Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On January 7, 2010, Main Street Capital Corporation (“Main Street” or “MSCC”) consummated the transactions related to the Exchange Offer and issued 1,239,695 shares of its common stock in exchange for approximately 88% of the total dollar value of Main Street Capital II, LP (“MSC II”) limited partner interests. In connection with the Exchange Offer, Main Street also funded the remaining limited partner capital commitments for the purchased limited partner interests in order to conform with the U.S. Small Business Administration (“SBA”) regulatory requirements. Pursuant to the terms of the Exchange Offer, 100% of the membership interests in the general partner of MSC II were also transferred to Main Street for no consideration. As part of the Exchange Offer transactions, Main Street transferred certain equity investments in portfolio companies which are “pass through” entities for tax purposes into a wholly owned subsidiary that is treated as a separate taxable entity. The unaudited pro forma condensed combined financial information has been derived from, and should be read in conjunction with, the historical consolidated financial statements of Main Street and the historical combined financial statements of MSC II and the general partner of MSC II, and the related footnotes to those financial statements.
The following unaudited pro forma condensed combined financial information and explanatory notes illustrate the effect of the Exchange Offer and related transactions on Main Street’s financial position and results of operations based upon the companies’ respective historical financial positions and results of operations under the acquisition method of accounting with Main Street treated as the acquirer. Under this method of accounting, the assets and liabilities of MSC II will be recorded by Main Street at their estimated fair values as of the date of the Exchange Offer. The unaudited pro forma condensed combined financial information of Main Street and MSC II reflects the unaudited condensed combined balance sheet as of September 30, 2009 and the unaudited condensed combined income statements for the year ended December 31, 2008 and the nine months ended September 30, 2009. The condensed combined balance sheet as of September 30, 2009 assumes the Exchange Offer and related transactions took place on that date. The condensed combined statements of income for the year ended December 31, 2008 and for the nine months ended September 30, 2009 assume the Exchange Offer and related transactions took place on January 1, 2008.
The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined companies had the companies actually been combined at the beginning of each period presented, nor the impact of possible business model changes. The unaudited pro forma condensed combined financial information also does not consider any potential impacts of current market conditions on investment income, earnings or cash flows, expense efficiencies, new investments or redeemed investments, and share issuances or repurchases, among other factors. In addition, as explained in more detail in the accompanying notes to the unaudited pro forma condensed combined financial information, the allocation of the pro forma purchase price reflected in the unaudited pro forma condensed combined financial information is subject to adjustment and may vary significantly from the final purchase price allocation determined subsequent to the Exchange Offer.

 

 

 

MAIN STREET CAPITAL CORPORATION
Pro Forma Condensed Combined Balance Sheet
Unaudited
September 30, 2009
                                 
    MSCC and                      
    Consolidated             Pro Forma        
    Subsidiaries     MSC II     Adjustments     Pro Forma  
 
                                
Assets
                                
Investments — core portfolio
   $ 123,458,723     $ 68,117,738     $ —     $ 191,576,461  
Investment in affiliated Investment Manager
     16,340,706       —       (13,959,139) (1)     2,381,567  
Marketable securities and idle funds investments
     39,912,232       8,271,411       (12,000,000) (8)     36,183,643  
Cash and cash equivalents
     8,216,699       5,420,353       (250,000) (2)     36,287,052  
 
                     (1,100,000) (9)        
 
                     24,000,000 (8)        
Other assets
     3,701,912       2,772,210       (2,076,898) (3)     4,397,224  
 
                        
Total assets
   $ 191,630,272     $ 84,581,712     $ (5,386,037 )   $ 270,825,947  
 
                        
 
                                
Liabilities, Net Asset Value and Noncontrolling Interest
                                
SBIC debentures
   $ 55,000,000     $ 70,000,000     $ (16,459,247) (3)   $ 108,540,753  
Bank line of credit
     —       —       12,000,000 (8)     12,000,000  
Other liabilities
     7,567,447       453,759       251,447 (4)     8,272,653  
 
                        
Total liabilities
     62,567,447       70,453,759       (4,207,800 )     128,813,406  
 
                                
Total net asset value
     129,062,825       14,127,953       (4,437,300) (6)     138,753,478  
Noncontrolling interest
     —       —       3,259,063 (5)     3,259,063  
 
                        
Total net asset value and noncontrolling interest
     129,062,825       14,127,953       (1,178,237 )     142,012,541  
 
                        
 
                                
Total liabilities, net asset value and noncontrolling interest
   $ 191,630,272     $ 84,581,712     $ (5,386,037 )   $ 270,825,947  
 
                        
 
                                
Net Asset Value Per Share
   $ 12.01                     $ 11.57  
 
                            

 

 

 

MAIN STREET CAPITAL CORPORATION
Pro Forma Condensed Combined Income Statement
Unaudited
Year Ended December 31, 2008
                                 
    MSCC and                      
    Consolidated             Pro Forma        
    Subsidiaries     MSC II     Adjustments     Pro Forma  
 
                                
Interest, fee and dividend income
   $ 15,967,197     $ 8,962,776     $ —     $ 24,929,973  
Interest from marketable securities, idle funds and other
     1,328,229       139,801       240,000 (11)     1,708,030  
 
                        
Total investment income
     17,295,426       9,102,577       240,000       26,638,003  
 
                                
Interest
     (3,777,919 )     (3,319,480 )     (360,000) (11)     (7,292,222 )
 
                     165,177 (3)        
 
                                
General and administrative
     (1,684,084 )     (178,198 )     —       (1,862,282 )
Expenses reimbursed to affiliated Investment Manager
     (1,006,835 )     (3,325,200 )     —       (4,332,035 )
Share-based compensation
     (511,452 )     —       —       (511,452 )
 
                        
Total expenses
     (6,980,290 )     (6,822,878 )     (194,823 )     (13,997,991 )
 
                                
Net investment income
     10,315,136       2,279,699       45,177       12,640,012  
 
                                
Net realized gain (loss)
     1,397,494       (1,973,970 )     —       (576,476 )
Net unrealized depreciation — investment portfolio
     (3,011,718 )     (3,882,491 )     —       (6,894,209 )
Net unrealized depreciation — investment in affiliated Investment Manager
     (949,374 )     —       835,449 (12)     (113,925 )
Income tax (provision) benefit
     3,182,401       —       408,432 (4)     3,590,833  
Bargain purchase gain
     —       —       3,715,496 (6)(d)     3,715,496  
 
                        
 
                                
Net increase (decrease) in net assets resulting from operations
     10,933,939       (3,576,762 )     5,004,554       12,361,731  
Noncontrolling interest
     —       —       360,378 (10)     360,378  
 
                        
Net increase (decrease) in net assets resulting from operations, net of noncontrolling interest
   $ 10,933,939     $ (3,576,762 )   $ 5,364,932     $ 12,722,109  
 
                        
 
                                
Net investment income per share, net of noncontrolling interest
   $ 1.13                     $ 1.20  
 
                            
Net realized income per share, net of noncontrolling interest
   $ 1.29                     $ 1.16  
 
                            
Net increase (decrease) in net assets resulting from operations per share, net of noncontrolling interest
   $ 1.20                     $ 1.23  
 
                            
 
                                
Weighted average shares outstanding
     9,095,904       —       1,239,695 (7)     10,335,599  
 
                        

 

 

 

MAIN STREET CAPITAL CORPORATION
Pro Forma Condensed Combined Income Statement
Unaudited
Nine Months Ended September 30, 2009
                                 
    MSCC and                      
    Consolidated             Pro Forma        
    Subsidiaries     MSC II     Adjustments     Pro Forma  
 
                                
Interest, fee and dividend income
   $ 10,380,048     $ 6,487,873     $ —     $ 16,867,921  
Interest from marketable securities, idle funds and other
     1,314,045       200,186       135,000 (11)     1,649,231  
 
                        
Total investment income
     11,694,093       6,688,059       135,000       18,517,152  
 
                                
Interest
     (2,830,325 )     (2,924,791 )     (270,000) (11)     (5,856,907 )
 
                     168,209 (3)        
 
                                
General and administrative
     (1,061,928 )     (118,219 )     —       (1,180,147 )
Expenses reimbursed to affiliated Investment Manager
     (306,175 )     (2,493,900 )     —       (2,800,075 )
Share-based compensation
     (767,218 )     —       —       (767,218 )
 
                        
Total expenses
     (4,965,646 )     (5,536,910 )     (101,791 )     (10,604,347 )
 
                                
Net investment income
     6,728,447       1,151,149       33,209       7,912,805  
 
                                
Net realized gain
     1,478,834       474,880       —       1,953,714  
Net unrealized appreciation (depreciation) — investment portfolio
     1,646,556       (6,616,884 )     —       (4,970,328 )
Net unrealized appreciation (depreciation) — investment in affiliated Investment Manager
     (334,920 )     —       715,412 (12)     380,492  
Income tax (provision) benefit
     789,564       —       (659,879) (4)     129,685  
 
                        
 
                                
Net increase (decrease) in net assets resulting from operations
     10,308,481       (4,990,855 )     88,742       5,406,368  
Noncontrolling interest
     —       —       657,903 (10)     657,903  
 
                        
Net increase (decrease) in net assets resulting from operations, net of noncontrolling interest
   $ 10,308,481     $ (4,990,855 )   $ 746,645     $ 6,064,271  
 
                        
 
                                
Net investment income per share, net of noncontrolling interest
   $ 0.69                     $ 0.70  
 
                            
Net realized income per share, net of noncontrolling interest
   $ 0.84                     $ 0.88  
 
                            
Net increase (decrease) in net assets resulting from operations per share, net of noncontrolling interest
   $ 1.05                     $ 0.55  
 
                            
 
                                
Weighted average shares outstanding
     9,788,226       —       1,239,695 (7)     11,027,921  
 
                        

 

 

 

MAIN STREET CAPITAL CORPORATION
PRO FORMA COMBINED SCHEDULE OF CORE PORTFOLIO INVESTMENTS
September 30, 2009
(Unaudited)
                                 
            Pro Forma  
Portfolio Company/Type of Investment (a) (b)   Industry     Principal (f)     Cost (f)     Fair Value  
 
                                
Control Investments (c)
                                
 
                                
Advantage Millwork Company, Inc.
   Manufacturer/Distributor                        
12% Secured Debt (Maturity — February 5, 2012)
   of Wood Doors   $ 7,666,667     $ 7,402,554     $ 4,850,000  
Warrants (Fully diluted 30.5%)
                     244,560       —  
 
                            
 
                     7,647,114       4,850,000  
 
                                
Café Brazil, LLC
   Casual Restaurant                        
12% Secured Debt (Maturity — April 20, 2011)
   Group     2,625,000       2,610,188       2,625,000  
Member Units (g) (Fully diluted 42.3%)
                     41,837       1,390,000  
 
                            
 
                     2,652,025       4,015,000  
 
                                
California Healthcare Medical Billing, Inc.
   Healthcare Billing and Records                        
12% Secured Debt (Maturity — October 17, 2013)
   Management     2,303,000       1,913,621       2,080,908  
Common Stock (Fully diluted 9.8%)
                     637,000       1,225,000  
Warrants (Fully diluted 19.6%)
                     392,000       1,845,667  
 
                            
 
                     2,942,621       5,151,575  
 
                                
CBT Nuggets, LLC
   Produces and Sells                        
14% Secured Debt (Maturity — December 31, 2013)
   IT Certification     2,800,000       2,735,525       2,800,000  
10% Secured Debt (Maturity — March 31, 2012)
   Training Videos     1,525,000       1,525,000       1,525,000  
10% Secured Debt (Maturity — March 31, 2010)
             100,000       100,000       100,000  
Member Units (g) (Fully diluted 40.8%)
                     499,200       2,316,667  
 
                            
 
                     4,859,725       6,741,667  
 
                                
Ceres Management, LLC (Lambs)
   Aftermarket Automotive                        
14% Secured Debt (Maturity — May 31, 2013)
   Services Chain     4,000,000       3,950,539       3,950,539  
Class B Member Units (Non-voting)
                     262,503       262,503  
Member Units (Fully diluted 70.0%)
                     2,000,000       1,850,000  
 
                            
 
                     6,213,042       6,063,042  
 
                                
Condit Exhibits, LLC
   Tradeshow Exhibits/                        
13% current / 5% PIK Secured Debt (Maturity — July 1, 2013)
   Custom Displays     4,123,076       4,067,336       4,067,336  
Warrants (Fully diluted 46.9%)
                     500,000       50,000  
 
                            
 
                     4,567,336       4,117,336  
 
                                
Gulf Manufacturing, LLC
   Industrial Metal                        
Prime plus 1% Secured Debt (Maturity — August 31, 2012)
   Fabrication     3,000,000       2,981,330       3,000,000  
13% Secured Debt (Maturity — August 31, 2012)
             3,000,000       2,798,768       2,950,000  
Member Units (g) (Fully diluted 46.0%)
                     1,180,000       5,900,000  
Warrants (Fully diluted 21.0%)
                     400,000       2,700,000  
 
                            
 
                     7,360,098       14,550,000  
 
                                
Hawthorne Customs & Dispatch Services, LLC
   Transportation/                        
13% Secured Debt (Maturity — January 31, 2011)
   Logistics     1,100,000       1,076,519       1,076,519  
Member Units (g) (Fully diluted 59.2%)
                     550,000       1,120,000  
 
                            
 
                     1,626,519       2,196,519  
 
                                
Hydratec Holdings, LLC
   Agricultural Services                        
12.5% Secured Debt (Maturity — October 31, 2012)
             2,995,244       2,953,861       2,953,861  
Prime plus 1% Secured Debt (Maturity — October 31, 2012)
             350,000       337,667       337,667  
Member Units (Fully diluted 85.1%)
                     4,100,000       6,620,000  
 
                            
 
                     7,391,528       9,911,528  
 
                                
Indianapolis Aviation Partners, LLC
   FBO / Aviation Support Services                        
12% Secured Debt (Maturity — September 15, 2014)
             4,700,000       4,236,499       4,236,499  
Warrants (Fully diluted 30.2%)
                     1,129,285       1,129,285  
 
                            
 
                     5,365,784       5,365,784  

 

 

 

MAIN STREET CAPITAL CORPORATION
PRO FORMA COMBINED SCHEDULE OF CORE PORTFOLIO INVESTMENTS
September 30, 2009
(Unaudited)
                                 
            Pro Forma  
Portfolio Company/Type of Investment (a) (b)   Industry     Principal (f)     Cost (f)     Fair Value  
 
                                
Control Investments (c)
                                
 
                                
Jensen Jewelers of Idaho, LLC
   Retail Jewelry                        
Prime Plus 2% Secured Debt (Maturity — November 14, 2011)
             2,610,000       2,591,211       2,612,167  
13% current / 6% PIK Secured Debt (Maturity — November 14, 2011)
             2,628,087       2,585,488       2,630,686  
Member Units (g) (Fully diluted 60.8%)
                     940,000       725,000  
 
                            
 
                     6,116,699       5,967,853  
 
                                
Mid-Columbia Lumber Products, LLC
                                
Prime Plus 1% Secured Debt (Maturity — June 30, 2010)
   Specialized Lumber Products     375,000       372,500       372,500  
12% Secured Debt (Maturity — December 18, 2011)
             3,900,000       3,690,378       3,690,378  
Member Units (Fully diluted 26.7%)
                     500,000       300,000  
Warrants (Fully diluted 25.5%)
                     250,000       290,000  
 
                            
 
                     4,812,878       4,652,878  
 
                                
NAPCO Precast, LLC
   Precast Concrete                        
18% Secured Debt (Maturity — February 1, 2013)
   Manufacturing     5,923,077       5,832,742       5,923,076  
Prime Plus 2% Secured Debt (Maturity — February 1, 2013) (h)
             3,384,615       3,360,369       3,384,616  
Member Units (g) (Fully diluted 35.3%)
                     2,020,000       5,120,000  
 
                            
 
                     11,213,111       14,427,692  
 
                                
OMi Holdings, Inc.
   Manufacturer of                        
12% Secured Debt (Maturity — April 1, 2013)
   Overhead Cranes     10,570,000       10,489,530       10,489,530  
Common Stock (Fully diluted 48.0%)
                     1,500,000       650,000  
 
                            
 
                     11,989,530       11,139,530  
 
                                
Quest Design & Production, LLC
   Design and Fabrication                        
Prime plus 2% Secured Debt (Maturity — June 30, 2014)
   of Custom Display     60,000       60,000       60,000  
10% Secured Debt (Maturity — June 30, 2014)
   Systems     600,000       465,060       600,000  
0% Secured Debt (Maturity — June 30, 2014)
             2,060,000       2,060,000       1,460,000  
Warrants (Fully diluted 40.0%)
                     1,595,858       —  
Warrants (Fully diluted 20.0%)
                     40,000       —  
 
                            
 
                     4,220,918       2,120,000  
 
                                
The MPI Group, LLC
   Manufacturer of Custom                        
9% Secured Debt (Maturity — October 2, 2013)
   Hollow Metal Doors,     200,000       198,459       198,459  
12% Secured Debt (Maturity — October 2, 2013)
   Frames and Accessories     5,000,000       4,775,870       4,775,870  
Warrants (Fully diluted 29.7%)
                     695,943       394,000  
Warrants (Fully diluted 17.4%)
                     200,000       229,000  
 
                            
 
                     5,870,272       5,597,329  
 
                                
Thermal & Mechanical Equipment, LLC
   Heat Exchange / Filtration                        
13% current / 5% PIK Secured Debt (Maturity — September 25, 2014)
   Products and Services     5,504,583       5,416,242       5,416,242  
Prime plus 2% Secured Debt (Maturity — September 25, 2014) (h)
             1,750,000       1,736,289       1,736,289  
Warrants (Fully diluted 50.0%)
                     1,000,000       1,000,000  
 
                            
 
                     8,152,531       8,152,531  
 
                                
Universal Scaffolding & Equipment, LLC
   Manufacturer of Scaffolding                        
Prime plus 1% Secured Debt (Maturity — August 17, 2012) (h)
   and Shoring Equipment     2,590,270       2,572,911       2,572,911  
13% current / 5% PIK Secured Debt (Maturity — August 17, 2012)
             10,391,311       10,255,783       65,422  
Member Units (Fully diluted 57.1%)
                     3,052,502       —  
 
                            
 
                     15,881,196       2,638,333  

 

 

 

MAIN STREET CAPITAL CORPORATION
PRO FORMA COMBINED SCHEDULE OF CORE PORTFOLIO INVESTMENTS
September 30, 2009
(Unaudited)
                                 
            Pro Forma  
Portfolio Company/Type of Investment (a) (b)   Industry     Principal (f)     Cost (f)     Fair Value  
 
                                
Control Investments (c)
                                
 
                                
Uvalco Supply, LLC
   Farm and Ranch Supply                        
Member Units (g) (Fully diluted 39.6%)
                     905,743       1,390,000  
 
                            
 
                                
Vision Interests, Inc.
   Manufacturer/                        
13% Secured Debt (Maturity — June 5, 2012)
   Installer of Commercial     9,400,000       9,027,078       8,050,000  
Common Stock (Fully diluted 22.3%)
   Signage             930,000       —  
Warrants (Fully diluted 28.0%)
                     400,000       —  
 
                            
 
                     10,357,078       8,050,000  
 
                                
Ziegler’s NYPD, LLC
   Casual Restaurant Group                        
Prime plus 2% Secured Debt (Maturity — October 1, 2013) (h)
             1,000,000       991,650       991,650  
13% current / 5% PIK Secured Debt (Maturity — October 1, 2013)
             4,680,906       4,615,670       4,615,670  
Warrants (Fully diluted 47.6%)
                     600,000       600,000  
 
                            
 
                     6,207,320       6,207,320  
 
                                
Other
                     1,964,785       1,964,787  
 
                            
 
                                
Subtotal Control Investments
                     138,317,853       135,270,704  
 
                            

 

 

 

MAIN STREET CAPITAL CORPORATION
PRO FORMA COMBINED SCHEDULE OF CORE PORTFOLIO INVESTMENTS
September 30, 2009
(Unaudited)
                             
        Pro Forma  
Portfolio Company/Type of Investment (a) (b)   Industry   Principal (f)     Cost (f)     Fair Value  
 
                            
Affiliate Investments (d)
                            
 
                            
American Sensor Technologies, Inc.
   Manufacturer of Commercial/                        
Prime plus 0.5% Secured Debt (Maturity — May 31, 2010) (h)
   Industrial Sensors     3,800,000       3,800,000       3,800,000  
Warrants (Fully diluted 19.6%)
                 49,990       820,000  
 
                        
 
                 3,849,990       4,620,000  
 
                            
Audio Messaging Solutions, LLC
   Audio Messaging                        
12% Secured Debt (Maturity — May 8, 2014)
   Services     5,684,000       5,264,024       5,264,024  
Warrants (Fully diluted 8.4%)
                 358,400       633,333  
 
                        
 
                 5,622,424       5,897,357  
 
                            
Carlton Global Resources, LLC
   Processor of                        
13% PIK Secured Debt (Maturity — November 15, 2011)
   Industrial Minerals     11,979,859       11,598,100       —  
Member Units (Fully diluted 21.3%)
                 1,000,000       —  
 
                        
 
                 12,598,100       —  
 
                            
Compact Power Equipment Centers, LLC
   Light to Medium Duty                        
12% Secured Debt (Maturity — September 23, 2014)
   Equipment Rental     529,412       534,026       534,026  
Member Units (Fully diluted 11.5%)
                 1,147       1,147  
 
                        
 
                 535,173       535,173  
 
                            
East Teak Fine Hardwoods, Inc.
   Hardwood Products                        
Common Stock (Fully diluted 5.0%)
                 200,000       569,231  
 
                        
 
                            
Houston Plating & Coatings, LLC
   Plating & Industrial                        
Prime plus 2% Secured Debt (Maturity — July 19, 2011)
   Coating Services     100,000       100,000       100,000  
Prime plus 2% Secured Debt (Maturity — July 18, 2013)
         200,000       200,000       200,000  
Member Units (g) (Fully diluted 11.1%)
                 335,000       3,165,000  
 
                          
 
                 635,000       3,465,000  
 
                            
KBK Industries, LLC
   Specialty Manufacturer                        
14% Secured Debt (Maturity — January 23, 2011)
   of Oilfield and     5,250,000       5,110,545       5,110,545  
8% Secured Debt (Maturity — March 1, 2010)
   Industrial Products     250,000       250,000       250,000  
8% Secured Debt (Maturity — March 31, 2010)
         600,000       600,000       600,000  
Member Units (g) (Fully diluted 19.3%)
                 250,000       360,000  
 
                        
 
                 6,210,545       6,320,545  
 
                            
Laurus Healthcare, LP
   Healthcare Facilities / Services                        
13% Secured Debt (Maturity — May 7, 2012)
         2,275,000       2,275,000       2,275,000  
Warrants (Fully diluted 17.5%)
                 105,000       4,400,000  
 
                          
 
                 2,380,000       6,675,000  
 
                            
Lighting Unlimited, LLC
   Commercial and Residential                        
Prime Plus 1% Secured Debt (Maturity — August 22, 2012) (h)
   Lighting Products and     1,233,333       1,225,742       1,225,742  
14% Secured Debt (Maturity — August 22, 2012)
   Design Services     1,600,000       1,545,081       1,545,081  
Warrants (Fully diluted 15.0%)
                 50,000       50,000  
 
                        
 
                 2,820,823       2,820,823  

 

 

 

MAIN STREET CAPITAL CORPORATION
PRO FORMA COMBINED SCHEDULE OF CORE PORTFOLIO INVESTMENTS
September 30, 2009
(Unaudited)
                             
        Pro Forma  
Portfolio Company/Type of Investment (a) (b)   Industry   Principal (f)     Cost (f)     Fair Value  
 
                            
Affiliate Investments (d)
                            
 
                            
National Trench Safety, LLC
   Trench & Traffic                        
10% PIK Debt (Maturity — April 16, 2014)
   Safety Equipment     435,966       435,968       435,968  
Member Units (Fully diluted 11.7%)
                 1,792,308       1,910,000  
 
                 2,228,276       2,345,968  
 
                            
Olympus Building Services, Inc.
   Custodial/Facilities                        
12% Secured Debt (Maturity — March 27, 2014)
   Services     3,150,000       2,863,776       3,050,000  
Warrants (Fully diluted 22.5%)
                 250,000       666,667  
 
                        
 
                 3,113,776       3,716,667  
 
                            
Pulse Systems, LLC
   Manufacturer of Components                        
Warrants (Fully diluted 7.4%)
   for Medical Devices             132,856       450,000  
 
                        
 
                            
Schneider Sales Management, LLC
   Sales Consulting                        
13% Secured Debt (Maturity — October 15, 2013)
   and Training     3,300,000       3,196,337       3,196,337  
Warrants (Fully diluted 20.0%)
                 75,000       —  
 
                        
 
                 3,271,337       3,196,337  
 
                            
Walden Smokey Point, Inc.
   Specialty Transportation/                        
14% current / 4% PIK Secured Debt (Maturity — December 30, 2013)
   Logistics     8,243,555       8,101,727       8,101,727  
Common Stock (Fully diluted 12.6%)
                 1,000,000       1,500,000  
 
                        
 
                 9,101,727       9,601,727  
 
                            
WorldCall, Inc.
   Telecommunication/                        
13% Secured Debt (Maturity — April 22, 2011)
   Information Services     646,225       644,638       644,638  
Common Stock (Fully diluted 9.9%)
                 296,631       100,000  
 
                        
 
                 941,269       744,638  
 
                        
 
                            
Subtotal Affiliate Investments
                 53,641,296       50,958,466  
 
                        

 

 

 

MAIN STREET CAPITAL CORPORATION
PRO FORMA COMBINED SCHEDULE OF CORE PORTFOLIO INVESTMENTS
September 30, 2009
(Unaudited)
                             
        Pro Forma  
Portfolio Company/Type of Investment (a) (b)   Industry   Principal (f)     Cost (f)     Fair Value  
 
                            
Non-Control/Non-Affiliate Investments(e):
                            
 
                            
Hayden Acquisition, LLC
   Manufacturer of                        
8% Secured Debt (Maturity — August 9, 2010)
   Utility Structures     1,800,000       1,781,303       360,000  
 
                        
 
                            
Support Systems Homes, Inc.
   Manages Substance                        
15% Secured Debt (Maturity — August 21, 2018)
   Abuse Treatment Centers     576,600       576,600       576,600  
 
                        
 
                            
Technical Innovations, LLC
   Manufacturer of Specialty                        
7% Secured Debt (Maturity — November 30, 2009)
   Cutting Tools and Punches     1,060,000       1,059,411       1,059,411  
13.5% Secured Debt (Maturity — January 16, 2015)
         3,350,000       3,307,580       3,351,280  
 
                        
 
                 4,366,991       4,410,691  
 
                        
 
                            
Subtotal Non-Control/Non-Affiliate Investments
                 6,724,894       5,347,291  
 
                        
 
                            
Total Core Portfolio Investments, September 30, 2009
               $ 198,684,043     $ 191,576,461  
 
                        
     
(a)   Debt investments are generally income producing. Equity and warrants are non-income producing, unless otherwise noted.
 
(b)   See Note D for summary geographic location of portfolio companies.
 
(c)   Controlled investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”) as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained.
 
(d)   Affiliate investments are defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned.
 
(e)   Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control Investments nor Affiliate Investments.
 
(f)   Principal is net of prepayments. Cost is net of prepayments and accumulated unearned income.
 
(g)   Income producing through payment of dividends or distributions.
 
(h)   Subject to contractual minimum interest rates.

 

 

 

MAIN STREET CAPITAL CORPORATION
Notes to Pro Forma Condensed Combined Financial Statements
(Unaudited)
Note A: Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial information of Main Street and MSC II reflects the unaudited pro forma condensed combined balance sheet as of September 30, 2009 and the unaudited pro forma condensed combined income statements for the year ended December 31, 2008 and the nine months ended September 30, 2009. Main Street issued 1,239,695 shares of its common stock in exchange for approximately 88% of the total dollar value of MSC II limited partner interests, representing a purchase price of approximately $19.9 million. The purchase price was calculated based upon a price of Main Street common stock of $16.08 per share at closing of the Exchange Offer. Pursuant to the terms of the Exchange Offer, 100% of the membership interests in the general partner of MSC II were also transferred to Main Street for no consideration.
The Exchange Offer will be accounted for as an acquisition of MSC II by Main Street in accordance with the acquisition method of accounting as detailed in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification” or “ASC”) 805, Business Combinations (“ASC 805”). The fair value of the consideration paid is allocated to the assets acquired and liabilities assumed based on their fair values as of the date of acquisition. As described in more detail in ASC 805, goodwill, if any, is recognized as of the acquisition date, for the excess of the consideration transferred over the fair value of identifiable net assets acquired. If the total acquisition date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred, the excess is recognized as a bargain purchase gain. In connection with the Exchange Offer, the estimated fair value of the MSC II net assets acquired is anticipated to exceed the stock consideration issued, resulting in a bargain purchase gain that will be recorded by Main Street in the period in which the Exchange Offer is completed.
Under the 1940 Act rules, the regulations pursuant to Article 6 of Regulation S-X and the American Institute of Certified Public Accountants’ Audit and Accounting Guide for Investment Companies, Main Street is precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services and benefits to Main Street. Main Street’s financial statements include the accounts of Main Street Mezzanine Fund, LP (the “Fund”), its general partner, Main Street Mezzanine Management, LLC (the “General Partner”), and Main Street Equity Interests, Inc. (“MSEI”). Main Street’s wholly owned subsidiary, Main Street Capital Partners, LLC (the “Investment Manager”), is accounted for as a portfolio investment, since the Investment Manager is not an investment company and since it conducts a significant portion of its investment management activities for entities other than Main Street. All intercompany balances and transactions have been eliminated in consolidation.
Main Street will determine the value of the assets acquired under the guidance of ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). Under ASC 820, investments are valued utilizing a market approach, an income approach, or both approaches, as appropriate. Under the market approach, Main Street will typically use the enterprise value methodology to determine the fair value of investments. The enterprise value is the fair value at which an enterprise could be sold in a transaction between two willing parties, other than through a forced or liquidation sale. Typically, private companies are bought and sold based on multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues, or in limited cases, book value. There is no single methodology for estimating enterprise value. For any one portfolio company, enterprise value is generally described as a range of values from which a single estimate of enterprise value is derived. In estimating the enterprise value of a portfolio company, Main Street analyzes various factors, including the portfolio company’s historical and projected financial results. Main Street allocates the enterprise value to investments in order of the legal priority of the investments. Main Street will also use the income approach to determine the fair value of these securities, based on projections of the discounted future free cash flows that the portfolio company or the debt security will likely generate. The valuation approaches for these investments estimate the value of the investment if it were to sell, or exit, the investment, assuming the highest and best use of the investment by market participants. In addition, these valuation approaches consider the value associated with Main Street’s ability to control the capital structure of the portfolio company, as well as the timing of a potential exit. The fair value determination of each portfolio investment will require one or more of the following unobservable inputs:
  •   Financial information obtained from each portfolio company, including unaudited statements of operations and balance sheets for the most recent period available as compared to budgeted numbers;
  •   Current and projected financial condition of the portfolio company;
  •   Current and projected ability of the portfolio company to service its debt obligations;

 

 

 

  •   Type and amount of collateral, if any, underlying the investment;
  •   Current financial ratios (e.g., fixed charge coverage ratio, interest coverage ratio, and net debt/EBITDA ratio) applicable to the investment;
  •   Current liquidity of the investment and related financial ratios (e.g., current ratio and quick ratio);
  •   Pending debt or capital restructuring of the portfolio company;
  •   Projected operating results of the portfolio company;
  •   Current information regarding any offers to purchase the investment;
  •   Current ability of the portfolio company to raise any additional financing as needed;
  •   Changes in the economic environment which may have a material impact on the operating results of the portfolio company;
  •   Internal occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio company;
  •   Qualitative assessment of key management;
  •   Contractual rights, obligations or restrictions associated with the investment; and
  •   Other factors deemed relevant.
ASC 820 classifies the inputs used to measure fair value into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical investments (Level 1) and the lowest priority to unobservable inputs (Level 3).
Level 1 — Investments whose values are based on unadjusted quoted prices for identical assets in an active market that Main Street has the ability to access (examples include investments in active exchange-traded equity securities and investments in most U.S. government and agency securities).
Level 2 — Investments whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the investment. Level 2 inputs include the following:
  •   Quoted prices for similar assets in active markets (for example, investments in restricted stock);
  •   Quoted prices for identical or similar assets in non-active markets (for example, investments in thinly traded public companies);
  •   Pricing models whose inputs are observable for substantially the full term of the investment (for example, market interest rate indices); and
  •   Pricing models whose inputs are derived principally from, or corroborated by, observable market data through correlation or other means for substantially the full term of the investment.
Level 3 — Investments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the investment (for example, investments in illiquid securities issued by private companies).
As required by ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Changes in the observability of valuation inputs may result in a reclassification for certain investments. All of the core portfolio investments held by Main Street and MSC II are level 3 assets.
Main Street will determine the value of the SBIC debentures assumed upon closing of the Exchange Offer by adopting the fair value option provisions of ASC 825, Financial Instruments, relating to accounting for debt obligations at their fair value. Main Street will use the income approach to determine the fair value of the SBIC debentures based on the discounted future interest and principal payments that will be made on the SBIC debt facility.

 

 

 

The unaudited pro forma condensed combined financial information includes preliminary estimated adjustments to record the assets and liabilities of MSC II at their respective estimated fair values and represents Main Street’s estimates based on available information. The pro forma adjustments included herein may be revised as additional information becomes available and as additional analyses are performed. The final allocation of the purchase price will be determined after the Exchange Offer is completed and after completion of a final analysis to determine the estimated fair values of MSC II’s assets and liabilities. Accordingly, the final purchase accounting adjustments may be materially different from the pro forma adjustments presented in this document. Increases or decreases in the estimated fair values of the net assets and other items related to MSC II as compared to the information shown in this document may change the amount of the purchase price recognized as a bargain purchase gain in accordance with ASC 805.
The unaudited pro forma condensed combined financial information presented in this document is for illustrative purposes only and does not necessarily indicate the results of operations or the combined financial position that would have resulted had the Exchange Offer been completed at the beginning of the applicable period presented, nor the impact of possible business model changes as a result of current market conditions which may impact investment income, earnings or cash flows, expense efficiencies, new investments or redeemed investments, share issuances or repurchases and other factors. Additionally, the unaudited pro forma condensed combined financial information is not indicative of the results of operations in future periods or the future financial position of the combined company.
Note B: Preliminary Purchase Accounting Allocations
The unaudited pro forma condensed combined financial information for the Exchange Offer includes the unaudited pro forma condensed combined balance sheet as of September 30, 2009 assuming the Exchange Offer and related transactions were completed on September 30, 2009. The unaudited pro forma condensed combined income statements for the year ended December 31, 2008 and for the nine months ended September 30, 2009, were prepared assuming the Exchange Offer and related transactions were completed on January 1, 2008.
The unaudited pro forma condensed combined financial information reflects the issuance of approximately 1.2 million shares of Main Street common stock in connection with the Exchange Offer.

 

 

 

The Exchange Offer will be accounted for using the acquisition method of accounting under ASC 805. Accordingly, Main Street will aggregate the value of the stock consideration issued to acquire the majority of the limited partner interests in MSC II with the fair value of the noncontrolling limited partner interests in MSC II. Main Street will then compare the total value of the stock consideration issued and noncontrolling interest value against the fair value of MSC II’s identifiable assets and liabilities as summarized in the following table:
         
Value of the stock consideration issued for limited partner interests acquired
   $ 19,934,296  
Fair value of noncontrolling limited partner interests
     3,259,063  
 
      
Total stock consideration and noncontrolling interest value
     23,193,359  
 
        
Fair value of MSC II assets and liabilities:
        
Cash and marketable securities (net of distribution to limited partners)
     12,591,764  
Debt investments acquired at fair value
     54,932,303  
Equity investments acquired at fair value
     13,185,435  
Other assets
     695,312  
SBIC debt at fair value
     (53,540,753 )
Tax liability assumed
     (251,447 )
Other liabilities
     (453,759 )
 
      
Total fair value of MSC II net assets
     27,158,855  
 
      
 
        
Bargain purchase gain
     3,965,496  
 
        
Estimated transaction costs associated with the Exchange Offer and expensed in the period incurred
     (250,000 )
 
      
 
        
Bargain purchase gain, net of estimated transaction costs
   $ 3,715,496  
 
      

 

 

 

Note C: Preliminary Pro Forma Adjustments
(1)   Represents the non-cash reduction to the Investment in affiliated Investment Manager to only reflect the remaining discounted value of future net cash flows from third party management fees not attributable to Main Street entities and from management fees attributable to interests in MSC II not owned by Main Street.
         
Investment in affiliated Investment Manager at September 30, 2009
   $ 16,340,706  
Less: discounted future cash flows for management fees not attributable to Main Street entities
     (478,048 )
 
      
Discounted future cash flows for management fees attributable to MSC II
     15,862,658  
Remaining noncontrolling interest percentage
     12 %
Remaining value of Investment Manager related to noncontrolling interests in MSC II
     1,903,519  
 
      
Adjustment required to reduce value of Investment Manager for management fees attributable to purchased interests in MSC II
   $ 13,959,139  
 
      
(2)   Represents the estimated transaction costs associated with the Exchange Offer, including external audit fees, financial advisory fees, and legal expenses.
 
(3)   Represents the write off of deferred financing costs including the elimination of amortizing these costs to interest expense, and the fair value adjustment to the MSC II SBIC debentures associated with the option to elect fair value accounting under ASC 825 for the acquired MSC II SBIC debentures.
 
(4)   Represents the impact of timing differences related to net unrealized gains on certain MSC II equity investments placed in a wholly owned taxable subsidiary.
 
(5)   Represents estimated fair value for the MSC II limited partner interests not acquired in the Exchange Offer.
 
(6)   Net Asset Value Adjustments:
         
Exchange Offer stock consideration
   $ 19,934,296 (a)
MSC II historical Net Asset Value
     (14,127,953 )(b)
Adjustment to investment in affiliated Investment Manager
     (13,959,139 )(c)
Bargain Purchase Gain
     3,715,496 (d)
 
      
Total Net Asset Value Adjustments
   $ (4,437,300 )
 
      
     
(a)   Represents the value of Main Street stock issued in the Exchange Offer for the MSC II limited partners interests acquired.
 
(b)   Eliminate the historical net asset value of MSC II.
 
(c)   Represents the non-cash impact on investment in affiliated Investment Manager. See Note (1) above.
 
(d)   Represents the excess of the fair value of net assets acquired over the value of Main Street stock issued in the Exchange Offer plus the fair value of the noncontrolling limited partner interests. See Note B for the preliminary bargain purchase gain calculation.
(7)   Weighted average shares outstanding have been adjusted to reflect the following :
                 
    Year Ended     Nine Months Ended  
    December 31, 2008     September 30, 2009  
 
                
Main Street weighted average shares outstanding
     9,095,904       9,788,226  
Estimated shares issued in connection with the Offer Exchange (reflected as outstanding for all periods presented)
     1,239,695       1,239,695  
 
            
Main Street adjusted weighted average shares outstanding
     10,335,599       11,027,921  
 
            
(8)   Liquidation of $12 million in Main Street marketable securities, and a draw of $12 million under Main Street’s investment credit facility in order to fund the MSC II capital commitments for limited partner interests purchased by Main Street to comply with SBA regulatory requirements.
 
(9)   Estimated MSC II distribution to limited partners.
 
(10)   Represents the net losses of MSC II attributable to the noncontrolling limited partner interests not purchased by Main Street in the Exchange Offer.
 
(11)   Represents the increase in interest expense from the $12 million draw under Main Street’s investment credit facility, partially offset by estimated interest income on the drawn funds. See Note (8) above.
 
(12)   Represents the decrease in unrealized depreciation as a result of the non-cash reduction to the Investment in affiliated Investment Manager. See Note (1) above.

 

 

 

Note D: Portfolio Composition
As of September 30, 2009, the pro forma combined core investment portfolio reflects debt and equity investments in 39 core portfolio companies with an aggregate fair value of $191,576,461 and a weighted average effective yield on its debt investments of approximately 14.1%. Approximately 83% of the pro forma combined core portfolio investments at cost were in the form of debt investments and 92% of such debt investments at cost were secured by first priority liens on the assets of the portfolio companies as of September 30, 2009. At September 30, 2009, the pro forma combined core investment portfolio reflects equity ownership in approximately 92% of the core portfolio companies and the average fully diluted equity ownership in those portfolio companies was approximately 35%. The weighted average yields were computed using the effective interest rates for all debt investments at September 30, 2009, including amortization of deferred debt origination fees and accretion of original issue discount but excluding any debt investments on non-accrual status.
Summaries of the composition of the pro forma combined core investment portfolio at cost and fair value as a percentage of total core portfolio investments are shown in the following table:
         
Cost:   September 30, 2009  
First lien debt
     76.4 %
Equity
     12.5 %
Second lien debt
     6.4 %
Equity warrants
     4.7 %
 
      
 
     100.0 %
 
      
         
Fair Value:   September 30, 2009  
First lien debt
     65.5 %
Equity
     17.2 %
Equity warrants
     10.6 %
Second lien debt
     6.7 %
 
      
 
     100.0 %
 
      
The following table shows the pro forma combined core portfolio composition by geographic region of the United States at cost and fair value as a percentage of total core portfolio investments. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.
         
Cost:   September 30, 2009  
Southwest
     42.0 %
West
     34.5 %
Southeast
     14.2 %
Midwest
     5.8 %
Northeast
     3.5 %
 
      
 
     100.0 %
 
      
         
Fair Value:   September 30, 2009  
Southwest
     50.8 %
West
     30.7 %
Southeast
     8.0 %
Midwest
     6.1 %
Northeast
     4.4 %
 
      
 
     100.0 %
 
      

 

 

 

The core portfolio investments of both Main Street and MSC II are generally in lower middle-market companies conducting business in a variety of industries. Set forth below are tables showing the composition of the pro forma combined core portfolio investments by industry at cost and fair value:
         
Cost:   September 30, 2009  
Industrial equipment
     14.0 %
Custom wood products
     10.6 %
Professional services
     9.6 %
Retail
     8.5 %
Electronics manufacturing
     7.2 %
Metal fabrication
     6.7 %
Mining and minerals
     6.3 %
Transportation/Logistics
     6.0 %
Precast concrete manufacturing
     5.6 %
Restaurant
     4.5 %
Industrial services
     4.4 %
Agricultural services
     3.7 %
Manufacturing
     3.1 %
Health care services
     3.0 %
Health care products
     2.3 %
Governmental services
     1.6 %
Equipment rental
     1.4 %
Infrastructure products
     0.9 %
Information services
     0.5 %
Distribution
     0.1 %
 
      
 
     100.0 %
 
      
         
Fair Value:   September 30, 2009  
Professional services
     11.1 %
Metal fabrication
     10.5 %
Retail
     8.9 %
Custom wood products
     8.2 %
Precast concrete manufacturing
     7.5 %
Industrial equipment
     7.2 %
Transportation/Logistics
     6.8 %
Electronics manufacturing
     6.6 %
Health care services
     6.5 %
Industrial services
     6.1 %
Restaurant
     5.3 %
Agricultural services
     5.2 %
Manufacturing
     3.3 %
Health care products
     2.5 %
Governmental services
     1.9 %
Equipment rental
     1.5 %
Information services
     0.4 %
Distribution
     0.3 %
Infrastructure products
     0.2 %
 
      
 
     100.0 %