Anticipated receipt of principal and interest over the following 12 months as at

Sept. 30, 1959

1958-59 budget results based on the unaudited statement of income

1 Included in this figure is $686 of repairs and alterations that was expensed and reported in the miscelaneous expense account above. Therefore, only $2,041 was capitalized during the fiscal year.

NOTE.-The above comparison was made on a basis conforming with budget, as adopted.

THE NEW YORK BUSINESS DEVELOPMENT CORPORATION

[This pamphlet is not a representation, prospectus, or circular in respect of any stock or security, and is not transmitted in connection with any sale or offer to sell, or to induce any purchase of, any stock or security now or hereafter to be issued. It has been prepared only to furnish information to prospective members and prospective borrowers and others interested in the borrowing and lending activities of the corporation.]

What is the New York Business Development Corp.?

The New York Business Development Corp. is a private institution created by special act of the legislature to fill the smaller firms' need in New York State for a source of medium- or long-term credit or equity money.

In his first message to the legislature Gov. Averell Harriman recommended that such an institution be created in the State. He said he expected that a development corporation would contribute to the establishment of new businesses, would aid in the expansion of existing firms and would stimulate communities to raise funds for the creation of new employment opportunities. In practice the development corporations of the New England States have filled just these functions.

The New York Business Development Corp. will be privately owned, financed, and managed. No Government funds are entailed. Like any other private business undertaking it will aim toward and expect to make a profit. Its establishment through a special act of the legislature emphasizes its unique character and permits banks, insurance companies, utilities, trustees, and fiduciary institutions to invest in the corporation. It will spread risks by investing funds raised from a broad group of institutions.

The New York Business Development Corp. will not compete with banks or other traditional financing institutions, but will supplement and support their activities. The corporation will grant no loan which a conventional credit source wants to handle. În practice in the New England States, banks and insurance companies have participated with the development corporations in many joint undertakings.

The New York Business Development Corp. is a private institution akin to an intermediate credit bank so structured that it should be able to operate profitably under today's tax laws and yet meet the broad objectives of public policy which prompted its enactment.

Why is a New York Business Development Corp. necessary?

The New York Business Development Corp. gives private enterprise a unique opportunity to meet a pressing industrial need. The corporation's function is to fill an existing gap in our credit mechanism-a gap that denies to perfectly sound enterprises an institution that will meet their needs for medium- or long-term credit or, in certain cases, equity financing.

Smaller firms which lack long established earnings records or a strong collateral position cannot, however well managed they may be, turn to traditional sources of credit to meet their needs for equity or medium or long-term money. Under existing tax rates they cannot accumulate sufficient funds from retained earnings to meet their needs. And the costs of flotation of issues on the open market is prohibitive for small companies.

And it

But shortage of such funds will block the growth of a sound company. may destroy a company that becomes overextended in an attempt to keep up with its opportunities. Where, then, will this smaller firm find its working capital, its money for a new plant or for research to perfect its new product?

The "term loans" of commercial banks are almost invariably confined to wellknown concerns with top credit ratings and long and well-established earnings records. It is not the business of commercial banks to supply medium- or longterm credit in the form of loans.

Savings bank deposits are close to a demand liability and the savings bank can rarely lend for long term except on mortgages or where the bonds the bank buys are readily marketable. They cannot meet the need of the smaller entrepreneur. Life-insurance companies have, to an increasing extent, used "direct placement" in lending 10- to 20-year money to corporations. But the nature of the insurance companies' trustee responsibilities confines their investment activities pretty well to demonstrably strong credit risks. There may be money for a well-established oil company but not for a tiny new electronics company.

The unique institution-the business development corporation-can meet the need for such funds and, it is believed, meet it profitably.

Where will the New York Business Development Corp. get its money?

The New York Business Development Corp. will borrow from financial institutions that become members of the corporation. It will also sell stock to the business community. These moneys will be available to applicants on sound

and realistic terms.

What is a member of the New York Business Development Corp.?

Under the New York law banking organizations, insurance and surety companies that apply for membership in the corporation may become members. Members are obligated to lend money to the corporation when called upon by the corporation to do so. But the funds that can be called are limited by law and the calls to lend are prorated among the members in the same proportion that the loan limit of the individual member bears to the total loan limits of all the members of the corporation. The law provides a maximum loan limit of $250,000 for any single member. Subject to this maximum, loan limits for individual companies are:

National banking associations, State-chartered commercial banks and trust companies: 2 percent of capital and surplus (meaning thereby capital stock and surplus).

New York State savings and loan associations: 2 percent of guaranty funds (meaning thereby the surplus account determined as provided in section 385 of the New York banking law, as from time to time amended).

Federal savings and loan associations: 2 percent of guaranty funds (meaning thereby legal reserve).

Stock insurance companies: 2 percent of capital and surplus.

Surety and casualty companies: 2 percent of capital and surplus.

Mutual insurance companies: 2 percent of surplus (meaning thereby surplus to policyholders).

Mutual savings banks: 2 percent of surplus fund determined as provided in section 243 of the New York banking law, as from time to time amended. Other banking, loaning and insurance organizations: 2 percent of capital and surplus or their equivalent as determined by the board of directors.

The members will control the board of directors. Twelve of the fifteen directors will be elected by members voting on a regional basis. Members voting on a regional basis will also elect the local loan committees which will initially pass on loan applications from the region involved and make their recommendations to the board of directors.

Members may withdraw from the corporation on 6 months' written notice, but are liable for obligations undertaken by the corporation up to the effective date of withdrawal.

Why would an insurance company or a bank want to become a member of the New York Business Development Corp.?

There is an element of community service in becoming a member of the New York Business Development Corp. There is at least an equally powerful element of self-interest. It would, in fact, be hard to tell which is which.

To

The New York Business Development Corp. aims, by law, "to stimulate and assist in the expansion of all kinds of business activity which will tend to promote the business development and maintain the economic stability of the State." the extent that it succeds in its objective the entire business community of the State gains, including the banking and insurance fraternities.

Experience in New England, and most especially in Massachusetts which has the largest and most active development corporation, shows that the development corporation has proved to be a source of new and acceptable business to the financial community. In the simplest case the existence of the corporation has started entrepreneurs thinking about expansion. Some applications for loans from the corporation have been turned directly over to financial institutions of which the would-be borrower was unaware. In other cases investigation by the development corporation of what had seemed to a bank to be a dubious prospect and the subsequent commitment by the corporation to lend has proved an adequate substitute to the bank for the usual collateral cum earnings record and the loan has been assumed by banks rather than the development corporation. The more normal case is that in which the entrepreneur's proposition is not acceptable to any single bank or insurance company, but proves to be acceptable to a combination of forces that includes the development corporation.

The Massachusetts Business Development Corp., for example, reports as of mid-July that it has been involved in the financing of 16 new one-story generalpurpose factory buildings. The total footage involved was 500,000 square feet, and the investment was $5 million. Of this the Massachusetts Business Develop

ment Corp. provided $1.4 million, usually on second mortgages. The remainder was provided by banks and insurance companies and individuals.

In addition to the gains that accrue from new and expanded business in the State, the members receive interest from the corporation for their loans to the corporation. In Massachusetts by law that rate may be no lower than onefourth of 1 percent above the prime rate prevailing in Boston on the call day on unsecured commercial loans. The New York State rate will be set from time to time by the board of directors of the corporation.

Why would a corporation want to buy stock in the New York Business Development Corp.?

The same elements of self-interest and community service that will dictate membership in the corporation will dictate the purchase of the corporation's stock. First, to the extent that the corporation is able to increase industrial activity, enhance payrolls and sustain the well-being of the State, carriers, utilities, retailers and manufacturers have much to gain by supporting it. The Massachusetts corporation in its 18 months of lending activity has been a credit resource for firms with 6,000 employees and annual payrolls of $15 million. Then, in the long term, there is the possibility of both capital appreciation and dividends on the stock.

How can the New York Business Development Corp. make money?

The New York Business Development Corp. will begin to make money when borrowers' interest payments to the corporation exceed the combination of the corporation's operating costs and its interest payments to its members.

In the Massachusetts case the breakeven point was reached 6 months after the first loan was granted. The Massachusetts corporation as of June 1955 was making $2,700 monthly and expected in calendar 1955 to erase the operating deficits accumulated from its organization in July 1953.

The business development corporation is a financial institution peculiarly adapted to making money within the framework of today's tax law. This fact derives from the unique capital structure of the corporation and from its minimal operating costs. Both the capital structure and the low operating costs are possible because of the broad public interest that dictates investment in the corporation to the outstanding financial and industrial organizations of the State. First, as to capital structure. Under the framework provided by the special act the New York Business Development Corp.'s total obligations shall not exceed 10 times the amount of its paid-in capital and surplus or $50 million whichever is greater. Thus the law sets no limit until the loan volume reaches $50 million. Such a structural formula is hardly approached by the strongest sales finance companies which deal with relatively short-term paper backed by good liquid collateral as well as by the signer's personal note.

As to operating costs, the Massachusetts corporation reports that with an overhead of $50,000 annually, it is able to handle well beyond the $2.5 million it now has on its books. This is possible because credit officers of the member banks have helped the corporation's permanent staff in some aspects of loan investigations. In addition, the members of the corporation have served in large measure as its business getters.

NORTH CAROLINA

General Statutes of North Carolina, Ch. 53A, Secs. 53A-1-18
Chapter 1146 of the 1955 Session Laws of North Carolina

(Originally S.B. No. 552)

AN ACT TO AUTHORIZE THE INCORPORATION OF BUSINESS DEVELOPMENT CORPORATIONS FOR THE PURPOSE OF PROMOTING, DEVELOPING AND ADVANCING THE PROSPERITY AND ECONOMIC WELFARE OF THE STATE.

The General Assembly of North Carolina do enact:

SECTION 1. As used in this Act, the following words and phrases, unless differently defined or described, shall have the meanings and references as follows: (1) "Corporation": A North Carolina business development corporation created under this Act.

(2) "Financial Institution": Any banking corporation or trust company, building and loan association, insurance company or related corporation, partnership, foundation, or other institution engaged primarily in lending or investing funds.

(3) "Member": Any financial institution authorized to do business within this State which shall undertake to lend money to a corporation created under this Act, upon its call, and in accordance with the provisions of this Act.

(4) "Board of Directors": The board of directors of the corporation created under this Act.

(5) "Loan Limit": For any member, the maximum amount permitted to be outstanding at one time on loans made by such member to the corporation, as determined under the provisions of this Act.

SECTION 2. Twenty-five (25) or more, persons, a majority of whom shall be residents of this State, who may desire to create a business development corporation under the provisions of this Act, for the purpose of promoting, developing and advancing the prosperity and economic welfare of the State and, to that end, to exercise the powers and privileges hereinafter provided, may be incorporated in the following manner; such persons shall, by certificate of incorporation filed with the Secretary of State, under their hands and seals, set forth:

(1) The name of the corporation, which shall include the words "Business Development Corporation of North Carolina":

(2) The location of the principal office of the corporation, but such corporation may have offices in such other places within the State and may be fixed by the board of directors.

(3) The purpose for which the corporation is founded, which shall include the following:

The purposes of the corporation shall be to promote, stimulate, develop and advance the business prosperity and economic welfare of the State of North Carolina and its citizens; to encourage and assist through loans, investments or other business transactions, in the location of new business and industry in this State and to rehabilitate and assist existing business and industry; and so to stimulate and assist in the expansion of all kinds of business activity which will tend to promote the business development and maintain the economic stability of this State, provide maximum opportunities for employment, encourage thrift, and improve the standard of living of the citizens of this State; similarly, to cooperate and act in conjunction with other organizations, public or private, in the promotion and advancement of industrial, commercial, agricultural and recreational developments in this State; and to provide financing for the promotion development, and conduct of all kinds of business activity in this State.

In furtherance of such purposes and in addition to the powers conferred on business corporations by the provisions of Chapter 55 of the General Statutes the corporation shall, subject to the restrictions and limitations herein contained, have the following powers:

(a) To elect appoint and employ officers, agents and employees; to make contracts and incur liabilities for any of the purposes of the corporation; provided, that the corporation shall not incur any secondary liability by way of guaranty or endorsement of the obligations of any person, firm, corporation, joint stock company, association or trust, or in any other manner.

(b) To borrow money from the members only, for any of the purposes of the corporation; to issue therefor its bonds, debentures, notes or other evidences of indebtedness, whether secured or unsecured, and to secure the same by mortgage, pledge, deed of trust or other lien on its property, franchises, rights and privileges of every kind and nature or any part thereof or interest therein, without securing stockholder or member approval; provided, that no loan to the corporation shall be secured in any manner unless all outstanding loans to the corporation shall be secured equally and ratably in proportion to the unpaid balance of such loans and in the same manner.

(c) To make loans to any person, firm, corporation, joint-stock company, association or trust, and to establish and regulate the terms and conditions with respect to any such loans and the charges for interest and service connected therewith; provided, however, that the corporation shall not approve any application for a loan unless and until the person applying for said loan shall show that he has applied for the loan through ordinary banking channels and that the loan has been refused by at least one bank or other financial institution.

1

(d) To purchase, receive, hold, lease, or otherwise acquire, and to sell, convey, transfer, lease or otherwise dispose of real and personal property, together with such rights and privileges as may be incidental and appurtenant thereto and the use thereof, including, but not restricted to, any real or personal property acquired by the corporation from time to time in the satisfaction of debts or enforcement of obligations.