to the
to interest
rate fluctuations. the
techniques
may
include
rate
hedging
activities
permitted
by
1940
Act.
16
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
We may
business.
be unable
to
meet
our covenant
obligations
under
our
credit
facility
which
could
adversely
affect
our
On October
("Credit Credit Facility Facility
I.
28, I")
2004,
the
Fund
entered
into
a
one�year,
cash
(the
collateralized,
$20
July
million 20,
revolving the
credit
facility
with LaSalle
Bank National Association
loan
"Bank").
On
I
2005,
Fund amended
million Credit a to
The maximum
the
aggregate
maturity date 27,
amount
under
Credit
Facility 31, as
was
to
increased
from $20
31,
$30
I
million.
Additionally,
was 2006,
extended
the
from October
2005
August
2006.
into
Facility
expired on
August
31,
2006.
On
April credit
Fund and MVCFS,
Facility April
four�year,
$100
million
revolving
facility the
("Credit
I
co�borrowers
entered
new
"Guggenheim"
($27.5 million million
as administrative
agent
revolving
to
lenders. facility facility the
On
27,
Guggenheim Corporate $45 2006, the Fund borrowed
in
with
Funding,
million Facility
LLC
drawn drawn
from from
the the
credit credit
and was
$17.5
repaid
million in
full
term
debt)
2,
under
Credit July in
I
the
The Fund
$27.5
revolving million
2,
on
May
2006.
On
28,
2006,
debt)
borrowed
Credit portion
$57.5
million I.
($45
drawn
the
from
revolving the
credit
facility
and $12.5 on
the
million
term
under
Facility
On August
Facility
2006,
Fund
repaid the
$45.0
million credit
borrowed
with
revolving
credit
facility
of
Credit
I
On August
I,
31,
2006,
Credit default
if
revolving
facility
LaSalle
Bank National
not
Association,
Credit
Facility
expired. events In
The
of
Facility
I
contains
covenants could
that in than
we may
payment
that
be
the
able
to
meet
If
we cannot meet
indebtedness
Facility other
these
covenants,
would
require
arise,
which
result
of
applicable
being
accelerated. required
addition, to
(i)
we
working
the
capital
greater
provided
by
or
Credit obtain the
H,
we
may be
of
either
seek
to increase there
availability
under
in
Credit debt
Facility
H
(
on
sources
financing.
As of October
Credit
31,
2006,
was
$50
million
term
and
$50
million
revolving
note outstanding under
Facility
I
you can we changed
from
venture evaluate
We
have
a
limited
operating
history
upon
in
which
our
new management
objective in
team.
in
Although 2003
we commenced
long�term
in the
operations capital
2000,
our investment
capital
and
strategy
September
from seeking
appreciation
investments networking, from
capital
information
technology
information
companies
services
(primarily to
Internet,
e�commerce,
to
telecommunications, maximize
total return in the
software and
industries)
an
objective
of seeking
to concentrate in a variety
appreciation
and/or
income.
and,
We
as a
no
longer have our our
a strategy
seeking
our investments of
industries.
information
technology
a limited
industries history
result,
new investments
current
may be
Therefore,
we have
evaluate
only our
of
operations
under
investment
objective
and
strategy
upon
which
you can
business.
A
portion
of our
existing
investment 2.42% of
portfolio
was
not
selected
by
the
investment
team
of
TTG
Advisers.
As of October management
long�term cash
return Until
31,
2006,
the
Fund’s
assets
are
represented to the
by investments
prior
made by
objective
the
Fund’s
former
team. These
investments
were
made pursuant
capital
Fund’s
in
investment technology
i.e.,
of seeking
Generally, or a
capital
appreciation received legacy
from venture on
these
investments
until in the not
information
event,"
companies.
public offering to
may not be
then, these returns.
investments remain were our
a "liquidity
a
sale,
merger,
realize
occurs.
investments because
Fund’s
in
portfolio.
We
are the
managing Fund’s
them
current
try
and
maximum
strategy,
Nevertheless,
they
made
to
accordance our
with
investment
their future
performance
may impact
ability
achieve
current
objective.
Under
the
Advisory Agreement,
TTG
Advisers or
is
entitled
to
compensation investments
in
based
on
our
to
portfolio’s
performance.
incentive
This arrangement compensation.
may
result
in riskier
more
speculative
an
effort
maximize
The way in which the compensation payable to TTG Advisers is determined to recommend riskier or more investments and to use leverage speculative investments. Under certain circumstances, the use of leverage the may increase
team
adversely appropriate the affect
may encourage
to increase the likelihood
the
investment on our would
return
of
default, related
which
to
our
shareholders,
including
investors
in this offering. including the
In
addition,
key
criteria
determining
if
investments team
and investment
exclusively
strategies,
preservation
of
capital,
might be under�weighted
investment
focuses
or disproportionately
on maximizing
returns.
17
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
There
are potential
officers
conflicts
of
interest
that
could
impact
our investment
returns.
Our
in the
and
directors,
and
members of
as
the
TTG
of
Advisers investment
they
team,
may
serve
entities
that
operate the
same
or similar lines
of business not
we
do.
Accordingly,
us or
may have
attention or director
obligations
It is
to those that
entities,
fulfillment opportunities
of which
that or
might
be
in the
best
interests
our
shareholders.
possible the
new investment
team
meet
our investment
or directors
objectives
may come
role as
to the
of one of
management
entity or or as
members
professional available,
our
officers
in his or her and,
if so,
an
officer
of another be
offered,
an investment
associated to us.
with
that
entity,
such
opportunity
might
not
otherwise
made
Additionally, clients, the including
as us.
an
investment
that end,
if
adviser,
TTG
Advisers
has
a fiduciary additional
obligation
to
act
in
the
best
interests
of
its
To
TTG
Advisers manages
to allocate
any
investment
in a
fair
vehicles
or client
accounts
If of
in
future,
TFG
Advisers
will
endeavor
investment fund
to
opportunities in the future,
and
equitable
manner.
TI’G
Advisers chooses Advisers
result,
to establish
another
they the
investment
will
when
the
investment should
that
professionals
TIG
As
our
a
identify
an
investment, times
have
choose of
which
investment
has
fund
make
differ
the
investment. those
there
may be
giving to
when
management
In
team
TTG
Advisers
interests
from
of
]
shareholders,
rise to
a conflict.
an
effort to
mitigate
situations
that
give
rise to
such
conflicts,
Advisers adheres which
a policy
(which
was
approved
other
by our board)
that
relating
to allocation
of investment
to offer the
opportunities,
generally in
requires,
among
and
debt
things,
TTG
as
Advisers continue
equity please
Fund
in small
investment
opportunities
mezzanine For
securities
as well
non�control
policy,
investments
see
and
middle market
Strategy
U.S. companies.
a further
discussion
of
this allocation
"Our
Investment
Allocation
of Investment
Opportunities"
above.
The
war
with
Iraq,
terrorist
attacks,
the
Middle
East
crisis in
and other we
acts
market
for our
common
stock,
impact
the
businesses
which
invest
or war may affect any of violence and harm our operations and our
profitability.
The war
the U.S.
with
Iraq,
its
aftermath
and
the
continuing occupation
markets.
of
Iraq
are
likely
to
have
the
a
substantial
impact
on
and world economies
predicted
and
securities
The
nature,
scope
and
duration
of
war and
occupation and your
or in
cannot be
investment. U.S.
with any
assure attacks
certainty.
Furthermore,
there will not
terrorist
attacks
may harm
attacks or
our
results the
of operations
We
invest
cannot Such
you and
that
be
further
terrorist States
against
United
States
businesses.
armed
conflicts
in the
United
elsewhere
in
may impact
States.
the
businesses
which from
we
directly are
or indirectly, generally
by undermining
economic
conditions
theUnited
Losses
resulting
terrorist events
uninsurable.
Our financial condition and
growth. Our
to
results
of operations
will
depend
on
our
ability
to effectively
manage
our future
ability
achieve
our investment on
a cost�effective process, acceptable to
objectives basis ability
is
can
depend
on our
ability
to
sustain
continued
capabilities,
growth. our and our and on our
Accomplishing
I
management
access to financing business, financial
this result
largely
a function
of our marketing
attentive
of the
investment
sources
our
to
provide competent,
and
efficient to
hire,
services
train,
on
terms.
As we grow, manage our
TG
Advisers
may need
have
a
supervise effect
manage new employees.
Failure
effectively
future
growth
could
material,
adverse
condition
and
results
of
operations.
Investment
risks
risks
are
risks
associated
with
our determination conditions or those
to
execute
to
on
our business
offering
objective.
These
risks
are not
associated
with general business
relating
an
of our
securities.
Investing
in private
companies
involves
a high degree
of loans
of
risk.
Our investment
private businesses
portfolio involve a
generally
consists of
to,
and
investments
risk,
in,
private result
companies.
Investments
losses
in
high degree
business
and
is
financial
which
little
can
in substantial
and
the
accordingly
should
in
be considered
speculative.
There
generally
very due
publicly
available
information
the
about
companies investment
which
we
invest,
and
we
rely significantly in
on
the
diligence
of
the
members of
Fund’s
team
to obtain
information
connection
with our investment
decisions.
18
Source:
MVC CAPITAL,
.,[
10�K,
January
10,
2007
T
of
Our investments
in portfolio
companies
are generally from
illiquid.
We
generally in
acquire portfolio
our investments
(other than
directly or
the
issuer
in privately typically
negotiated subject to
transactions. restrictions
Most
on
resale has
of the or a
investments
our no
cash
market.
cash
equivalents) exit
are
otherwise have
liquidity adversely for us to event, affect
established as a
sale,
trading
We
or
may
initial
our investments
offering.
at
when when
the
portfolio
company
such our
recapitalization dispose
public
ability
to
of
In
equity
and
if
debt
securities forced
times
liquidate in the
such
investments. the
addition,
we were
liquidation
to
of our investments may may be otherwise advantageous some or all of the immediately liquidate
illiquidity
it
The
investments such
portfolio,
proceeds
of such
could
be
significantly
less than
the
current
value
of
investments.
Our investments
lose
its
in
small
and middle�market
privately�held
companies
are extremely
risky
and
the
Fund
could
entire
investment.
Investments
including the
in small
and
middle�market
privately�held
companies
are
subject
to a
number
of
significant
risks
following:
Small loans
capital
and middle�market we make
sources
to
companies
may have
includes
limited
financial financing that
resources
to this to
and may not be
attractive to us
able
to
repay
the
them.
Our
strategy to
providing
companies
that typically
do
not
have
for us
readily
available
them.
it
While
we
believe
provides an
opportunity
to generate
�
profits, this
may make
difficult typically
for the
borrowers narrower
smaller as general
repay
their loans lines
upon
maturity. than
Small
large
and middle�market
companies. Because
companies our
target
have
are
product
businesses,
and smaller market shares may be more
In vulnerable
companies
they
to
competitors’
actions
and market
intense
conditions,
as well including
economic
downturns.
addition, greater
smaller
companies
resources, of
�
may
more
face
competition,
competition
from companies and
other
with
financial a larger
extensive
development, and
technical publicly
manufacturing,
marketing
capabilities,
and
number
qualified
is
managerial
little
personnel. available information
There
generally to
or no
about
there
is
these
privately�held
little
companies.
publicly professionals
Because
we seek
operating
make investments
financial diligence learn
all
in privately�held
companies,
generally
or
no
available to
and
information
investigations of the material
about of
them.
As
a
result,
we
rely
on
our investment
their operations these
perform due
these
privately�held
companies,
to
and
their prospects.
We
�
may
not
information
we need
know regarding
companies
through
our
investigations.
Small
and middle�market
companies
to litigation,
companies
generally
have
less predictable
in
operating
results,
results.
We
expect
to
that
our
portfolio parties of
may have
significant
variations
their operating businesses to support
may from time
subject to a finance
time be
risk or
may be engaged
require
in rapidly
changing
with products
their
substantial
obsolescence, their
may
in
substantial
additional
capital
operations, or net
expansion
adversely
maintain
affected other
�
competitive
the
position, business
by changes
cycle.
may otherwise have a weak financial position Our portfolio companies may not meet
by are
their senior lenders. to
may be
income,
cash
flow and
coverage
tests typically
imposed
Small
success
and middle�market
of
a small or
businesses
more
likely also
be dependent on
the
on
one or two
persons.
Typically, efforts
the or
middle�market
two
persons have
or a small a material
company The group of persons.
impact on our are
depends
management
of in turn, to
talents
and more
of one
death,
disability
or resignation and,
one
us.
or
of
these
persons
could
�
adverse
portfolio to
company
greater will
on
Small
and middle�market
companies our
likely
have
exposure fewer
economic than
downturns
larger
than
larger
companies. economic
�
We
expect
that
portfolio likely
companies have
have
resources
businesses
and an
Small
downturn may and middle�market
in
thus
more
a material limited
adverse
effect
on
them.
companies
that
may have
risks that
operating
criteria.
histories.
We
may make
with
particularly
debt limited
or equity operating
to,
investments
histories are other
new companies
to the
meet
our investment
Portfolio face
companies
exposed
risks,
operating
new
businesses
and
may be
susceptible officers.
among
market
downturns,
competitive
pressures
and
the
departure
of key
executive
19
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Our borrowers
may
default
on
their
payments,
which
m
loans, sources.
it,
have which
an
effect
on
our financial performance.
a
We
than that
may make long�term
secured
to obtain
unsecured,
subordinated invest
in
may
that
involve
higher degree
financial
of
repayment
risk
conventional
loans.
We
primarily
companies
In
may have
failure to
limited
resources adversely a
and
affect a in
may be unable
company’s
financing to
from
a loan
traditional
addition, the
numerous meet
factors a
may
portfolio
its
ability
repay
we make
economic
to
including
business
plan, financial
downturn
condition
industry prospects
or operating
results,
or negative
conditions. in
Deterioration collateral.
in a
borrower’s
and
may be accompanied
by
deterioration
any
related
Our investments Our investment
companies.
carry debt a fixed
in
mezzanine
and other debt
securities
may
involve
signt
other debt loans
risks.
strategy
contemplates
investments
are
in
mezzanine
as
and
securities (with or
of
privately
held that
"Mezzanine"
rate of are
investments
typically also will
structured
subordinated and
other types
without
warrants)
interest. not,
We
may
make
not
senior rated
secured by any grade
of
but
loans
or debt believe
investments. that
if
Our
investments were
and
they
typically
be,
rating quality to as
agency,
(rated
we
such
investments lower than
quality
rated,
would
be below
investment
lower
than
"Baa3"
of
by
Moody’s
investment
interest
or
"BBB�"
by Standard
& Poor’s,
commonly
referred
"junk
to the
bonds").
Loans
below
to
grade and
have
predominantly
speculative
characteristics in portfolio
with
respect
borrower’s
in a
capacity level
pay
repay
and/or
principal. loss
Our debt investments
principal.
companies
may
thus
result
high
of
risk
and
volatility
of
When
entity,
we are a debt or minority equity investor in a portfolio and management of the company may make decisions
company,
that
we may not be
decrease
the
in
a
position
to
control
the
could
value
of our
portfolio
holdings.
We
portfolio
anticipate
making
debt
and
minority
equity
investments
therefore, disagree, serve not
we
and
will the
be
subject
to the
risk that
a
company may
for
may make
take risks
business or
decisions act in
with which ways
that
we
do
shareholders
and
management
of
liquidity in interests that
of
in
such
the
company
markets
otherwise
in privately
not
our be
interests. able to
Due
to the
lack
our investments
as readily
held
like.
companies,
we may
dispose
of our
our
portfolio
companies
the
as
we would
holdings.
As
a result, a portfolio
company
may make
decisions
could
decrease
value
of our
portfolio
We may
cause us
choose
to lose
to all
waive
or defer enforcement
of covenants
in these
in the
debt
securities
held
in
our
portfolio,
which
may
or part of our investment
to
companies.
structured the operation to include
Some of our
covenants
condition. placing
loans
our
portfolio
companies
may be
on
to
customary company’s
covenants,
business business including
and and
financial
its
affirmative
and
negative
obligations elect
of each of
these
financial
However,
or
from time
or defer financial receiving of to the
to time,
we may
of and
waive
as
breaches
acceleration
our on
right to collateral,
payment, depending
the
waive
the
enforcement
condition the
full
remedies, prospects of
such of
of
obligations
or foreclosure
upon
the
particular
portfolio interest
company.
These
actions
may reduce
by
a
likelihood
of our
in the
amount
future as
payments
of
these
or principal
and be accompanied
limited financial
deterioration resources,
value
underlying
future
all
collateral
many of may go
companies
may have
may be unable
meet
obligations or part
and
bankrupt.
This could
negatively
impact
our
ability
to
pay dividends and cause
you
to lose
of your
investment.
Our
portfolio
companies
may incur
the
obligations
that
rank
equally
with,
or senior
to
to,
our investments of principal or
insolvency,
in
such prior
to
companies.
us,
As a
us
result,
holders of such
the full
obligations
may be
entitled in the
payments
interest
preventing
from obtaining
value merger
of our investment or bankruptcy
that
event of
an
liquidation,
dissolution,
reorganization,
acquisition,
of
the
relevant
portfolio
company.
the securities in
Our we
invest.
portfolio
companies such
may have
other the
other
obligations
rank
equally holders
with, are
or senior entitled
to,
which
By
their terms,
securities dates
interest
or principal
on
or before in the
may provide that the on which we are entitled
liquidation,
to receive in respect or
payment of
the
of
in
to receive
payments
securities
which
we
invest.
Also,
event of
insolvency,
dissolution,
reorganization
bankruptcy
of
a
20
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
portfolio typically
company, be
entitled
holders
of
securities
ranking
in than
full
senior
to
our investment
receive
in the
relevant
portfolio
company
investment. assets
would
After
to receive that are to
payment
senior the case
before the
we
any
distnbution
in respect
of our
repaying repaying would
investors
its
more
us, other
portfolio
company
ranking
other
may
not
have
any remaining
in
to
use
for
obligation to share
us. In equal
of any
securities
equally investors
with
securities
which
we As
invest,
we
of
have
on an
basis
distributions or of
with
holding
such
securities
in the a
event
result,
an
insolvency,
liquidation,
dissolution, obtaining or the
reorganization
full
bankruptcy
of
the
relevant
portfolio
company.
we
may be prevented
dissolution,
from
value of
the
our investment
portfolio
in the
event of an
insolvency,
liquidation,
reorganization
bankruptcy
relevant
company.
Our
the
portfolio effect if
investments one of those
may be
companies
conceiztrated
in
a a
limited
number of
loss.
portfolio
companies,
negatively
which impact
would our
magnify
to
were
to suffer all
significant
This could
ability
pay you dividends and cause you
While
concentrated
to lose
or part of your
investment.
we aim
to
have
a
broad
mix of investments
in portfolio
companies,
our
investments,
is
at
any
time,
in a limited
number of companies.
affected investment.
if
A
consequence
of
this concentration
that
the
aggregate
or
if
returns
may be we
to write
seek
to
realize
may be
fixed
adversely
a small
number of our investments
the applicable federal
perform
tax
poorly
we need
down we do
the not
value have
of any one
such
Beyond
income
diversification
requirements,
guidelines
for diversification,
and our investments impact our
ability to
could
be concentrated
in relatively
few
all
portfolio part
companies.
investment.
These
factors
could
negatively
pay dividends and cause
you
to lose
or
of your
Investments
U.S.
in
foreign
debt or
equity
may
involve
significant
risks
in addition
to the
risks
inherent
in
investments.
Our investment
applicable typically control limits associated regulations,
strategy
has by
resulted
in
some investments
Investing
in
debt
or equity
of can
foreign
companies
us to
(subject risks
to
prescribed
the
1940
in
Act).
in foreign
companies
include
expose
rates,
additional in
not
with
investing
U.S.
companies.
These
risks
exchange
changes
exchange markets and
political
and
is
social
instability, the case less
expropriation, in the
imposition of
States,
foreign
taxes,
less liquid less
less available supervision obligations, of
information exchanges,
than
generally
United
higher
laws, price
transaction difficulty
volatility.
costs, in
government
contractual
brokers
and
issuers,
developed
standards
bankruptcy and
greater
enforcing
lack
of uniform
accounting
and
auditing
Certain
Government
operate
Regulations
regulated
We
in a highly
environment.
The
following
discussion
generally
summarizes
certain
government Business
regulations.
Development
Company.
A
business
development
in the
company
States available other
is
defined and purpose
regulated of
by
the
1940
Act.
A
to
business primarily
development
private
company
provided
must be organized managerial
United
for the to
investing
in or
lending
companies
capital
id[ making by
public
assistance
them.
to
A business
invest in
development long�term,
private
company
may use
shareholders
and from
sources
investments
in businesses.
As
time
a business
development
company,
the
we may
of our
assets
not
acquire assets to
any
asset
other
than
"qualifying of the
assets"
unless, total
at the
we make the acquisition, assets. The principal categories
(1) Securities
value
qualifying
represent
at least are:
70%
value
of our
of
qualifying
relevant
our
business
purchased
to
in transactions limited 13 as
not
involving
is
any
public
offering
from
the or
issuer
of such
securities,
which
issuer
(subject the to
certain
exceptions)
an
eligible
portfolio
company,
portfolio portfolio
from any person
or
is
who
is,
or
has been
person,
during
subject as
preceding
rules
months,
an
affiliated
person
the
of an
eligible "eligible
company,
from any defined
other
such
may be
prescribed
by
SEC.
An
company"
in the
1940
Act
any
is
issuer
which: under
the
(a)
organized
laws
of,
and
has
its
principal
place
of
business
in,
the
United
States
21
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
(b) business
is
not
an investment
company
or a
(other
than
a small
business
investment investment
company company
but
wholly
owned by
the
development 1940
company)
company
that
would
be
an
for certain
exclusions
under
the
Act and
any of have
the following:
(c)
satisfies
�
does
credit
�
not
any
class
of
securities
with
respect
to
which
a
broker
or dealer
may extend margin
is
controlled
by
a business
development
the business
company
or assets
or a
group
of companies
has
including
a business
development
director
� is
company
eligible solvent less than
and
development
company
an
affiliated
person
who
is
a
of
the
portfolio
company
having
total
a
small
and of
not
company
$2
of
not
more
than
$4
million
and
capital
and
surplus
million.
The SEC
definition
recently
adopted
Rules
2a�46
and 55a�l
under
the
1940
Act,
which
together
expand
the
foregoing
of
"eligible
portfolio
company."
(2) Securities
of any
eligible
portfolio
company
transaction
which from
we
control.
(3) Securities affiliated
purchased of
if
in a
private
a U.S.
issuer
if
that
is
not
is
an investment bankruptcy unable
to
company
subject
its
or to
from an
person
or
the the
issuer, issuer,
or in transactions
incident to the than
thereto,
the
its
issuer
in
and
reorganization as they
immediately
assistance
prior other
purchase
of
securities
was
meet
obligations
came due without
of such
an
material
conventional
lending
or financing
arrangements.
transaction eligible
if
(4) Securities
eligible
portfolio
ready
market
for
securities
and
we
already
company purchased from any person in own 60% of the outstanding equity
a
private
there
is
no
of
the
portfolio
company.
(5) Securities (4) received to the in
exchange
for or distributed
on
or
with
to
respect
to securities securities.
described
in
1) through
above, or pursuant
(6)
exercise
of warrants Government
or rights
relating
such
Cash, cash
equivalents,
U.S.
securities
or
high�quality
debt maturing
in
one
year
or less
from
the
time of
include
investment.
To
certain
securities
described
available
above
to the
as
qualifying
assets
for the
purpose
of
the
70%
test,
a business
development providing
policies to
company
must
make
and
or
issuer
of
those
securities
significant
managerial
or business
assistance objectives
such and
as
significant a portfolio portfolio
guidance company,
counsel making
concerning
loans
the
management, company.
operations,
of
to a portfolio
We
offer
to
provide managerial
assistance
each
of our
companies. company,
As
securities security
a business
development
we
are
entitled
to issue
senior
securities stock,
in the as
form of
as
stock class
or senior
representing has
indebtedness,
including
debt
securities
and
preferred after
long
each
of
senior
an
asset
coverage under
ratio the
of
at
least
200%
immediately
each
such
issuance.
See
"Risk
Factors."
affiliates
We
1,
in in
may
also
be
the
prohibited prior
1940
Act
from knowingly
Directors permitting and,
participating in to
in certain
transactions
with our
the
without 2000,
approval
of our Independent order
the
SEC
granted
us an exemptive
to various
us
some cases, prior approval make co�investments with
last
by
SEC. of our
did
On
July
certain the
affiliates
portfolio
companies,
subject
conditions.
During
the
completed
fiscal year,
Fund
not
engage
any
transactions
pursuant
to this order.
As with
other "interested
other
companies ongoing
regulated
by
the
1940
Act,
a business
development
directors
company
required
must adhere
to certain not maintain a
substantive
regulatory
requirements.
is
A
majority Act.
of our
must be persons
are to
who
are
persons,"
as that
term
fidelity
defined insurance
in the
1940
Additionally, the
we
provide and
bond
issued
by
a
reputable
company
prohibited willful person’s
to protect
business
development
director gross
company.
against
Furthermore, any
liability
as a business the
development
or
company,
we
are
from
protecting
any
faith,
or officer
to
company
the duties
our
shareholders in the
arising
from
misfeasance, office.
bad
negligence
or reckless
disregard
of
involved
conduct
of such
22
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,2007
T
of
We
restricts
and
TTG
Advisers maintain by our
a
code
of
ethics
that
establishes ethics
procedures does and on
is
for personal not
investment
and by our
at the
certain
transactions that in
personnel.
The code
or held
of
generally read
permit investment
the
employees
Public
in securities
may be purchased
Washington,
(202)
by
us.
You may
code
copies
copy
code of on
the the
of ethics Public
SEC’s
Reference by
calling Internet electronic Section,
Room
the
site
D.C.
You may
In
obtain the
information of
ethics the
operations available
Reference Database on
Room
the fee,
SEC
at
at
942�8090.
addition,
EDGAR
paying SEC’s
SEC
by
http://www.sec.gov.
at
You may
email
obtain
of
code
of
or
ethics,
after
a duplicating Public at
request
the
following
address:
publicinfo@sec.gov, 20549.
by
is
writing also
to the
Reference
100
F
Street,
NE, Washington,
D.C.
The code of
ethics
posted on
our website
http://www.mvccapital.com.
We may
development
the as
not
change
the unless
nature
of our
business vote
so
as to
cease
of
to be, the
or
withdraw
our
voting
election
as,
a business as defined the in
company
of our
of: (i)
authorized
by of
of
a "majority voting
outstanding of
a
securities,"
is
1940
the
Act,
shares. or are
A
majority
the
outstanding shares
securities
at
company
if
defined
by
the
1940
Act
lesser
67%
more
of such and
company’s
represented
present or
a
meeting
than
more
of
than the
50% of
outstanding
outstanding shares of
shares
of such company.
company
present
by
proxy,
(ii)
more
50%
such
We
Item
2.
are
periodically
examined
by
the
SEC
for
compliance
with
the
1940
Act.
Properties
The Fund does
Executive scheduled
principal Office") to expire
not
is
own any
at
real
estate
or other
physical
property.
Its
principal
executive pursuant
the
office to
(the "Principal
located
287
28,
Bowman
2007
Avenue,
Purchase,
New York
the
10577,
a sublease subleased
total 1, is
which
its
is
on
February
to
(the "Sublease").
Effective
November
Sublease was
1 2006,
for
Fund
executive
office
TFG
in
Advisers.
Future payments
under
TTG
Advisers
approximately without
penalty. Capital
$75,000
in fiscal
year 2007. which
the
The Fund’s
Fund’s
is
previous
lease
terminated 287
effective
March
Avenue,
2005,
The
building
executive
offices
are
located,
Bowman
4
owned
for
by
n[Qix
Partners,
LLC, an
entity
which
97% owned
by Mr. Tokarz.
See Note
"Management"
more
information
on
Mr. Tokarz.
Item
3.
Legal
the
Proceedings year ended which October included
31, $2.2
During
fees
2003,
the
Fund
paid
or
accrued
at the
$4.0
million
for legal the
and proxy of
solicitation to
and
expenses,
the legal
million fees
accrued
and
paid
direction
of
Board
Directors, L.P.
reimburse Karpus
and proxy Management,
costs against
solicitation including
and expenses of
of two
major
a
Fund
shareholders, against the
Millenco,
and
Investment Court and
a
their costs the
obtaining
judgment
election
Fund
Board
in the of
Delaware
Chancery
associated
its
with
proxy
process
and
the
of
the
current
Directors. to
The
Fund made
claim
insurance
carrier, 13,
Federal the
Insurance
Company
a
("Federal")
for
its
right
reimbursement $473,968 expenses which
of such
has
expenses.
On
as
June Other
2005,
Fund reached
Consolidated
settlement
with
of
Federal
in the
amount
fees
of and
been
with
recorded reaching
Income
in the
Statement
Operations.
Legal
associated
this settlement
were
$47,171.
Item
4.
Submission
of Matters
to
a Vote of
Security
Holders which Board Statement
re�elected of
Schedule
its
The annual meeting of shareholders was held on September l4A was filed with the SEC on August 3, 2006. At the
In addition, the shareholders
7,
2006,
for the
a Definitive
Proxy was
on
in
meeting, the
of
Directors
entirety. cast
voted
on
the
proposal
the the
to
approve
Advisory
Agreement. of
92%
shareholder cast cast
votes the
on
Advisory
Agreement
against
voted
the to
to
approve
of
Advisory
Agreement. Agreement.
7%
shareholder
votes votes
on
Advisory
Agreement
voting
voted
the
approval
the
Advisory
1% of
shareholder
abstained
from
on
proposal
approve
Advisory
Agreement.
23
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Part
I
Matters
Item
5.
Market for
Equity
Registrant’s
Common
Equity
and Related Stockholder
and Issuer Purchases
of
Securities
The Fund’s shares of common The Fund had approximately 7,000 The following common
Quarter stock table the
reflects,
stock
began
to
trade
on
the
NYSE
1,
on June
26,
2000,
under
the
symbol
"MVC."
shareholders
on
December
the
2006. Fund’s
for the quarter.
periods
indicated
high and low
closing
prices
per
share
of
the
on
NYSE,
by
Ended
H
YEAR
2006 $ $ $ $
13.87 13.49 12.75 $ 12.61 11.98 11.66
FISCAL
10/31/06
07/31/06 04/30/06 01/31/06
$
$
12.22
$
10.50
FISCAL
10/3
YEAR
S[h
2005 $ $
$ $ 12.22 11.34
$ $ $
$
10.30
9.41 9.17 8.95
07/31/05
D
04/30/05 01/31/05
9.50
9.55
As
a
RIC,
the
Fund
is
required
to
distribute
to
its
shareholders,
in a timely year. If the net
manner,
at
least
90%
in a
of
its
investment
least
company
of
its
taxable
income
for
and tax�exempt such
calendar (as
income year and
as
its
each
Fund
distributes, for the balances certain
calendar
year,
at
98%
on
ordinary 31
it
income of such
capital
gain the
income
12�month
not
period in
ending
the
October
year),
calendar
year
to
well
any
portion
of
respective excise tax
2%
on
distributed
of
IC
previous
will not
be
subject
the
4%
non�deductible
federal
undistributed
income
Dividends
gain distributions
and
capital
gain
distributions, declared
if
any,
are
recorded
on
the
ex�dividend Fund’s of
date. policy
Dividends
established tax
and on on by
capital July 11,
are
generally distribution net a
and
paid
paid
quarterly the
according
to
to the
2005.
An
additional undistributed
may be
by
Fund
capital
avoid
imposition Distributions
federal
income
any
the
remaining
either
investment
distribution in
income
and
gains.
can be
character
made payable
of income and
Fund
gain
in the
form of
are
cash
or a stock
dividend. tax
The amount
regulations differences the
and which
are
capital
distributions generally
determined
in the
accordance
States
with income
may
differ
from accounting
to differing differing relating to
principles
accepted and
gain
United
of America.
securities the
These held by
due
primarily
treatments
of
income
on of
various
investment
Fund, book
timing and
differences basis
and
characterizations distributions gain (loss)
distributions
made by
Fund.
Permanent
affect the
tax
differences net operating
shareholder realized
will result
in reclassifications
and
may
allocation
between
income,
net
and
paid
in capital.
All
of our
shareholders
who hold
plan (the
shares
of
All (the
common
such "Plan
stock
in their will
own name
have
will automatically
be
enrolled
in
our dividend
automatically
reinvestment
reinvested
"Plan").
shareholders
any cash
shares
dividends and
distributions stock.
by Computershare
to receive his or
Agent"),
in additional
of our
common
the
Of
a
course, policy
any shareholder of seeking
entities basis receive that to
may
elect
her dividends and For any
distributions of
in cash. that are
Currently, held will
Fund has
brokers the not
pay
quarterly shares
dividends
as
to shareholders. for individual
our
shares the
by banks,
administer that in cash,
or other the to the
hold our
nominees
certified
shareholders, as
Plan Agent
Plan on
elected notify
of the
number
of
shares
by any nominee
being
registered
for shareholders distributions
have you
dividends and
distributions
in cash.
To
receive
your dividends and
must
Plan Agent.
24
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
The Plan Agent
distribution will receive
serves in
as
agent
for the
shareholders shares
in administering
the those
Plan.
When we
Such of
declare
a
dividend
in the either
or
payable
their us or
cash
or in additional or distribution
of our
common
of
stock,
shareholders stock.
participating shares will
Plan
dividend
in additional the
shares
our
common
market
the
be
newly
stock
issued
by
purchased
date for
in the
open
market by
Plan Agent.
equals or
If the
value
per
a share
of our
that
common we
on
the
payment
such
dividend
If the
or distribution
exceeds
of
NAY
is
share
on
the
date,
will
issue
new
shares in the
at the
NAY.
NAV
exceeds
shares
the
market
price
our
common
as
stock,
Plan Agent
the
will distribution.
purchase
open
market
such
number of
all
of our accounts
common
in the
stock
necessary
written the
to
complete
The Plan Agent
transactions.
will
maintain
shareholder in the
Plan and
in the shares
furnish
confirmation
or
its
of
all
Shares of our
will
common
stock the
Plan
will
be
held
name of
for
all
Plan Agent
nominee
and
such
shareholder
be considered
beneficial
owner
of such
purposes.
There
distributions. Plan.
is
no
charge
will
to shareholders incur
for
participating fees a
in the to
Plan newly
or for the issued
reinvestment of dividends and
issued in
We
not
brokerage
with pro
respect
shares fee
connection
for
with
the
Shareholders
in
will,
however, with
the
be charged
Plan.
rata share
of any brokerage
charged
open
market
purchases
connection
We
60 days
may
prior
terminate to the
the
Plan upon
date
providing
written
notice
to
each
shareholder
participating the
in the at
Plan
at
least
effective to
of such
termination. participating
We
in the
may
law
also
materially
amend
Plan such
any time upon
(except
providing
written
notice
shareholders to
Plan
at least
30 days
policies
prior to
amendment
or other obtain
when necessary or appropriate You may withdraw authority).
information
comply
the
with
applicable
or rules notice
and
of
the
SEC
regulatory additional
from
the
Plan upon
providing
to the
Plan Agent.
You may
about
the
Plan from
Plan Agent.
F [h [h Fu
the
31.
On
pay
July
1, 2005, our board of
dividends
29, to
directors
announced
the quarter,
that the
it
approved of
the
establishment of
declared distribution a
a policy
of seeking
$.
to
quarterly
shareholders. shareholders In to
For of
board
22,
directors
dividend of amounted 826
shares
12
per
share
payable
including stock
on
July
2005
to
record
on with
July the
2005.
the
The
total
to of
$2,290,289
distributions the
reinvested. treasury
accordance
Plan,
Plan Agent
Plan.
re�issued
common
from
Fund’s
shareholders
participating
in the
F [h [h [h
the
31.
On October
to shareholders reinvested. treasury to In
10,
2005,
our board October
the
of
21,
directors
declared
a
dividend of
$.
12
per to
share
payable
on
October31,
2005
of record on accordance
2005.
the
The
total distribution re�issued
amounted
1,904 shares
$2,290,387
including
distributions the
with
Plan,
Plan Agent
Plan.
of
common
stock
from
Fund’s
shareholders
participating
in the
F [h [h !a
the
31.
On December
January
31,
20, to
2005,
the
Fund’s of
to
board on
of
directors
declared 30,
a
dividend of
$.
12 per
date
share
payable
on
28, Plan,
2006
shareholders
record
December
including stock
2005.
The ex�dividend
reinvested. treasury to In
wasDecember
with
the
2005.
the
The
total
distribution
amounted 1,824
$2,290,616 of
distributions
accordance
Plan Agent
Plan.
re�issued
shares
common
from
the
Fund’s
shareholders
participating
in the
F [h [h
the
April30. Fund’s board
April
On
2006
to
April
1, 2006,
of
the
of
directors
declared
a
dividend of
date
$.
12
per 19,
share
payable
on
April
28,
shareholders to
record on
including stock
21,
2006.
The ex�dividend
In to
was
April the
2006.
the
The
total distribution re�issued
amounted
1,734
$2,290,835
of
distributions the
reinvested. treasury
accordance
with
Plan,
Plan Agent
Plan.
shares
common
from
Fund’s
shareholders
participating
in the
25
Source:
MVC CAPITAL,
INC.,
1
January
10,
2007
T
of
[h
the
[h
14,
Ended
the
July 31.
On
to to
July
2006,
Fund’s on
July
board
24, 2006.
of
directors
declared
a
dividend was
of $.12
20,
per
share
payable
total
on
July
31,
2006
shareholders
of
record
The
ex�dividend
In
date
July
2006.
the
The
distribution
amounted
1,901 shares
$2,291,043
including
distributions the
reinvested. to
accordance
with
the
Plan, in the
Plan Agent
re�issued
of
common
stock
from
Fund’s
treasury
shareholders
participating
Plan.
F [h [h [h
the
31,
On October
October
31,
13,
2006,
the
Fund’s
of
board
record
of on
directors
declared 24,
a
dividend
of
$.
12
per
share
payable
on
20,
2006
to shareholders
October
2006.
The ex�dividend
reinvested. treasury In
date
was
October with
the
2006.
the
The
total distribution
amounted 2,327
to
$2,291,271 of
including stock
distributions the
accordance
Plan,
Plan
Plan.
Agent
re�issued
shares
common
from amount
Fund’s
to shareholders
participating
in the
The Fund
ending
Relief
designated
31,
7%*
from
or a net
maximum
of $621,193
as qualified
of dividends
declared
and paid during
the
the
year
October
2006
operating
income
dividend income
under
Jobs
Growth and Tax
Reconciliation
Act of 2003. deduction for certain ordinary income may be eligible for a dividend received The Fund designated 7%* or a maximum amount of $621,193 of dividends October
31,
Corporate
distributions
shareholders the
paid by
the
Fund.
declared received
and
paid
during
year
ending
2006
from
net
operating
income
as tax
qualifying returns
for the
dividends calendar
deduction. will
The information
separately
necessary
to prepare
if
and complete
applicable,
shareholder’s in
for the
2006
year
be
reported
on
form 1099�DIV.
to retain net
January
in
2007. excess of
if
The Fund
reinvestment
shareholders gains as a
reserves or to
the
right
long�term Such
capital retained
gains
net
short�term be
paid taxable
capital to the
losses
for
pay be
contingencies to
and
expenses.
amounts,
federal
any,
will taxes also
Fund,
and
will credit basis
able
claim
their proportionate federal
share tax
of
the
income
will
by
the
Fund on such
to increase their tax the credit.
against of
their
own
income
the
liabilities.
Shareholders
be
entitled gains
adjusted
tax
their
Fund
shares
by
difference
between
their undistributed
capital
and
*
Unaudited
26
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Item
6.
Selected
Consolidated
Financial
Data ended been 2005, 2004 LLP,
fiscal
Financial consolidated registered are derived
information
financial
for the
fiscal years
October31,
audited
2006,
and 2003
the
are
derived from
current
the
statements, firm.
which
have
by Ernst
financial
& Young
for the
Fund’s
independent
31,
public
accounting
the financial
The following
which
selected
data the
year ended
October
public
2002
from
financial
statements,
is
were
audited
by
Fund’s but
are
former independent
in the
accountants. reflects results
Quarterly
all
information only See 28 for
derived
from unaudited
recurring
financial
data,
opinion
to
of
management,
fairly the
adjustments such
interim
(consisting periods.
of
normal
adjustments),
which
iy[h
present
for
Operations"
on page
"Management’s Discussion more information.
and Analysis of Financial
Condition
and Results of
Selected
Consolidated
Financial
Data
2
Operating
Interest
Year [U[h
Ended
[U[h
October
31,
[U[h per share data)
In Data:
related portfolio
thousands,
except
and
income: $ 13,909 3,828 $ 9,457
1,809 [U[h
Interest
and dividend
income
$
2,996 926 [h 3,986
$
2,833 62
$
3,740
Fee income Other income
Total operating
7
� �
_________
2,895
income
18,508
12,199
3,740
Expenses: Employee
Incentive
3,499 compensation (Note
5)
2,336
1,117 3,021 31
1,366
6,055 3,420
�
2,476
�
696
�
Administrative
Interest
2,891
8,911(2)
and
other fee
borrowing
costs
Management
Total operating
expenses of
1
�
fees
1,594
�
2
� �
�
2,573
3�
�
(3,122)
[U[h
[U[h
[U[h
Litigation
recovery
12, 13)
management
(loss) net (loss) gains
(Note Net Tax Net Net
370 before
taxes
�
(8,492)
operating
income
(benefit),
3,940
expense
operating realized
1
5,694
97 [h
18
10
5,795
(3,295)
�
_________
(3,122)
income and
3,781 (losses):
(8,492)
unrealized (losses)
Net Net
realized
gains
change
in unrealized
appreciation
(depreciation)
Net
realized
and
unrealized
gains
(losses)
on investments Net
increase (decrease)
in
3 4
5,221
$
(37,795)
(4,220)
[U[h [U[h
$
[h
,58
$
42 46
$
net
assets
resulting
from
operations
[U[h
[U[h
[U[h
[U[h
$
Per Net
Share: increase (decrease)
in
( 55 )
(33,469) (3.54)
ltingfromo
per share Data:
net
assets
per $ 2.48 0.48 $ 1.45 $ $ 0.91 $ $ (3.42)
Dividends Balance
Portfolio Portfolio Total
$
$
0.24
0.12
�
$
$
0.04
Sheet
at value at cost
$
275,892 286,851 347,047
$
122,298 171,591 201,379 198,707
$
78,520 151,582 126,577 115,567
$
24,071 146,515 137,880 137,008
$
54,194 133,864 196,511 195,386
assets equity equity
Shareholders’ Shareholders’ value)
236,993 per
share (net asset
$
shares
12.41
$
10.41
$
9.40 12,293
$
8.48
$
11.84
Common
Other
outstanding
at
period
end
19,094
19,087
16,153
16,500
Data:
Number
of Investments funded
funded
period
in period
24 $ 166,300
$
9 53,836
$
7
5 $
10 $
Investments
($)in
60,710
21,955
26,577
27
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
Data
Total
of
[U[h Otr
[U
Otr
[U
Qtr
[U
Otr
I
Otr
[U
n[h
ns[E
O
0[U[
e
[U
Qtr
per
[U
Qtr
I
Qtr
[U
p ([
Otr
[U
Otr
Quarterly
(Unaudited)
operating income Net operating 6,104 4,607
15[h
3,882
3,361
4,404
2,439
1,995
1,811
951
508
716
income
(loss)
before
net and
realized
unrealized gains Net increase
in
1,723
1,072
156
830
1,612
2,480
821
882
665
281
(498)
(430)
(decrease) net assets
resulting
from operations Net increase
in
15,866
8,046
11,117
12,307
8,933
10,310
4,360
2,665
3,274
4,922
1,104
2,305
(decrease) net
assets
resulting
from operations per share Net
asset
.8
12.41
0.42
0.58
0.65
0.46
0.58
.0.23
0.18
0.27
0.41
0.09
0.14
value 11.70 11.40 10.94
10.41
pershare
10.06
9.64
9.41
9.40
9.25
8.85
8.76
I) Data The
for
2004
differs
from and
that
which
was
filed
on
Form 10�Q
had
previously 31,
on September been accrued
9,
2004, due
for.
to
a reclassification
of investment
(2)
income
related
expenses
which
administrative fees
expenses and
for the
year ended These
are
October
2003
included approximately
$4.0
million
of
proxy/litigation
expenses.
non�recurring
expenses.
Item
7.
Management’s Discussion
report contains of certain the
and Analysis of
of
a
al[h Condition
nature portfolio
and Results of Operations
to future events or the
will,
This
financial anticipate, terminology, report
statements
its
forward�looking
relating
future believe,
performance
intend, are
Fund and
investment
continue,
companies.
negative
Words
such
as
may,
expect, or
could,
estimate, to
might and
and
the
or other
variations
thereof are
comparable
in
intended
to the
identify
forward�looking
provision the actual of the
statements. Private
Forward�looking
Litigation
statements
included Such
this
pursuant
are
"Safe
Harbor" and
Securities
Reform Act of
from
those
1995.
statements
predictions statements.
only,
events
or results
may
differ to
materially differences effect
discussed
but are not
in the limited
to,
forward�looking
those relating the effect to
Factors capital
that
could
cause
or contribute
such
the
include,
investment
regulatory
demand,
pricing,
market
forces,
acceptance, the results
of economic and
the investing
conditions,
litigation ability
and
to not
of
proceedings,
competitive
identified
of
financing filings
efforts, the
complete
to place
transactions
and
other these
risks
below
or in the
Fund’s which
with
as
SEC.
the
Readers
hereof.
are
cautioned
undue no
reliance
on
forward�looking
revise these the
statements,
speak
only
to
of
date or
The Fund
undertakes
occurring financial the
obligation the date
to publicly
forward�looking
of
statements
reflect
events
circumstances
analysis
after
hereof
results other
or to reflect
occurrence
the
unanticipated
events. in
The following
the
of
the
condition thereto
and and
of
operations
of
Fund should
be
read
conjunction with
Financial
Statements,
Notes
the
financial
information
included elsewhere
in this report.
Overview The Fund
elected to to to
is
an
externally as
total
managed,
non�diversified,
closed�end under and/or
the
be
regulated
a business return
development
capital
company
management investment company 1940 Act. The Fund’s investment
that
has
is
objective
seek
maximize
from
appreciation
income. Chairman and of Fund. Fund
(i.e.,
On November
and
the
6,
2003, Mr. Tokarz
professionals adviser,
assumed
his
positions
as
Portfolio
Manager
the
He
Fund’s
the
investment
through maximize
Fund’s
investment from
’
or
(who,
effective
November
are
1 2006, provide
to
their services
to the objective private
Advisers)
and/or
seeking
implement making
a
our investment broad range of
to
total
return
capital
appreciation
income)
through
investments
in a variety
of industries.
The investments common
or preferred In the
can
include equity
senior
subordinated warrants 2005,
loans,
convertible to acquire
debt equity
and
convertible
preferred other private
securities, equity in
stock,
interests,
or rights six
interests,
and
transactions. existing
year ended
October31, committing
we made
totaling
new investments
million. In the
and
three
additional
investments 2006,
portfolio
companies,
capital
$53.8
year ended
October31,
we
Source:
MVC CAPITAL,
I1
January
10,
2007
made
totaling
sixteen
new investments
million.
and
eight
additional
investments
in existing
portfolio
companies,
committing
capital
$166.3
28
Source:
MVC CAPITAL,
INC.,
K,[h
January
1 2007
T
of
Prior
to the
adoption
of our
current
investment
capital
objective,
the
Fund’s
in
investment
objective
had been
to
achieve
long�term investments companies.
capital
appreciation previously 31,
from
venture
investments
in equity
fair
information
technology
companies.
The Fund’s
had
thus
focused 2006,
on
investments
the current
and debt of our
securities assets
of information of
portfolio are,
technology investments seeking
As
of
October
2.42% of
team
try
value prior
consisted
made by
to
the
Fund’s
former
management
to returns or other
pursuant realize
to
the
investment
objective. generally
We
seek
however, on
manage
these
legacy
investments cash
and
maximum when
returns. presented
We
to capitalize "liquidity
opportunities
sale,
to realize offering,
on
these
investments
with
a potential
event,"
i.e.,
a
public
merger
reorganization.
Our new
investment
return
portfolio
investments
small
are
made pursuant
income.
to
to
our
new
in
objective
and
strategy.
We
are
concentrating to
our
total
efforts capital
on
and middle�market and/or
companies Under any
that,
our view, provide approach,
required
opportunities are permitted for
maximize
from
appreciation
our investment
we
to invest, to
without
to
limit, in qualify
any one
portfolio
company,
subject
diversification
limits
in order
us
continue
as
a regulated
investment
in the
company
equity small
under
Subchapter
M
of
the
Code.
We
and/or
participate
private to
business
generally
by providing companies. and/or
in public
privately
debt
investment
capital
and
middle�market
note
Our
financing
growth,
private public
buyouts,
acquisitions,
recapitalizations, to time,
purchases, invest
bridge
companies,
capital.
though,
from time
we may
in
is
negotiated
long�term used
equity to
generally
fund
in to
We
generally
invest access
companies
that
may
lack
adequate
We
serve as
may
also
seek
to
achieve
our investment
adviser
objective
by
establishing or other
a
subsidiary
or subsidiaries fund(s). In
fact,
that
would
general
partner
or investment
to a private
equity
investment
also
during 2006, of
existing
we
established equity
MVC
or
Partners,
LLC
for this purpose.
Additionally, institutions
we may
or other
acquire
a portfolio
private
debt investments
held
by
financial
investment
funds.
Operating For
the
Income
Years October For
Ended October
31,
31,
2006,
2005
and 2004.
fiscal
Total
operating
income
31,
was 2005,
$18.5
an
million
for the
fiscal
year ended
$6.3
2006
and
$12.2
million
for the
year ended
$8.2
October over
increase
of of
million. million.
fiscal
year 2005,
operating
income
increased
million
2004
operating
income
$4.0
For
the
Year
Ended
October
31,
2006
million to the for the increase
Total
operating
last
income
was $18.5
year ended
in the
October
31,
2006.
The
that
increase
in operating the
income
current
over
year was For
the
primarily
due
number of investments
the
provide
Fund
with
income.
years
ended
October
31,
2006 of
and 2005,
Fund made 24 and 9 investments
were
fees the interest
in portfolio
companies,
loans to
respectively.
The main components
and 2006,
the the receipt
operating
income
and dividend income
portfolio
earned on by
the
portfolio
companies
of
closing
and monitoring
from
certain
companies
Fund and MVCFS. During
investments
$2.2 million in portfolio
companies.
in in
Fund earned approximately $13.9 million in interest and dividend income Of the $13.9 million recorded in ldividend income, approximately The payment
and added
reclassified in
from
was
payment
kind
interestidividends.
kind
idividend
balance
received to the
are
computed
at
the
contractual
rate specified year
each
investment 2006, of
the
agreement
to the
principal
of each
investment. totaling Vitality did
During
the
ended
October
to
31,
Fund The
dividend income occurred due
from
Vitality that
approximately
not
$900,000
taxable the
return earnings net
capital.
reclassification
determination
have
sufficient
and
profits
for their fiscal
year 2006. This
yielded
reclassification rates
to return to
of
capital the
had
limited
impact
on
Fund’s
$2.3
asset
value.
The Fund’s investments
income
portfolio
from
7%
17%.
Also,
Fund
earned
received $3.8
approximately
fee
million
in interest
on
its
cash
equivalents
and
entities
short�term
totaling
investments.
The Fund
income
and
other
income
from
companies income
and
is
other
approximately from
limited earnout.
liability
million
and $771,405, and cash
received
respectively.
Included Mentor
in other
flow through
income
companies
from
the
Graphics
Corp. ("Mentor
Graphics") multi�year
29
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
For
the
Year
Ended
October was
31,
2005 year ended October
of
Total
operating
income was
$12.2 due
million
for the
31,
2005.
The
increase the
in operating
income income.
portfolio
over The
2004 main
primarily
to the
increase
in the
number
the
investments
that
provide
Fund with
on by
loans the
current to
components and
the
of investment
receipt
income and
were
interest fees
and dividend income
certain portfolio
earned
companies
of
closing $7.53
monitoring
from
companies
Fund
in
and
MVCFS. The Fund
portfolio
earned
approximately $7.53
million
million
in interest
and dividend income income,
from investments $1.37
at
companies.
in in
Of
the
recorded
in interest/dividend in
approximately
are
million contractual
was
rate
"payment
specified
kind" each were
/dividend
paying
interest
The "payment
and added
kind"
interest/dividends
computed
investment. the
the
investment
agreement
to the
to the
principal rates
balance
of
each
The Fund’s
yielding
investments
$1.93 million other
Fund
cash
at various
from
7%
to
17%.
Also,
Fund earned approximately
received fee
in interest
income
portfolio in other
on
its
equivalents
and
short�term
totaling
investments.
The Fund
$1.81
income
and
income
from
companies income eamout of
is
and
other
entities
approximately
limited
liability
million
and
$900,000 from
for
respectively. the
Included Graphics
flow through and
a legal
income
from
of
companies, 12 "Legal year ended
cash
received
Mentor
multi�year
the
settlement other
$473,968.
See Note
for the
Proceedings" October
31,
more would
information.
Without $428,855.
receipt
this settlement,
income
earned
2005,
have
been
For
the
Year
Ended
October was
31,
2004
million for the
Total operating
operating
income were
the
$4.0
year ended
loans the
October
31,
2004.
The main components
and
the receipt
of and
income
fees
interest
income
earned on by
in in
to portfolio
companies
of
closing
monitoring
$2.3 million
from
certain
portfolio
companies
in interest
income
from investments was "payment
Fund and MVCFS. The Fund earned approximately Of the $2.3 million recorded in interest portfolio companies.
interest.
income,
contractual
approximately
rate specified
$100,000
in
kind"
The "payment
to the principal rates
in
kind" balance
interest
is
computed
investment. the
at
the
each were
investment paying
agreement
to the
and
added
at
of each 17%.
The
Fund’s
yielding
investments
interest
Fund
cash
various
from
10%
to
Also,
Fund
earned approximately
received fee
$700,000
other
in interest
income
on
its
equivalents totaling
and short�term
investments.
The Fund
income
and
income
from
portfolio
companies
approximately $900,000
and $64,000
respectively.
Operating For
year year 2004. the
Expenses Years October October
Ended October
31, 31,
31, $6.5
2006, 2005
million
and 2004.
fiscal
Operating year ended
$2.2 million
expenses 2005, an from
were
increase
$14.6 of
million
for the
fiscal fiscal
ended ended
2006 2005,
and
for the
$8.1
million. fiscal
For
operating
expenses
increased
$4.3
million
for the
year ended
For
the
Year
Ended
expenses
October were
31,
2006
million or
Operating 2006.
Significant
$14.6
of
6.78% of
the
Fund’s
average
net
assets 31,
for the
year ended
October
31,
components
operating
expenses
for the
year ended
$6.1 legal
October
2006, and
included an estimated
benefits
provision $3.5
for incentive interest
compensation and
other
expense
costs
of approximately of
$1.6 million,
million, fees
salaries
of approximately expenses of
million,
borrowing
of $685,396,
provision
facilities�related
$603,328, expense
the
is
and insurance
a
premium expenses of
not yet payable,
$471,711,.
The estimated
relating to
for incentive
compensation agreement with
non�cash,
provisional
expense
Mr. Tokarz’s employment
Fund.
The
year
$8.1
million
increase
in the
Fund’s
operating
expenses
the $4.9
for the
year ended
in the larger
October
provision
31,
2006
compared
to the
ended
October an
.2
31,
2005,
was
primarily
due
to:
million to
increase the other
for
estimated
resulted
incentive in
compensation
increase of $1
increase
in the
number of employees
and due
benefits to the
needed Fund’s
service
portfolio, related to
which
an
million
in salaries primarily
and Fund’s
the
rent
and
facility
expenses
increased the
approximately
increased
$118,908
procurement
of
larger
office
space
for
accommodate
information.
Fund’s
number of employees.
See Note
10
"Commitments and Contingencies"
30
more
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Finally, interest
the
increase
of approximately
other
$1.6 costs
million
compared
to
to the
year ended
the
October
Credit
31,
2005
in the H.
Fund’s
expense February
of
and
borrowing
was
due
borrowings
under
new
Facility
In
2006,
the
Fund renewed
$459,000 which
its is
Directors
& Officers/Professional
the
Liability
life
Insurance
policy.
policies prior
at
an
expense
approximately $517,000.
to the
amortized over
twelve
month
of
the
The
policy
premium was
Pursuant 2006,
the
terms
of
the
Fund’s
incentive
employment
agreement
with Mr. Tokarz, by
during
the
year ended
increase
October
31,
provision
for estimated resulted
compensation
the determination
was
increased
$6,055,024.
The
in the the
fair
provision value to the will
for incentive six of the
compensation
portfolio
from
of the
Valuation Committee
Turf,
to increase
of
Fund’s
investments:
Baltic,
Dakota, by
if
Ohio, Octagon,
total
and This
Vitality, reserve
which
are
subject
Fund’s remain
employment unpaid
until
agreement
net capital
with Mr. Tokarz,
gains are realized,
a
of $30,275,120. by
the
balance
of $7,172,352
ever,
Fund.
Without
this reserve or
for incentive
compensation,
operating as
expenses
to
would
have
been
is
approximately on
the
$8.51
million
3.96%
of average and
net
assets for the a a portion
when annualized
year ended
realization his incentive
compared
31,
6.78% which
to
reported
s
Consolidated agreement
Per Share Data with
the
Ratios, after
October
event,
2006. Pursuant
the incentive
Mr. Tokarz’ be of
employment
to
Fund,
only
to
may
compensation employees
paid
him. Mr. Tokarz During
the years
has determined ended on October October
a gain of
allocate
of
compensation 2005,
in
to certain
the
Fund.
31,
2,
2006
and and
as the sale
October31, discussed of
a
Mr. Tokarz Gains
was
paid no cash
or other
compensation.
the
However,
2006
"Realized
of the
and Losses on
Portfolio in
Securities,"
Fund
realized
$551,092
from
portion
Fund’s
to
is
LLC member
which based
the
interest
Octagon.
is
This
transaction to
triggered until the
an
incentive
compensation of
the Subject
payment payment
to
obligation obligation
Mr. Tokarz, confirmed
the
payment
the
not
required
be
made
precise
amount
on
Fund’s
completed
to
audited
financials
for the
fiscal year
is
2006.
confirmation (which
following
is
audit, to
payment
obligation the
first
Mr. Tokarz of
the
from
this transaction
approximately
see
$110,000
"Incentive
expected
be paid during
information.
quarter
Fund’s
fiscal
year
2007).
Please
Note
5
Compensation"
for
more
For
the
Year
Ended
October were of
31,
2005
million or
Operating
Significant
expenses
$6.5
3.75%
for the
of average year ended of
$1
,l
net
assets
for the 31,
year ended included
October
salaries
31,
2005.
benefits
components estimated of $529,541
not yet
operating
expenses
October
2005
and
of
$2,336,242,
legal fees
incentive
compensation
related
expense
17,328,
insurance
premium expenses of $590,493,
compensation arrangement due
to
and
facilities
expenses
of $484,420.
to
Estimated
incentive
expense with an
the
is
a
non�cash,
payable,
provisional
expense
relating
Mr. Tokarz’s compensation compared
to to to
Fund.
in
The
employees
other
increase
in the to
Fund’s
the
operating larger
expenses
portfolio primarily of
in
2005
2004 grow
was
the
primarily
increase rent
needed
service
and work due
continue Fund’s Note
Fund. of
Also,
the
Fund’s space
to
and
facility
related the
expenses
increased
to the
procurement 10
larger
office
accommodate
information.
Fund’s
increased
number
employees.
See
"Commitments
and Contingencies"
for
more
Pursuant
to
the
terms
of
the
Fund’s
agreement
of incentive
with Mr. Tokarz, compensation.
during This
the
year ended
October
31,
2005,
the
Fund
created
a provision the
for
$1,117,328
the
provision
fair
for incentive
compensation
the
resulted
from
determination of Dakota,
Valuation Committee
Vestal
to increase are
the
value
of
five
of
Fund’s with unpaid
portfolio
investments:
Baltic,
Octagon, amount
capital
and
Vitality
which
reserve
subject
to the
Fund’s
agreement remain
Mr. Tokarz,
finally the
by an aggregate
until net
of
gains
$5,586,638. are will realized, the
This
if
balance
the
of $1,117,328 Pursuant
paid the to to
will
and
not
determined only
ever,
by
Fund. be of
Mr. Tokarz’s agreement
with
Fund,
after
a
realization his
event,
incentive
compensation employees
him. Mr. Tokarz During
the year
has determined ended
to allocate
a portion 31,
of Mr.
incentive
compensation paid no cash would have
to certain
Fund.
October
2005,
a[Qr
was
or other
compensation. $5.4
Without
million
this reserve or
for incentive net assets.
compensation,
Please see
operating 5
expenses
been
approximately
information.
3.10%
of average
Note
"Incentive
Compensation"
for
more
In
February
of
2005,
the
Fund renewed
$517,000 which
its is
Directors
&
Officers/Professional the
Liability
life
Insurance
policy.
policies
at
an
expense
approximately
amortized over
twelve
month
of
the
The
prior
policy
premium was $719,000.
31
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
During
legal fees
the
year ended which
for
October were
31,
2005,
the
Fund
paid a
or
accrued
against
$529,541
Federal
in legal
fees.
This amount
includes
of $47,171
incurred
while pursuing
claim
Insurance
settlement
Company. See Note
of
the legal action settlement
12
"Legal which Without
Proceedings" was
the
more
information.
The Fund
fees
received
$473,964
the cash
from
the
recorded
legal
as "other related
income."
to the
After
and
the
expenses
received or
from
the
was
$426,797.
fees
legal
action,
Fund would
have
paid
accrued
$482,370
in legal
fees.
For
the
Year
Ended
expenses
October were of
31,
2004
million or
Operating
Significant
$4.3
3.68% of average
for the
net
assets
for the 31,
year ended
October
31,
2004.
components
of
operating
expenses
benefits of
year ended
legal
October
fees
2004
included insurance and
facilities
premium
of $90,828.
Directors
expenses
In
$959,570,
salaries
and
$1,365,913, of Fund
of $810,848,
expense
into
February
2003,
the
former
management
the
("Former Management") premiums
at
entered $1.4
new
&
was
a
Officers/Professional
Liability the
life
Insurance
policy,
policies
with
total
of
approximately
at
million. entered
The
into
cost
amortized over
of
the
through For
the
February year ended
2004,
which
31,
time 2004,
new
policy
was
with
premium
insurance
of
approximately
$719,000.
October
the
Fund
expensed
$959,570
in
premiums.
the
During
$1.5 million
year ended Legal
October
31,
2004,
the
Fund
paid
or
accrued
incurred
$810,848
in legal
fees action
(compared
against
to the
in 2003).
expenses
Inc.
included (the
fees
of $124,787 Adviser")
for other
while pursuing of
Fund’s
former
alleged the
advisor, to
meVC
excessive.
Advisers,
"Former
for the
reimbursement
be
See Note
action
12 "Legal which was
Proceedings" recorded
the legal as fees
more
information. After fees
management fees which were The Fund received from $370,000
and
the
settlement the
of
the
legal
income.
to
expenses
the
cash have
received paid of a or
from
settlement
was
$245,213.
fees.
Without
legal to
related
this
litigation,
Fund would
were
accrued
$686,061 need
in legal
The
due
expenses
for the
year ended
the
October31,
direction
2004,
reflective
decreased
for legal
counsel
the
the
redefinition
of
Fund’s
by Management.
at
On January
Park, lease California directly
21, to
2004,
Fund reached an agreement
its
with
the
property of
manager
the
3000
the
Sand
Hill
Road,
Menlo
its
terminate the property
lease
at
such
for
location.
Under equal
the to
at
terms
agreement,
from
manager, remaining
for the
an amount
$232,835. October 2004
31,
As
a result, the
Fund bought�out Fund recovered
the
approximately $250,000
reserve, the gross
facilities
of
the
reserve
established
2003.
Without been
recovery
of
the
expense
year ended
October31,
would
have
approximately
$340,828.
Realized For were
$8.5 $5.2
Gains
the
and Losses On
Portfolio
Securities
Years
Ended October
and
net realized losses
31,
2006,
2005
and
2004.
Net
realized 31,
gains
for the $3.3
year ended
million,
October an
increase
31,
2006
million
losses
for the
year ended October
October
31,
2005
were
of
million
million.
Net
realized
for the
year ended
2004
were
$37.8
million
which
was $34.5
more
compared
to fiscal
year 2005.
For
the
Year
Ended
gains gain
October
for the
31,
2006
October October escrow
31, 31,
Net Fund’s
realized
year ended year ended
2006 2006
were was
$5.2
million.
The
to
significant the gain
component
the sale
of
the
net
realized Inc.
for the
primarily
due
on
of and
the
ProcessClaims
sale
("Process the
Claims"), equity
the
distribution
from Sygate
Technologies,
Inc. tenure
("Sygate"), as portfolio
of
a portion
of
Octagon
interest,
an investment
made during Mr. Tokarz’s
manager. During
the
year ended
$5.5 million. or
October
31,
2006, was
the
Fund
sold
its
investment
in
ProcessClaims
$8.3 million
and
realized proceeds,
a gain
of
approximately approximately
contingencies
The Fund
entitled will
to receive
approximately
into
in gross
of which
to the in
$400,000
associated therefore $7.9
5%
of
the
proceeds
the
be
deposited
a reserve
account
for
one
year.
Due
with
not
the
escrow, such
Fund has not
into
presently
placed
increased
any value
on
the
proceeds
received
deposited net
escrow
and has
factored
proceeds
the
Fund’s
NAy. The Fund
proceeds
of approximately
million.
32
Source:
MVC CAPITAL,
INC.,
10-K,
January
10,2007
T
of
On October
resulted realized in a sale a gain of
2,
2006,
Octagon
of the
bought�back Fund’s
sale.
a
total
of
15%
equity to
interest
from non�service
for
members.
This
of a
portion
LLC member
interest
Octagon
proceeds
of $1,020,018.
The Fund
$551,092 2006,
to
from
this
On October
October proceeds
10,
17,
the the
Fund
received
a $1.6 associated in
million
escrow
the
disbursement
the
from had
the
sale
of Sygate any
value
on on
the
2005.
Due
in
contingencies
with
escrow, of
Fund
not
placed
deposited
escrow.
This
resulted
an
increase
in
NAV
Yaga
been
$1.6
million.
The Fund
from
the a
received
notification this
of
the
final the
dissolution
of has
Inc.
("Yaga"). from of
The Fund
the
received
no
proceeds
dissolution loss
of
company
as effect of
and
investment
removed value
Fund’s
books.
The Fund
written
realized zero
of
$2.3 the
million net
a result the
of
this dissolution. of
The
fair
Yaga was
on
the
previously
down
to
and
therefore,
removal
zero.
Yaga from
the
Fund’s
books
Fund’s
consolidated
statement
of
operations
and
NAV
was
On
April
7,
2006,
the
Fund
a
sold loss
its
investment
in
Lumeta
Corporation
("Lumeta") However,
to
for the
its
then
carrying
value
of
$200,000.
previously loss
The
Fund
realized the
fair
on of
Lumeta of approximately $200,000.
the
Valuation Committee and
sale as a
result,
decreased
offset the
value
Fund’s
investment
Therefore,
in this the
company
effect
$200,000 Fund’s
the
realized in
was
by
a reduction
in unrealized
losses.
net
of
zero.
the
of
its
investment
Lumeta on
Fund’s
also
consolidated
statement
related
of
operations
and
NAV
was
The Fund
received
a
payout
to a
former
portfolio
company,
Annuncio,
of approximately
$70,000.
For
the
Year
Ended
losses
October
31,
2005 October October 2005 2005 were were
Net Fund’s
Sygate,
realized
for the
year ended year ended
31, 31, Inc.
$3.3
million. gains
The
on
significant the
components investments
losses
of
in
the
net
realized
loss for the
realized
Fund’s
Mentor
Graphics
Phosistor
and
BlueStar
Solutions, Inc.
("BlueStar")
which
were
offset
by
realized
on
CBCA,
ic
("CBCA"), During
the
Technologies, October
31,
("Phosistor")
and ShopEaze
its
Systems,
in
Inc.
("ShopEaze"). and received were
net
year ended
In for addition,
2005,
the
Fund
sold or
entire
investment
Sygate
sale the into
proceeds
in
of $14.4 escrow
place
million.
approximately one
year.
$1.6
million to the
10% of proceeds
such
from
the
deposited
the
an
not
account
value
approximately
the the
Due
in
contingencies did not factor
associated
with
escrow,
the
Fund
did
any
on
proceeds $14.4
deposited
in net
escrow
and
proceeds
Fund’s
sold the
NAy. The
685,679
shares shares sold
in
realized of
gain
from
million net
proceeds
received
was $10.4
$9.0
million
million.
The Fund
realized the
also
Mentor
Graphics
$5.0
receiving million.
proceeds
also sale
of approximately
received
and
a
gain
on of
of
approximately escrow
in
The Fund
the
approximately
in
$300,000
in
from
release
money
held
connection
realized
with
Fund’s
of
its
investment
BlueStar
2004
(see
below).
The Fund
ShopEaze removed
of
losses
on $6.0
CBCA of
million.
approximately
received
$12.0 no
million,
Phosistor
of approximately companies
the
fair
$1.0
they the
million
and
approximately
the
The Fund
proceeds
from
these
and
of
have Fund’s
been
from
Fund’s
portfolio.
The Valuation Committee
and
as a
result,
previously losses
decreased were
offset
value
investment
losses. zero
in these
companies
the net effect
to zero
the the
realized
by
reductions
in unrealized
Therefore,
fiscal
of
the
transactions 31,
on
Fund’s
consolidated
statement
of
operations
and
NAV
was
for the
year ended
October
2005.
For
the
Year
Ended
losses losses
October
31,
2004
October October
31, 31,
Net Fund’s ("PTS
realized
for the for the
year ended
2004 2004
were were
$37.8
million.
The
significant
components
Inc.
of
the
realized
year ended
transactions
with
PTS Messaging,
Inc.
Messaging"),
Inc.
Ishoni
Networks,
Inc.
("Ishoni"),
Synhrgy
HR
Technologies,
("Synhrgy"),
BlueStar and
DataPlay,
("DataPlay").
The Fund
initial
had
a return
of
capital
from and
PTS
a
Messaging
with proceeds
totaling
approximately $11.6
million.
$102,000
from
the
and
the
final
disbursement no
longer
of
assets
realized in
loss totaling
approximately
As
of
October31, decreased
the
2004
fair
Fund of
held an investment investment
in
PTS
Messaging.
to zero.
The Valuation Committee
previously
value
the
Fund’s
PTS
Messaging
33
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
The Fund
the dissolution
also
realized
a loss
on
Ishoni the
fair
of
approximately
has the
$10.0
million.
The Fund
the
received portfolio.
no proceeds
from
of
this
company
decreased
and
the
investment
value
been
removed
from
Fund’s
The Valuation
Committee There Synhrgy
in
previously
of
Fund’s
investment from
in Ishoni
to zero.
was
a
gain
of $39,630
the
representing early
proceeds
received
the
cashless
exercise
of
the
Fund’s
warrants
of
conjunction with 2004,
repayment
by Synhrgy
Inc.
of the
balance
of Synhrgy’s
the for
credit
facility.
On August
BlueStar amount
in a
26,
Affiliated
Computer
Services,
"A
$4.5 that the
acquired
million
Fund’s
portfolio
company The
of
the a value
cash
transaction.
The Fund
to
received
approximately payments
a loss
its
investment
in BlueStar. carrying
received
included up was
$3.0
$459,000
in contingent
were
held
in
escrow.
The
BlueStar investment decrease by
$1.1 in unrealized million. After
million. the the
The Fund
amount.
longer
realized
of approximately
transaction
$8.8 the
million,
which
was
offset
by
loss the
by
same
The
effect
of
on
Fund was an
increase
in assets
sale,
Fund no
entered
held
an investment
in BlueStar.
On August
preferred shares legal
29,
2004,
the Inc.
Fund
into
a transaction
pursuant
the assets
to
which
it
received out
602,131
Series in late
A�I
2003.
of
DPHI,
Fund’s
("DPHI"), with
the
which
purchased were
in
of DataPlay $20,000.
of bankruptcy
shares
The
Fund’s
in
fees
in
connection
transaction notes
approximately
The
of
DPHI
were
received
exchange
for the
seven
promissory
the the
DataPlay.
The 2,500,000
loss zero.
shares $7.5
of DataPlay
million.
Series
D
loss
Preferred previously
Stock were been
removed
from
books
net
of the
Fund
the
for a realized
of
The
unrealized
had
recorded
therefore,
effect
of
transaction
was
Unrealized For on
Appreciation Years
and Depreciation
31,
of 2005
Portfolio
Securities
the
Ended October
of $38.3 on
portfolio
2006,
and
2004.
The Fund had
October
31,
a net
change
in unrealized a net
appreciation in 31,
portfolio
investments
appreciation
million
for the
year ended of $23.8
2006.
The Fund had
for the
change
unrealized
investments
million
and $49.4
million
years
ended
October
2005
and
2004,
respectively.
For
the
Year
Ended
had
31, a net
October
31,
2006
appreciation
The Fund
ended October
31,
change The
in unrealized
on
portfolio
investments
of $38.3
million
for the
year
2006.
change
in unrealized
appreciation
on investment
decision stock
transactions to increase
for the the
fair
year ended
value
October
2006
primarily
resulted stock
from
the
Valuation Committee’s
million,
of
the
Fund’s
Turf’s
investments membership Ohio $5.0
in Baltic interest stock
common
$9.2
by $11.6
$2.0
Dakota
common
by approximately
interest million,
$2.6
million,
by approximately by
million, Inc.
million,
Octagon’s
preferred stock
membership
stock
by approximately $562,000,
Foliofn preferred stock stock
common
million,
ProcessClaims
by
$4.8
by
Vendio
$3.5
Services,
("Vendio")
preferred
by $700,000,
and
Vitality also
common
to
and
the the fair net
warrants by value change caused of
the
million
and
$400,000,
in
respectively.
The Valuation Committee
stock
decided
decrease of
to the
Fund’s
investment
appreciation
Timberland were
the
common
million the $4.8
by
$1.0
million.
Other
key components from
unrealized
in unrealized
$2.5
depreciation million
reclassification
realized of
by
the
removal
of
Yaga and Lumeta and
books.
appreciation
reclassification
from
sale
laims[h from
For
the
the
Fund’s
Year
Ended
had
31, a net
October
31,
2005 on investments of $23.8
million for the
The Fund
ended October
31,
change
in unrealized
appreciation
portfolio
year
2005.
primarily
The change
resulted
in unrealized
appreciation
on investment
transactions to
for the increase
year ended
fair
October Fund’s Vendio
the fair
2005
from
the
Valuation Committee’s Dakota by $514,000, by $1.85 change
determinations
the
value $7.5
of
the
investments
Services,
in Baltic
by
$1.5
million,
Octagon
million
by $1,022,638, and
Vitality
Sygate by
million, in
Inc. these
("Vendio")
portfolio
by $1,565,999,
Vestal in a
by $700,000.
The
increase
value
of
investments were
gain
resulted the
in unrealized million
appreciation gain in
of approximately
sale
$14.7
million.
Other
key
a
components $5.0
million
realization sale
of a $10.4
the
on
the
of
the
Fund’s
the
investment
depreciation
in Sygate,
on
the to
of
Fund’s by
investment
the
Mentor
Graphics, Phosistor
$19.0
million
reclassification
from
the
unrealized
realized
caused
removal
of
CBCA,
in
and ShopEaze Arcot Systems,
from
Inc.
the
Fund’s
books
and
$500,000 being
decrease below
in unrealized cost.
caused
by repayment
full
of
the
("Arcot")
loan
which
was
carried
34
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
l[
For
the
Year
Ended
October
31,
2004
for the transactions
Net change
in unrealized
in unrealized
appreciation
year ended
for the to
October year ended
realized
31,
2004
was
31,
$49.38 2004
the
million. resulted
The
net
change
the
appreciation reclassification
on investment from
Ishoni, also
October caused
mainly from of
$37.8
assets
million
unrealized
depreciation
loss
by
sale
or
disbursement
from
PTS
This
Messaging,
net
Synhrgy,
resulted in
BlueStar and DataPlay
the determinations
(See Realized
of the
Gains and
Losses on
to
(i)
Portfolio the million,
Securities).
fair
decrease
from
Valuation Committee by $5
million,
increase
value
of the $1.5 the
Fund’s
investments Vendio
of the
0�In
Design and
Automation,
Integral
Inc.
("0�In")
Sygate
by
$1.5
BlueStar by
(ii)
million, fair
by $634,000 Fund’s
Development Networks,
Corp.
Inc.
("Integral")
by $989,000 by $1,000,000,
and
decrease
value
investments by $500,000. 0�In and
for
in Actelis
("Actelis")
CBCA by
$500,000,
and
Sonexis,
Inc.
("Sonexis") investment
tradable $3.0 in
The Fund
these shares,
also
sold
its
685,679
daily
shares at
of Mentor
price. cost
Graphics
in a tax�free 31,
exchange.
these shares
Of
had
0�In’s
603,396
gain
at
are
freely
valued
market Fund’s
As of October
in
2004
an
unrealized value
of approximately October
31,
million
above
the
basis
0�In
and $6.0
million
above
carrying
2003.
Portfolio
Investments Years 2006
For October $115.3 $275.9
the 31,
Ended October
and
at
31, 31,
2006
and 2005. was $286.9
The
cost
of
the
portfolio
investments
held
by
the
Fund
of
at
October
2005 of
million
and $171.6
at
million, 31,
respectively,
an
increase 31,
million. million
The aggregate
and $122.3
securities
fair
value
portfolio
investments
increase
October
2006
and
at
October
2005 market
was
value
million,
respectively,
an
of $153.6 and
at
million.
The
31,
cost
and was
aggregated $0 and $51
of short�term
respectively, a
held
by
the
Fund
at
October31,
cost
2006
October
value
2005
million, held increase
decrease of $51
31,
million.
at
The
31,
and aggregate was $66.2
market
of cash
and cash
equivalents
by
the
Fund
at
October
2006
and
October
2005
million
and
$26.3
million,
respectively,
an
of
approximately
$39.9
million.
For
the
Year
Ended
October
31,
2006
31,
During
the
year ended $142.1
October
2006,
the
Fund made made
in
sixteen
new
($11.6
investments, million),
committing
capital
totaling
approximately
($5.0 million),
million. ($15.0 ($6.0
The investments
million), million),
were
Turf
SO!
($8.0
($5.0
million),
Henry
BM
Auto
Storage PreVisor
Canada
($6.0
($6.0
million),
Phoenix ($14.0
million),
Harmony
million),
($200,000), Velocitius ($15.0
Total
Safety
million), ($17.0
Marine
million),
BP
($15.0
($66,290),
Summit ($16.2
million),
Octagon
million),
BENT
($2.0
million),
and Innovative Brands
million).
The Fund
approximately Dakota
also
made
eight
follow�on During
the
investments year ended
shares
in existing
portfolio
companies
committing
capital
totaling
$24.2
million.
October of
31,
2006,
stock
the
Fund
invested price a
approximately of
$5.11 million repaid per
$879,000
in
by purchasing
22,
an
the
additional
172,104
a
common
at
an average form
12, of
share.
On
bridge
December
note. Baltic
2005,
Fund made
drew
follow�on
$1.5
all
investment from
interest.
in Baltic note. note
in the
$1.8
revolving
the
immediately
the
down
million
the
On January
matured
2006,
Baltic 31,
amount
drawn removed
from
note
the
in
full
including
unpaid
12,
The
the
on January
2006
and has been
loan.
from
28,
Fund’s
the the
books.
On January
Baltic
5,
2006,
Fund provided
bridge
SGDA
note.
a
$300,000
bridge
On down
all 6,
March
$2.0
2006, from
Fund
note.
provided
a
$2.0
million repaid
revolving the
Baltic the
immediately
note in
full
drew
including
million
interest.
On
April
2006,
30,
Baltic
amount
drawn
from
the
unpaid
the the
The
an
note
matured
on
April million
2006
and has been
in the in
removed
a
from
Fund’s
books.
On
April 25,
2006,
Fund Fund
invested
additional additional
$2.0
in
SGDA
a
form of
preferred
equity
security. 30, the
On
April the
2006,
purchased
$2.5 in million
an
common
in the
equity
security
SGDA
for
$23,000.
On June
4,
2006,
Fund
invested
in
Amersham
form of
second
lien loan.
On August
28,
2006,
Fund
invested
$750,000 investment 2006,
the
Harmony made
million million a
in the in the
form of
a
common
$1.0
stock.
On September
loan
2006,
million
the
Fund
made another follow�on
in Baltic
form of
million loan
million
bridge
and
$2.0
equity
investment. invested 20,
On
in the the
October form Fund
of
13,
Fund
$4.0
$10
in
follow�on
investment
million loan
in SP.
The $10
million
was
an
then
additional assigned
term
B and $6.0
million
in a to
mezzanine
loan.
On
October
2006,
$5.0
of SP’s
$8.0
term
B
Citigroup
Global Markets
Realty Corp.
On
35
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,2007
T
of
October
24,
2006,
26,
the
Fund
the
invested
an
additional
$3.0
million $2.9
in
SODA
31,
in the
form of
in the
a preferred
equity
security. equity.
On
October
also
2006,
Fund
a
invested
an
additional revolving
million
in Velocitius
form of
common
The
Fund
provided from
the
Velocitius note.
$260,000
note
on October
2006.
Velocitius
immediately
drew
down
$143,614 At balance
credit
the
beginning
of the
2006
fiscal year,
the
revolving
credit
facility
provided
to
SODA
had
an
outstanding
of approximately
$1.2
million. the
During Fund
December
the
2005,
SODA
have
the
drew
down
the
an
additional credit
$70,600
facility
from
the
facility.
On
the
April bridge
28,
2006,
increased above,
availability
under matured Fund’s from
all
revolving
April as 30,
by $300,000.
to the
The balance of
revolving
credit
loan
mentioned
bridge
which
eliminated
would
on
2006, of
was
added
facility
and 2005,
the
loan
was
from
books
the
a part
the
refinancing.
On December
approximately
21,
Integral the
prepaid
its
senior
credit
facility
Fund
in
full.
The Fund
received
interest.
$850,000 no
to
from
prepayment.
as a result
This amount of
the
included
outstanding
the
principal the
and accrued
the
The Fund
returned
recorded
its
gain
or loss for
prepayment.
Under
terms of
prepayment,
Fund
warrants
Integral
no
the
consideration.
Effective
December
junior July
27,
2005,
line
Fund exchanged
into
$286,200,
shares of
of
the
$3.25
stock
million at a price
outstanding, of the
of per debt
the share.
Timberland
result, as junior
revolving 31, line
of
credit
28.62
common
$10,000 funded
As
the
a
of
2006, of
the
Fund was
owned
reduced
478.62
common
shares to
of Timberland
and
under
revolving
credit
from $3.25
received issued
million
approximately $2.96
of Series that value has
million.
I
Effective in
December
for
5, its
31, rights
2005, under
the a
Fund
373,362
shares
E
preferred held
stock
of ProcessClaims,
exchange January
warrant
by ProcessClaims
increased see the the
fair
been
the for
by
the
Fund
since
May
in
2002.
On
2006,
the
Valuation
to $5.7
Committee
Please
of
Fund’s
entire
investment on
ProcessClaims ProcessClaims.
by
$3.3
million
million.
paragraph
below
more information
On January
membership
3,
2006,
the a
Fund
exercised
its is
warrant ownership an
in
Octagon of
the
which Fund.
the
increased
its
existing
interest.
As
result,
Octagon one of
now considered
Fund’s
the legacy
affiliate
Due
investment from
the
to
the in
dissolution totaling of
of
Yaga,
the
portfolio
companies,
31,
Fund
realized received
losses
on
its
Yaga
$2.3
million the
during
year
ended
in
October
has
2006.
The Fund
from
in the
no proceeds books. and
as a
dissolution
Yaga and
were on
Fund’s
investment
the
fair
Yaga
the
been
removed
Fund’s
to zero
The
result,
Valuation Committee
the
previously losses
decreased
offset the
value
of
Fund’s
investment
Therefore,
Yaga
net
Fund’s
realized the
by
reductions
in unrealized statement
losses. of
the
effect
at
of
the
removal 2006,
of was
Yaga from
zero.
Fund’s
books
Fund’s
consolidated
operations
and
NAV
October
31,
On February
received
24,
2006,
BP
repaid
its
second
lien loan $8.7 early
from
the
Fund
in
full.
The amount
all
of
the
proceeds
principal, as a result
from
the
prepayment accrued
was
approximately
fees
million.
This amount
fee.
included
outstanding no
gain
accrued of
the
interest,
monitoring
and an
prepayment
The Fund recorded
or loss
repayment. 2006,
the
On
realized
fair
April
7,
Fund
sold
its
investment
in
Lumeta However,
and,
for
its
then
carrying
value
of $200,000.
previously
The Fund
decreased by
the
a
loss
on
Lumeta of approximately $200,000.
investment
the in net
the as
Valuation Committee
realized in loss
value
of
the
Fund’s
Lumeta
effect
to
$200,000
the
a result, the
its
was
offset the
a reduction
in unrealized consolidated
losses.
Therefore,
of
Fund’s
zero.
sale
of
investment
Lumeta on
Fund’s
statement
of
operations
and
NAV
its
was
On
from and
the
April
21,
2006, was
BM Auto
taxes
repaid
bridge
loan
from
the
Fund
in
full. all
The amount
outstanding of
the
of
the
proceeds
received interest
repayment
net
approximately
withheld.
$7.2
million.
This amount no
gain
included
or loss as
principal,
accrued
was
of
foreign
The Fund recorded
a
a result
repayment.
related to the reduced.
On May
Fund’s
4,
2006, of
a
the
Fund
received interest
working
in Turf.
capital
adjustment
the
of approximately
cost basis
$250,000
purchase
30,
membership
As
a
result,
Fund’s
in the
investment
was
On May
agreement
to
2006, ProcessClaims, by
one of
the
Fund’s
legacy Inc.
portfolio
companies,
acquisition
entered
into
a definitive
be acquired
CCC
Information
Services
("CCC").
The
by
CCC
closed
on
36
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
June were
9,
2006.
As of June
$8.3
9,
2006,
the
Fund
received
net
proceeds
of approximately
or
$7.9
million.
The
were
not
gross
proceeds
into
approximately account
million year.
of which
to the
approximately
contingencies in
$400,000
associated
5%
not
of
the
gross
proceeds Fund
deposited
presently the
a reserve
for
one
Due
with
the
escrow,
factored
the
has
placed
any value
on
the
proceeds
total
deposited
escrow
and
has
therefore
such
proceeds
in a
into
Fund’s
gain
increased
NAy. The
$5.5
Fund’s
million.
investment
in
ProcessClaims
was
$2.4
million
which
resulted
capital
of
approximately
On
July
27,
2006,
SOT
repaid
their loan million.
from
the
Fund
in
full.
The amount
all
of
the
proceeds
received
from
interest,
the
prepayment
early
was
approximately
fee.
$4.5
This amount
gain
included a result
outstanding the
principal,
accrued
and an
prepayment
The Fund
recorded
no
or loss as
of
in
prepayment.
On August
from
the
25,
2006, was
Harmony
$207,444.
a result
repaid
their loan
from
the
all
Fund
full.
The amount
principal
of
the
proceeds
interest.
received
prepayment no
gain or
This amount of
the
included
outstanding
and
accrued
The Fund
recorded
loss as
prepayment.
credit
On August
term
loan
25,
2006,
SGDA’s
The
revolving
facility
was
added
to the
term
the
loan,
increasing
the
balance
of
this
of
the
by
$1.6
million.
revolving
credit
facility
was
eliminated
from
Fund’s
books
as a result
refinancing.
Effective
September
junior revolving 22,
12,
2006,
line of the into
the
Fund exchanged
into 40.91
$409,091, of
of
the
$2.96
stock
at
million a price
outstanding,
of
per the
the share.
Timberland
Effective junior
credit
shares
common
of
the
at
of $10,000 of
September revolving
line
2006,
credit
Fund exchanged
22.5 shares of the
$225,000,
$2.55
price
million
outstanding, per share.
Timberland
22, as
of
common
junior
stock
a
of $10,000
credit.
On
these
September
transactions,
2006,
Timberland
31, line
drew
the
down
$500,000
from
revolving
shares to
line
of
As
the
a result
of
of October revolving
2006, of
Fund owned 542.03 common was reduced from $2.96
Octagon of from
the million
of Timberland
and
funded
debt under
the junior
credit
approximately
$2.83
million.
On October
resulted realized in a sale
2,
2006,
bought�back Fund’s
sale.
a
total
of
15%
equity to
interest
from non�service
for
members.
This
of
a portion
LLC member
interest
Octagon
proceeds
of
$1,020,018.
The Fund
a gain
of $551,092 2006,
this
On October
the
2,
Octagon
the
repaid
their loan
and revolving
loan
credit
facility $5.4
from
the
Fund
in
full.
The amount
included
all
of
proceeds
received principal,
from
prepayment
interest,
of
the
was approximately
fee
million.
facility.
This amount The
outstanding as a result
accrued
and an unused
on
the
revolving
the
credit
Fund recorded
of
original
a gain issue
of
these
prepayments
of approximately
$429,000
from
acceleration
of
amortization
discount.
On October
Markets
20,
2006,
the
Fund
assigned
$5.0
million
of SP’s
$8.0
million
term
loan
B
to
Citigroup
Global
Realty Corp.
30,
On October
During investments membership
stock the
2006,
JDC
repaid
$160,116 2006,
the
of
principal
on
the
senior
subordinated
debt.
year ended
October
stock million,
31,
Valuation Committee Dakota
increased stock
the
fair
value
of
the
Fund’s
million, Turf’s
in Baltic interest million,
common
by
$2.0
by $11.6 Octagon’s
stock
million,
common
interest
by approximately
$2.6
membership
$5.0 million, stock
fair
by approximately
preferred $3.5 stock
$562,000,
Ohio
by $9.2
stock
Foliofn million
preferred
by
Vendio
by $700,000, and
ims
common
respectively.
preferred In
by
$4.8
and
to
Vitality cost
common
and
and warrants by of
the loans to
million
$400,000,
Impact, to the
addition,
increases Turf,
recorded Marine,
the
basis the
value
Amersham, BP,
stock
JDC,
receipt
Phoenix, of
31,
SP, Timberland, payment 2006,
the the in
Summit and
totaling
Vitality
and Marine
$2.2
preferred
were
the
due
kind
interest/dividends allocation
approximately income
million. the
Also during
equity
year ended
in
October
undistributed
of flow through Fund’s
from
Fund’s
investment During
the
Octagon
increased
cost
basis
and
fair
value
of
the
investment
the
fair
by approximately
value
$279,000.
equity
year ended
in
October by been
31,
2006,
$1
the
Valuation
Committee
in
fair
also
decreased
of
the
Fund’s
investment
Timberland income
has
million.
The
the
increase
value
from payment
in
kind
interest/dividends
and
flow through
approved
by
Fund’s
Valuation Committee.
37
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
At October $275.9
exclusive million
31,
2006,
a cost
the
fair
value of of $286.9
all
portfolio
investments, 31,
exclusive
of
fair
short�term value of
all
securities, portfolio
was
investments,
with
basis
million.
At October with
2005,
basis
the of
of short�term
securities,
was $122.3
million
a cost
$171.6
million.
For
the
Year
Ended October
year ended $48.8
31,
2005
31,
During
the
October
2005,
the
Fund made made
$10.5
in
six
new
investments, SP,
committing and
capital
totaling
approximately amounts
million.
The investments
million, $5.8
were
JDC,
SGDA,
$10
BP, Ohio $17
Amersham. The
$2.5 million
invested
were
$3.0
million,
million,
million,
million
and
respectively.
The Fund
approximately Timberland
treasury July
8,
also
made
three In
follow�on
investments 2004
bridge
in existing
portfolio the
companies
invested a
committing
total
capital
totaling in
$5.0
million.
December
and January
notes.
2005,
15,
Fund
the
of $1.25 146,750
stock to the
million shares
in the at the
form of subordinated
the
On
in
April
2005,
Fund re�issued
shares note. the
of
its
stock
Fund’s
NAV
per
share
of a
$9.54 $3.25
the
exchange
junior
for
40,500
of
common
to
of
Vestal. the
On
note,
2005
Fund
extended drew
Timberland
$1.3 million
million revolving
revolving
According proceeds
interest. note.
terms of
the 29,
Timberland
bridge notes invested
immediately
in
full.
from
all
note principal a
and
used
repay
July
subordinated 2005,
the
The repayment
included
in
outstanding
in the
and accrued
On
Fund
an
additional
$325,000 drew 2005.
$1.5
Impact
form of
senior
secured promissory
credit facility
In repaid
April
it
2005,
Octagon
million
from
the
secured
provided
to
it
by
the
Fund and
in
full
during June
During Fund.
2005,
SGDA
31,
drew 2005,
approximately
all
$1.2
million the
from
the
revolving
credit
facility
provided
to
it
by
the
As of October
July 14,
amounts
drawn
from
facility
remained an
outstanding.
On
2005
the
and
September
note
28,
2005, Timberland above.
drew
additional
$1.5 the
million note
and
$425,000,
in
full
respectively,
from
revolving
mentioned
As of October31,
2005,
was drawn
and
the
balance
of $3.25
million
remained
outstanding.
Also,
during
the
year ended
proceeds. In
October
addition,
31,
2005,
the
Fund
$1.6
sold
its
entire or
investment
in
Sygate from
and
the
received sale the
$14.4
million in not
in net
approximately one
million to the
10% of proceeds
such
were escrow, Fund’s
sold the
deposited
an escrow
place
account on
for the
approximately proceeds
year. in
Due
escrow
contingencies did not factor
associated
with
Fund
did
any value
gain
deposited
in net
and
proceeds
into
the
NAy. The
685,679
shares to the sold
realized
from
the
$14.4
million
proceeds
of
received
was
$10.4
million.
The Fund
a realized the
also
shares of
of Mentor
Graphics
$5.0
receiving million.
net
proceeds
also
approximately $9.0
million
and
gain
on
the
approximately of
BlueStar.
The Fund
received
approximately $300,000
from
escrow
related
2004
sale
The Fund
ShopEaze removed
realized
losses
on
$6.0
CBCA
million.
of approximately
$12.0 no
million,
Phosistor
of approximately companies
the fair the
$1.0
they the
million
and
of approximately from
the
The Fund
received
proceeds
from
these
and of
have Fund’s
been
Fund’s
portfolio.
The Valuation Committee
Therefore, fiscal the net
previously
decreased
transactions
value
investments
statement of
in these
companies and 2004,
to zero. for the
effect
of
the 31,
on
zero.
Fund’s
consolidated
operations
NAV
year ended
Inc.
October
2005,
was
On December
in
full.
21,
Determine
the
Software, received
("Determine")
the
prepaid
its
senior
credit
facility
from
the
Fund
The
amount
all
of proceeds
outstanding Series
Fund
from
repayment Under
was
the
approximately terms
of the
$1.64
million.
This
the
amount
returned
included
its
principal
and accrued
for
interest.
early
repayment,
Fund
2,229,955 2005,
the
C
warrants
no
consideration.
On
received
July
5,
Arcot prepaid was
its
senior
credit
facility
from
the
Fund
in
full.
The amount
all
of proceeds
the
Fund and
from
repayment Under
the
approximately
the early
$2.55
million. the
This amount
returned
included
its
outstanding
to
principal
accrued
interest.
terms of
repayment,
Fund
warrants
Arcot
for
no
consideration.
The Fund
payments
continued
the
to receive
principal
repayments 2005,
on
the to
debt
its
securities
of
Integral
and BP.
totaling
Integral
made
during
year ended
October31,
according
credit
facility
agreement
$1,683,336.
BP
38
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
made two
repayment During investments was
the
quarterly
payments debt
during
the
year
ended
totaling
$833,333.
Also,
the
Fund
received
a
one
time,
early
on
Vestal’s
securities
totaling
$100,000.
the
the
year ended by
October
31,
2005,
Valuation Committee Octagon and by
increased $1,022,638,
the
fair
value
of
$7.5
the
Fund’s (which
in
in Baltic
$1.5
million,
Dakota
by $514,000,
Sygate
by
In
million
later realized), cost loan the basis
Vendio
fair value loans
by of
$1,565,999, the
Vestal loan, of
by $1,850,000 Impact
loan, in
Vitality
by $700,000.
Vitality
addition,
increases stock,
and
Octagon
Timberland kind"
loan,
Series totaling
A
preferred
JDC
and
SP
were
due
to the
receipt the
"payment
ldividend
of flow through investment
exclusive
$1,370,777. from
the
Also
equity
during
year ended
in
October
increased
31,
2005,
cost
undistributed
allocation of the
income
Fund’s
investment
Octagon
the
basis
and
fair value
by $114,845. of short�term of
all
At October $122.3
exclusive million
31,
2005,
a cost
the of
fair
value
of
all
portfolio
investments, 31,
securities,
was
with
$171.6
million.
At October
million
2004,
the
fair
value
portfolio
investments,
of short�term
securities,
was
$78.5
with
a cost
of $151.6
million.
Portfolio
Companies
the
During
year ended
October
31,
2006,
the
Fund
had
investments
in the
following
portfolio
companies:
Actelis
Networks,
Inc.
Actelis control
Networks,
Inc.
("Actelis"), to secure the
Fremont,
integrity
California, of
a
legacy
investment,
provides
authentication
and
access
solutions
designed
31,
e�business Fund’s
in Internet�scale
and
wireless
environments.
of
At October
Series
2005
and
October
31,
2006,
million.
the
investment
in Actelis assigned
consisted a
fair
150,602 of
$0.
shares
of
C
preferred
stock
at a cost
of $5.0
The investment
has been
value
Amersham Amersham
the
Corp. Corp. ("Amersham"),
furniture, security Louisville,
Colorado, device
is
a
manufacturer
of
precision
machined
components
for
automotive, During
and
medical
markets.
fiscal $2.5
year 2005
in
the
Fund made an investment
notes, bearing face
in
Amersham. The Fund’s
at
investment have
in
Amersham
date
consists
of
million
purchased
annual and
interest cost
10%. of
The
notes
a maturity
of
June
29,
2010.
The
notes
have
a principal
amount
basis
$2.5
million.
On June
$2.5 million to
30,
2006,
the
Fund
made an
interest
1,
additional
at
investment
30, steps to
in
Amersham
to
consisting 30,
of an
additional rate then
1,
note bearing annual
for the
16% from June
June
period 30,
2006
June
to 30,
2008.
The
period
interest July
steps
down
2012 June
14%
steps
period
again
July to
2008
to
2010,
1,
down
June of
13%
for the
2010
to date
June of
30,
and
30,
down The
12%
for the
July
2012
cost
2013.
The
note
has
a maturity in the
2013.
cost
note
has
a principal
face
is
amount
to the
and
basis
$2.6
million. in
The
kind"
increase interest.
outstanding increases
balance,
and by
fair the
value
of
the
loan,
due
capitalization
of "payment
These
were
approved At October
Fund’s
Valuation Committee. had combined and value
31,
2006,
the
notes
a
outstanding
balance,
cost
fair
of
$5.1
million.
Auto
MOTOL BENI MOTOL BENT
in the
Auto
side
("BENI"),
Republic.
consists
of two
leased
Ford
sales
and
service
dealerships
located
in the
western
of Prague,
Czech 2006
On October
cost
10,
the
Fund made an investment
in
BENI
by purchasing
200
shares
of
common
stock
at
a
of
$2.0
million.
At October
31,
2006,
the
Fund’s
investment of
in
BENT
was
assigned
as
a cost
and
fair
value
of
$2.0
million.
Christopher
Sullivan,
a representative
the
Fund,
serves
a director
for
BENT.
39
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Baltic
Motors
Corporation Corporation
Purchase, parts
lti Motors
sale
("Baltic"),
New
York,
is
a a
of Ford
and
Land Rover
2005,
the
vehicles
and
throughout
in Baltic of $4.5
Latvia,
company focused on the importation member of the European Union.
U.S. of 54,947
shares
and
At October31, $6.0 and
million earns
Fund’s
loan
investment
a cost
consisted million.
of
common
date
stock
at
a cost 24,
of
and
a
mezzanine
at
with
basis
The
loan
has
a maturity
of June
2007
interest
10%
2005,
per
annum. investment
in Baltic
At October31,
the
was
assigned
a
fair
value
of $12.0
million.
On December
drew
22,
2005, from
the the
Fund extended
note. note
to
Baltic
12,
a $1.8
million
revolving the
bridge
note.
Baltic
immediately
note in
full
down
$1.5
million
On January
ended on
2006,
31,
Baltic
repaid
amount removed
drawn from
from
the
the
including
all
unpaid
28,
interest.
The
Fund
note.
January
2006
and
has been
Fund’s
books.
On March down
all
2006, from
the the
extended
to Baltic
5,
a $2.0 Baltic
million the
revolving amount
bridge
note.
Baltic the note
immediately drew
in
full
$2.0
million interest.
On
on
April April
2006, 2006
repaid has
drawn from of
the
from
including
unpaid
The
note
ended
30,
and
been
removed
Fund’s
stock
books.
at a of at
$2.0
On September 28, 2006, the Fund purchased an additional million. The Fund also extended to Baltic a $1.0 million
date of
5,737
bridge
shares loan.
common
loan bears
cost
The
annual
interest
12% with
a maturity
December
27,
2006. 2006, Valuation Committee of
the fair value
at
During investment $21.2
the
year ended
October
31,
the
increased
the
of
the
Fund’s was
equity
in Baltic
by $11.6
million.
The
fair value
Fund’s
equity
investment
October
31,
2006
million.
At October Michael
Baltic.
31,
2006,
the
Fund’s
the
investment and
in Baltic
was
assigned
a fair
value
of $26.7 of
the
million. serve as directors for
Tokarz,
Chairman
of
Fund,
Christopher
Sullivan,
a representative
Fund,
BP
Clothing,
LLC LLC
Phat(R), ("BP"), a line
BP
Clothing,
Pico of
Rivera,
California, clothing.
is
a
company
which
designs,
manufactures,
markets
and
distributes,
Baby
3,
women’s
initial first
On June
annual
interest has
2005,
at
the
Fund made an
plus
investment year and
in
BP
consisting interest
at
of
a
$10
million
second
of
lien loan the four
bearing
term.
LIBOR
8%
for the
variable
rates
for the basis
remainder
year
The
basis
loan
a
$10.0
million
principal
face
amount
loan
and was
origination
issued fees
a cost
of $10.0
is
million.
The
loan’s
cost
was
subsequently
principal
discounted
to reflect
received. the
The Fund
scheduled balance
to receive
quarterly
repayments
24,
totaling
$625,000
per
quarter
with
remaining
the
principal
due of
upon
the
maturity.
On February
received
2006,
BP
repaid
its
initial
second
$8.7 early
lien loan million.
from
Fund
in
full.
The amount
all
proceeds
from
the
prepayment accrued 2006,
a
was
approximately
fees
This amount
fee.
included
outstanding
principal,
accrued
interest,
monitoring
and an
to
prepayment $10 was
On
14%.
cost July
July
19,
the
Fund extended
million
BP
face
a
subsequent amount
loan
million issued fees
second
at a cost
lien loan basis
bearing
annual
interest
at
The
basis 18,
loan
has
$10.0
principal to
was 2012.
subsequently
discounted balance Fund
at
is
reflect
igi
$5
million
and
of $10.0
million.
The
loan
loan’s
is
received.
The
maturity
date
of
the
The
principal
due
upon
at
maturity.
On
loan
July
20,
2006,
the
purchased
a discount or
in loan
assignments
in
BP.
The $3
loan
million
term
A bears
annual
at
interest
LIBOR
6.40%
loans
plus or
4.25%
Rate
Prime
Rate
plus
3.25%.
interest
The $2
million
term
loan
B
bears
is
annual
the
interest
LIBOR
plus
Prime
plus 18,
5.40%. 2011.
The
rate option
on
the
assignments
at
borrower’s
discretion.
Both
mature
on
July
On September
increase in the
29,
2006,
the
Fund
received
a quarterly
fair
principal the loans
is
payment due
for
term
loan
A
of
$90,000.
loan
The
fees
outstanding
balance,
cost
and
value
of
to the
amortization
of
origination
40
Source:
MVC CAPITAL,
I
10�K,
January
10,
2007
T
of
and
the
capitalization
of
"payment
in
kind"
interest.
These
increases
were
approved
by
the
Fund’s
Valuation
Committee. At October and
loan
31,
2006, had
the a
loans
had
a
combined
value
outstanding million.
balance
and
cost
basis
of $14.7
million.
The
loan
assignments
combined
fair
of $14.9
Dakota Dakota dry
pasta
Growers
Pasta
Company,
Inc.
Growers North
Pasta
Company,
and
a a
Inc.
("Dakota"),
r[Q
label to
North
Dakota, and
is its
the
third
largest in
manufacturer Dreamfields found
of
in
America
market
process
leader that
is
in private
sales.
Dakota number
partners
DNA
Company, LLC introduced
traditional pasta products.
new
designed
reduce
the
of digestible
carbohydrates
in
At October of
$5.0 million
31,
2005,
the
Fund’s
fair
investment of
$5.5
in
Dakota
consisted
of 909,091
shares
of
common
stock
with
a cost
and
assigned
value
million.
During an average
Effective
the price
year ended of
$5.11
October
per share
31, or
2006,
the
Fund purchased
$879,000.
the
an
additional
172,104
shares
of
common
stock
at
approximately 2006,
original
January
to the
31,
2006
and
April
30, the
Valuation Committee
or
increased $6.07.
the
fair
value
of
the
fair
newly
value
purchased
the
shares
carrying
value
of
shares
approximately $164,000.
the value
The
increase
in the
of
newly
purchased
July
shares
over
the
their cost
was
approximately
increased
Effective
31,
2006,
Valuation Committee
fair
of the
investment
by approximately
$900,000.
Effective
October31,
$1.5 million.
2006,
the
Valuation Committee
increased
the
fair
value
of
the
investment
by
approximately
At October
cost of $5.9
31,
2006, and
the
Fund’s
fair
investment value Fund, of $9
in
Dakota
consisted
of
1,081,195
shares
of
common
stock
with
a
million
assigned
million.
Michael
Tokarz,
Chairman
of
the
serves
as
a director
of Dakota.
DPHI,
Inc.
(formerly ("DPHT"),
lay,[h
Inc.)
DPHI,
consumers
Inc. to
Boulder, Colorado,
play digital content.
a
legacy
investment,
is
trying
to
develop
new ways of enabling
record and 2005
At October
Series
31,
and October
with a cost
31,
2006,
$4.5
the
Fund’s
investment
in has
DPHT
been
consisted
of 602,131
a fair
shares of $0.
of
I[h
preferred
stock
of
million.
This investment
assigned
value
Endymion
Systems,
Inc.
Endymion Systems,
strategic, to drive
Inc.
("Endymion"),
business
Oakland,
solutions
California,
a legacy to help
its
investment,
is
a single
source
supplier
for
web�enabled, growth and
end�to�end
designed
customers
leverage
Internet
technologies
increase
productivity.
At October of
Series
31,
2005
stock
and October31, with
a cost
2006,
$7.0
the
Fund’s
investment
in has
Endymion
been
consisted a fair
of 7,156,760 value of
$0.
shares
A
preferred
of
million.
The investment
assigned
Foliofn,
Inc.
Foliofi2, Inc. offers
investment At October
"F
solutions 31,
Vienna,
Virginia, services
a
legacy
investment, investors.
is
a financial
services
technology
company
that
to financial
firms
and
2005
and October with
fair at
31,
2006,
the
Fund’s During
investment
the
in Foliofi
consisted
of 5,802,259
the
shares
of
Series
C
preferred
stock the
a
cost
of $15.0 of
the
million.
year ended
October31, by
$5.0
2006,
million.
Valuation
fair value
Committee Fund’s
increased
value
Fund’s 2006
equity $5.0
investment
million.
in Foliofn
The
of
the
equity
investment
October
31,
was
41
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,2007
T
of
Bruce
Shewmaker,
an
officer
of
the
Fund,
serves
as
a
director
of
Foliofn.
Harmony Harmony
and
healthcare
Pharmacy
Pharmacy
centers
& Health & Health
primarily
in
Center,
Inc.
Center, airports
Inc.
in
("Harmony United
Pharmacy"),
States.
Purchase,
NY,
plans
to operate
pharmacy
the
The Fund
interest
at
invested
is
$200,000
callable
in
Harmony
at
Pharmacy Fund’s 750,000
in the
form of
a
demand
note.
The
note
bears
annual
10% and
4,
anytime
the
discretion.
On August On August
prepayment
gain or loss
2006
the
Fund purchased
repaid
shares
of
common
full.
stock
at
a cost
of $750,000.
received
25,
2006,
Harmony
the
its
demand
note
in
The amount
principal
of and
the
proceeds
from was
the
was
as
$207,444.44. of
This amount prepayment. Fund’s
a
included
all
outstanding
accrued
interest
There
no
a result
At October
cost of
31,
2006, was
the
investment
fair
in
Harmony
consisted
of 2
million
shares
of
common
stock
with
a
$750,000
and
assigned of
value
of $750,000.
a director
Michael
Tokarz,
Chairman
the
Fund,
serves
as
of Harmony.
Henry Company
Henry and
Company
chemicals.
("Henry"),
Huntington
Park,
California,
is
a
manufacturer
and
distributor
of
building
products
specialty
In
January
2006,
The Fund purchased
interest
at
the
$5
million
in loan
assignments on
April
6, 6,
in
Henry
term
bears
loan
A bears
annual
at
LIBOR
7.75% had
plus
3.5%
also
and
matures on
2011.
Company. The $3 The $2 million term
million loan
B
annual
interest
LIBOR
the
plus
and
matures
April
2011. and value of $5.0
million.
At October
31,
2006,
loans
a
combined
outstanding
balance,
cost
basis,
fair
Impact
Confections,
Confections, candies.
Inc.
Impact of
children’s
Inc.
("Impact"),
Roswell,
New Mexico
founded
in 1981,
is
a
manufacturer
and
distributor
The Fund’s investment
$2.7 $5.0 million million.
in
Impact
consists
of 252
of
shares
of
common
there
stock
at a cost
of $10,714.28 balance company.
$5.0
per
share
or
and
a loan
to
Impact
in the stock
form has
July
a senior
subordinated
status
if
note
is
with an
outstanding
of
The Fund’s
at
common
and
a preferred 30,
a liquidation
at
of
the
The
loan
bears
annual
loan’s
interest cost
17.0%
matures
on
2009.
The
loan
was
fees
issued received.
a cost
basis
of
million.
The
basis
was then discounted
2005, which
principal loan the
to reflect
loan
origination
On
July
29, note
Fund
made
a
$325,000
at
follow�on
plus a
investment
in
Impact
in the
form of
three cost
a
secured
term.
promissory
has a
bears face
annual amount
interest
LIBOR
issued
at
$325,000
and was
fees
4%. The promissory note has a cost basis of $325,000. The note’s
year
basis
The
note
was then
discounted
to reflect
origination
received.
At October
$2.7 million, the
31,
2005,
to
the
Fund’s
investment
outstanding cost
in
Impact balance of
the
consisted
of 252
million
shares
of
the
at
common
secured October
stock
at
a cost note
of
loan
Impact
with an
of $5.23
and
promissory
31,
with
an
outstanding
balance $5.13
of $325,000.
The
basis
loan
and promissory
31,
note the
2005
was and
approximately
secured
million
and $319,000, assigned Fund’s
respectively.
At October
million,
2005,
equity
investment,
loan
promissory note
31, loan
were
the
fair values
of
in
$2.7
$5.23
million
and of
$325,000
respectively.
At October
$2.7 million, the
2006,
to
investment
outstanding the loan
Impact balance
consisted
of 252
million
at
shares
common
stock
at
a cost note
of with
a
Impact
cost
with an
basis
of
$5.5 note the
and
the 31,
secured 2006
promissory
balance $5.39
note
of $325,000. and
The
of
and
promissory
31,
October
were
approximately promissory
million
$321,000
respectively.
At October
$5.5
2006, and
equity
investment, respectively.
loan
and secured
increase
were
assigned
fair values
of
$2.7
million,
million
$325,000,
The
in the
42
Source:
MVC CAPITAL,
INC.,
�K,
January
10,
2007
T
of
outstanding
capitalization
balance, of
cost
and
in
fair
value
of
the
loan
is
due
to
the
amortization
of
loan the
origination
fees
and
the
"payment and
kind"
interest.
These
increases
were
the
approved
serve
by
as
Fund’s
Valuation
Committee.
Puneet
Sanan
Shivani
Khurana,
representatives
of
Fund,
directors
of Impact.
Innovative
Brands,
LLC LLC
("Innovative personal care Brands"), products.
Innovative manufactures
Brands,
Phoenix,
Arizona,
is
a
consumer
product
company
that
and
distributes
The Fund purchased
annual
interest at
a
$15
million
loan
assignment
in 25,
Innovative Brands.
The $15
million
term
loan
bears
11.125%
and matures
on September
2011. and was value
of
At October $15.0
million.
31,
2006,
the
loan
had an
outstanding
balance,
cost
basis,
assigned
a
fair
Integral Development
Integral
Corporation Corporation
institutions ("Integral"), to
Development
for financial
Mountain
integrate
View,
California,
a
legacy
investment,
is
a
developer and
of technology
operations.
expand,
and automate
their capital
markets
businesses
At October $1.12
million
31, a
2005,
cost
the
Fund’s
investment
in Integral
consisted
of an
outstanding a fair value
balance
on
the
loan
of
with
of $1.12 October
million.
The investment
Integral as
had been
assigned
of $1.12
in
million.
During accrued
the
year ended
31,
2006,
gain
prepaid
a result for
its
outstanding the
loan
balance Under
the
full
including the
all
interest. the
The Fund recorded Fund
31, returned
its
no
or loss to
of
prepayment.
terms of
prepayment,
warrants
Integral
no
consideration.
As of October
2006,
the
Fund no
longer
held any investment
in Integral.
JDC
Lighting,
LLC LLC
("JDC"),
JDC
products.
Lighting,
New
York,
New
York,
is
a
distributor
of
commercial
lighting
and
electrical
The Fund’s 17% over
$3.0
a four
investment year
term.
in
JDC
loan
consists
of
$3.0
a
$3.0
million
senior face
subordinated amount and
fees
loan,
bearing annual
issued
at
interest basis of
at
The
has
a
million
principal loan
was
a cost
million.
The
loan’s
cost
basis
was
discounted
to reflect
origination
received.
At October was assigned
31,
2005,
the
loan
had an
million.
outstanding
balance
of $3.09
million
with
a cost
of $3.03
million.
The
loan
a fair value
of $3.09
On October
At October was due were assigned
to the
30,
2006, 2006, value
JDC
the
repaid
$160,116 an
of
principal.
31,
loan
had
outstanding
balance
in the
of $3.04
outstanding
million
with
a cost cost
of $2.99
fair
million.
The
loan,
loan
is
a fair
of $3.04
loan
million.
The
fees
increase
balance,
and
value
of
the
amortization
of
origination
and
the
capitalization
of "payment
in
kind"
interest.
These
increases
approved
by
the
Fund’s
Valuation Committee.
Lumeta Corporation Lumeta Corporation ("Lumeta"),
management,
security that
is
Somerset,
New
Jersey,
a
legacy
investment, businesses
is
a
developer
analysis intranets.
of network of
their
security,
and
to
auditing reveal the
solutions.
The company
and
provides
with an
network
designed 2005
stock
vulnerabilities
inefficiencies
of
in
their corporate
At October
Series
31,
and January and 266,846
31,
2006,
of
the
Fund’s
investment
stock
Lumeta
a
consisted
of 384,615
cost
shares
of
A
preferred
shares
Series
B
preferred
with
combined
of approximately
$406,000.
43
Source:
MVC CAPITAL,
INC.,
1
January
10,
2007
T
of
At October
of Series
31,
2005
stock
the
investments
were
assigned
per
a
fair
value
of
$200,000,
or
approximately
stock.
$0.11
per
share
A
preferred
and Fund
approximately $0.59
sold
its
share
of
Series
B
preferred
On
a loss
April
7,
2006,
the
investment
in
Lumeta
the
for
its
carrying
value
of $200,000.
previously loss
The Fund
the
realized
fair
on
Lumeta of approximately $200,000.
investment
in this the
However, $200,000
the
Valuation Committee
as a
result, its
decreased
offset the
value in
of
the
Fund’s
company
net effect
to
and
the
realized in
was
on
by
a
reduction
unrealized statement
losses.
Therefore,
of
Fund’s
sale
of
investment
Lumeta
Fund’s
consolidated
of operations
and
NAV
the
was
zero.
As of October
31,
2006,
Fund no
longer
held any investment
in
Lumeta.
Mainstream Mainstream
internet,
Data,
Data,
Inc.
Inc.
("Mainstream"), networks
digital for
Salt
Lake
City,
Utah,
a legacy
investment,
builds
and
operates text
satellite,
and
wireless
broadcast and and
information
to
companies. around
Mainstream
the world.
networks
deliver
news,
streaming
stock
quotations,
images
31,
subscribers
At October
31,
2005
a cost
October
2006,
the
Fund’s
investment has been
in
Mainstream
a
fair
consisted value
of 5,786
shares
of
common
stock
with
of $3.75
million.
The investment
assigned
of
$0.
Marine
Exhibition
Exhibition
is
Corporation Corporation
("Marine"),
Marine Seaquarium
Miami,
park.
Florida,
owns and
operates
the
Miami Seaquarium.
The
a
family�oriented 2006,
the
entertainment
On
11%. $10.0
July
11,
Fund
loan cost
extended
a
to
Marine
a
$10
million face
senior
secured and was
loan
loan issued
bearing annual
at
interest
at
The
senior
secured
loan’s loan
has
$10.0 was
million
principal
amount
a cost fees
basis
of
million. date plus
The
of
the
basis 30,
subsequently
discounted
also at
to reflect a
origination note million.
received.
The
at
maturity
is
June
2013.
to
The Fund
draw
extended
secured
the note
revolving
is
bearing
interest also the
LIBOR
$2.0 stock
is
1%.
into per
The amount
Marine annum. 2006,
the in the
available
down
stock,
any time on purchasing
$2.0
The Fund
rate
invested
million
rm[
of
preferred
2,000
shares.
The
dividend
on
preferred
12%
At October
$9.9 million.
31,
Fund’s
loan
senior
secured assigned assigned
preferred a
loan
fair
had
an
outstanding $10.1
balance
of $10.1
million
with
a cost
of
The The
and
senior preferred fair
secured
stock
was
value value
is
of
million. million.
drawn
balance,
upon.
cost
had been
loan
a fair stock,
of $2.0
to the
The secured revolving note was not The increase in the outstanding
of
loan the origination fees
value
of
in
the
and
due
amortization
and
the
capitalization
of "payment
kind"
interest/dividends.
These
increases
were
approved
by
Fund’s
Valuation
Committee.
Octagon Octagon
leveraged
Credit
Investors,
LLC LLC
bonds
in term.
Credit
Investors,
("Octagon"), through Octagon The
is
a
New
York�based debt
asset
loans
and
high
yield
collateralized
obligations
management company ("CDO") funds.
subordinated amount
a cost
facility
that
manages
The Fund’s
interest
at
initial
investment seven of year
consisted loan
of
a
$5,000,000
senior face
loan,
bearing annual
issued at a
15% over
cost a basis
a
has
a
$5,000,000
principal
and
basis
was
of
discounted also bears
$4,450,000. senior
The
secured 4%.
loan
included detachable
facility to
warrants with This
credit
$550,000. on
The Fund
2009 and
equity a
provided annual
$5,000,000
at
credit
Octagon.
a
expires
May
7,
and
interest fee
LIBOR
which
plus
The Fund Fund
receives the
050%
unused
facility
fee also
on an annual
basis
0.25%
servicing in
on
an annual
basis
for the
maintaining
a
credit
facility.
The Fund
in
made
a
$560,000
investment
Octagon
31, fair
provides
loan
membership balance
interest
Octagon.
with a cost
At October was
carried
at
2005, value
the
had an
million.
outstanding
of $5.15
million
of $4.56
million.
The
loan
a
of $4.66
44
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
At October
respectively. $1,069,457,
31,
2005,
the
equity
investment
and detachable
warrants
warrants had
assigned a
a
cost
basis
of $724,857
and and
$550,000
The
equity
investment
and detachable
were
fair
value
of $1,228,083
respectively.
On January
its
3,
2006,
the
Fund
in
exercised
its
warrant ownership
a
result,
in
is
Octagon
for
no
additional
cost
which
the
increased definition
existing the
membership
Act.
interest
Octagon.
As
Octagon
now considered
an
affiliate
under
of
1940
Effective
January
in
31,
2006,
the
Valuation Committee
determined
to
increase
the
fair
value
of
the
Fund’s
equity
investment The
for the
Octagon
basis
by $562,291.
fair value portion
cost
and
of of
the
equity
investment
was
also
increased
its
by approximately
interest "other in
$200,000
to
account was
Fund’s
allocated to
the
flow�through
income,
is
from
membership
the
Octagon,
which
not
distributed
members.
This flow�through
the $5.4
income and
recorded
by
Fund
as
income." of
On October
from
the
2,
2006,
Octagon
repaid
loan
credit
facility
in
full.
The amount
all
the
proceeds
received
prepayment and unused
was approximately
fee
million.
This amount recorded
of a
included
gain as
outstanding
principal,
accrued of
the to
interest,
on
the
credit the
facility.
The Fund
a result issue
of
these
prepayments
After this
approximately
$429,000
a
from
acceleration loan, cost
of amortization
original
discount. million
repayment, of
credit
Fund
extended
$5
million
term
discounted $3.75 2006,
for loan
fees, the
and
a
$12
revolving
line
Octagon.
Octagon
immediately on
2,
drew
down
2,
million
from of
revolving
line
of
a
credit.
The Fund
incentive
received fee of
two
distributions
from Octagon Also on October $1.02
October 2006,
a return
capital a portion
of $191,258 of
the
and
one
time
$100,411.
Octagon
repurchased
a capital
LLC
membership $550,000 on
the
interest
for
sale.
approximately
million.
The Fund
realized
gain
of
approximately
from
this
On October
At October
loan
30,
2006, Octagon 2006,
fair
repaid
$500,000
of
the
outstanding balance balance
line of
revolving
line
of
credit.
31, a
the
term of
fair
loan
had an
outstanding
of $5
credit
million
with
a cost
of $4.9
million.
The
was
assigned with
value and
$5.0
million.
The
revolving
had
an
outstanding
balance
of
$3.25
million
a cost
value
of $3.25
million.
At October value
of
31,
2006,
the
equity
investment
had
a
cost
basis
of approximately
$900,000
and was
assigned
a fair
$1.93
million.
i[Q
Medical
Corporation Corporation
as well as ("Ohio"),
Ohio
therapy
Medical
Gurnee,
Illinois,
is
a
manufacturer
and
supplier
of
suction
and oxygen
products,
medical
the
gas equipment.
invested
During
fiscal
year 2005, and
Fund
$17
business
million unit
and sponsored ("GE�SOT"), with
the
acquisition global
of General
supplier acquired
Electric’s suction
Ohmeda
oxygen
largest
Brand
therapy supplier,
Suction
products.
Oxygen Therapy On July 14, 2005,
a leading the
of
and
in conjunction Thc.
this transaction,
Fund
GE�SOT’s
Medical
Squire
l/Aeros[
in
Instruments,
and
merged
both
businesses
creating
Ohio
Corporation.
The
Fund’s
investment
Ohio
consists
of 5,620
shares
of
common
a fair
stock
with of $17
a
cost
basis
of
$17
million.
As of October31,
During investment
the in
2005,
the
Fund’s
investment 2006,
was
assigned
value
million.
year ended by
31, $9.2
October
million
31,
the
Valuation Committee
to
increased
the
fair value
of
the
Fund’s
equity
Ohio
from $17.0
basis
million
approximately of
the
$26.2
million.
As of October
$26.2
million,
2006,
the
cost
and
fair
value
Fund’s
investment
in
Ohio
was
$17.0
million
and
respectively.
Michael Hadani,
Tokarz,
Chairman of
the
of
the
Fund,
serve as
Peter
Seidenberg,
Chief
Financial
Officer
of
the
Fund
and David
a representative
Fund,
directors
of Ohio.
45
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Phoenix
Coal
Corporation Corporation
("Phoenix"), coal Madisonville,
Phoenix
Coal
sale
KY,
is
engaged
in
the
acquisition, in the
development, With
offices in
production and
Madisonville, coal
of bituminous
reserves
Illinois,
and
the
resources
located
is
primarily
Illinois Basin. small
Kentucky
projects
and Champaign, applying Fund
the
company
to
focused
on
consolidating
and medium�sized margins.
price of
mining
and
proprietary
technology
million shares
increase
efficiency
and
enhance
profit
On
April
4,
2006,
8,
the
purchased
I
of
common
666,667
stock shares
of Phoenix of
for a stock
purchase
of
$500,000. purchase
Also, loan bears
On June
price
2006,
Fund purchased
$500,000.
an
additional
common
Phoenix
for a
of approximately 2006,
at
on June annual
8,
the
Fund committed The
loan
to
Phoenix
$7.0
million loan
in debt.
The
first
$3.5
million
second
lien
interest
15%.
was
discounted
the
for the
origination
fees
received.
On
$3.5
July
26,
2006
the
Fund extended
also bears
to
Phoenix
remaining
at
portion maturity
of
the date
$7.0 for
million
commitment.
is
This 2011.
million
second
lien loan
annual
interest
15%.
The
both
loans
June of
8,
At October
31,
2006,
a
the
second value of
lien loan $7.1
had
an
outstanding increase
balance
in cost
of
$7.1
million
with the
a cost
is
$7.0 to the
million.
The
loan
was
assigned of loan
fair
million. the
The
and
in
fair
value
of
loan
due
amortization
origination
fees
and
capitalization
of "payment
kind"
interest.
These
increases
were
approved
by
the
Fund’s
Valuation
the
Committee. investment had
basis
At October
fair
31,
2006,
equity
a cost
of approximately
$1.0
million
and
was
assigned
a
value Bruce
of
$1.0
million.
Shewmaker,
an
officer
of
the
Fund,
serves
as
a director
of Phoenix.
Pre
Visor,
Inc.
PreVisor, related
Inc.
("PreVisor"), consulting
Roswell,
services.
Georgia,
provides pre�employment
testing
and assessment
solutions
and
professional
On May
Chairman
including
31,
2006,
the
Fund
invested
is
$6
million
in
PreVisor
in the
form of of
as
common
PreVisor.
stock.
Mr. Tokarz,
our
and
all
Portfolio
Manager,
a
minority not
non�controlling persons" of
shareholder the
Our board of
the
directors, (the or
of our
directors
who
are
"interested
Fund,
defined by
1940
a
Act
"Independent
Directors"),
approved
the
transaction
(Mr. Tokarz
recused
himself from making
determination
recommendation
on
this matter).
As of October
31,
2006,
the
common
stock
had been
assigned
a
fair
value
of $6.0
million.
ProcessClaims,
Inc.
laims,[h
solutions
Inc.
("ProcessClaims"),
services that
a
legacy
the
investment,
Manhattan
insurance
Beach, claims
California, process
provides web�based
insurance industry
and value
added
streamline
automobile
for the
and
its
partners.
At October
preferred Series stock value stock,
31,
2005,
the
Fund’s of
stock
investments
in
ProcessClaims
stock, cost
consisted
of 6,250,000
to
shares
of
Series
C
of
849,257
shares
Series
D
a
preferred
and of
$2.4
873,362
million.
warrants
purchase
873,362
Series
shares
E
convertible a
preferred fair value the
with
combined
the
The investment
in the stock
C
preferred a
fair
was assigned
of $400,000,
Effective
of $2.0
million, in the
investment
in the
Series
D
preferred
was
assigned
and
investment 2005,
Series
E warrants was assigned
the
a fair
value
of
$0.
December
31, in
in a cashless for
its
transaction,
Fund
received
373,362
shares that
of
Series
E
preferred the
stock
of
ProcessClaims
exchange
rights
under
a
warrant
issued
by ProcessClaims
has been
held by
Fund
since
May
2002. Fund’s by
$3.3
On January
investment
in
5,
2006,
the
Valuation Committee
million.
determined
to increase
the
fair
value
of
the
Fund’s
entire
ProcessClaims
46
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
During
March
2006,
the
Fund was
an
service share
granted officer
and of
the
accepted Fund,
50,000
as a
options director
to
purchase
shares
of
laims
options
common
granted
stock. for
Bruce
Shewmaker,
serves
of ProcessClaims.
The
were have
Bruce
price
Shewmaker’s of $0.32 per
on
laims[h board
an
expiration date
of of
directors. ten years
The
from
options the date
vested
immediately,
an
exercise
and have
of
grant.
Effective
April in
30,
2006,
the
Fund’s
Valuation Committee $760,000.
in
determined
to increase
the
fair
value
of
the
Fund’s
investment At
stock,
ProcessClaims 2006,
the
by approximately Fund’s investments
preferred cost
April
30,
ProcessClaims 373,362
shares
consisted
of 6,250,000
shares
of
Series stock
C
preferred
849,257
stock a
fair
shares options
of
Series a
D
stock, of
of
Series
E
convertible in the stock Series
preferred
and
50,000 was
of fair
common
assigned $831,000, valued
with of $5.2
combined
the
$2.4
million. in the
The investment
C
preferred a
fair
stock value
value
million, Series
investment
warrants
Series
D
preferred
was
assigned and
the
the
investment
in the
E
was
assigned
a fair value
of $446,000
options
were
at $9,000.
On May
agreement 2006.
to
30,
2006, ProcessClaims,
acquired
9,
one
of
the
Fund’s
legacy
portfolio
companies,
acquisition $7.9 gross
entered
into
a definitive
be
by
the
CCC
Information
Services
Inc.
").[h
or
The
by
CCC
The
were
closed
on June
9,
As of June
2006,
Fund received Due
net
proceeds
of approximately
million.
gross
proceeds
were
a
approximately
reserve
$8.3 for
million
of which
approximately
contingencies
$400,000
5%
not
of
the the
proceeds
the
deposited
not the
into
account on
the
one
year.
to the in
associated has therefore
with
escrow, such
Fund has
into
presently
placed
any
value
proceeds
deposited
total
escrow
in
and
factored $2.4
proceeds
Fund’s
gain
increased
NAV.
The Fund’s
$5.5 million.
investment
laims[h was
held
million
which
resulted
in a capital
of
approximately
As
of
October
31,
2006,
the
Fund
no
longer
any investment
in
ProcessCl
aims.
SafeStone
Technologies Technologies designed
PLC PLC
SafeStone with technology
security policies
Saf
access controls 31, of
Old
Amersham, UK,
the
a legacy
investment, enforcing
provides
organizations
to secure
across
extended
enterprise,
compliance
with
and enabling
31,
effective
management
2006,
the
of
the
corporate
IT and e�business
in has
infrastructure.
At October of
Series
2005
stock
and
October
a cost
Fund’s
investments
SafeStone been
consisted a fair
of 2,106,378 value of $0 by
shares the
A
ordinary
with
$4.0
million.
The investment
assigned
Fund’s
Valuation Committee.
SGDA
Sanierungsgesellschaft
Sanierungsgesellschaft
is
fur Deponien
fur
und Altasten
und
Altasten
mbH
mbH
("SODA"), Zella�Mehlis,
soil.
SODA
company
Deponien
Germany,
is
a
that
in the
business
of
landfill
remediation and of
revitalization
of contaminated bearing annual and was
in
The Fund’s
and
basis a half of
investment
term.
in
SGDA
consists a $4.6 a
a $4.6
million
term
face
loan,
interest at a
at
7%
over
a four
year
The term loan has The
loan
million
principal
amount
interest
issued
discounted
basis
cost
$4.3
million.
included
to
common
equity
ownership
SGDA
that
with
a cost
of $315,000.
at
The Fund
credit
also
made
expires
available
SODA
25,
a $1.3
million
revolving
credit
facility
bears
annual
interest
7%.
The
facility
on August 2005,
at
2006.
loan
At October31, term
loan
the fair
term value of
had an
$4.3
outstanding
balance
increase
of $4.58
cost in
million
with value
a cost of the
of
$4.3
is
million.
The
was
carried
a
of
the
million. loan.
The
in the interest
and
fair
loan
due
to the of
accretion
of the
market
is its
discount basis.
term
The
ownership
SGDA
has
been upon
assigned
the
a fair value credit
$315,000
facility.
which
cost
As of October
31,
2005,
SGDA
had
drawn
$1,237,700
revolving
During amount
December
under
2005,
line
SODA
of
credit
drew
an
additional million,
$70,600
the
on
the
revolving
line
of
credit. line
This brought
credit.
the
drawn
the
to $1.3
maximum
and
credit
available
under
the
of
Also during implied
interest
December
2005,
the
the
Fund
loan
did
not
accrue,
therefore
facility.
was
not
paid,
approximately
to a contractual
$23,000
in
owed from
SODA
and
revolving
This was
due
agreement
47
Source:
MVC
iTAL
INC.,
10�K,
January
10,
2007
T
of
(based
on
German
tax
provisions)
to
cap
this
the
interest
paid
by
SGDA
to
Fund,
there
in is
the
aggregate, credit
at
240,000
Euro with
in
any
given
calendar
year.
Despite
forgoing
interest
management
believes
no
risk associated
this
portfolio
company.
12,
On January
and had
a maturity
2006,
of
the
Fund
30,
extended 2006. an
to
SGDA
a
$300,000
bridge
loan.
The
loan
bore annual
interest
at
7%
date
April
On
interest.
April
6,
2006,
25,
the
Fund
the
invested
additional
$2.0
million
into
SGDA
in the
form of
in
a
preferred for $23,551.
equity
On
April
2006
Fund
purchased
the
an
additional
common
under
the
equity
interest
SGDA
On
balance
revolving July 31,
April
28,
2006,
the
Fund
increased above, loan
availability
revolving
credit 30, as
facility
by $300,000. added
The
of
the
bridge
loan
mentioned
the bridge
which was was
would
have from
in
full.
matured
the
on
April
2006, was
of the
to the
credit
facility entire
and
$1.6
removed drawn was
Fund’s
books
a part
refinancing.
As of
2006,
the
million
facility
On August
the
25,
2006
the
revolving
credit
facility
added
to the
term
loan
balance
assuming
the
same
terms
as
term
loan.
On October
interest.
24,
2006,
the
Fund
invested
an
additional
$3
million
into
SGDA
in the
form of
preferred
equity
At October term
loan
31,
2006,
a
the
fair
term
value
loan
had
an
outstanding
balance
of $6.2
cost
million fair
with value
the
a cost
of $6
loan
million.
is
The
the
was of
assigned market
of $6
the in a
fair
million. loan. has
The
These been
$5.0
increase
in the
and
of
the
due
to
accretion
the
discount of
interest
term
increases
were
a
fair
approved
value
by
Fund’s which
Valuation
is its
Committee.
preferred
The ownership
stock
SGDA
value
assigned
million.
of $338,551
cost
basis.
The
has been
assigned
of
Sonexis,
Sonexis,
Inc.
Inc.
("Sonexis"),
conferencing audio and
solution
�
Tewksbury,
Massachusetts,
Sonexis
ConferenceManager
to deliver
�
a a
legacy
investment,
is
the
is
developer
to
of
a
new kind of
a breadth
modular
platform
that
designed
support
of
web conferencing
31,
functionality
rich
media
conferencing.
At October
2005
cost
and
October
31,
2006,
the
Fund’s
investment
has
in
Sonexis
consisted
of 131,615 of
$0.
shares
of
common
stock
with a
of $10.0
million.
The investment
been
assigned
a fair
value
SIA BMAuto SIA
and
parts
BM
Auto
("BM
Auto"),
a
Riga,
Latvia,
is
a
company
focused
on
the
importation
and
sale
of
BMW
million
vehicles
throughout
Latvia,
member
of
the
European
Union.
shares loan
The Fund’s
sixty
investment
loan
in
BM Auto
basis
consisted
of 47,300
of
common
in
stock
full,
at
a cost
of $8
and
a
day
bridge
with
April
a cost
of $7.0
million.
The
was
repaid
including
all
principal
and
accrued
interest,
on
21,2006.
the
At October
31,
2006,
Fund’s
investment
in
BM Auto
was
assigned
a
fair
value
of $8
million.
SF Industries,
SP
research Industries,
Inc.
Inc.
("SP"),
Warminster, glassware
Pennsylvania,
is
a designer,
manufacturer, and and
marketer
of
laboratory
and
process
equipment,
and
precision
glass
components,
configured�to�order
manufacturing
equipment.
The Fund’s
mezzanine
face loan loan
investment
bears
in
SP
consists
at
of
a $6.5 a
million
mezzanine
term.
loan
and
a
$4.0
million has
term
a $6.5
loan.
The
principal to reflect
annual
issued received. million
interest
at
17% over
of $6.5 bears
seven
year
The mezzanine
loan’s plus
loan
million
amount
and
was
fees
a cost
basis
million.
The mezzanine
interest issued
at at
cost
basis
was discounted
a five
origination loan basis has a
The term
principal
loan
annual and was
fees
LIBOR
a cost the
10% over
of
$4.0
year
term.
The
term
cost
$4.0
face
amount
basis
million.
The term
loan’s
was discounted
to reflect
loan
origination
received
by
Fund.
48
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,2007
T
of
At October $4.02 term
million loan
31,
2005,
the
mezzanine
cost basis
loan
and
$6.4
the
term
loan
had
outstanding million,
balances
of
$6.65
million
and
loan
respectively
with
fair
of
million
and
$3.95
respectively.
The mezzanine
and
were
assigned
13,
values
of $6.65
million
and $4.02
million
million,
respectively.
On October
and an
additional plus
2006
the
Fund extended
mezzanine 2011.
to
SP $10
The
in
the
form
of
an
date
additional
$4.0
million
of term
adjusted the
loan to
$6.0 and
million
loan.
interest rate
rate
and
maturity loan
of
the
term
to
loan
was
LIBOR
date
8%
March
31,
31,
The
interest
of
the
mezzanine
was
adjusted
16% with
maturity
remaining
March
20,
2012.
On October
At October $3.06
million, loan
2006
the
Fund assigned $5.0
mezzanine
a cost loan basis of
million
of term
loan
to
Citigroup
Global Markets
Realty.
31,
2006,
the
and
the
term
loan
had outstanding balances of $12.96 and
$3.01 million, respectively.
million
and
loan
respectively,
with
of $12.65
million
The mezzanine
increase fees in the
and term
were
assigned cost
fair values
fair
$12.96
the
million
is
and
to
$3.06
the
million,
respectively.
The
outstanding
capitalization
balance,
and
in
value
of
loan,
due
amortization
of by
loan
origination
and
the
of "payment
kind"
interest.
These
increases
were
approved
the
Fund’s
Valuation Committee.
Strategic
Outsourcing,
Inc.
Strategic
Outsourcing,
that
Inc.
("SOT"),
Charlotte, to
North
Carolina, their
is
a
professional resource
employer
function.
organization
that
provides
services
enable $5
small
businesses
outsource
in
human
loan
at
LIBOR
The Fund purchased plus 5.25% On December
31,
a
million
loan
assignment
SOT.
The
has
a 5
year term and
bears
annual
interest
2005,
I[h
repaid
a portion
of
its
outstanding
loan.
The Fund’s
prorated
share
of
the
repayment
was
approximately $108,000.
31,
On March
was
2006,
SOT
repaid
a
portion
of
its
outstanding
loan.
The Fund’s
prorated
share
of
the
repayment
approximately
$108,000.
On May
3,
2006,
SOT
repaid
a portion
of
its
outstanding
loan.
The Fund’s
prorated
share
of
the
repayment
was
approximately
$440,000. 2006,
On
July
27,
SOT
repaid
the
loan
assignment
in
full.
The amount
all
of
the
proceeds
received
from
the
prepayment
early
was
approximately
fee.
$4.5
million.
This amount
included
outstanding
principal,
accrued
interest,
and an
prepayment
As of October
31,
2006,
the
Fund
no
longer
held
any investment
in
SOT.
Storage
Canada, Canada,
facilities
LLC LLC
("Storage the
Storage
self�storage
Canada"), U.S.
Omaha, NE,
is
a real
estate
company
that
owns and develops
throughout 2006,
the
and Canada. $6
On March
Canada consent
30,
Fund provided
$1.34
million.
a
million
loan
commitment
expires
to
Storage one
at
Canada
but
on which
Storage with
date the
immediately borrowed of both
30, parties.
The commitment
on
will the loan bears
after
year,
may be renewed
has
a maturity
The
initial
borrowing
annual
years
interest the
8.75% of
the
and
of
March Fund
2013.
Any
additional principal
borrowings payments. Canada
mature
seven
from
a fee
date
subsequent unused
borrowing. of
the
The
loan.
receives
monthly
The Fund
borrowed
also
receives
of
0.25% on
bears
the
portion
On October
a maturity date
6,
2006, October
Storage
6,
$619,000.
The borrowing
annual
interest
at
8.75%
and has
of
2013. Fund’s investment
a in
fair
At October
a cost basis
31,
2006,
the
Storage value
Canada of $1.94
had
an outstanding balance
of
$1.94
million
and
of $1.95
million
and
was assigned
million.
49
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Summit Research Summit Research
antiperspirant actives.
Labs,
Inc.
Labs,
Inc.
("Summit"),
Huguenot,
NY,
is
a specialty
chemical
company
that
manufactures
On August The second
loan’s
is
16,
2006,
has a
the
Fund extended
million
to
Summit
face
a
$5
million
second
issued fees in the
lien loan
at
bearing annual
basis
interest
at
14%.
lien loan basis 15,
$5.0
principal
amount
loan
and was
origination
a cost
of
$5.0
million. date
The
the loan
cost
was
subsequently
discounted
invested
to reflect
received.
The
maturity stock,
of
August
shares.
2012.
The Fund
also
$11.2
million
into
Summit
form
of
preferred
purchasing
800
At October $4.95
million. a
fair
31,
2006,
the
Fund’s
second was
lien loan
had
an
outstanding of
balance
million.
of
$5.04
million stock to the
with
a cost
of
The second
value
fees
lien loan
assigned
increase
a fair
value
$5.04
fair
The
loan
preferred
is
had been of
the
assigned
loan
of $11.2 and
the
million.
The
in cost in
and
value
of
the
due
amortization
origination
capitalization
of "payment
kind"
interest.
These
increases
were
approved
by
Fund’s
Valuation Committee. Tokarz, Chairman of
the
Michael
serve as
Fund,
and Puneet Sanan
and
Shivani
Khurana,
representatives
of
the
Fund,
directors
of Summit.
Timberland Timberland outdoor power
Machines
Machines equipment
& Irrigation, & Irrigation,
and
in irrigation
Inc.
Inc.
("Timberland"),
Enfield,
Connecticut,
is
a
distributor
of landscaping
products.
The Fund’s investment
at
Timberland
note
consists a
of
a
$6
million
senior
subordinated and was
fees
loan, issued
bearing annual
at
interest
17% over
million. shares additional
a five
year
term.
The
has
then
$6
million
principal
face loan in
amount
origination
a cost
basis also to
of
$6 450 an
a
The
of
loan’s
cost stock
basis
was
discounted
equity
to reflect
received. has
The Fund
an
option to
owns
purchase
common
150
shares
for a
$4.5
million
at
investment
of
Timberland.
share.
The Fund
of
common
note.
stock
a price
$10,000
note
per
The Fund has
at
also
extended
Timberland
$3.25
7,
million
junior
revolving
The
junior
revolving
bears
interest
12.5%
per
annum and matures on
July
2007.
a floor
is
Timberland
("Transamerica").
has
plan
financing in
program
administered by Transamerica under
the
Commercial
dealer defaults financing
Finance
Corporation
As
typical the
Timberland’s of product
industry,
terms of
if
the
arrangement, and
the but
its
Timberland underlying
guarantees assets are
repurchase
from Transamerica,
to
is
a dealer
on
payment
repossessed. as
The Fund
a result
has agreed
the
be
a
co�guarantor
of
this
repurchase
million.
commitment,
maximum
potential
exposure 2005,
the
of
guarantee
loan
contractually
limited
to $0.5
At October $6.23 drawn
million.
31,
Fund’s
loan
mezzanine assigned
had
an
outstanding
balance
million.
of $6.32
junior
million revolving
with
note
a
cost
of
fully
The mezzanine
assigned
a
fair
was
a fair
value
of $6.32
The
was
of
upon
and
value
of $3.25
a
fair
million.
The common
$0.
stock
had
been
assigned
a fair
value
$4,500,000.
The warrant was assigned December
of
27,
value
of
Effective into
2005,
stock the
the
Fund converted
of $10,000
$286,200 per
share.
of
the
Timberland
a result, as line
junior
revolving 31,
line the
of
credit
28.62
shares
common
and
at a price
As
of
July
2006
Fund owned
million
478.62
to
common
shares
funded
debt under
the junior
revolving
of
credit
was
reduced
from $3.25
approximately During
the
$2.96
million.
quarter
ended,
at
April
30,
2006,
Timberland
million.
had
repaid
an
additional
$500,000
on
the
note
leaving
the
total
amount
outstanding
approximately
the
$2.46
On
July
1 2006,
the quarter
the
Fund reduced
July 31,
interest
rate
on
the
mezzanine an
loan
from
17%
to
14.426%. drew
During on
the note
ended,
total
2006, Timberland
at
repaid
additional
$500,000
and
down
$1.0
million
leaving
the
amount 2006,
stock
outstanding
approximately $409,091 per
share.
$2.96
of the
million.
Effective into
September of
12,
the
Fund converted
of $10,000
Timberland
junior 22,
revolving
line the
of
credit
40.91
shares
common
at a price
Effective
September
2006,
Fund
50
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
converted
10
$225,000
per share. as line
of
the
Timberland
then
junior
revolving
line
of
credit
into
22.50
shares
of
Timberland
31,
borrowed
the
$500,000
from
the junior
revolving shares
line of the
common stock at a price of credit. As a result of these
debt
transactions,
of October
credit
2006
Fund
owned
542.03
to
common
and
funded
under
the
junior
revolving During investment
of
was reduced from $3.25
October by
the $1 31,
million
approximately
$2.83
million.
the in
year ended
2006,
the
Valuation Committee
million to
decreased $4.42
the
fair value
of
the
Fund’s
equity
Timberland 2006,
million
from $5.42
loan
approximately
million.
At October $6.55
balance, million. cost in
31,
Fund’s
loan the
mezzanine
assigned
is
had
an
outstanding
balance
million.
of
$6.61
million in the
with
a cost
of
The mezzanine
and
fair
was
loan
a fair value the amortization
of
$6.61
The
increase fees
outstanding capitalization
value
of
due
to
of
the stock
loan
origination
and
the
of
"payment
note
kind"
interest. a
fair
These
increases
were
approved The
by
Fund’s
Valuation Committee.
a
fair
The
junior
revolving
was assigned
value
of $2.83 of of
$0.
million.
common
was assigned
value
of $4.42
million.
The
warrant was Michael Timberland.
assigned Tokarz,
a fair
value
Chairman
the
Fund,
and Puneet Sanan,
a representative
of
the
Fund,
serve
as directors
of
Total
Safely
U.S.,
Inc.
Total services
Safety to the
U.S.,
Inc.
("Total
Safety"),
Houston,
oil
Texas,
is
the
leading
provider
industries.
of
safety
equipment
and
related
refining,
petrochemical,
and of
exploration
and production
in Total 31,
The Fund
interest at
purchased
pIus
$6
million
loan
assignments
Safety.
The $5
million
million
term
loan bears
A bears
annual
annual
interest at
LIBOR
8.5%
4.5% and matures on December
also
2010.
The
$1
term
loan
B
LIBOR
plus
and 2006,
matures
on
December
31,
2010.
for
On June
30,
the
Fund
the
received
a quarterly
principal
payment
each
loan
totaling
$55,046.
On September
At October assignments
31,
29,
2006,
the a
Fund
had
received
a
quarterly
principal
payment and
for
each
loan
totaling
$55,046.
2006,
loans
fair
a
combined
$5.9
outstanding
balance
cost
basis
of
$5.9
million.
The
loan
were
assigned
value
of
million.
Turf Products, Turf
Products,
LLC LLC
("Turf’), golf Enfield, Connecticut,
is
a
wholesale consumer
distributor
of
golf
course and commercial
turf
maintenance
equipment,
course
in
irrigation
systems
senior
and
outdoor
power
equipment.
at
The Fund’s
five
investment
Turf
$7.5
consists million
of
subordinated
face
loan,
bearing
issued
interest at a cost
15%
per
year
term.
The note has a
was
principal loan
amount
and was
fees also
basis
of
$7.5 a
annum over a million. The
membership
loan’s interest the
cost
basis
then discounted
million equity
to reflect
origination
received.
The Fund
warrant
to
also
owns
an
from
a $3.8
investment
in Turf.
The Fund
has
a
purchase
additional
15% of
company. During
the in
year ended
October
million
31,
2006,
$3.8
the
Valuation Committee
to
increased million.
the
fair
value
of
the
Fund’s
equity
investment
Turf by $2
31,
from
million
approximately
$5.8
At October $7.63
fair
2006,
loan
is
the
Fund’s
mezzanine
a
fair
loan of
had an outstanding balance $7.68
million.
of $7.68
in the
million
with
a cost
of
million.
The
was assigned
due
to the
value of
the
The
fees
increase
outstanding
balance,
cost in
and
value
of the
loan
amortization
loan
origination
and
the
capitalization
of "payment
interest has
kind"
interest.
These
a
increases
were
$5.8
approved
million.
by
Fund’s was
Valuation Committee.
assigned a fair
The membership
$0.
been
assigned
fair value
of
The
option
value
of
Michael
serve as
Tokarz,
of
Chairman
Turf.
of
the
Fund,
and Puneet Sanan
and
Shivani Khurana,
representatives
of
the
Fund,
directors
51
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Velocitius
B.V. B.V. Netherlands based based wind farms through
Velocitius operating
("Velocitius"),
a
company,
manages
Germany
subsidiaries.
On May
10,
2006,
26,
the
Fund
the
made an made
equity
investment
of approximately investment of
$66,290
in Velocitius.
On October On October
immediately
bears
2006, 2006,
Fund
an
additional
equity
of approximately
credit to Velocitius
$2.9
million.
30,
the
Fund provided
a
$260,000
revolving line
line
on
which
31,
Velocitius
borrowed
interest
at
approximately $143,614. 8%.
the
The
revolving
of
credit
expires
on
October
2009.
The
note
annual
At October $2.97
million.
31,
2006,
revolving
equity line
investment
credit
in Velocitius a cost
had
a cost a
and was
fair
assigned
a
fair
value
of
The
of
of
had
and was
assigned
value
of $143,614.
Bruce
Shewmaker,
an
officer
the
Fund,
serves
as
a director
of
Velocitius.
Vendw
Services,
Inc.
Vendio
entrepreneurs
Services, resources efficiently
Inc. to
("Vendio"), build
sell
San
Bruno,
California,
a legacy
investment, software
offers
small
businesses to help
and
these
Internet
sales
channels
their
by providing
solutions
designed
merchants
market,
and
distribute
products.
At October 6,443,188 value of
shares $2.7
31,
2005,
Series
the
Fund’s
preferred
investments
stock
at
in
Vendio of
consisted $6.6
of 10,476
shares
of
common
were
stock.
stock
and
a
fair
of
A
a total cost
million.
The investments
assigned
million,
$0
for the
common
31,
stock
and
$2.7
million
for the
Series
A
preferred
During investment
the in
year ended
October
2006,
$2.7
the
Valuation Committee
to $3.4 million.
increased
the
fair value
of
the
Fund’s
equity
Vendio
by $700,000 2006,
Series the
from
million
At October 6,443,188 value of
shares $3.4
31,
Fund’s
preferred
investments
stock
in
Vendio of
consisted $6.6
of
10,476
shares
of
common
were
stock.
stock
and
a
fair
of
A
at a total cost
million. for the
The investments
assigned
million,
$0
for the
common
of the
stock
and
$3.4
million
Series
A
preferred
Bruce
Shewmaker,
an
officer
Fund,
serves
as
a director
of Vendio.
Vestal
Manufacturing Manufacturing
to brick
Enterprises,
Inc.
Vestal
Enterprises,
Inc. of
("Vestal"), the
Sweetwater,
industry.
Tennessee,
Vestal
is
a
market
leader
for steel
fabricated iron
products and
and
masonry
segments
products
construction construction
manufactures homes. a
and
sells
both
cast
fabricated
steel
specialty
used
in the
of of
single�family
The Fund’s investment
loan April
in Vestal in the
consists
of 81,000
shares
common
stock note.
at
cost loan
of $1.85 has
million
and
a
of $900,000
29,
to
Vestal
earns
form of
at
a senior per
subordinated
promissory
The
a maturity
date
of
2011
and
interest
12%
annum.
note
At October $900,000. value of
31,
2005,
the
senior
subordinated
stock
promissory
Vestal that
had
a cost
an
outstanding of $1.85
balance, million
cost,
and
fair value a fair
of
The 81,000
$3.7 million.
shares
of
common
of
had
basis
were
assigned
On September
At October $800,000. value of
31,
1,
2006,
the
Fund
received
a
principal
payment
note
of approximately had an
a cost outstanding
$100,000.
balance, million cost,
2006,
the
senior of
subordinated
stock
promissory
that
and
fair value a fair
of
The 81,000
$3.7 million.
shares
common
of Vestal
had
basis
of $1.85
were
assigned
David
Hadani
and
Ben
Harris,
representatives
of
the
Fund,
serve
as directors
of
Vestal.
52
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Vitality
Foodservice, Foodservice,
nc
Inc. ("Vitality"), juices
Vitality
Tampa,
frozen
Florida,
is
a
market
coffee
its
leader to the
in
the
processing
and
marketing With an
of
of
dispensed
installed
and base
non�dispensed of over 42,000
to
and
concentrate Vitality
liquid
sells
foodservice
industry. a
dispensers niches
worldwide,
frozen
concentrate schools,
through
hospitals,
network
over
hotels
350 and
distributors restaurants.
such
market
as institutional
foodservice,
including
cruise
ships,
The Fund’s investment
1,000,000
a liquidation detachable $0.01 per shares date
in Vitality
consists
of 500,000
stock a yield
at
shares a cost
of
common
stock
at
a cost
of
$5
million preferred
and
stock also has
of
Series
A convertible
24,
preferred
of $10
per
million.
The
convertible
of September
granting the
2011
the
and
has
of
13%
annum.
shares
The
of
convertible stock
preferred
at
stock
has
warrants
share.
Fund
right to
purchase
211,243
common
the
price
of
At October $5
million
31,
2005,
the
investment of
Series stock
in Vitality
consisted
of 500,000
stock
at fair
shares a cost values
of
common
stock million.
at
a cost
of
and
1,000,000
convertible
shares
A
convertible
preferred
of $10.52 of $5
The common
million
stock,
Series
A
preferred
and warrants were
assigned
million,
$10.52
and
$700,000,
respectively.
Effective
January
in Vitality
31,
2006,
$3.5
the
Valuation Committee and $400,000,
the
determined
to
increase
the
fair
value
of
the
common
stock
and warrants During
by
million
respectively.
the
year ended $900,000
earnings net to
October
return of
31,
2006,
Fund
reclassified
dividend income due
to
received
from
Vitality
totaling
it
approximately
not
capital.
The
reclassification
occurred
Vitality’s
determination of
capital
that
will
have
taxable the
and
asset
profits value.
for their fiscal
year 2006. This
reclassification
to return
had
no
impact
on
Fund’s
At October $5
cost million
31,
2006,
the
investment of
Series
in Vitality
consisted
of 500,000
stock
at
shares a cost
of
common
stock
at
a
cost
of
in the
and
1,000,000 of
the
shares Series
A
convertible preferred
preferred stock
is
of $9.66
million.
The
increase in
and
fair
value
A
convertible
due
to the
capitalization
of "payment
stock,
kind"
dividends. convertible respectively.
These
increases stock
were
approved
by
the
Fund’s
Valuation Committee.
fair values
The common
$11.05
Series
A
million,
preferred
and warrants were
assigned
of
$8.5
million,
million
and
$1.1
David
Hadani,
a
representative
of
the
Fund,
serves
as
a director
of
Vitality.
Yaga,
Inc.
Yaga,
provider businesses.
Inc.
("Yaga"), platform
San
that
Francisco,
is
California, to address
a
legacy
investment,
provided and payment
a
hosted
application
service
(ASP)
designed
emerging
revenue
infrastructure
needs and
of
online
Yaga’s while
also
payment managing 2005,
Series
and accounting
application
supports
micropayments, payments.
of
aggregated
billing
stored
value
accounts
royalty/affiliate
accounting
in
and
split
At October 1,000,000
$0. shares
31,
the
Fund’s
a
investment
Yaga
of
$2.3
consisted million.
300,000
shares
of
Series
A
preferred
stock
and of
of
B with
combined
cost
The investments
had been
assigned
a fair value
During
the
quarter
ended
January
the
31,
2006,
the
Fund
received
notification
of
the
final
dissolution
of Yaga.
The
Fund
received
no
proceeds
fair value the
from of
dissolution
of
this
Fund’s removal
books. of
The
Yaga was
books on
previously the
from the company and the investment has been removed written down to zero and therefore, the net effect of the
consolidated
Yaga from
31,
Fund’s
the
Fund’s
statement
in
of
operations
and
NAV
was
zero.
L
October
At October
2006,
Fund no longer
held
any investment
Yaga.
and Capital
31,
At October
31,
2006,
the
Fund had investments
in
in portfolio equivalents
companies
totaling
totaling
$275.9
million.
Also,
at
2006,
the
Fund had investments
cash
approximately
$66.2
million.
The Fund
53
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
considers to
all
money market
U.S.
and
other
cash
investments
purchased
with
an are
original highly
maturity liquid.
of
less than
three
months
be cash
equivalents.
government October The
31,
securities
and cash
equivalents
During
the
year ended
2006,
the
Fund made made
sixteen
new
investments,
committing Auto, Storage BENI, $6.0
capital
totaling
approximately $142.1
million.
Inc.,
investments
PreVisor,
were
in Turf,
l,[ Henry,
BM
Canada, and
Phoenix,
Harmony
Brands.
$8.0
Pharmacy,
Total
Safety,
Marine, BP,
$5.0
Velocitius, $5.0
Summit, $15.0
Octagon,
million,
Innovative
The amounts
invested
were
million,
$11.6 $6.0
million, million,
million, million,
million,
million,
million, million,
$200,000,
$2.0
$6.0
$14.0
$15.0
million,
$66,290,
$16.2
million,
$17.0
million
and
$15.0
million,
respectively.
The Fund
approximately Dakota
also
made
eight
follow�on During
the
investments year ended
shares
in existing
portfolio
companies
committing
capital
totaling
$24.2
million.
October of
31,
2006,
stock
at
the
Fund
invested price a
approximately of
$5.11 million repaid per
$879,000
in
by purchasing
22,
an
the
additional
172,104
a
common
an
average form of
12,
share.
On
bridge
December
note. Baltic
2005,
Fund
drew
made down
follow�on
million
investment from
the
in Baltic note.
in the
$1.8
revolving the has
immediately
the note the in
$1.5
all
On January
matured provided on
2006,
Baltic 31,
amount been
drawn removed
from
full
including
unpaid
12,
interest.
The
the
note
January
a
2006
and
from
28,
Fund’s
books.
On January
2006,
Fund
SGDA
$300,000
bridge
loan.
On
March
$2.0
2006,
million
interest.
Baltic Fund provided Baltic a $2.0 million revolving note. bridge immediately drew down all from the note. On April 5, 2006, Baltic repaid the amount drawn from the note in full including the
unpaid
the the
The
an
note
matured
on
April million
30,
in
2006
and
has been
removed
a
from
the
Fund’s
books.
On
the
April 25,
6,
2006,
Fund
invested
additional
$2.0
SGDA
a
in the in
form of
preferred
equity
security. 30, the
On
April
2006,
Fund purchased
$2.5 in million
an
additional
common
in the
equity
security
SGDA
for
$23,000.
On
4,
June
2006,
Fund
invested
in
Amersham
form of
second
lien loan.
On August
28,
2006,
Fund
invested
$750,000 investment 2006,
the
Harmony made
million million invested the a
in the in the
form of
a
common
$1.0
stock.
On September
loan
2006,
million
the
Fund made another follow�on
investment. invested 20,
in Baltic
form of
million loan
million
bridge
and
$2.0
equity
On October
in the
13,
Fund
$4.0 $5.0
$10
in
follow�on
investment
million loan in
in SP.
The $10
million
was
form of an Fund
then 24,
additional
term
B
and $6.0 term
in a
mezzanine
loan.
On
October
2006,
the
assigned 2006,
the
of SP’s an Fund
$8.0
million $3.0
B
to Citigroup in the
Global Markets form
of a preferred in the
Realty Corp.
equity
On October On
Fund
26,
additional invested a
million
SGDA
security.
October
2006,
an
additional
$2.9
million
in Velocitius 31,
form of
common
equity.
The down
Fund
also
provided from
the
Velocitius note.
$260,000
revolving
note
on October
2006.
Velocitius
immediately
drew
$143,614
Commitments
At October
to/for
Portfolio
Companies: commitments
to portfolio
31,
2006,
the
Fund’s
companies
consisted
of
the
following:
Open
Portfolio
Commitments
of
Company Marine Octagon Storage Canada
A
$20
$12.0
MVC
Capital,
Inc.
[U[h
million million million million
[h
Funded
[h
�
$3.25 $1 95 $2.83
[h
31,
million
$60
$3.25
i[
million credit facility
Timberland
loc
On May
expires interest fee
7,
$260000
2004,
the
$143614
facility to
Fund
provided be
a
$5,000,000
senior
secured
credit
6,
Octagon.
facility basis
This
on
at
May 6, LIBOR
The
2007
plus
and can
automatically receives the repaid a
extended
until
May
2009.
fee
The
credit
bears a
annual
servicing the credit
4%. The Fund
for
0.50% unused
facility.
facility
on
an annual Octagon
and
0.25%
on
an annual
facility.
basis
maintaining
facility
credit in
On
February
all
1,
2006,
drew
$250,000
23,
from
credit facility
credit
was
12,
full
including,
accrued
interest
on February
2006. This
was
refinanced
on
October
2006.
During annual
February
at
2005,
the
Fund made
facility
available
to
SGDA,
25,
a
$1,308,300 During
revolving
fiscal
credit
facility
that
bears
interest
7%.
The
credit
expired on August
2006.
year 2006,
SGDA
drew
down
54
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
$70,600
facility
from
the
credit
facility.
On
April the
28,
2006,
the
Fund
loan loan to
increased
the
availability
under
the
revolving on
April
credit 30,
by $300,000.
to the
The balance of
credit
Fund’s and
the
bridge
SDGA,
was
which
would
the
have
matured books.
2006,
was
added
revolving
facility
bridge
removed
from
Fund’s
On June Guggenheim
30, to
2005, Ohio.
the
Fund
pledged
its
common
stock
of Ohio
to
Guggenheim
to
collateralize
a loan
made by
On
12.5%
note. the
July
8,
2005
the
Fund
extended on
the July
total 7,
Timberland 2007.
a
$3.25
also
million receives the
junior a fee
revolving
note
that the
bears
interest portion 27,
at
per
annum and
expires
The Fund
of 0.25% $3.25
on
unused
of
the
As of October Fund exchanged
of $10,000
the 21, junior
31,
2005,
amount
outstanding on
junior
note line
was of
million.
On December
shares
2005,
stock debt
at
$286,200 per
share.
of
the of
Timberland
31,
revolving
credit
for
28.62
of
common
the
a price
As
January
2006,
the
Fund owned 478.62
from $3.25
million
common
to
shares
and
funded
million.
under
April
revolving Timberland
note. 31,
line
of
credit
has been on
reduced
the note.
approximately
$2.96 an
On
2006, on
the
repaid July 10,
$500,000
$500,000
On
2006, Timberland
On May 18, 2006, Timberland repaid drew down $1.0 million leaving the total
additional
amount
on
the
note of
outstanding
the
at July
2006
approximately $2.96
line of credit the into
million.
On
shares
September of
the
12,
2006,
at
the
Fund converted
of
$409,091 per
share. into
Timberland
junior
revolving 22,
40.91
common
stock
a price
$10,000
line
Effective
September of
2006,
stock
Fund
converted
of
$225,000
per share. as line
of
Timberland
then
junior
revolving
of
credit the
22.50
shares
common
credit.
at a price
$10,000
Timberland October was
31,
borrowed
the
$500,000
from
junior
revolving
shares
line the
of
As
a result
of
these
transactions,
of
2006
Fund owned
542.03
to
common
and
funded
debt under
the
junior
revolving
of
credit
reduced
from $3.25
million
approximately
$2.83
million.
On December
interest the note.
at
22,
2005,
the
Fund
extended
to Baltic
a
$1.8
million
revolving Baltic note
bridge
note.
The
note
bears
12%
per
annum and had
12,
a maturity repaid
date the
of January drawn
31,
2006.
the
immediately
in
full
drew
all
$1.5
million
interest.
from
On January
matured
2006,
Baltic
amount
from from
including
unpaid
The
revolver
on January 2006, from
the the note
31,
2006
and has been
removed
the
Fund’s
books.
Baltic the note
On March
down
all
28,
Fund
note.
extended
to Baltic
5,
a $2.0 Baltic
million repaid the
revolving amount removed
bridge
note.
immediately
in
full
drew
$2.0
million interest.
On
April
2006,
30,
drawn from
from
the
including
unpaid
The
matured Fund
on
April
2006
million
and
has been
Fund’s
books. and
On March
immediately of both 2013.
30,
2006,
the
provided
a
$6
loan expires
commitment
after
to
Storage
but
Canada
the
company
the
borrowed
$1.34
million.
The commitment
on
the loan bears
one
at
year,
may be renewed
a maturity
with
date
consent
30, also
parties.
The
initial
borrowing
will
annual from
interest the
8.75% of
the
and has
of
March
Any
a
additional fee
borrowings on
the
mature
portion
seven of
the
years loan.
date
6,
subsequent Storage
borrowing.
The Fund
an 2013.
receives additional
of 0.25%
unused
On October
at
2006,
Canada
date
borrowed
6,
$619,000.
11,
The borrowing
the
bears
annual
interest
8.75%
and
has
a maturity
of October
On
interest
July
at
2006,
plus the
Fund
extended Fund
note also as
to
Marine
a
$2.0 of
million
secured
the
revolving
note.
The
the
note loan.
bears
annual was no
LIBOR
on
1%. The
revolving
receives
a fee 31,
0.50% of
unused
portion
of
There
amount
drawn
of October
credit
2006.
On
term
loan
August
25,
2006,
SGDA’s
The
revolving
facility
was added
eliminated
to the
term
the
loan,
increasing
the
balance of
this
of
the
by $1.6
million.
revolving
credit
facility
was
from
Fund’s
books
as
a result
refinancing.
On October
the senior
12,
2006,
the
Fund
provided on
a
$12.0
7,
million
revolving credit
credit facility a
facility expires
to
Octagon
in
replacement
31, fee
of
secured
bears
credit
facility
provided
at
May
plus
2004.
This
on
December
facility
2011. on
12,
The
credit
facility basis
annual
interest servicing
LIBOR
credit
4.25%.
basis
The Fund
for
receives the
0.50%
credit
unused
facility.
an 2006,
30,
annual Octagon 2006.
and
a
0.25%
fee the
on an annual
facility.
maintaining
repaid
On October
facility
drew
$3.75
million 31,
from
Octagon
$500,000
of
the
credit
on October
As of October On October
30,
2006,
the
there
was
$3.25
million
outstanding.
2006,
Fund
provided
a
$260,000
line
revolving
expires
line
of
credit
to
Velocitius
on
which
Velocitius
immediately
interest at
borrowed
$143,614.
The
revolving
of
credit
on October
31,
2009.
The
note
bears
annual
8%.
55
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Timberland Timberland’s of product has agreed
also
has
a floor the
if
plan
financing the
program
dealer
administered by Transamerica. arrangement, and
this the
As
is
typical
in the
industry,
under
terms of
a dealer
financing
Timberland
assets
guarantees are
repurchase
from Transamerica,
to
defaults for
on
payment on
underlying
repossessed.
The Fund
be
a limited
co�guarantor
up
to
$500,000
repurchase
commitment.
mitm
On October
("Credit Credit Facility Facility
I.
of the
Fund:
the
28, I")
2004,
Fund
entered
into
a
one�year,
cash
(the
collateralized,
$20
July
million 20,
revolving the
credit
facility
with LaSalle
Bank National Association
loan
"Bank").
On
I
2005,
Fund
amended
million All other to
The maximum
the
aggregate
maturity
I
amount
under
Credit
Facility
was
increased
from $20
$30
million.
Additionally, of
I.
date
material Credit
terms
Facility
Credit
Facility million Facility
remained borrowed
I
was extended from October 31, 2005 to August 31, 2006. $10 unchanged. On January 27, 2006, the Fund borrowed
under
at
million
under
The $10
Credit or six
Credit the
Facility
I
was
at
repaid either rate
in
full
by February
rate equal to the 31,
3,
2006.
Borrowings
(for one, effect
under
three
bear
plus
interest,
Fund’s
or
option,
at
a fixed
to the
LIBOR
rate
in
rate
two,
months), minus
1.00%
per
annum,
Credit
a floating
I
equal
Bank’s 2006.
prime
from time
to time,
1.00%
per annum.
entered into are
Facility
expired
on August
On February
which
the
16,
2005,
the
Fund
a sublease
(the
"Sublease")
for a larger
1,
space
in the
building
its
in
Fund’s
office for
current to
executive Advisers.
offices
located.
is
Effective to
November
expire
2006,
the 28,
Fund subleased
2007.
principal
executive the
TT’G
The Sublease
total
scheduled $75,000
on February year 2007. which
entity the
Future payments
lease
under
Sublease
TTG
Advisers
approximately without
penalty. Capital
in fiscal in
The Fund’s previous
Fund’s
is
was
located,
terminated 287
effective
March
is
1,
2005,
The
building
executive
offices
are
Bowman
4
Avenue,
owned by Phoenix
for
Partners,
LLC, an
which
97% owned
by Mr. Tokarz.
See Note
"Management"
27,
more and
information
on Mr. Tokarz. co�borrowers
entered into a
On
revolving
April
2006,
the
Fund
MVCFS,
credit
facility
("Credit
Facility
I
as
new
four�year, to the
$100
lenders.
million
with
Guggenheim
drawn from
as administrative the the revolving
agent
credit credit
On
April
27, in
2006, term
the debt)
2,
Fund borrowed
under
Credit July
$45
million H. the
($27.5
million
facility facility
and was
the
$17.5
repaid
million in
full
Facility
May
2006. and on
On
28,
2006,
in
The $27.5 million drawn from Fund borrowed $57.5 million
under
Credit Facility
revolving
million
2,
on
($45.0
drawn
the
from
revolving
credit million
facility
$12.5
the
million revolving
term
debt)
facility.
I
On August
2006,
Fund
repaid
$45.0
On August 31, 2006, the Fund borrowed $5.0 million in term debt under Credit On October 27, 2006, the Fund borrowed $4.0 million from the revolving credit under Credit Facility H. On October 30, 2006, the Fund borrowed $61 million under Credit Facility $15 million in term debt Facility H. and $46 million drawn from the revolving credit facility. As of October 31, 2006, there was $50.0 million in term
borrowed
credit
I
debt
and
$50.0
million
on
to
the
revolving
to
credit
facility
outstanding. portfolio
II
The proceeds
investments, will expire
from borrowings pay
fees 27,
made under
related
Credit to
all
Facility the
I
are
expected and
be used
fund
new and
existing
and
expenses
at
financing
for general
corporate Credit
at
purposes.
Credit
Facility
on
April
2010,
which
time
will
outstanding
interest, at
amounts
the
under
Facility
I
the
will
be due and
to either
payable.
(i)
Borrowings
under
one, plus
Credit
Facility three of
I
bear
Fund’s
of
option,
a floating or
(ii)
rate equal
the
LIBOR
with on
the
rate (for to time,
two,
a
or six
months),
per
plus
a spread
2.00%
paid
per annum, a
closing
life
Prime
other
rate in effect costs
from time
spread These
1.00%
will
annum.
The
Fund
fee,
legal
facility.
and
associated
this transaction.
costs the
be
amortized evenly
portion
over
costs.
the
of
the
The
prepaid
expenses
Balance by
Sheet
include things,
unamortized cash
stock
of
these debt
Borrowings
under
Credit
Facility
I will
items,
be
secured,
among
other
cash,
equivalents,
investments,
accounts from
all
receivable,
equipment,
instruments, as well as
all
general other
intangibles, property
the
capital
of
MVCFS,
and any proceeds
the
aforementioned
except
for equity
investments The
made by
enters
the
Fund. with and
other that contain of the
Fund
into
contracts
portfolio
companies under
these
parties
is
a variety
indemnifications.
S
experienced
remote. Effective
The Fund’s
or losses
maximum
pursuant
to
exposure
these
arrangements
the risk
unknown.
However,
Fund has
not
claims
contracts
and
believes
of
loss related
to indemnifications
to
be
November
which
1,
2006,
as the
pursuant Fund’s
to the
Advisory
Agreement, Under
the the
Fund
is
externally
managed by
Agreement,
TFG
Advisers,
serves
investment
adviser.
terms of
the
Advisory
56
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
TTG
Advisers
the
will nature
determine,
consistent the
with changes
the
the
Fund’s
investment
portfolio
strategy,
the
composition
of
of
the
Fund’s such
changes,
portfolio, identify, portfolio retain or
and timing of
the close structure
to the
Fund’s
and
the
manner
implementing
diligence
and
negotiate
of
Fund’s
investments
investments,
(including
performing due
the securities
on
prospective purchased, third parties exclusive, to
companies),
sell
and monitor
the
Fund’s
determine
and
the
other
assets and/or
and
oversee
functions similar for
the
administration,
recordkeeping
Advisers’
and compliance under
the the
functions
of
Fund Fund
performing such and
it
for the services
Fund.
to
’G[
services to
Advisory
Agreement
the
are
not
is
fG Advisers
management
excluding
operating cash.
may
furnish
other
entities.
Pursuant
Advisory
Agreement, of two
per
required
a fee
investment
incentive fee
advisory
fee.
and
management
two
services fee shall
consisting
components
the
�
of
pay
a
base
assets net
fee
and an
The base management
consist will of parts:
be 2.0%
annum of
on our
Fund’s
total
The
incentive
will
(i)
one
part will gains
be based
pre�incentive
fee
acquired
Definitive
income and (ii) the other part after November For a 1, 2003.
Proxy Statement on Schedule
be based
on
the
capital
realized
on our
portfolio
securities to the
detailed
description
of
the
the
Advisory on
Agreement,
3,
please
refer
14A
(as filed
with
SEC
August
2006).
On November On November
Facility
1 2006, Timberland
2,
borrowed $54.5
$420,291
million
from
the
secured on
junior
revolving
note.
2006,
the
Fund
repaid
borrowed
the
revolving
credit
facility
under
Credit
I
7,
On November On November
Facility
2006, 2006,
the
Fund Fund
made an
repaid
additional
$100,000 borrowed
equity
investment
into
SGDA.
facility
7,
the
$5.5
million
on
the
revolving
credit
under
Credit
I
21, in the
On November
which
is
2006,
consistent
with
the
contemplated
the
spin�off
identified Partners,
at
in the
Advisory
equity to
Agreement
firm.
(and
depicted
5,
Registration Partners’
Statement), subsidiary,
Fund formed
Europe
MVC
a
a private
On
December
2006,
MVC
Ltd.
MVC
LLC,
arrived
an agreement
co�own company
region.
BPE Management
subsidiary
("BPE")
with Parex Asset
will
Management
IPAS,
management
throughout
investment
the Baltic
and
of
the
Parex Bank.
BPE
21,
pursue
investments
in businesses
In
addition,
on
November
operating
2006,
MVC
Partners
established
its
MVC
Global
LLC
division,
which
pursues
investments
in foreign
companies.
On November
antiperspirant equity. actives
22,
2006,
the
Fund
invested
$3.2
million
in
Westwood
of
a $1.6
Chemical
million
Corporation, loan
a
manufacturer
million in
of
and water
treatment
chemicals,
consisting
bridge
and
$1.6
On November
junior junior
27,
2006,
the
Fund
increased to
the
amount
available
to then
draw
down
on
the
Timberland from
the
secured
secured
revolving
revolver.
note
from $3.25
million
$4.0
million.
Timberland
borrowed
$750,000
On November
Form N�2
29,
2006,
the
Fund
filed
Post�Effective
Amendment
No.
2
to
its
Registration
Statement
on
(the "Registration
Statement").
On December The revolving
6,
2006,
facility
the
Fund borrowed
has a
$10.0
of
million
on
the
revolving the
credit loan
facility a
under
Credit
Facility million.
II.
credit
now
Total
balance
$15.0
loan
million
and
term
has
balance
of $35.0 accrued
On December
fees.
8,
2006,
Safety in
repaid
term
for
The
total
amount
received
repayment
invested a
term
loan
A and term loan B A was $5,043,775
in
in
full
including for
all
interest
and
and
term
loan
B
was
a
$1,009,628.
On December
personal care the
12,
2006,
in the date
is
the
Fund
$10
million
Levlad
Arbonne The
loan
International bears
LLC,
interest
marketer of
of
plus
products, maturity
form of
$10
19,
million
second
lien loan.
annual
LIBOR
6.5% and
December
the
2013.
in Total has a $3.5 million plus
On December
loan
13,
2006,
first
and
a
$1.0
million
lien loan.
8,
Fund made an investment The second lien loan The
first
Safety
by extending
interest rate rate
second 6.5% and and
lien a
an annual
maturity date
date
of
December
8,
2013.
lien loan
has an annual
interest
of
LJBOR LIBOR plus
of
3.0%
a maturity
of
December
2012.
57
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
On December
of are fiscal
14,2006, of
the
Fund’s
Board
of
Directors
declared
a
$0.12
per
share of
dividend
per
for the
first
quarter
2007.
The Board
5,
Directors
also
declared
an
record
additional
cash
dividend
28,
$0.06
share.
The dividends
date
is
payable
on January
26,
2007
to shareholders
of
on
December
2006.
The
ex�dividend
December
2006. 2006, Fund extended
note date repaid
On December December
all
18, to
the
5,
the
maturity then
on
in
the
full
$1
million
Baltic
5,
bridge
loan
from
principal
22,
2006
January
2007. This
was
on January
2007,
including
and
accrued
interest.
On December On January
revolving credit
3,
22,
2006,
the
the
Fund
invested
$5
64,7
16
in Vitality
in the
form
of
common
stock.
2007,
Fund borrowed
has a
$3.0
million
on
the
revolving
the
credit has
facility a
under
of
Credit
Facility million.
I The
facility
now
the
balance
of $18.0
million
and
term
loan
balance
$35.0 of
On January
investments Auto,
Baltic
4,
2007,
Fund’s
portfolio
Valuation Committee companies Growers
Altlasten
determined
to increase
the
fair
values
the
Fund’s
in the
following
by an aggregate
Pasta
amount
Inc.,
of approximately $20.8 Octagon
Inc.,
million*:
SIA
BM
Motors
Corporation, f�r
Dakota und
Company,
Vendio
Credit
Investors,
LLC,
SGDA
Inc.
Sanierungsgesellschaft
Deponien
mbH,
the
Services,
and
Vitality
Foodservice, from
the
Subject portion
to the
confirmation
following
the
audit,
payment
is
obligation
to to
Mr. Tokarz
resulting
sale
of
is
a
of
Fund’s
paid
LLC
membership
the
first
interest
in
Octagon
expected year
be approximately
$110,000
(which
expected Item 7A.
to
be
during
quarter
of
the
Fund’s
fiscal
2007).
Quantitative the
and Fund
Qualitative invested
Disclosure about
in small
Market Risk
and
its
Historically speculative restrictions subject to
has
companies,
often include
investments
that are
in these subject
companies
are
considered
in nature.
The Fund’s investments
that adversely affect prevent the
securities marketability
to legal
or contractual a
result,
on
resale loss
liquidity
and
of such
price
securities. appreciation,
As
the
Fund
is
risk of
which
may
our
shareholders
from
achieving
dividend
distributions
and
return
of
capital.
Financial investments, assets
at
instruments subordinated
31,
that notes,
subjected
the
Fund
to
concentrations
of market
risk consisted
principally the
of
equity total in
fair
and debt
in
instruments, 5 "Portfolio values
which
represent
approximately
these
69.34% of
consist
Fund’s
securities
July
2006. no
As
discussed
Note
Investments," and
as
investments
in
of
the
companies
value
with
readily
determinable market
such
are
valued
a
accordance
of
with
Fund’s
policies to the
and
procedures. the
The Fund’s investment
(other
little
strategy
represents are
high degree
illiquid,
business
and
financial
risk
due
fact that
investments
entities
than
cash
equivalents) history publicly
generally that
in small
and middle market
in
companies,
industries. resale,
this if
and These
include
with should
operating
or entities traded,
possess generally
operations be:
(i)
new
or
developing on At
investments,
they
become
would
transactions
subject
to restrictions to
they the
were Fund’s
acquired
from
the in
issuer
in private
placement
are in
and
)[h susceptible
Bills,
market
risk.
time,
investments
or other
short�term
quality,
securities liquid
90�day
Treasury
which
are
federally
if
guaranteed
to
securities, in
high
highly
investments. highly
The Fund’s
liquid
cash
balances, are
not
large
enough
be
invested
90�day
Treasury
Bills
or other
high
quality,
investments,
swept
into
designated
money market
In addition,
accounts.
the
following
risk factors
relate
to
market
risks
impacting
the
Fund.
Investing
in private
companies
portfolio
involves
a high degree of
loans
of
to,
risk.
Our investment
private businesses
generally
consists of
and
investments
risk,
in,
private result
companies.
Investments
losses
in
involve
a
high degree
business
and
is
financial
which
little
can
in substantial
and
the
accordingly
should
in
be considered
speculative.
There
generally
very due
publicly
available
information investment
about
to
companies
obtain
which
we
invest,
and
in
we
rely significantly
on
the
diligence
of
the
Fund’s
team
appropriate
information
in portfolio acquire portfolio
connection
with our investment are generally
directly or
decisions.
Our investments
companies
illiquid. the issuer in privately are typically transactions. restrictions
We
generally in
our investments
(other than
from
negotiated subject to
Most of
on
resale
the
investments
our
cash
cash
equivalents)
or
*
Unaudited.
58
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
otherwise have
liquidity adversely for us to event, affect
no
established as a sale,
trading
market.
We
or
may
debt
exit
our investments
offering.
at
when when
the
portfolio
company
has
a
such our
recapitalization
initial
public
The
illiquidity
it
of our investments
may
ability
to dispose
of
In
equity
and
if
securities forced
times
liquidate in the
such
investments. the
addition,
we were
to
immediately
significantly
liquidate
may be otherwise advantageous some or all of the
the current
fair
investments such
portfolio,
proceeds
of such
liquidation
could
be
less than
value
of
investments.
Substantially
all
of our
portfolio
investments values 1940
these
are recorded
portfolio
at
"fair
value"
and,
as
a
result,
there
is
a degree
of
uncertainty Pursuant
ascertainable
regarding
to the
the
carrying
of our
Act,
investments.
requirements of
values,
the
because
at
our
fair
portfolio value in
company
investments
do
not
have
readily
market
we
record
investments
accordance
with Valuation
Procedures
adopted
by our board
31,
is
of
directors.
At October
fair
2006, no
approximately
standard to for the
79.50%
of
our
total
assets in
represented
portfolio
investments determining investment
recorded
fair
at
value.
There
single
determining
facts
fair
value
good
faith.
As
a
result,
value
requires
that
judgment
be
applied applied
specific
and circumstances
types
of each
portfolio
while
value impaired, record portfolio
employing
individual including unrealized
a consistently
valuation unrealized
process
for the
of investments
that
we make. we
believe
We
specifically
each
investment where
and
record of
depreciation
for equity
an investment
security objective has
is
has
become we
will
collection
if
a loan
or realization indication therefore,
of an
(based
doubtful.
Conversely,
that the
appreciation
we have an
in
on an
development)
also the
underlying where of had
company
appropriate.
fair
has
appreciated
value
and,
our
equity
security
appreciated inherent
in value,
Without
a readily
ascertainable
market
value
and because
the values
of
that
uncertainty
fair valuations, a
value
of our investments
investments,
may
and
differ
significantly
from be
would
have
been
used
ready market
existed
for the
the
differences
could
material.
Pursuant Independent
to
our Valuation
reviews, the
Procedures, considers circumstances).
our Valuation and determines
Committee
fair
(which on
are
is
currently
comprised
basis (or
of
three frequently,
if
Directors)
valuations
a quarterly
more
deemed
as
appropriate
under
Any changes
(depreciation)
in valuation investments."
recorded
in the
statements
of
operations
"Net
change
in unrealized
appreciation
on
Economic Many
slowdowns These of
recessions
or downturns
in
could
impair
our
portfolio
companies
and harm our operating may be company
in susceptible to to in
results.
the
companies
which
or recessions.
An
lead
economic
we have made or slowdown may
losses in
will
make investments
the ability a
economic a
liquidity event. assets.
affect
of
a
engage
net
conditions
could
business
to
financial
our
portfolio
and
decrease
our by
revenues,
income
and
Our
conditions. private
overall
of making of an
active
private
equity
investments
may be
equity
affected
current
and
future the slow,
market amount which markets such of could could
The absence
investment
to the
mezzanine
lending a
result,
or private the In
environment
may slow may
in the events
equity
activity
generally.
As
pace
of our investment
significant
activity
impact have an
our
ability
achieve
valuations affect
our investment of
the private
objective.
addition, the
changes
capital involving
effect
on
companies
and on
potential realized
for liquidity
companies.
This could
amount
and timing of any
gains
on
our
investments.
Our borrowers
may
default
on
their
payments,
which
may have
loans,
an
effect
on
our financialperformance.
a
We
than that
may make long�term
secured
to obtain ability
unsecured,
subordinated
invest in
which
may
that
involve
higher degree
financial
of repayment
resources adversely a
risk
conventional
loans.
We
primarily
companies
In
may have
failure to
limited
and
affect a in
may be unable
company’s
financing to
from
a loan
traditional
sources. to
it,
addition, the
numerous meet
factors
may
portfolio
its
repay
we make
economic
including
a business
plan, financial
downturn
condition
industry prospects
or operating
results,
or negative
conditions. in
Deterioration collateral.
in a
borrower’s
and
may be accompanied
by
deterioration
any
related
59
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Our investments
Our investment companies.
carry debt they a fixed
in
mezzanine
and other
debt
securities
may
involve
significant
risks.
strategy
contemplates
investments
are
in
mezzanine
as
and
other
debt
loans
securities (with or
of
privately
held that
"Mezzanine"
rate
investments
typically also
structured
subordinated and
other types
without
warrants)
of
are
interest. typically
We
not
may
make
senior
secured agency, lower
of
loans
if
or
debt
investments.
Our
rated,
investments would
rated
by any
quality to as
rating (rated
but
we
believe
that
such
or
investments lower grade
than
were
be below
Poor’s,
investment
grade
referred
Standard
&
commonly
predominantly Our
debt
speculative
characteristics
with
’
may
debt
than
"Baa3"
by
Moody’s
"BBB�"
have
by
bonds"). to the result
Loans
of below
investment
to
quality
respect thus
borrower’s
in a
capacity
pay and
interest volatility
and repay
and/or
principal.
investments
in portfolio
companies
high
level
of
risk
loss
of
principal.
We
m
We
not in
not
realize
gains
in
from our
and
equity
investments.
When
well.
we may
and
invest also
mezzanine
directly
senior
securities, securities.
invest gains in
in various
equity of
warrants or other equity we may acquire Our goal is ultimately to dispose of such However,
In addition,
it
securities equity
as
interests in
realize
upon value
our
and,
disposition in
fact,
such
interests. in value.
the
equity equity
interests
we
receive
or invest or
may
appreciate
may
decline
the
securities
we
receive
in which would be advantageous to resell. on resale during periods may be subject to restrictions and any gains that we do realize interests, Accordingly, we may not be able to realize gains from our equity of any equity interests disposition may not be sufficient to offset any other losses we experience. invest
on
the
Our investments
your
entire
in
small
and
.[Qd
companies
privately�held
companies
are extremely
risky
and you could
lose
investment.
Investments
including the
in
small and middle�market
privately�held
companies
are
subject
to
a
number of
significant
risks
following:
�
Small and
loans capital
middle�market
to them.
may have
includes
limited
financial financing that
resources
to this to
and may
that
not
be
able
to
repay have
the
we make
sources
Our
strategy to
providing
companies
typically
do
not
readily this
available
them.
it
While
we
believe
provides an
their lines they
attractive to us
opportunity
for us
to generate
�
profits,
may make
difficult typically
for the
borrowers narrower
smaller as general
repay
loans
upon
maturity.
Small
large
and middle�market
companies. Because and
companies our market
target
have
are well
product
businesses,
and smaller market may be more
In
shares than
to
companies
as
vulnerable
competitors’
actions
conditions,
economic
downturns.
addition, greater
smaller
companies
resources, of
�
may more
face
intense
competition,
including
competition
from companies and
other
with
financial a larger
extensive
development, and
technical publicly
manufacturing,
marketing
capabilities,
and
number
qualified
is
managerial
little
personnel. available
There
generally to
or no
information companies,
about
there
is
these
privately�held
little
companies.
publicly professionals
Because
we seek
operating
make investments
and
financial
in privately�held
generally
or
no
available to
information
investigations
about them. of
these
As we
a
result,
we
rely
on our investment
their operations these
perform due
diligence learn
all
privately�held
companies,
to
and
their prospects.
We
�
may
not
of
the
material
information
need
know
regarding
companies
through
our
investigations.
Small
and middle�market
companies
to litigation,
companies
generally
have
less predictable in their operating businesses to
operating
results,
results.
We
to
expect
to
that
our
portfolio parties of
may have
significant
variations
may from time
subject finance
time be
risk or
may be engaged
require position,
in rapidly
changing
with products
their
a substantial
obsolescence, their
may
substantial
additional
capital
support
operations, or net
expansion
adversely
maintain
affected other
�
competitive
in the
by changes
tests
business
cycle.
may otherwise have a weak financial position Our portfolio companies may not meet
by are
their senior likely also lenders. to
may be
income,
cash
flow and
coverage
typically
imposed
Small
success
and middle�market
of
a
businesses
more
be dependent on
the
on
one or two
persons.
Typically, efforts
the or
small or middle�market
company
depends
management
talents
and
of one
60
Source:
MVC CAPITAL,
INC.,
10�K,
January
1
T
of
two
persons have
a
or a small material
group adverse
of
persons.
The
death, portfolio
disability
or resignation and, in turn,
of
one
us.
or
more
of
these
persons
could Small
�
impact
on our are
company
on
and middle�market
companies our
likely
to
have
greater exposure have fewer
to
economic
than
downturns
larger
than
larger
companies. economic
�
We
expect
that
portfolio likely
companies have
will
resources
businesses
and
an
downturn
may
thus
more
a material limited
adverse
effect
on them.
Small and middle�market investments
histories are other in
companies
that
may have
risks that
operating
criteria.
histories.
We
may make
with
debt limited
or equity operating
to,
new companies
to the
meet
our investment
Portfolio face
companies
exposed
risks,
operating
new
businesses
and
may be
particularly
susceptible officers.
among
market
downturns,
competitive
pressures
and
the
departure
of key
executive
Investments
U.S.
in
foreign
debt or
equity
may
involve
significant
risks
in addition
to the
risks
inherent
in
investments.
Our investment
applicable typically control limits
strategy
may
by
the
result
in
some investments
Investing
in debt
or equity
of can
foreign
companies
us
(subject
to
prescribed
1940
Act).
in foreign
companies
include
expose
rates,
to additional in
risks
not
associated regulations,
with
investing
in U.S. social
companies.
These
risks
exchange
of
changes
exchange markets and
political
and
is
instability, the case less
expropriation, in the
imposition
States,
foreign
taxes,
less liquid less
less available supervision obligations, of
information
than
generally
United
higher
laws, price
transaction difficulty
volatility.
costs, in
government
contractual
exchanges,
brokers
and
issuers,
developed
standards
bankruptcy and
greater
enforcing
lack
of uniform accounting
and
auditing
The market for
business
private
equity
investments
can
be highly
ability
competitive.
In
in
some
cases,
our
status
as a regulated
development competition
company
in
may hinder our
activities
affiliates
to participate
investment
other
opportunities.
We
small
face
our
investing
from of
private
equity
funds,
business service
development
financial business
companies,
investment
banks,
investment
large
industrial,
technology, investors.
and
companies,
business
investment company,
companies,
are required
wealthy
individuals
and
foreign
As
a regulated
development companies
requirement.
we
to disclose securities. this
quarterly
and
the
value
of any
portfolio
the name and business description Many of our competitors are not subject
of
to
portfolio
this disclosure portfolio to a
Our
obligation
to disclose
information
current
could
future, subject
hinder our
ability
to invest
in certain
companies. given
Additionally,
other than
regulations, a private than
at
and
not
portfolio
company
greater
equity
fund
may make us less attractive as a potential investor to the same regulations. Furthermore, some of our
would
competitors have purchase precluded
resources
we
do.
Increased
prices.
competition
a result
make
it
more
difficult
for us
to
or originate
investments
certain
attractive
As
of
this competition,
Sometimes
we may be
from making
investments.
Our common The
higher
control or trading
stock
price
of the
can
be
volatile.
price than not
our
price
common
you pay
related
stock for to
may
fluctuate
substantially.
The
price
of
the
common
stock are
may be
our
lower
your our
shares,
depending
on
many
These
factors, factors
some of which
include the
beyond
and
may
and
be
directly
operating
performance. market
following:
�
price
�
volume
fluctuations in the
in the
overall
stock
from time of
to
time of
business
significant or other
�
volatility
market
price
and
trading
volume
securities
development
companies
financial resulting equity
services
companies
trading in derivative securities, or tax in or securities related to
volatility
from
our
common
positions
stock
including
puts,
calls,
long�term
�
participation policies
LEAPs,
with
or short respect
trading
changes
�
in regulatory or anticipated
guidelines earnings
to business in
development
results
companies
or
or
RICs
actual
changes
our
or fluctuations
our
operating
changes
in the
expectations
�
of
securities conditions
analysts and trends
general
economic
61
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
�
loss
�
of
a
major funding source of key
personnel.
or
departures
We
are
subject
to
market
the
discount
risk.
As with any
sold, losses the the price the at the
stock,
price
of our
shares
will fluctuate the original
with market
investment.
conditions
and
other
factors.
If shares gains
are or
received
sale
may be more
shares
or less than
Whether
but will
investors
will realize
upon
of our
will not the
in
depend
directly of
upon
our
NAy,
be
depend by such
upon
the
market
price
of
shares
time of
sale.
Since
shares
market
the the
price
our
shares
will
affected
factors
as the other
relative
demand
our
for
and supply
of
the
market, shares
general will trade
market
at,
and economic
or
conditions
and
factors shares
beyond have
control,
we cannot
at a
predict
whether
to
below
above
as
our
NAy.
of
other
Although
our
recently
traded
premium
our
NAy,
a
historically, to
our
shares,
as well
those often
closed�end over
investment
companies,
have
frequently
traded
at
discount
their
NAy,
and
to
which
discount
fluctuates
time.
Changes Because
realized rate
at
in interest
rates
may
affect
our
cost
of
capital
net
operating
investments,
me.
our
net operating
we have and may continue
unrealized gains or losses,
to
borrow
money we
make
income
before
net the that In
and which
or net rate at rates
investment which
not
income,
invest
we borrow
change
in
funds market
and
the
between may be dependent upon the difference these funds. As a result, there can be no assurance adverse
effect
a significant periods of
interest rates,
will cost
have
a material
on our
net
operating
income.
sharply
rising interest a
our
of funds would
increase,
which
could and
reduce
our
net to
investment our
income.
investing
We
may use
combination
of long�term our short�term financed
in rate
and short�term
credit
facilities
borrowings
as a
equity
capital to
finance
activities. fixed�rate
We
may
utilize
means
to bridge
long�term
debt.
financing.
Our
use
long�term
interest
investments
are
primarily effort
with
equity
and long�term
to interest permitted
fixed�rate rate
We
may
rate risk
management
include various
techniques
interest
an
to limit activities
our exposure
to the extent
fluctuations. the
Such
techniques
may
hedging
by
1940
Act.
The
war
with
Iraq,
terrorist
attacks,
the
Middle
East
crisis in
and other we
acts
market
for our
common
stock,
impact
the
businesses
which
invest
or war may affect any of violence and harm our operations and our
profitability.
The
the U.S.
war with
Iraq,
its
aftermath
and
the
continuing occupation
markets.
of
Iraq
are
likely
to
have
the
a
substantial
impact
on
and world economies
predicted
and
securities
The
nature,
scope
and
duration
of
war and of
occupation and your
or in
cannot be
investment. U.S.
with any
assure attacks
certainty.
Furthermore,
there will not
terrorist attacks
may harm
or
our
results the
operations States
We
invest
cannot Such
you
that
be
further
terrorist attacks States
against
United
businesses.
and anned
indirectly,
conflicts
in the
United
elsewhere
in the
may impact
United
States.
the
businesses
which from
we
directly are
or
by undermining
economic
conditions
Losses
resulting
terrorist events
generally
uninsurable.
62
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Item
8.
Financial
Statemenis
and
mentary Data
CONSOLIDATED FINANCIAL STATEMENTS
MVC
Consolidated
Capital,
c.
Sheets
October
Balance
2
31,
October
31,
ASSETS
Assets Cash
Short
and cash
equivalents
at
$ market
(cost value (cost
66,217,123
$
26,297,190 51,026,902
term investments
at fair
$�and
and
(cost
$51,026,902)
�
Investments
value
$286,850,759 investments
$171,591,242) $108,557,066 and
Non�control/Non�affiliated $74,495,549)
Affiliate
investments
(cost (cost
$71,672,386 $106,621,307
and $40,370,059) and $56,725,634)
Control investments
Total
investments
interest
at fair
value
receivable
275,891,552
1,617,511
1
71,848,976 75,248,140 2,597,547
33,685,925 32,385,810
122,297,679 902,498 364,780 98,374 303,255
Dividends, Prepaid Prepaid Deferred Deposits Other Total
assets assets
and
fees
expenses
taxes tax
�
$
5 [U[h
548,120 120,000 50,000,000 50,000,000 7,172,352 1,635,600 774,048 402,133
�
$
LIABiLITIES
Liabilities
AND SHAREHOLDERS’ EQUITY
$
$
Revolving
credit
facility
� �
1,117,328 807,000 353,606 276,621 3,117 79,708
Term
loan for incentive
Provision
compensation and and
benefits
liabilities
(Note
5)
Employee compensation
Other accrned expenses
Professional fees fees
Consulting Payable Taxes
for
investment
purchased
payable
fees
Directors’
Total
liabilities
Shareholders’
equity
$0.01
1
33,455 150,000,000
shares
70,999
35
�
Common
and
Additional
stock,
par value
authorized
19,093,929 231,459 353,479,871 22,026,261 231,459 358.571,795 13,528,526 (12,429,181) (78,633,248) (49,293,563)
19,086,566
shares
outstanding,
respectively
paid�in�capital earnings to stockholders realized loss
Accumulated Dividends
paid
Accumulated Net
unrealized stock,
net
depreciation at cost,
Treasury Total Total Net
4,052.019
and
4,059,382
shares
held,
respectively
shareholders’
liabilities
equity equity
$
and shareholders’
per share
2
[U[h
(21,592,946)
(73,016,601)
33 33
(10,959,207)
asset
value
1
$ $
1
The accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
63
Source:
MVC CAPITAL,
I
10�K,
January
10,
2007
T
of
MVC
Consolidated
Capital,
Inc.
Schedule
31,
of
Investments
October
2006
Company
Non�control/Non�affiliated Actelis Networks, Inc
Industry
investments
Investment
�
32%(
,[
g,
I
in
BP
Technology
Investments
Preferred (150,602
Corp.
Manufacturer
of Precision
�
Second
Note Second Note
Machined
Components
10
Stock shares)(d) Seller
Lieja
P
$ $ 2,473,521
h)
[U[h
Fair
Lien
Seller
16.0000%,
0/20[
14.0000%,
2,627,538
2 1
5,000,003 $
�
,4 ,[
9,862,650 2,858,549
,538[
5,101
Clothing.
LLC
Apparel
Second
I,[h
Inc
Technology
IOfi I
Heniy
I
ments[h
18/2A 18/2 I 18/2
Term Lean Term
Loan
Lien
Loan
h)
10,041,165
10,041,165
9.6500%, 2,910,000
B
8000%,
2,000,000
[U[h
4,520,350
1
3,000,000
2,858,549
Preferred (602,131
Technology
r[Qred
(5,802,259
Company
Building
icals
lty[h
Term
Turin
/20[Q1
Innovative Brands,
0n ,
Stock shares)(d) Stock
�
5,000,000
15,000,000
Loan
A B
8
8244%,
3,000,000
Loan
2,000,000
2
[U[h
15,000,000 2,988,002 3,750,000 4,015,402 10,000,000 3,007,411
3,000,000
LLC
Consumer
Products
JDC
Lighting,
LLC
Data
Electrical
Distribution
ne[Qan
SafeStone
Technology
Technologies
PLC
Technology
I
Investments Investments Equipment Services
t[Q
Senior
Loan
01.1250%.
12011(
170000%,
Subordinated
Common
Preferred (2,106,378
Stock
l/
(5,786 shares)(d, 13
15,000,000
Debt
h)
1
.000[U
3,035,844
3,035,844
d)[h
e)
�
�
Stock
xis,[
SP
I
Inc. Canada, Safety
Technology
Common
Stock shares)(d)
15[h
Inc.
Laboratory
Research
Term
Loan B
1/20[
Senior Subordinated 16.0000%,
3244%, Debt
h)
Storage
LLC
Self Storage
Term
0/20[
Term Loan
1
Loan Loan
1/20[
8.7500%,
8.7500%,
1 1 1 1
3,059,300 3,059,300
�
.66
[U[h
.95
1,320,500
1,320,500
619,000
Total
U.S
,
Inc.
Engineering
Term
A B
9
8300%,
4,908,257
12/31/2010(h)
Term
/31
Loan
13.8300%, 981,651
Sub
Total
Non�control/Non�affiliated investments
Affiliate
c, g,
�
(a,
Inc.
investments
1
5,879,242 7,000,000 750,000
4,908,257
6 9 .8
1
8.957,880
4,908,257
3[
�
750,000
1
Dakota
Gmwem
Pasta
Company,
Manufacturer
of Packaged
Foods
Common
(1,081,195 Preferred (7,156,760
Stock shares) Stock thares)(d) Stock sharesXd) Debt
h)
Endymion
Systems,
Inc.
Technology
Investments
s[Qi
Center, Impact
Pharmacy
Inc
&
Inc.
Health
lthc �
Confections and Distribution
Retail
Common
(2,000,000
Confections,
Manufacturing
9
Senior
Subordinated 07/30/2009(b,
170000%,
5,468,123
Senior
Subordinated
Debt
0[Q08[Q(
Stock (252
Common
Theme
are
Debt h) Stock
325,000
Marine
Exhibition
Corporation
Park
Senior
Subordinated
11.0000%, Convertible (20,000
/20l3(
Preferred shares)(b)
10,091,111
Octagon
Credit
Investors,
LLC
Financial
Services
Term
Revolving 9.5744%, Limited
Interest
1 1
Loan
9.5744%, Line of Credit Liability Stock Lien Second Note h) 15
[U[h
5,000,000 4,931,096
2 2
5,390,649 321,218
5,468,123
325,000
[U[h
9,899,988
123[U
10,091,111
.0
5,000,000
3,250,000
3,250,000
Company
Phoenix
Coal
Corporation
Coal
Processing
and
Production
Common
1,
0000%,
7,088,615 (9 shares)(d)
1[U[U[h
1[Q1(b[Q,
Human
Inc.
6
[U[h
6.000,000 5,000,000
.0
8
,2
1,000,000
PreVisor,
Vitality
Inc.
Capital
Management
Beverages
Foodservice,
Non�Alcoholic
Common Common
(500,000
Stock Stock
6,000,000
shares)(d)
8,500,000
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
Sub
Total
Affiliate
i
10 (d)[h
Preferre
Stock shares)(b,
h)
9,660,637
[U[h
7 [U[h
consolidated financial statements.
�
1 1
.24
The accompanying
notes
are
an
integral
part
of these
64
Source:
MVC CAPITAL,
I
10�K,
January
10,2007
T
of
MVC al,[h
Consolidated Schedule October Company
Control auto Baltic
Inc.
of Investments
31,
� (Continued)
2006
MOTOL
Motors
�[h
BENI
Corporation
Industry
54.34%(a,
c,
Investment
g,f) Automotive
P
$ 4,500,000 1,000,000 6,187,350
[U[h
Fair
om[Q
Dealership Dealership
Ohio
OD
und
Medical
Corporation
fur
Medical
Soil
Device
Manufacturer
Sanierungsgesellschaft
Remediation
Deponien
last
1 s 0l
Common
Senior 10.0000%, Brtdge Stock (200 shares)(d,
e)
2,000,000
$
2,000,000
Subordinated
Debt
06/24/2007(e,
h)
$
4,500,000
4,500,000
Loan 120000%,
h)
Common
(60,684
Stock
d,[h
Stock
e)
[U[h
17,000,000
8
1,000,000 5,989,710
1,000,000
smo[
(5,620
26,200,000
Term Loan
7.0000%,
h)
Common
Equity
e)
e)
Preferred
Equity
lnterest(d,
SIA
EM
Auto
Automotive
Dealership
Common
(47,300 Second
Stock shares)(d, Lien
e)
Summit
Research
Labs,
I
&
Specialty
s[h
�
Landscaping Equipment
15/2
Preferred Senior 14.4260%, Junior
Loan
h)
14.0000%, 5,044,813 shares)(d)
Stock
(800
1 1
551[h
5
5.989,710
.000
1,
8,000,000
1
8,000,000
4,948,327
0[Q
6,607,859
[U[h
Timberland
Irrigation,
Machines
Inc.
Distnbutor and
Irrigation
Subordinated
Debt
t[Qy,[h
Revolving
12.5000%,
Common
07/2
(542
Line
of
i[
h)
6.607,859
6,551,408
2,829,709
Stock
shares)(d)
Turf
Products,
LLC
r[Qib
and
I
Wairants(d)
�
Landscaping
Senior
Subordinated
1
Debt h) 7,676,330
Equipment
15.0000%, Limited
Interest(d)
10[Q(b[Q
Liability
Company
r[Qa
loc
Vendio
By.
Renewable
Energy
Common
Revolving
Equity Line
80000%,
I O/
of Credit
h)
e)
1 1 1
2,829,709 5,420,291 2,829,709 4,420,291
�
�
7,627,137
7676,330
3,821,794
�
5,821,794
,49
2,966,765
�
,765[h
143,614
[U[h
5,500,000
1
800,000
14[U
[h
Services,
Inc.
Technology
Investments
Common
(10,476 Preferred
Stock
shares)(d) Stock
.[Q1[Q8
s
(81,000
Vestal
f[Qec
Total Control
Enlerpiiues,
nc
Iron
Foundries
Senior
Subordinated
12.0000%,
Sub
INVEST
(a)
Investments
ASSETS
1
from
public sale
Common
Stock
0
Debt
800,000
shares)
$
.[Q8
Fund
costs.
[ ,6 1 .6 1
negotiates to to
all
�
800,000
$
500 ,[Q8
certain
,000[U
These
aspects
securities
are
restricted
wtthout of
oo
these
registration investments, in
under
the
Securities registration
Act of
tights
1933.
The
of
the
method accrue
and
a
timing portion
of the of their
disposition
including in
and which
in the
related
is
(b) (c)
These
All of
securities the
idividend
are issued
"payment
kind"
interest/dividends as defined
capitalized
the
investment.
Fund’s
auto
equity
and
debt
investments Baltic Velocitius
by
eligible
portfolio
companies,
Investment
Company
fur the
Act of Deponien
1940,
und
IA[h
in
except
MOTOL BM Auto
it
BENI, and
Motors
Corporation,
Safestone
Technologies
significant
PLC,
SGDA l[Qlschaft[h
assistance of
By.
The
Fund
makes
available
managerial
portfolio
companies
(d) (e)
(f)
which
has
invested.
Non�income The
principal
producing
operations are 3 for
assets. of these portfolio
companies
are as of
located
outside 31,
of 2006.
the
United
States.
Percentages
based
further
on
net
assets
of $236,993,374
regarding
October
(g) (h)
See
All
Note
or a
information securities value.
"Investment
Classification." as collateral for the
portion zero
of
these
have
been committed
�
Guggenheim
Corporate
Funding,
LLC
Credit
Facility.
Denotes
cost/fair
The accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
65
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Consolidated
Capital,
Inc.
Schedule
31,
of Investments 2005
Company
Non�control/Non�affiliated Actelis Networks.
Inc.
investments
Amersham
Corp.
BP
Clothing,
LLC
I1 re
�
C
g,
October
Investment
I
Second Note Second
P
$
[U[h
Fair
Technology
Investments
Preferred (150,602
Manufacturer
of
Components
Apparel
1
Stock Lien Lien Stock Stock Stock Stock
shares)(d) Seller
5,000,003
$
�
2,473,521
12010[
I
8406%,
$
1[h
9,166,667
2473,521
06/02/2009
I[Q
Inc.
Technology
ments[h
Investments
2,[h
Integral
Inc.
Technology
Development
Corporation
Technology
JDC
Lighting,
LLC
Electrical
Distribution
Lumeta
Corporation
Technology
I I
Investments Investments Investments
Preferred (602,131 Preferred (5,802,259 Convertible 11.7500%, Senior
s
Loan
shares)(d) Credit sbares)(d) hares)(d) Stock
8,998,430
9,166,667
Subordinated
170000%,
te[Q
(384,615 Preferred (266.846
1 1/
Debt (5,786 Debt
,350[h
15,000,000
� �
1,122,216
Facility
I
16[h
1
3,025,871 250,000
3,090,384
3,090,384
[U[h
MainStream Octagon Data Credit Investors, Technology
1
43,511
.489 ,000
Common
Senior 15.0000%, Limited
Interest
shares)(d)
3,750,000
�
4664,794
LLC
Financial
Services
Subordinated
/[Q20[
Liability
5,145,912
,[
724,857
Company
l)[h
SafeStone Technologies
[U[h
PLC
Technology Preferred (2,106,378 Sonexis,
Inc.
5
.0
1,228,038
Technology
SP
Industries,
Inc.
Laboratory
Research
Equipment
l[1
Sub
Total Non�control/Non�affiliated Dakota Growers Pasta
01
s[Qm
(131,615
Stock
re[Q
t
4,015,402
�
�
Stock
shares)(d)
Term Loan B
Senior
Subordinated
17.0000%,
inveStments
g,
s) Manufacturer of Packaged Foods
Company,
Inc.
Common
(909,091 Preferred (7,156,760
Stock
shares)(d) Stock
Endymion
Systems,
Inc.
Technology
Investments
Impact
Confections,
Inc
Confections Distribution
Manufacturing
and
Senior
Subordinated
17.0000%, Senior
840
Common
ProcessClaims,
Inc.
n[Ql[ Debt
07/29/2008 Stock (252
0 0
Debt shares)(d) Debt shares)(d) shares)(d) Warrants(d)
10,000,000
4,020488
6,650,360
6 1 7
3,947,304
.34
5,000,000
88 .6
5,514,000
7,000,000
�
5,228,826
5,228,826
,000
Technology
Investments
Preferred (6,250,000 Preferred (849,257 Preferred
Stock
Stock sharesXd) Stock
Vitality
Foodservice,
Inc.
Non�Alcoholic
Beverages
Yaga,
Inc
Technology
Investments
ars s
Common
(500,000 Stock shares)(d) Stock Preferred (1,000,000 Preferred (300,000 Stock shares)(d) Stock Preferred
2 8 2
5,133,069 318,986 2,000,000 400,000
325,000
2,000,000
2
400,000
�
000[U
5,000,000
,51 �
179[
300,000
,000[h
Sub
Affiliate investments
Total
2 2 4
financial statements.
7 1
10,517,984
5,000,000
�
�
,38
�
The accompanying
notes
are
an
integral
part
of
these
consolidated
66
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Consolidated Schedule
Capital,
Inc.
of Investments
31,
�
(Continued)
October
2005
Company
Control Baltic
ments[h
Motors
�
&3
Industry
c, g,
Investment
h) Automotive Dealership
Corporation
Common
(54,947
1s
Senior Subordinated Stock Stock Revolving 7.0000%, Line
P
4,500,000 $ 1,237,700 4,579,050
[U[h
Fair
Debt $
/2[Q00
I
Ohio
Medical
Corporation fur
Medical
Soil
SODA
gesel[Qlsch
and Alitasten
edia
Device
Manufacturer
Common
Deponien
Term
Timberland
I
Machines
&
Irrigation,
Distributor
Irrigation
�
Landscaping
and
Equipment
0s 0 0
(5,620 of Credit
.50
17,000,000 1,237,700
6
4500,000
4,304,560
$
4,500,000
,00
17,000,000 1,237,700
7
[h
Loan
7.0000%,
Equity
Interest(f)
,260[U
6,318,684 6,234,373
3
�
.560
.260[U
Senior
.00
12
Subordinated
Debt
6,318,684
Junior
Revolving
Line
of Credit
5000%,
07/07/2007 Stock (450
3,250,000
Common
s)(d)[
n(d)[h
i[Qo[
s.[h nc
Technology
ments[h
Common
(10,476 Preferred
Stock shares)(d) Stock shares)(d)
1 ,5
3,250,000 4,500,000
3,250,000 4,500,000
�
�
,44
Senior 12.0000%,
Vestal
Manufactunng
Enterprises,
Inc
hon Foundnes
Subordinated
Debt 900,000
/201[Q
Stock sharen)(d)
Common
(81,000
Sub
Short
Total
Control
Investments
Term
Investments
�
.S
Government
1 1 5
[U[h
900,000
900,000
[U[h
,22
14,560,162
.6
12,3
25.67%(g)
.S uy[h u[
&
Agency
3.4400%,
12/01/2005 14,600,000
Securities
32200
,[h /2006[
,
12/29/2005
9,865,000 14,856,000 12,000,000
3.4300%,
01/19/2006
Sub
Total
Short
Term
Investments
TOTAL
.2[Q
(a)
INVESTMENT
ASSETS
$
[U[h
Act
1 5 [
14,560,162
,75
[U[h
9,812,368
14,750,225
$
These Fund
securities negotiates
are
restncted aspects
from of
costs.
public
sale
without and
prior
registration the
under of
the these
Securities investments,
of
1933.
The
certain
the
method
timing of
disposition
including
registration )[h
rights
and
related a
These
securities to the
accrue
portion
of
their
idividend
are issued
in
"payment
in
kind"
interest/dividends
which
is
capitalized
)[h
investment. equity
All
of
the
Fund’s
and debt investments of
1940,
by
eligible
portfolio
companies,
as
defined
in the
Investment
Company
to
Act
fur
except und
Baltic
Motors
Corporation,
Safestone
available
Technologies
significant
PLC
and
SGDA
Sanierungsgesellschaft assistance (d)
(e) all
Deponien
Altlasten. in
The Fund
it
makes
managerial
of
the
portfolio assets. to
companies
which
has
invested.
Non�income
Also
received principal
producing warrants
operations are
purchase
these
a
number of
shares
of
are
preferred located
stock outside 31,
to
be determined
the
upon
exercise.
(f)
The
of on
portfolio
companies
of
United
States.
)[h
Percentages See Note Denotes
3
based
net
assets
of $198,739,000
as
of October
2005.
(
�
for further cost/fair
information
value.
regarding "Investment
Classification."
zero
The accompanying
notes
are
an
integral
part of
these
consolidated
financial
statements.
67
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,2007
T
of
MVC
Consolidated
Capital,
Inc.
Statements
of Operations
For
O
the
Year
31,
Ended
[U[h
For
the
Year
31,
Ended
[U[h
For
the
Year
Ended
October
October
Operating
Dividend
Affiliate
Income: income
investments investments $
Control Total
Interest
dividend
income
(net
income
and
of foreign
taxes
withheld
of $18,433,
1 2
89,842
$
1,346,760
[h
�
5,134,907 874,041
�
$
� �
$0,
$0, respectively) investments
Non�control/Non�affiliated
Affiliate
investments investments
interest
Control Total
income
Fee income
/[QNon�affil
Affiliate
investments
investments investments
Control Total Other Total
fee
income
income income
operating
Operating Employee
Incentive Insurance Legal
Expenses: compensation compensation
3 1 2 3 7 1
6,930,733 2,922,372 1,187,954 470,530 3,498,571 6,055,024 471,711 685,396 603,328 334,212 381,944 344,576 205,071
2,308,502 218,904
[U[h
.756[U
398,520 232,256
.9
109,538 727,595
[U[h [U[h
.19
2,336,242 1,117,328 590,493 529,541 484,420 461,769 287,797 192,255 148,875 137,191 116,482 71,785
[U[h
.384[U
1,365,913
and
(Note
benefits
5)
�
959,570 810,848 90,828 369,085 154,938
fees
Facilities
Other Audit
expenses fees fees fees
Consulting Directors
�
175,956 102,593 146,509 80,278
Administration Public relations and and fees
Printing
Interest
postage other
r[Q
of before
costs
Total
operating
expenses
14,568,422
Litigation
recovery
management
taxes
fees (Note
12,
13)
Net Tax
operating (Benefit)
income
Expenses:
Deferred Current
tax benefit tax expense
Total
Net Net
Net
I
tax operating Realized realized
Affiliate
(benefit)
expense
income
Unrealized
and
Gain
(Loss)
on
1 3 4 1 3
194,826 70,316 129,438
,77
6,504,949
�
�
4,258,990 370,000
,435[U
(215,977)
,39
(244,865)
(87,278)
[U[h
10
,044
.92 .46
gain
(loss)
on
investments investments
Non�control/Non�affiliated investments currency gain
(loss)
Foreign Total Net change
net realized
in
on
investments on investments
unrealized unrealized
appreciation gain
Net Net Net
realized and increase increase
on
investments
in net in net
assets assets
resulting
from
operations
$
3 .
67[h �
5,221,390
(151,877)
(6,684,320) 3,407,457
(17,465,808)
,29
.366[U[
18
[U[
102) �
(37,794,910)
4
from
.33
of
these
[h
$ $ $ financial
[U[h
[U[h [U[h
.38 ,58
$
per
share
resulting
operations Dividends declared
2
0
integral part
$ $
per
share
The accompanying
notes
are
an
consolidated
statements.
68
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Consolidated
Capital,
I
of
Statements
Cash Flows
For
Cash flows from Operating
Net
increase in net assets
O
the
Year
31.
Ended [U[h
For
the
Year
.[l
Ended
[U[h
For
the
Year
,[l
Ended
October
October
Activities: resulting
from
$
operations
47,336,368
$
26,268,184
$
11,605,531
Adjustments
assets
to reconcile
net
increase
in net
resulting (used) (gain)
from by
operations
to net activities:
cash
provided Realized Net
operating
loss (appreciation)
(5,221,390)
3,295,550
37,794,910
change
in unrealized
depreciation
(38,334,356)
of discounts
(23,768,366) (235,428)
(49,381,974)
Amortization
Increase in
and
fees
(505,428)
accrued
payment�in�kind (2,183,786) flow through income (279,422) (1,370,777) (114,845) (101,861)
dividends and
Increase
interest of
in allocation in assets
�
Changes
Interest
and
liabilities:
and
fees
receivable
(715,013)
(2,232,767)
(474,207) (130,977) (98,374) (215,977)
(275,661)
Prepaid Prepaid Deferred Deposits
expenses
taxes tax
98,374 (244,865) (120,000) 33,804
1
(87,278) (45,445)
assets
Payable
for
(43,155) 79,708 1,576,079 (17,315,000) (37,950,271) (313,505,406)
investment
purchased
(79,708) 7,492,705
�
Liabilities
112,361 (34,210,000) (20,848,139) (398,988,675)
Purchases Purchases Purchases Purchases Proceeds Proceeds
of
equity debt short
investments instruments term investments
(45,913,914) (111,105,943) (406,066,963)
of
of of
warrants
equity
from
investments
instruments
from debt
of
Sales/maturities
short
term investments
Net
cash
provided
(used)
by operating
activities
Cash flows from Financing Activities: Issuance of common stock
Repurchase
Distributions
of
common
stock
to
shareholders
paid on)
Net borrowings
revolving
under
(repayments
credit
facility (used) for
Net
cash
provided
financing
activities
Net
change
in
cash
and cash
equivalents
for
4 50 [ 9
�
10,593,459 37,895,884
�
(550,000) 4,309,991 8,478,894
23,396,719
[U[h
60,478,127
10,796,111
32
�
�
�
(9,081,994)
the year
Cash and cash Cash and cash
equivalents, equivalents,
beginning end
of year
$
of year
notes are
3 2
[U[h
of
these
10
(4,572,359)
.47
[U[h
.941[U[
$
1 23
(31,571,184)
(1,475,165)
�
.091[U
$
[U[h
financial
The accompanying
an
integral
part
consolidated
statements.
69
Source:
MVC CAPITAL,
INC.,
1
January
10,
2007
T
of
During $�
in interest
the
years
ended
October
31,
2006,
2005
and 2004,
MVC
Capital,
Inc.
paid
$1,471,556,
$32,185
and
expense,
the
respectively.
During $�
in
years
ended
October
31,
2006,
2005
and 2004,
MVC
Capital,
Inc.
paid
$217,204,
$379,623
and
income
taxes,
respectively.
Non�cash
During dividend and balance
of the the
activity:
years
ended
October
31,
2006,
2005
and 2004,
MVC
Capital,
Inc.
recorded
payment added
in
kind
principal
interest
of $2,183,786,
$1,370,777
as
and $101,861,
respectively.
This amount
was
to the
investments ended
in
and recorded October
idividend
2005 from
income.
During and
$�,
the
years
31,
2006,
and 2004,
its
MVC
in cost
Capital, in
Inc.
was
allocated
$587,273,
$244,557
this
respectively,
flow�through and
$�,
income
equity received the
investment cash
Octagon
the
Credit
Investors,
LLC. Of
$114,845 was
then
amount,
$�,
$307,851,
$129,712
respectively,
was
and
balance
of $279,422,
fair
and
respectively,
was
undistributed
and
therefore
increased
of the
investment.
The
value
retroactively
increased
by
the
Fund’s
Valuation Committee. 826 of of cash
distribution
On August
totaling $8,317,
3,
2005,
MVC
Capital,
Inc.
re�issued
shares
treasury plan.
stock,
in lieu
a
in
accordance
with
the
Fund’s
dividend reinvestment
On November
totaling
2,
2005,
MVC MVC
Capital, the
Inc.
re�issued
1,904
shares
of
treasury
stock,
in lieu
of
a
cash
distribution
$19,818,
in
accordance 2005,
line
with
Fund’s
Inc. shares
dividend reinvestment $286,200
plan.
On December
Inc.’s junior
27,
Capital, for
exchanged of
it’s
from
the
Timberland
Machines
& Irrigation,
revolving
31,
of
credit
29
common
its
stock.
On December
preferred stock.
2005,
MVC
Capital,
Inc.
exercised
ProcessClaims,
Inc.
warrants
for
373,362
shares
of
On January
warrant
defined regarding
3,
2006,
MVC
Capital,
Inc.
exercised
its
warrant
in
Octagon
Credit
is
Investors,
LLC.
After
the as
was
exercised,
MVC
Capital’s
ownership of
1940.
increased.
As
3
a
result,
Octagon
now considered
for further
an
affiliate
in the
Investment
Company
Act
See Note
to the
financial
statements
information
"Investment
Classification."
On February
totaling
1 2006,
in
MVC
Capital,
Inc.
re�issued
1,824
shares
of
treasury plan.
stock,
in lieu of
a
cash
distribution
$19,953,
accordance
with
the
Fund’s
dividend reinvestment
the
On
Deponien added
April
28,
und
ltMVC
2006,
credit
Capital,
Inc.
increased credit bridge
availability
under
the
("SGDA")
facility
revolving and
the
facility loan
by $300,000. removed
The
SGDA Sanierungsgesellschaft SGDA bridge note for $300,000
Capital’s
fur
was
to the
revolving
refinancing.
On May
totaling
$19,761,
1
in
was
from
MYC
books
as
apart
of the
MVC
Capital,
Inc. the
re�issued
1,734
shares
of
treasury plan.
stock,
in lieu
of
a
cash
distribution
accordance
with
Fund’s
dividend reinvestment
On August
totaling
1
2006,
MVC
Capital,
Inc.
re�issued
1,901
shares
of
treasury plan.
stock,
in lieu
of
a
cash
distribution
$22,240, August
in
accordance
with
the
Fund’s
dividend
the
reinvestment
On
Altiasten
25,
2006, term
MVC
loan line
Capital,
Inc.
increased
SODA
revolving
Sanierungsgesellschaft line of Capital’s credit for as
fur
Deponien was
und added
to the
("SGDA")
and
the
by $1,608,300. of
credit
The SGDA
removed
$1,608,300
apart
term
loan
revolving
12,
was
from
MVC
for 41
books
the
of
the
refinancing.
On September
Inc. junior Inc.’s
2006,
MVC
credit
Capital,
Inc.
decreased
in
the
balance
under
of
Timberland
Machines
revolving
stock.
line of
by $409,091
exchange
shares
Timberland
Machines
& Irrigation, & Irrigation, & Irrigation,
Irrigation,
common
On
Inc.’s
September
22,
2006,
MVC
credit
Capital,
Inc.
decreased
in
the for
balance 23
under
of
the
Timberland
Machines
Inc. junior
revolving
stock.
line of
by $225,000
exchange
shares
Timberland
Machines
&
common
The accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
70
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Consolidated
Capital,
Inc.
Statements
For
O
the
of
Changes
Ended
[U[h
in
Net
For
Assets
Year
31,
Year
31,
the
Ended
[U[h
For
October
Operations: Netoperatingincome Net
realized gain (loss) appreciation $
Net change
in unrealized in
Net increase
Shareholder
Distributions
net
assets
from operations
Distributions: to shareholders distributions to shareholders
3 4
3,780,622 5,221,390
(9,163,765)
[h
the
Year
Ended
$
5,795,368
$
18,467 (37,794,910)
[U[h [U[h
(4,580,676)
(3,295,550)
Return
of
capital in
Net decrease
distributions
net
assets
from shareholder
9,
�
�
81,771
�
4.
60,478,127 1,400,000 (402,296) 8,317
�
1, 1[
(10,072)
Capital
Share
Transactions:
Issuance of Reissuance investment
common
of
treasury
stock stock to
� � �
purchase
Offering expenses Reissuance of treasury dividend Repurchase of
stock
in lieu
of
cash
common
stock in
Net increase (decrease)
capital
net
assets
from
share
transactions
in
Total increase (decrease) Net
assets, assets,
net
assets
beginning
of year $ end
notes
Net
end of year
shares outstanding, of year
are
[U[h
part
Common
The accompanying
8 3 1 1
of
these
�
[h [h ,567
$
(
31 2[
�
$
[U[h
[U[h
financial
,29
an
integral
consolidated
statements.
71
Source:
MVC CAPITAL,
I
10�K,
January
10,
2007
T
t[
MVC
Consolidated
For the
Capital,
Inc.
Selected
For Year
October [U[h
Per
the
Share
Data
For the
and
Ratios
For the For the
Year
Ended
31,
Ended
31,
Year
Ended
31,
Year
Ended
31,
Year
Ended
31,
October
2
October
[U[h
October
[U[h
October
Netassetvalue,beginningofyear Gain (loss) from operations: Net Net
operating realized
$
10.41
$
9.40
$
8.48
$
11.84
$
15.42
income
and
(loss)
0.20 gain
0.32
�
[h .9
(0.53)
unrealized
(loss)
on
investments
(loss)
2
[U[h
Total
gain
from
investment Less distributions
operations from:
2
(0.48)
(
3.
� � � �
(0.19)
3[
[U[h
3.
(0.04)
Income
Return Total Capital of
capital
distributions share transactions share issuance of share
0.
�
�
$ $
�
(0.24)
0[
(0.20)
�
0.
�
�
0.
0.
�
�
�
Dilutive
effect of
effect
Anti�dilutive repurchase Total
program
transactions
capital share
lue,endofye
Market
value,
[h
[U[h 5.40% 24.23% 20.75%
�
$ $
[h
[U[h
0.
$ $
�
0
[h [h
[U[h (l.70)% $ $
[h [h [h
[U[h (4.48)%
�
$ $ (33.28)%
end
of year
Market premium
Total Total Ratios
(discount)
8.07% 13.36% 24.38%
Return Return
�At
�
NAV(a)
12.26% 15.56%
.38)
2.53%
At Market(a)
Data:
14
(22.88)% $ 195,386
and Supplemental end
of year
(in
Net
assets,
thousands) Ratios
to
$ net
assets:
236,993
$
198,739
$
115,567
$
137,008
average
Expenses
excluding
incentive
interest
compensation, other borrowing excluding
and
costs incentive
3.29%
3.03%
.7
3.74%(c) 3.68%(c)
7.01
%(b)
3.02%
Expenses
compensation
4.03%
tax
3.05%
7.01%(b)
3.02%
Expenses
(benefit)
excluding
expense
6.78%
including incentive
interest
3.75%
7.01%(b)
3.02%
Expenses
(benefit),
tax expense
compensation, other Net borrowing
and
costs
(loss)
6.85%
3.69%
.7
0.02%
7.01
(b
3.02%
operating before
income
incentive
interest
compensation, other borrowing
and
costs
(loss)
5.32%
4.00%
(5.22)%(b)
(l.37)%
Net
operating
income
before
incentive
compensation
4.58% income income
(loss) (benefit) (loss)
3.98%
0.02% 0.08%
b)[h
(5.22)%(b)
.37
(l.37)%
Net Net
operating
before
tax expense
1.83%
.2
operating
after
tax expense
(benefit),
incentive
interest
compensation,
and
other
borrowing
costs
1
historical
3.34%
0.02%
(5.22)%(b)
.37
(a)
Total
annual
return
is
and assumes
for the year.
changes
in share
price,
reinvestments of
all
dividends and
distributions, (b)
and no
sales
charge
The expense
fees net
ratio for the
year ended
these fees
October and
31,
2003
are
included approximately
excluded, the
$4.0
million ratio
of
proxy/litigation the
and
expenses. loss
When
expenses
Fund’s
expense
was
4.52% and
operating
was �2.74%.
year ended (See Note October
13). 31, the
(c)
The expense
the
ratio for the
2004,
included
a
one�time
31,
expense without and
recovery
this
of
recovery,
approximately expense
$250,000
For
year
ended
October have
2004, 3.89%
one�time
ratio,
excluding and
including are
tax
expense
would
these
been
3.95%,
respectively.
The accompanying
notes
an
integral
part of
consolidated
financial
statements.
72
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
Source:
MVC CAPITAL,
INC.,
,[h
January
10,
2007
T
of
MVC
Notes
to
Capital,
Inc.
Consolidated October
Financial
31,
Statements
2006
1.
Organization
and Business
Inc.,
Purpose
MVC
corporation
Capital,
formerly on
known
2,
as
meVC
which
Draper
Fisher
Jurvetson
operations the
Fund
on
I,
Inc. 31,
(the
"Fund"),
is
a
Delaware
2,
organized
December
that
it
1999
commenced
business
March
2000.
On December
2002
the
Fund announced
is
would
total
begin doing from
under
name
and/or
MVC
Capital.
The Fund’s
seeks
part,
investment achieve
its
objective
to
seek
to
maximize
return
capital
appreciation to
income.
The Fund
most
consist equity
to
investment
objective
by providing Companies").
equity
and debt
current
financing
companies
that
are, for the
privately
owned
and
("Portfolio
The Fund’s
capital,
investments and
preferred
in Portfolio instruments
Companies and
private
principally investments.
of
senior
subordinated
loans,
venture
mezzanine
as a business shares of
The Fund has
1940, Inc. as (the
elected (the
to
be
treated
development
the 26,
amended "NYSE")
had
"1940
the
Act").
The
Fund
2000. with
company under the Investment Company Act of commenced trading on the New York Stock Exchange,
under
entered
symbol an
MVC
on June
The Fund
entered into a
into
advisory
agreement
meVC
Advisers,
Inc.
(the
"Former
Co., the
Advisor")
which "Former
had
sub�advisory
agreement 2002,
the
with Draper Former
Fisher
Jurvetson
MeVC
of
Management
notice to the
LLC
as
(the the the
Sub�Advisor"). investment Advisor
including
On June
This
19,
Advisor
in the
resigned
without
termination the
prior
Fund
Fund’s Former
operations,
advisor. the
resignation
resulted to the
automatic
agreement
internalized
between
the
and
Former
Sub�Advisor of
the
Fund.
As
a
result,
Fund’s
board
Fund’s
management
the
Fund’s Annual "Former
investments.
At of
February of
the the
28,
2003
(the
Meeting Board")
of
in
Shareholders, entirety.
directors
Fund
its
a new board of On March 6, 2003,
directors the
replaced
the
former board were
results
of
the
election
certified Shortly
by
Inspector other
of
Elections,
whereupon
the
the senior
Board
terminated John team, and
M.
Gnllos,
the
Fund’s
previous
to
CEO.
thereafter,
members
these a
of
Fund’s
management
in the
who had
previously
reported the
Mr.
Grillos,
resigned.
With
and, as
significant
changes
Board were
the
in a transition
mode
(the
result,
no
portfolio
investments
this period,
at
management of the Fund, made from early March 2003
explored
16, various Special
Fund operated
the a
through
for
end of
October long�term
the
2003
end of
the
Fiscal for the the
Year).
During
Board
alternatives
management
voted
plan
Fund.
Accordingly,
business plan.
the
September
2003
Meeting
of
Shareholders,
Board
and approved
Fund’s
On November
the
6,
2003, Michael
is
Tokarz by
the
assumed
his
position
as
Chairman,
Portfolio
Manager
as the
and
Director
of
Fund.
Mr. Tokarz
compensated
the
Fund based
upon
his
positive
performance approved Tokarz
Portfolio
Manager.
On March
Dominianni, Board of
29,
2004
at
Annual Gerald
Shareholders
meeting,
C.
the
shareholders
the
election as
of Emilio
Robert
S. Everett,
Hellerman, Robert
Knapp and Michael
to serve
members of
the the
Directors
of
the of
changing
of
the
name
2004
Fund and adopted an amendment to the Fund’s Certificate of Incorporation authorizing Inc." Inc." the Fund from "meVC Draper Fisher Jurvetson Fund to "MVC Capital,
,[
On
Inc."
July
7,
the
Fund’s
name change
from
"meVC
Draper
Fisher
Jurvetson
Fund
I,
Inc."
to
"MVC
Capital,
became On
July
effective.
16,
2004
the
Fund commenced
the a stockholders
the
operations
of
MVC
Financial
Services,
Inc.
On September management
agreement, Tokarz
7,
2006,
of
MVC
Capital
approved
the
adoption
of an investment advisory and
advisory
and
agreement
with
92%
shareholder
approval.
The approved
investment
which was entered into on October 31, 2006, provides for external management of the which is led by Michael Tokarz. Group Advisers LLC (’TFG Advisers") (the "Advisory Agreement"), of the Advisory Agreement 1, 2006. Upon the effectiveness on November agreement took effect on November 2006, Mr. Tokarz’s employment
professionals) that
management Fund by The The
1,
agreement been
with
the
Fund
terminated.
All
of
as
the
individuals the fiscal services
(including
the
Fund’s
31,
investment 2006
are
now employed
by
I
had
previously are
employed expected
to
by
the
Fund
to
of
year ended
to the
October
Advisers and
continue
provide
Fund.
73
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Notes
2.
Capital,
Inc.
to
Consolidated
Financial
Statements
�
(Continued)
Consolidation
On
July
16,
2004,
the
is
Fund
formed
in
a
wholly
owned
and
subsidiary
its
company, purpose
other
is
MVC
to
Financial
Services,
Inc.
("MVCFS").
and
other of
MVCFS
Fund’s
incorporated
Delaware
portfolio the
principal
provide Under
advisory, regulations
administrative
services the
to the
Fund,
the
Fund’s
companies
is
and
entities.
governing
entity other
the than
content another since
it
financial
statements,
Fund
generally
precluded
from
allows
consolidating the $1
any
investment
is
a
to these however, an exception regulations company MVCFS had opening wholly owned operating subsidiary. not
Fund
(100
to
consolidate at $0.01 All
MVCFS
per
share).
equity intend
of to
shares
The Fund
accounts
does have
hold
MVCFS
for
investment
purposes
and does
not
sell
MVCFS.
intercompany
been
eliminated
in consolidation.
3.
Significant
Accounting
a
Policies
The following
consolidated
is
summary of
statements:
significant
accounting
policies
followed
by
the
Fund
in the
preparation
of
its
financial
The
accepted
reported
preparation in the
of
consolidated States of
financial
statements
in
accordance
to
with accounting
estimates
principles
generally that affect the
United and
America
in the
requires consolidated
management
financial
make
and assumptions
results
estimates.
securities values. record
V
Because
these
amounts
disclosures
statements.
Actual
could
differ
from
those
[h
Portfolio
[h �
market
values
Pursuant
or, if
to the
requirements
are not
of
the
1940
Act,
we
value
at
our
portfolio
at their current
market
quotations generally
readily
available,
their estimates
of
fair
our
portfolio at
company
fair
investments
in
do
not
have
readily
ascertainable
market of
values,
we
investments
directors valuation
value hire
accordance
with Valuation Procedures
to
adopted
by our board
directors.
Our board
independent
of
may
of
also or
independent of our
consultants
review
our Valuation Procedures
or to
conduct
an
one
more
portfolio
investments.
Pursuant
three
to
our Valuation
Directors)
if
Procedures,
fair
the
Valuation
Committee
portfolio
(which
is
currently
comprised on
of
basis in the per (or
Independent
frequently,
determines
appropriate
valuations the
of
company Any changes
investments
in valuation
a quarterly are
more
deemed
as
under
circumstances). (loss)
recorded
value recent value
statements share
is
of
operations
"Net
unrealized a
gain
on
investments."
fair
Currently,
our
as
net
asset
("NAy")
quarter
calculated in the
and published on next
than calculated quarterly,
monthly per
share.
basis.
(If
The
values
determined
of
the
most
to
fair
end
re
per
reflected,
NAV
the
the
Valuation Committee
fair
determines be
reflected
an investment
more
frequently
most
recently
determined
value would
in the
published
NAV
share.)
The Fund
securities the date
calculates other assets
our
NAV
per
share the
by
subtracting
all
liabilities
from
the
total
value
of our
portfolio stock
and of
and
dividing
result
by
the
total
number of
outstanding
shares
of our
common
on
valuation.
At October
fair
31,
2006,
approximately
79.5
0%
of our
total assets
represented
portfolio
investments
recorded
at
value.
Initially,
Fair in
Value
Investments and
the the
held
by
the
Fund
are
valued
view,
at
cost
(absent
the
existence value).
of
circumstances
the period that a
warranting, Fair other
management’s
is
Valuation Committee’s Fund,
its
a different to
initial
During
Value
Investment must be
held by
original
cost
may
cease
represent to
an
appropriate
valuation, Rather,
and
the
factors
considered.
No
pre�determined assessments
formula can based
a
be
applied
at
determine
the
fair values.
Valuation Committee
makes
in
fair value orderly ("Fair
upon
the
value period
which
securities willing
of
the
portfolio other than
company
in a forced the
sale,
could
be
sold
an
disposition Value").
or,
over
reasonable
of time between
the
parties,
is
or liquidation
sale
The
in
liquidity cases,
event whereby
the
initial
Fund
exits
an investment
portfolio
generally
the
merger,
the
recapitalization
some
public
offering
of
the
company.
74
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Notes There expressed
value of a
is
Capital,
Inc.
to to
Consolidated determine
the
fair
Financial
value and,
Statements
in fact,
�
any
(Continued)
portfolio security, value. fair value
no
a
one methodology
values, the
for
may be
the fair
as
range of
from which Valuation
Fund
derives
a single the
estimate portfolio
of
fair
To determine
results
portfolio publicly factors.
security, traded
Committee
analyzes
company’s
financial
and
available, audited as
projections, well as other
comparables
generally
when
available,
precedent
practicable,
exit transactions portfolio
in the
market
to
when
The Fund
requires,
where
companies upcoming
provide annual
fiscal year.
and more
regular
unaudited of our
financial
statements,
lor[
inherently readily
annual
projections
for the
The
valuation
fair
value
portfolio that
securities
is
subjective. ascertainable
Because market used had
of the values, a
inherent
uncertainty
of
fair
of
portfolio differ
securities the
fair
do
not
have
our
estimate
of
fair value for the
may
significantly securities. disposition
from
market
not
value
that
would
fees
have
been
ready
market
existed
Such
values
also
do
reflect
brokers’
or other
selling
costs
which
might
become
payable
on
of such Fund’s
investments.
The
Value.
equity
interests
in portfolio analysis
companies of
fair
for
which
there
is
no
liquid
public
market
as All
are
valued of
at
Fair
The Valuation Committee’s
flow(s), to net
value
may
book
include value
various
factors,
such
multiples
EB1TDA, may
cash be
income,
revenues based
or in limited the
instances
or liquidation a portfolio into
value.
of
these
factors actual
subject
adjustments
upon
particular to
circumstances
of
take
company
or the
Fund’s
to
investment
position.
For example,
adjustments
EBITDA
may
items.
account
compensation
previous owners
or acquisition,
recapitalization,
or restructuring
or related
The Valuation Committee
discounted Committee
well as for illiquidity
may look
other the size
to
private
merger
and
acquisition in
statistics,
public
trading
multiples
and
factors,
or industry
practices
determining
Fair
Value.
The Valuation
may
other
also
consider
it
and
scope
of
a portfolio the
any
factors
deems
resale
relevant
in assessing positions.
value.
and weaknesses, as company and its specific strengths The determined Fair Values may be discounted to
account
for restrictions
on
and
minority
Generally, available
is
the
value upon
of the
our most
at
equity recent
interests closing
in public public the
companies
price.
for
which
market
securities security.
quotations that carry
are
readily restrictions
based
typically
market
Portfolio of the
certain
on
sale
are
valued debt of
a discount
from Value
public
market
value
For
financial
loans
and
securities, portfolio
Fair
generally or other
approximates
factors indicate
cost a
unless Fair
there
is
a
reduced
loan
value
or overall security.
condition
the
company
Value and
lower
the
its
Value
for the
or debt
Generally, portfolio convertible
in arriving ability
at
a Fair
for a
debt
the
security
or a
loan,
Valuation Committee underlying
of the assets.
focuses respect
on
the
company’s debt
to service
repay
debt and
also
considers the the
With
the the
to a security
security, price
the as
if
Valuation Committee
if
analyzes
excess
value
is
of
"in
underlying
over
the
conversion
the
security
was converted
security
is
when
not If the
conversion
convertible,
feature the
money"
appropriate
is
(appropriately in valuing the
discounted underlying
the
restricted).
is
If the
currently value
use of an
security service
discount the the debt.
security
typically
considered.
of
the
underlying
ability to
less than
conversion
price,
Valuation
Committee
focuses warrants
on
the
portfolio
company’s
securities
and
repay with
equity
When
security,
the
Fund
receives
nominal
its
cost
or
free equity
("nominal
cost
equity") cost
a debt
at
the
Fund
allocates
cost
basis
in the
investment
between
debt
securities
and nominal
the
time of
origination.
Interest Origination,
income
closing
is
recorded
on
an
fees
accrual
basis
to the
extent
that
such
amounts
are
expected
are
to
be
collected. into
and/or
closing the
associated loans. closing
with investments
in portfolio
companies
or
accreted
income
over
the
respective
terms of
applicable origination,
Upon
and
the
prepayment
of
a loan are
debt
as
security,
any prepayment Prepayment
penalties
and unamortized
are
loan loans
commitment
fees
recorded
income.
premiums For which
recorded
debt
on
when
and
received.
loans,
securities,
preferred
securities
with and
contractual
payment�in�kind
the loan
interest
or
dividends, that
represent
contractual
ldividend
accrued
added
to
balance
or liquidation
preference
75
Source:
MVC CAPITAL,
NC
10�K,
January
10,
2007
T
of
MVC
Notes
generally to
Capital,
Inc.
Consolidated
the
Financial
Statements
�
(Continued)
interest/dividends
if
becomes
valuation
due
at
maturity, that
if
Fund
will not
accrue payment�in�kind
interest
is
the
portfolio
company
indicates interest interest
the health
payment�in�kind of
the portfolio to the
not
collectible. the
However,
the
Fund may accrue
not in question. All the to ratification
payment�in�kind payment�in�kind
the
company
principal
and
underlying
securities
is
are
that
has been
added
balance
or capitalized
subject
by
Valuation Committee.
received
defined
I [h
Escrows from
the the sale
of
a
portfolio the
company
various
are
generally
valued
at
an amount
for
which
risk
may be expected
time.
to
be
from
buyer
under
escrow’s
conditions
discounted
both
and
�
As
required
by
the are
1940
Act,
we
classify
our investments
that
by
are
level
of
control. to
As
in the
1940
Act,
"Control
Investments"
in those
investments
that
in those are
companies
we
deemed
us, as
"Control". in the
"Affiliate
Investments"
other
are
investments
Investments.
companies
"Affiliated
Companies"
are
of
those
defined
are
1940
Act,
than Control nor
"Non�Control/Non�Affiliate
Generally,
Investments" 1940
Act,
that to
neither a
Control Investments
in
Affiliate
if
Investments. or
under voting
affiliate
that
we
are
deemed
control
company
than
if
which
50%
own 5%
expenses
is
I
or are taxable includes that
we have
invested
we own 25%
more
to
of
the
securities
of such
in
representation
on
its
board.
We
are
deemed
voting
be an
of
a
company
company or have greater which we have invested
we
more and
less than
25%
of
the
securities
of such
company.
transactions
is
Transactions
for
and Related
on
the trade
rin2[l
(the date unless
[h �
the
Investment
to
and
related cost
revenues of
and
sold
accounted on
a
date
order
buy
or
sell
executed).
The
and
securities
determined
first�in,
is
first�out
basis, the
otherwise
date.
specified. tax the
Dividend
income of such
distributions
on from
investment our
portfolio
securities
recorded
will
on
ex�dividend
The
characteristics distribution
distributions the
received
companies
earnings accretion
be determined
profits or
by whether
or not
was
made from
prior
investment’s Interest
current
and
accumulated
amortization to
taxable
earnings and
if
profits
from
is
years.
income,
basis to
which
the
of discount and
are
of premium, Fee
applicable, includes
recorded
on
the
accrual
extent
such
amounts
or
its
expected
be
collected.
income
fees
for guarantees third parties
and
services as
rendered
diligence,
by
the
Fund
wholly�owned
services, related as period
subsidiary
to portfolio services,
companies
and
other
such
due
fees are
structunng, as
transaction
monitoring of
the
and investment
advisory
services.
Guaranty
recognized
fees are
income
over
the
guaranty. are
Due
rendered
diligence, or
structuring, the as related as
and
transaction are are are
services
generally
recognized
income
when
services fees are
when
transactions the services discount
completed.
rendered. capitalized security, or
Monitoring
and investment determined
into
advisory to
services loan
generally original
recognized
issue
income
Any
and
fee then
income
be
origination the are effective
fees,
discount, the
and market prepayment
original
amortized
income
using fees gain.
interest as
method.
Upon
of
a loan issue
or debt
any unamortized
discount
is
loan as
origination a realized accrual a
recorded
income
and any unamortized
discount
market
recorded
For investments
the valuation
with payment�in�kind
the
1K")
received sufficient
interest
and
the the
dividends,
we
If the
base income
portfolio interest
and dividend
indicates
on
of
1K
notes
or securities
is
from cover
borrower.
contractual
company
or dividend,
value
of
the
P1K
notes or
or securities
that
not
to
C[h �
we
the maturity
will
not
accrue
interest
dividend
income
on
the
notes
or securities.
Flows,
original
resold
R [h
of
in transactions to
For
all
the
purpose
of
the
Consolidated
all
Balance
Sheets
and Consolidated cash investments
Statements purchased
of Cash
Fund considers
money market and
three
highly
liquid
temporary
with an
less than
months
to
be cash
equivalents.
securities
difficult.
investment
subject to
D [h I
exempt
�
The Fund
from
will
invest
in privately public
placed
if
restricted securities a
securities. are
These
securities
may be
these
registration
or to the
the
registered.
at
Disposal of
price
may involve time�consuming
negotiations
and
expense,
and
prompt
sale
an
acceptable
may be
�
Distributions
to
shareholder
the
are
recorded
on
the
ex�dividend
date.
[h �
It
is
the
policy
of
the
Fund
of the
to
meet
company"
under
Subchapter
extent that
it
M
requirements
for qualification 1986, as
as
a "regulated
Internal
all
Revenue
its
Code of
amended.
The Fund
and
net
is
not
income
tax
to the
distributes
of
investment
company
taxable
income
realized
76
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Notes
gains capital for
its
Capital,
Inc.
to
Consolidated
is
Financial from
excise
Statements
tax
if it
�
(Continued) most of
its
taxable
year.
The
Fund
also
exempt
distributes
ordinary
income
and/or
gains
during each
calendar
year.
Our
method
consolidated
operating for
subsidiary, taxes.
MVCFS,
tax
is
subject
to federal
liabilities
and
are
state
income
for
tax.
We
use
the
liability
between
tax
rates
against
realized.
presentation.
R
in
accounting
tax
income
Deferred and
assets
and
recorded
financial
temporary
differences
the
basis
of
assets year
and
in
liabilities
their reported are not
amounts
in the
statements,
using
is
statutory
in effect
for the
which
it
the
differences likely than
expected
that
to reverse. portion or
A
all
valuation
allowance
deferred tax
provided
not
deferred
tax
assets
when
is
more
some
of
the
asst will
be
�
Certain
amounts
from
prior
years
have
had
to
be
reclassified
to
conform
to
the
current
year
4.
Management On November
6,
2003,
Michael
Tokarz
assumed
his
positions to
as
Chairman,
Portfolio
Manager
to his
and
Director
of
the lesser
the
Fund.
Under
internal the net
management,
Mr. Tokarz
to
was
entitled
compensation
pursuant
in
agreement equal
to
with
the
Fund,
of (a) the
under
which of
the
Fund was
of of
the
required
pay Mr. Tokarz
fiscal
incentive or (b) the
compensation
an amount
the net
(ii)
20%
Fund
income
the
Fund
for the
year
his
sum of
(i)
20%
the
of
capital the
gains
realized
if
by
in respect
investments
for
made during
fiscal
tenure less than to 31,
as Portfolio
Manager
of of
the
and Fund’s
amount,
any,
by which
as
the
last
Fund’s day
total
expenses
a
year were
two
percent a portion
net
assets
(determined
to
of
the
of the
period).
Mr. Tokarz For
the
has determined October
allocate
incentive
compensation
or other for
certain
employees from
of
the
Fund.
year ended
to
2006, Mr. Tokarz Note
5 "Incentive
received
no cash
compensation
information.
the
Fund
pursuant
his contract.
Please
see
Compensation"
more
On February
not involve a
20,
2006, Robert with
the
Everett
resigned from
matter.
the
Fund’s
board
of
directors.
Mr.
Everett’s
resignation
did
disagreement
23,
Fund on any
with
On February
Fund’s board
2006,
in
accordance of
the
the
recommendation of
directors,
of
the
Nominating/Corporate
E.
Governance/Strategy
the of
Committee
directors.
Fund’s
board
also
Mr. William on
the
Taylor
was appointed
and
to
serve
on
Mr. Taylor was
appointed of
to serve
Audit Committee of
directors.
Nominating/Corporate
Governance/Strategy
the
Committee
the
Fund’s of
board
On May
30,
2006,
a
Fund’s
board
of directors, this matter),
including
all
the
Independent
the
Directors
(Mr.
Tokarz which
recused
himself from making
provides for the
7,
determination on be
unanimously
Advisers,
approved which
at the
is
Advisory
Agreement,
Fund
to
managed
externally the
by
TTG
controlled
exclusively
by Mr. Tokarz.
On
September
2006,
shareholders
approved
Advisory
Agreement
the
annual
meeting
of
the
shareholders.
On November
became base
refer effective as
1,
2006,
that
Mr. Tokarz’s agreement
date.
with
the
Fund was
terminated
the
when
Advisory pay
Agreement Advisers
a
of
Under
the fee
terms of
for
its
Advisory
Agreement,
Fund
will
TTG
management
to Exhibit
fee
and an
incentive
provision
of investment Agreement
advisory and and Note
17
management
services.
Please for
10.4,
Investment
Advisory
and
Management
"Subsequent
Events"
more
information.
5.
Incentive Under
the
Compensation
terms of
31, the
Fund’s
the
agreement
provision
with Mr. Tokarz, estimated
incentive
as discussed
in
Note was
4 "Management,"
increased the
during
$6,055,024.
the
year ended
increase increase
October
2006,
for
compensation
the
by
The
to
in the the are
provision
for incentive
compensation Fund’s
portfolio
resulted investments:
from
determination of Dakota,
Valuation Committee
Turf,
fair
value
of
six
of
the
Baltic, a total of
if
Ohio, Octagon, This
and
Vitality of
s
which
subject will
to the
Fund’s unpaid
agreement
until net
with Mr. Tokarz,
gains are
by
$30,275,120. by
the
reserve to
balance
$7,172,352
remain
capital
realized,
ever,
Fund.
Pursuant
Mr. Tokarz’
77
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Notes employment Mr. Tokarz agreement
has to
Capital,
Inc.
Consolidated
only a after a
Financial
realization the incentive
Statements event
�
the
(Continued)
incentive
with
the
Fund,
may
31,
compensation employees was
paid
be of no
paid the
to
him.
determined
to
allocate 31,
portion
of
compensation 2006,
to certain
Fund.
or other
Dunng
the
year ended However,
October on
2005
2,
and 2006
the
year ended
as discussed the
October
in
Mr. Tokarz
cash
compensation.
Securities," the
October
a gain
and
"Realized
a portion
Gains and Losses on of
the
Portfolio interest in
is
Fund
realized
of $551,092 an
incentive
from
sale
of
Fund’s
to
LLC member
which
the the
Octagon.
not
This
to
transaction
triggered until the
compensation of
the
payment
obligation
is
Mr. Tokarz, based
the
payment
required
be
made
precise
amount
payment
to
obligation
confirmed following
is
on
Fund’s payment during
the date the
completed
obligation
first
audited to
financials
for the
this
fiscal
year 2006.
is
Subject
confirmation $110,000 with
audit, to
Mr. Tokarz of
the
from
transaction 2007).
approximately
(which
the
expected
be
paid the
quarter
Fund’s
fiscal year
Mr. Tokarz’s agreement under
to
Fund terminated on
are
effective
of
the
Advisory
Agreement
and
the
obligations
is
Mr. Tokarz’s agreement compensation on
superseded
gains
by
those
under
portfolio
Advisory
securities
Agreement. acquired
TFG
Advisers
1,
entitled
incentive
capital
realized
on
after
November
2003.
6.
Dividends
and Distributions
the
to
Shareholders
distribute to in a timely year. If the net
As
a
RIC,
Fund
is
required
to
its
shareholders,
manner,
at
least
90%
of
its
investment
least
company
of
its
taxable
income
for
and such
tax�exempt
calendar (as
income year and
as
each
its
Fund
distributes, for the
in a calendar
year,
at
98%
ordinary 31
it
income of such
capital
gain
income
12�month
not
period in
ending
the of
on October
year),
calendar
year
well
any
portion
of the federal
respective excise tax
2%
on
balances
certain
distributed
previous
will
not
be
subject
to the
4%
non�deductible
undistributed
income
RICs. Dividends and recorded on
the
capital
gain
distributions, declared
if
any,
are
ex�dividend Fund’s of
date. policy
Dividends
established tax
and on
capital July 11,
gain
distributions
are
generally distribution net a
and paid
paid
quarterly
according
to
to the
2005.
An
additional undistributed
may be
by
the
Fund
capital
avoid
imposition Distributions
federal
income
on any
the
remaining
either
investment
distribution in
income
and
gains.
can
be
made payable by
of
Fund
gain
in the
form
are
of
cash
or a stock
dividend. tax
The amount
regulations differences the
and which
are
character
income
and
capital
distributions generally
determined
in the
accordance
States
with income
may
differ
from accounting
to differing differing relating to
principles
accepted and
gain
United
of America.
securities the
These
held
due
primarily
treatments
of
income
on of
various
investment
by
Fund, book
timing and
differences basis
and
characterizations distributions gain (loss)
distributions
made by
Fund.
Permanent
affect the
tax
differences net operating
shareholder realized
will result
in reclassifications
and
may
allocation
between
income,
net
and
paid
in capital.
F
policy declared
the
[h [h
[h
the
$.
31.
On
July
I
to
2005, pay
Fund’s
board
of
to
directors
announced
that
it
has
approved 2005,
the the
Fund’s
establishment board of
of
a
seeking
a
quarterly
dividends
share
shareholders.
On December
31,
20,
Fund’s
record
directors 30,
dividend
of
12 per
payable
28,
on January
2006
to
shareholders
of
to
on
December
including
2005.
The
ex�dividend
In
date
was
December
with
the
2005.
the
The
total distribution re�issued
amounted
shares
$2,290,616
distributions the
reinvested. treasury
accordance
Plan,
Plan Agent
Plan.
1,824
of
common
stock
from
Fund’s
to shareholders
participating
in the
On
2006
April
11,
2006, of
the
Fund’s on
board
April
of
directors
declared
a
dividend
date
of
$.
12
per 19,
share
payable
on
April
28,
to shareholders to
record
21,
2006.
The ex�dividend
In to
was
with
April the
2006.
the
The
total distribution re�issued
amounted
1,734
$2,290,835 of
including stock
distributions the
reinvested. treasury
accordance
Plan,
Plan Agent
Plan.
shares
common
2006,
from
Fund’s of
shareholders
participating
in the
On
to
July
14,
the
Fund’s
July
board
24,
directors
declared
a
dividend of was
July
$.
12
per
share
payable
total
on
July
31,
2006
shareholders
of record on
2006.
The ex�dividend
date
20,
2006.
The
distribution
amounted
78
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,2007
T
of
MVC
Notes
to of to
Capital,
Inc.
Consolidated
reinvested. to In
Financial
Statements with
the
�
Plan,
(Continued)
the
$2,291,043
including
distributions the
accordance
Plan Agent
re�issued
1,901
shares
common
stock
from
Fund’s
the
treasury
shareholders
participating
in the
Plan.
On October
October
31,
13, to
2006,
Fund’s of
board
of on
directors
declared 24,
a
dividend
of
$.
12
per
share
payable
on
20,
2006
shareholders
to
record
October
2006.
The ex�dividend
reinvested. treasury to In
date
was
October with
the
2006.
the
The
Plan
total distribution
amounted 2,327
$2,291,271 of
including stock
distributions the
accordance
Plan,
Agent
re�issued
shares
common
from
Fund’s
shareholders
participating
in the
Plan.
F
policy
the
[h [h
[h
the
31.
On
July
1
to
2005, pay
Fund’s
board
of
directors
announced For of
that the
it
has
approved
the
the
Fund’s
directors
establishment declared a
of a dividend was
seeking
12 per
quarterly
dividends
29,
to shareholders. to shareholders to
quarter,
board
of
of
$.
share
payable
on
July
2005
record In
on
July
22,
2005.
the
The
Plan,
ex�dividend
the Plan.
date
July
20,
2005. of
The
total distribution stock
amounted
the
$2,290,289.
accordance
with
Plan Agent
re�issued
826
shares
common
10,
from
Fund’s board
treasury
to shareholders
participating
in the
On October
October
total
2005,
the
Fund’s of
of
directors
declared 21,
a
dividend of
$.
12
per
share
payable
on
19,
31,
2005
to shareholders
record
on October
In
2005.
the
The ex�dividend
Plan, the in the
date
was
October
2005.
shares
The
of
distribution stock
amounted from
the
to
$2,290,387. treasury to
accordance
with
Plan Agent
Plan.
re�issued
1,904
common
Fund’s
shareholders
participating
F
to
the
[h [h
14,
[h
the
31.
On October
shareholders
2004,
Fund’s
Board
22,
of
Directors
declared on
a
nonrecurring dividend
29,
of
$.
12
per
share Plan,
payable
the
total
of
record
on October on
the
2004
and payable
of the
October
2004.
In
accordance
with
the
Plan Agent
distribution
purchased amounted
shares to
open
market
NYSE
for shareholders
participating
in the
Plan.
The
$1,475,165.
7.
Transactions The
with
Other
to
Parties
Fund
set
is
permitted
in
co�invest
in certain
Portfolio
Companies SEC. Under by
with
the the
its
affiliates the
subject order,
to
specified
conditions
forth the
an
exemptive
its
order are
obtained
required
from
to
the
terms of
Portfolio
Companies
required to
purchased
satisfy
by
Fund
and
affiliates
be approved 2004,
Independent no
Directors
and were
are
certain to the
conditions
established order.
by
the
SEC.
During
2005,
and 2006
transactions
effected
pursuant
exemptive above
in
As
stated
Item
2, is
"Properties",
the
Fund
has
sub�leased
Partners,
property
at
is
287
NY
10577
a building
which
owned
by Phoenix
Capital
LLC, which
entered
Bowman Avenue, Purchase, 97% owned by Mr. Tokarz.
consulting services
In
connection Energy,
to
with
the
Fund’s
investment Under
the
in Velocitius,
we have
into
arrangements
consulting service fee
with
Jasper
LLC
("Jasper").
terms of
the
arrangements,
is
Jasper
provides
management
monthly
to the
services
relating
Velocitius’
acquisition a fee
of
certain to
wind
farms and
the profit price
to
be
paid
an ongoing
attributable
of
approximately
projects
8,000 euros one�time
($220,000)). fee
($10,000),
equal the
9%
of
distributions
wind
farm
at in
and
a
equal
to
2%
of
equity
purchase and
of
the
wind
farms
a
(estimated
currently
175,000
Jasper. a
euros
Mr. Tokarz,
including
our Chairman
all
Portfolio
Manager,
has
minority
ownership
interest
Our board
of directors, this matter),
of our Independent
of the
Directors
(Mr. Tokarz
Jasper.
recused
himself from making
determination on
approved
each
arrangements
with
8.
Concentration
Financial
of
Market
that
and Credit Risk
subjected the
instruments subordinated
Fund
to concentrations (other than
of market cash
in
risk consisted
principally represent
of
equity
investments,
notes,
and
at
debt
instruments 31,
equivalents),
which
approximately of
securities
79.50%
of
the
Fund’s
total assets
October
2006.
As discussed
Note
9,
these
investments
consist
79
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Notes
in to
Capital,
Inc.
Consolidated
Financial
values
Statements
as
�
(Continued)
in
companies
policies to the
with no and
readily
determinable market
and
such
are
valued
a high
accordance
with
the
Fund’s
financial
fair
value
procedures. the
The Fund’s
(other
little
investment
than
strategy
represents are
degree
of business in small
and
risk
due
fact that
investments
entities
cash
equivalents) history publicly
generally that
illiquid,
and
in
middle market
or
companies,
industries. resale,
if
and These
include
with should
operating
or entities traded,
possess generally
operations
new
to to
developing on At
investments,
they
become
would
transactions
be
(ii)
(i)
subject
restrictions
they the
were Fund’s
acquired
from
the in
issuer
in private
placement
are in
and
susceptible
market
risk.
this time,
investments
or other
short�term
quality,
securities liquid
90�day
Treasury
Bills,
which
are
federally
if
guaranteed
to
securities, in
high
highly
investments. highly
The Fund’s cash
liquid investments,
balances, are
not
large
enough
be
invested
90�day
Treasury
Bills
or other
high
quality,
swept
into
designated
money market
accounts.
9.
Portfolio
Investments
F
($5.0
the
[h [h
the
[h
($15.0 Total
31.
During
year ended $142.1
October
31,
2006,
the
Fund made made
in
sixteen
new
($11.6
investments, million),
committing
capital
totaling
approximately
million), Inc.
million.
The investments
million), Safety
were
Turf
l[h
($8.0
($5.0
million),
Henry
BM
Auto
Storage
($6.0
Canada
($6.0
million), ($6.0
Phoenix
million),
million),
Harmony
million), ($2.0 million),
Pharmacy,
($200,000),
million),
PreVisor
million),
Marine
($14.0
BP
and
($15.0
million),
Velocitius ($15.0
($66,290), million).
Summit ($16.2
Octagon
($17.0
million),
BENI
Innovative
Brands
The Fund
approximately Dakota
also
made
eight
follow�on During
the
investments year ended
shares
in existing 31,
portfolio
companies
committing
capital
totaling
$24.2
million.
October of
2006,
stock
at
the
Fund
invested price
approximately of
$5.11 million repaid per
$879,000
in
by purchasing
22,
an
the
additional
172,104
a
common
the
an average form of
12,
share.
On
bridge
December
note. Baltic
2005,
Fund made
drew
follow�on
$1.5
all
investment from
in Baltic note. note
in the
a $1.8
revolving
the
immediately
the note the in
down
million
On January
matured on
2006,
Baltic 31,
amount
drawn removed
from
full
including books.
unpaid
12, $2.0
interest.
The
the
January
a
2006
and
has been
loan.
from
28,
Fund’s
the
On January
Baltic
5,
2006,
Fund provided
bridge
SGDA
note.
$300,000
bridge
On down
all 6,
March
$2.0
2006,
million
Fund provided from the note. On April The note matured
an additional
a
million repaid
revolving
the
Baltic the
immediately note
in
full
drew
including
2006,
30,
Baltic
amount
drawn
from
the
unpaid
the the
interest. invested
on
April million
2006
and has been
in the in
removed of
from
Fund’s
books.
On
April 25,
2006,
Fund Fund
$2.0
in
SGDA
a
form
a preferred for $23,000.
equity
security. 30, the
On
April the
2006,
purchased
$2.5 in
an
additional
common
in the
equity
security
SGDA
On June
4,
2006,
Fund
invested
million
in
Amersham
form of
second
lien loan.
On August
28,
2006,
Fund
invested
$750,000 investment 2006,
the
Harmony made
in the in the a
form of
a
common
$1.0
stock.
On
September
loan
2006,
million
the
Fund made another
investment. invested 20,
follow�on October
13,
in Baltic
form of
million loan
million
bridge
and
$2.0
equity
On
in the the
Fund
$4.0
$10
in
follow�on
investment
million loan in
in SP.
The
$10
million
was
form of an
additional
million million invested the
term
B and $6.0
million $3.0
in a to
mezzanine
loan.
On October
2006,
Fund
then 24,
assigned $5.0 2006,
the
of
SP’s $8.0 an
term
B
Citigroup Global Markets
in the
Realty Corp.
equity
On October
Fund
26,
additional invested a
million
SODA
form of
a preferred in the
security.
On
The down
drew
October
2006,
Fund
an
additional
$2.9
million
in Velocitius
form of
common
equity.
Fund
also
provided from
the
Velocitius note.
$260,000
revolving note on
October31,
2006.
Velocitius
immediately
$143,614 At balance
credit
the
beginning
of
the
2006
fiscal year,
the
revolving
credit
facility
provided
to
SGDA
had
an
outstanding
of approximately
$1.2
million. the
During
December
the
2005,
SGDA
have
the
drew
down
the
an
additional credit 30,
$70,600
facility
from
the
facility.
On
the
April bridge
28,
2006,
Fund
increased above,
availability
under matured Fund’s
revolving April as
by $300,000.
to the
The balance of
revolving
credit
loan
mentioned bridge
which
eliminated
would
on
2006, of
was added
refinancing.
facility
and
the
loan
was
from
books
a part
the
80
Source:
MVC CAPITAL,
I
10�K,
January
10,
2007
T
of
MVC
Notes
to
Capital,
Inc.
Consolidated
prepaid
its
Financial
senior credit
Statements
facility included
�
the
(Continued)
the
On December The Fund
returned
21,
2005,
Integral the
from
all
Fund
in
full.
The
Fund
received interest.
approximately $850,000 recorded
its
from
prepayment.
a result
This amount of
the
outstanding terms of
principal the
and
accrued
the
no
gain
or loss as for
prepayment.
Under
prepayment,
Fund
warrants
to Integral
no
the
consideration.
Effective
December
junior July
27,
2005,
line
Fund
exchanged 28.62
$286,200,
shares
of
the
$3.25
stock
million at a price
outstanding, of the
of
per
the share.
Timberland
result,
revolving
31,
of
credit
into
of
common
$10,000 funded
As
the
a
as
of
2006, of
the
Fund owned 478.62
was reduced from
common
shares to
of Timberland
and $2.96
debt under
junior
revolving
line
credit
$3.25
million
approximately of
Series that
million.
Effective Inc. in
December
for
5, its
31, rights
2005, under
the a
Fund
received issued
373,362
shares
E
preferred held
stock
of
laims,
since
exchange
warrant
by ProcessClaims
increased see the the
has been of
the for
by
the
Fund
May
in
2002.
On January
2006,
the
Valuation Committee
to $5.7 million. Please
fair value
Fund’s more
entire
investment on
laims[h by
$3.3
million
laims.
On January
membership
paragraph
below
information
3,
2006,
the
Fund
exercised
its is
warrant ownership an
in
Octagon of
the
which Fund.
increased
its
existing
interest.
As a
result,
Octagon one of
now considered
Fund’s
the legacy
affiliate
Due
investment proceeds The
to the in
dissolution totaling
of
Yaga,
the
portfolio period in the
companies, ended
July
the 31,
Fund
2006.
realized
losses
on
its
Yaga
the
$2.3 of
million
during
the
nine
month
The Fund
from
the zero
received
no books.
a
from
dissolution
Yaga and
were books
Fund’s
the
fair
investment
value
Yaga
has
been
removed
in
Fund’s and of
as the
Valuation Committee
the of
previously losses
decreased
offset
of
Fund’s
investment
Therefore,
Yaga
the
to
result,
Fund’s
realized the
by
the
reductions
in unrealized
losses.
net
effect
at
removal
Yaga from
zero.
Fund’s
on
Fund’s
consolidated
statement
of
operations
and
NAV
October
31,
2006, was
On February
received
24,
2006,
BP
repaid
its
second
lien loan $8.7 early
from
the
Fund
in
full.
The amount
all
of
the
proceeds
principal, or loss as a result
from
the
prepayment accrued
was
approximately
fees
million.
This amount
fee.
included
outstanding
accrued of
the
interest,
monitoring
and
an
prepayment
The Fund recorded
no
gain
repayment.
April
7,
On
a loss of the
2006,
the
Fund
sold
its
investment
in
Lumeta
the as a
for
its
carrying
value
of $200,000.
The Fund
the
realized fair
on
Lumeta
of approximately
in
$200,000.
to
However,
and,
Valuation
the
its
Committee
loss in
previously
decreased
value
Fund’s
investment
Lumeta
the net
$200,000 of
the
result,
realized
unrealized statement
losses.
Therefore,
effect zero.
Fund’s
sale
of
investment
in was offset by a reduction Lumeta on the Fund’s consolidated
of
operations
and
NAV
Auto
was
On
from
the
April
21,
2006,
BM
repaid
its
bridge
loan
from
the
Fund
in
full. all
The amount
outstanding
of
the
proceeds
received interest
repayment
net
and was
was approximately $7.2 million. This amount of foreign taxes withheld. The Fund recorded no gain
4,
included
or loss as
principal,
accrued
a result
of
the
repayment.
related to the reduced.
On May
Fund’s
2006, of
a
the
Fund
received interest
a
working
in Turf.
capital
adjustment
of approximately
cost basis
$250,000
purchase
30,
membership
As
a result, the
Fund’s
in the
investment
into
was
On May
agreement 2006.
to
2006,
ProcessClaims, by
the
one
of
the
Fund’s
legacy
Inc.
portfolio
companies,
acquisition $7.9 gross
entered
a definitive
be acquired
9,
CCC
Fund Due
Information
received
Services
("CCC").
The
by
CCC
The were
has into
closed
on June
9,
As of June
2006,
net
proceeds
of approximately
or
million.
gross
proceeds
were
a
approximately
reserve
$8.3 for
million
of which
approximately
contingencies
$400,000
5%
not
of
the the
proceeds
the
deposited not the
into
account on
the
one
year.
to the in
associated has therefore
with
escrow, such
Fund
presently
placed
any
value
proceeds
deposited total
escrow
and
factored $2.4
proceeds
Fund’s
gain
increased
NAy. The
$5.5
Fund’s
million.
investment
in
ProcessClaims
was
million
which
resulted
in a capital
of
approximately
81
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Notes
to
Capital,
Inc.
Consolidated
loan
Financial
the
Statements
full.
�
(Continued) of
the
On
July
27,
2006,
SOT
repaid
their
from
Fund
in
The amount
all
proceeds
received
from
interest,
the
prepayment
early
was
approximately
fee.
$4.5
million.
This amount
gain or loss
included
as a result
outstanding the
principal,
accrued
and
an
prepayment
The Fund recorded Harmony
$207,444.
a result repaid
no
of
prepayment.
On August
from
the
25,
2006, was
their
loan
from
the
all
Fund
in
full.
The amount
principal
of
the
proceeds
interest.
received
prepayment no
gain
This amount of
the
included
outstanding
and accrued
The Fund
recorded
or loss as
prepayment.
credit
On August
term
loan
25,
2006,
SGDA’s The
revolving
facility
was
added
to the
term
the
loan,
increasing
the
balance of
of
the
by
$1.6
million.
revolving
credit
facility
was
eliminated
from
Fund’s
books
as
a result
this
refinancing.
Effective
September
junior revolving 22,
12,
2006,
line
the
Fund
exchanged
40.91
$409,091, of
of
the
$2.96
stock
million
outstanding,
of
per the
the share.
Timberland
Effective junior
of
credit
into
shares
common
of
the
at
at a price
of $10,000 of
September
revolving line
2006,
credit
the into
Fund
22.5
exchanged
shares of
$225,000,
$2.55
million
outstanding, per share.
Timberland
22, as
of
common
stock
a price line
of $10,000
credit.
On
September
transactions, the
2006, Timberland of October revolving
31, line
drew
the
down $500,000 Fund owned
was reduced
from
the junior
revolving shares to
of
As
the
a result
of
these
2006, of
542.03 from
common
million
of Timberland
and
funded
debt under
junior
credit
$2.96
approximately
$2.83
million.
On October
resulted realized in a sale
2,
2006,
Octagon of from
the
bought�back Fund’s
sale.
a
total
of
15%
equity to
interest
from non�service
for
members.
This
of
a portion
LLC member
interest
Octagon
proceeds
of
$1,020,018.
The Fund
a gain
of $551,092 2006,
this
On October
the
2,
Octagon
the
repaid
their
loan the
and
revolving
credit
facility $5.4
from
the
Fund
in
full.
The amount
included
all
of
proceeds
received principal, these
from
prepayment
interest,
of
loan
was
fee
approximately
the
million.
facility.
This amount
outstanding
as a result
accrued
and
an unused
on
revolving
the
credit
The Fund recorded
of original
a gain issue
of
prepayments
of approximately
$429,000
from
acceleration
of
amortization
discount.
On October
Markets
20,
2006,
the
Fund assigned
$5.0
million
of SP’s $8.0
million
term
loan
B
to Citigroup
Global
Realty Corp.
30,
On October
During investments membership
stock the
2006,
JDC
repaid
$160,116 2006,
$1 1.6 the
of
principal
on
the
senior
subordinated
debt.
year ended
October
stock million,
31,
Valuation Committee Dakota
increased stock
the
fair
value
of
the
Fund’s
million, Turf’s
in Baltic interest million,
common
by $2.0
by
million,
common
interest
by approximately
$2.6
Octagon’s
stock
membership
$5.0 million, stock
fair
by approximately
preferred $3.5 stock
$562,000, by $700,000,
Ohio
by
$9.2 stock
lio
million
preferred
by
Vendio
laims
respectively.
common
preferred In
by
$4.8
and
to
Vitality cost
common
and
and warrants by of
the loans to
million
and $400,000,
Impact, to the
addition,
increases Turf,
recorded Marine,
the
basis the
value
Amersham, BP,
stock
JDC,
receipt
Phoenix, of
31,
SP, Timberland, payment 2006,
the the in
Summit and
totaling
Vitality
and Marine
$2.2
preferred
were
the
due
kind
interest/dividends allocation
approximately income
million. the
Also during
equity
year ended
in
October
undistributed
of flow through Fund’s
from
Fund’s
investment During
the
Octagon
increased
cost
basis
and
fair value
of
the
investment
the
fair
by approximately
value
$279,000.
equity
year ended
in
October by been
31,
2006,
$1
the
Valuation
Committee
in
fair
also
decreased
of
the
Fund’s
investment
Timberland income
has
million.
The
by
the
increase
value
from payment
in
kind
interest/dividends
and flow through
approved
Fund’s
Valuation Committee.
the
At October $275.9
exclusive million
31,
2006,
a cost
fair
value
of
all
portfolio
investments, 31,
exclusive
of short�term
fair value
securities, portfolio
was
investments,
with
basis
of
$286.9 was
million.
At October with
2005,
basis
the
of
all
of short�term
securities,
$122.3
million
a cost
of $171.6
million.
82
Source:
MVC CAPITAL,
INC.,
1
January
10,
2007
T
of
MVC
Capital,
I
Statements
F
amounts
the
[h [h
the
[h
$3.0
Notes
to
Consolidated
Financial
�
(Continued)
31.
During
year ended $48.8
October
31,
2005,
the
Fund
made
in
six
new
investments, SP,
committing and
capital
totaling
approximately
million.
The investments
million, $5.8
were
made
$10.5
JDC,
SODA,
$10
BP, Ohio $17
million
Amersham. The
$2.5 million,
invested
were
million,
million,
million,
and
respectively.
The Fund
also
made
three In
follow�on
investments 2004
bridge
in existing
portfolio the
companies
invested a
committing
total
capital
totaling in of
its
approximately $5.0 Timberland
treasury July the
8,
million.
December
and January
notes.
2005,
15,
Fund
the
of $1.25 146,750
stock
million shares
in the
at
form of subordinated
the
On
in
April
2005,
Fund
shares note.
re�issued
stock
Fund’s
NAV
per
share
of a
$9.54 $3.25
exchange
junior the
all
for
40,500
of
In
common
of
Vestal.
On
2005
the
Fund extended
Timberland drew
$1.3
million
revolving note
accordance
the
with
to
the
terms of
the July 29,
note,
Timberland bridge
immediately
notes in
full.
million
from
revolving
outstanding
and used
proceeds
repay
subordinated
The repayment
$325,000
million
included
in
principal
and accrued promissory provided
interest. note.
On
2005,
the
Fund
invested
an
additional
Impact
the
in the
form of a secured
credit
In repaid
April
it
2005,
Octagon
drew 2005.
$1.5
from
senior
secured
facility
to
it
by
the
Fund and
in
full
during June
During Fund.
2005,
SGDA
31,
drew 2005,
approximately
the entire
$1.2
million
from from drew
31,
the the
revolving facility
credit
facility
provided
to
it
by
the
As of October
July note 14,
$1.2
million
drawn
remained
outstanding.
On
revolving
2005
and
September above,
28,
2005,
Timberland
an
additional the note
$1.5
million
and
in
full
$425,000, and
the
from
the
mentioned remained
respectively.
As of October
2005,
was
drawn
balance
of
$3.25
million
outstanding.
Also,
during
the
year ended
proceeds. In
October
addition, for
31,
2005,
the
Fund
$1.6
sold
its
entire or
investment
in
Sygate from
and received
the sale the
$14.4
million in not into
in net
approximately one
million to the in
10% of proceeds
and
were escrow, such was
net the
deposited
an escrow
presently the
account
approximately on
the
year.
Due
contingencies has
associated therefore
with
not
Fund
has
placed any value
increased also sold
proceeds
realized
deposited from
escrow $14.4
factored
proceeds $10.4
Fund’s
NAV. The
685,679 and
gain
the
million
in net
proceeds
received
receiving million.
million.
The Fund
shares
of Mentor
a gain
Graphics on
the
Corp. ("Mentor
sold
Graphics")
proceeds Fund
also
of approximately received
$9.0
million
realized
shares
of approximately
sale
$5.0
The
Inc.
approximately
$300,000
from
the
escrow
related
to the
2004
of BlueStar
Solutions,
("BlueStar").
The Fund
Inc. $6.0
realized
losses
on
CBCA,
$1.0
Inc.
("CBCA")
and from
these
of approximately Systems, and
$12.0
million,
Phosistor
Technologies,
("Phosistor") million.
of approximately
received
million
ShopEaze
Inc. they
("ShopEaze") have been
of approximately from
the
The Fund
no
proceeds
previously losses
companies
the
removed
Fund’s companies
effect
portfolio. to zero the
The Valuation Committee
as a result, the realized
decreased
offset
fair value
of
the
Fund’s
investment
Therefore,
in these the net
and
were
by of
reductions operations
in unrealized
losses.
of
transactions
on
the
Fund’s
consolidated
statement
and
NAV
was
zero.
On December
in
full.
21,
2004, Determine
the
Software, received
Inc.
("Determine")
the
prepaid
its
senior
credit
facility
from
the
Fund
The amount
included
its all
of proceeds outstanding
Series
Fund
from
repayment
was
the
approximately $1.64 terms of
the early
million.
This
the
amount
returned
principal
and
for
accrued
interest.
Under
repayment,
Fund
2,229,955 2005,
C
warrants
no
consideration.
On
amount
all
July
5,
Arcot Systems,
Inc.
("Arcot") the
prepaid
its
senior
credit
facility
from
the
Fund
in
full.
The
included
its
of proceeds
the
Fund
received
from
interest.
repayment
the
was
approximately
the early
$2.55
million. the
This amount
returned
outstanding
principal
and accrued
Under
terms of
repayment,
Fund
warrants
to
Arcot
for
no
consideration.
83
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Notes
to
Capital,
Inc.
Consolidated
principal 31, the
Financial on
Statements
the to debt
its
�
(Continued) of
Integral
The Fund
payments
continued
the
to
receive
repayments
Securities
and BP.
totaling received
Integral
made
during two on
year ended payments debt
October during
2005, according year ended $100,000.
the
credit
facility Also,
agreement
the
$1,683,336.
a
BP made
repayment
quarterly Vestal’s
totaling
$833,333.
Fund
one
time,
early
securities
totaling
During investments was
the
the
year ended by
October
31,
2005,
Valuation Committee Octagon and
increased
the
fair value
of
$7.5
the
Fund’s (which
in
in Baltic
$1.5
million,
Dakota
by $514,000,
by $1,022,638,
Vitality
Sygate
by
In
million
later realized), cost basis
Vendio
fair
by of
$1,565,999, the to
Vestal loan,
by $1,850,000 Impact
loan, in
by $700,000.
Vitality
addition,
increases stock,
and
value
Octagon
the
Timberland kind"
loan,
Series totaling
A
preferred
JDC
loan the
and
year in
SP
loans
were
due
receipt the
of "payment
interest/dividends
$1,370,777.
Also
equity
during
ended Octagon
31,
October
increased
31,
2005,
the cost
undistributed
allocation value of the
of flow through investment
income
from
the
Fund’s
investment
basis
and
fair
by $114,845. of short�term of
all
At October $122.3
exclusive million of
2005,
a cost
the
fair
value
of
all
portfolio
investments,
exclusive the
securities,
was
with
of $171.6
million.
At October31,
million
2004,
a cost
fair value
portfolio
investments,
short�term
securities,
was
$78.5
with
of $151.6
million.
10.
Commitments
to/for
and Contingencies
Portfolio
Commitments
At October
Companies: commitments
to portfolio
31,
2006,
the
Fund’s
companies
consisted
of
the
following:
Open
Portfolio
Commitments
of
Company
Marme
Octagon Storage Canada
Am
$20
$12.0
million
MVC
Capital,
Inc.
[U[h
million million
[h
Funded
[h
October
[h
�
$3.25 $1 95
million million million
$60
$3.25
Timberland
loc
On May
expires interest fee
7,
$2.83
$260,000 2004,
the
$143,614
to
Fund
can
provided be
a
$5,000,000
senior
secured
credit
6,
facility
Octagon.
facility basis
This
credit
facility
on
at
May 6, LIBOR
The
2007
plus
and
automatically receives the repaid a
extended
until
May
facility
2009.
The
credit
bears a
annual
servicing the credit
4%. The Fund
for
0.50% unused
facility.
fee
on an annual
and
0.25%
on an annual
facility.
basis
maintaining
facility
credit in
On
February
all
1 2006, Octagon
interest
drew
$250,000
23,
from This
credit facility
credit
was
full
including,
accrued
on February
2006.
was
refinanced
on
October
the credit
12,
2006.
During annual $70,600
facility
Februaiy 2005,
at the
Fund
made
available
to
SGDA,
25,
a
$1,308,300 During
the
revolving
fiscal
credit
facility
that
bears
interest
7%.
The
facility
expired 28,
on
August
the
2006.
year 2006, under
SGDA
the
drew
down
credit 30,
from
credit
facility.
On
of
April the
2006,
Fund
loan loan
increased to
availability
revolving on
April
by $300,000.
to the
The balance
credit
Fund’s and
the
bridge bridge
SDGA,
which
would
the
have
matured books.
2006,
was
added
revolving 2005, Ohio.
the
facility
was
removed
from
Fund’s
On June Guggenheim On
12.5%
note. the July
30, to
Fund pledged
its
common
stock
of Ohio
to
Guggenheim
to
collateralize
a loan
made by
8,
2005
the
Fund extended
on
the July
total 7,
Timberland 2007.
a
$3.25
also
million receives the
junior a fee
revolving note of
that the
bears
interest portion 27,
at
per
annum and
October
expires
The Fund
outstanding junior
0.25% on
million.
unused
of
the
As
Fund
of
31,
2005,
amount Timberland
31,
on
note line
was of
$3.25
On December
shares
2005,
stock
at
exchanged
$286,200 per share.
of
the of
revolving
credit
for
28.62
of
common
the
a price
of $10,000
As
January
2006,
the
Fund owned 478.62
common
shares
and
funded
debt
84
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Notes under
April the 21, junior to
Capital,
Inc.
Consolidated
has
Financial reduced
the note.
Statements
�
(Continued)
to
revolving Timberland
note. 31,
line
of
credit
been on
from $3.25
million
approximately
repaid
total
$2.96 an
million.
On
2006, on
the
at
repaid July 10,
$500,000
$500,000
On
2006, Timberland
On May 18, 2006, Timberland drew down $1.0 million leaving the On September 12, 2006, shares of common stock at
of
the the
additional
amount converted
on
the
note
outstanding
the
July
2006
approximately $2.96
line
million. 40.91
Fund
$409,091
per share. into
of
Timberland
junior
revolving
22,
of
credit
into
a price
of
$10,000
line
Effective
September of
2006,
stock
the
at
Fund converted
a price of
$225,000
per share. as line
Timberland
then
junior
revolving
of
credit
22.50
shares
common
credit.
$10,000
Timberland October
31,
borrowed
the
$500,000
from
the junior
revolving
shares
line the
of
As
a result
of
these
transactions, revolving
of
2006
Fund owned 542.03 common
million to
and
funded
debt under
the junior
of
credit
was reduced
from $3.25
approximately
$2.83
million.
On December
interest the note.
at
22,
2005,
the
Fund extended
a maturity repaid
to
Baltic
a $1.8
million
revolving
Baltic note
bridge
note.
The
note
bears
12% per annum
and had
date the
of January drawn
31,
2006.
the
immediately
in
full
drew
all
$1.5
million
interest.
from
On
January
12,
2006,
Baltic
amount
from from
including
unpaid
The
revolver
matured
on January 2006, from
the the note
31,
2006
and has been
removed $2.0
the
Fund’s
books.
Baltic the note
On March down
all
28,
Fund
note.
extended
to Baltic
5,
a
million the
revolving amount removed
bridge
note.
immediately drew
in
full
$2.0
million interest.
On
April
2006,
30,
Baltic
repaid
drawn from
from
the
including
unpaid
The
matured
on
April
2006
and has been
Fund’s
books.
the
On March
immediately of both 2013.
receives additional
30,
2006,
the
borrowed
$1.34
parties.
The
initial
Fund provided a $6 million loan commitment to Storage Canada and after one year, million. The commitment but may be renewed expires on the loan bears annual interest at 8.75% and has a maturity borrowing
will
company
the
with
date
consent
30, also
of
March
Any
additional
borrowings
the
mature
portion
seven of
the
years loan.
from
the
date
6,
of
the
subsequent Storage
borrowing.
The Fund
an 2013.
a fee
of
0.25% on
unused
On October
at
2006,
Canada
date
borrowed
6,
$619,000.
The borrowing
the
bears
annual
interest
8.75%
and has secured of
the
a maturity
of October
On
interest
July
at
1
on
2006,
plus the
Fund extended The Fund
note also as of
to
Marine
a
a
$2.0
fee
million
revolving
note.
The
the
note loan.
bears
annual was no
LIBOR
1%.
receives
of 0.50%
unused
portion
of
There
amount
drawn
revolving
October
credit
31,
2006.
On August
term
loan
25,
2006,
SODA’
The
s
revolving
facility
was added
eliminated
to the
term
the
loan,
increasing
the
balance
of
of
the
by $1.6
million.
revolving
credit
facility
was
from
Fund’s
books
as
a result
this
refinancing.
On October
the senior
12,
2006,
the
Fund provided
provided
at
a
$12.0
7,
million
revolving
credit
credit facility a
facility expires
to
Octagon
in
replacement
31,
of
secured
bears
credit
facility
on
May
plus
2004. This
on
December
facility
2011. on an
12,
The
credit
facility basis
annual
interest servicing the credit
LIBOR
on
4.25%.
basis
The Fund
for
receives the the
0.50% unused
credit
facility.
fee
annual Octagon
and
a
0.25%
from
there
fee
an annual Octagon
maintaining of
On October
on October
30,
2006,
drew
31,
$3.75 2006,
facility.
repaid
$500,000
credit
facility
2006.
As
of October
was
the
$3.25
million
outstanding.
On October
immediately
interest
at
30,
2006,
Fund
provided
revolving
a
$260,000
line
revolving expires
line
of
credit
to Velocitius 31,
on which
note
Velocitius
borrowed
$143,614.
The
of
credit
on
October
2009.
The
bears
annual
8%.
also has a floor the
if
Timberland Timberland’s of product has agreed
plan
financing the
program
dealer
administered by Transamerica. arrangement, and
this the
As
is
typical
in the
industry,
under
terms of
a dealer
financing
Timberland
assets
guarantees are
repurchase
from Transamerica,
to
defaults for
on
payment on
underlying
repossessed.
The Fund
be
a limited
co�guarantor
up
to
$500,000
repurchase
commitment.
85
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Notes
to
Capital,
Inc.
Consolidated
Financial
Statements
�
(Continued)
Commitments of On October
("Credit Credit Facility Facility
I.
the
Fund:
the
28, I")
2004,
Fund
entered
into
a
one�year,
cash
(the
collateralized,
$20
July
million
revolving
the
credit
facility
with LaSalle
Bank
National Association
loan
"Bank").
On
I
20,
2005,
Fund amended
million All other to
The maximum
the
aggregate
maturity
I
amount
under
Credit
Facility 31,
was
increased to
from $20
31,
$30
million.
Additionally, of Credit
date
was
extended
from October
27,
2005
the in
August
2006. $10
3,
material Credit
terms
Facility million Facility
remained borrowed
I
unchanged. under
Credit
On January
Facility
I
2006,
repaid
Fund
full
borrowed
million
under
Facility!.
The $10
Credit or six time,
was
at
by February
rate equal to the 31,
2006.
Borrowings
(for one, effect
under
three to
bear
plus
interest,
at the per
Fund’s
or
option,
at
either
a fixed
to the
LIBOR
rate
two,
months),
1.00%
per
annum,
Credit
a floating
I
rate equal
Bank’s 2006.
prime
rate in
from time
minus
1.00%
annum.
Facility
expired
on August
On February
which
the
16,
2005,
the
Fund
entered offices
into are
a sublease
(the
"Sublease")
for a larger
space
in the
building
its
in
Fund’s
office for
current
executive
located.
Effective
November
1 2006,
the 28,
Fund
subleased
principal
executive
the
Sublease
Advisers. The Sublease is to TTG TTG Advisers total approximately
scheduled $75,000
to expire in fiscal in
on February year
2007. the
2007. Future payments previous
lease
under
The Fund’s
Fund’s
is
was
located,
terminated 287
effective
March
is
1,
2005, without by Phoenix
penalty. Capital
The
building
which
entity
executive
offices
are
Bowman
4
Avenue,
owned
for
Partners,
LLC, an
which
97% owned
by Mr. Tokarz.
See Note
"Management"
27,
more information on Mr. Tokarz.
On
revolving
April
2006,
the
Fund and MVCFS,
Facility
credit
facility
("Credit
I
On
as
co�borrowers
entered as
into
a
new
four�year, to the
$100
lenders.
million
with
Guggenheim
drawn
administrative revolving revolving million
agent
credit credit
On
April
27, in
2006, term
the debt)
2,
Fund
borrowed
Credit July
$45
million
($27.5
million
from
the the
facility facility
and $17.5
million in
full
under
Facility 28,
I
the
May
2006.
On
2006,
in
The $27.5 million drawn from Fund borrowed $57.5 million
under
Credit Facility 31,
was
the
repaid
on
($45.0
drawn
from
revolving
credit
facility
and $12.5 on
the
million
term
debt)
facility.
H.
borrowed
Credit Facility
revolving
credit 27,
August
2006,
the
On August 2, 2006, the Fund repaid $45.0 million Fund borrowed $5.0 million in term debt under
million
Facility
I On
October drawn
million
October
30,
2006,
the
the
Fund borrowed
$61
$4.0
from
Credit 31,
the
revolving
credit
under
in
Credit
I On
million
2006,
the
Fund borrowed
credit credit
million
under
Facility there
I
$15
million
term debt
in
and $46 debt and
Facility the
from on
to
revolving
facility.
As of October
outstanding.
2006,
was
$50.0
million
term
Credit to
all
$50.0
the
revolving
to
facility
The proceeds
investments, will expire
from borrowings pay
fees 27,
made under
related
I
are
expected and
be used
fund
new and
existing
portfolio
II
and expenses 2010,
at
financing
for general
corporate Credit
at
purposes.
Credit
Facility
on
April
which
time
will
outstanding interest, plus
at
amounts
the
under
Facility
I
the
will
be due and
to either
payable.
(i)
Borrowings
under
one,
Credit two, a
Facility three
I
bear
Fund’s
of
a spread
.0
paid
option,
a floating or
rate
per annum,
a closing the
life
(
equal
the
LIBOR
with on
the
rate (for to time,
or six
months),
per
Prime
other
rate in effect costs
from time
plus
spread of 1.00% These
costs the will
annum.
The Fund
fee,
legal
facility.
and
associated
this transaction.
be
amortized evenly
portion of these debt
over
of
the
The
prepaid
expenses
Balance by
Sheet
include things,
unamortized cash
stock
costs.
Borrowings
under
Credit
Facility
I
will
be
secured,
among
other
cash,
equivalents,
investments,
accounts from
all
receivable,
equipment,
items,
instruments, as well as
all
general other
intangibles, property
the
capital
of
MVCFS,
and any proceeds
the
aforementioned
except
for equity
investments
made by
enters
the
Fund. with and
other that contain
The Fund
indemnifications.
into
contracts
portfolio
companies under
these
parties
is
a variety
of
the
The Fund’s
claims or losses
maximum
pursuant
exposure
arrangements
the risk
unknown.
loss
However,
to
Fund has
not
experienced
remote.
to these
contracts
and
believes
of
related
indemnifications
to
be
1.
Certain
Issuances
of Equity
the
Securities
by the Issuer
a rights offering stock. to
its
On December
subscription rights
3,
2004,
Fund commenced
shares
shareholders to the
of non�transferable terms of
the rights offering,
to
purchase
of
the
Fund’s
common
Pursuant
86
Source:
MVC CAPITAL,
INC.,
10�K,
January
10.
2007
T
of
MVC
Notes each
share to
Capital,
Inc.
Consolidated
a
Financial
record
Statements on
�
3,
(Continued) 2004,
entitled the holder stock to
of two
common
rights
stock
held
by
stockholder of were
able per to
December
share
3,
one
right.
For every
subscription exercise additional subscription subscribed
held,
shareholders of to the
purchase
one
of
the In
Fund’s
common
at the
price of
of
95%
were
Fund’s
NAV
by
share
on January
stock
2005. an
addition,
shareholders
who
elected
to for
all
their rights that the
purchase
the
Fund’s
other
common
holders subscribed shares
received
over�subscription a final
right to
subscribe
shares agent,
for.
not
purchased was
the
of
rights.
Based
on
count
by
the
Fund’s
rights
offering
over�
with 6,645,948
available before
shares the
of the
Fund’s
common
Each
stock share million
This was
for
at
in excess of
of
6,146,521
resulted
25%
oversubscription.
was
subscribed offering
a price
$9.10
which
in gross
proceeds
to the
Fund of approximately $60.5
before
expenses
15,
of approximately
the
$402,000. 146,750
shares of stock the
On
$9.54
in
April
2005,
for
Fund
re�issued
its
treasury
at
Fund’s
NAV
per
share
of
exchange
40,500
shares
of
common
stock
of Vestal.
12.
Legal
Proceedings
20,
On February
Court
for the
2002, Millenco
of
LP
("Millenco"), the the
a stockholder, against the
filed
a
complaint
in the (the prior
United
States
District
District alleged
Delaware
the fees
in
on behalf of
received violation
Fund
meVC
1940
Advisers,
Inc.
"Former
to the
Advisor").
The complaint
complaint,
that
by of
Former
36(b)
Advisor, of
the
beginning
Act.
one year
filing
of
the
were
excessive, received
and
Section
The case was
of
legal
settled fees
for
$370,000
from
which
the
Company
the
net
proceeds
31, $2.2
in July
2004
of $245,213
after
payment
and
expenses.
During
fees
year ended which
October
included
2003,
the
Fund
paid
or
accrued
at the
$4.0
lli
of
for legal
and proxy of
solicitation to
and
expenses,
the legal
million fees
accrued and
and
paid
direction
the
Board
Directors, L.P.
reimburse Karpus
and proxy Management,
costs against
solicitation including
expenses of
of two
major
a
Fund
shareholders, against the
Millenco,
and
Investment Court and
a
their costs the
obtaining
judgment
election
Fund Board
in the
Delaware
Chancery
associated
its
with
proxy process
Federal the
and
the
of
the
current
of Directors.
The
Fund
made
claim
insurance
carrier, 13,
Insurance
Company
("Federal")
for
its
right to in the
reimbursement $473,968 expenses which
of such
expenses.
On
as
June
2005,
Fund reached
Consolidated
a settlement
with of
Federal
amount
fees
of and
has been with
recorded
reaching
Other Income
in the
Statement
Operations.
Legal
associated
this settlement
were
$47,171.
13.
Recovery
of Expenses 2004,
the
and Unusual Income Items Fund reached an agreement
its
On January
Park, California
21,
with
a result
the
property the
manager
at
3000
Sand
Hill to
Road,
Menlo
to terminate a
lease
at
such
location the to
as
of
property
manager’s
the
ability
reach an
lease directly
agreement from
the
with
new
tenant
for the for
space.
Under equal
at
terms of
the
agreement,
a
result,
Fund bought�out
of
its
property
manager, remaining
for the
an amount
$232,835.
31,
As
the
Fund recovered
the
approximately
the reserve, the gross
$250,000
facilities
of
the
reserve
established
October 2004
2003. have
Without been
recovery
expense
July 13, 12
year ended
October
31,
would
approximately
of the case
$340,828.
L.P.
On
Inc.
2004,
the
Fund
received
$370,000
from cash
the
settlement
Millenco
after the
v.
meVC
fees
Advisers,
(See Note This
to
"Legal
Proceedings").
The
actual
received
was
fees
$245,213,
received
payment Former
of
legal
and were
expense. alleged
settlement excessive.
was
the
reimbursement
of
management
by
Advisor which
be
During
fees
the
year ended which
October
31,
2003,
million fees
the
Fund
paid
or
accrued
at
$4.0
million
for legal the
and proxy
of
solicitation to
and expenses,
the legal
included $2.2
solicitation
accrued
and
paid
the
direction
of
Board
Directors,
reimburse Investment Court and
a
and proxy
and expenses
of obtaining a
of two
major
Fund
shareholders, the
Millenco,
and
Karpus
Management,
costs associated
its
including
their costs
judgment of
against the current
Fund
in the
Delaware
Chancery
with
the
proxy
process for
its
and
the
election
Board
of
Directors.
The Fund made
13,
claim
against a
insurance
carrier,
Federal
right to
reimbursement which
of such has been
expenses.
On June
as
2005,
the
Fund reached
settlement
with
Federal
in the
amount
of $473,968
recorded
Other
Income
in the
87
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Notes Consolidated $47,171. Statement of
to
Capital,
Inc.
Consolidated Legal
fees
Financial
Statements
associated
�
(Continued) with reaching
this settlement
Operations.
and expenses
were
14.
Fund recorded
primarily resulted
R
Tax Matters
[h
Capital a
[h
treatment in
[h
for
Position
[h :[h
book
to tax differences
During
totaling
the
year ended
October These
paid. net
31,
2006,
the
$395,257,
wholly�owned
the
D
due
to in a net
reclassification
permanent of
partnership
$4,717,113.
excise in taxes
differences
were
book/tax
income of
and
non�deductible an
increase
These
realized effect
differences loss of assets.
increase
accumulated
earnings paid
$4,717,113,
accumulated
and
a
decrease
to
:[h
MVC
Earnings
other
in additional
in capital
of
$5,112,370.
This
reclassification
had no
Inc.
on
net
The
table
presented Inc.
below
includes has as
MYC
Capital,
only.
The Fund’s
2006,
subsidiary
Financial earnings!
Services, (deficit)
("MVCFS")
basis
not been
follows:
included.
As of October31,
components
of accumulated
on
a tax
were
Tax Basis Accumulated
Accumulated
Undistributed capital net
(Deficit) $ (73,524,707)
and
losses
operating
income
2,164,435
Gross Gross Net
Total
unrealized unrealized
appreciation depreciation depreciation
unrealized tax cost basis
51 11
40,341,227
deficit
accumulated
(82,953,844) 287,485,124
Tax
of investments year
distributions to
Current
shareholders
on a
tax
basis
Ordinary income Prior year
distributions to
9,163,765 shareholders
on a tax
basis
Ordinary income
4,580,676 2006,
the
On October31,
expire in the year will
Fund had
a net
capital in the extent
loss
carryforward
of $73,524,707
will expire
of which
in the capital
$28,213,867 year 2012 and
will
2010, $4,220,380
expire not in the
will expire
year 2011,
future
$37,794,910
gains are
$3,295,550 such
gains
O[h
need October
31,
year 2013.
To
the
capital
offset
by
loss carryforwards,
be
distributed.
Income
ntage[
or a net
The Fund designated
ending
Relief the
7%*
from
of
maximum
amount income
of as
$621,193
qualified to
2006 Act
investment
C
2006 Corporate
to *
Reconciliation calendar
2003. be
The information
separately
necessary
year,
will
reported
on form
1
paid
of dividends declared income under
and
the
paid
during
the
year
dividend
Jobs Growth
tax
and Tax
for
prepare
if
and complete
applicable,
shareholder’s in
returns
January
2007.
Dividends
Received
Deduction
ce[U
for certain ordinary of
shareholders
distributions
paid
by
the
Fund.
deduction may be eligible for a dividends received The Fund designated 7%* or a maximum amount October
is
income
declared
of $621,193
as qualifying corporations
dividends
dividends
and paid during
received subject
the
year ending
31,
2006
from
net
investment
income
for the
(i.e.
deduction. taxation.
The deduction
a pass
through
of dividends
by domestic
only
equities)
Unaudited
88
Source:
MVC CAPITAL,
I
10�K,
January
10,
2007
T
of
MVC
Notes
15. to
Capital,
Inc.
Consolidated
Financial
Statements
�
is
(Continued)
Income Taxes The Fund’s
wholly�owned October
31, subsidiary
MVC
Fund
Financial
Services, provision
Inc. of
subject
to federal
and
State
income October
a tax
tax. 31,
For 2005
the
year ended Fund of
2006
the
recorded For
a tax the
$159,072.
31,
For
the the
year ended
the
recorded
a tax
benefit
of $100,933.
for
year ended
October of
the
2004
Fund recorded
provision
$78,927.
The
provision
income
taxes
was comprised
following:
Year October
Ended
31,
2
31,
October [U[h
October
31,
Current Federal
State Total
tax
expense:
$
314,859
8
and our
$
92,892
$
134,201
[U[h
115,044 166,205
current tax
tax
expense
403,937
Deferred
Federal State Total Total
benefit:
(203,645)
41
$
(174,390)
41
tax
16
(70,472) (87,278)
deferred
tax
benefit provision
(244,865) $
(215,977)
tax
(benefit)
[U[h
rate
,933)
$
A
for the
reconciliation fiscal
between
the
taxes 31,
computed
is
at
the
federal
statutory
effective
rate for
MVCFS
year ended
October
2006
as
follows:
Year
Ended
31,
October 2006
Federal
statutory
tax
rate
34.00%
(0.39)%
tax benefit tax assets
Permanent
State taxes,
difference net
of
federal
.2
�
�
Valuation
Other, Effective net
allowance
for deferred
income
tax
rate
38.66%
89
Source:
MVC CAPITAL,
I
10�K,
January
10,
2007
T
of
MVC
Notes Deferred amount
actually to
Capital,
Inc.
Consolidated
Financial
reflect the are
Statements
�
(Continued)
difference to for
income and
tax
balances and
for
MVCFS
impact
stated tax
of temporary
at
between be
in effect as
the
carrying taxes are 31,
of
assets
liabilities
their tax
bases and of our
tax
rates
expected
when
paid
or recovered. 31,
The components
and October
31,
deferred as
assets
and
liabilities
MVCFS
of October
2006, October
2005
2004
were
follows:
October
2
31,
October [U[h
31,
October
31,
Deferred Deferred Others
Total
tax
assets: $
revenues
548,120
2
�
$
295,307
$
82,445
[U[h
$
deferred
tax
assets
$
548,120
303,255
$
Valuation allowance Net
deferred tax tax tax assets $
�
$
87,278
�
548,120
$
303,255
87,278
Deferred Deferred
Total
lities
liabilities
__________
deferred deferred
tax taxes
liabilities
�
�
� �
$
�
$
Net
$
[U[h
[U[h
Valuation
No
valuation tax
allowance
assets are
was
deemed necessary
fully realizable.
since
the
significant
portion
of temporary
differences
resulting
in deferred
considered
16.
Segment The Fund’s
Data
reportable
segments
the
are
its
investing advisory
operations operations
as a business
development
company,
MVC
Capital, Inc.
Inc.
("MVC"), and
financial
of
its
wholly
owned
subsidiary,
MVC
Financial
Services,
("MVCFS").
table presents
The
following
book
basis
segment
data
for the
year ended
M
October
31,
2006:
[U[h
$
Interest
and
dividend income
$
13,756,679 291,764 770,501
152,312 3,535,956 904 3,689,172 416,252 3,272,920 159,072 3,113,848
$
13,908,991
Fee income Other
Total Total
3,827,720 771,405 18,508,116 14,568,422 3,939,694 159,072 3,780,622 5,221,390
income
operating operating
income expenses income
(benefit) before taxes
14,818,944 14,152,170 666,774
Net
operating
Tax expense
Net Net Net Net
operating realized
�
income
gain (loss)
666,774 on investments and on from 2004,
foreign
currency
5,221,390 38,334,356 $ 44,222,520 through
$
� �
change
increase
in unrealized in net assets
appreciation resulting
investments
operations
38,334,356 $ 47,336,368
3,113,848
Inc.
In
all
periods
prior
to July
16,
all
business
was
conducted
MVC
Capital,
90
Source:
MVC CAPITAL,
INC.,
K,[h
January
10,
2007
T
of
MVC
Notes
17. to
Capital,
Inc.
Consolidated
Financial
Statements
�
the
(Continued)
Subsequent
Effective
Events
November
which
1,
2006, pursuant
as the
to the
Advisory
Agreement, Under
Fund
is
externally
managed by
Agreement,
of the
TTG TTG
Advisers,
serves
Fund’s
investment
the to
adviser.
the
terms of
the
the
Advisory
Advisers
the
will determine,
consistent of the
with changes
the
Fund’s
the
investment
portfolio
strategy,
composition
Fund’s such
changes,
portfolio, identify, portfolio retain or
nature negotiate
and timing
the close
Fund’s
and
the
manner
of implementing
diligence
and
structure
of
Fund’s
investments
investments,
(including
performing due
the securities
on
prospective purchased, third parties exclusive, to
companies),
sell
and monitor
the
Fund’s
determine
and
the
other
assets and/or not
is
and such
oversee
functions
the
administration,
recordkeeping
Advisers’
and compliance under
the
functions
of
Fund
performing and
it
for the
Fund.
1TG
services
Advisory
Agreement
the
are
may
furnish a fee
similar services for
to other advisory fee.
entities.
Pursuant
to the
Advisory
Agreement, of two per
Fund
TTG
Advisers
investment
incentive fee
and
management
services fee shall part
consisting
components
the
�
of
required a
pay
base
assets net
management
excluding
operating
fee
and an
The base management
of two be based
parts: will
be 2.0%
will
annum of
on our
Fund’s
total
cash.
The
incentive
will consist part
(i)
one
be based
pre�incentive
fee
acquired
income and (ii) the other after November 1, 2003.
1,
on
the
capital
gains
realized
on our
portfolio
securities
On November
2006, 2006,
Timberland
the
borrowed $54.5
$420,291
million
from
the
secured
junior
revolving
credit
note.
On November
Facility
2,
Fund
repaid
borrowed
on
the
revolving
facility
under
Credit
I
7,
On November On November
Facility
2006, 2006,
the
Fund made an Fund
repaid
additional
$100,000 borrowed
equity
investment
into
SGDA.
facility
7,
the
$5.5
million
on
the
revolving
credit
under
Credit
I
21, in the
On November
which
is
2006,
consistent
with
the
contemplated
the
spin�off
identified Partners,
at
in the
Advisory
equity to
Agreement
firm.
(and
depicted
5,
Registration Partners’
Statement), subsidiary,
Fund formed
Europe
MVC
a
a private
December Management
of
the
2006,
Ltd.
MVC
("BPE")
MVC
LLC,
arrived
an agreement investment
region.
co�own
On BPE
subsidiary
with Parex
Asset
Management
IPAS,
management
the
company
and
Parex Bank. on
BPE
will
pursue investments
21,
in businesses
throughout
its
Baltic
In
addition,
November
operating
2006,
MVC
Partners
established
MVC
Global
LLC
division,
which
pursues
investments
in foreign
companies.
On November
antiperspirant equity. actives
22,
2006,
the
Fund
invested
$3.2
million
in
Westwood
of a $1.6
Chemical
million
Corporation, loan
a
manufacturer
million in
of
and water
treatment
chemicals,
consisting
bridge
and
$1.6
On November
junior junior
27,
2006,
the
Fund
increased to
the
amount
available
to then
draw
down
on
the
Timberland from
the
secured secured
revolving
revolver.
note from $3.25
million
$4.0
million.
Timberland
borrowed
$750,000
On November Form
29,
2006,
the
Fund
filed
Post�Effective
Amendment
No.
2
to
its
Registration
Statement
on
�2
(the
"Registration
Statement").
On December The revolving
6,
2006,
facility
the
Fund borrowed
a
$10.0
million
on
the
revolving
the
credit loan
facility a
under
Credit
Facility million.
I
and
credit
now has
Total
balance
of $15.0 term
for loan
million
and
term
has
balance
of $35.0 accrued
On December
fees.
8,
2006,
Safety in the
repaid
A
and term
loan
B
in
full
including
all
interest
The
total
amount
received
repayment
term
loan
A
was
$5,043,775
and
for
term
loan
B
was
$1,009,628.
91
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,2007
T
of
MVC
Notes
to
Capital,
Inc.
Consolidated
invested a
Financial
million in
Statements
�
(Continued)
International interest
On December
personal care
12,
2006,
in the
the
Fund
$10
lad[
Arbonne
LLC,
is
a
marketer
plus
of 6.5%
products, date
is
form of
19,
$10
million
second
lien loan.
The annual
rate
LIBOR
and
the
maturity
December
2006,
first
2013.
in Total has
On December
loan
13,
the
Fund made an investment The second
first
Safety
by extending
interest rate of
a $3.5
million plus
second 6.5% and
lien a
and
a $1.0 date
million
lien loan.
8,
lien loan has
an annual
maturity date
of
December
8,
2013.
The
lien loan
an annual
interest
rate of
LIBOR LIBOR plus
and
3.0%
a maturity
of
December
2012. Fund’s
also
On December
fiscal
14,
2006, of 2007
the
Board
of
Directors
declared
a
$0.12
per of
share
dividend
per share.
for
first
quarter
of
are 26,
2007.
The Board
5,
Directors to
declared
an
additional
cash
dividend
28,
$0.06
The dividends
is
payable 2006.
on January
shareholders
of
record
on
December
2006.
The ex�dividend
date
December
On December December
all
18, to
2006,
the
5,
Fund
extended
the
maturity then
date repaid
on
in
the
full
$1
million
Baltic
5,
bridge
loan from
principal
22,
2006
January
2007. This
note
was
on January
2007,
including
and
accrued
interest.
On December On January
revolving
credit
3,
22,
2006,
the
the
Fund
invested
$564,716
$3.0 million
in Vitality
in the
form of
credit
common
stock.
2007,
Fund borrowed
has a
on
the
revolving the
facility a
under
of
Credit
Facility million.
II.
The
facility
now
the
balance
of
$18.0
million
and
term
loan
has
balance
$35.0 of
On January
investments Auto,
Baltic
4,
2007,
Fund’s
portfolio
Valuation Committee companies Growers
determined
to
increase of
the
fair
values
the
Fund’s
in the
following
by an aggregate
Pasta
amount
Inc.,
approximately
Credit
$20.8
million*:
SIA
BM
Motors
Corporation, f�r
Dakota und
Sanierungsgesellschaft
Deponien
last ,[h
audit, the in
Company,
Vendio
Octagon
Inc.,
Investors,
LLC, SGDA
Inc.
Services,
and
Vitality
Foodservice, from
the
Subject portion
to the
confirmation Fund’s
following
the
payment
is
obligation
to to
Mr. Tokarz
resulting
sale
of
is
a
of
LLC
membership
the
first
interest
Octagon
expected year
be approximately
$110,000
(which
expected
to
be paid during
quarter
of
the
Fund’s
fiscal
2007).
*
Unaudited.
92
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Report
of Independent
Registered
Accounting
Firm
To
the
Board have
of
Directors
and Shareholders
of
MVC
Capital,
Inc.:
We
the
audited
the
accompanying
of investments,
consolidated as in net for of
balance
31,
sheets
of
MVC
years
Capital, the
Inc.
(the
"Fund"),
including statements 31,
consolidated operations, the selected the share
schedule cash
per
October
for
2006
of the years
and
2005, and
related
consolidated
of
flows and changes
share data
assets
each
four
three
in the
period ended October
financial
October
31,
2006,
audits the
is
and
also
and
ratios
each
of
the
in the
period
I
included
financial data
statement ratios
schedule
listed in the are the
Index
at
Item
(a
Fund’s and 2002,
data
ended These
2006.
Our
statements,
selected to express
per
and
and schedule
responsibility per share
of the data 31,
management. and
Our
responsibility
an opinion on
selected per
these share
financial data
statements, ratios for the
selected
ratios
schedule by
based
other
on our
auditors
audits.
The
and
year ended
selected
October
per
were
audited
whose
report
expressed our
an
unqualified
opinion on with
those
share
and
ratios.
We
(United whether evidence
conducted
States). the
audits
in
accordance
require are free that
the plan
standards
of
the the
Public audit audit
Company
to obtain includes
Accounting reasonable examining,
also includes
Oversight Board assurance about on
a test basis, assessing the overall the financial
Those
standards statements
we
and perform
misstatement. financial
financial
of
material
An
supporting
principles presentation.
the
amounts and
and
disclosures estimates audits
in the
statements.
An
for
audit as
accounting
statement
used
significant that
made by management,
provide
a reasonable basis
as well
evaluating
We
the the
believe
our
our
opinion.
In
all
our
opinion, respects, results
financial
statements
and
selected position
per
share
data
and
ratios at
referred
to 31,
above 2006
the
present
fairly,
in the
material
consolidated
financial
of
MVC
Capital,
Inc.
October
for
and
three
2005, and
years in statement
all in
consolidated period
of
their operations,
cash
flows and per
their
changes and
in net ratios in
assets
each
of
the
ended
October31, with U.S.
2006
and
the
selected
share
data
for
each
of
the the
indicated related presents
periods, financial fairly in
conformity
schedule, material
generally
accepted
accounting
basic
principles.
Also,
our
opinion, as a
when considered
respects the
in relation
to the
financial
statements
taken
whole,
information
set forth
therein.
We
(United 2006,
also
have
the
audited,
in
accordance of
with
the
standards Inc.’s
of
the
Public
Company
over
issued
Accounting
reporting the
Oversight Board
as
States),
effectiveness established of the
MVC
Capital,
internal
control
financial
of October of an
31,
based
on
criteria
in Internal
Control�Integrated
Framework
report dated
by
5,
Committee expressed
Sponsoring
unqualified
Organizations opinion
thereon.
Treadway
Commission
and our
January
2007
Ernst
&
Young LLP
New
York,
5,
New
2007
York
January
93
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,2007
T
of
Item
9A.
Controls
and Procedures
management’s
for the evaluation responsibility the for establishing prior the to the
The Fund
over
the financial
recognizes
reporting out an
and maintaining
filing date
adequate
internal
control
Fund. of
Within
the
90 days of
of
this
annual
report
on
Form
�K,
Fund
carried
effectiveness Out
design
and and
operation the
of our
disclosure of
controls
and
procedures. including
This
the
evaluation
was
carried
under
the
supervision a Principal (the
with
participation (the that
management, and
the the individual
individual the
who performs
of that
the
functions Financial controls
of
Executive "CFO").
are
Officer
"CEO")
who performs
the
functions
a Principal
Officer
Based
upon
evaluation,
CEO
and
CFO
have
concluded
controls to
our
disclosure
and and
filed
procedures
other or
adequate and
that the the are
effective.
Disclosure information "Exchange
rules
and procedures be
disclosed in
are
controls reports
procedures
designed
to
ensure
that
required
our
submitted under
reported, within
Securities
Exchange
specified
Act,
1934
(the
Act")
forms.
is
recorded,
processed, controls to
summarized
and
include,
time
periods
in the
SEC’s
to
and
Disclosure
and procedures be
disclosed in
without
filed as
limitation, the
controls
and Act
procedures
is
designed and
ensure
that
information
to
required
our and
reports
under
Exchange
to
accumulated
communicated
required
management,
including
our
CEO
CFO,
appropriate
allow
timely
decisions
regarding
disclosure.
significantly
discussed
M
There have
affect
been
no
significant
changes
controls
in
our
disclosure
controls
and procedures
to the date
or in other carried out
factors the
that
could
our
disclosure
and procedures
subsequent
we
evaluation
above.
[h
of
as
on
Internal Fund term
is
[h [h [h
for establishing
The management
reporting, participation the
the
is
responsible in
and maintaining under
the the
adequate
Act.
internal the
control supervision
over and
financial
such
defined
Rule
I
3a�
15(f)
Exchange Fund on
Under an
with
of management, Fund’s
internal
including control
our
CEO
and
CFO,
conducted
the criteria
evaluation
of
the
effectiveness
of
the
over
the
financial
Control
�
31,
reporting
based
established the
in Internal
Integrated
Framework
Based on
issued
by
Committee under
internal
of Sponsoring
the
Organizations of
in Internal
Treadway
Commission (COSO).
Framework, October
reporting
the
Fund’s
that the
evaluation
framework over
the
Control
�
Integrated effective as of
management
2006. of October31,
firm, as stated
concluded
Fund’s of
the
control
financial
reporting
was
Management’s
assessment
effectiveness
of
Fund’s
internal
control
over
financial public
as
2006, has been
in
its
audited
is
by
Ernst
& Young
LLP,
an independent
registered
accounting
report
which
included
herein.
94
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Report
of Independent
Registered
Public
Accounting
Firm
The Board of
Directors
and Shareholders
of
MVC
Capital,
Inc.
We
reporting the
have
audited
management’s
Reporting, 31, that
assessment,
included
Inc.
in the
accompanying
effective
Management’s
internal control
Report over
on
Internal
Control and
as
Financial
MVC
on
Capital,
maintained
financial issued
of October
2006
based
criteria the
established
in Internal
Control
(the
�
is
Integrated
criteria).
Framework
by
Committee
is
of Sponsoring
responsible of
Organizations of maintaining
control
Treadway
internal reporting.
Commission
control
COSO
MVC
and
for
Capital
Inc.’s
management
of
the
for
effective financial the
over
financial
reporting to express control
its
assessment on
reporting
effectiveness
internal
over
Our
of
the
responsibility fund’s
an opinion
financial
management’s based on our
assessment
audit.
and an opinion on
effectiveness
internal
over
We
(United whether
obtaining
conducted
States). effective
our
audit
in
accordance
require
with
the plan
standards
of
the the
Public audit
Company
to obtain in
all
Accounting
reasonable respects.
Oversight Board assurance about included
testing as
Those
standards control
that
we
and
perform was
internal
over
financial control
reporting
maintained
material
Our
audit
an understanding
the
of and
internal operating
over
financial
reporting, control,
evaluating
management’s
assessment,
and
evaluating
design
effectiveness
of
believe
internal that
and
performing such
a
other basis
procedures
for
we considered
necessary
internal
in the
circumstances.
We
our
audit
provides
reasonable
reasonable
our
opinion.
A
regarding
fund’s the
control
over
financial reporting
reporting
is
a process
designed of
financial internal records (2)
to
provide
statements
assurance purposes
reporting in
reliability generally
of
financial
and
the
preparation
for external financial
accordance
those
with
accepted
that
policies
and
the are
procedures
(
accounting
pertain to
principles. the the
A
of
fund’s
control
that,
over
includes
maintenance
assets the
of
in reasonable reasonable in
detail,
accurately that
and
fairly reflect transactions
transactions
and
as
dispositions to
of
fund
of
(3)
provide
assurance with
in
recorded
necessary and
permit
preparation
of
financial the
statements
accordance
generally
accepted with
accounting
principles,
that receipts
and of
expenditures the
fund
are
being
made only
assurance
assets
accordance
authorizations or timely effect
of
management
financial
and
directors
fund and
use,
provide reasonable of
the
regarding that
prevention material
detection
of unauthorized
statements.
acquisition,
or disposition
fund’s
could
have
a
on
the
Because
misstatements. controls or
of
its
inherent
limitations,
internal evaluation
control
over
financial to
reporting future
may
degree
not are
prevent subject
or detect to the risk that the policies
Also,
projections
of any because
of
effectiveness in conditions,
periods
may become may
inadequate
of changes
or that
the
of compliance
with
procedures
In
deteriorate.
our
opinion,
management’s
as
assessment 2006,
is
that
MVC
Capital,
all
Inc.
maintained
respects,
effective
internal the
control
over
Also,
financial in
reporting
of October31,
Capital, Inc.
fairly
in all
stated, in material
criteria.
material
based
internal
on
COSO
over
criteria.
our
opinion, as
MVC
have
the
maintained,
respects,
effective
control
financial
reporting
of October31,
2006,
based
on
the
COSO
the
We
(United
also
audited,
in
accordance balance 2006 of
four the
with
sheets
standards
of
the
Public
Company
the statements 31,
Accounting
consolidated
Oversight Board schedule
of in net share report
States), as
consolidated 31,
of
MVC
the
Capital,
Inc.,
including
investments, assets, data dated
of October flows
for for
and
2005, and
years
related period
consolidated
of operations,
changes
per
and cash
ratios
each
the
three
in the
ended October
October
31,
2006,
and
the
selected Inc.
and
each
of
years
in the
period
ended
2006
of
MYC
Capital,
and
our
January
5,
2007
expressed
an
unqualified
opinion
thereon.
Ernst
&
Young
LLP
New
York,
5,
New York
2007
January
95
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Chances
There
the are
in
Internal been no changes occurred
materially
have
in
our
internal
control recently
over
financial
reporting fiscal
(as
defined
that
in
Rule
Exchange reasonably
Act)
that to
during our most
affect,
completed over
quarter,
have
materially
1
by
under
or
affected,
likely
our
internal
control
financial
reporting.
P
Item
10.
Directors
and Executive
to the
Officers
of
the
Registrant
to "directors the
Reference contained
shareholders reference. in the to
is
made
information statement (the to
with be
respect filed
and
in
executive
officers
of
the
Registrant"
to
be
of
Fund’s be
held
proxy
in
with
SEC,
connection
information
with
is
the
Fund’s
annual
herein
meeting
2006
"2006
Proxy
Statement"),
which
incorporated
The Fund
officer/chief
has
adopted
a
code
a
of
ethics
that
applies
is
to the
Fund’s
chief
executive
officer
and
chief
financial
accounting
with
officer,
copy
of which
posted on 303A.
our website of
the
http://www.mvccapital.com.
listed
In after
accordance
the
requirements of
of shareholders, violation of the
Section
12(a)
s
company
standards,
shortly to the
our 2005
annual
meeting
Michael of
the
Tokarz,
s
our Chairman
and
Portfolio listing
Manager,
In so
certified addition, certified
NYSE that he was unaware CEO and CFO certify the
this
of any accuracy
filing
NYSE’
corporate
governance
in
standards. reports,
our
in
financial
statements certifications
contained
as exhibits
our
periodic
and
Form 10�K
through
the
of
Section
302
to this
Form 10�K.
Item
11.
Executive
Compensation
to the
Reference Proxy
Statement,
is
made
which
information
is
with
respect
to "executive
compensation"
to
be contained
in the
2006
information
incorporated
herein
by
reference.
Item
12.
Security
Ownership
of Certain Beneflcwl information
in the
Owners
and Management
ownership
information
Reference management"
is
made
to the
with Proxy
respect
to "security
of
is
certain
beneficial
owners by
and
to
be contained
2006
Statement,
which
incorporated
herein
reference.
Item
13.
Certain Relationships
stated
and Related
Transactions
As
above
in
Item
2, is
"Properties",
the
Fund
has
sub�leased
Partners,
property
at is
287
NY
10577
In
a building
which
owned
by Phoenix
Capital
LLC, which
is
Bowman Avenue, Purchase, 97% owned by Mr. Tokarz.
in
connection
with
the
Fund’s
investment with
in Velocitius,
which
described
above
the
Note
7,
we have
entered
into
consulting
services
arrangements
consulting fee
Jasper
Energy,
relating
LLC
to
("Jasper").
Under
terms of
certain to
the
arrangements, farms and
the profit price of the has
is
Jasper paid
provides
management
monthly
to
services
Velocitius’ euros
acquisition a to fee
of
wind
to
be
an ongoing
service the
of approximately farm
projects
8,000
($10,000), fee equal
equal of
the
9%
of
distributions
attributable (estimated
wind
at
and
a one�ti
me
Mr.
2%
equity
purchase
Portfolio Directors
wind
farms
currently interest
175,000
euros
($220,000)). directors,
rz,[h
all
our Chairman
and
Manager,
a minority (Mr.
ownership recused
in Jasper.
Our board of
a
including this matter), that
of our Independent each
that
Tokarz
himself from making
policy, 13
determination on has
approved
transactions
of
the
arrangements be
subject to
with
Jasper. disclosure
As
a
matter of
this
our board must be
the
of
directors to the
required
any
would
the
under
in
Item
subject
advance
consideration
and approval
the
of
Independent
Directors,
accordance
with
procedures
set forth
in Section
(f[
of
1940
Act.
Item
14.
Principal Accounting
is
Fees
and
Services
Reference
the
made
to
the
information
with
respect
is
to
"principal herein
accounting by
reference.
fees
and
services"
to
be contained
in
2006
Proxy
Statement,
which
information
incorporated
96
Source:
MVC CAPITAL,
INC.,
.-K
January
10,2007
T
of
[h V[
Item
15. Exhibits,
Financial
Statements,
Schedules
Page(s)
(a)(l)
Financial
Statements Balance
31, Sheets 31,
Consolidated October Consolidated October October Consolidated For
the the the 31, 31,
2006
and October
2005
63
Schedule 2006 2005 Statement
of Investments 64�65 66�67
of
Operations
31,
Year
Ended October
31, 31,
2006, and 68
Year Year
Ended October Ended October
Statement
of
2005, 2004
Consolidated For
the the the
Cash
Flows
31,
Year
Ended October
31, 31,
2006, and 69
in
Year Year
Ended October Ended October
Statement
of
2005, 2004
Consolidated For
the the the
Changes
31,
Net Assets
Year
Ended October
31, 31,
2006, and
71
Year Year
Ended October Ended October
Selected
2005, 2004
Consolidated For
the the the the the
Per Share Data
31,
and
Ratios
Year
Ended October
October31, October31,
31, 31,
2006,
Year Year Year Year
to
Ended Ended Ended
2005, 2004, 2003, 2002 Statements
Public
Ended October
October
and 72
Notes Report
(a)(2)
Consolidated
Financial Registered statement
73�92
Firm here
with:
of Independent
financial
Accounting
are filed to
93
The following
Schedule
schedules in
12�14
there
of Investments
and Advances
not
Affiliates
100 schedule because such information
In required
addition, or
(ii)
maybe
additional required
information
has
provided
in the
in a
(i)
is
not
the
information
been
presented
aforementioned
financial
statements.
(a)(3)
The
following
exhibits
are
filed
herewith
or incorporated
by
reference
as
set forth
below:
Exhibit
Number
3.1
Description Certificate Registration 3.2 Certificate filed (File 3.3 Fifth
of
Incorporation.
(Incorporated
by
reference
to Exhibit
99.a on
filed
with
8,
the
Registrant’s
initial
Statement of
the
on
Form N�2
of Pre
(File
No. 333�92287)filed
Incorporation.
December
by
1999)
to Exhibit 99.a.2
Amendment
Registrant’s
Certificate �Effective
of
(Incorporated No.
I to the
reference
with No.
Amendment
23,
Registration
Statement
on
Form
�2
333�119625)filed
on
November
2004) by
reference to Exhibit 99.b.
Amended
and Restated Bylaws.
(Incorporated
Registration
Pre�Effective
filed 4.1
Amendment
29,
No.
I
to
the
Statement
on
Form
�2
filed
filed
with
Registrant’s
(File
No. 333�125953)
on August
2005) (Incorporated No.
I to the
Form of Share
Pre�Effective
filed
Certificate.
by
reference
to Exhibit
99.d.
1
with (File
the
Registrant’s
Amendment
23,
Registration
Statement
on
Form N�2
No. 333�119625)
on
November
2004)
97
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Exhibit
Number
10.1
Description
Dividend
Registrant’s
Reinvestment
Plan,
as
amended. No.
(Incorporated ito
the
by
reference
to Exhibit
99.e
filed
with (File
the
No.
10.2
i9625)
for
Pre�Effective on
Amendment November
Avenue,
Registration
Statement
on
Form
�2
23,
2004)
Sub�lease
filed with
287
Bowman
the
Purchase,
NY
10577.
(Incorporated No.
Registrant’s
Quarterly
Registrant
Report on
Form
�Q[
(File
�002
by by
reference
reference
to Exhibit
10
on June
to Exhibit
8,
2005)
10.2
10.3
Agreement
filed with
between Annual
and Michael
(File
Tokarz. No.
(Incorporated
Report
on
Form 10�K
814�0020])flled
on January
29,
2004)
10.4
between the Registrant and The Tokarz Advisory and Management Agreement Group LLC. Incorporated by reference the Registrant’s to Exhibit Post�Effective 99.g filed with Amendment No. 2 to the Registration Statement on Form N�2 on (File No. Investment Advisers
19625)
Association.
10.5
November29, 2006) Form of Custody Agreement
reference Registration
to
between
with
Registrant the Registrant’s
and U.S.
Bank
National
(Incorporated Ito
the
by
Exhibit
99.j.1
filed
Pre�Effective
Amendment
on
No.
23,
Statement
to
on
Form N�2
(File
No.
333�119625)flled
Registrant the
November
U.S.
2004)
Association.
10.6
Form of Amendment
(Incorporated
to the
Custody
Agreement
99.j.2
between
filed (File with
and
Bank
National
by
reference
to Exhibit
Registration of
Statement Agreement
reference
on
Form N�2
No.
10.7
Form
�119
Registrant’s
Pre�Effective on February
Amendment
21,
No.
1
2006)
Custodian by
between
Registrant 99.j.3 filed (File
and LaSalle
with the
Bank
National
Association.
(Incorporated
to
to Exhibit
the
Registration Registrar,
Statement Transfer
on
Form N�2
and
No.
11962
Registrant’s
Pre�Effective on
Amendment
23, Street
No.
1
November
and
State
2004)
10.8
Form of
Trust
Agency
Service
Agreement
with
Registrant with the
Bank and
Company. (Incorporated by Amendment No. 2 to the Registration
February
10.9 11,
reference
to Exhibit
i)flle
(File
Registrant’s filed
Pre�Effective on
Statement
on
Form N�2
No. 333�92287)
2000)
Form
of
Transfer by
Agency
reference
Letter
Agreement
99.k.2
with
filed (File
Registrant with the
and
EquiServe
Trust
(Incorporated
to the
to Exhibit
Registration
Statement
on
Form N�2
No.
19625)
Bank
National
Registrant’s
Pre�Effective on
Company, N.A. Amendment
23,
No.
I
November
2004) by
10.10
Form of Loan Agreement
reference Registration to Exhibit
with
filed
Registrant with the
and LaSalle
Registrant’s
Association.
(Incorporated No.
23, I to the
99.k3 on
10.11
Form of Amendment
(Incorporated No. by
10.12
Form of Custody
(Incorporated
to
14
by
Registration
Statement
Form N�2
(File
No.
�1[Q
with
Pre�Effective
Amendment
on
alle
November
2004)
Association. (File
to
Loan
Agreement
with
Registrant
and LaS
Bank National
on
reference
to Exhibit
10.10
22,
filed
Annual
Report
Form 10�K Bank
on
December
Pledge
to
2005) with
filed (File Registrant the
Account
reference
Agreement
99.k.4
and LaSalle Pre
National
Association.
Exhibit
with
the
Statement
on
Form N�2
No.
10.13
Form of Fund Administration LLC. (Incorporated by
No. Ito
the Registration
11962
Registrant’s Registrant the
�Effective
Amendment
23,
No.
1
on
U.S.
November
Bancorp
2004)
Services,
Servicing
Agreement 99.k6
with
filed (File
and
Fund
reference
to Exhibit
with
Registrant’s
Pre�Effective on February
Amendment
21,
Statement
Servicing to
on
Form N�2
No.
333�119625)flled and
U.S.
2006)
10.14
Form of Fund Accounting
(Incorporated
the Registration Credit
Agreement 99.k
7flled
with
with
Registrant Registrant’s
Bancorp
Fund
Services,
LLC.
I to
by
reference
Exhibit
Statement Agreement by
reference
on
with to
Form N�2
Registrant
(File
No.
1[Q19
Group
Pre
�Effective
Amendment
21,
No.
on
February
2006)
et
al.
10.15
Form of
and
filed
Guggenheim
Registrant’s
Corporate
Funding, Report
LLC
on
(Incorporated
ExhibitlO
9,
with
Quarterly
Form
OQ
(File
No. 814�00201)flled
14 Joint
on June of
the
2006) and
Code of
Ethics with
Registrant
The Tokarz
LLC. (Incorporated by
No. 2
to the
reference
to
Exhibit
99r filed
the
on
Form
�2
(File
No.
�1[Q
Registrant’s
Post�Effective on 98
Amendment
29,
Registration
Statement
November
2006)
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Exhibit
Number
31 *
Description
Certifications
Rule 32*
Certifications
1
of
the
Chief Executive
Securities
Officer
and
the
Chief
Financial
Officer
pursuant
to
of
the
Exchange
Officer 18
Act of 1934 and
the
of
the
ley[h
of
the
Chief Executive Act of 2002,
Chief
Financial
Officer
pursuant
to Section
906
U.S.C.
Section
1350
*
Filed
herewith
(b) Exhibits
Exhibit No. 31
Exhibit Certifications
of
the of
Chief Executive
Securities
Officer
and Act
the
Chief
Financial
Officer
pursuant
to
Rule 32
13a�14(a) of
the
Exchange
Officer 18
of 1934
the
Certifications
of
the
ley[h
Schedules
the
Chief Executive Act of 2002,
and
Chief 1350
Financial
Officer
pursuant
to
Section
906
U.S.C.
Section
(c)
Financial
Statement
99
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Schedule
12-14
MVC
Schedule
Capital,
Inc.
and Subsidiaries and Advances
to Affiliaties
of Investments
in
Amount
o Dividends
Portfolio
Company
1)[h
More than Common
Stock
t
l[h .[
of Interest
October
31,
2
[U[h
d[
�
2,000,000
Gross
Gross
October
31,
duc
� �
(3,500,000)
[h
Companies
25% owned
auto
MOTOL BENI
Dealership) Motors
�
456,250 11,333
� � � � �
4,500,000
2,000,000
(Automotive Baltic
Corporation (Automotive Dealership)
Loan Loan
Bridge
Loan
Stock
15,833
Common
Ohio
Medical Corporation (Medical Device
�
�
7,500,000 17,000,000
�
�
1,000,000 3,500,000 13,655,000
� �
4,500,000 1,000,000
�
21,155,000
Common
Stock
�
9,200,000
26
200,000
Manufacturer)
SODA
llschaft
fur
Deponien
und Loan
Revolver Bridge 408,895 74,023
last
(Soil
� � � � � � � � � � � � � � � � � � � � � � � � � � � �
4,304,560 1,237,700
1,685,150
�
(1,608,300) (300,000)
5,989,710
Remediation)
Loan
Equity
6,300
� � � � � �
370,600 300,000
� �
Common
Interest
315,000
23,551
� � � � �
(920,291)
338,551
Preferred
Interest
Equity
5,000,000 8,000,000 7,000,000
�
5,000,000 8,000,000
SIA
BM
Auto
Dealership) Labs,
Common
Loan
Stock
(Automotive
165,900
(7,000,000)
�
Summit
Inc.
Research
Loan
Chemical) Preferred Stock
150,444
(Specialty
�
5,044,813 11,200,000
5,044,813 11,200,000
Timberland
Irrigation,
(Distributer Landscaping
I �
Machines
&
Loan
1,039,760
6,318,684
289,175
6,607,859
& Irrigation
Revolver
Equipment)
Common
Warrants Turf Products,
Stock
(Distributer Landscaping Equipment)
�
LLC
Loan
1
347,554
� � �
3,250,000 4,500,000
500,000
2,829,709
� � �
2,700,000
� �
920,291
�
(1,000,000)
7,676,331
�
(252,957)
�
4,420,291
�
7,676,331
& Irrigation
LLC
Inc. Interest
6,074,750
Warrant
� �
� �
5,821,793
Vendio
Services,
Common
Preferred
Stock Stock
�
3,400,000 800,000
(Technology) Vestal Manufacturing
Inc.
700,000
Enterprises, (Iron
Loan
107,467 Stock 132,545
900,000 3,700,000
� � �
143,614 2,966,765
(100,000)
Foundries)
Common
Revolver
Velocitius
B.V
478
Equity
� �
�
3,700,000 143,614
Common
(Renewable
Total Energy)
Interest
�
$ 3,966,044
�
2,966,765
companies
more
$ 128,794,436
than
25% owned
100
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Schedule
of
Capital,
Inc.
and Subsidiaries
to
Investments
in
and Advances
of interest
ilia
31,
(Continued)
Gross
Gross
Amount
o Dividends
Portfolio
Company
Investment(1)
t
Companies
w[
25%
Food)
More than 5%
but
less
I [h O
36,364
October
October
31,
2
[U[h
[U[h
[U[h
2006
than
Dakota
Growers
Inc.
Pasta
Company,
(Manufacturer
Common
Packged
Stock
� �
5,514,000
3,443,880
� � �
(200,000)
8,957,880
of
Endymion
(Technology
Systems,
Inc.
Preferred
Stock
�
7,444
�
� �
750,000 5,468,123
Investments)
Harmony
Health
Pharmacy
Center,
Inc.
&
Loan
lthca �
Impact (Confections
Retail)
Inc.
Common
Loan
Stock
.
� � �
�
�
5,228,826
�
200,000 750,000 239,297
�
Confections,
907,468
� � � � �
Manufacturing Distribution)
&
Loan
28,768 Stock
Common
Marine
Exhibition Corporation
� � �
� � � � � � � � � � � �
325,000 2,700,000
� � � �
10,091,111 2,035,652
325,000 2,700,000
Loan
Preferred
Inc.
346,141 Stock* Stock Stock 53,478
10,091,111 2,035,652
(Theme
Park)
la[Qims,[
(Technology)
Preferred Preferred Warrants
�
2,000,000 400,000
�
� � � �
�
�
(2 000,000) (400,000)
� �
�
Octagon
Credit
Investors,
LLC
(Financial Services)
Loan
Revolver
1,244,315 30,830
4,664,794
5,568,803 3,750,000 1,911,171
(5,233,597) (500,000) (1,211,277) (1,069,457)
5,000,000 3,250,000 1,927,932
lnte
Warrants
� � � � � � � � �
1,228,038 1,069,457
�
Phoenix (Coal
Coal
Corporation
Loan
357,407
7,088,615
� � � � � �
�
7,088,615
Processing
and
Production) Previsor
Common Common
Stock Stock
� � � � � �
�
5,000,000 10,517,984 700,000
1,000,000 6,000,000
1,000,000 6,000,000
(Human
Capital
Management)
(
Vitality
Foodservice,
Inc.
Common
Preferred Warrants Preferred Preferred
Stock Stock
3,500,000 535,843
8,500,000 11,053,827
(Non�Alcoholic
Beverages)
Yaga,
Inc.
Stock Stock
� �
400,000
�
�
� �
$
1,100,000
�
Total
5%
companies more than but less than owned, $
3,012,214 75,248,140
25%
This schedule ended October
31,
should 2006,
be
read
in
conjunction with
consolidated
the
Fund’s of
consolidated investments.
statements
as
of and
for the
year
including
the
schedule
options
1)
Common
and
preferred
stock,
preferred
stock,
warrants,
and
equity
interests
are the as
generally
non�income
shares 2006. of
producing
restricted. stock
The
is
principal
amount
for loans
and debt schedule
securities
and
number of
of
common
and
shown
in the
consolidated
of investments
October
31,
101
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
MVC
Schedule
(2)
Capithi,
Inc.
and Subsidiaries
to
of Investments
dividend, or other
in
and Advances
which was
are
hiati
to the
(Continued)
principal
Other
includes
interest, the
income
applied also
of
the
investment
and
therefore investment, (3)
reduced
as
total
investment.
These
reductions
included
in the
Gross
Reductions
for the
applicable. includes increases in the the or cost basis
Gross
additions
of investments of
discounts
resulting closing
from
fees,
new
portfolio
investments,
paid�kind�interest
or dividends, securities for
amortization
and
and
the
exchange
increases
of one
in
or
more
existing
one
more
new
securities.
Gross
additions
also
includes
net
unrealized (4)
appreciation
or net
decreases
in unrealized in the cost basis
depreciation. of
Gross
related
reductions to
included
decreases
investments
of
resulting or
from
principal securities or net
collections for
investment Gross
repayments
reductions
or sales also
and
the net
exchange
increases
one
more
existing
one
or in
more
new
securities.
include
in unrealized
depreciation
decreases
unrealized (5)
appreciation. the total
Represents was
amount
of
interest
or
dividends
credited or
to
income
for portion to
of
the
year an investment
included
in the
companies
more
than
25% owned
companies
5%
be
25% owned
in the are
categories,
respectively. * All or a portion or
of
the
dividend income
the liquidation as
on
this
investment
was
or will
paid
form
of
additional in the
securities
by
increasing investment,
preference.
Dividends
paid�in�kind
also
included
Gross
Additions
for the
applicable. are
The accompanying
notes
an
integral
part
of these
consolidated
financial
statements.
102
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Pursuant
registrant
to the
requirements
of
Section to
13 signed
or
15(d)
of
the
Securities the
Exchange
Act
of
1934,
as
amended,
the
has duly caused
this report
be
on
Title
its
behalf by
undersigned,
thereunto
duly
Date
authorized.
Signature
Is!
Michael
Tokarz
(Principal
Chairman Executive and
Director Officer)
Date:
January
3,
2007
(Michael Tokarz)
103
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
T
of
Pursuant below by
the
to the
requirements of persons on
the
Securities of the
Exchange
Registrant
Act and
of
1934,
as
amended, and on
this report the dates
has been
indicated.
signed
following
behalf
in the
capacities
Signature
Is!
Title
Date
Michael
Tokarz
(Principal
Chairman Executive and
Director Officer)
Date:
January
3,
2007
(Michael Tokarz)
Is!
Peter
Seidenberg
Chief
Financial
Officer
Date:
January
3,
2007
(Peter
Seidenberg)
Is!
Gerald
Hellerman
Director
Date:
January
3,
2007
(Gerald Hellerman)
Is!
Robert
C.
Knapp
Director
Date:
January
3,
2007
(Robert
C.
Knapp)
Is!
William
E.
Taylor
Director
Date:
January
3,
2007
(William
E.
Taylor)
Is!
Emilio
Dominianni
Director
Date:
January
3,
2007
(Emilio Dominianni)
104
Source:
MVC CAPITAL,
NC
10�K,
January
10,
2007
EXHIBIT
31
RULE
I,
13a-14(a)
CERTIFICATIONS
Michael
Tokarz,
certify
that:
1.
I
have
reviewed on
this
annual
report
on
Form 10�K
does
not
of
MVC
any of
Capital,
Inc.
of a material fact
2.
Based
fact
my
knowledge,
to
this report the
contain in light
untrue the
statement
or
omit
to
state
a
material
necessary
make
statements to the period
made,
circumstances
under
which
such
statements
were
made,
not
misleading with on
in
respect
covered
by
this
report
financial
3.
Based
my
all
knowledge,
the
financial the
statements, condition,
and
other results
information and cash
included flows of
in this report, the registrant as
fairly present
of,
material
respects
financial
of
operations
and
for,
the
periods
presented
in this
report
officer(s)
4.
The
registrant’s
other (as
certifying defined in in
and Act
I
are
responsible
for establishing
and and
maintaining
internal
disclosure
controls financial
and procedures
reporting (as
Exchange
Rules
I
�l5(
15(f)
and
1
defined such
Exchange
Act Rule and
that to us
3a�
and
5d�
1
such
l5d�l5(e))
for the
control
over
registrant
and
have:
(a)
Designed under
disclosure to
controls
procedures, material
or
caused
disclosure to the
controls registrant,
and
procedures
its
to
be
designed
consolidated this report
our
supervision,
is
ensure
information within
relating those
entities,
including the
subsidiaries,
is
made known
by
others
particularly
during
period
in
which
being
prepared such
internal control
(b) reporting reporting
Designed
to
over
financial to
reporting,
or
caused
such
internal
control the
over
financial financial
be designed
preparation
under of
our
supervision, statements
provide
reasonable
assurance regarding
in
reliability of
and
financial
for external
purposes
accordance
with
generally
accepted
accounting
principles
(c)
Evaluated
the
effectiveness the effectiveness
of
the
registrant’s the disclosure
disclosure controls
controls
and
procedures
as
and
presented of
the
in this report
our conclusions by
this report
about based on
of
and
procedures,
of
the
end
period
covered
such
evaluation
and occurred
report)
(d)
Disclosed
in this report
any change
in the
registrant’s
internal fourth affect,
control
over
financial in the
reporting case
that
during
that has
the
registrant’s
most
recent or
is
fiscal quarter
(the registrant’s to materially
fiscal quarter the registrant’s
of an annual
control
materially
affected,
reasonably
likely
internal
over
financial
reporting
5.
and and have based
the
The
registrant’s
other
certifying reporting, the
officer(s) to the
I
disclosed, auditors
on our most committee
recent
evaluation the
of
internal of
control (or
over
financial
registrant’s
and
audit
of
registrant’s
board
directors
persons
performing
equivalent
functions):
(a)
All
significant
deficiencies are
and
material likely
weaknesses
to adversely
in the affect
design
the
or operation
of
internal to record,
control process,
over
financial
reporting
which
reasonably
registrant’s
ability
summarize
and
report
financial
information
and
(b) role
Any
fraud,
whether
or not
material,
that
involves
management
or other
employees
who have
a
significant
in the
registrant’s
internal
control
over
financial
reporting
Is/
Michael
Michael
In the
Tokarz
z
of
the for officer
capacity
who performs
Capital, Inc.
the
functions
of
Principal
Executive
Officer
MVC
Dated:
January
3,
2007
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
I,
Peter
Seidenberg,
I
certify
that:
I
2.
have
reviewed on
this
annual
report
on
Form 10�K
does
not
of
MVC
any of
Capital,
Inc. of
a material fact or
Based
fact
my
knowledge,
to
this report the statements to the
contain in light
untrue the
statement
omit
to
state
a
material
necessary
make
made,
circumstances
under
which
such
statements
were
made,
not
misleading with on
in
respect
period
covered
by
this
report
financial of
3.
Based
my
all
knowledge,
the
financial the
statements, condition,
and
other
information and cash
included
in this report, the registrant as
fairly present
of,
material
respects
financial
results
operations
flows of
and
for,
the
periods
presented
in this
report and
I
4.
The
registrant’s
other (as
certifying
officer(s)
are
responsible
I
controls financial
and procedures
reporting (as
defined
in
in
Exchange
Act Rules
defined
Exchange
Act Rule and
that to us
�[Ql
�15
and
or
1 sd
and such
relating those or
for establishing 15(e)) for the
and and
maintaining
internal
disclosure
control
over
registrant
and
have:
(a)
Designed under
such
disclosure
controls to ensure
procedures, material
caused
disclosure to the
controls registrant,
and
procedures
its
to
be
designed
consolidated
this
our
supervision,
is
information
within
including the
subsidiaries,
is
made known
by
others
entities,
particularly
during
period
in
which
report
being
prepared such
internal control
(b) reporting reporting
Designed
to
over
financial to
reporting,
caused
such
internal regarding
control the
over
financial
be designed
preparation
under of
our
supervision, statements
provide reasonable
for external
assurance
in
reliability
of
financial
and
financial
purposes
accordance
with
generally
accepted
accounting
principles
(c)
Evaluated
the
effectiveness the effectiveness
of
the
registrant’s the disclosure
disclosure controls
controls
and
procedures
as
and
presented the
in this report period
our conclusions by
this report
about on
in
of
and
procedures,
of
the
end of
covered
based
such
evaluation
and
in the internal fourth affect, control
(d)
Disclosed
this
report
any change
registrant’s
over
financial in the
reporting
that
occurred
report)
during
that has
the
registrant’s
most
recent or
is
fiscal quarter
(the registrant’s to materially
fiscal quarter the registrant’s
case
of an annual over
materially
affected,
reasonably
likely
internal
control
financial
reporting
5.
and
other
The
registrant’s
certifying reporting, the
officer(s) to the
and
I
have
disclosed,
based
the
on our most committee
recent
evaluation the
of board
internal
control (or
over
financial
registrant’s
auditors
and
audit
of
registrant’s
of
directors
persons
performing
equivalent
functions):
(a)
All
significant
deficiencies are
and
material likely
weaknesses
to adversely
in the affect
design
the
or operation
of
internal to record,
control process,
over
financial
reporting
which
reasonably
registrant’s
ability
summarize
and
report
financial
information
material,
and
that
(b) role
Any
fraud,
whether
or not
involves
management
or other
employees
who have
a significant
in the
registrant’s
internal
control
over
financial
reporting.
Is!
Peter
Seidenberg
Peter In the
Seidenberg
capacity
of
the for
officer
who performs
Capital, Inc.
the
functions
of
Principal
Financial
Officer
MVC
Dated:
January
3,
2007
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007
EXHIBIT
32
CERTIFICATIONS AS ADOPTED
Michael Tokarz,
Inc.,
PURSUANT TO 18 U.S.C. SECTION 1350, PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
capacity
2002 of
in the a
of
the
officer (the
who
performs
the
functions
that:
of
Principal
Executive
Officer
MVC
Capital,
Delaware
corporation
"Registrant"),
certifies
I.
The
Registrant’s the
annual
report
on
Form 10�K
13(a) or
for the 15(d)
period the
ended
October31, Exchange
material
2006 Act
of
(the 1934,
"Form 10�K")
as
fully
complies
2.
with
requirements of contained
of the
Section
of
Securities
amended
and
The
information of
operations
in the
Form 10�K
fairly presents,
in
all
respects,
the
financial
condition
and
results
Registrant.
In
the
capacity
of
the for
officer
who performs
Capital, Inc.
the
functions
of
Principal
Executive
Officer
MVC
1
2007
in the a
Michael
Tokarz
Michael
Tokarz
Date:
January
Peter
3,
Seidenberg,
Inc.,
capacity
of
the
officer
who performs
the
functions
that:
of
Principal
Financial
Officer,
of
MVC
Capital,
Delaware
corporation
(the "Registrant"),
certifies
1.
The
Registrant’s the
annual
report
on
Form 10�K
13(a) or
for the 15(d)
period the
ended
October Exchange
material
31,
2006
of
(the 1934,
complies
2.
with
requirements of
Section
of
Securities
Act
"Form 10�K") fully and as amended
condition
The information contained
of
operations
in the
Form 10�K
fairly presents,
in
all
respects,
the
financial
and
results
of
the
Registrant.
In
the
capacity
of
the for
officer
who performs
Capital, Inc.
the
functions
of
Principal
Financial
Officer
MVC
Is!
Peter
Seidenberg
Peter
Seidenberg
Date:
January
3,
2007
Source:
MVC CAPITAL,
INC.,
10�K,
January
10,
2007