<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1996
1933 ACT FILE NO. 333-10785
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 1
[ ] Post-Effective Amendment No. ____
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ] Amendment No. ____
BRANTLEY CAPITAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
20600 CHAGRIN BOULEVARD
SUITE 1150
CLEVELAND, OHIO 44122
(Address of Principal Executive Offices)(Zip Code)
(Registrant's Telephone Number, Including Area Code: (216) 283-4800)
MICHAEL J. FINN
BRANTLEY CAPITAL MANAGEMENT, LTD.
20600 CHAGRIN BOULEVARD
SUITE 1150
CLEVELAND, OHIO 44122
(Name and Address of Agent for Service)
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COPIES TO:
Maryann A. Waryjas David A. Sturms
Jenner & Block Vedder, Price, Kaufman & Kammholz
One IBM Plaza 222 North LaSalle Street
Chicago, Illinois 60611 Chicago, Illinois 60601
</TABLE>
Approximate date of proposed public offering: As soon as possible after
this registration statement becomes effective.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
A Registration Fee in the amount of $39,655.17 was paid prior to the
initial filing of the Registration Statement on August 23, 1996.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
BRANTLEY CAPITAL CORPORATION
FORM N-2
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
PART A
ITEM NUMBER CAPTION PROSPECTUS CAPTION
- ----------- --------------------------------------- ---------------------------------------
<S> <C> <C>
1 Outside Front Cover Outside Front Cover of Prospectus
2 Inside Front and Outside Back Cover Inside Front Cover and Outside Back
Page of Prospectus Cover
3 Fee Table and Synopsis Fee Table
4 Financial Highlights Not Applicable
5 Underwriting Outside Front Cover; Underwriting
6 Selling Stockholders Not Applicable
7 Use of Proceeds Use of Proceeds; Investment Objectives
and Policies; Risk Factors
8 General Description of Registrant The Company; Investment Objectives and
Policies; Risk Factors
9 Management Management; Prior Experience of
Principals of the Investment Adviser
10 Capital Stock, Long-Term Debt and Other Description of Capital Stock
Securities
11 Defaults and Arrears on Senior Not Applicable
Securities
12 Legal Proceedings Not Applicable
13 Table of Contents of the Statement of Not Applicable
Additional Information
</TABLE>
<TABLE>
<CAPTION>
PART B
ITEM NUMBER CAPTION PROSPECTUS CAPTION
- ----------- --------------------------------------- ---------------------------------------
<S> <C> <C>
14 Cover Page Not Applicable
15 Table of Contents Not Applicable
16 General Information and History The Company
17 Investment Objectives and Policies Investment Objectives and Policies
18 Management Management; Prior Experience of
Principals of the Investment Adviser
19 Control Persons and Principal Holders The Company
of Securities
20 Investment Advisory and Other Servicers Prior Experience of Principals of the
Investment Adviser; The Investment
Advisory Agreement
21 Brokerage Allocation and Other The Company
Practices
22 Tax Status Federal Income Tax Matters
23 Financial Statements Financial Statements
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED OCTOBER 30, 1996
10,000,000 SHARES
BRANTLEY CAPITAL CORPORATION
COMMON STOCK
------------------
All of the 10,000,000 shares of common stock, $.01 par value (the "Common
Stock"), offered hereby are being offered by Brantley Capital Corporation, a
newly organized Maryland corporation (the "Company"). The Company is a
closed-end, non-diversified investment company which has elected to be treated
as a business development company (a "Business Development Company") under the
Investment Company Act of 1940 (the "Investment Company Act"). Brantley Capital
Management, Ltd. (the "Investment Adviser"), a registered investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), will
act as adviser to the Company.
The Company's investment objective is the realization of long-term capital
appreciation in the value of its investments. To achieve this objective, the
Company intends to invest primarily in private equity securities and, to a
lesser extent, in post-venture small-cap public securities. The Company will
seek to provide an element of current income primarily from interest, dividends
and fees paid by portfolio companies. See "Investment Objectives and Policies."
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK, AND THERE CAN BE NO ASSURANCE THAT ANY SUCH MARKET WILL DEVELOP. THE
COMPANY HAS APPLIED FOR QUOTATION OF THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET SYSTEM UNDER THE SYMBOL "BBDC." THE SECURITIES OFFERED HEREBY INVOLVE A
HIGH DEGREE OF RISK, INCLUDING THE COMPANY'S LACK OF PRIOR OPERATING HISTORY,
THE ILLIQUID NATURE OF A SUBSTANTIAL MAJORITY OF THE COMPANY'S INVESTMENTS, AND
UNCERTAINTY REGARDING THE VALUE OF THE COMPANY'S INVESTMENTS. COMMON STOCK OF
CLOSED-END INVESTMENT COMPANIES HAS IN THE PAST FREQUENTLY TRADED AT DISCOUNTS
FROM ITS NET ASSET VALUE AND INITIAL OFFERING PRICE. THE RISK OF LOSS ASSOCIATED
WITH THIS CHARACTERISTIC OF CLOSED-END INVESTMENT COMPANIES MAY BE GREATER FOR
INVESTORS EXPECTING TO SELL COMMON STOCK PURCHASED IN THIS OFFERING SOON AFTER
THE COMPLETION OF THIS OFFERING. THE COMPANY PRESENTLY DOES NOT INTEND TO USE
BORROWED FUNDS TO MAKE INVESTMENTS; HOWEVER, IT RESERVES THE RIGHT TO DO SO. SEE
"RISK FACTORS."
This Prospectus sets forth concisely the information about the Company that
a prospective investor ought to know before investing and should be retained for
future reference. Additional information has been filed with the Securities and
Exchange Commission and is available from the Company upon written or oral
request and without charge. See "Additional Information."
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<CAPTION>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share(3).................................. $10.00 -- $10.00
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Total (4)..................................... $100,000,000 -- $100,000,000
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</TABLE>
(Footnotes on following page)
The Common Stock is offered severally by the Underwriters named herein,
subject to prior sale, when, as and if received and accepted by them, subject to
their right to reject orders, in whole or in part, and to certain other
conditions. It is expected that delivery of the certificates representing the
Common Stock will be made on or about , 1996.
------------------
EVEREN SECURITIES, INC. MCDONALD & COMPANY MORGAN KEEGAN & COMPANY, INC.
SECURITIES, INC.
NEEDHAM & COMPANY, INC. STIFEL, NICOLAUS & COMPANY
INCORPORATED
FIRST OF MICHIGAN CORPORATION NATCITY INVESTMENTS, INC.
, 1996
<PAGE> 4
(1) The Company and the Investment Adviser have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933 (the "Securities Act"). The Investment Adviser (not
the Company) will pay the Underwriting Discounts and Commissions in the
amount of 7.0% of the aggregate initial public offering price of Common
Stock in connection with sales of Common Stock in this Offering. In
addition, the Investment Adviser will pay the Principal Underwriter a
one-time structuring fee of $500,000 at the close of the Offering. See "The
Investment Advisory Agreement" and "Underwriting."
(2) Before deducting organizational expenses and expenses of the Offering
estimated to be $495,000.
(3) Each investor must purchase a minimum of 500 shares in this offering (except
that an individual retirement account (an "IRA") must purchase a minimum of
200 shares in this offering). Any shares in excess of the applicable minimum
must be purchased in 100 share increments.
(4) The Underwriters have been granted a 45-day option to purchase up to an
aggregate of 1,500,000 additional shares of Common Stock from the Company
solely to cover over-allotments, if any. If the option is exercised in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $115,000,000, $0 and $115,000,000, respectively
(before deducting the amount set forth in footnote (2) above). See
"Underwriting."
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form N-2 (the "Registration
Statement") under the Investment Company Act and the Securities Act with respect
to the Common Stock offered by this Prospectus. This Prospectus, which is a part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement or the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement, including the exhibits and schedules thereto.
The Registration Statement and the exhibits and schedules thereto filed
with the Commission may be inspected, without charge, at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Seven World Trade Center, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company will furnish to its stockholders annual reports containing
audited financial statements, quarterly unaudited statements for the first three
calendar quarters of each year and such other periodic reports as it may
determine to furnish or as may be required by law.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
APPEARING ELSEWHERE HEREIN. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS
PROSPECTUS IN ITS ENTIRETY.
THE COMPANY
Brantley Capital Corporation (the "Company") has been formed to invest
primarily in the equity securities and equity-linked debt securities of private
companies. In addition, the Company intends to invest a portion of its assets in
equity securities of post-venture small-cap public companies. The Company's
investment objective is the realization of long-term capital appreciation in the
value of its investments. The Company will seek to provide an element of current
income primarily from interest, dividends and fees paid by companies in which
the Company invests (sometimes referred to herein as "portfolio companies"). See
"The Company -- General."
With respect to its investments in private companies, the Company
anticipates that a principal focus will be on industries that it considers to be
good candidates for successful consolidation. The Company also will favor
investments in private companies that it believes can achieve the necessary
size, profitability and management depth and sophistication to become public
companies or become attractive merger or acquisition candidates. The Company
intends to be a partner in the growth of its private portfolio companies, rather
than merely a financial participant. The Company will offer managerial
assistance to its private portfolio companies and expects that its
representatives will play a role in setting their corporate strategies and will
advise such companies regarding important decisions affecting their businesses,
including potential acquisitions, recruiting key managers, and securing equity
and debt financing.
With respect to its investments in post-venture small-cap public companies,
the Company anticipates that its primary focus will be on companies that the
Investment Adviser believes to have significant potential for growth in sales
and earnings. A post-venture company is a company that has received venture
capital or private equity financing either (a) during the early stages of the
company's business or the early stages of the development of a new product or
service, or (b) as part of a restructuring or recapitalization of the company.
The Company intends to limit its post-venture investments to companies which
within the prior 10 years have received an investment of venture or private
equity capital, have sold or distributed securities to venture or private equity
capital investors, or have completed an initial public offering of equity
securities.
The Company anticipates that, as a general rule, most of its investments
will be in small- to medium-sized companies with total assets or annual sales
under $500,000,000. Many of these companies may have very limited operating
histories. The Company's Investment Adviser will seek to identify investment
opportunities from a variety of sources, including referrals from finance and
other professionals, business executives and entrepreneurs known to the
Company's management from prior business, investment and professional
relationships. See "The Company."
The Company's main criterion for the selection of portfolio companies is
the potential for above average long-term growth in sales and earnings. The
Company will consider a number of factors in evaluating prospective investments
in portfolio companies including, among others, the quality, depth and
experience of management; the existence of potentially large unfulfilled markets
for the portfolio companies' products and services; the nature of the portfolio
companies' products and services; the structure, price and terms of investments
in the portfolio companies; and, with respect to post-venture small-cap
companies, the identity of, and amount and terms of securities owned by, venture
or private equity capital investors who are stockholders in the company. See
"Investment Objectives and Policies."
3
<PAGE> 6
The Company is a closed-end, non-diversified investment company which has
elected to be treated as a Business Development Company under the Investment
Company Act. As such, the Company will be generally required to invest at least
70% of its total assets in certain prescribed "Eligible Assets," including
securities of privately held companies and cash items, government securities and
high-quality short-term debt. See "Regulation" for the statutory definition of
"Eligible Assets."
The Company intends to qualify as a regulated investment company for
federal income tax purposes in order to qualify for pass-through tax treatment.
Therefore, the Company expects to distribute substantially all of its investment
company taxable income (net investment income from interest and dividends and
net short-term capital gains) to stockholders on an annual basis. The Company
may choose to distribute net realized long-term capital gains, or to retain such
gains, net of applicable taxes that would be payable by the Company, to
supplement equity capital and to support growth in its portfolio. See "Federal
Income Tax Matters."
Brantley Capital Management, Ltd. (the "Investment Adviser"), based in
Cleveland, Ohio, will act as adviser to the Company. It will be responsible, on
a day-to-day basis, for the selection and supervision of portfolio investments
and for management of the Company's records and financial reporting
requirements. The Company will pay the Investment Adviser an annual management
fee of 2.85% of the Company's net asset value, payable quarterly. See
"Management," "Prior Experience of Principals of the Investment Adviser," and
"The Investment Advisory Agreement."
4
<PAGE> 7
THE OFFERING
Common Stock offered by the
Company.................. The Company is offering 10,000,000 shares of its
Common Stock at the initial public offering price
of $10.00 per share. The Underwriters have been
granted a 45-day option to purchase up to an
aggregate of 1,500,000 additional shares to cover
over-allotments, if any. See "Underwriting."
Investment per investor.... Minimum of 500 shares of Common Stock (200 shares
for IRAs). Shares in excess of the applicable
minimum must be purchased in 100 share increments.
Common Stock to be
outstanding after the
Offering................. 10,000,000 shares. See "Description of Capital
Stock."
Proposed Nasdaq National
Market symbol............ BBDC
Use of proceeds............ To make investments in accordance with the
Company's investment policies and objectives. See
"Use of Proceeds."
Distributions.............. The Company intends to pay quarterly dividends from
net investment income. See "Federal Income Tax
Matters."
Dividend Reinvestment and
Cash Purchase Plan......... All cash distributions to stockholders will be
reinvested automatically under the Company's
Dividend Reinvestment and Cash Purchase Plan in
additional whole and fractional shares of Common
Stock unless a stockholder or its representative
elects to receive cash. See "Dividend Reinvestment
and Cash Purchase Plan" and "Federal Income Tax
Matters."
Leverage and borrowing..... The Company presently does not intend to use
borrowed funds to make investments, however, it
reserves the right to do so. The Company from time
to time may borrow on a short-term basis against
maturities of its investments for purposes of
meeting short-term cash needs. Also, it may borrow
funds from time to time and at quarter end in order
(i) to maintain sufficient cash assets necessary to
meet the requirements for qualification as a
Business Development Company and the
diversification requirements to qualify as a
regulated investment company for federal income tax
purposes, and (ii) to make distributions necessary
to qualify as a regulated investment company for
federal income tax purposes. All borrowings by the
Company will be subject to the percentage limits
permitted by the Investment Company Act and any
other applicable federal or state laws. See "Risk
Factors -- Use of Leverage" and "Investment
Objectives and Policies."
Stock options.............. The Company has adopted a stock option plan and,
subject to approval by the Commission, has adopted
a disinterested director option plan, pursuant to
which plans, 1,250,000 shares of Common Stock have
been reserved for future issuance upon the exercise
of options that may be granted to directors,
officers and employees of the Company. See
"Management -- Stock Options."
5
<PAGE> 8
Risk factors............... The securities offered hereby involve a high degree
of risk including, but not limited to, the
Company's lack of prior operating history;
dependence upon its Investment Adviser; investments
in privately-owned companies; investments in
small-cap public companies; the illiquid nature of
many of the Company's investments; dependence on
the state of the public offering market or
availability of strategic buyers; risks relating to
potential conflicts of interest; potential delays
in investing Offering proceeds and making
distributions; possible borrowing by the Company;
competition for investments; potential need for
follow-on investments in portfolio companies;
unspecified use of investment proceeds; possible
portfolio valuation problems; lack of
diversification; possible loss of pass-through tax
treatment; and a potentially limited public market
for, or discounted trading of, the Common Stock of
the Company. See "Risk Factors."
Anti-takeover provisions... The Board of Directors of the Company is divided
into three classes of directors serving staggered
three-year terms. This structure is intended to
provide a greater likelihood of continuity of
management for the Company because such continuity
may be necessary for the Company to realize the
full value of its investments. A staggered Board of
Directors may serve to deter hostile takeovers of
the Company, as may certain other measures adopted
by the Company. See "Description of Capital Stock
-- Anti-Takeover Provisions."
6
<PAGE> 9
FEES AND EXPENSES
The purpose of the following table is to assist the investor in
understanding the various costs and expenses that an investor in the Company
will bear directly or indirectly.
STOCKHOLDER TRANSACTION EXPENSES
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Sales load (as a percentage of offering price)........................... None (1)
Dividend Reinvestment and Cash Purchase Plan fees........................ None (2)
ANNUAL EXPENSES (as a percentage of net asset value) (3)
Management fees........................................................ 2.85% (4)
Interest payments on borrowed funds.................................... None (5)
Other expenses (estimated)............................................. 1.15% (6)
Total Annual Expenses (estimated)........................................ 4.00%
</TABLE>
- ---------------
(1) Not including the organizational expenses and expenses of this Offering,
which are estimated to be $495,000. In addition, the Company and the
Investment Adviser have agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act. The
Investment Adviser (not the Company) will pay the Underwriters a commission
in the amount of 7.0% of the aggregate initial public offering price of
Common Stock in connection with sales of Common Stock in this Offering. In
addition, the Investment Adviser will pay the Principal Underwriter a
one-time structuring fee of $500,000 at the close of the Offering. See "The
Investment Advisory Agreement."
(2) The expenses of the Dividend Reinvestment and Cash Purchase Plan are
included in stock record expenses, a component of "Other expenses." The
participants in the Dividend Reinvestment and Cash Purchase Plan will bear a
pro rata share of brokerage commissions incurred with respect to open market
purchases.
(3) Assumes a net asset value of $100,000,000 based on the sale of 10,000,000
shares in the Offering.
(4) Payable to the Investment Adviser.
(5) Assumes no leverage.
(6) Includes estimated accounting, legal, administrative, stockholder relations,
transfer agent, stock record and custodian expenses.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Company. These amounts assume no leverage and
are based upon payment by the Company of operating expenses at the levels set
forth in the table above.
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming a 5.0% annual return................................ $ 42 $ 127 $ 213 $435
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF THE FUTURE EXPENSES OF
THE COMPANY, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Moreover, while the example assumes (as required by the Commission) a 5.0%
annual return, the Company's performance will vary and may result in a return
greater or less than 5.0%. In addition, while the example assumes reinvestment
of all dividends and distributions at net asset value, participants in the
Dividend Reinvestment and Cash Purchase Plan may receive shares purchased by the
administrator of the Dividend Reinvestment and Cash Purchase Plan at the market
price in effect at the time, which may be at, above or below net asset value.
See "Dividend Reinvestment and Cash Purchase Plan."
7
<PAGE> 10
RISK FACTORS
THE PURCHASE OF THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A NUMBER OF SIGNIFICANT RISKS. AS A RESULT, THERE CAN BE NO ASSURANCE
THAT THE COMPANY WILL ACHIEVE ITS INVESTMENT OBJECTIVES. IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS
SHOULD BE CAREFULLY CONSIDERED IN EVALUATING AN INVESTMENT IN THE COMMON STOCK.
LACK OF OPERATING HISTORY; DEPENDENCE UPON INVESTMENT ADVISER
The Company has recently been organized to make investments in portfolio
companies selected by the Investment Adviser. Investors will have no right or
power to take part in the management of the Company and will not receive the
detailed financial information made available by portfolio companies to the
Investment Adviser in connection with the review of possible purchases for the
Company's portfolio. Accordingly, investors must be willing to entrust all
management aspects of the Company to the Investment Adviser. While Robert P.
Pinkas, Chairman, Chief Executive Officer and Chief Financial Officer, and
Michael J. Finn, President of the Investment Adviser, have a prior record of
making and managing investments similar to those to be made by the Company, the
Company and the Investment Adviser themselves have no operating history. The
Company is dependent for the selection, structuring, closing and monitoring of
its investments upon the diligence and skill of the Investment Adviser and
Messrs. Pinkas and Finn, the loss of whose services could have a material
adverse effect on the operations of the Company. The Investment Adviser does not
have written employment agreements with Messrs. Pinkas or Finn. See "The
Company -- Investment Adviser," "The Company -- Operations," "Management,"
"Prior Experience of Principals of the Investment Adviser" and "The Investment
Advisory Agreement."
INVESTMENTS IN PRIVATELY-OWNED COMPANIES
The portfolio of the Company is expected to consist primarily of
investments in small- to medium-sized privately-owned businesses. There is
generally no publicly available information about such companies, and the
Company must rely on the diligence of its Investment Adviser to obtain
information in connection with the Company's investment decisions. Typically,
such companies depend for their success on the management talents and efforts of
one person or a small group of persons, and the death, disability or resignation
of one or more of these persons could have a material adverse impact on their
company. Moreover, such companies frequently have less diverse product lines and
market shares than their competition. These companies may be more vulnerable to
economic downturns and often need substantial additional capital to expand or
compete. Such companies may also experience substantial variations in operating
results. Therefore, investment in small- to medium-sized privately-owned
businesses involves a high degree of business and financial risk, which can
result in substantial losses. See "Investment Objectives and Policies."
INVESTMENTS IN SMALL-CAP PUBLIC COMPANIES
Investing in securities of small-cap public companies may involve greater
risks than investments in other public companies because these securities may
have limited marketability and, thus, may be more volatile. Because small-cap
public companies often have fewer shares outstanding than larger companies, it
may be more difficult for the Company to buy or sell significant amounts of such
shares without an unfavorable impact on prevailing prices. In addition,
small-cap companies are typically subject to a greater degree of change in
earnings and business prospects than are larger, more established public
companies. There is typically less publicly available information concerning
small-cap companies than for larger, more established ones. Securities of
issuers in "special situations" also may be more volatile, since the market
value of these securities may decline in value if the anticipated benefits do
not materialize. Companies in "special situations" include, but are not limited
to, companies involved in an acquisition or consolidation; reorganization;
recapitalization; merger, liquidation or distribution of cash, securities or
other assets; a tender or exchange offer; a breakup or workout of a holding
company; or litigation which, if resolved favorably, would improve the value of
the companies' securities. Although investing in securities of small-cap public
companies or special situations offers potential for above-average returns if
the companies are successful, the risk exists that the companies will not
succeed and the prices of the companies' shares could significantly decline in
value.
8
<PAGE> 11
Therefore, an investment in the Company may involve a greater degree of risk
than an investment in other companies or funds that seek capital appreciation by
investing in better-known, larger companies. See "Investment Objectives and
Policies."
ILLIQUIDITY OF PORTFOLIO INVESTMENTS
Most of the investments of the Company will be securities acquired directly
from small, privately-owned companies. The Company's portfolio securities will
usually be subject to restrictions on resale or otherwise have no established
trading market. The illiquidity of most of the Company's portfolio securities
may adversely affect the ability of the Company to dispose of such securities in
a timely manner and at a fair price at times when the Company deems it necessary
or advantageous.
DEPENDENCE ON PUBLIC OFFERING MARKET OR AVAILABILITY OF STRATEGIC BUYERS
The success of the investment strategy of the Company will be affected in
large part by the state of the securities markets in general and the market for
public financings in particular. Changes in the securities markets and general
economic conditions, including economic downturns, fluctuations in interest
rates, the availability of credit, inflation and other factors, may affect the
value of the Company's investments. The market for initial public offerings is
cyclical in nature and, accordingly, there can be no assurance that the
securities markets will be receptive to initial public offerings, particularly
those of small-cap companies. Any adverse change in the market for public
offerings could have a material adverse effect on the Company and could severely
limit the Company's ability to realize its investment objectives. The
availability of strategic buyers for the companies in which the Company invests
may also fluctuate from time to time. Such availability will also be affected by
the state of the securities markets and general economic conditions.
CONFLICTS OF INTEREST
Robert P. Pinkas, Chairman, Chief Executive Officer and Chief Financial
Officer, Michael J. Finn, President, Paul H. Cascio, Vice President and James R.
Bergman, Vice President of the Investment Adviser, serve as general partners of
the general partners of certain venture capital investment partnerships and, as
such, may encounter conflicts of interest regarding the selection of investment
opportunities and the allocation of management time. Messrs. Pinkas, Finn and
Cascio serve as general partners of the general partners of Brantley Venture
Partners II, L.P. ("BVP II") and Brantley Venture Partners III, L.P. ("BVP
III"), and Mr. Bergman serves as a general partner of the general partner of BVP
III. Mr. Pinkas serves as general partner of the general partner of Brantley
Venture Partners, L.P. ("BVP I"). In addition, Messrs. Pinkas and Finn may from
time to time organize subsequent investment companies or private funds. As of
the date of this Prospectus, BVP I and BVP II are fully invested, while BVP III
is less than 40% invested.
The principals of the Investment Adviser intend to select investments for
the Company, for BVP III and for other future affiliates separately, considering
in each case only the investment objectives, investment position, available
funds and other pertinent factors applicable to that particular investment fund.
However, the Company is seeking an exemptive order from the Commission relieving
the Company, subject to certain terms and conditions, from certain of the
provisions of the Investment Company Act to permit co-investments by the Company
with certain private equity funds managed by affiliates of the Investment
Adviser. Assuming receipt of a favorable exemptive order from the Commission,
the Company anticipates that, subject to certain terms and conditions, BVP III
and other future affiliates may frequently invest in the same portfolio
companies due to similarities in certain of their investment strategies, with
each of the Company, BVP III and other future affiliates taking a position in
the portfolio company.
In addition, the Company and the Investment Adviser intend to seek
exemptive relief from certain provisions of the Investment Company Act to permit
the Company to invest in portfolio companies in an offering by an issuer in
which BVP I, BVP II or BVP III is an existing investor and the Company is not an
existing investor. To the knowledge of the Company or the Investment Adviser,
exemptive relief of this type has not been granted previously by the Commission.
Accordingly, there can be no assurance that the application for such exemptive
relief will be granted, and, therefore, there can be no assurance that the
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Company will be permitted to invest in portfolio companies in which BVP I, BVP
II or BVP III is an existing investor and the Company is not an existing
investor. The Company anticipates that the application for exemptive relief will
include conditions, among others, requiring that before such an investment would
be made: (i) the investment be of a type that has preferences and terms that are
the same or better than those of the investment owned by BVP I, BVP II or BVP
III, (ii) a majority of the Company's directors who have no financial interest
in the investment and a majority of the Company's disinterested directors
approve the investment, and (iii) the Company and Company affiliates purchase in
the aggregate less than a majority of the investment offered, such that
unaffiliated institutional investors are likely to be establishing the pricing
of such investment opportunities. See "The Company -- Selection of Investments,"
"Investment Objectives and Policies" and "Management."
POTENTIAL DELAYS IN INVESTING PROCEEDS OF OFFERING AND MAKING DISTRIBUTIONS
The Company intends to invest at least 50% of its total assets in "eligible
portfolio companies" within the earlier of two years after the completion of
this Offering. Such a delay is common for Business Development Companies because
of the level of due diligence, level of documentation and time of negotiation
necessary for investments in entities that meet the requirements for "Eligible
Assets." For a summary definition of eligible portfolio company and Eligible
Assets, see "Eligible Portfolio Companies" and "Regulation." Further, although
the Company intends to seek investments that will reach a state of maturity at
which disposition can be considered within 18 months to three years from the
date of initial investment, investments in Eligible Assets may typically take
from four to seven years to reach such a stage. In light of the foregoing, a
significant distribution of proceeds from the disposition of Eligible Assets may
likely not be made until the later years of the Company's existence.
Furthermore, no assurances can be given that the Company will achieve investment
results that will permit any specified level of cash distributions. See
"Distributions."
USE OF LEVERAGE
The Company presently does not intend to use borrowed funds to make
investments, however, it reserves the right to do so. The Company may borrow
from time to time on a short-term basis against maturities of its investments
for purposes of meeting short-term cash needs. Also, the Company may borrow
funds from time to time and at quarter end in order (i) to maintain sufficient
cash assets necessary to satisfy the requirements for qualification as a
Business Development Company and the diversification requirements to qualify as
a regulated investment company for federal income tax purposes, and (ii) to make
distributions necessary to qualify as a regulated investment company for federal
income tax purposes. Any such borrowing by the Company will be subject to the
requirements of Section 18 of the Investment Company Act, as modified by Section
61 of the Investment Company Act, including the requirement that any amount
borrowed must have asset coverage of at least 200% of the amount borrowed. Such
borrowing by the Company could increase the investment risk and the volatility
of the price of the Company's Common Stock because (i) leverage exaggerates any
increase or decrease in the value of the Company's portfolio, (ii) the costs of
borrowing may exceed the income from the portfolio assets mortgaged or pledged
to secure the borrowing, (iii) a decline in net asset value results if the
investment performance of the portfolio assets mortgaged or pledged to secure
the borrowing fails to cover the repayment of the borrowing together with
interest and other costs associated with the borrowing, (iv) a decline in net
asset value could affect the ability of the Company to make dividend payments or
distributions with respect to the Common Stock, (v) a failure to pay dividends
or make distributions could affect the ability of the Company to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), and (vi) if the asset coverage for the debt securities issued to
effect the borrowing declines to less than 200% (as a result of market
fluctuations or otherwise), the Company may be required to sell a portion of its
investments when it may be disadvantageous to do so. The directors and officers
of the Company will seek to manage the Company's borrowings in such a manner to
mitigate or avoid these risks, but there is no assurance that they will be
successful in this regard. See "Regulation" and "Federal Income Tax Matters."
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COMPETITIVE MARKET FOR INVESTMENT OPPORTUNITIES
A large number of entities and individuals compete for the types of
investments to be made by the Company. Many of these entities and individuals
have greater financial resources than the Company. As a result of this
competition, the Company from time to time may be precluded from entering into
attractive transactions. There can be no assurance that the Company will be able
to identify and complete investments that satisfy the Company's investment
objectives or that it will be able to fully invest its available capital.
POTENTIAL NEED FOR FOLLOW-ON INVESTMENTS IN PORTFOLIO COMPANIES
Following its initial investments in portfolio companies, the Company
anticipates that it may be called upon to provide additional funds to portfolio
companies or have the opportunity to increase investments in successful
operations. There is no assurance that the Company will make follow-on
investments or that the Company will have sufficient funds to make such
investments. Any decision by the Company not to make follow-on investments or
its inability to make them may have a substantial impact on portfolio companies
in need of such an investment, may result in a diminution of any rights or
privileges granted by a portfolio company in connection with the Company's
earlier investment, or may result in a missed opportunity for the Company to
increase its participation in a successful operation.
UNSPECIFIED USE OF PROCEEDS
The Company has not identified the particular portfolio investments to be
made from the net proceeds from this Offering. Therefore, prospective investors
must rely on the ability of the Investment Adviser to identify and make
portfolio investments consistent with the Company's investment objectives.
Investors will not have the opportunity to evaluate personally the relevant
economic, financial and other information which will be utilized by the
Investment Adviser in deciding whether to make a particular investment or to
dispose of any investment. See "Use of Proceeds."
VALUATION OF PORTFOLIO
There is typically no public market for the securities of small- to
medium-sized, privately-owned companies. As a result, the valuation of such
securities in the Company's portfolio is subject to the good faith determination
of the Company's Board of Directors. There can be no assurance that the values
so determined reflect the amounts that will ultimately be realized on these
investments. See "Valuation of Portfolio Securities."
LACK OF DIVERSIFICATION
Based on the amount of funds to be realized from this Offering, it is
unlikely that the Company will be able to commit its funds to the acquisition of
securities of a large number of companies or to direct its investments to
diverse areas. Although the Company intends to elect Subchapter M status under
the Code, and will, therefore, be required to meet certain diversification
requirements thereunder, the Company intends to operate as a non-diversified
investment company within the meaning of the Investment Company Act and,
therefore, the Company's investments are likely to not be substantially
diversified. See "Federal Income Tax Matters."
POSSIBLE LOSS OF PASS-THROUGH TAX TREATMENT
The Company intends to qualify for and elect to be treated as a regulated
investment company under Subchapter M of the Code. To qualify, the Company must
meet certain income distribution and diversification requirements. In any year
in which the Company so qualifies, it generally will not be subjected to federal
income tax on net investment income and net short-term capital gains distributed
to its stockholders. If the Company were to fail to qualify under Subchapter M
and its income became fully taxable, a substantial reduction in the amount of
income available for distribution to the Company's stockholders could result. In
addition, if the Company does not distribute in a timely manner (or treat as
"deemed distributed") 98% of its capital gain net income for each one-year
period ending on December 31, or distribute 98% of its ordinary
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income for each calendar year (as well as any income not distributed in prior
years), it will be subject to the 4% nondeductible federal excise tax on certain
undistributed income of regulated investment companies. See "Federal Income Tax
Matters."
LIMITED PUBLIC MARKET FOR COMMON STOCK; TRADING BELOW NET ASSET VALUE
There has been no prior trading market for the Common Stock and there can
be no assurance that a regular trading market will develop, or that, if
developed, it will be sustained. In addition, shares of closed-end investment
companies, such as the Company, often trade below their net asset value. The net
asset value of the Common Stock immediately following this Offering may be less
than the initial offering price.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be approximately $100,000,000 or $115,000,000 if the
Underwriters' over-allotment is exercised in full (before deduction of
organizational expenses and expenses of the Offering estimated to be $495,000).
No portion of the net proceeds of the Offering has been allocated to any
particular investment. The proceeds will be used to invest in portfolio
companies and for working capital and general corporate purposes. Pending such
uses, the Company will invest its cash in cash items, government securities or
high quality debt securities maturing in one year or less from the time of
investment in such high quality debt securities ("Short-Term Investments"). The
Company intends to be fully invested in accordance with its investment
objectives and policies within three years of the Offering. The Company expects
to maintain approximately one percent of its total assets in Short-Term
Investments in order to pay for operating expenses and to meet contingencies.
The Investment Company Act limits the type of assets that a Business Development
Company may acquire to certain prescribed Eligible Assets unless, at the time
the acquisition is made, Eligible Assets represent at least 70% of the Business
Development Company's total assets (other than non-investment assets necessary
or appropriate to its operations as a Business Development Company). Short-Term
Investments will qualify as Eligible Assets for this purpose.
DISTRIBUTIONS
The Company intends to make quarterly distributions to its stockholders of
substantially all of its investment company taxable income (net investment
income from interest and dividends and net short-term capital gains) and to
declare the first distribution during the period ending December 31, 1996, which
shall be payable shortly thereafter. The Company may choose to distribute net
realized long-term capital gains, or to retain such gains, net of applicable
taxes that would be payable by the Company, to supplement the Company's equity
capital and support growth in its portfolio. If the Company does not distribute
in a timely manner (or treat as "deemed distributed") 98% of its capital gain
net income for each one-year period ending on December 31, or distribute 98% of
its ordinary income for each calendar year (as well as any income not
distributed in prior years), it will be subject to the 4% nondeductible federal
excise tax on certain undistributed income of regulated investment companies.
See "Federal Income Tax Matters." Pursuant to the Company's Dividend
Reinvestment and Cash Purchase Plan, a stockholder whose Common Stock is
registered in such stockholder's own name will have all distributions reinvested
automatically in additional shares of Common Stock by the Company's transfer
agent, State Street Bank and Trust Company, as administrator of the Dividend
Reinvestment and Cash Purchase Plan, unless the stockholder elects, by letter to
the Company received prior to the corresponding record date, to receive cash. No
assurances can be given that the Company will achieve investment results that
will permit any specified level of cash distributions. Because investments in
Eligible Assets may take from four to seven years to reach a state of maturity
at which disposition can be considered, a significant distribution of proceeds
from the disposition of Eligible Assets may likely not be made (if at all) until
the later years of the Company's existence. See "Risk Factors -- Illiquidity of
Portfolio Investments," "Risk Factors -- Potential Delays in Investing Proceeds
of Offering and Making Distributions," "Risk Factors -- Possible Loss of
Pass-Through Tax Treatment," "Federal Income Tax Matters" and "Dividend
Reinvestment and Cash Purchase Plan."
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THE COMPANY
GENERAL
The Company has been formed to invest primarily in the equity securities
(for example, common stock, preferred stock, convertible preferred stock, or
options, warrants or rights to acquire stock) and equity-linked debt securities
(for example, convertible debt or indebtedness accompanied by warrants, options
or rights to acquire stock) of private companies. The Company also intends to
invest a portion of its assets in post-venture small-cap public companies. The
Company's investment objective is the realization of long-term capital
appreciation in the value of its investments. In addition, whenever feasible in
light of market conditions and the cash flow characteristics of its portfolio
companies, the Company will seek to provide an element of current income
primarily from interest, dividends and fees paid by its portfolio companies.
With respect to its investments in private companies, the Company
anticipates that a principal focus will be on industries that it considers to be
good candidates for successful consolidation. The Company also will favor
investments in private companies that it believes can achieve the necessary
size, profitability and management depth and sophistication to become public
companies or become attractive merger or acquisition candidates. The Company
seeks to enable its stockholders to participate in investments not typically
available to the public due to the private nature of a substantial majority of
the Company's portfolio companies, the size of the financial commitment often
required in order to participate in such investments, or the experience, skill
and time commitment required to identify and take advantage of these investment
opportunities. See "Risk Factors."
The Company intends to be a partner in the growth of its private portfolio
companies, rather than merely a financial participant. The Company will offer
managerial assistance to its private portfolio companies and expects that its
representatives will play a role in setting their corporate strategies and will
advise such companies regarding important decisions affecting their businesses,
including potential acquisitions, recruiting key managers, and securing equity
and debt financing.
With respect to its investments in post-venture small-cap public companies,
the Company anticipates that its primary focus will be on companies that the
Investment Adviser believes to have significant potential for growth in sales
and earnings. A post-venture company is a company that has received venture
capital or private equity financing either (a) during the early stages of the
company's business or the early stages of the development of a new product or
service, or (b) as part of a restructuring or recapitalization of the company.
The Company intends to limit its post-venture investments to companies which
within the prior 10 years have received an investment of venture or private
equity capital, have sold or distributed securities to venture or private equity
capital investors, or have completed an initial public offering of equity
securities.
The Company anticipates that its position as an investor in both private
companies and post-venture small-cap public companies will be of benefit to its
ultimate returns on its investments. This benefit will be derived from historic
and future knowledge that the Company and its managers have and will gain
regarding companies, technologies, management, markets and pricing in both
public and private markets. For example, knowledge of emerging technologies and
companies in the private markets can be beneficial in selecting small-cap public
stocks. Conversely, knowledge of public companies and market performance can be
beneficial in pricing and structuring private investments. See "Investment
Objectives and Policies."
The Company is a newly organized, closed-end, non-diversified investment
company which has elected to be treated as a Business Development Company under
the Investment Company Act. As such, the Company will be generally required to
invest at least 70% of its total assets in certain prescribed "Eligible Assets,"
including securities of privately held companies and cash items, government
securities and high-quality short-term debt. See "The Company -- Eligible
Portfolio Companies" and "Regulation."
INVESTMENT ADVISER
Brantley Capital Management, Ltd., 20600 Chagrin Boulevard, Suite 1150,
Cleveland, Ohio 44122, will serve as the Investment Adviser to the Company. The
Investment Adviser will be responsible, on a day-to-day basis, for the selection
and supervision of portfolio investments and for management oversight of the
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Company's records and financial reporting requirements. The Company will pay the
Investment Adviser an annual management fee of 2.85% of net asset value, payable
quarterly.
Robert P. Pinkas, Chairman, Chief Executive Officer and Chief Financial
Officer, and Michael J. Finn, President of the Investment Adviser, have
substantial experience in identifying, evaluating, selecting, negotiating and
closing investments similar to those being sought by the Company. See "Risk
Factors -- Lack of Operating History; Dependence Upon Investment Adviser," "Risk
Factors -- Conflicts of Interest," "Management," "Prior Experience of Principals
of the Investment Adviser" and "The Investment Advisory Agreement."
NATURE OF INVESTMENTS IN PORTFOLIO COMPANIES
The Company's investments in portfolio companies may be in the form of
equity or some combination of debt with equity, but will always include some
equity feature through which the Company can participate in the growth in the
value of the underlying businesses. The Company's investment in a given
portfolio company may consist of common stock, preferred stock (which may or may
not be convertible into common stock), debentures (which may or may not be
convertible into common stock and may or may not be subordinated), warrants to
purchase common stock, or some combination thereof. The Company anticipates that
its investments in privately-owned portfolio companies will generally be
structured with the intention of having the investments achieve liquidity within
18 months to three years from the respective dates of the investments, although
there can be no assurance that such time frame will be met and situations may
arise in which the Company may hold securities for a longer period. See "Risk
Factors -- Investments in Privately-Owned Companies," "Risk
Factors -- Investments in Small-Cap Public Companies," "Risk
Factors -- Illiquidity of Portfolio Investments" and "Risk Factors -- Potential
Delays in Investing Proceeds of Offering and Making Distributions."
TEMPORARY INVESTMENTS
Pending investments in the types of securities described above, the Company
will invest its cash in cash items, government securities or high quality debt
securities maturing in one year or less from the time of investment in such high
quality debt securities. See "Use of Proceeds."
OPERATIONS
The Investment Adviser expects to locate potential investment opportunities
primarily by making use of an extensive network of investment bankers,
commercial bankers, accountants and other finance professionals; venture
capitalists and other investment professionals; attorneys; business executives;
and entrepreneurs.
The investment process includes the identification, evaluation,
negotiation, documentation and closing of the investment. Robert P. Pinkas,
Chairman, Chief Executive Officer and Chief Financial Officer, and Michael J.
Finn, President of the Investment Adviser, have extensive experience in all
phases of the investment process. The evaluation of a potential investment
includes due diligence, which includes review of historical and prospective
financial information, and which, particularly in the case of a privately-owned
company, usually involves on-site visits; interviews with management, employees,
customers and vendors of the potential portfolio company; and background checks
and research relating to its management, markets, products and services.
Upon the completion of due diligence and a decision to proceed with an
investment in a private company, the Investment Adviser will create an
investment memorandum containing information pertinent to the investment for
presentation to the Company's Board of Directors, which must approve the
investment. The Board of Directors will establish guidelines for investments in
post-venture small-cap companies and will delegate to the Investment Adviser the
authority to make such investments in accordance with the guidelines. Potential
investments in post-venture small-cap public companies which do not comply with
the guidelines must be presented by the Investment Adviser to the Board of
Directors for approval. Additional due diligence with respect to any investment
by the Company may be conducted by the Company's attorneys and independent
accountants prior to the closing of the investment. See "Risk Factors -- Lack of
Operating History; Dependence Upon Investment Adviser" and "Risk
Factors -- Conflicts of Interest."
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SELECTION OF INVESTMENTS
The Company anticipates that, as a general rule, most of its investments
will be in small- to medium-sized companies with total assets or annual sales
under $500,000,000. Many of these companies may have very limited operating
histories. The Company's main criterion for the selection of investments in
portfolio companies is the potential for substantial growth in sales and
earnings. The Company will seek to identify companies which have extraordinary
opportunities in the markets they serve or that have devised innovative
products, services or ways of doing business that afford them a distinct
competitive advantage. Such companies might achieve growth either internally or
by acquisition. In addition, the Company intends to invest in companies seeking
to consolidate fragmented industries. Often, such consolidations can improve
performance by bringing experienced management, economies of scale and greater
capital resources to bear on businesses that might have lacked such management,
economies and resources in the past.
In evaluating potential portfolio companies, the Company will pay
particular attention to the following characteristics:
MANAGEMENT. The Company will favor investments in companies whose
management teams consist of talented individuals of high integrity with
significant experience. The Company intends to pay particular attention to the
depth of the management team and the extent to which key managers have an
ownership interest in the company.
OPPORTUNITY FOR SIGNIFICANT INFLUENCE. The Company will favor investments
in companies in which it has the opportunity to become a partner in the building
of the companies, rather than being merely a financial participant. In addition,
the Company will favor investments in which its representatives will play a role
in setting corporate strategies for the portfolio companies, and will advise
such companies regarding important decisions affecting their businesses,
including acquisitions for such companies, recruiting key managers, and securing
equity and debt financing.
MARKET DYNAMICS. The Company will favor investments in companies that are
addressing a large, unfulfilled market demand with long-term high-growth
prospects and that can reasonably expect to achieve and maintain a significant
market share through proprietary products and services. The Company will also
favor investments in companies that deliver products and services with
significant performance and cost advantages and for which there exist
significant barriers to effective competition by others. In addition, with
respect to its investments in private companies, the Company will favor
industries that it considers to be good candidates for successful consolidation.
See "Risk Factors -- Competitive Market for Investment Opportunities."
ABILITY TO ACHIEVE LIQUIDITY. With respect to its investments in private
companies, the Company will consider the potential and likely means for
achieving the liquidity that would ultimately enable the Company to achieve cash
value for its equity investments. Possible ways of achieving liquidity include
an initial public offering of the portfolio company, a sale of the portfolio
company or a purchase by the portfolio company of the Company's equity interest
in the portfolio company. See "Risk Factors -- Investments in Privately-Owned
Companies," "Risk Factors -- Illiquidity of Portfolio Investments" and "Risk
Factors -- Potential Delays in Investing Proceeds of Offering and Making
Distributions."
GROWTH AT A REASONABLE PRICE. With respect to investments in post-venture
small-cap public companies, the Company will target companies whose current and
projected price/earnings ("P/E") ratios are less than their respective growth
rates. This growth at a reasonable price discipline is anticipated to result in
attractive stock appreciation as a result of both earnings growth and P/E
multiple expansion. The majority of these post-venture public investments are
expected to be in companies with prior financial support from professional
venture capitalists and private equity funds, as these companies often have
stronger management teams, better financial controls and significant competitive
advantages. See "Risk Factors -- Investments in Small-Cap Private Companies."
POTENTIAL CO-INVESTMENTS
The Company anticipates "co-investing" with BVP III, an affiliate of the
Company and the Investment Adviser, as well as with other future affiliates, in
specified amounts and on terms and conditions that are the
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same in all material respects, subject to the availability of capital for
investment on the part of the Company and each such affiliate and certain other
conditions. The Company intends to submit an application to the Commission to
seek an exemptive order, subject to certain terms and conditions, to relieve the
Company from certain provisions of the Investment Company Act to permit such
co-investments. In addition, the Company and the Investment Adviser intend to
seek exemptive relief from certain provisions of the Investment Company Act to
permit the Company to invest in portfolio companies in an offering by an issuer
in which BVP I, BVP II or BVP III is an existing investor and the Company is not
an existing investor. To the knowledge of the Company or the Investment Adviser,
exemptive relief of this type has not been granted previously by the Commission.
Accordingly, there can be no assurance that the application for such exemptive
relief will be granted, and therefore, there can be no assurance that the
Company will be permitted to invest in portfolio companies in which BVP I, BVP
II or BVP III is an existing investor and the Company is not an existing
investor. The Company anticipates that the application for exemptive relief will
include conditions, among others, requiring that before such an investment would
be made: (i) the investment be of a type that has preferences and terms that are
the same or better than those of the investment owned by BVP I, BVP II or BVP
III, (ii) a majority of the Company's directors who have no financial interest
in the investment and a majority of the Company's disinterested directors
approve the investment, and (iii) the Company and Company affiliates purchase in
the aggregate less than a majority of the investment offered, such that
unaffiliated institutional investors are likely to be establishing the pricing
of such investment opportunities. See "Risk Factors -- Conflicts of Interest."
ELIGIBLE PORTFOLIO COMPANIES
The Company, as a Business Development Company, may not acquire any asset
other than "Eligible Assets" unless, at the time the acquisition is made,
Eligible Assets represent at least 70% of the Company's total assets (other than
certain assets necessary for its operation, such as office furniture, equipment
and facilities). "Eligible Assets" are described in Section 55(a) of the
Investment Company Act. The principal categories of Eligible Assets relevant to
the proposed business of the Company are the following:
(1) Securities purchased in transactions not involving any public
offering from the issuer of such securities, which issuer is an eligible
portfolio company. An "eligible portfolio company" is defined in the
Investment Company Act as any issuer which:
(a) is organized under the laws of, and has its principal place of
business in, the United States;
(b) is not an investment company other than a small business
investment company wholly-owned by the Business Development
Company; and
(c) (i) does not have any class of securities with respect to which
a broker or dealer may extend margin credit;
(ii) is actively controlled by a Business Development Company
and has an affiliate of a Business Development Company on
its board of trustees or directors; or
(iii) meets other such criteria as may be established by the
Commission.
(2) Securities of any eligible portfolio company which is controlled
by the Business Development Company.
(3) Securities received in exchange for or distributed on or with
respect to securities described in (1) or (2) above, or pursuant to the
exercise of options, warrants or rights relating to such securities.
(4) Cash, cash items, government securities, or high quality debt
securities maturing in one year or less from the time of investment.
In addition, the Business Development Company must have been organized (and
have its principal place of business) in the United States for the purpose of
making investments in the types of securities described in (1) or (2) above.
Moreover, in order for securities of portfolio companies to constitute Eligible
Assets for the purpose of the 70% test, the Company must make available to the
issuer of the securities significant
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managerial assistance; except that, where the Company purchases such securities
in conjunction with one or more other persons acting together, one of the other
persons in the group may make available such managerial assistance.
The Company may invest up to 30% of its assets in other portfolio
investments. The Company intends that this portion of its portfolio shall
consist primarily of investments in post-venture small-cap public companies. See
"Use of Proceeds" and "The Company -- Temporary Investments."
COMPETITION
The Company's primary competitors include financial institutions, venture
capital and private equity firms, mutual funds concentrating on post-venture
small-cap companies, and other nontraditional investors. Many of these entities
have greater financial and managerial resources than the Company. The Company
believes that it will compete with such entities primarily on the basis of the
quality of its services, the reputations of Messrs. Pinkas and Finn as well as
the investment entities they have managed, the Company's investment analysis and
decision-making processes, and on the investment terms the Company offers on the
securities to be issued by its portfolio companies. See "Risk
Factors -- Competitive Market for Investment Opportunities."
EXPENSES OF THE COMPANY
In addition to the fees paid to the Investment Adviser, the Company will
pay all of its own expenses, including directors' fees; taxes; fees and expenses
of the Company's legal counsel, independent accountants and transfer agent;
custodial and administrative services fees; expenses of printing and mailing
share certificates, stockholder reports, notices to stockholders and proxy
statements, and reports to governmental offices; brokerage and other expenses in
connection with the execution, recording and settlement of portfolio security
transactions; expenses of stockholder meetings; Commission and state blue sky
registration fees; and the Company's other business and operating expenses not
covered in the Investment Advisory Agreement. See "The Investment Advisory
Agreement."
On the basis of the anticipated size of the Company immediately following
the closing of the Offering assuming sale of 10,000,000 shares of Common Stock
in the Offering, it is estimated that the Company's annual operating expenses,
including the Management Fee paid to the Investment Adviser, will be
approximately $4,000,000 (approximately 4.0% of the net proceeds of this
Offering). While the foregoing estimate has been made in good faith, there can
be no assurance that actual annual expenses will not be substantially greater
than such estimate as a result of increases in costs, such as costs of transfer
agent, stock record, custodian and stockholder relations activities and
professional and similar services, that cannot be predicted and are beyond the
control of the Company. See "The Investment Advisory Agreement."
Organizational expenses and expenses of the Offering payable by the Company
are estimated to be approximately $495,000. Offering expenses, estimated to be
$443,155, excluding the underwriting commissions to be paid by the Investment
Adviser and any non-accountable expense allowance, will be charged to capital at
the time of issuance of the Common Stock.
BROKER ALLOCATION AND OTHER PRACTICES
The Investment Adviser will place the orders for the purchase and sale of
the Company's publicly traded portfolio securities and any publicly traded
options or futures contracts which the Investment Adviser determines are
appropriate investments for the Company in accordance with the investment
guidelines established by the Company's Board of Directors. The Investment
Adviser's overriding objective in effecting such portfolio transactions will be
to seek to obtain the best combination of price and execution. The best net
price, giving effect to brokerage commissions, if any, and other transaction
costs, normally is an important factor in this decision, but a number of other
judgmental factors may also enter into the decisions. These include: the
Investment Adviser's knowledge of negotiated commission rates currently
available and other current transaction costs, the nature of the security being
traded, the size of the transaction, the desired timing of the trade, the
activity existing and expected in the market for the particular security,
confidentiality, the
17
<PAGE> 20
execution, clearance and settlement capabilities of the broker or dealer
selected and others which are considered, the Investment Adviser's knowledge of
the financial stability of the broker or dealer selected and such other brokers
or dealers, and the Investment Adviser's knowledge of actual or apparent
operational problems of any broker or dealer. Recognizing the value of these
factors, the Company may pay a brokerage commission in excess of that which
another broker or dealer may have charged for effecting the same transaction.
Evaluations of the reasonableness of brokerage commissions, based on the
foregoing factors, are made on an ongoing basis by the Investment Adviser's
staff while effecting portfolio transactions. The general level of brokerage
commissions paid will be reviewed by the Investment Adviser, and reports will be
made annually to the Company's Board of Directors.
With respect to issues of securities involving brokerage commissions, when
more than one broker or dealer is believed to be capable of providing the best
combination of price and execution with respect to a particular portfolio
transaction for the Company, the Investment Adviser may often select a broker or
dealer that has furnished it with research products or services such as research
reports, subscriptions to financial publications and research compilations,
compilations of securities prices, earnings, dividends and similar data, and
computer data bases, quotation equipment and services, research-oriented
computer software and services, and services of economic and other consultants.
Selection of brokers or dealers is not made pursuant to an agreement or
understanding with any of the brokers or dealers; however, the Investment
Adviser will use an internal allocation procedure to identify those brokers or
dealers who provide it with research products or services and the amount of
research products or services they provide, and endeavors to direct sufficient
commissions generated by its clients' accounts in the aggregate, including the
Company, to such brokers or dealers to ensure the continued receipt of research
products or services the Investment Adviser feels are useful. In certain
instances, the Investment Adviser may receive from brokers and dealers products
or services that are used both as investment research and for administrative,
marketing, or other non-research purposes. In such instances, the Investment
Adviser will make a good faith effort to determine the relative proportions of
such products or services which may be considered as investment research. The
portion of the costs of such products or services attributable to research usage
may be defrayed by the Investment Adviser (without prior agreement or
understanding, as noted above) through brokerage commissions generated by
transactions by clients (including the Company), while the portions of the costs
attributable to non-research usage of such products or services is paid by the
Investment Adviser in cash. No person acting on behalf of the Company is
authorized, in recognition of the value of research products or services, to pay
a commission in excess of that which another broker or dealer might have charged
for effecting the same transaction. Research products or services furnished by
brokers and dealers may be used in servicing any or all of the clients of the
Investment Adviser and not all such research products or services are used in
connection with the management of the Company.
With respect to the Company's purchases and sales of portfolio securities
transacted with a broker or dealer on a net basis, the Investment Adviser may
also consider the part, if any, played by the broker or dealer in bringing the
security involved to the Investment Adviser's attention, including investment
research related to the security and provided to the Company.
INVESTMENT OBJECTIVES AND POLICIES
The Company's investment objective is the realization of long-term capital
appreciation in the value of its investments. The Company will seek to provide
an element of current income primarily from interest, dividends and fees paid by
its portfolio companies. The planned investment strategy of the Company will be
to invest in a portfolio of private companies and post-venture small-cap public
companies. In accordance with the Company's qualification as a Business
Development Company, most of the portfolio companies, at the time of investment,
are likely to be private companies. The Company will focus its investment
activity on private companies and post-venture small-cap public companies, in
most cases not technology intensive, which in the judgment of the Investment
Adviser can provide superior investment returns, either because they are
presented with extraordinary opportunities to which they are especially
well-suited to respond, or because they have devised innovative products,
services, or ways of doing business which afford them distinct, defensible,
competitive advantages.
18
<PAGE> 21
In addition to the growth investment opportunities described above, the
Company will look for investments in companies seeking to consolidate fragmented
industries. In many instances, such consolidations can improve performance by
bringing excellent, professional management, economies of scale, and adequate
capital resources to bear on businesses which have lacked these resources. Also,
in industry consolidations, often a company can be built through a series of
acquisitions at a relatively low multiple of earnings, then sold or taken public
at a higher price-earnings ratio.
Although technology is not an area of emphasis for the Company, the Company
will consider investments in companies having innovative, technology-based
products which satisfy large, unfulfilled market needs. The Company will also
consider investments in "classic" leveraged acquisitions of companies which can
be acquired for attractive prices, although the Company does not anticipate that
this will be an area of emphasis. The Company has chosen not to emphasize this
area because of the large amount of investment funds already devoted to
leveraged buyouts and because the Company believes that the talent of its
management can be more effectively employed in building companies than in
financial engineering.
The Investment Adviser believes that maintaining a high level of
involvement and influence in portfolio companies is an important factor in
achieving the desired result. This control is accomplished through a significant
ownership position, presence on the board of directors, and close working
relationships with portfolio company management. The Company intends to be a
partner in building companies, rather than merely a financial participant. With
respect to the Company's investments in private companies, the Company
anticipates that its representatives will play an active role in setting
corporate strategies for such portfolio companies, and will advise such
companies regarding important decisions affecting their businesses, including
acquisitions for such companies, recruiting key managers, and securing equity
and debt financing.
In making investments and managing its portfolio, the Company will adhere
to the following policies (which, except for retaining its status as a Business
Development Company, may be changed by a majority vote of the Board of Directors
without stockholder approval). The percentage restrictions set forth below, as
well as those contained elsewhere in this Prospectus, apply at the time a
transaction is effected, and a subsequent change in a percentage resulting from
market fluctuations or any other cause other than an action by the Company will
not require the Company to dispose of portfolio securities or to take other
action to satisfy the percentage restriction.
The Company will at all times conduct its business so as to retain its
status as a Business Development Company. The Company may not change the nature
of its business so as to cease to be, or withdraw its election as, a Business
Development Company without the approval of the holders of a majority of its
outstanding Common Stock (as defined under the Investment Company Act). In order
to retain this status, the Company may not acquire any assets which do not
qualify as, Eligible Assets if, after giving effect to such acquisition, the
value of its Eligible Assets amounts to less than 70% of the value of its total
assets (other than non-investment assets necessary and appropriate to its
operations as a Business Development Company). For a summary definition of
Eligible Assets, see "The Company -- Eligible Portfolio Companies" and
"Regulation." The Company believes that the securities it proposes to acquire in
private companies, as well as its Short-Term Investments, will generally be
Eligible Assets. Securities of public companies, on the other hand, are
generally not Eligible Assets unless they were acquired in a distribution in
exchange for, or upon the exercise of, a right relating to securities that were
Eligible Assets. Thus, investments in post-venture small-cap public companies,
or other public companies, generally may not exceed 30% of the Company's total
assets.
As a general rule, the Company will not concentrate its investments in any
particular industry or particular group of industries, although it reserves the
right to do so.
The Company will not (i) purchase securities on margin, except such
short-term credits as are necessary for the clearance of transactions, or (ii)
acquire the voting stock of, or invest in any securities issued by any other
investment company if immediately after such acquisition, the Company and any
affiliates of the Company own in the aggregate (A) more than 3% of the total
outstanding voting stock of the acquired company, (B) securities having an
aggregate value greater than 5% of the value of the total assets of the Company,
or (C) securities of the acquired company and all other investment companies
(other than treasury stock of the Company) having an aggregate value greater
than 10% of the Company. See the Appendix to this
19
<PAGE> 22
Prospectus for additional information regarding certain financial instruments in
which the Company may from time to time invest.
The Company may make selective bridge loans to public and private
companies. These bridge loans may be either secured or unsecured and convertible
into common stock of the issuer or issued together with warrants for equity
participation, or both. These loans will generally be designed to carry the
portfolio company to a private placement, an initial or secondary public
offering, a merger and acquisition transaction, or other financing within three
years from the date of investment. Bridge loans carry the risk that the event to
which the loan is intended to bridge may not occur. The Company intends to
minimize such risk whenever practicable, but necessarily acknowledges that it
will be present. In addition to equity participation, the Company may receive
fees in connection with providing bridge financings.
The Company may invest as "other portfolio investments" in marketable
securities of public companies which the Company's management believes have
significant potential for price appreciation. Investments in such other
portfolio companies may be made in the form of common stock, preferred stock or
securities convertible into or exchangeable for common stock or preferred stock.
The Company presently does not intend to use borrowed funds to make
investments, however, it reserves the right to do so. The Company may borrow
from time to time on a short-term basis against maturities of its investments
for purposes of meeting short-term cash needs. Generally, such investments will
have a maturity of less than one year. Also, the Company may borrow funds from
time to time and at quarter end in order (i) to maintain sufficient cash assets
necessary to meet the requirements for qualification as a Business Development
Company and the diversification requirements to qualify as a regulated
investment company for federal income tax purposes, and (ii) to make
distributions necessary to qualify as a regulated investment company for federal
income tax purposes. All borrowings by the Company will be subject to the
percentage limits permitted by the Investment Company Act and any other
applicable federal or state laws. See "Risk Factors -- Use of Leverage," "Risk
Factors -- Possible Loss of Pass-Through Tax Treatment," "Regulation" and
"Federal Income Tax Matters."
The Company intends to seek an exemptive order from the Commission
relieving the Company, subject to certain terms and conditions, from certain
provisions of the Investment Company Act to permit co-investments by the Company
with BVP III, which is an affiliate of the Company and the Investment Adviser,
and subsequent companies or funds that may be organized as affiliates of the
Company or the Investment Adviser. Such co-investments will be in specified
amounts and on terms and conditions that are the same in all material respects,
subject to the availability of capital for investment on the part of the Company
and each such affiliate and certain other considerations. There can be no
assurance that such affiliates will have capital available to co-invest with the
Company.
In addition, the Company and the Investment Adviser intend to submit an
application to the Commission for exemptive relief from certain provisions of
the Investment Company Act to permit the Company to invest in portfolio
companies in an offering by an issuer in which BVP I, BVP II or BVP III is an
existing investor and the Company is not an existing investor. To the knowledge
of the Company or the Investment Adviser, exemptive relief of this type has not
been granted previously by the Commission. Accordingly, there can be no
assurance that the application for such exemptive relief will be granted, and
therefore, there can be no assurance that the Company will be permitted to
invest in portfolio companies in which BVP I, BVP II or BVP III is an existing
investor and the Company is not an existing investor. The Company anticipates
that the application for exemptive relief will include conditions, among others,
requiring that before such an investment would be made: (i) the investment be of
a type that has preferences and terms that are the same or better than those of
the investment owned by BVP I, BVP II or BVP III, (ii) a majority of the
Company's directors who have no financial interest in the investment and a
majority of the Company's disinterested directors approve the investment, and
(iii) the Company and Company affiliates purchase in the aggregate less than a
majority of the investment offered, such that unaffiliated institutional
investors are likely to be establishing the pricing of such investment
opportunities.
20
<PAGE> 23
MANAGEMENT
The business and affairs of the Company are managed under the direction of
its Board of Directors. Directors generally will hold office for staggered terms
of three years as more fully described in the Company's Articles of Amendment
and Restatement of the Charter and its Bylaws. Annual stockholder meetings will
be held for the purpose of electing directors upon the expiration of the initial
terms of service and for the transaction of such other business as may properly
be brought before the meeting. The Board of Directors elects the Company's
officers who serve at the pleasure of the Board of Directors.
DIRECTORS AND OFFICERS
The following table sets forth certain information regarding the directors
and officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ---- ----------------------------------------------------
<S> <C> <C>
Robert P. Pinkas(1)........... 42 Chairman of the Board, Chief Executive
Officer, Chief Financial Officer, Treasurer and
Director
Michael J. Finn(1)............ 47 President and Director
Paul H. Cascio(1)............. 35 Vice President and Secretary
James R. Bergman(1)........... 54 Vice President
L. Patrick Bales.............. 54 Director
Benjamin F. Bryan............. 43 Director
Richard Moodie................ 47 Director
</TABLE>
- ------------------
(1) "Interested person" as defined in Section 2(a)(19) of the Investment Company
Act.
Robert P. Pinkas is Chairman of the Board, Chief Executive Officer, Chief
Financial Officer, Treasurer and a director of the Company and Chairman of the
Board, Chief Executive Officer, Chief Financial Officer and a director of
Brantley Capital Management, Ltd., which serves as the Investment Adviser to the
Company. Mr. Pinkas was the founding partner of BVP I, a venture capital fund
started in 1987. Mr. Pinkas led the formation of BVP II and BVP III and serves
as a general partner of the general partners of BVP I, BVP II and BVP III. BVP
I, BVP II and BVP III have made venture capital investments similar to the
investments to be made by the Company in private companies. From 1981 to 1987,
Mr. Pinkas was active in venture capital management and financing as a founding
director and investor in seven early-stage companies. He serves on the boards of
directors of several portfolio companies in which BVP I, BVP II and BVP III have
invested, including Gliatech, Inc., Pediatric Services of America, Inc.,
Medirisk, Inc. and Quad Systems Corporation. He earned A.B. and A.M. degrees
from Harvard University and a J.D. from the University of Pennsylvania.
Michael J. Finn is President and a director of the Company and is President
and a director of the Investment Adviser. Mr. Finn also serves as a general
partner of the general partners of BVP II and BVP III. From 1987 to 1995, Mr.
Finn served as portfolio manager and vice president of the Venture Capital Group
of Sears Investment Management Company ("SIMCO") in Chicago. In this capacity,
Mr. Finn managed the development of a $150 million portfolio of private equity
investments, including the investment of over $24 million directly in 25
operating companies. From 1983 to 1987, he led the development of a $250 million
venture capital program for the State of Michigan Department of Treasury as its
deputy director. In 1982, Mr. Finn founded and served as president of the
Michigan Certified Development Corporation, a small business development
corporation which financed over $50 million of investments in six companies in
Michigan during the period 1982 to 1984. In 1976, he launched the Forward
Development Corporation, an entity sponsored by the U.S. Small Business
Administration for small business financing. He currently serves on the boards
of directors of Rhomas Group, Inc., Medirisk, Inc., Pediatric Services of
America, Inc. and Silvon Software, Inc. He earned B.S. and M.S. degrees from
Michigan State University.
Paul H. Cascio serves as Vice President and Secretary of the Company and as
Vice President of the Investment Adviser. Mr. Cascio also serves as a general
partner of the general partners of BVP II and BVP
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<PAGE> 24
III. Prior to joining BVP II and BVP III in May 1996, Mr. Cascio was a managing
director and head of the industrial manufacturing and services group in the
corporate finance department at Dean Witter Reynolds Inc. Before joining Dean
Witter in December 1987, Mr. Cascio was employed in the corporate finance
department at E.F. Hutton & Company, Inc. Mr. Cascio has a B.A. from Colgate
University and an M.B.A. from the New York University Graduate School of
Business Administration.
James R. Bergman is Vice President of the Company. Mr. Bergman is a Founder
and General Partner of DSV Partners III and IV and their predecessors. The DSV
entities provide capital management assistance to emerging companies whose focus
is primarily in technologies associated with electronics, communications,
biotechnology and health care. Over the past 27 years Mr. Bergman has served DSV
in several capacities. He was Vice President and Treasurer of Data Science
Ventures and later a co-founder and General Partner of DSV Associates, DSV
Partners III and DSV Partners IV. He has been involved in the early funding of a
number of technology companies, led investments in data communications,
semiconductors, computer peripherals, and advanced technology areas, and most
recently, focused on investments involving consolidation strategies in various
technology-based industries. Mr. Bergman has served on the Boards of more than
30 companies, including Quad Systems and Maxim Integrated Products. Mr. Bergman
currently serves as a general partner of the general partner of BVP III. He was
also a director of the National Venture Capital Association from 1985 to 1990.
Mr. Bergman attended UCLA, where he graduated with honors with a B.S. in
Engineering and received his M.B.A. with distinction.
L. Patrick Bales, a director of the Company, is a partner with the firm of
Donahue/Bales Associates, an executive search consulting firm that services
smaller growth companies as well as major corporations in both the private and
public sector. The firm conducts executive search assignments both domestically
and internationally and has affiliate offices in London and Tokyo. Previously
Mr. Bales was employed with Paul R. Ray & Company from 1981 to 1983 in their
Chicago office and was on the professional staff of two other search firms in
the Chicago area from 1975 to 1981. He spent five years with Weber Marking
Systems prior to embarking upon his career in executive search. He earned his
B.S. degree from St. Ambrose University.
Benjamin F. Bryan, a director of the Company, is Executive Vice President
of the Tower Properties Company, a Kansas City, Missouri based developer, owner
and manager of real estate. Mr. Bryan functions as chief operating officer and
is directly responsible for acquisitions. Tower Properties is a publicly owned
corporation specializing in commercial office, multi-family, parking and
industrial properties. Mr. Bryan joined Tower Properties in 1991 and has served
as a director since 1993. He also serves as Vice President and Director of the
Downtown Redevelopment Company, a subsidiary of Tower Properties. From 1980 to
1991, Mr. Bryan held a series of public policy and public administration
positions, including Executive Assistant to the Mayor of Cleveland, Public
Affairs Manager with the Denver Chamber of Commerce and Executive Director of
the Metro Denver Transportation Development Commission. Mr. Bryan earned an A.B.
degree from Harvard College.
Richard Moodie, a director of the Company, is the Founder, President and
Chief Executive Officer of KraftMaid Cabinetry, Inc. He has over 27 years
experience in growing and managing a manufacturing and marketing business. Mr.
Moodie founded KraftMaid Cabinetry in 1969, thereafter growing the business
until it was the largest semi-custom kitchen-at-a-time manufacturer in the
United States. KraftMaid is the second largest cabinet manufacturer in the
country. In 1990, Mr. Moodie sold his majority interest to Masco Corporation of
Taylor, Michigan, a $5 billion home furnishing and building materials company.
Mr. Moodie holds a limited partnership interest in BVP III.
The Company's Articles of Amendment and Restatement of the Charter provide,
among other things, for a Board of Directors divided into three classes,
designated Class I, Class II and Class III. Directors serve for staggered terms
of three years each, except that initially the Class I director will serve until
the Company's 1997 annual meeting of stockholders, the Class II directors until
the 1998 annual meeting of stockholders and the Class III directors until the
1999 annual meeting of stockholders. The Class I director is Mr. Moodie, the
Class II directors are Messrs. Bales and Bryan, and the Class III directors are
Messrs. Pinkas and Finn.
Except for stock options to be granted by the Company, the Company
anticipates that the officers of the Company otherwise will be compensated
solely by the Investment Adviser. Directors who are not officers or
22
<PAGE> 25
employees of the Company will each receive a monthly fee of $500 for serving on
the Board of Directors and will receive an additional $1,000 for each meeting of
the Board of Directors or a committee thereof that he or she attends.
The following table sets forth the estimated amounts the Company
anticipates paying during its first full fiscal year of operations to its
directors and executive officers. The Company does not have a pension plan or
other retirement benefits:
<TABLE>
<CAPTION>
AGGREGATE
NAME OF PERSON POSITION COMPENSATION
- ------------------------------ -------------------------------------------- --------------
<S> <C> <C>
Robert P. Pinkas.............. Chairman of the Board, Chief Executive None (1)
Officer, Chief Financial Officer, Treasurer
and Director
Michael J. Finn............... President and Director None (1)
Paul H. Cascio................ Vice President and Secretary None (1)
James R. Bergman.............. Vice President None (1)
L. Patrick Bales.............. Director $10,000 (1)
Benjamin F. Bryan............. Director $10,000 (1)
Richard Moodie................ Director $10,000 (1)
</TABLE>
- ---------------
(1) Does not include equity-based compensation. See "Stock Options."
INDEMNIFICATION AGREEMENTS
The Company intends to enter into indemnification agreements with each of
its directors and officers upon the closing of this Offering. Pursuant to these
agreements, the Company will, to the extent permitted under applicable law,
indemnify these persons against all expenses, judgments, fines and penalties
incurred in connection with the defense or settlement of any actions brought
against them by reason of the fact that they are or were directors or officers
of the Company or that they assumed certain responsibilities at the direction or
upon the request of the Company, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of their respective offices. In addition, the Company's Articles of
Amendment and Restatement of the Charter and its Bylaws provide for certain
limitations on director liability.
STOCK OPTIONS
For the purpose of providing officers and employees who have substantial
responsibility for the management of the Company with additional incentives to
exert their best efforts on behalf of the Company, to increase their proprietary
interest in the success of the Company, to reward outstanding performance and to
attract and retain executive personnel of outstanding ability, the Company has
adopted the 1996 Stock Option Plan (the "Stock Option Plan").
The Stock Option Plan authorizes the issuance of up to 1,175,000 shares of
Common Stock to officers and employees of the Company. The Stock Option Plan
will be administered by a committee of the Board of Directors consisting of at
least two directors (the "Committee") who will not be eligible for grants or
awards of options or other equity securities under the Stock Option Plan. The
Committee will determine the executive and other officers and employees of the
Company who are eligible to participate in the Stock Option Plan and the terms
and conditions, including the number of shares of Common Stock for which options
may be granted. Messrs. Pinkas, Finn, Cascio and Bergman are currently eligible
to participate in the Stock Option Plan.
Options granted under the Stock Option Plan will be exercisable at a price
not less than the greater of (i) the current market value (as defined in the
Stock Option Plan) on the date of option grant and (ii) the current net asset
value of the shares of Common Stock. No option may be exercised more than 10
years after the date on which it is granted. Options are not transferable except
for disposition by gift, will or intestacy. The number of shares of Common Stock
available for options, the number of shares of Common Stock subject to
23
<PAGE> 26
outstanding options and related exercise prices will be adjusted for changes in
outstanding shares of Common Stock such as stock splits or combinations of
shares of Common Stock.
Shares of Common Stock purchased upon exercise of options (the "Option
Shares") must be paid for in cash or by delivery of a number of shares of Common
Stock with an aggregate fair market value equal to the aggregate exercise price
of the Option Shares, or any combination thereof. In order to facilitate the
purchase of Option Shares, the Company may make arms-length loans to
participants in the Stock Option Plan in accordance with Sections 57(j)(2) and
62(1) of the Investment Company Act under the following terms. Each such loan
must: (i) have a term of not more than 10 years; (ii) become due within a
reasonable time, not to exceed 60 days, after the termination of such
participant's employment or service; (iii) bear interest at no less than the
prevailing rate applicable to 90-day U.S. Treasury bills at the time such loan
is made; (iv) at all times be fully collateralized (such collateral may include
any securities issued by the Company; and (v) be approved by a majority of the
disinterested directors of the Company on the basis that such loan is in the
best interests of the Company and its stockholders.
Upon the closing of this Offering, options to purchase 225,000, 75,000,
25,000 and 25,000 shares of Common Stock at $10.00 per share will be granted to
Messrs. Pinkas, Finn, Cascio and Bergman, respectively. These options will
become exercisable as to one-third of the Option Shares on the first anniversary
of the closing of this Offering, as to an additional one-third of the Option
Shares on the second anniversary of the closing of this Offering and as to the
remaining one-third of the Option Shares on the third anniversary of the closing
of this Offering.
In addition, the Company has adopted a stock option plan solely for the
disinterested directors of the Company (the "Disinterested Director Option
Plan"), subject to receipt of an order of the Commission approving the
Disinterested Director Option Plan as fair and reasonable, and not involving
overreaching of the Company or its stockholders. The following discussion
summarizes the relevant terms of the Disinterested Director Option Plan and is
qualified in its entirety by any amendments or modifications which may be
required by the Commission as conditions to receipt of an exemptive order.
Subject to the Commission's approval of the Disinterested Director Option
Plan, there will be available 75,000 shares of Common Stock for issuance to the
disinterested directors of the Company. Each of the disinterested directors will
be automatically granted options to purchase 2,000 shares of Common Stock of the
Company at the later of the closing of the Offering and the date on which the
Company's request for an order by the Commission approving the Disinterested
Director Option Plan is granted by the Commission. Throughout the term of the
Disinterested Director Option Plan, following each annual meeting of
stockholders of the Company, each disinterested director then serving on the
Board of Directors shall automatically be granted options to purchase 2,000
shares of Common Stock. The exercise price of any options granted pursuant to
the Disinterested Director Option Plan will be the greater of (i) the current
market value (as defined in the Disinterested Director Option Plan) on the date
of option grant and (ii) the current net asset value of the shares of Common
Stock. No option may be exercised more than 10 years after the date on which it
is granted. Options will not be transferable except for disposition by gift,
will or intestacy. The number of shares of Common Stock available for options,
the number of shares of Common Stock subject to outstanding options and related
exercise prices will be adjusted for changes in outstanding shares of Common
Stock such as stock splits or combinations of shares of Common Stock.
Option Shares under the Disinterested Director Option Plan must be paid for
in cash or by delivery of a number of shares of Common Stock with an aggregate
fair market value equal to the aggregate exercise price of the Option Shares, or
any combination thereof. The Disinterested Director Option Plan will be
administered by a committee of the Board of Directors.
In order to facilitate the purchase of Option Shares under the
Disinterested Director Option Plan, the Company may make arms-length loans to
participants in the Disinterested Director Option Plan in accordance with
Sections 57(j)(2) and 62(1) of the Investment Company Act under the following
terms. Each such loan must: (i) have a term of not more than 10 years; (ii)
become due within a reasonable time, not to exceed 60 days, after the
termination of such participant's employment or service; (iii) bear interest at
no less than the prevailing rate applicable to 90-day U.S. Treasury bills at the
time such loan is made; (iv) at all times be fully
24
<PAGE> 27
collateralized (such collateral may include any securities issued by the
Company; and (v) be approved by order of the Commission, upon application, on
the basis that the terms of the loan are fair and reasonable and do not involve
overreaching of the Company or its stockholders.
With respect to the Stock Option and Disinterested Director Option Plans,
if the amount of voting securities that would result from the exercise of all
outstanding options issued to the Company's directors, officers and employees
pursuant to the Stock Option Plan and the Disinterested Director Option Plan
would, at the time of issuance, exceed 15% of the outstanding voting securities
of the Company, then the total amount of voting securities that would result
from the exercise of these and any other outstanding warrants, options and
rights at the time of issuance shall not exceed 20% of the outstanding voting
securities of the Company. These limitations are imposed by the current
provisions of the Investment Company Act and are subject to change.
PRIOR EXPERIENCE OF PRINCIPALS OF
THE INVESTMENT ADVISER
As indicated above, Robert P. Pinkas and Michael J. Finn have substantial
experience managing partnerships and other entities which have made investments
similar to the investments which will be made by the Company. Mr. Pinkas has
over 15 years experience in venture capital investing. In 1981, Mr. Pinkas
founded Brantley Partners ("BP"), and from 1981 to 1987 Mr. Pinkas was active in
venture capital management and financing as a founding director and investor in
seven early-stage companies. In 1987 he founded the investment partnership BVP
I, acting as general partner, with committed capital of $12.5 million which has
been fully invested. In 1990 Mr. Pinkas formed the investment partnership BVP
II, with committed capital of approximately $30 million from 14 corporate and
public pension funds, which has also been fully invested, and in 1995, he formed
the investment partnership BVP III with committed capital of approximately $60
million from 16 corporate and public pension funds and which, as of the date of
this Prospectus, is less than 40% invested. BVP II's funds have been invested in
15 portfolio companies, and to date, BVP III's funds have been invested in seven
portfolio companies. During the period from 1981 to the present, BP, BVP I, BVP
II and BVP III, in the aggregate, made investments in 39 small businesses with
up to $20 million in revenue, either as part of early-stage financings,
expansion financings, acquisition or buyout financings or special situations.
Mr. Finn has over 20 years of investment experience working with small- to
medium-sized companies. Since 1976 Mr. Finn has directed investment activities
in small emerging private companies. In 1976 Mr. Finn founded the Forward
Development Corporation ("FDC"), a small business development corporation
licensed by the U.S. Small Business Administration (the "SBA") to operate under
Section 503 of the Small Business Investment Act of 1958 ("an SBA licensed 503
corporation"). During the period from 1976 to 1982, while Mr. Finn served as its
president, FDC was involved in funding 11 companies with $70 million of
investment/subordinated debt capital. In 1982, Mr. Finn founded and served as
president of the State of Michigan Certified Development Corporation ("MCDC"),
an SBA licensed 503 corporation targeting investments in Michigan. During the
period 1982 to 1984, under Mr. Finn's direction, MCDC provided over $50 million
of investments to six companies. From 1984 to 1987, under Mr. Finn's direction,
the venture capital investment group of the State of Michigan Department of
Treasury, Bureau of Investments, invested over $350 million in direct
investments and limited partnerships. This portfolio included 40 direct
investments totaling $89 million and 23 private equity partnerships totaling
$284 million. From 1987 to 1995, Mr. Finn directed SIMCO in the investment of
over $24 million directly in 25 operating companies and over $58 million in 15
investments in a variety of private equity partnerships.
Messrs. Pinkas and Finn are both general partners of the general partners
of BVP II and BVP III. Prior to Mr. Finn's joining the Brantley organization in
1995, Messrs. Pinkas and Finn had co-invested in five companies through BVP II
and SIMCO over the years 1989 to 1995. Together at Brantley, they have invested
over $10 million in five companies through BVP II and BVP III.
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<PAGE> 28
The following table provides information about the stage of development and
number of portfolio companies in which Messrs. Pinkas and Finn have been
principal investors during the periods described above:
<TABLE>
<CAPTION>
BVP III
BP BVP I BVP II (FINN/ SIMCO
(PINKAS) (PINKAS) (PINKAS) PINKAS) (FINN)(1) TOTAL
------- -------- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Stage of Enterprise Development:
Early-Stage Financings (2)............. 5 5 6 0 4 20
Expansion Financings (3)............... 2 2 1 1 17 23
Acquisition/Buyout Financings (4)...... 0 3 8 6 10 27
-- -- -- -- -- --
Total.................................. 7 10 15 7 31 70
== == == == == ==
</TABLE>
- ---------------
(1) Mr. Finn was one of three members of the investment team at SIMCO that made
the investments listed in the SIMCO column above.
(2) These companies are at an early-stage of product and market development, but
are run by qualified management. Accordingly, the highest priority will be
given to companies with management teams with established records of
technical and managerial achievements in closely related fields. Such firms
will have launched operations or will have assembled key management,
prepared a business plan, have a product ready for market, effected market
studies, and be generally well set to do business.
(3) These companies have already created a product or service they are marketing
with some success. They need further funds to finance the growth of their
businesses and to achieve profitability. In addition, companies in this
category may be established and profitable, but still need expansion capital
to fuel further growth.
(4) Acquisition financing provides funds to a company to finance its acquisition
of another enterprise. Buyout financing usually comprises two categories:
(a) large divisions or subsidiaries of diversified corporations being
divested because of a poor strategic fit; or (b) privately-owned companies
available because the owner desires liquidity for various reasons, including
estate planning. In both cases members of existing management will
participate in the company's ownership and ongoing operation. These are
usually mature enterprises with stable earnings histories and positive cash
flows.
The Company's investment strategy will build on the investment philosophy
and valuation methods, as well as the network of business and professional
relationships developed by the management team of BVP I, BVP II and BVP III
(sometimes referred to hereinafter collectively as "BVP"). Of course, investors
in the Company are not acquiring an interest in BVP I, BVP II, BVP III or any
other entity in which Messrs. Pinkas or Finn are involved. The past performance
of BVP or of Messrs. Pinkas and Finn is no guaranty of future performance.
The following list includes all companies in which BP and BVP invested in
the past as well as all SIMCO private equity investments with respect to which
Mr. Finn was a principal. The list includes some companies whose securities are
no longer held by BP, BVP or SIMCO. Some of the investments made in the
companies included in the list have a current value that is less than the
initial cost. The list is included to illustrate the types of companies with
which the principals of the Investment Adviser have had direct investment
experience.
The BP and BVP portfolio companies involved in the investments listed in
the above table are as follows:
- - Aronex Pharmaceuticals, Inc.
Pharmaceuticals for treating cancer and infectious diseases
- - Automation Systems and Products, Inc.
PC based software for industrial control applications
- - Barrier Systems, Inc.
Specialty chemicals for treatment of asbestos-related problems
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<PAGE> 29
- - Direct Marketing Solutions, Inc.
Direct mail business
- - Collaborative Clinical Research, Inc.
Multi-site clinical research for drug and medical device companies
- - Continental Recycling, Inc.
Environmental holding company focusing on materials recycling
- - Criterion Technology, Inc.
PC peripheral company
- - DeCrane Aircraft Holdings, Inc.
Aircraft components and avionic systems manufacturer
- - Campus Convenience Stores, Inc.
College campus convenience stores
- - The Earth Technology Corporation
Environmental services company
- - Financial Integration, Inc.
Financial services company marketing mortgage, annuity and insurance
products.
- - Gliatech, Inc.
Pharmaceuticals and devices for neural tissue scar reduction, and
Alzheimer's treatments
- - Health Care Solutions, Inc.
Home infusion therapy services in secondary markets
- - Impact Resources, Inc.
Proprietary database for market research
- - Implex plc
High density, high performance memory modules and multi-chip electronics
packaging
- - International Laser Machines, Inc.
Industrial lasers for cutting, drilling and marking
- - Kapok International, Inc.
Development and marketing of unique seafood species and fruit pulps and
powders for its distribution network
- - Macronex, Inc.
Biotechnology company focusing on regulating macrophage activity
- - Medirisk, Inc.
Medical database firm selling physician cost, quality and outcomes data
- - Momentum Software Corporation
Software tools for client/server systems
- - Ohmicron Corporation
Biosensor products for detection of pesticides, microbiologicals, and
clinical applications
- - Osteo-Technology, Inc.
Ultrasound technology for the measuring of bone density
- - OXIS International, Inc.
Development of anti-oxidants and free radical scavenger technology to
diagnose and treat diseases associated with oxidative stress
- - Pediatric Services of America, Inc.
Home health care company focusing on full-service pediatric care
- - PPA, Inc.
Pediatric physician practice management company
- - Protect America, Inc.
Manufacturing, packaging, and marketing of spill containment kits, personal
protective kits, and absorbents
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<PAGE> 30
- - Quad Systems Corporation
Surface-mount assemblers for the electronic industry
- - RF Micro Devices, Inc.
Radio frequency integrated circuits for cellular radio and digital wireless
communication systems
- - Rhomas Group, Inc.
Specialty packaging company focusing on folding carton niche
- - Sparkle Parts, Inc.
Parts washing machines for the automotive industry
- - Stamford Systems, Inc.
Mainframe software for enterprise evaluation
- - Summation, Inc.
PC-based instrumentation
- - SysteMed, Inc.
Mail-order pharmaceuticals and prescription drug benefit management company
- - TBN Holdings Inc.
Environmental holding company focusing on resource recovery and recycling
- - Therox Pharmaceuticals, Inc.
Pharmaceutical company developing free radical scavengers and anti-oxidants
- - Transglobal Wireless Communications, Inc.
Wireless communications
- - Transmodal Corporation
Intermodal transportation of hazardous waste
- - Vectra Banking Corporation
Bank holding company focusing on Denver area banks
- - Waterlink, Inc.
Industrial waste water treatment
The SIMCO portfolio companies involved in the investments listed in the
table on page 26 above, are as follows:
- - AMSCO International
Institutional health care product company
- - Auto Parts Club
Retail chain selling auto parts and supplies at wholesale prices
- - BCI Corp.
Private cable company
- - Christiaens International B.V.
Manufacturer of branded over the counter and generic drugs
- - Classic Cable Holdings L.P.
Rural cable franchise operator
- - Comdata Holdings Corporation
Fund transfers and other trucking industry services
- - Community Rehab Centers
Rehabilitation physical therapy roll-up
- - Eager Enterprises, Inc.
Proprietary database of active resumes
- - EDS Holdings Corp.
Industrial holding company
28
<PAGE> 31
- - FL Industries, Inc.
Industrial conglomerate
- - Goal Systems International Inc.
Systems software for IBM mainframes and compatibles
- - Gulf South Medical Supply, Inc.
Medical supply distributor to convalescent homes
- - Health Care Solutions, Inc.
Home infusion therapy services in secondary markets
- - Home Diagnostics, Inc.
Complete line of diabetic-related diagnostic products
- - Impact Resources, Inc.
Proprietary database for market research
- - Interactive Financial
Third party processors for income tax preparers
- - Medirisk, Inc.
Medical database firm selling fee schedule information
- - Meridian Data Inc.
CD ROM publisher with related products
- - Mizar Inc.
Design and manufacture of electronic boards and systems
- - Pediatric Services of America, Inc.
Home health care company focusing on full-service pediatric care
- - Pharmaceutical Marketing
Proprietary database information company in pharmaceutical industry
- - Progress Software Corporation
Advanced application development tools
- - RAXCO, Inc.
Applications, systems and security software
- - Shugart Corporation
Reseller of used equipment
- - Silvon Software, Inc.
Software for AS400 and client/server applications
- - Sterling Healthcare Corp.
Psychiatric hospital facilities management
- - Strato Medical
Vascular-related medical supplies
- - Three-Five Systems, Inc.
Electronic components including custom displays
- - Tricord Systems, Inc.
Manufacturing of high-end file servers
- - Triplex Pharmaceutical
(Merged with two other companies to form Aronex Pharmaceuticals, Inc.)
- - Walsh International Inc.
Target marketing information company to the pharmaceutical industry
29
<PAGE> 32
THE INVESTMENT ADVISORY AGREEMENT
Pursuant to the Investment Advisory Agreement, Brantley Capital Management,
Ltd., 20600 Chagrin Boulevard, Suite 1150, Cleveland, Ohio 44122, will serve as
investment adviser to the Company. The Investment Adviser will, subject to the
overall supervision of the Company's Board of Directors, administer the
Company's business affairs and furnish the Company with office facilities and
clerical, bookkeeping and record keeping services at such facilities. See
"Management."
The Investment Adviser will be responsible for oversight of the
administrator responsible for the financial records required to be maintained by
the Company and will assist in the preparation of financial information for
reports to stockholders and reports filed with the Commission. In addition, the
Investment Adviser will assist the Company in determining and publishing the
Company's net asset value, oversee both the preparation and filing of the
Company's tax returns, the printing and dissemination of stockholder reports,
and generally oversee the payment of the Company's expenses and the performance
of administrative and professional services rendered to the Company by others.
In return for the Investment Adviser's services, the Company will pay to
the Investment Adviser an annual management fee of 2.85% of the Company's net
assets, determined at the end of each calendar quarter, and payable quarterly in
arrears, throughout the term of the Investment Advisory Agreement.
The Company and the Investment Adviser have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act. In addition, the Investment Adviser (not the Company) will pay
the Underwriters a commission in the aggregate amount of 7.0% of the initial
public offering price per share of Common Stock in connection with sales of
Common Stock in this Offering and will pay the Principal Underwriter a one-time
structuring fee of $500,000 at the close of the Offering. See "Underwriting."
The Investment Adviser will be responsible for the salaries and expenses of
its own personnel and any costs of office space, and local telephone and
administrative support to be provided to the Company by the Investment Adviser.
The Company will be responsible for all other expenses, including those relating
to calculating and publishing the Company's net asset value, all other expenses
incurred by either the Investment Adviser or the Company in connection with
administering the ordinary course of the Company's business, the registration
and organizational expenses described earlier, and direct costs such as
printing, mail, long distance telephone, staff, independent accountants and
outside legal costs.
The Investment Adviser, from its own funds, has agreed to make payments to
the Principal Underwriter for consultation and statistical and factual
information with respect to the Company's market performance and general
economic and business conditions. The Principal Underwriter will have no
responsibility or authority with respect to the Company's investments. See
"Underwriting."
The Investment Advisory Agreement was approved by the Board of Directors on
October 29, 1996 and is effective for an initial term of two years from the date
of this Prospectus and may be continued thereafter, from year to year pursuant
to its terms. The Investment Advisory Agreement may be terminated by either
party upon at least 60 days' notice to the other, provided that its continuance
is approved annually by the Company's Board of Directors or the holders of the
Common Stock, including, in either case, approval by the directors of the
Company who are not interested persons. See "Risk Factors -- Lack of Operating
History; Dependence Upon Investment Adviser."
REGULATION
After filing its election to be treated as a Business Development Company
under the Investment Company Act, a company may not withdraw its election
without first obtaining the approval of holders of a majority of its outstanding
voting securities (as defined under the Investment Company Act). The following
is a brief description of the Investment Company Act and is qualified in its
entirety by reference to the full text of the Investment Company Act and the
rules thereunder.
Generally, to be eligible to elect Business Development Company status, a
company must engage in the business of furnishing capital and offering
significant managerial assistance to companies that do not have ready access to
capital through conventional financial channels. Such portfolio companies are
termed "eligible portfolio companies." More specifically, in order to qualify as
a Business Development Company, a company
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<PAGE> 33
must (i) be a domestic company; (ii) have registered a class of its securities
or have filed a registration statement with the Commission pursuant to Section
12 of the Securities Exchange Act of 1934; (iii) operate for the purpose of
investing in the securities of certain types of eligible portfolio companies,
namely less seasoned or emerging companies and businesses suffering or just
recovering from financial distress; (iv) offer to extend significant managerial
assistance to such eligible portfolio companies; (v) have a majority of
directors who are not "interested persons" (as defined in the Investment Company
Act); and (vi) file (or under certain circumstances, intend to file) a proper
notice of election with the Commission.
An eligible portfolio company generally is a United States company that is
not an investment company and that (i) does not have a class of securities
registered on an exchange or included in the Federal Reserve Board's
over-the-counter margin list; (ii) is actively controlled by a Business
Development Company and has an affiliate of a Business Development Company on
its board of trustees or directors; or (iii) meets such other criteria as may be
established by the Commission. Control under the Investment Company Act is
presumed to exist where a Business Development Company owns more than 25% of the
outstanding voting securities of the eligible portfolio company.
Making available significant managerial assistance by a Business
Development Company means any arrangement whereby a Business Development
Company, through its directors, trustees, officers or employees, offers to
provide, and, if accepted, does so provide, significant guidance and counsel
concerning the management, operations, or business objectives and policies of a
portfolio company. It is expected that one of the officers or employees of the
Company will offer to serve on the board of directors of each private company in
which the Company invests and, if such offer is not accepted, will offer to
enter into a consulting contract with the management of each such private
portfolio company. In such capacity, such person will offer his or her
substantial experience in strategic management and, if requested, will lend his
or her assistance in arranging financings, managing relationships with financing
sources, recruiting management personnel, and evaluating acquisition and
divestiture opportunities. Such person will be able to call on the experience of
the other directors and officers of the Company or the Investment Adviser, as
well, if needed.
The Investment Company Act prohibits or restricts companies subject to the
Investment Company Act from investing in other investment companies. Moreover,
the Investment Company Act limits the type of assets that a Business Development
Company may acquire to certain prescribed Eligible Assets unless, at the time
the acquisition is made, Eligible Assets represent at least 70% of the value of
the Business Development Company's total assets (other than non-investment
assets necessary or appropriate to its operations as a Business Development
Company). "Eligible Assets" include (i) privately acquired securities of
companies that were eligible portfolio companies at the time the Business
Development Company acquired the securities; (ii) securities of bankrupt or
insolvent companies; (iii) securities of eligible portfolio companies controlled
by a Business Development Company; (iv) securities received in exchange for or
distributed in or with respect to any of the foregoing; and (v) cash items,
government securities and high-quality short-term debt. The Investment Company
Act also places restrictions on the nature of the transactions in which, and the
persons from whom, securities can be purchased in order for the securities to be
considered Eligible Assets. Such restrictions include limiting purchases to
transactions not involving a public offering and the requirement that securities
be acquired directly from either the portfolio company or its officers,
directors or affiliates.
Many of the transactions involving an investment company and its affiliates
(as well as affiliates of those affiliates) which would otherwise be prohibited
without the prior approval of the Commission under the Investment Company Act
are permissible for Business Development Companies. However, certain
transactions involving certain persons related to the Company, including its
directors, officers and employees, may still require the prior approval of the
Commission. In general, (i) any person who owns, controls or holds power to vote
more than 5% of the Company's outstanding shares of Common Stock; (ii) any
director, executive officer or general partner of that person; and (iii) any
person who directly or indirectly controls, is controlled by, or is under common
control with, that person, must obtain the prior approval of a majority of the
Company's disinterested directors and, in some situations, the prior approval of
the Commission, before engaging in certain transactions involving the Company or
any company controlled by the Company. The Investment Company Act generally does
not restrict transactions between the Company and its eligible portfolio
companies.
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<PAGE> 34
While a Business Development Company may change the nature of its business
so as to cease being a Business Development Company (and in connection therewith
withdraw its election to be treated as a Business Development Company) only if
authorized to do so by a majority vote (as defined in the Investment Company
Act) of its outstanding voting securities, changes in other investment policies
of a Business Development Company do not require stockholder approval (in
contrast to the general Investment Company Act requirement which requires
stockholder approval for a change in any fundamental investment policy). The
Company is entitled to change its non-diversification status without stockholder
approval. The Company, in the future, may seek to become exempt from Investment
Company Act regulation.
The Investment Company Act prohibits an investment company such as the
Company from knowingly participating in a joint transaction with an affiliate of
any director or investment adviser to the investment company. Accordingly, the
Company may not, without exemptive relief from the Commission, participate in a
joint transaction with BVP or a subsequent company or companies, fund or funds
which may be affiliates of the Company or the Investment Adviser, or any other
entity managed by the persons who are the principals of the Investment Adviser
(collectively, "Company Affiliates"). The Company and the Investment Adviser
intend to submit an application to the Commission to permit such co-investment.
The Investment Adviser believes that it will be advantageous for the Company to
co-invest with BVP where such investment is consistent with the investment
objectives, investment positions, investment policies, investment strategies,
investment restrictions, regulatory requirements and other pertinent factors
applicable to the Company. The Investment Adviser believes that co-investment by
the Company and any Company Affiliates will afford the Company the ability to
achieve greater diversification and, together with any Company Affiliates, the
opportunity to exercise greater influence on the portfolio companies in which
the Company and any Company Affiliates invest together. Accordingly, the
application will seek an exemptive order permitting the Company and any Company
Affiliates to invest together in the same portfolio companies where such is
consistent with investment objectives, investment positions, investment
policies, investment strategies, investment restrictions, regulatory
requirements and other pertinent factors applicable to the Company. Although the
Investment Adviser intends to select investments for the Company and for Company
Affiliates separately, considering in each case only the investment objectives,
investment position, available funds and other pertinent factors of the
particular investment Company or fund, it is expected that if the application
for exemptive relief is granted, the Company and any Company Affiliates may
frequently invest in the same portfolio companies, with each of the Company and
any Company Affiliates taking a position in the portfolio company. If the
exemptive relief is granted, it is expected that the Company and any Company
Affiliates will invest together in proportion to their respective amounts of
capital available for investment where such is consistent with their respective
investment objectives, investment positions, investment policies, investment
strategies, investment restrictions, regulatory requirements and other pertinent
factors. There is no assurance, however, that any such joint investments will in
fact be in proportion to their respective amounts of capital available for
investment. It is expected that exemptive relief permitting co-investment will
be granted only upon the conditions, among others, that before a co-investment
transaction is effected, the Investment Adviser will make a written investment
presentation regarding the proposed co-investment to the independent directors
of the Company and the independent directors of the Company will review the
Investment Adviser's recommendation. It is expected that prior to committing to
a co-investment, a "required majority" (as defined in Section 57(o) of the
Investment Company Act) of the independent directors of the Company will
conclude that (i) the terms of the proposed transaction are reasonable and fair
to the Company and its stockholders and do not involve overreaching of the
Company and its stockholders on the part of any person concerned; (ii) the
transaction is consistent with the interests of the stockholders of the Company
and is consistent with the investment objectives and policies of the Company;
and (iii) the investment by the Company Affiliate co-investor would not
disadvantage the Company in making its investment, maintaining its investment
position, or disposing of such investment and that participation by the Company
would not be on a basis different from or less advantageous than that of the
Company Affiliate co-investor. There is no assurance that the application for
exemptive relief will be granted by the Commission. Accordingly, there is no
assurance that the Company will be permitted to co-invest with any Company
Affiliates.
In addition, in the application the Company and the Investment Adviser also
intend to seek exemptive relief to permit the Company to invest in portfolio
companies in an offering by an issuer in which BVP I, BVP II or BVP III is an
existing investor and the Company is not an existing investor. To the knowledge
of
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<PAGE> 35
the Company and the Investment Adviser, exemptive relief of this type has not
been granted previously by the Commission. Accordingly, there can be no
assurance that the application for such exemptive relief will be granted, and
therefore, there can be no assurance that the Company will be permitted to
invest in portfolio companies in which BVP I, BVP II or BVP III is an existing
investor and the Company is not an existing investor. The Company anticipates
that the application for exemptive relief will include conditions, among others,
requiring that before such an investment would be made: (i) the investment be of
a type that has preferences and terms that are the same or better than those of
the investment owned by BVP I, BVP II or BVP III, (ii) a majority of the
Company's directors who have no financial interest in the investment and a
majority of the Company's disinterested directors approve the investment, and
(iii) the Company and Company affiliates purchase in the aggregate less than a
majority of the investment offered, such that unaffiliated institutional
investors are likely to be establishing the pricing of such investment
opportunities. See "Risk Factors -- Conflicts of Interest."
VALUATION OF PORTFOLIO SECURITIES
On a quarterly basis, and at such other times as deemed appropriate under
the circumstances, the Company's Board of Directors will prepare a valuation of
the assets of the Company using the methods described below.
As a general principle, the current "fair value" of an investment being
valued by the Company's Board of Directors would be the amount which the Company
might reasonably expect to receive for it upon its current sale. There is a
range of values that are reasonable for such investments at any particular time.
Generally, pursuant to procedures established by the Company's Board of
Directors, the fair value of each such investment initially will be based
primarily upon its original cost to the Company. Cost will be the primary factor
used to determine fair value until significant developments or other factors
affecting the portfolio company (such as results of operations, changes in
general market conditions, subsequent financings or the availability of market
quotations) provide a basis for value other than a cost valuation.
The Company anticipates that many future investments made in securities for
which a public market exists may be "restricted securities" by virtue of the
Securities Act. Generally, in such instances, the Company will negotiate for
securities registration rights necessary for a public offering thereof on
specified terms whenever deemed to be reasonably feasible by management. The
value for restricted stock investments for which no public market exists cannot
be precisely determined. Generally, such investments will be valued on a "going
concern" basis without giving effect to any disposition costs. There is likely
to be a range of values that is reasonable for such investments at any
particular time.
Portfolio investments for which market quotations are readily available and
which are freely transferable will be valued as follows: (i) securities traded
on a securities exchange or the Nasdaq National Market System will be valued at
the closing price on the last trading day prior to the date of valuation; and
(ii) securities traded in the over-the-counter market (pink sheets) will be
valued at the average of the closing bid and asked prices for the last trading
day prior to the date of valuation. Securities for which market quotations are
readily available but are restricted from free trading in the public securities
markets (such as Rule 144 stock) will be valued by discounting the closing price
or the closing bid and asked prices, as the case may be, for the last trading
day prior to the date of valuation to reflect the illiquidity caused by such
restrictions, but taking into consideration the existence, or lack thereof, of
any contractual right to have the securities registered and freed from such
trading restrictions. For this purpose, an investment that is exercisable for or
convertible into a security for which market quotations are readily available or
otherwise contains the right to acquire such a security will be deemed to be an
investment for which market quotations are readily available, but the value of
any such security will be reduced by any consideration to be paid by the Company
in connection with the exercise or conversion of such security.
Debt securities with maturities of 60 days or less remaining will be valued
under the amortized cost method. The amount to be amortized will be the value on
the 61st day if the security was obtained with more than 60 days remaining to
maturity. Securities with maturities of more than 60 days remaining for which
there is a market and which are freely transferable will be valued at the most
recent bid price or yield equivalent as
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<PAGE> 36
obtained from dealers that make markets in such securities. Certificates of
deposit purchased by the Company generally will be valued at their face value,
plus interest accrued to the date of valuation.
The fair value of investments for which no market exists and for which the
Board of Directors has determined that the original cost of the investment is no
longer an appropriate valuation will be determined on the basis of appraisal
procedures established in good faith by the Company's Board of Directors.
Appraisal valuations will be based upon such factors as the portfolio company's
earnings and net worth, the market prices for similar securities of comparable
companies and an assessment of the company's future financial prospects. In the
case of unsuccessful operations, the appraisal may be based upon liquidation
value. Appraisal valuations are necessarily subjective.
The Company may also use, when available, third-party transactions in a
portfolio company's securities as the basis of valuation (the "private market
method"). The private market method will be used only with respect to completed
transactions or firm offers made by sophisticated, independent investors.
Securities with legal, contractual or practical restrictions on transfer may be
valued at a discount from their value determined by the foregoing methods to
reflect such restrictions.
The Company's Board of Directors will review the Company's valuation
policies from time to time to determine their appropriateness. The Company's
Board of Directors may also hire independent firms to review the Investment
Adviser's methodology of valuation or to conduct a valuation, which shall be
binding and conclusive.
In order to determine the net asset value per share of the Common Stock,
(i) the value of the assets of the Company, including its portfolio securities,
will be determined by the Company's Board of Directors; (ii) the Company's
liabilities, if any, will be subtracted therefrom; and (iii) the difference will
be divided by the number of outstanding shares of Common Stock. However, there
can be no assurance that such value will represent the return that might
ultimately be realized by the Company from the investments or that stockholders
might ultimately realize on their holdings.
The value of portfolio securities may be very difficult to ascertain.
Valuation of portfolio securities by the Board of Directors is, by necessity,
subjective and may not be indicative of the price at which such securities may
ultimately be sold. The net asset value, as determined by the Board of
Directors, may not be reflective of the price at which an investor could sell
his, her or its shares of Common Stock in the open market. See "Risk
Factors -- Valuation of Portfolio."
FEDERAL INCOME TAX MATTERS
THE FOLLOWING DISCUSSION IS A GENERAL SUMMARY OF THE MATERIAL UNITED STATES
FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO THE COMPANY AND TO AN INVESTMENT
IN THE COMMON STOCK AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF THE TAX
CONSIDERATIONS APPLICABLE TO SUCH AN INVESTMENT. PROSPECTIVE STOCKHOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSIDERATIONS WHICH
PERTAIN TO THEIR PURCHASE OF THE COMMON STOCK. THIS SUMMARY DOES NOT DISCUSS ALL
ASPECTS OF FEDERAL INCOME TAXATION RELEVANT TO HOLDERS OF THE COMPANY'S COMMON
STOCK IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES, OR TO CERTAIN TYPES OF HOLDERS
SUBJECT TO SPECIAL TREATMENT UNDER FEDERAL INCOME TAX LAWS, INCLUDING FOREIGN
TAXPAYERS. THIS SUMMARY DOES NOT DISCUSS ANY ASPECTS OF FOREIGN, STATE OR LOCAL
TAX LAWS.
The Company intends to qualify for treatment as a "regulated investment
company" under Subchapter M of the Code. If the Company qualifies as a regulated
investment company and distributes to stockholders each year in a timely manner
at least 90% of its "investment company taxable income" as defined in the Code
(i.e., net investment income from interest and dividends and net short-term
capital gains), it will not be subject to federal income tax on the portion of
its taxable income and gains it distributes to stockholders. In addition, if the
Company distributes in a timely manner (or treats as "deemed distributed" as
described below) 98% of its capital gain net income for each one year period
ending on December 31, and distributes 98% of its ordinary income for each
calendar year (as well as any income not distributed in prior years), it will
not be subject to the 4% nondeductible federal excise tax on certain
undistributed income of regulated investment companies. The Company would be
subject to regular corporate income tax (currently at rates up to 35%) on any
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<PAGE> 37
undistributed net investment income and any undistributed net capital gain. The
Company would also be subject to alternative minimum tax, but any tax preference
items would be apportioned between the Company and its stockholders in the same
proportion that dividends (other than capital gain dividends) paid to each
stockholder bear to the taxable income of the Company determined without regard
to the dividends paid deduction. See "Risk Factors -- Possible Loss of
Pass-Through Tax Treatment."
In order to qualify as a regulated investment company for federal income
tax purposes, the Company must elect to be treated as a regulated investment
company and, among other things, (a) derive in each taxable year at least 90% of
its gross income from dividends, interest, payments with respect to securities,
loans, gains from the sale or other disposition of stock or securities or other
income derived with respect to its business of investing in such stock or
securities; (b) derive in each taxable year less than 30% of its gross income
from the sale of stock or securities held for less than three months; (c)
diversify its holdings so that at the end of each quarter of the taxable year
(i) at least 50% of the value of the Company's assets consists of cash, cash
items, government securities, the securities of other regulated investment
companies and other securities if such other securities of any one issuer do not
represent more than 5% of the Company's total assets and 10% of the outstanding
voting securities of the issuer and (ii) no more than 25% of the value of the
Company's total assets are invested in the securities of one issuer (other than
U.S. government securities or the securities of other regulated investment
companies), or of two or more issuers than are controlled by the Company and are
engaged in the same or similar or related trades or businesses; and (d)
distribute at least 90% of its investment company taxable income each taxable
year.
However, the diversification requirements outlined above are liberalized in
the case of certain investment companies. In particular, if the Company, as a
Business Development Company, meets certain requirements described below, the
50% diversification requirement is modified so that the Company may include in
its 50% pool of investments, the value of the securities of any corporate issuer
(even if the Company holds more that 10% of the corporate issuer's voting
securities) so long as at the time of the latest investment in the applicable
corporate issuer's security the tax basis which the Company has in all
securities issued by the corporate issuer does not exceed 5% of the total value
of all the Company's assets. For example, if the Company purchased a corporate
issuer's stock for a total cost of $3,000,000 at a time when the Company's total
assets equaled $100,000,000 the investment would qualify under the
diversification test since the Company's tax basis in the investment comprised
only 3% of its total assets ($3,000,000/$100,000,000). This would be true
irrespective of whether the $3,000,000 investment in the corporate issuer
constituted ownership of more than 10% of the corporate issuer. Continuing the
example, if the Company's assets appreciated to $150,000,000 and the original
$3,000,000 investment in the corporate issuer appreciated in value to $3,750,000
and the Company made an additional $4,000,000 investment in the corporate
issuer, the investment would still qualify under the modified diversification
rules. Thus, although the total value of the investment in the corporate issuer
($7,750,000 (the $4,000,000 additional investment plus the $3,000,000 initial
investment which has appreciated to $3,750,000)) exceeds 5% of the Company's
total asset value, the Company's tax basis ($7,000,000 (the $4,000,000
additional investment plus the $3,000,000 initial investment)) does not exceed
5% of the total value. This exception does not apply if the Company has
continuously held any securities of the applicable corporate issuer for a period
of 10 years.
In order for the modified diversification rule to apply, the Commission
must determine and certify to the Internal Revenue Service (the "IRS") no more
than 60 days prior to the close of a tax year that the Company is principally
engaged in furnishing capital to corporations which corporations are themselves
principally engaged in the development or exploitation of inventions,
technological improvements, new processes, or products not previously available.
For purposes of these determinations, a corporation shall be considered
principally engaged in the development or exploitation of inventions,
technological improvements, new processes, or products not previously available
for at least 10 years after the first acquisition of any security in such
corporation by the Company if, at the date of the original acquisition, the
issuer corporation was principally so engaged. In addition, the Company shall be
considered at any date to be furnishing capital to any corporation whose
securities it holds, if within 10 years before such date, it had acquired
securities in the applicable corporate issuer.
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<PAGE> 38
The diversification exception described in this section does not apply to
any quarter if, in that quarter, more than 25% of the total assets of the
Company comprised of securities of a corporate issuer, with respect to each of
which (i) the Company holds more than 10% of the outstanding voting securities
of such issuer; and (ii) the Company has continuously held such security for
more than 10 years.
If the Company acquires debt obligations that were originally issued at a
discount, or that bear interest rates that are not fixed (or certain "qualified
variable rates") or payable at regular intervals over the life of the
obligation, it will be required to include in taxable income each year a portion
of the "original issue discount" that accrues over the life of the obligation,
regardless of whether the income is received by the Company, and may be required
to make distributions in order to continue to qualify as a regulated investment
company or to avoid the 4% excise tax on certain undistributed income. In this
event, the Company may borrow funds or sell temporary investments or other
assets to meet the distribution requirements. See "Investment Objectives and
Policies."
For any period during which the Company qualifies as a regulated investment
company for federal income tax purposes, distributions to stockholders
attributable to the Company's ordinary income (including dividends, interest and
original issue discount) and net short-term capital gains generally will be
taxable as ordinary income to stockholders to the extent of the Company's
current or accumulated earnings and profits. Distributions in excess of the
Company's earnings and profits will first be treated as a return of capital
which reduces the stockholder's adjusted basis in his, her or its shares of
Common Stock and then as gain from the sale of shares of Common Stock.
Distributions of the Company's net long-term capital gains (designated by the
Company as capital gain dividends) will be taxable to stockholders as long-term
capital gains regardless of the stockholder's holding period in his, her or its
Common Stock. Corporate stockholders are generally eligible for the 70%
dividends received deduction with respect to ordinary income (but not capital
gain) dividends to the extent such amount designated by the Company does not
exceed the dividends received by the Company from domestic corporations. Any
dividend declared by the Company in October, November or December of any
calendar year, payable to stockholders of record on a specified date in such a
month and actually paid during January of the following year, will be treated as
if it were paid by the Company and received by the stockholders on December 31
of the previous year. In addition, the Company may elect to relate a dividend
back to the prior taxable year for the purposes of (i) determining whether the
90% distribution requirement is satisfied, (ii) computing investment company
taxable income and (iii) determining the amount of capital gain dividends paid
during the prior taxable year if the Company makes such election prior to filing
its return for the taxable year and distributes the amount in the 12 month
period following the close of the taxable year. Any such election will not alter
the general rule that a stockholder will be treated as receiving a dividend in
the taxable year in which the distribution is made.
To the extent that the Company retains any capital gains, it may designate
them as "deemed distributions" and pay a tax thereon for the benefit of its
stockholders. In that event, the stockholders report their share of retained
realized capital gains on their individual tax returns as if it had been
received, and report a credit for the tax paid thereon by the Company. The
amount of the deemed distribution net of such tax is then added to the
stockholder's cost basis for his, her or its Common Stock. Since the Company
expects to pay tax on capital gains at the regular corporate tax rate of 34% and
the maximum rate payable by individuals on such gains is 28%, the amount of
credit that individual stockholders may report will exceed the amount of tax
that they would be required to pay on capital gains. Stockholders who are not
subject to federal income tax or tax on capital gains should be able to file a
return on the appropriate form or a claim for refund that allows them to recover
the taxes paid on their behalf.
Section 1202 of the Code permits the exclusion, for federal income tax
purposes, of 50% of any gain (subject to certain limitations) realized upon the
sale or exchange of "qualified small business stock" held for more than five
years. Generally, qualified small business stock is stock of a small business
corporation acquired directly from the issuing corporation, which must at the
time of issuance and immediately thereafter have assets of not more than $50
million and be actively engaged in the conduct of a trade or business not
excluded by law. If the Company acquires "qualified small business stock," holds
such stock for five years and disposes of such stock at a profit, a stockholder
who held his, her or its Common Stock in the Company at the time the Company
purchased the qualified small business stock and at all times thereafter until
disposition of the stock
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<PAGE> 39
by the Company would be entitled to exclude from such stockholder's taxable
income 50% of such stockholder's share of such gain. One half of any amount so
excluded would be treated as a preference item for alternative minimum tax
purposes.
If at least 50% of the value of the total assets of a regulated investment
company at the close of each quarter of the taxable year consists of tax exempt
obligations, the regulated investment company may designate all or a portion of
any dividend (other than a capital gain dividend) as an exempt interest dividend
to the extent of the regulated investment company's net income from tax exempt
obligations. An exempt interest dividend would be treated by a stockholder of
the Company as excludable from gross income under Section 103(a) of the Code,
but would also be treated as a preference item by the stockholder for
alternative minimum tax purposes.
A stockholder may recognize taxable gain or loss if the stockholder sells
or exchanges such stockholder's shares of Common Stock. Any gain arising from
the sale or exchange of Common Stock generally will be treated as a capital gain
or loss except in the case of a dealer or a financial institution, and will be
treated as a long-term capital gain or loss if the stockholder has held his, her
or its shares of Common Stock for more than one year. However any capital loss
arising from a sale or exchange of shares of Common Stock held for six months or
less will be treated as a long-term capital loss to the extent of the amount of
capital gain dividends (or undistributed capital gain) received with respect to
such shares of Common Stock.
The Company may be required to withhold U.S. federal income tax at the rate
of 31% of all taxable distributions payable to stockholders who fail to provide
the Company with their correct taxpayer identification number or a certificate
that the stockholder is exempt from backup withholding, or the IRS notifies the
Company that the stockholder is subject to backup withholding. Any amounts
withheld may be credited against a stockholder's U.S. federal income tax
liability.
Federal withholding taxes at a 30% rate (or a lesser treaty rate) may apply
to distributions to stockholders that are nonresident aliens or foreign
partnerships, trusts or corporations. Foreign stockholders should consult their
tax advisers with respect to the possible U.S. federal, state and local and
foreign tax consequences of an investment in the Company.
The Company will mail to each stockholder, as promptly as possible after
the end of each fiscal year, a notice detailing, on a per distribution basis,
the amounts includable in such stockholder's taxable income for such year as net
investment income, as net realized capital gains (if applicable), as "deemed"
distributions of capital gains and as taxes paid by the Company with respect
thereto. In addition, the federal tax status of each year's distributions will
be reported to the IRS. Distributions may also be subject to additional state,
local and foreign taxes depending on each stockholder's particular situation.
Stockholders should consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Company.
Under the Company's Dividend Reinvestment and Cash Purchase Plan, all cash
distributions to stockholders will be automatically reinvested in additional
whole and fractional shares of Common Stock unless a stockholder or its
representative elects to receive cash. Such distributions that are invested in
additional shares of Common Stock are considered to be constructively received
by the stockholder for federal income tax purposes and are included in the
stockholder's income to the extent such constructive distribution otherwise
represents a taxable dividend for the year in which such distribution is
credited to the stockholder's account. The amount of the distribution is the
value of the shares of Common Stock acquired through the Dividend Reinvestment
and Cash Purchase Plan. See "Dividend Reinvestment and Cash Purchase Plan."
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Company's Dividend Reinvestment and Cash Purchase Plan, any
stockholders whose shares of Common Stock are registered in their own names will
be deemed to have elected to have all cash dividends and cash distributions
automatically reinvested by State Street Bank and Trust Company (the "Plan
Agent") in shares of Common Stock pursuant to the Dividend Reinvestment and Cash
Purchase Plan unless and except for each such stockholder who individually
elects to receive such on a current basis in lieu of reinvestment. In the case
of stockholders such as banks, brokers or nominees that hold Common Stock for
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<PAGE> 40
others who are beneficial owners ("Nominee Stockholders"), the Plan Agent will
administer the Dividend Reinvestment and Cash Purchase Plan on the basis of the
number of shares of Common Stock certified by such Nominee Stockholders as
registered for stockholders that have not elected to receive dividends and
distributions in cash. Investors that own shares of Common Stock registered in
the name of a Nominee Stockholder should consult with such nominee as to
participation or withdrawal from the Dividend Reinvestment and Cash Purchase
Plan.
The Plan Agent serves as agent for the stockholders in administering the
Dividend Reinvestment and Cash Purchase Plan. When the Company declares a
dividend or distribution payable in cash or in shares of Common Stock, the
non-participants will receive cash and the participants will receive the
equivalent of the amount of the dividend or distribution in shares of Common
Stock to be issued by the Company or purchased by the Plan Agent in the open
market. If the market value per share of Common Stock on the record date equals
or exceeds the net asset value per share of Common Stock on that date, the
Company will issue new shares at the net asset value. If the net asset value
exceeds the market price, the Plan Agent will, as agent for the participant, buy
shares of Common Stock in the open market or in private transactions as soon as
practicable after such date. If before the Plan Agent has completed the
purchases the market price exceeds the net asset value, the Plan Agent may
suspend purchasing in the market and the Company will issue new shares at net
asset value to fulfill the purchase requirements. See "Valuation of Portfolio
Securities" and "Federal Income Tax Matters."
In connection with dividends and distributions, the Plan Agent will make an
initial determination of the market value per share of Common Stock by taking
the higher of the average of the closing sales prices, as reported in The Wall
Street Journal, at which shares of Common Stock of the Company were traded on
the last five days on which trading in the shares of Common Stock was reported
to have taken place on the Nasdaq National Market System prior to the payment
date of the dividend or distribution, and 95% of the opening sales price on the
payment date, which may be up to three months after the date as of which the net
asset value of the shares of Common Stock was last determined.
Participants also have the option commencing on January 1 of each year, of
making additional annual cash payments to the Dividend Reinvestment and Cash
Purchase Plan in any amount of $1,000 or more up to $10,000. Larger amounts may
be accepted with the prior approval of the Plan Agent. The Plan Agent will use
all funds received from participants to purchase shares of Common Stock in the
open market on or about February 28. Any voluntary funds must be received no
later than 10 days prior to such date and any prior deposit may be withdrawn if
written request for withdrawal is received by the Plan Agent no later than 10
days prior to such date.
The Plan Agent will maintain all stockholder accounts in the Dividend
Reinvestment and Cash Purchase Plan and furnish written confirmation of all
transactions in an account. Common Stock in the Dividend Reinvestment and Cash
Purchase Plan will be held in the name of the participant and each stockholder's
proxy will include any Dividend Reinvestment and Cash Purchase Plan holdings.
There is no charge to the participants for reinvesting dividends and
distributions or for voluntary cash payments. The Plan Agent's fees will be paid
by the Company. There will be no brokerage charges with respect to shares of
Common Stock issued directly by the Company for participants in the Dividend
Reinvestment and Cash Purchase Plan. However, each participant will pay a pro
rata share of brokerage charges for shares purchased in the market.
The Company and the Plan Agent reserve the right to terminate the Dividend
Reinvestment and Cash Purchase Plan. Further, the Dividend Reinvestment and Cash
Purchase Plan may be amended by agreement between the Company and the Plan Agent
upon 30 days notice to participants. A participant may withdraw from the
Dividend Reinvestment and Cash Purchase Plan upon written request to the Plan
Agent, in which event, no further Common Stock purchases will be made for such
withdrawing participant and all shares of Common Stock and funds held for such
participant will be forwarded to the participant or to the Participant's order.
All communications regarding the Dividend Reinvestment and Cash Purchase Plan
should be directed to State Street Bank and Trust Company as Plan Agent.
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<PAGE> 41
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue 25,000,000 shares of Common Stock, par
value $.01 per share. As of October 30, 1996, all of the outstanding capital
stock of the Company was owned and controlled by Robert P. Pinkas and Michael J.
Finn. However, following the Offering, Messrs. Pinkas and Finn will not own or
control a majority of the outstanding capital stock of the Company. The holders
of Common Stock are entitled to one vote per share on all matters submitted for
action by the stockholders. There is no provision for cumulative voting rights
with respect to the election of directors. Accordingly, the holders of more than
50% of the outstanding Common Stock will have the power to elect all of the
directors. The holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of funds legally available
therefor. In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of liabilities and
after provision has been made for each class of securities, if any, having
preference over the Common Stock. Holders of Common Stock, as such, have no
conversion, preemptive or other subscription rights and there are no redemption
provisions applicable to the Common Stock. All of the outstanding shares of
Common Stock are, and the shares of Common Stock offered hereby, when issued
against the consideration set forth in this Prospectus, will be, fully-paid and
non-assessable. Certificates evidencing the number of shares of Common Stock
owned by each stockholder of record will be available upon request by such
stockholder.
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Amendment and Restatement of the Charter and its
Bylaws provide for the Board of Directors to be divided into three classes of
directors serving staggered three-year terms. This provision has been included
in the Articles of Amendment and Restatement of the Charter and the Bylaws to
provide greater likelihood of continuity of management for the Company since the
nature of the Company's investments is such that continuity of management for a
substantial period may be necessary to realize the full value of the investments
made by the Company. A staggered Board of Directors may serve to deter hostile
takeovers of the Company. The Board of Directors has considered this provision
and determined that it is in the best interests of the stockholders.
Under the Maryland General Corporation Law, a Maryland corporation may not
engage in any business combination with any "interested stockholder" or any
affiliate of the interested stockholder for a period of five years following the
date on which the interested stockholder became an interested stockholder except
under certain specified conditions. An "interested stockholder" for this purpose
is any holder or affiliate of any holder of 10% or more of the corporation's
stock. The law also restricts the voting rights of "control shares" acquired in
a "control share acquisition," as defined in the law. As permitted by the law,
the Company's Articles of Amendment and Restatement of the Charter exempt from
the application of these provisions any shares of the Company that may now or in
the future be owned by an employee stock ownership or similar plan.
In addition, the Company's Articles of Amendment and Restatement of the
Charter contain certain special voting provisions. First, a director may be
removed by the stockholders only for cause and then only by a vote of the
holders of at least 75% of the shares entitled to be cast on the matter. Second,
in order to convert the Company from a closed-end to an open-end investment
company, the affirmative vote of at least 75% of the Continuing Directors (as
defined below) and by the holders of at least 75% of the shares entitled to be
cast on the matter. A "Continuing Director" for these purposes is any member of
the Board of Directors of the Company who (i) is not a person or affiliate of a
person who enters or proposes to enter into a business combination, as defined
in the Maryland General Corporation Law, with the Company (an "Interested
Party") and (ii) who has been a member of the Board of Directors of the Company
for a period of at least 12 months, or is a successor of a Continuing Director
who is unaffiliated with an Interested Party and has been recommended to succeed
a Continuing Director by a majority of the Continuing Directors then on the
Board of Directors of the Company. In addition, the Company's Bylaws provide
that a meeting of the stockholders that is not called by the Chairman and Chief
Executive Officer, the President or a majority of the Board of
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<PAGE> 42
Directors may be called only by the holders of at least a majority of the shares
entitled to be cast on the matter.
The effect and intention of these provisions of law and of the Company's
Articles of Amendment and Restatement of the Charter and its Bylaws is to make a
takeover of the Company more difficult than it might be in the absence of such
provisions. The percentages required by the above voting provisions are in
excess of those required by Federal law and by the General Corporation Law of
the State of Maryland. The Board of Directors of the Company has determined that
such provisions are in the best interests of the stockholders of the Company.
ANNUAL MEETINGS
Pursuant to the Company's Bylaws, an annual meeting of the stockholders of
the Company shall be held on such date and at such hour as may from time to time
be designated by the Board of Directors and stated in the notice of such meeting
for the purpose of electing directors and for the transaction of such other
business as may be properly brought before the meeting.
TRANSFER AND DIVIDEND PAYING AGENT AND CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts, 02110 will act as the Company's transfer and dividend paying
agent and registrar and as the Company's custodian.
ADMINISTRATION
The Company anticipates that State Street Bank and Trust Company will also
be appointed to serve as the Company's administrator and will be responsible for
administering the ordinary course of the Company's business.
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<PAGE> 43
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") between the Company and EVEREN Securities, Inc.
(formerly, Kemper Securities, Inc.) (the "Principal Underwriter") and McDonald &
Company Securities, Inc., Morgan Keegan & Company, Inc., Needham & Company,
Inc., Stifel, Nicolaus & Company, Incorporated, First of Michigan Corporation
and NatCity Investments, Inc. (collectively with the Principal Underwriter, the
"Underwriters"), the Underwriters have agreed to purchase from the Company and
the Company has agreed to sell to the Underwriters the number of shares of
Common Stock set forth opposite their respective names below at the public
offering price set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent, and that the Underwriters are committed to
purchase all of the shares of Common Stock if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
-------------------------------------------------------------------- ----------------
<S> <C>
EVEREN Securities, Inc. ............................................
McDonald & Company Securities, Inc. ................................
Morgan Keegan & Company, Inc. ......................................
Needham & Company, Inc. ............................................
Stifel, Nicolaus & Company, Incorporated............................
First of Michigan Corporation.......................................
NatCity Investments, Inc. ..........................................
-------
Total..................................................... 10,000,000
=======
</TABLE>
The Underwriters have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. There is no underwriting discount or
commission charged to the investors on purchases of Common Stock in the
Offering. The Investment Adviser (not the Company) will pay the Underwriters a
commission in the amount of 7.0% of the aggregate initial public offering price
of Common Stock in connection with sales of Common Stock in this Offering and
will pay the Principal Underwriter a one-time structuring fee of $500,000 upon
the close of the Offering. See "The Investment Advisory Agreement."
The Underwriters may allow to selected dealers a concession of not more
than $ per share of Common Stock; and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share of
Common Stock to certain other dealers. The concession to selected dealers and
reallowances to other dealers may be changed by the Underwriters. The shares of
Common Stock are offered subject to receipt and acceptance by the Underwriters,
and to certain other conditions, including the right to reject orders in whole
or in part.
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<PAGE> 44
The Company has granted an option to the Underwriters, exercisable during
the 45-day period after the date of this Prospectus, to purchase up to a maximum
of 1,500,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial Common Stock to be purchased by the
Underwriters. To the extent the Underwriters exercise this option, each of the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares in approximately the same proportion as set forth in the above
table. The Underwriters may purchase such shares only to cover over-allotments
made in connection with this Offering.
The Principal Underwriter currently intends to act as a market maker with
respect to the shares of Common Stock. However, it is under no obligation to do
so and, if it chooses to do so, may cease such activities without notice.
The Investment Adviser, from its own funds, has agreed to make payments to
the Principal Underwriter for consultation and statistical and factual
information with respect to the Company's market performance and general
economic and business conditions. See "The Investment Advisory Agreement."
The Underwriting Agreement provides that the Company and the Investment
Adviser will indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, or will contribute to payments the
Underwriters may be required to make in respect thereof. However, such
indemnification is subject to the provisions of Section 17(l) of the Investment
Company Act which provides, in part, that no agreement shall contain a provision
which protects or purports to protect an underwriter of an investment company or
Business Development Company against any liability to such company or its
security holders to which it would otherwise be subject due to its misfeasance,
bad faith or gross negligence in the performance of its duties, or reckless
disregard of its obligations and duties under such agreement.
The Company has agreed with the Underwriters not to issue any shares or
securities convertible into or exercisable or exchangeable for, or warrants,
options or rights to purchase or acquire, shares of the Company, or enter into
any agreement to do any of the foregoing for a period of 120 days after the date
of this Prospectus without the written consent of the Principal Underwriter.
The Principal Underwriter has from time to time provided investment banking
and financial advisory services to the Investment Adviser and its affiliates and
may continue to do so in the future.
The Company anticipates that the selling broker/dealers or their affiliates
may, from time to time, subject to the regulations set forth in the Investment
Company Act, act as brokers or dealers in connection with the execution of the
Company's investments after the Principal Underwriter ceases to be an
underwriter for this Offering. See "The Company -- Broker Allocation and Other
Practices."
Each investor must purchase a minimum of 500 shares of Common Stock in this
Offering (except that an IRA must purchase a minimum of 200 shares of Common
Stock in this Offering). Any shares in excess of the applicable minimum must be
purchased in 100 share increments.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Jenner & Block, Chicago, Illinois, who is also counsel
to the Investment Adviser. Certain matters will be passed upon for the
Underwriters by Vedder, Price, Kaufman & Kammholz, Chicago, Illinois.
EXPERTS
The Statement of Assets and Liabilities of Brantley Capital Corporation as
of October 29, 1996 appearing in this Prospectus and in the Registration
Statement has been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon, appearing elsewhere herein and in the
Registration Statement and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
42
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Brantley Capital Corporation
We have audited the accompanying statement of assets and liabilities of Brantley
Capital Corporation (the "Company") as of October 29, 1996. The Statement of
Assets and Liabilities is the responsibility of the Company's management. Our
responsibility is to express an opinion on the Statement of Assets and
Liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in that financial statement. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the Statement of Assets and Liabilities referred to above,
presents fairly, in all material respects, the financial position of Brantley
Capital Corporation as of October 29, 1996, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Cleveland, Ohio
October 30, 1996
F-1
<PAGE> 46
BRANTLEY CAPITAL CORPORATION
Statement of Assets and Liabilities
October 29, 1996
<TABLE>
<CAPTION>
ASSETS
- ----------------------------------------------------------------------------------
<S> <C>
Cash.............................................................................. $ 50
Deferred organization costs....................................................... 413,552
--------
413,602
--------
LIABILITIES
- ----------------------------------------------------------------------------------
Liabilities:
Accrued organization costs...................................................... 308,252
--------
Net assets (25,000,000 shares of Common Stock authorized;
10,535 shares issued and outstanding)........................................... $105,350
========
Net asset value per share......................................................... $ 10
========
</TABLE>
See accompanying notes to statement of assets and liabilities.
F-2
<PAGE> 47
BRANTLEY CAPITAL CORPORATION
Notes to Statement of Assets and Liabilities
October 29, 1996
A. ORGANIZATION AND BUSINESS PURPOSES
Brantley Capital Corporation (the "Company"), a Maryland corporation, was
organized on August 1, 1996, and has had no operations to date other than
matters relating to its organization and registration as a closed-end,
non-diversified investment company organized as a business development company
under the Investment Company Act of 1940, and the sale and issuance to the
principal stockholders of Brantley Capital Management, Ltd. (the "Investment
Adviser") of 10,350 shares of common stock (the "Common Stock") for an aggregate
purchase price of $105,350. The registration and offering of the Company's
Common Stock (the "Offering") is for 10,000,000 shares (not including the
underwriters' over-allotment option) at a proposed maximum offering price per
share of $10.00.
B. DEFERRED ORGANIZATION COSTS AND OFFERING COSTS
Deferred organization costs relating to the Company will be deferred and
amortized on a straight-line basis for a five-year period beginning at the
commencement of operations of the Company.
Offering costs payable by the Company will be charged to capital at the
time of issuance of Common Stock in the Offering. Underwriting commissions in
the amount of 7.0% of the aggregate initial public offering price of the Common
Stock, plus a one-time charge of $500,000 payable to the principal underwriter,
will be paid by the Investment Adviser.
C. INVESTMENT ADVISORY AGREEMENT
The Company will enter into an investment advisory agreement with the
Investment Adviser pursuant to which the Investment Adviser will, among other
things, provide investment advisory services to the Company and will be
responsible for the management of the Company's portfolio in accordance with the
Company's investment policies and for making decisions to buy, sell, or hold
particular securities.
D. STOCK OPTION PLANS
Concurrent with the initial public offering, a stock option plan has been
authorized, which reserves 1,175,000 shares of Common Stock and provides for
grants to officers and employees. Upon the closing of the Offering, options to
purchase 350,000 shares of Common Stock at $10.00 per share will be granted to
the Company's executive officers. These options will become exercisable as to
one-third of the Option Shares on the first anniversary of the closing of the
Offering, as to an additional one-third of the Option Shares on the second
anniversary of the closing of the Offering and as to the remaining one-third of
the Option Shares on the third anniversary of the closing of the Offering.
In addition, the Company has adopted a stock option plan relating to 75,000
shares of Common Stock and providing for option grants solely to the
disinterested directors of the Company (the "Disinterested Director Option
Plan"), subject to receipt of an order of the Securities and Exchange Commission
approving such Plan as fair and reasonable, and not involving overreaching of
the Company or its stockholders.
F-3
<PAGE> 48
BRANTLEY CAPITAL CORPORATION
Appendix to Prospectus
As disclosed in the "Investment Objectives and Policies" section of the
attached Prospectus, Brantley Capital Corporation (the "Company") will have
certain latitude in conducting its investment activities. In doing so, the
Company will not: (i) purchase securities on margin, except such short-term
credits as are necessary for the clearance of transactions, or (ii) acquire the
voting stock of, or invest in any securities issued by any other investment
company if immediately after such acquisition, the Company and any affiliates of
the Company own in the aggregate (A) more than 3% of the total outstanding
voting stock of the acquired company, (B) securities having an aggregate value
greater than 5% of the value of the total assets of the Company or (C)
securities of the acquired company and all other investment companies (other
than treasury stock of the Company) having an aggregate value greater than 10%
of the Company. With respect to certain investment activities in which it may
engage, the Company discloses the following information.
DERIVATIVES
Consistent with its objectives, the Company may invest up to 30% of its
total assets that are not required to be Eligible Assets in a broad array of
financial instruments and securities, including conventional exchange-traded and
non-exchange-traded options, futures contracts, futures options, securities
collateralized by underlying pools of mortgages or other receivables, floating
rate instruments and other instruments that securitize assets of various types
(collectively, "Derivatives," and individually, a "Derivative"). In each case,
the value of the instrument or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index, an interest rate, or
a currency.
Derivatives are most often used to manage investment risk or to create an
investment position indirectly because they are more efficient or less costly
than direct investments that cannot be readily established directly due to
portfolio size, cash availability, or other factors. Derivatives may also be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Investment Adviser's
ability to correctly predict changes in the levels and directions of movements
in security prices, interest rates and other market factors affecting the
Derivatives themselves or the value of the underlying asset or benchmark. In
addition, correlations in the performance of an underlying asset to Derivatives
may not be well established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less marketable than
exchange-traded Derivatives.
The Company presently does not intend to invest more than 5% of its net
assets in any type of Derivative, except for options, futures contracts, and
futures options.
Some mortgage-backed debt securities are of the "modified pass-through
type," which means the interest and principal payments on mortgages in the pool
are "passed through" to investors. During periods of declining interest rates,
there is increased likelihood that mortgages will be prepaid, with a resulting
loss of the full-term benefit of any premium paid by the Company on purchase of
such securities; in addition, the proceeds of prepayment would likely be
invested at lower interest rates.
Mortgage-backed securities provide either a pro rata interest in underlying
mortgages or an interest in collateralized mortgage obligations ("CMOs") that
represent a right to interest and/or principal payments from an underlying
mortgage pool. CMOs are not guaranteed by either the U.S. government or by its
agencies or instrumentalities, and are usually issued in multiple classes each
of which has different payment rights, prepayment risks and yield
characteristics. Mortgage-backed securities involve the risk of prepayment on
the underlying mortgages at a faster or slower rate than the established
schedule. Prepayments generally increase with falling interest rates and
decrease with rising rates, but they also are influenced by economic, social,
and market factors. If mortgages are pre-paid during periods of declining
interest rates, there would be a resulting loss of the full-term benefit of any
premium paid by the Company on purchase of the CMO, and the proceeds of
prepayment would likely be invested at lower interest rates.
A-1
<PAGE> 49
Non-mortgage asset-backed securities usually have less prepayment risk than
mortgage-backed securities, but have the risk that the collateral will not be
available to support payments on the underlying loans that finance payments on
the securities themselves.
Floating rate instruments provide for periodic adjustments in coupon
interest rates that are automatically reset based on changes in amount and
direction of specified market interest rates. In addition, the adjusted duration
of some of these instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to lifetime or periodic
interest rate caps or floors, such instruments may experience greater price
volatility than debt instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and refers to the
approximate percentage change in price for a 100 basis point change in yield.
For example, if interest rates decrease by 100 basis points, a market price of a
security with an adjusted duration of two would increase by approximately 2%.
OPTIONS ON SECURITIES AND INDEXES
The Company may purchase and sell put options and call options on
securities, indexes or foreign currencies in standardized contracts traded on
recognized securities exchanges, boards of trade, or similar entities. The
Company may purchase agreements, sometimes called cash puts, that may accompany
the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the purchaser
(holder) of the option, in return for a premium, the right to buy from (call) or
sell to (put) the seller (writer) of the option the security underlying the
option (or the cash value of the index) at a specified exercise price at any
time during the term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign currency has the
obligation upon exercise of the option to deliver the underlying security or
foreign currency upon payment of the exercise price or to pay the exercise price
upon delivery of the underlying security or foreign currency. Upon exercise, the
writer of an option on an index is obligated to pay the difference between the
cash value of the index and the exercise price multiplied by the specified
multiplier for the index option. (An index is designed to reflect specified
facets of a particular financial or securities market, a specific group of
financial instruments or securities, or certain economic indicators.)
The Company will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if the Company owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its Custodian)
upon conversion or exchange of other securities held in its portfolio.
If an option written by the Company expires, the Company realizes a capital
gain equal to the premium received at the time the option was written. If an
option purchased by the Company expires, the Company realizes a capital loss
equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Company desires.
The Company will realize a capital gain from a closing purchase transaction
if the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Company will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Company will realize a capital gain or, if it is
less, the Company will realize a capital loss. The principal factors affecting
the market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation
to the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.
A put or call option purchased by the Company is an asset of the Company,
valued initially at the premium paid for the option. The premium received for an
option written by the Company is recorded as a deferred credit. The value of an
option purchased or written is marked-to-market daily and is valued at the
A-2
<PAGE> 50
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid and
asked prices.
Risks Associated With Options on Securities and Indexes. There are several
risks associated with transactions in options. For example, there are
significant differences between the securities markets, the currency markets,
and the options markets that could result in an imperfect correlation between
these markets, causing a given transaction not to achieve its objectives. A
decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful to
some degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when the Company
seeks to close out an option position. If the Company were unable to close out
an option that it had purchased on a security, it would have to exercise the
option in order to realize any profit or the option would expire and become
worthless. If the Company were unable to close out a covered call option that it
had written on a security, it would not be able to sell the underlying security
until the option expired. As the writer of a covered call option on a security,
the Company forgoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option above the
sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased or written by the Company,
the Company would not be able to close out the option. If restrictions on
exercise were imposed, the Company might be unable to exercise an option it has
purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Company may use interest rate futures contracts, index futures
contracts and foreign currency futures contracts. An interest rate, index or
foreign currency futures contract provides for the future sale by one party and
purchase by another party of a specified quantity of a financial instrument or
the cash value of an index(1) at a specified price and time. A public market
exists in futures contracts covering a number of indexes (including, but not
limited to: the Standard & Poor's 500 Index, the Value Line Composite Index,and
the New York Stock Exchange Composite Index) as well as financial instruments
(including, but not limited to: U.S. Treasury bonds, U.S. Treasury notes,
Eurodollar certificates of deposit, and foreign currencies). Other index and
financial instrument futures contracts are available and it is expected that
additional futures contracts will be developed and traded.
The Company may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities,
indexes and foreign currencies (discussed above). A futures option gives the
holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true. The Company might, for example, use futures contracts to hedge
against or gain exposure to fluctuations in the general level of stock prices,
anticipated changes in interest rates or currency fluctuations that might
adversely affect either the value of the Company's securities or the price of
the securities that the Company intends to purchase. Although other techniques
could be used to reduce or increase the Company's exposure to stock price,
interest rate and currency fluctuations, the Company may be able to achieve its
exposure more effectively and perhaps at a lower cost by using futures contracts
and futures options.
The Company will only enter into futures contracts and futures options that
are standardized and traded on an exchange, board of trade, or similar entity,
or quoted on an automated quotation system.
- ---------------
(1) A futures contract on an index is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the difference
between the value of the index at the close of the last trading day of the
contract and the price at which the index contract was originally written.
Although the value of a securities index is a function of the value of
certain specified securities, no physical delivery of those securities is
made.
A-3
<PAGE> 51
The success of any futures transaction depends on the Investment Adviser
correctly predicting changes in the level and direction of stock prices,
interest rates, currency exchange rates and other factors. Should those
predictions be incorrect, the Company's return might have been better had the
transaction not been attempted; however, in the absence of the ability to use
futures contracts, the Investment Adviser might have taken portfolio actions in
anticipation of the same market movements with similar investment results but,
presumably, at greater transaction costs.
Some futures contracts call for making or taking delivery of the underlying
securities, however, these obligations are usually closed out prior to delivery
by offsetting purchases or sales of matching futures contracts (same exchange,
underlying security or index, and delivery month). If an offsetting purchase
price is less than the original sale price, the Company engaging in the
transaction realizes a capital gain, or if it is more, the Company realizes a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, the Company engaging in the transaction realizes a capital gain,
or if it is less, the Company realizes a capital loss. The transaction costs
must also be included in these calculations.
RISKS ASSOCIATED WITH FUTURES
There are several risks associated with the use of futures contracts and
futures options. A purchase or sale of a futures contract may result in losses
in excess of the amount invested in the futures contract. In trying to increase
or reduce market exposure, there can be no guarantee that there will be a
correlation between price movements in the futures contract and in the portfolio
exposure sought. In addition, there are significant differences between the
securities and futures markets that could result in an imperfect correlation
between the markets, causing a given transaction not to achieve its objectives.
The degree of imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures options and the
related securities, including technical influences in futures and futures
options trading and differences between the securities market and the securities
underlying the standard contracts available for trading. For example, in the
case of index futures contracts, the composition of the index, including the
issuers and the weighing of each issue, may differ from the composition of the
Company's portfolio, and, in the case of interest rate futures contracts, the
interest rate levels, maturities, and creditworthiness of the issues underlying
the futures contract may differ from the financial instruments held in the
Company's portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected stock price or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses. Stock index
futures contracts are not normally subject to such daily price change
limitations.
There can be no assurance that a liquid market will exist at a time when
the Company seeks to close out a futures or futures option position. The Company
would be exposed to possible losses on its positions during the interval of its
inability to close. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
A-4
<PAGE> 52
LIMITATIONS ON OPTIONS AND FUTURES
If other options, futures contracts, or futures options of types other than
those described herein are traded in the future, the Company may also use those
investment vehicles, provided the Board of Directors determines that their use
is consistent with the Company's investment objectives.
The Company will not enter into a futures contract or purchase an option
thereon if, immediately thereafter, the purchase price of the futures contracts
plus premiums paid by the Company for open futures option positions, less the
amount by which any such positions are "in-the-money,"(2) would exceed 5% of the
Company's total assets.
When purchasing a futures contract or writing a put option on a futures
contract, the Company must maintain with its custodian (or broker, if legally
permitted) cash or cash equivalents (including any margin) equal to the market
value of such contract. When writing a call option on a futures contract, the
Company similarly will maintain with its custodian cash or cash equivalents
equal to the amount by which such option is in-the-money until the option
expires or is closed out by the Company.
In order to comply with Commodity Futures Trading Commission Regulation 4.5
and thereby avoid being deemed a "commodity pool operator," the Company will use
commodity futures or commodity options contracts solely for bona fide hedging
purposes within the meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts that do not come
within the meaning and intent of 1.3(z), the aggregate payments required to
establish such positions will not exceed 5% of the fair market value of the
assets of the Company, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into (in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount (as
defined in Section 190.01(x) of the Commission Regulations) may be excluded in
computing such 5%).
TAXATION OF OPTIONS AND FUTURES
If the Company exercises a call or put option that it holds, the premium
paid for the option is added to the cost basis of the security purchased (call)
or deducted from the proceeds of the security sold (put). For cash settlement
options and futures options exercised by the Company, the difference between the
cash received at exercise and the premium paid is a capital gain or loss.
If a call or put option written by the Company is exercised, the premium is
included in the proceeds of the sale of the underlying security (call) or
reduces the cost basis of the security purchased (put). For cash settlement
options and futures options written by the Company, the difference between the
cash paid at exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in capital gain or
loss. If an option written by the Company was in-the-money at the time it was
written and the security covering the option was held for more than the
long-term holding period prior to the writing of the option, any loss realized
as a result of a closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not include the
period of time the option is outstanding.
If the Company writes an equity call option(3) other than a "qualified
covered call option," as defined in the Internal Revenue Code, any loss on such
option transaction, to the extent it does not exceed the unrealized gains on the
securities covering the option, may be subject to deferral until the securities
covering the option have been sold.
- ---------------
(2) A call option is "in-the-money" if the value of the futures contract that is
the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.
(3) An equity option is defined to mean any option to buy or sell stock, and any
other option the value of which is determined by reference to an index of
stocks of the type that is ineligible to be traded on a commodity futures
exchange (e.g., an option contract on a sub-index based on the price of
hotel-casino stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500 index).
A-5
<PAGE> 53
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If the Company delivers securities under a futures contract,
the Company also realizes a capital gain or loss on those securities.
For federal income tax purposes, the Company generally is required to
recognize as income for each taxable year its net unrealized gains and losses as
of the end of the year on futures, futures options and non-equity options
positions ("year-end mark-to-market"). Generally, any gain or loss recognized
with respect to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and 40% short-term,
without regard to the holding periods of the contracts. However, in the case of
positions classified as part of a "mixed straddle," the recognition of losses on
certain positions (including options, futures and futures options positions, the
related securities and certain successor positions thereto) may be deferred to a
later taxable year. Sale of futures contracts or writing of call options (or
futures call options) or buying put options (or futures put options) that are
intended to hedge against a change in the value of securities held by the
Company: (1) will affect the holding period of the hedged securities; and (2)
may cause unrealized gain or loss on such securities to be recognized upon entry
into the hedge.
If the Company were to enter into a short index future, short index futures
option or short index option position and the Company's portfolio were deemed to
"mimic" the performance of the index underlying such contract, the option or
futures contract position and the Company's stock positions would be deemed to
be positions in a mixed straddle, subject to the above-mentioned loss deferral
rules.
In order for the Company to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition, gains realized
on the sale or other disposition of securities held for less than three months
must be limited to less than 30% of the Company's annual gross income. Any net
gain realized from futures (or futures options) contracts will be considered
gain from the sale of securities and therefore be qualifying income for purposes
of the 90% requirement. In order to avoid realizing excessive gains on
securities held less than three months, the Company may be required to defer the
closing out of certain positions beyond the time when it would otherwise be
advantageous to do so.
The Company distributes to stockholders annually any net capital gains that
have been recognized for federal income tax purposes (including year-end
mark-to-market gains) on options and futures transactions. Such distributions
are combined with distributions of capital gains realized on the Company's other
investments, and stockholders are advised of the nature of the payments.
A-6
<PAGE> 54
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information.................. 2
Prospectus Summary...................... 3
Risk Factors............................ 8
Use of Proceeds......................... 12
Distributions........................... 12
The Company............................. 13
Investment Objectives and Policies...... 18
Management.............................. 21
Prior Experience of Principals of the
Investment Adviser.................... 25
The Investment Advisory Agreement....... 30
Regulation.............................. 30
Valuation of Portfolio Securities....... 33
Federal Income Tax Matters.............. 34
Dividend Reinvestment and Cash Purchase
Plan.................................. 37
Description of Capital Stock............ 39
Underwriting............................ 41
Legal Matters........................... 42
Experts................................. 42
Independent Auditors' Report............ F-1
Appendix A.............................. A-1
</TABLE>
------------------
Until 1996, (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
------------------------------------------------------
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------------------------------------------------------
------------------------------------------------------
10,000,000 SHARES
OF COMMON STOCK
BRANTLEY CAPITAL
CORPORATION
--------------------
PROSPECTUS
, 1996
--------------------
EVEREN SECURITIES, INC.
MCDONALD & COMPANY
SECURITIES, INC.
MORGAN KEEGAN & COMPANY, INC.
NEEDHAM & COMPANY, INC.
STIFEL, NICOLAUS & COMPANY
INCORPORATED
FIRST OF MICHIGAN CORPORATION
NATCITY INVESTMENTS, INC.
------------------------------------------------------
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<PAGE> 55
BRANTLEY CAPITAL CORPORATION
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Company has adopted a Dividend Reinvestment and Cash Purchase Plan (the
"Plan").
Please be aware that all dividends and distributions will be automatically
reinvested in shares of common stock, par value $.01 per share (the "Common
Stock"), of the Company at no cost to the stockholder.
Stockholders may make additional cash purchases of Common Stock in
accordance with the Plan. Acquisitions of shares of Common Stock for
reinvestment or cash purchases of shares of Common Stock will be made by the
Company from shares of Common Stock selling at a discount to the Company's net
asset value ("NAV") and, with respect to reinvestment, through the issuance of
new shares of Common Stock by the Company at NAV. Reinvested dividends and
distributions will be used by the Company for general investment and operating
purposes, including additional investments in portfolio companies.
Shares of Common Stock acquired by the Company in accordance with the Plan
will be held in the name of the Company in unissued form by the Company's
transfer agent and investors will receive a quarterly statement reflecting the
number of shares of Common Stock owned in the Plan. These shares can be issued
to the individual investor, or can be liquidated upon written instructions of
the registered investor.
If you wish to have your dividends sent to you instead of held for
reinvestment, please complete and execute the following section.
ELECTION TO RECEIVE DIVIDENDS AND NOT PARTICIPATE IN THE PLAN
The undersigned elects not to participate in the Dividend Reinvestment and
Cash Purchase Plan and requests all dividends and distributions to be forwarded
to the following address:
Name of Stockholder:
- --------------------------------------------------------------------------------
Account Number for Deposit:
- --------------------------------------------------------------------------------
Bank or Custodial Name:
- --------------------------------------------------------------------------------
Address for Dividend Mailing:
- --------------------------------------------------------------------------------
City State Zip
- -------------------------------------------------- -----------------------
Phone (________) ________ - ________ Fax (________) ________ - ________
Date ____________________ Signature of Registered Holder _____________________
RETURN THIS ELECTION TO STATE STREET BANK AND TRUST COMPANY
AT
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
(617) 786-3000
<PAGE> 56
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and exhibits are filed as part of the
registration statement.
1. Financial Statements
Statement of Assets and Liabilities of the Company as of October 29, 1996
2. Exhibits
<TABLE>
<S> <C>
a.1. Articles of Incorporation of the Company**
a.2. Articles of Amendment and Restatement of the Charter of the Company
b. Bylaws of the Company
d. Form of Share Certificate
e. Form of Dividend Reinvestment and Cash Purchase Plan
g. Form of Investment Advisory Agreement between the Company and the Investment Adviser
h.1. Form of Underwriting Agreement*
h.2. Form of Master Agreement Among Underwriters
h.3. Form of Master Dealer Agreement
i.1. Form of Stock Option Plan and Form of Option Grants*
i.2. Form of Disinterested Director Option Plan and Form of Option Grants*
j. Form of Custodian Agreement*
k. Form of Transfer Agent Agreement*
l. Opinion and Consent of Jenner & Block*
n. Consent of Ernst & Young LLP
s. Form of Indemnification Agreement for directors and officers*
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
All other exhibits are omitted because they are not applicable or the
required information is shown in the financial statements or the notes thereto.
ITEM 25. MARKETING ARRANGEMENTS
The Company will enter into an agreement with a group of investment banking
firms to distribute the Company's Common Stock in a firm commitment
underwriting.
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ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities covered by this Registration
Statement.
<TABLE>
<S> <C>
Securities and Exchange Commission.................................... $ 39,905.00
National Association of Securities Dealers, Inc. ..................... 12,000.00
Nasdaq National Market System......................................... 46,250.00
Blue Sky fees and expenses............................................ 10,000.00
Printing expenses..................................................... 80,000.00
Legal fees and expenses............................................... 200,000.00
Accounting fees and expenses.......................................... 15,000.00
Miscellaneous......................................................... 40,000.00
-----------
Total................................................................. $443,155.00
===========
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
As of October 30, 1996, the outstanding capital stock of Brantley Capital
Corporation, a Maryland corporation (the "Registrant"), was owned by Robert P.
Pinkas and Michael J. Finn. The investment adviser for the Registrant is
Brantley Capital Management, Ltd., a Delaware corporation (the "Investment
Adviser"), a majority of the outstanding capital stock of which is owned by Mr.
Pinkas, Chairman, Chief Executive Officer and Chief Financial Officer of the
Investment Adviser. Mr. Pinkas is also general partner of Brantley Venture
Management, L.P., the general partner of Brantley Venture Partners, L.P. ("BVP
I") and, along with Michael J. Finn, President of the Investment Adviser, and
Paul H. Cascio, Vice President of the Investment Adviser, is a general partner
of Brantley Venture Management II, L.P. and Brantley Venture Management III,
L.P., the respective general partners of Brantley Venture Partners II, L.P.
("BVP II") and Brantley Venture Partners III, L.P. ("BVP III"). In addition to
Messrs. Pinkas, Finn and Cascio, James R. Bergman, Vice President of the
Investment Adviser is a general partner of the general partner of BVP III. Each
of the Brantley Venture Management entities is a Delaware limited partnership.
BVP I, BVP II and BVP III are also Delaware limited partnerships and were formed
to make venture capital investments. See "Management" in the Prospectus
contained herein.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
------------------------------------------------------------- ------------------------
<S> <C>
Common Stock................................................. 2
</TABLE>
ITEM 29. INDEMNIFICATION
Article VIII of the Bylaws of the Company provides that the Company shall
indemnify its directors and officers to the maximum extent allowed by the
Maryland General Corporation Law, except that the Company will not indemnify nor
purchase insurance that protects or purports to protect its directors and
officers against liabilities for willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
respective offices. Pursuant to Section 2-418 of the Maryland General
Corporation Law, the Company generally has the power to indemnify its present
and former directors and officers against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred by them in connection
with any proceeding to which they are, or are threatened to be made, party by
reason of their serving in those positions so long as they acted in good faith
and in a manner they reasonably believed to be in, or not opposed to, the best
interests of the Company, and with respect to any criminal action, so long as
they had no reasonable cause to believe their conduct was unlawful. With respect
to suits by or in the right of the Company, indemnification is not available if
the person is adjudged to be liable to the Company. The statute expressly
provides that the power to indemnify authorized thereby is not exclusive of any
rights granted under the charter, the bylaws, a resolution of the stockholders
or directors, an agreement or otherwise, both as to action in an official
capacity
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<PAGE> 58
and as to action in another capacity while holding such office. The Company also
has the power to purchase and maintain insurance for its directors, officers,
employees or agents.
The preceding discussion of the Company's Bylaws and Section 2-418 of the
Maryland General Corporation Law is not intended to be exhaustive and is
qualified in its entirety by the Company's Bylaws and Section 2-418 of the
Maryland General Corporation Law.
The Company intends to enter into indemnification agreements with the
Company's directors and officers. Pursuant to such agreements, the Company will,
to the extent permitted by applicable law, indemnify such persons against all
judgments, penalties, fines, settlements, and reasonable expenses actually
incurred by them in connection with the defense or settlement of any proceeding
to which they are, or are threatened to be made, party by reason of the fact
that they were directors or officers of the Company or assumed certain
responsibilities at the direction of the Company.
The form of Principal Underwriter Agreement included herein as Exhibit
provides for indemnification of the Underwriters under certain circumstances,
including indemnification for liabilities under the Securities Act of 1933 (the
"Securities Act").
Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Robert P. Pinkas, Chairman, Chief Executive Officer and Chief Financial
Officer, Michael J. Finn, President, and Paul H. Cascio, Vice President of the
Investment Adviser, serve as general partners of the general partners of BVP II
and BVP III, and Mr. Pinkas serves as general partner of the general partner of
BVP I. See "Item 27. Persons Controlled by or Under Common Control." The address
of each of the entities listed above is 20600 Chagrin Boulevard, Suite 1150,
Cleveland, Ohio 44122. Prior to joining BVP II and BVP III in 1995, Mr. Finn
served as portfolio manager and vice president of the Venture Capital Group of
Sears Investment Management Company, 55 West Monroe Street, Suite 3200, Chicago,
Illinois 60603. Prior to joining BVP II and BVP III in May 1996, Mr. Cascio was
a managing director and head of the industrial manufacturing and services group
in the corporate finance department at Dean Witter Reynolds Inc., Two World
Trade Center, New York, New York 10048.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The books of account, securities and other documents and records, of the
Registrant are maintained by the Investment Adviser at its offices at 20600
Chagrin Boulevard, Suite 1150, Cleveland, Ohio 44122.
ITEM 32. MANAGEMENT SERVICES
None other than as described in the prospectus contained herein.
ITEM 33. UNDERTAKINGS
(1) Not Applicable.
(2) Not Applicable.
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<PAGE> 59
(3) Not Applicable.
(4) Not Applicable.
(5) The Company undertakes that, for purposes of determining any liability
under the Securities Act:
(a) the information omitted from the Prospectus in reliance upon Rule
430A of the Securities Act and contained in the form of Prospectus filed by
the Company pursuant to Rule 497(h) under the Securities Act, shall be
deemed to be part of this Registration Statement as of the time it was
declared effective; and
(b) each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered hereby and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(6) Not Applicable.
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<PAGE> 60
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
on the 30th day of October, 1996.
Brantley Capital Corporation
By: /s/ ROBERT P. PINKAS
Robert P. Pinkas,
Chairman of the Board, Chief
Executive Officer, Chief
Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated. Each person whose signature to this Registration
Statement appears below hereby appoints each of Robert P. Pinkas and Michael J.
Finn as his attorney-in-fact to sign on his behalf, individually and in the
capacities stated below, and to file any and all amendments and post-effective
amendments to this Registration Statement, which amendment or amendments may
make such changes and additions as such attorney in fact may deem necessary or
appropriate.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- --------------------------------- ----------------
<S> <C> <C>
/s/ ROBERT P. PINKAS Chairman of the Board, Chief October 30, 1996
Robert P. Pinkas Executive Officer, Chief
Financial Officer, Treasurer and
Director (principal executive
officer and principal financial
and accounting officer)
/s/ MICHAEL J. FINN President and Director October 30, 1996
Michael J. Finn
/s/ L. PATRICK BALES Director October 30, 1996
L. Patrick Bales
/s/ BENJAMIN F. BRYAN Director October 30, 1996
Benjamin F. Bryan
/s/ RICHARD MOODIE Director October 30, 1996
Richard Moodie
</TABLE>
C-5
<PAGE> 1
EXHIBIT 2.a.2.
ARTICLES OF AMENDMENT AND
RESTATEMENT OF THE CHARTER
OF
BRANTLEY CAPITAL CORPORATION
BRANTLEY CAPITAL CORPORATION, a Maryland corporation having its principal
office in the State of Maryland at 32 South Street, Baltimore, Maryland 21202
(hereinafter called the "Corporation") hereby certifies to the State Department
of Assessments and Taxation that:
1. The Corporation desires to amend and restate its charter.
2. The amendment and restatement of the Corporation's charter was advised
by the Board of Directors and approved by the initial stockholders.
3. The total number of all classes of stock which the Corporation was
heretofore authorized to issue is One Thousand (1,000) shares, all of one class,
of the par value of One Cent ($.01) each and of the aggregate par value of Ten
Dollars ($10.00).
4. The total number of shares of all classes of stock of the Corporation as
increased, and the number, par value and description of the shares are as set
forth in Article FOURTH of these Articles of Amendment and Restatement of the
Charter of the Corporation.
5. The following are the Articles of Incorporation of the Corporation as
amended and restated:
FIRST: NAME. The name of the Corporation is BRANTLEY CAPITAL CORPORATION.
SECOND: PURPOSE. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law, including, without limitation,
to act as a closed-end, non-diversified management investment company, electing
status as a business development company under the Investment Company Act of
1940, as amended (the "Investment Company Act"); provided, however, that the
Corporation may cease to be treated as a business development company upon
compliance with the requirements of the Investment Company Act with respect
thereto.
THIRD: PRINCIPAL OFFICE AND RESIDENT AGENT. The post office address of the
place at which the principal office of the Corporation in the State of Maryland
is located is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202. The name and post office address of the Corporation's
resident agent in the State of Maryland is The Corporation Trust Incorporated,
32 South Street, Baltimore, Maryland 21202.
<PAGE> 2
FOURTH: CAPITAL STOCK.
Section 1. The Corporation has authority to issue one class of capital
stock as follows: 25,000,000 shares of common stock of the par value of One Cent
($.01) per share the ("Common Stock"), having an aggregate par value of
$250,000.
Section 2. All preferences, rights, including rights to the dividends,
voting powers, restrictions and qualifications of or with respect to the shares
of Common Stock of the Corporation are and shall be in all respects subject and
subordinate to and limited, qualified and controlled by any and all
prohibitions, limitations, restrictions and qualifications with respect thereto
expressed in or resulting from compliance with (i) the laws of Maryland, (ii)
the terms and provisions of or with respect to any shares of any class of
preferred stock of the Corporation that are hereafter authorized and whether
before or after the classification thereof and whether the terms and provisions
thereof are those fixed by these Articles of Incorporation or by the Board of
Directors pursuant to any authority or power in these Articles of Incorporation,
or (iii) the other provisions of these Articles of Incorporation.
Section 3. Unless otherwise provided in these Articles of Incorporation,
the Board of Directors shall have the power to issue shares of capital stock of
the Corporation from time to time for such consideration and in such form as may
be fixed from time to time pursuant to the direction of the Board of Directors.
Section 4. Unless otherwise expressly provided in these Articles of
Incorporation, the holders of each share of capital stock of the Corporation
shall be entitled to one vote for each full share of capital stock, and a
fractional vote for each fractional share of capital stock then outstanding in
his or her name in the books of the Corporation. On any matter submitted to a
vote of stockholders, all shares of the Corporation then issued and outstanding
and entitled to vote, irrespective of the class of such shares, shall be voted
in the aggregate and not by class; provided, however, that (i) when otherwise
required by the General Corporation Law of the State of Maryland, (ii) when
required by the Investment Company Act, or (iii) when the matter does not affect
any interest of the particular class, then only stockholders of the affected
class shall be entitled to vote thereon unless otherwise expressly provided in
any amendment or supplement to these Articles. Stockholders of the Corporation
shall not be entitled to cumulative voting in the election of directors or on
any other matter unless otherwise expressly provided in any amendment or
supplement to these Articles creating any new class of stock.
Section 5. The presence in person or by proxy of the holders of record of
the majority of all shares of capital stock of the Corporation issued and
outstanding and entitled to vote thereat shall constitute a quorum for the
transaction of any business at all meetings of the stockholders of the
Corporation, except as otherwise provided by the Investment Company Act, the
General Corporation Law of the State of Maryland or in these Articles of
Incorporation.
Section 6. Except as otherwise provided in these Articles of Incorporation,
and notwithstanding any provision of the Laws of the State of Maryland requiring
action to be taken or authorized by the affirmative vote of the holders of a
designated proportion greater than a majority of the votes of all classes of
capital stock of the Corporation (or of any class entitled to vote thereon as a
separate class), such action shall be valid and effective if taken or authorized
-2-
<PAGE> 3
by the affirmative vote of the holders of a majority of the aggregate number of
shares of capital stock of the Corporation outstanding and entitled to vote
thereon.
Section 7. No holder of shares of capital stock of the Corporation shall,
as such holder, have any preemptive right to purchase or subscribe for any part
of any new or additional issue of stock of any class, or of rights or options to
purchase any stock, or of securities convertible into, or carrying rights or
options to purchase, stock of any class, whether now or hereafter authorized or
whether issued for money, for a consideration other than money or by way of a
dividend or otherwise, and all such rights are hereby waived by each holder of
Common Stock and of any other class of stock or securities of the Corporation
that may hereafter be created.
Section 8. The holders of capital stock of the Corporation may remove a
director for cause provided that the holders of at least 75% of the shares
entitled to be cast on the matter approve such action.
Section 9. The Corporation hereby elects to be subject to Title 3, Subtitle
7 of the General Corporation Law of the State of Maryland which governs the
Voting Rights of Certain Control Shares, provided, however, that the provisions
of Subtitle 7 shall not apply to any shares of the Corporation that are owned by
an employee stock ownership or similar plan.
Section 10. All persons who shall acquire capital stock in the Corporation
shall acquire the same subject to the provisions of these Articles of
Incorporation.
FIFTH: BOARD OF DIRECTORS. The directors shall initially be divided into
three classes, designated Class I, Class II and Class III. All classes shall be
as nearly equal in number as possible, and initially, Class I will consist of
one director, Class II will consist of two directors, and Class III will consist
of two directors. The directors as initially classified shall hold office for
terms as follows: the Class I director, Richard Moodie, shall hold office until
the date of the annual meeting of stockholders in 1997 or until a successor
shall be elected and qualified; the Class II directors, L. Patrick Bales and
Benjamin F. Bryan shall hold office until the date of the annual meeting of
stockholders in 1998 or until their successors shall be elected and qualified;
and the Class III directors, Robert P. Pinkas and Michael J. Finn shall hold
office until the date of the annual meeting of stockholders in 1999 or until
their successors shall be elected and qualified. Upon expiration of the term of
office of each class as set forth above, the directors in each such class shall
be elected for a term of three years to succeed the directors whose terms of
office expire. Each director shall hold office until the expiration of his or
her term and until his or her successor shall have been elected and qualified,
or until his or her death, or until he or she shall have resigned, or until he
or she shall have been removed as provided by these Articles of Incorporation,
the Corporation's Bylaws, the Investment Company Act or the General Corporation
Law of the State of Maryland. Any director may be removed with or without cause
at any meeting of stockholders by a vote of two-thirds of all of the votes
entitled to be cast for the election of directors at a meeting duly called for
that purpose, which meeting will be held upon the written request of the
Chairman of the Board, the Chief Executive Officer or the President of the
Corporation.
-3-
<PAGE> 4
The Corporation may, through its Bylaws, fix the number of directors and
divide the directors into classes and prescribe the tenure of office of the
several classes.
SIXTH: MANAGEMENT OF THE AFFAIRS OF THE CORPORATION.
Section 1. All corporate powers and authority of the Corporation (except as
at the time otherwise provided by statute, by these Articles of Incorporation or
by the Corporation's Bylaws) shall be vested in and exercised by the Board of
Directors.
Section 2. The Board of Directors shall have the power to fix an initial
offering price for the shares of capital stock of the Corporation, which shall
yield to the Corporation not less than the par value thereof, at which price the
shares of capital stock of the Corporation shall be offered for sale, and to
determine from time to time thereafter the offering price which shall yield to
the Corporation not less than the par value thereof from sales of the shares of
its capital stock; provided, however, that sales by the Corporation of its
shares of capital stock for less than net asset value (as defined in the
Investment Company Act) shall be in accordance with the applicable requirements
of the Investment Company Act.
Section 3. The Board of Directors may from time to time declare and pay
dividends or distributions, in stock or in cash, on any or all classes of
capital stock; provided that dividends or distributions on shares of any class
of capital stock shall be paid only out of earnings, surplus, or other lawfully
available assets belonging to such class.
Section 4. The Board of Directors shall have the power in its discretion to
distribute to the stockholders of the Corporation in any fiscal year as
dividends, including dividends designated in whole or in part as capital gains
distributions, amounts sufficient, in the opinion of the Board of Directors, to
enable the Corporation to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, or any successor or comparable
statute thereof, and regulations promulgated thereunder (collectively, the
"Code"), and to avoid liability of the Corporation for federal income tax in
respect of that year and to make other appropriate adjustments in connection
therewith.
Section 5. The Board of Directors shall have the power, in its discretion,
to make such elections as to the tax status of the Corporation as may be
permitted or required under the Code, without the vote of stockholders of the
Corporation.
Section 6. The Board of Directors shall have exclusive authority to make,
alter or repeal from time to time any of the Bylaws of the Corporation, except
to the extent that these Articles of Incorporation, the Bylaws or the Investment
Company Act otherwise provide.
Section 7. The Board of Directors shall have the power from time to time to
determine whether and to what extent, and at what times and places and under
what conditions the accounts and books of the Corporation or any of them shall
be open to the inspection of stockholders, and no stockholder shall have any
right to inspect any account, book or document of the Corporation except to the
extent required by the General Corporation Law of the State of Maryland or
permitted by the Corporation's Bylaws.
-4-
<PAGE> 5
Section 8. To the extent permitted under the General Corporation Law of the
State of Maryland, the Corporation may purchase shares of its capital stock upon
such terms and conditions and for such consideration as the Board of Directors
shall deem advisable.
Section 9. The net asset value of the property and assets of the
Corporation shall be determined in accordance with the Investment Company Act,
and at such times as the Board of Directors may direct, by deducting from the
total market or appraised value of all of the property and assets of the
Corporation, all debts, obligations and liabilities of the company (including,
but without limitation of the generality of any of the foregoing, any or all
debts, obligations, liabilities or claims of any and every kind and nature,
whether fixed, accrued, or unmatured, and any reserves or charges, determined in
accordance with generally accepted accounting principles, for any or all
thereof, whether for taxes, including estimated taxes or unrealized book
profits, expenses, contingencies or otherwise).
Section 10. The Board of Directors from time to time may change the
Corporation's name, without the vote or consent of the stockholders of the
Corporation, in any manner and to the extent now or hereafter permitted by the
General Corporation Law of the State of Maryland and by these Articles of
Incorporation.
Section 11. The Corporation may be converted from a closed-end to an
open-end investment company by a vote of at least 75% of the Continuing
Directors (as defined below) and by the holders of at least 75% of the shares
entitled to be cast on the matter. A "Continuing Director" for these purposes is
any member of the Board of Directors who (i) is not a person or affiliate of a
person who enters or proposes to enter into a business combination, as defined
in the Maryland General Corporation Law, with the Corporation (an "Interested
Party") and (ii) who has been a member of the Board of Directors of the
Corporation for a period of at least 12 months, or is a successor of a
Continuing Director who is unaffiliated with an Interested Party and has been
recommended to succeed a Continuing Director by a majority of the Continuing
Directors then on the Board of Directors of the Corporation.
Section 12. In addition to the powers and authorities granted herein and by
statute expressly conferred upon it, the Board of Directors is authorized to
exercise all powers and do all acts that may be exercised or done by the
Corporation pursuant to the provisions of the General Corporation Law of the
State of Maryland, these Articles of Incorporation and the Bylaws of the
Corporation.
SEVENTH: DETERMINATIONS AS TO ACCOUNTING MATTERS. Any determination made in
good faith, so far as accounting matters are involved, in accordance with
generally accepted accounting principles by or pursuant to the authority or the
direction of the Board of Directors, (i) as to the amount of assets, obligations
or liabilities of the Corporation, (ii) as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, (iii) as to the amount of any
reserves or charges set up and the propriety thereof, (iv) as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
such reserves or charges shall have been created, shall have been paid or
discharged or is then or thereafter required to be paid or discharged), (v) as
to the price of any security owned by the Corporation, (vi) as to any other
matters relating to the issuance,
-5-
<PAGE> 6
sales, redemption or other acquisition or disposition of any securities by the
Corporation or any securities or shares of capital stock of the Corporation, or
(vii) as to any reasonable determination made in good faith by the Board of
Directors as to whether any transaction constitutes a purchase of securities on
"margin," a sale of securities "short," or an underwriting or the sale of, or a
participation in any underwriting or selling group in connection with the public
distribution of, any securities, shall be final and conclusive, and shall be
binding upon the Corporation and all its stockholders, past, present and future,
and shares of capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares of capital
stock or acceptance of share certificates, that any and all such determinations
shall be binding as aforesaid. No provision of these Articles of Incorporation
shall be effective to (a) require a waiver of compliance with any provision of
the Securities Act of 1933, as amended (the "Securities Act"), the Investment
Company Act or of any valid rule, regulation or order of the Securities and
Exchange Commission thereunder or (b) protect or purport to protect any director
or officer of the Corporation against any liability to the Corporation or its
security holders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
EIGHTH: LIMITATIONS ON LIABILITY; INDEMNIFICATION.
Section 1. To the fullest extent that limitations on the liability of
directors and officers is permitted by Maryland statutory or decisional law, as
amended or interpreted, no director or officer of the Corporation shall have any
liability to the Corporation or its stockholders for monetary damages. This
limitation on liability applies to events occurring at the time a person serves
as a director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which liability is
asserted. No amendment of these Articles of Incorporation or repeal of any of
the provisions hereof shall limit or eliminate the benefits provided to
directors and officers under this provision with respect to any act or omission
which occurred prior to such amendment or repeal.
Section 2. Any person who was or is a party or is threatened to be made a
party in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is a current or former director or officer of the Corporation
or is or was serving while a director or officer of the Corporation at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
enterprise or employee benefit plan, shall be indemnified by the Corporation
against judgments, penalties, fines, excise taxes, settlements and reasonable
expenses (including attorneys' fees) actually incurred by such person in
connection with such action, suit or proceeding to the fullest extent
permissible under the General Corporation Law, the Securities Act and the
Investment Company Act, as such statutes are now or hereafter in force. In
addition, the Corporation shall also advance expenses to its currently acting
and its former directors and officers to the fullest extent that indemnification
of directors and officers is permitted by the General Corporation Law, the
Securities Act and the Investment Company Act. The Board of Directors may by
bylaw, resolution or agreement make further provisions for indemnification of
the directors, officers, employees and agents to the fullest extent permitted by
the General Corporation Law.
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Section 3. No provision of this Article EIGHTH shall be effective to
protect or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its stockholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
respective offices.
NINTH: PERPETUAL EXISTENCE. The duration of the Corporation shall be
perpetual.
TENTH: AMENDMENTS. From time to time any of the provisions of these
Articles of Incorporation may be amended, altered or repealed (including any
amendment that changes the terms of any of the outstanding shares of capital
stock by classification, reclassification or otherwise), and other provisions
that may, under the General Corporation Law of the State of Maryland, the
Investment Company Act, securities law, or other laws in force at the time, be
lawfully contained in articles of incorporation may be added or inserted upon
the vote of a majority of the shares of capital stock of the Corporation
outstanding and entitled to vote thereon, including a majority of any class
entitled to vote thereon. All rights at any time conferred upon the stockholders
of the Corporation by these Articles of Incorporation are subject to the
provisions of this Article TENTH.
The term "Articles of Incorporation" or "Charter" as used herein and in the
Bylaws of the Corporation shall be deemed to mean these Articles of
Incorporation as from time to time amended, restated or supplemented.
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IN WITNESS WHEREOF, BRANTLEY CAPITAL CORPORATION has caused these presents
to be signed in its name and on its behalf by its Chief Executive Officer and
attested by its Secretary on October 29, 1996.
BRANTLEY CAPITAL CORPORATION
By /s/ ROBERT P. PINKAS
------------------------------
Chief Executive Officer
ATTEST:
/s/ PAUL H. CASCIO
- ------------------------------
Paul H. Cascio, Secretary
ACKNOWLEDGEMENT
The undersigned, Robert P. Pinkas, Chief Executive Officer of BRANTLEY
CAPITAL CORPORATION, who executed on behalf of said Corporation the foregoing
Articles of Amendment and Restatement of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said Corporation, the
foregoing Articles of Amendment and Restatement to be the corporate act of said
Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under penalties of
perjury.
By /s/ ROBERT P. PINKAS
----------------------------------
Chief Executive Officer
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<PAGE> 1
EXHIBIT 2.b.
BYLAWS
OF
BRANTLEY CAPITAL CORPORATION
(a Maryland Corporation)
These bylaws ("Bylaws") are made as of the 29th day of October, 1996 and
adopted pursuant to the Articles of Incorporation establishing Brantley Capital
Corporation (the "Corporation") dated August 1, 1996, as from time to time
amended, restated or supplemented (hereinafter called the "Articles"). All words
and terms capitalized in these Bylaws shall have the meaning or meanings set
forth for such words or terms in the Articles unless otherwise noted.
ARTICLE I
Offices
-------
The registered office of the Corporation in the State of Maryland shall be
at 32 South Street, Baltimore, Maryland 21202.
The principal executive office of the Corporation shall be at 20600 Chagrin
Boulevard, Suite 1150, Cleveland, Ohio 44122.
The Corporation may have such other offices in such places as the Board of
Directors of the Corporation may from time to time determine.
ARTICLE II
Meetings of Stockholders
------------------------
Section 2.1. ANNUAL MEETING. An annual meeting of the stockholders of the
Corporation shall be held on such date and at such hour as may from time to time
be designated by the Board of Directors and stated in the notice of such meeting
for the purpose of electing directors and for the transaction of such other
business as may be properly brought before the meeting.
Section 2.2. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes may be called by the Chairman of the Board, the Chief
Executive officer, the President or the Board of Directors. Special meetings of
stockholders shall also be called by the Secretary upon receipt of the request
in writing signed by stockholders entitled to cast at least 25% of all votes
entitled to be cast at such meeting. Such request shall state the purpose or
purposes of the proposed meeting and the matters proposed to be acted on at such
proposed meeting. The Secretary shall inform the stockholders who make such
request of the reasonably estimated costs of preparing and mailing such notice
of
<PAGE> 2
meeting and upon payment to the Corporation of such costs, the Secretary shall
give notice as required in this Article to all stockholders entitled to notice
of such meeting. Unless requested by stockholders entitled to cast a majority of
all votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
upon at any special meeting of stockholders held during the preceding 12 months.
At a special meeting of stockholders, no business shall be transacted and no
corporate action taken other than that stated in the notice of said meeting
unless all of the stockholders of the Corporation entitled to vote thereat are
present in person or by proxy, in which case any and all business may be
transacted at the meeting even though the meeting is held without notice.
Section 2.3. PLACE OF MEETINGS. Any annual or special meeting of the
stockholders shall be held at such place within the United States as the Board
of Directors may from time to time designate.
Section 2.4. NOTICE OF MEETINGS; WAIVER OF NOTICES. Written notice of the
place, date and time of the holding of each annual and special meeting of the
stockholders and the purpose or purposes of each special meeting shall be given
personally or by mail, not less than 10 nor more than 60 days before the date of
such meeting, to each stockholder entitled to notice of the meeting. Notice by
mail shall be deemed to be duly given when deposited in the United States mail
or similar means addressed to the stockholder at the stockholder's address as it
appears on the records of the Corporation, with postage or any fees thereon
prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless after the adjournment the Board of Directors shall fix a
new record date for any adjourned meeting or the adjournment is for more than 30
days, notice of such adjourned meeting need not be given if the time and place
to which the meeting shall be adjourned is announced at the meeting at which the
adjournment is taken.
Section 2.5. QUORUM AND ADJOURNMENT. At any meeting of the stockholders,
the holders of a majority in number of shares of stock of the Corporation
entitled to vote at the meeting present in person or by proxy shall constitute a
quorum for the transaction of any business, except as otherwise provided by
statute or by the Articles or these Bylaws. A meeting of stockholders convened
on the date for which it was called may be adjourned as permitted under the laws
of the State of Maryland. If a quorum shall not be present or represented at
such meeting of stockholders, a majority of the stockholders entitled to vote
thereat present in person or represented by proxy, shall have the power to
adjourn the meeting. At any adjourned session of a meeting at which a quorum
shall be present or represented, any business may be transacted that might have
been transacted at the meeting as originally noticed. The absence from any
meeting of holders of a number of shares of stock of the Corporation which may
be required by the General Corporation Law of the State of Maryland, the
Investment Company Act or any other applicable statute, the Articles,
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<PAGE> 3
or these Bylaws, for action on any given matter shall not prevent action at the
same meeting on any other matter or matters which may properly come before the
meeting if the holders of the number of shares of stock of the Corporation
required for action on such matters are present at such meeting in person or by
proxy.
Section 2.6. ORGANIZATION. At each meeting of the stockholders, the
Chairman of the Board, or in his or her absence or inability to act, the Chief
Executive Officer, or in his or her absence, the President, shall act as
chairman of the meeting. The Secretary, or in the Secretary's absence or
inability to act, any person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes thereof.
Section 2.7. ORDER OF BUSINESS. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
Section 2.8. VOTING. Except as otherwise provided by statute or the
Articles, each holder of record of shares of stock of the Corporation having
voting power shall be entitled at each meeting of the stockholders to one vote
for every share of such stock standing in the name of such stockholder on the
record of stockholders of the Corporation as of the record date determined
pursuant to Article X hereof.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of 11 months from the date thereof, unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed valid
unless challenged on or prior to its exercise. Except as otherwise provided by
applicable law, the Articles or these Bylaws, any corporate action to be taken
by vote of the stockholders shall be authorized by a majority of the total votes
cast at a meeting of stockholders by the stockholders present in person or
represented by proxy and entitled to vote on such action.
Section 2.9. INSPECTORS OF ELECTION. In advance of any meeting of the
stockholders, the Board of Directors may appoint inspectors of election to act
at the meeting or any adjournment thereof (the "Inspectors of Election"). If
Inspectors of Election are not so appointed, the chairman, if any, of any
meeting of the stockholders may, and on the request of any stockholder or his or
her proxy shall, appoint Inspectors of Election of the meeting. The number of
Inspectors of Election shall be either one or more. If appointed at the meeting
on the request of one or more stockholders or proxies, a majority of votes cast
shall determine whether one or more Inspectors of Election are to be appointed,
but failure to allow such determination by the stockholders shall not affect the
validity of the appointment of Inspectors of Election. In case any person
appointed as Inspector of Election fails to appear or fails or refuses to act,
the vacancy may be filled by appointment made by the Board of Directors in
advance of the convening of the meeting or at the meeting by the person acting
as chairman. Inspectors, before entering upon the discharge of their duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with
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strict impartiality and according to the best of their ability. The Inspectors
of Election shall determine the number of outstanding shares of stock owned by
stockholders, the voting power of each, the shares of stock represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results, and
do such other acts as may be proper to conduct the election or vote with
fairness to all stockholders. If there are three or more Inspectors of Election,
the decision, act or certificate of a majority is effective in all respects as
the decision, act or certificate of all. On request of the chairman, if any, of
the meeting, or of any stockholder or his or her proxy, the Inspectors of
Election shall make a report in writing of any challenge or question or matter
determined by them and shall execute a certificate of any facts found by them.
No director or candidate for office of director shall act as inspector of an
election of directors. Inspectors of Election need not be stockholders.
Section 2.10. RECORDS OF MEETINGS OF STOCKHOLDERS. At each meeting of the
stockholders there shall be open for inspection the minutes of the last previous
meeting of stockholders and a list of the stockholders, certified to be true and
correct by the Secretary or other proper agent of the Corporation, as of the
record date of the meeting. Such list of stockholders shall contain the name of
each stockholder in alphabetical order, the stockholder's address and shares of
stock owned by such stockholder. Stockholders shall have the right to inspect
books and records of the Corporation during normal business hours for any
purpose not harmful to the Corporation.
Section 2.11. ADVANCE NOTICE PROVISIONS FOR ELECTION OF DIRECTORS. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors (or
any duly authorized committee thereof), or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 2.11 and on the record date for the
determination of stockholders entitled to vote at such meeting, and (ii) who
complies with the notice procedures set forth in this Section 2.11.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting, not less than 60 days nor more than 90 days
prior to the date of the annual meeting; provided, however, that in the event
that less than 70 days notice or prior public disclosure of the date of the
annual meeting is given or made to stockholders, notice by the stockholders in
order to be timely must be so received not later than the close of business on
the tenth day following the day on which such notice of the date of the annual
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<PAGE> 5
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth day following the date on which notice of the
date of the special meeting was mailed or public disclosure of the date of the
special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person, and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice, and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
2.11. If the chairman of the meeting determines that a nomination was not made
in accordance with the foregoing procedures, the chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
Section 2.12. ADVANCE NOTICE PROVISIONS FOR BUSINESS TO BE TRANSACTED AT
ANNUAL MEETING. No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof), or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (i) who
is a stockholder of record on the date of the giving of the notice provided for
in this Section 2.12 and on the record date for the determination of
stockholders entitled to vote at such annual meeting, and (ii) who complies with
the notice procedures set forth in this Section 2.12.
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<PAGE> 6
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the date of the annual meeting;
provided, however, that in the event that less than 70 days notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business, and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 2.12; provided, however, that once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 2.12 shall be deemed to preclude discussion by any
stockholder of any such business. If the chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
ARTICLE III
Board of Directors
------------------
Section 3.1. MANAGEMENT OF THE CORPORATION. The property, business and
affairs of the Corporation shall be managed under the direction of its Board of
Directors, and all of the powers of the Corporation may be exercised by or under
authority of the Board of Directors except as conferred upon or reserved to the
stockholders by law, by the Articles or by these Bylaws.
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Section 3.2. NUMBER OF DIRECTORS. The number of directors of the
Corporation shall, until further action is taken by the Board of Directors, be
five. By vote of a majority of the entire Board of Directors, the number of
directors fixed by the Articles or by these Bylaws may be increased or decreased
from time to time up to a maximum of seven, but shall never be less than one.
Section 3.3. TENURE AND CLASSES OF DIRECTORS. The directors shall be
divided into three classes, designated Class I, Class II and Class III. All
classes shall be as nearly equal in number as possible, and initially, Class I
will consist of one director, Class II will consist of two directors, and Class
III will consist of two directors. The directors as initially classified shall
hold office for terms as follows: the Class I director, Richard Moodie, shall
hold office until the date of the annual meeting of stockholders in 1997 or
until a successor shall be elected and qualified; the Class II directors, L.
Patrick Bales and Benjamin F. Bryan shall hold office until the date of the
annual meeting of stockholders in 1998 or until their successors shall be
elected and qualified; and the Class III directors, Robert P. Pinkas and Michael
J. Finn shall hold office until the date of the annual meeting of stockholders
in 1999 or until their successors shall be elected and qualified. Upon
expiration of the term of office of each class as set forth above, the directors
in each such class shall be elected for a term of three years to succeed the
directors whose terms of office expire. Each director shall hold office until
the expiration of his or her term and until his or her successor shall have been
elected and qualified, or until his or her death, or until he or she shall have
resigned, or until he or she shall have been removed as provided by the
Articles, these Bylaws, or by any other applicable state or federal laws.
Section 3.4. VACANCIES. Except as otherwise required by the Investment
Company Act, any vacancy occurring in the Board of Directors for any cause other
than by reason of an increase in the number of directors may be filled by a
majority of the remaining members of the Board of Directors, although such
majority is less than a quorum. Any vacancy occurring by reason of an increase
in the number of directors may be filled by an action of a majority of the
entire Board of Directors. A director elected by the Board of Directors to fill
a vacancy shall be elected to hold office until the next annual meeting of
stockholders or until a successor is elected and qualified. If at any time less
than 50% of all directors holding office were elected by the stockholders, a
meeting of the stockholders must be held within 60 days to fill vacancies.
At any annual meeting of stockholders, stockholders shall be entitled to
elect directors to fill any vacancies in the Board of Directors that have arisen
since the preceding annual meeting of stockholders (whether or not any such
vacancy has been filled by election of a new director by the Board of Directors)
and any director not elected by the stockholders shall hold office until his or
her successor shall be elected and shall qualify.
Section 3.5. REMOVAL. Any director may be removed with or without cause at
any time by written instrument signed by at least two-thirds of the other
directors. Any director who requests to be retired, or who has become physically
or mentally incapacitated or is otherwise unable to serve, may be retired by
written instrument signed by a majority of the other directors. Any director may
be removed with or without cause at any meeting
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<PAGE> 8
of stockholders by a vote of at least 75% of all of the votes entitled to be
cast for the election of directors at a meeting duly called for that purpose,
which meeting will be held upon the written request of the Chairman of the
Board, the Chief Executive Officer or the President of the Corporation.
Section 3.6. COMPENSATION OF DIRECTORS. Directors may receive compensation
for services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board
of Directors.
Section 3.7. POWER TO ISSUE AND SELL STOCK. The Board of Directors may from
time to time authorize by resolution the issuance and sale of any of the
Corporation's authorized shares of stock to such persons as the Board of
Directors shall deem advisable.
Section 3.8. POWER TO DECLARE DIVIDENDS. The Board of Directors, from time
to time as it may deem advisable, may declare and the Corporation may pay
dividends, in cash, property, or shares of stock of the Corporation, out of any
source available for dividends, to the stockholders according to their
respective rights and interests.
ARTICLE IV
Meetings of the Board of Directors
----------------------------------
Section 4.1. PLACE OF MEETINGS. Meetings of the Board of Directors, regular
or special, may be held at any place in or out of the State of Maryland as the
Board of Directors may from time to time determine or as shall be specified in
the notice of such meeting.
Section 4.2. ANNUAL MEETINGS. The first meeting of each newly elected Board
of Directors shall be held as soon as practicable after the meeting of
stockholders at which the directors were elected or, in the absence of such
annual stockholders' meeting, at such time and place as the Board of Directors
may provide. No notice of such meeting shall be necessary, if held immediately
after the adjournment, and at the site, of the meeting of stockholders.
Section 4.3. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board of Directors.
Section 4.4. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held upon the call of the Chairman of the Board, the Chief Executive
Officer or the President, at such time, on such day and at such place, as shall
be designated in the notice of the meeting.
Section 4.5. NOTICE. Notice of every special meeting shall be given by mail
(which term shall include next business day courier service) or by electronic
transmission
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(which term shall include cablegram, telecopy or facsimile) or delivered
personally, to each director at his or her business address as set forth in the
records of the Corporation. Such notice shall be delivered not less than two
days preceding the meeting. Notice of a meeting of directors may be waived
before or after any meeting by signed written waiver. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
stated in the notice or waiver of notice of such meeting, and no notice need be
given of action proposed to be taken by written consent. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting.
Section 4.6. CHAIRMAN OF THE BOARD; RECORDS. The Board of Directors shall
elect a Chairman of the Board from among their number, pursuant to the
provisions of Article V of these Bylaws. Such Chairman of the Board shall act as
chairman at all meetings of the Board of Directors; in his or her absence the
Chief Executive Officer shall act as chairman; in the absence of the Chairman of
the Board and the Chief Executive Officer, the President shall act as chairman;
and, in the absence of the Chairman of the Board, the Chief Executive Officer
and the President, the directors present shall elect one of their number to act
as temporary chairman. The results of all actions taken at a meeting of the
Board of Directors, or by written consent of the directors, shall be recorded by
the Secretary.
Section 4.7. COMMITTEES. The Board of Directors may appoint from among its
members an Executive Committee and other committees composed of two or more
directors, and may delegate to such committees any or all of the powers of the
Board of Directors in the management of the business and affairs of the
Corporation except the power to declare dividends or distributions on stock, to
issue stock, to recommend to stockholders any action that requires stockholders'
approval, to fill a vacancy on the Board of Directors, to amend these Bylaws or
to approve any merger or share exchange which does not require stockholder
approval. In the absence of any member of any such committee, the members
thereof present at any meeting, whether or not they constitute a quorum, may
appoint a member of the Board of Directors to act in the place of such absent
member. Committees shall keep minutes of their proceedings and shall report the
same to the Board of Directors at the meeting next succeeding, and any action by
a committee shall be subject to revisions and alteration by the Board of
Directors, provided that no rights of third persons shall be affected by any
such revision or alteration.
Section 4.8. QUORUM. At all meetings of the Board of Directors, a majority
of the entire Board of Directors shall constitute a quorum for the transaction
of business and the action of a majority of the directors present at any meeting
at which a quorum is present shall be the action of the Board of Directors
unless the concurrence of a greater proportion is required for such action by
the General Corporation Law of the State of Maryland, the Articles or these
Bylaws. If a quorum shall not be present at any meeting of directors, the
directors present thereat may by a majority vote adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present.
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Section 4.9. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted by
the Articles of Incorporation or by these Bylaws, the members of the Board of
Directors or any committee designated by the Board of Directors, may participate
in a meeting of the Board of Directors or such committee, as the case may be, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
Section 4.10. CONSENT OF DIRECTORS IN LIEU OF MEETING. Any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if a written consent to such
action is signed by all members of the Board of Directors or of such committee,
as the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or committee.
ARTICLE V
Officers
--------
Section 5.1. OFFICERS OF THE CORPORATION; COMPENSATION. The officers of the
Corporation shall be elected by the Board of Directors and shall consist of a
Chairman of the Board, a Chief Executive Officer, a President, a Secretary, a
Treasurer and such other officers or assistant officers, including Vice
Presidents, as may be designated from time to time by the Board of Directors.
Any two or more of the offices may be held by the same person, provided,
however, that no one person may serve as both President and Vice President, if
any, and provided further, that any person who holds more than one office in the
Corporation may not act in more than one capacity to execute, acknowledge or
verify any instrument required by law to be executed, acknowledged or verified
by more than one officer. The Board of Directors may designate a Vice President,
if any, as an Executive Vice President and may designate the order in which any
other Vice Presidents may act. No officer of the Corporation need be a director.
The Board of Directors may determine what, if any, compensation shall be paid to
officers of the Corporation.
Section 5.2. ELECTION AND TENURE. The Board of Directors shall elect the
Chairman of the Board, Chief Executive Officer, President, Secretary, Treasurer
and such other officers as the Board of Directors shall deem necessary or
appropriate in order to carry out the business of the Corporation. The Chairman
of the Board and such officers shall hold office until resignation or removal in
accordance with Section 5.3 and until their successors have been duly elected
and qualified. The Board of Directors may fill any vacancy in or add any
additional officers at any time.
Section 5.3. REMOVAL OF OFFICERS; RESIGNATION. Any officer may be removed
at any time, with or without cause, by action of a majority of the directors
whenever in the judgment of the Board of Directors the best interests of the
Corporation will be served thereby. This provision shall not prevent the making
of a contract of employment for a
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<PAGE> 11
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the Chairman of the Board of the Chief
Executive Officer, and such resignation shall take effect immediately, or at a
later date according to the terms of such notice in writing.
Section 5.4. BONDS AND SURETY. Any officer may be required by the Board of
Directors to be bonded for the faithful performance of his or her duties in such
amount and with such sureties as the Board of Directors may determine.
Section 5.5. CHAIRMAN OF THE BOARD. The Chairman of the Board shall, if
present, preside at meetings of the stockholders and, if present, meetings of
the Board of Directors of the Corporation. The Chairman of the Board may sign
and execute in the name of the Corporation deeds, mortgages, bonds, contracts or
other instruments. The Chairman shall, when requested, counsel with and advise
the other officers of the Corporation and shall perform such other duties as he
may agree with the President or as the Board of Directors may from time to time
determine.
Section 5.6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
the chief executive officer of the Corporation, and shall have the powers and
perform the duties incident to that position. Subject to the Board of Directors,
the Chief Executive Officer shall be in general and active charge of the entire
business and affairs of the Corporation, and shall be its chief policy-making
officer. The Chief Executive Officer shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or as provided
in these Bylaws. In the absence of the Chairman of the Board, the Chief
Executive Officer shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors. The Chief Executive Officer shall be, ex
officio, a member of all standing committees. Subject to direction of the Board
of Directors, the Chief Executive Officer shall have the power, in the name and
on behalf of the Corporation, to execute any and all loan documents, contracts,
agreements, deeds, mortgages, and other instruments in writing, and to employ
and discharge employees and agents of the Corporation. Unless otherwise directed
by the Board of Directors, the Chief Executive Officer shall have full authority
and power, on behalf of all of the directors, to attend and to act and to vote,
on behalf of the Corporation at any meetings of business organizations in which
the Corporation holds an interest, or to confer such powers upon any other
persons, by executing any proxies duly authorizing such persons.
Section 5.7. PRESIDENT AND VICE-PRESIDENTS. The President shall be the
chief operating officer of the Corporation and, subject to the Board of
Directors, shall have general supervision, direction and control of the business
of the Corporation and of its employees and shall exercise such general powers
of management as are usually vested in the office of president of a corporation.
In the absence of the Chairman of the Board and the Chief Executive Officer, the
President shall preside at all meetings of the stockholders and at all meetings
of the Board of Directors. The President shall be, ex officio, a member of all
standing committees. Subject to direction of the Board of Directors, the
President shall have the power, in the name and on behalf of the Corporation, to
execute any and all
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<PAGE> 12
loan documents, contracts, agreements, deeds, mortgages, and other instruments
in writing, and to employ and discharge employees and agents of the Corporation.
Unless otherwise directed by the Board of Directors, the President shall have
full authority and power, on behalf of all of the directors, to attend and to
act and to vote, on behalf of the Corporation at any meetings of business
organizations in which the Corporation holds an interest, or to confer such
powers upon any other persons, by executing any proxies duly authorizing such
persons. The President shall have such further authorities and duties as the
Board of Directors shall from time to time determine. In the absence or
disability of the President, the Vice Presidents in order of their rank or the
Vice President, if any, designated by the Board of Directors, shall perform all
of the duties of the President, and when so acting shall have all the powers of
and be subject to all of the restrictions upon the President. Subject to the
direction of the Chairman of the Board, the Chief Executive Officer, the
President and the Treasurer, any Vice President shall have the power in the name
and on behalf of the Corporation to execute any and all loan documents,
contracts, agreements, deeds, mortgages and other instruments in writing, and,
in addition, shall have such other duties and powers as shall be designated from
time to time by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer, or the President.
Section 5.7. SECRETARY. The Secretary shall keep the minutes of all
meetings of, and record all votes of, stockholders, Board of Directors and any
committees of directors, provided that, in the absence or disability of the
Secretary, the Board of Directors may appoint any other person to keep the
minutes of a meeting and record votes. The Secretary shall attest the signature
or signatures of the officer or officers executing any instrument on behalf of
the Corporation. The Secretary shall also perform any other duties commonly
incident to such office in a Maryland corporation and shall have such other
authorities and duties as the Board of Directors shall from time to time
determine.
Section 5.8. TREASURER. Except as otherwise directed by the Board of
Directors, the Treasurer shall have the general supervision of the monies,
funds, securities, notes receivable and other valuable papers and documents of
the Corporation, and shall have and exercise under the supervision of the Board
of Directors, the Chairman of the Board and the President all powers and duties
normally incident to his or her office. He or she may endorse for deposit or
collection all notes, checks and other instruments payable to the Corporation or
to its order. He or she shall deposit all funds of the Corporation as may be
ordered by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President. He or she shall keep accurate account of the
books of the Corporation's transactions which shall be the property of the
Corporation and which, together with all other property of the Corporation in
his or her possession, shall be subject at all times to the inspection and
control of the Board of Directors. Unless the Board of Directors shall otherwise
determine, the Treasurer shall be the principal accounting officer of the
Corporation and shall also be the principal financial officer of the
Corporation. He or she shall have such other duties and authorities as the Board
of Directors shall from time to time determine. Notwithstanding anything to the
contrary herein contained, the Board of Directors may authorize any adviser or
administrator to maintain bank accounts and deposit and disburse funds on behalf
of the Corporation.
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<PAGE> 13
Section 5.9. OTHER OFFICERS AND DUTIES. The Board of Directors may elect
such other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business of the
Corporation. Assistant officers shall act generally in the absence of the
officer whom they assist and shall assist that officer in the duties of his or
her office. Each officer, employee and agent of the Corporation shall have such
other duties and authority as may be conferred upon him or her by the Board of
Directors or delegated to him or her by the Chairman of the Board, the Chief
Executive Officer or the President.
ARTICLE VI
Custody of Securities
---------------------
Section 6.1. EMPLOYMENT OF CUSTODIAN. The Corporation shall have the option
to act as a self-custodian in accordance with the provisions set forth in
Section 17(f) of the Investment Company Act and Rule 17f-2 thereunder or place,
and at all times maintain, in the custody of a custodian (including any
sub-custodian for the custodian) all funds, securities and similar investments
owned by the Corporation. The custodian, if any, (and any sub-custodian) shall
be an institution conforming to the requirements of Section 17(f) of the
Investment Company Act and the rules of the United States Securities and
Exchange Commission (the "Commission") thereunder. The custodian, if any, shall
be appointed from time to time by the Board of Directors which shall fix its
remuneration.
Section 6.2. APPOINTMENT AND DUTIES. The Board of Directors may at any time
employ a custodian or custodians with authority as its agent, but subject to
such restrictions, limitations and other requirements, if any, as may be
contained in these Bylaws:
(1) to hold the securities owned by the Corporation and deliver the
same upon written order;
(2) to receive and receipt for any moneys due to the Corporation and
deposit the same in its own banking affiliate or elsewhere as the Board of
Directors may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized to do so by the Board of Directors, to keep the
books and accounts of the Corporation and furnish clerical and accounting
services; and
(5) if authorized to do so by the Board of Directors, to compute the
net income and net assets of the Corporation;
all upon such basis of compensation as will be agreed upon between the Board of
Directors and the custodian. The Board of Directors may also authorize the
custodian to employ one
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<PAGE> 14
or more sub-custodians, from time to time, to perform such of the acts and
services of the custodian and upon such terms and conditions as may be agreed
upon between the custodian and such sub-custodian and approved by the Board of
Directors.
Section 6.3. CENTRAL CERTIFICATE SYSTEM. Subject to such rules, regulations
and orders as the Commission may adopt, the Board of Directors may direct the
custodian to deposit all or any part of the securities owned by the Corporation
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, as amended, or with any
such other person or entity with which the Board of Directors may authorize
deposit in accordance with the Investment Company Act, pursuant to which system
all securities of any particular class or series of any issuer deposited within
the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities. All such
deposits shall be subject to withdrawal only upon the order of the Corporation.
Section 6.4. TERMINATION OF CUSTODIAN AGREEMENT. Upon termination of the
custodian agreement, if any, or inability of the custodian to continue to serve,
the Board of Directors shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall call as
promptly as possible a special meeting of the stockholders to determine whether
the Corporation shall function without a custodian or shall be liquidated. If so
directed by vote of the holders of a majority of the outstanding shares of stock
of the Corporation entitled to vote, the custodian shall deliver and pay over
all property of the Corporation held by it as specified in such vote.
ARTICLE VII
Capital Stock
-------------
Section 7.1. ISSUANCE OF CERTIFICATES. A certificate or certificates
representing the number of shares of stock of the Corporation owned by
stockholders shall be available upon request to each stockholder. A certificate
shall state (i) the name of the Corporation, (ii) the name of the stockholder or
other person to whom it is issued and (iii) the class of stock and number of
shares represented by the certificate.
Section 7.2. STOCK LEDGER; TRANSFER OF STOCK. The Corporation shall
maintain at the offices of its transfer agent an original stock ledger
containing the names and addresses of all stockholders and the number of shares
of stock held by each stockholder. Such stock ledger may be in written form or
any other form capable of being converted into written form within a reasonable
time for visual inspection.
The Corporation shall be entitled to recognize the exclusive rights of a
person registered on its books as the owner of shares of stock, and shall not be
bound to recognize any legal, equitable or other claim to or interest in such
shares of stock on the part of any
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<PAGE> 15
other person, whether or not it shall have received express or other notice
thereof, except as otherwise provided by the laws of the State of Maryland.
Transfers of shares of stock of the Corporation shall be made on the stock
records of the Corporation only by the registered holder thereof, or by his or
her attorney thereunto authorized by power of attorney duly executed and filed
with the Secretary or with the transfer agent or transfer clerk and accompanied
by a duly executed stock transfer power and the payment of all taxes thereon.
ARTICLE VIII
Indemnification and Insurance
-----------------------------
Section 8.1. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS.
The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee, agent, partner or
trustee of another corporation, partnership, joint venture, trust or other
enterprise, against all judgments, penalties, fines and settlements and against
all reasonable expenses, including attorneys' fees, actually incurred by him or
her in connection with such Proceeding to the fullest extent permitted by law,
provided that:
(a) such person acted in good faith and (i) in the case of conduct in
such person's official capacity with the Corporation, in a manner he or she
reasonably believed to be in the best interests of the Corporation and (ii)
in all other cases, in a manner he or she reasonably believed not opposed
to the best interests of the Corporation;
(b) with respect to any criminal proceeding, such person had no
reasonable cause to believe his or her conduct was unlawful;
(c) unless ordered or permitted by a court, indemnification shall be
made only as authorized in the specific case upon (i) a determination that
indemnification of such person is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in subparagraphs
(a) and (b) above, and (ii) such other authorizations and determinations as
may be required by law to be made, by (A) the Board of Directors of the
Corporation by the vote of a majority of a quorum consisting of directors
who are neither "interested persons" of the Corporation as defined in the
Investment Company Act nor parties to such Proceeding or if such quorum
cannot be obtained, by a majority vote of a committee of the Board of
Directors consisting solely of two or more such directors who are duly
designated to act in the matter by a majority vote of the full Board of
Directors, or (B) independent legal counsel in a written opinion, which
counsel shall be selected
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<PAGE> 16
in accordance with such procedures as may be required by law; provided,
however, that such counsel shall make only such determinations and
authorizations as are permitted by law to be made by independent counsel,
or (C) the stockholders of the Corporation acting in accordance with the
Articles and the Bylaws of the Corporation and applicable law;
(d) in the case of a Proceeding by or in the right of the Corporation
to procure a judgment in its favor, no indemnification shall be made except
for the payment of expenses reasonably incurred by such person in
connection therewith; provided, however, that if such person shall have
been adjudged to be liable for negligence or misconduct in the performance
of his or her duties to the Corporation, no indemnification shall be made
with respect to the expense incurred by such person in connection with such
Proceeding unless, and only to the extent that, the court in which such
Proceeding is brought, or a court of equity in the county or other local
jurisdiction in which the Corporation has its principal office, shall
determine upon application that, despite adjudication of liability but in
view of all the circumstances of the case, he or she is fairly and
reasonably entitled to indemnity for such expenses which such court shall
deem proper; and
(e) no indemnification or other protection shall be made or given to
any director or officer of the Corporation against any liability to the
Corporation or to its stockholders to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of their
respective offices.
Expenses (including attorneys' fees) incurred in defending a Proceeding
will be paid by the Corporation in advance of the final disposition thereof to
the fullest extent permitted by law.
The termination of any Proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that such person has not met the applicable
standard of conduct set forth in subparagraphs (a) and (b) above.
Section 8.2. INSURANCE OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
partner, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or her and
incurred by him or her in or arising out of his or her position, whether or not
the Corporation would have the power to indemnify him or her against such
liability. However, any insurance purchased will not protect or purport to
protect any officer or director against liabilities for willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
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<PAGE> 17
ARTICLE IX
Corporate Seal
--------------
The Corporation shall not have or use a corporate seal.
ARTICLE X
Record Date
-----------
The Board of Directors may fix, in advance, a date as the record date for
the purpose of determining stockholders entitled to notice of, or to vote at,
any meeting of stockholders, or stockholders entitled to receive payment of any
dividend or distribution or the allotment of any rights, or in order to make a
determination of stockholders for any other purpose. Such date in any case shall
be not more than 90 days, and in case of a meeting of stockholders not less than
10 days, prior to the date on which the particular action requiring such
determination of stockholders is to be taken.
ARTICLE XI
Miscellaneous
-------------
Section 11.1. DEPOSITORIES. In accordance with Article VI of these Bylaws,
the funds of the Corporation shall be deposited in such depositories as the
Board of Directors shall designate and shall be drawn out on checks, drafts or
other orders signed by such officer, officers, agent or agents (including any
adviser or administrator), as the Board of Directors may from time to time
authorize.
Section 11.2. SIGNATURE. All contracts and other instruments shall be
executed an behalf of the Corporation by such officer, officers, agent or
agents, as provided in these Bylaws or as the Board of Directors may from time
to time by resolution or authorization provide.
Section 11.3. FISCAL YEAR. The fiscal year of the Corporation shall end on
December 31 of each year, subject, however, to change from time to time by the
Board of Directors.
Section 11.4. BOOKS AND RECORDS. The books and records of the Corporation
shall be kept at such places as the Board of Directors may determine, provided
however, that the original or a certified copy of these Bylaws, including any
amendments thereto, shall be kept at the Corporation's principal executive
office.
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<PAGE> 18
Section 11.5. NET ASSET VALUE. The value of the Corporation's net assets
shall be determined at such times and by such method as set forth in the
Corporation's Articles of Incorporation.
ARTICLE XII
Amendment of Bylaws
-------------------
Section 12.1. AMENDMENT AND REPEAL OF BYLAWS. In accordance with Article
TENTH of the Articles, the Board of Directors shall have the power to alter,
amend or repeal these Bylaws or adopt new bylaws at any time. The Board of
Directors shall in no event adopt bylaws that are in conflict with the Articles,
the General Laws of the State of Maryland, the Investment Company Act or other
applicable federal securities laws.
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<PAGE> 1
EXHIBIT 2.d.
FORM OF SHARE CERTIFICATE
BRANTLEY CAPITAL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
<TABLE>
<S> <C>
COMMON STOCK COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 105494 10 8
BOSTON, MA, OR NEW YORK, N.Y. SEE REVERSE FOR CERTAIN DEFINITIONS
</TABLE>
This certifies that
is the registered owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK ($.01 PAR VALUE) OF
BRANTLEY CAPITAL CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney, upon surrender of this Certificate properly
endorsed.
This Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile signatures of its duly authorized officers.
Dated:
<TABLE>
<S> <C>
/S/ PAUL H. CASCIO /S/ ROBERT P. PINKAS
VICE PRESIDENT AND SECRETARY CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER,
CHIEF FINANCIAL OFFICER AND TREASURER
</TABLE>
COUNTERSIGNED AND REGISTERED:
STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
BRANTLEY CAPITAL CORPORATION
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT --..........Custodian .........
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants in common Act........................
(State)
UNIF TRF MIN ACT --..... Custodian (until age.....)
(Cust)
..........under Uniform Transfers
(Minor)
to Minors Act ..................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________________
X____________________________
X____________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By __________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 2.e.
BRANTLEY CAPITAL CORPORATION
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
1. PARTICIPATION
Stockholders of Brantley Capital Corporation (the "Company") whose shares
of common stock of the Company (the "Common Stock") are registered in their own
names will be included in the Dividend Reinvestment and Cash Purchase Plan (the
"Plan") unless they opt out of participation in the Plan. Stockholders who do
not opt out will be deemed to have appointed State Street Bank and Trust Company
(the "Plan Agent") as their agent and as agent for the Company under the Plan.
In the case of stockholders such as banks, brokers or nominees that hold Common
Stock for others who are beneficial owners ("Nominee Stockholders"), the Plan
Agent will administer the Plan on the basis of the number of shares of Common
Stock certified by such Nominee Stockholders as registered for stockholders that
have not elected to opt out of participation in the Plan.
2. DIVIDEND INVESTMENT ACCOUNT
The Company's Plan Agent or its delegate will establish a Dividend
Investment Account (the "Account") for each stockholder participating in the
Plan. The Plan Agent will credit to the Account of each participant funds it
receives from the following sources: (a) cash dividends and capital gains
distributions paid on shares of Common Stock of the Company registered in the
participant's name on the books of the Company and (b) cash dividends and
capital gains distributions paid on shares of Common Stock registered in the
name of Plan Agent but credited to the participant's Account. Sources described
in clauses (a) and (b) of the preceding sentence are hereinafter called
"Distributions."
3. INVESTMENT OF DISTRIBUTION FUNDS HELD IN EACH ACCOUNT
If on the record date for a Distribution (the "Record Date"), shares of
Common Stock are trading at a discount from net asset value per share (according
to the valuation most recently made on shares of Common Stock of the Company),
funds credited to a participant's Account will be used to purchase shares of
Common Stock (the "Purchase"). The Plan Agent will attempt, commencing five days
prior to the Payment Date and ending at the close of business on the Payment
Date ("Payment Date" as used herein shall mean the last business day of the
month in which such Record Date occurs), to acquire shares of Common Stock in
the open market. If and to the extent that the Plan Agent is unable to acquire
sufficient shares of Common Stock to satisfy the Distribution by the close of
business on the Payment Date, the Company will issue to the Plan Agent shares of
Common Stock valued at net asset value per share (according to the valuation
most recently made on shares of Common Stock of the Company) in the aggregate
amount of the remaining value of the Distribution. If, on the Record Date,
shares of Common Stock are trading at a premium over net asset value per share,
the Company will issue on the Payment Date, shares of Common Stock valued at net
asset value per share on the Record Date to the Plan Agent in the aggregate
amount of the funds credited to the participants' accounts.
<PAGE> 2
4. ADJUSTMENT OF PURCHASE PRICE
In connection with dividends and distributions, the Plan Agent will make an
initial determination of the market value per share of Common Stock by taking
the higher of the average of the closing sales prices, as reported in The Wall
Street Journal, at which shares of Common Stock of the Company were traded on
the last five days on which trading in the shares of Common Stock was reported
to have taken place on the Nasdaq National Market System prior to the payment
date of the dividend or distribution, or 95% of the opening sales price on the
Payment Date, which may be up to three months after the date as of which the net
asset value of the shares of Common Stock was last determined.
5. DETERMINATION OF PURCHASE PRICE
The cost of full and fractional shares of Common Stock acquired for each
participant's Account in connection with a Purchase shall be determined by the
average cost per share, including brokerage commissions as described in
Paragraph 6 hereof, of the shares of Common Stock acquired by the Plan Agent in
connection with that Purchase. Stockholders will receive a confirmation showing
the average cost and number of shares of Common Stock acquired as soon as
practicable after the Plan Agent has received or the Plan Agent has purchased
shares of Common Stock. The Plan Agent may commingle the cash in a participant's
account with similar funds of other participants of the Company for whom the
Plan Agent acts as agent under the Plan.
6. ADDITIONAL CASH PURCHASES
Participants in the Plan have the option commencing on January 1 of each
year, of making additional annual cash payments to the Plan in any amount of
$1,000 or more up to $10,000. Larger amounts may be accepted with the prior
approval of the Plan Agent. The Plan Agent will use all funds received from
participants to purchase shares of Common Stock to be issued by the Company or
purchased in the open market on or about February 28. Any voluntary funds must
be received no later than 10 days prior to such date and any prior deposit may
be withdrawn if written request for withdrawal is received by the Plan Agent no
later than 10 days prior to such date.
7. BROKERAGE CHARGES
There will be no brokerage charges with respect to shares of Common Stock
issued directly by the Company as a result of Distributions. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of Distributions. Brokerage charges for purchasing small amounts of
shares of Common Stock for individual Accounts through the Plan can be expected
to be less than the usual brokerage charges for such transactions, as the Plan
Agent will be purchasing shares of Common Stock for all participants in blocks
and prorating the lower commission thus attainable.
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<PAGE> 3
8. SERVICE CHARGES
There is currently no service charge by Plan Agent to stockholders who
participate in the Plan. However, the Company reserves the right to amend the
Plan in the future to include a service charge.
9. TRANSFER OF SHARES OF COMMON STOCK HELD BY PLAN AGENT
Plan Agent will maintain the participant's Account and furnish the
participant with written confirmation of all transactions in the Account. Shares
of Common Stock in the Account are transferable upon proper written instructions
to Plan Agent.
10. AMENDMENTS
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Company reserves the right to amend or terminate the Plan,
including provisions with respect to any Distribution paid subsequent to notice
thereof sent to participants in the Plan at least 90 days before the record date
for such Distribution.
11. WITHDRAWAL FROM PLAN
Stockholders may withdraw from the Plan at any time by giving Plan Agent
written notice. If the proceeds of the stockholder's Account are $25,000 or less
and the proceeds are to be payable to the stockholder of record and mailed to
the address of record, a signature guarantee normally will not be required for
notices by individual account owners (including joint account owners), otherwise
a signature guarantee will be required. A notice of withdrawal will be effective
for the next Distribution following receipt of the notice by the Plan Agent
provided the notice is received by the Plan Agent at least 10 days prior to the
Record Date for the Distribution. When a participant withdraws from the Plan, or
when the Plan is terminated in accordance with Paragraph 10 hereof, the
participant will receive cash payment for any fractional shares of Common Stock
based on market price on the date of withdrawal or termination.
-3-
<PAGE> 1
EXHIBIT 2.g.
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT (the "Agreement") made this ____ day of
_______, 1996, by and between BRANTLEY CAPITAL CORPORATION, a Maryland
corporation (the "Company"), and BRANTLEY CAPITAL MANAGEMENT, LTD., a Delaware
corporation (the "Adviser").
WHEREAS, the Company is a newly organized, non-diversified closed-end
management investment company that has elected status as a business development
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), the shares of common stock of the Company ("Common Stock") of
which are registered under the Securities Act of 1933, as amended;
WHEREAS, the Company is authorized to issue shares of Common Stock
representing the interests in the assets of the Company;
WHEREAS, the Adviser is an investment adviser registered as such under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"); and
WHEREAS, the Company desires at this time to retain the Adviser to render
investment advisory and management services to the Company, and the Adviser is
willing to render such services;
NOW THEREFORE, in consideration of the mutual promises and covenants herein
contained, it is agreed by and between the parties hereto as follows:
1. APPOINTMENT. The Company hereby appoints the Adviser to act as
investment adviser of the Company for the period and on the terms set forth in
this Agreement. The Adviser accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. INVESTMENT DUTIES. Subject to the supervision of the Company's board of
directors (the "Board of Directors"), the Adviser will provide a continuous
investment program for the Company and will determine from time to time what
securities and other investments will be purchased, retained, or sold by the
Company. Subject to investment policies and guidelines established by the Board
of Directors, the Adviser will identify, evaluate, and structure the investments
to be made by the Company, arrange debt financing for the Company, provide
portfolio management and servicing of securities held in the Company's
portfolio, and administer the Company's day-to-day affairs.
3. ADMINISTRATIVE DUTIES. The Adviser will administer the affairs of the
Company subject to the supervision of the Board of Directors and the following
understandings:
(a) The Adviser will supervise all aspects of the operations of the
Company, including oversight of transfer agency, custodial, and accounting
services;
<PAGE> 2
provided, however, that nothing herein contained shall be deemed to relieve
or deprive the Board of Directors of its responsibility for and control of
the conduct of the affairs of the Company.
(b) The Adviser will arrange, but not pay, for the periodic
preparation, updating, filing and dissemination (as required) of the
Company's registration statement under the Securities Exchange Act of 1934,
as amended, proxy material, tax returns, and required reports to the
Company's stockholders and the Securities and Exchange Commission (the
"Commission") and other appropriate federal or state regulatory
authorities.
(c) The Adviser will maintain or oversee the maintenance of all books
and records with respect to the Company, and will furnish the Board of
Directors with such periodic and special reports as the Board of Directors
reasonably may request. In compliance with the requirements of Rule 31a-3
under the Investment Company Act, the Adviser hereby agrees that all
records which it maintains for the Company are the property of the Company,
agrees to preserve for the periods prescribed by Rule 31a-2 under the
Investment Company Act any records which it maintains for the Company and
which are required to be maintained by Rule 31a-1 under the Investment
Company Act, and further agrees to surrender promptly to the Company any
records which it maintains for the Company upon request by the Company.
(d) All cash, securities, and other assets of the Company will be
maintained in the custody of one or more banks in accordance with the
provisions of Section 17(f) of the Investment Company Act and the rules
thereunder; the authority of the Adviser to instruct the Company's
custodians to deliver and receive such cash, securities, and other assets
on behalf of the Company will be governed by a custodian agreement between
the Company and each such custodian, and by resolution of the Board of
Directors.
4. USE OF SUB-INVESTMENT ADVISER. The Adviser may, subject to the approvals
required under the Investment Company Act, employ a sub-investment adviser to
assist the Adviser in the performance of its duties under this Agreement. Such
use does not relieve the Adviser of any duty or liability it would otherwise
have under this Agreement. Compensation of any such sub-investment adviser for
services provided and expenses assumed under any agreement between the Adviser
and such sub-investment adviser permitted under this paragraph is the sole
responsibility of the Adviser.
5. FURTHER DUTIES. In all matters relating to the performance of this
Agreement, the Adviser will act in conformity with the Articles of Incorporation
and Bylaws of the Company and with the instructions and directions of the Board
of Directors and will comply with the requirements of the Investment Company
Act, the rules thereunder, and all other applicable federal and state laws and
regulations.
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<PAGE> 3
6. SERVICES NOT EXCLUSIVE. The services furnished by the Adviser hereunder
are not to be deemed exclusive and the Adviser shall be free to furnish similar
services to others so long as its services under this Agreement are not impaired
thereby. Nothing in this Agreement shall limit or restrict the right of any
director, officer, agent or employee of the Adviser, who may also be a director,
officer, agent or employee of the Company, to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any other business, whether of a similar nature or dissimilar nature.
7. EXPENSES.
(a) The Company will pay all expenses (including without limitation
accounting, legal, printing, clerical, filing, and other expenses) incurred
by the Company, the Adviser or its affiliates on behalf of the Company in
connection with the organization of the Company and the initial offering of
its shares of Common Stock (the "Offering"); provided, however, that the
Company shall have no responsibility for any commissions or other fees paid
to the Underwriters in connection with the Offering or any borrowings
incurred by the Adviser in connection therewith. Except as otherwise
expressly provided for in Section 7(b) of this Agreement, during the term
of this Agreement the Company will bear all of its expenses incurred in its
operations including but not limited to the following: (i) brokerage and
commission expense and other transaction costs incident to the acquisition
and dispositions of investments, (ii) federal, state, and local taxes and
fees, including transfer taxes and filing fees, incurred by or levied upon
the Company, (iii) interest charges and other fees in connection with
borrowings by the Company, (iv) fees and expenses payable to the Commission
and any fees and expenses of state securities regulatory authorities, (v)
expenses of printing and distributing reports and notices to stockholders,
(vi) costs of proxy solicitation, (vii) costs of meetings of stockholders
and the Board of Directors, (viii) charges and expenses of the Company's
custodian, transfer and dividend disbursing agent, and Company accountant,
(ix) compensation and expenses of the Company's directors who are not
interested persons of the Company or the Adviser, and of any of the
Company's officers who are not interested persons of the Adviser, and
expenses of all directors in attending meetings of the Board of Directors
or stockholders, (x) legal and auditing expenses, including expenses
incident to the documentation for, and consummation of, transactions, (xi)
costs of certificates representing the shares of Common Stock, (xii) costs
of stationery and supplies, (xiii) the costs of membership by the Company
in any trade organizations, (xiv) expenses associated with litigation and
other extraordinary or non-recurring expenses, (xv) any insurance premiums
and (xvi) the costs of providing significant managerial assistance offered
to and accepted by the recipient of Company investments.
(b) The expenses to be borne by the Adviser are limited to the
following: (i) all costs and fees incident to the selection and
investigation of prospective Company investments, including associated due
diligence expenses such as travel expenses and professional fees (but
excluding legal and accounting fees and other
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<PAGE> 4
costs incident to the closing, documentation, or consummation of such
transactions), (ii) the cost of adequate office space for the Company and
all necessary office equipment and services, including telephone service,
heat, utilities, and similar items, (iii) the costs of providing the
Company with such corporate, administrative, and clerical personnel
(including directors and officers of the Company who are interested persons
of the Adviser and are acting in their respective capacities as directors
and officers) as the Board of Directors reasonably deems necessary or
advisable to perform the services required to be performed by the Adviser
under this Agreement, and (iv) all commissions and other fees payable to
the Underwriters in connection with the Offering and all costs and expenses
relating to any borrowings by the Adviser incurred in connection therewith.
(c) The Company may pay directly any expenses incurred by it in its
normal operations and, if any such payment is consented to by the Adviser
and acknowledged as otherwise payable by the Adviser pursuant to this
Agreement, the Company may reduce the fee payable to the Adviser pursuant
to Paragraph 8 thereof by such amount. To the extent that such deductions
exceed the fee payable to the Adviser on any quarterly payment date, such
excess shall be carried forward and deducted in the same manner from the
fee payable on succeeding quarterly payment dates.
(d) The payment or assumption by the Adviser of any expense of the
Company that the Adviser is not required by this Agreement to pay or assume
shall not obligate the Adviser to pay or assume the same or any similar
expense of the Company on any subsequent occasion.
8. COMPENSATION.
(a) For the services provided and the expenses assumed pursuant to
this Agreement, the Company will pay to the Adviser an annual management
fee of 2.85% of the Company's net assets, determined at the end of each
calendar quarter and payable quarterly in arrears.
(b) If this Agreement becomes effective or terminates before the end
of any fiscal quarter, the annual management fee for the period from the
effective day to the end of the fiscal quarter or from the beginning of
such quarter to the date of termination, as the case may be, shall be
prorated according to the proportion which such period bears to the full
fiscal quarter in which such effectiveness or termination occurs.
(c) If (i) the Adviser, (ii) a director, officer, agent or employee of
the Adviser, (iii) a company controlling, controlled by, or under common
control with the Adviser, or (iv) a director, officer, agent or employee of
any such company receives any compensation from a company whose securities
are held in the Company's portfolio in connection with the provision to
that company of significant managerial assistance, the compensation due to
the Adviser hereunder shall be
-4-
<PAGE> 5
reduced by the amount of such fee. If such amounts have not been fully
offset at the time of termination of this Agreement, the Adviser shall pay
such excess amounts to the Company upon termination.
9. LIMITATION OF LIABILITY OF ADVISER. The Adviser shall not be liable for
any loss suffered by the Company in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
gross negligence or reckless disregard by the Adviser of its duties under this
Agreement. Any person, even though agent of the Adviser, who may be or become a
director, officer, agent or employee of the Company shall be deemed, when
rendering services to the Company or acting with respect to any business of the
Company, to be rendering such service to or acting solely for the Company and
not as a director, officer, agent or employee of the Adviser, or one under the
control or direction of the Adviser even though paid by it.
10. DURATION AND TERMINATION.
(a) This Agreement shall become effective upon the date hereabove
written provided that this Agreement shall not take effect unless it has
first been approved (i) by a vote of a majority of those directors of the
Company who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on
such approval, and (ii) by a vote of a majority of the Company's
outstanding shares of Common Stock.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for two years from the above written date. Thereafter,
if not terminated, this Agreement shall continue automatically for
successive periods of 12 months each, provided that such continuance is
specifically approved at least annually (i) by a vote of a majority of
those directors of the Company who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called
for the purpose of voting on such approval, or (ii) by vote of a majority
of the outstanding shares of Common Stock of the Company.
(c) Notwithstanding the foregoing, this Agreement may be terminated at
any time, without the payment of any penalty, by vote of the Board of
Directors or by a vote of a majority of the outstanding shares of Common
Stock of the Company on 60 days' written notice to the Adviser or by the
Adviser at any time, without the payment of any penalty, on 60 days'
written notice to the Company. This Agreement will automatically terminate
in the event of its assignment.
11. NOTICE. Any notice under this Agreement shall be in writing, addressed
and delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for the receipt of such notice.
12. NOTICE OF FILING OF ARTICLES OF INCORPORATION. All parties hereto are
expressly put on notice of the Company's Articles of Incorporation and all
amendments thereto, all of which are on file with the Secretary of State of the
State of Maryland, and
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<PAGE> 6
the limitation of director, officer, agent, employee and stockholder liability
contained therein. This Agreement has been executed by and on behalf of the
Company by its representatives as such representatives and not individually, and
the obligations of the Company hereunder are not binding upon any of the
directors, officers, agents, employees or stockholders of the Company
individually but are binding upon only the assets and property of the Company.
13. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge, or termination is sought, and no amendment of this Agreement shall be
effective until approved by vote of a majority of the Company's outstanding
shares of Common Stock.
14. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Maryland, without giving effect to the conflicts of laws
principles thereof, and in accordance with the Investment Company Act. To the
extent that the applicable laws of the State of Maryland conflict with the
applicable provisions of the Investment Company Act, the Investment Company Act
shall control.
15. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule, or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities",
"affiliated person", "interested person", "assignment", "broker", "investment
adviser", "national securities exchange", "net assets", "security", and
"significant managerial assistance" shall have the same meaning as such terms
have in the Investment Company Act, subject to such exemption as may be granted
by the Commission by any rule, regulation, or order. Where the effect of a
requirement of the Investment Company Act reflected in any provision of this
Agreement is relaxed by a rule, regulation, or order of the Commission, whether
of special or general application, such provision shall be deemed to incorporate
the effect of such rule, regulation, or order.
16. ENTIRE AGREEMENT. This Agreement is the entire contract between the
parties relating to the subject matter hereof and supersedes all prior
agreements between the parties relating to the subject matter hereof.
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<PAGE> 7
IN WITNESS WHEREOF, the Company and the Adviser have caused this Agreement
to be executed as of the day and year first above written.
BRANTLEY CAPITAL CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ATTEST:
- ------------------------------
Name:
-------------------------
Title:
------------------------
BRANTLEY CAPITAL MANAGEMENT, LTD.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ATTEST:
- ------------------------------
Name:
-------------------------
Title:
------------------------
-7-
<PAGE> 1
EXHIBIT 2.h.2.
MASTER AGREEMENT AMONG UNDERWRITERS
January 1, 1996
EVEREN Securities, Inc.
77 W. Wacker Drive
Chicago, Illinois 60601
Ladies and Gentlemen:
From time to time after the date hereof you may act as Representative
or as one of the Representatives of the members of an underwriting syndicate
for offerings of securities of various issuers. This will confirm our
agreement as to the general terms and conditions applicable to our
participation in any such underwriting syndicate.
1. Applicability of this Agreement. This Agreement shall apply to
any offering of securities in which we elect to act as an underwriter after
receipt of an invitation from you identifying the issuer and the names of the
other Representatives, if any, containing information regarding certain terms
of the securities to be offered, specifying the amount of our proposed
participation and stating that our participation as an underwriter in the
offering shall be subject to the provisions of this Agreement. Your invitation
will include instructions for our acceptance of such invitation. At or prior
to the time of an offering, you will advise us, to the extent applicable, as to
the expected offering date, the expected closing date, the initial public
offering price, the interest or dividend rate (or the method by which such rate
is to determined), the conversion price, the underwriting discount, the
management fee, the selling concessions and the reallowance, except that if the
public offering price of the hereinafter referred to as "Formula Pricing"), you
shall so advise us and shall specify the maximum underwriting discount,
management fee and selling concession. The foregoing information may be
conveyed by you in one or more communications by telegram, telex, telecopier or
other written form of communication and are hereinafter collectively referred
to as the "Invitation." If the Underwriting Agreement (as hereinafter defined)
provides for the granting to the Underwriters of an option to purchase
additional securities to cover over-allotments, if any, you will notify us, in
the Invitation, of such option and of our maximum obligation upon exercise of
such option. The Invitation may also contain additional provisions which
supplement or amend the terms of this Agreement.
This Agreement, as amended or supplemented by the Invitation, shall
become effective with respect to our participation in an offering of securities
if your Syndicate Department receives our oral or written acceptance prior to
the time and date specified in the Invitation (our unrevoked acceptance after
such time and date being hereinafter referred to as our "Acceptance" and you do
not receive a written communication revoking our acceptance). Our Acceptance
will constitute our confirmation that, except as otherwise stated in such
Acceptance, each statement included in the Master Underwriters' Questionnaire
set forth as Exhibit A hereto (or otherwise furnished to us) is correct. The
issuer of the securities in any offering of securities made pursuant to this
Agreement is hereinafter referred to as the "Issuer." If the Underwriting
Agreement does not provide for an overallotment option, the securities to be
purchased are hereinafter called the Firm Securities and any additional
securities which may be purchased upon exercise of the over-allotment option
are hereinafter called the Additional Securities, with the Firm Securities and
all or any part of the Additional Securities being hereinafter collectively
referred to as the "Securities." Any underwriters of Securities under this
Agreement, including the Representatives (as hereinafter defined), are
hereinafter collectively referred to as the Underwriters. All references
herein to "you", to "EVEREN", or to the "representatives" shall mean EVEREN
Securities, Inc. and the other firms, if any, which are named as
Representatives in the Invitation. It is understood and agreed that EVEREN
may act on behalf of all Representatives. The Securities to be offered may,
but need not, be registered for a delayed or continuous offering pursuant to
Rule 415 under the Securities Act of 1933 (the "1933 Act").
This Agreement shall apply separately to each individual offering of
Securities. This Agreement may be supplemented or amended by you by written
notice to us and, except for supplements or amendment to this Agreement shall
be effective with respect to any offering of Securities to which this Agreement
applies commenced after this Agreement is so amended or supplemented.
2. Offering Documents. In case of an invitation regarding an
offering of Securities registered under the 1933 Act (a Registered Offering),
you will furnish to us to the extent made available to you by the Issuer,
copies of any registration statement relating to the Securities filed with the
Securities and Exchange Commission (the "Commission") pursuant to the 1933 Act
and each amendment thereto (excluding exhibits by including any documents
incorporated by reference therein). If the registration statement relates to
securities to be offered on a delayed or continuous basis pursuant to Rule 415
under the 1933, Act, the term "Registration Statement" means such registration
statement as amended to the date of the Underwriting Agreement. Otherwise, the
term Registration Statement means such registration statement as amended at the
time when it becomes effective (including the information, if any, deemed to be
a part of such Registration Statement at the time of the effectiveness pursuant
to rule 430A under the 1933 Act). The term "Prospectus" means the prospectus,
together with a final prospectus supplement, if any, relating to the offering
of the Securities, and in the form first used to confirm sales of the
Securities. The term "preliminary prospectus" means any preliminary prospectus
related to the offering of the Securities or any preliminary prospectus
supplement together with a prospectus relating to the offering of the
Securities. As used herein the terms Registration Statement, Prospectus and
preliminary prospectus shall include in each case the material if any,
incorporated by reference therein.
With respect to Securities for which no Registration Statement is
filed with the Commission, you will furnish to us, to the extent made available
to you by the Issuer, copies of any offering circular or other offering
materials to be used in connection with the offering of the Securities and of
each amendment thereto (the "Offering Circular").
We understand that it is our responsibility to examine the
Registration Statement, the Prospectus, the Offering Circular, any amendment or
supplement thereto relating to the offering of the Securities, any preliminary
prospectus or offering circular and the material, if any, incorporated by
reference therein and we will familiarize ourself with the terms of the
Securities and the other terms of the offering thereof which are to be
reflected in the Prospectus or Offering Circular and the Invitation. You are
authorized, with the approval of counsel for the Underwriters, to approve on
our behalf any amendments or supplements to the Registration Statement or the
Prospectus or Offering Circular.
<PAGE> 2
3. Underwriting Agreement. We authorize you to execute and deliver
an underwriting or purchase agreement and any amendment or supplement thereto
and any associated Terms Agreement or other similar agreement (collectively,
the "Underwriting Agreement") on our behalf with the Issuer and/or any selling
security holder with respect to the Securities in such form as you determine.
We will be bound by all terms of the Underwriting Agreement as executed. The
term "original underwriting commitment," as used in this Agreement with respect
to any Underwriter, shall refer to the amount of Firm Securities set forth
opposite such Underwriter's name in the Underwriting Agreement plus any
additional Firm Securities which such Underwriter may become obligated to
purchase pursuant to the provisions of the Underwriting Agreement or Section 13
hereof. The ratio which such original underwriting commitment bears to the
aggregate amount of Firm Securities to be purchased by all the Underwriters is
referred to in this Agreement as the "underwriting proportion" of such
Underwriter.
It is understood that, if so specified in the Invitation, arrangements
may be made for the sale of the Securities by the Issuer pursuant to delayed
delivery contracts (herein referred to as "Delayed Delivery Contracts ").
References herein to "delayed delivery" and Delayed Delivery Contracts apply
only to offerings to which delayed delivery is applicable.
If the Securities consist in whole or in part of debt obligations
maturing serially, the serial Securities being purchased by each Underwriter
pursuant to the Underwriting Agreement will consist, subject to adjustment as
provided in the Underwriting Agreement, of serial Securities of each maturity
in a principal amount which bears the same proportion to the aggregate
principal amount of the serial Securities of such maturity to be purchased by
all the Underwriters as the respective principal amount of serial Securities
set forth opposite such Underwriter's name in the Underwriting Agreement bears
to the aggregate principal amount of the serial Securities to be purchased by
all the Underwriters.
4. Authority of Representative. You are also authorized in your sole
discretion to take the following actions with respect to the Underwriting
Agreement: (a) To postpone any closing date or option closing date or to
extend any other time or date specified in the Underwriting Agreement; (b) To
exercise any right of cancellation or termination; (c) To arrange for the
purchase by other persons (including yourselves or any other Underwriters) of
any of the Securities not taken up by an defaulting Underwriter or by the other
Underwriters as provided in the Underwriting Agreement; (d) To give notice on
our behalf of the determination to purchase any Additional Securities; (e) With
respect to offerings using Formula Pricing, to determine the initial public
offering price and the price at which the Securities are to be purchased in
accordance with the Underwriting Agreement; (f) To consent to any other
additions to, changes in or waivers of provisions of the Underwriting
Agreement, and to take such other action in connection with the offering of the
Securities, as may seem advisable to you in respect thereof.
5. Method of Offering. We authorize you to manage the underwriting
and the public offering of the Securities and to take such action in connection
therewith and in connection with the purchase, carrying and resale desirable:
(a) To determine the time of the initial public offering of the Securities, and
the initial public offering price and the Underwriters' gross spread and
whether to purchase any Additional Securities and the amount, if any, of
Additional Securities to be purchased; (b) To make any changes in the public
offering price or other terms of the offering; (c) To make changes in those
who are to Underwriters and in the respective amounts of the Firm Securities to
be purchased by them, provided that our original underwriting commitment shall
not be changed without our consent; (d) To determine all matters relating to
advertising and communications with dealers or others; (e) To reserve for sale
and to sell to institutions or other retail purchasers, for our account, such
of our Securities as you may determine; provided, however, that such
reservations and sales shall be made for the respective accounts of the several
Underwriters as nearly as practicable in their respective underwriting
proportions, except for such sales for the account of a particular Underwriter
designated by such a purchaser; (f) To reserve for sale and to sell to
dealers, for our account, such of our Securities as you may determine;
provided, however, that such dealers shall be actually engaged in the
investment banking or securities business and shall be either members in good
standing of the National Association of Securities Dealers, Inc. (the "NASD")
or dealers registered as a broker-dealer under Section 15 of the Securities
Exchange Act of 1934 (the "1934 Act") who agree to make no sales within the
United States, its territories or its possessions or to persons who are
nationals thereof or residents therein; and provided, further, that each dealer
shall agree to comply with the provisions of Section 24 of Article 111 of the
Rules of Fair Practice of the NASD, and each foreign dealer who is not a member
of the NASD also shall agree to comply with the NASD's interpretation with
respect to free-riding and withholding, to comply, as though it were a member
of the NASD, with the provisions of Sections 8 and 36 of Article 111 of such
Rules of Fair Practice, and to comply with Section 25 of Article 111 thereof as
that Section applies to a nonmember foreign dealer; (g) To apportion such sales
to dealers among the Underwriters as nearly as practicable in the ratio
reserved; provided, however, that if such ratio is to be revised by reason of
the release for direct sale as hereinafter provided, sales may be apportioned
by you from day to day on the basis of the ration existing at the end of the
preceding day; (h) To fix the concession to dealers and reallowance to dealers
and, after the initial public offering of the Securities, to make changes in
the concessions and reallowance, (i) At any time with respect to unsold
Securities retained by us: (A) to reserve any of such Securities for sale by
you for our account, or (B) to purchase any of such Securities which in your
opinion are needed to enable you to make deliveries for the accounts of the
several Underwriters pursuant to this Agreement. Such purchases may be made at
the public offering price, or at your option, at such price less all or any
part of the concession to dealers.
We understand that you will advise us when the Securities are released
for public offering and of the amount of Securities sold or reserved for sale
for our account. We shall retain for direct sale any Securities purchased by
us and not so sold or reserved. Direct sales will be made in accordance with
the terms of offering set forth in the Prospectus or Offering Circular. With
your consent, we may obtain release from you for direct sale of any Securities
held by you for sale pursuant to subparagraphs (3) and (f) above but not sold
and paid for. To the extent Securities so released had been reserved for sale
to dealers, the amount of Securities reserved for our account for sale to
dealer shall be correspondingly reduced. We promptly will advise you at your
request, of the amount of Securities retained by us which remain unsold and of
the amount of Securities remaining unsold which were delivered to us pursuant
to the last paragraph of this Section 4.
If so directed in the Invitation, we agree that without your express
prior written consent we will not sell to any account over which we exercise
discretionary authority any of our Securities. We will also comply with any
other restriction which may be set forth in the Invitation.
If, prior to the termination of this Agreement with respect to the
offering of the Securities, you shall purchase or contract to purchase any of
the Securities sold directly by us, in your discretion you may (i) sell for our
account the Securities so purchased and debit or credit our account for the
loss or profit resulting from such sale, (ii) charge our account with an amount
equal to the concession to dealers with respect thereto and credit such amount
against the cost thereof or (iii) require us to purchase such Securities at a
price equal to the total cost of such purchase, including commissions, accrued
interest, amortization of original issue discount or dividends and transfer
taxes on redelivery.
<PAGE> 3
6. Delayed Delivery Arrangements. We authorize you to act on our
behalf in making all arrangements for the solicitation of offers to purchase
Securities from the Issuer pursuant to Delayed Delivery Contracts, and we agree
that all such arrangements will be made only through you (directly or through
Underwriters or dealers). You may allow to dealers in respect of such
Securities a commission equal to the concession allowed to dealers pursuant to
Section 5.
The commitments of the Underwriters shall be reduced in the aggregate
by the principal amount of Securities covered by Delayed Delivery Contracts
made by the Issuer, the commitment of each Underwriter to be reduced by the
principal amount of such Securities, if any, allocated by you to such
Underwriter. Your determination of the allocation of Securities covered by
Delayed Delivery Contracts among the several Underwriters shall be final and
conclusive, and we agree to be bound by any notice delivered by you to the
Issuer setting forth the amount of the reduction in our commitment as a result
of Delayed Delivery Contracts.
Upon receiving payment from the Issuer of the fee for arranging
Delayed Delivery Contracts, you will credit our account with the portion of
such fee applicable to the Securities covered by Delayed Delivery Contracts
allocated to us. You will charge our account with any commission allocated to
dealers in respect of Securities covered by Delayed Delivery Contracts
allocated to us.
7. Trading Authorization. We authorize EVEREN, during the term of
this Agreement relating to the offering of the Securities in its discretion:
(a) To make purchases and sales of Securities, any securities into which the
Securities are convertible or for which the Securities are exchangeable and any
other securities of the Issuer or any guarantor of the Securities specified in
the Invitation, in the open market or otherwise (in addition to purchases and
sales made under the authority of Section 5), either for long or short account,
on such terms and at such prices as it may determine; (b) In arranging for
sales of the Securities pursuant to Section 5, to over-allot, and to make
purchases for the purpose of covering any over-allotment so made.
It is understood that, in connection with the offering of the
Securities EVEREN may have made purchases of any such securities for
stabilizing purposes prior to the time when we became one of the Underwriters
and we agree that any such securities so purchased shall be treated as having
been purchased for the respective accounts of the Underwriters pursuant to the
foregoing authorization.
All such purchases and sales and over-allotments shall be made for
respective accounts of the several Underwriters as nearly as practicable in
their respective underwriting proportions; provided, however, that at no time
shall our net commitment resulting from such purchases and sales, either for
long or short account, or pursuant to such over-allotments, exceed 15% (or such
other amount as may be specified in the Invitation) of our original
underwriting commitment and provided, further that in determining our net
commitment for short account there shall be subtracted the maximum amount of
Additional Securities which we are entitled to purchase. We agree to take up
at cost on demand any securities so purchased for our account and to deliver
on demand any securities so sold or so over-allotted for our account. Without
limiting the generality of the foregoing , EVEREN, may buy or take over for the
respective accounts of the several Underwriters, all in the proportion and
within the limits set forth, at the price at which reserved, any of the
Securities reserved for sale by it but not sold and paid for, for such purposes
as it may determine, including, but not limited to, the covering of
over-allotments and short sales.
If EVEREN engages in any stabilization transaction pursuant to this
Section, it will notify us promptly of the date and time of the first
stabilizing purchase and the date and time of termination of stabilization.
EVEREN shall prepare and maintain such records as are required to be maintained
by it as manager pursuant to Rule 17a-2 under the 1934 Act.
8. Limitation on Transactions by Underwriters. If the Securities are
shares of common stock ("Common Stock") of the Issuer or securities of the
Issuer that may be exchanged for or converted into Common Stock, we agree that
we will not, without the express prior written consent of EVEREN, buy, sell,
deal or trade in (i) any Common Stock, (ii) any security of the Issuer
convertible into Common Stock or (iii) any right or option to acquire or sell
Common Stock or any security of the Issuer convertible into Common Stock, for
our own account or for the account of a customer, except: (a) as provided for
in this Agreement or the Underwriting Agreement; (b) that we may convert any
security of the Issuer convertible into Common Stock owned by us and sell the
Common Stock acquired upon such conversion and that we may deliver Common Stock
owned by us upon the exercise of any option written by us as permitted by the
provisions set forth herein; (c) in brokerage transactions on unsolicited
orders which have not resulted from activities on our part in connection with
the solicitation of purchases and which are executed by using the ordinary
course of our brokerage business; and (d) than on or after the date of the
initial public offering of the Securities, we may execute covered writing
transactions in options to acquire Common Stock, when such transactions are
covered by Securities, for the accounts of customers.
An opening uncovered writing transaction in options to acquire Common
Stock for our account or for the account of a customer shall be deemed, for
purposes of this Section 8, to be a sale of Common Stock which is not
unsolicited. The term "opening uncovered writing transaction in options to
acquire" as used above means a transaction where the seller intends to become a
writer of an option to purchase any Common Stock which he does not own. An
opening uncovered purchase transaction in options to sell Common Stock for our
account or for the account of a customer shall be deemed, for purposes of this
paragraph, to be a sale of Common Stock which is not unsolicited. The term
"opening uncovered purchase transaction in options to sell" as used above means
a transaction where the purchaser intends to become an owner of an option to
sell Common Stock which he does not own.
If the Securities are not shares of Common Stock or securities of the
Issuer that may be exchanged for or converted into Common Stock, we agree that
we will not bid for or purchase, or attempt to induce any other person to
purchase, any Securities or any other securities of the Issuer designated in
the Invitation other than (i) as proved for in this Agreement or the
Underwriting Agreement, (ii) as expressly approved in writing by EVEREN or (iii)
as a broker in executing unsolicited orders.
We represent that we have not participated in any transaction
prohibited by the preceding paragraphs this Section 8 and that we have at all
times complied with and will at all times comply with the provisions of Rule
10b-6 of the Commission applicable to the offering of the Securities.
We may, with your express prior written consent, make purchases of the
Securities from and sales to other Underwriters at the public offering price,
less all or any part of the concession to dealers.
<PAGE> 4
9. Delivery and Payment. At or before such time, on such dates and at
such places as you may specify in the Invitation, we will deliver to you a
certified or official bank check in such funds as are specified in the
Invitation, payable to the order of EVEREN (unless otherwise specified in the
Invitation) in an amount equal to, as you direct, (i) the public offering price
or prices plus accrued interest, amortization of original issue discount or
dividends, if any, set forth in the Prospectus or Offering Circular less the
selling concession in respect of such of the Securities to be purchased by us
as shall have been retained by or released to us for direct sale, of (iii) the
amount set forth in the Invitation with respect to the Securities to be
purchased by us. You shall use such funds to make payment on our behalf of the
purchase price for the Securities to be purchased by us. Any balance shall be
held by you for our account. If you have not received our funds as requested
you may in your discretion make any such payment on our behalf and we will
promptly deliver funds to you in the amount so requested. Any such payment by
you will not relieve us from any of our obligations under this Agreement or
under the Underwriting Agreement.
We authorize you, in carrying out the provisions of this Agreement, in
your discretion, to arrange loans for our account, to advance your funds for
our account, charging current interest rates, and to hold or pledge as
security therefor all or any part of the Securities which you may be holding
for our account. Any lender is hereby authorized to accept your instructions
with respect to such loans, and we authorize you to execute and deliver notes
or other instruments in connection therewith.
You shall remit to us or credit to our account (i) the proceeds of any
loan taken down on our behalf and (ii) upon receiving payment to you for any
Securities sold for our account, an amount equal either to the purchase price
paid by us of the price received by you therefor, as you may determine. If the
Underwriting Agreement for an offering provides for the payment of a commission
or other compensation to the Underwriters, we authorize you to receive such
commission or other compensation for our account.
We authorize you to take delivery of certificates for our Securities
(which may, in the case of Securities which are debt obligations, be in
temporary form), registered as you may direct in order to facilitate
deliveries, and to deliver any Securities reserved for us against sales. You
will deliver to us certificates for our unreserved Securities and certificates
for our reserved but unsold Securities as soon as practicable after the
termination of the provisions referred to in Section 11. If we are a member of
the Depositary Trust Company, you may at your discretion arrange for payment
for and/or deliver of our participation through the facilities of such Company
or, if we are not a member, such settlement may be made through our ordinary
correspondent who is a member.
Certificates for all other Securities which you then hold for our
account shall be delivered to us upon termination of this Agreement with
respect to the offering of the Securities, or prior thereto in your discretion,
and certificates for any such Securities may at any time be delivered to us for
carrying purposes only, subject to redelivery upon demand. If, upon
termination of this Agreement with respect to the offering of the Securities,
an aggregate of not more than 10% of the Securities remains unsold, EVEREN may,
in its discretion, sell such Securities at such prices as it may determine.
10. Indemnification and Certain Claims. With respect to each
offering of Securities pursuant to this Agreement, we agree to indemnify and
hold harmless each of the other Underwriters, and each person, if any, who
controls any other Underwriter within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act and to reimburse their expenses, all to the
extent, if any, and upon the terms that we agree to indemnify and hold harmless
the Issuer and other specified persons and to reimburse their expenses, as set
forth in the Underwriting Agreement.
With respect to each offering of Securities pursuant to this
Agreement, we will pay our proportionate share (based on our underwriting
proportion) of (a) all expenses incurred by you in investigating or defending
against any claim or proceeding which is asserted or instituted by any party
(including any governmental or regulatory body) other than an Underwriter based
upon the claim that the Underwriters constitute an association, unincorporated
business or other separate entity, or relating to the Registration Statement or
Prospectus or Offering Circular for any amendment or supplement thereto) or any
preliminary prospectus or offering circular and (b) any liability incurred by
you in respect of any such claim or proceeding, whether such liability shall be
the result of a judgement or as a result of any settlement agreed to by you,
other than any such liability as to which you actually receive indemnity
pursuant to the first paragraph of this Section 10 or indemnity or contribution
pursuant to the Underwriting Agreement.
11. Termination and Settlement. With respect to each offering of
Securities pursuant to this Agreement, this Agreement shall terminate (i) on
the thirtieth business day after the initial public offering of the Securities,
(ii) on such earlier date as you may determine or (iii) on the termination of
the Underwriting Agreement if the Underwriting Agreement shall be terminated as
permitted by its terms. You may at your discretion, on notice to us prior to
the termination of this Agreement with respect to the offering of the
Securitites, terminate or suspend us prior to the terinaton of this Agreement
with respect to the offering of the Securities, terminate or suspend the
effectiveness of Sections 5, 7 and 8 hereof or any part of them, or alter any
of the terms or conditions of offering determined pursuant to Section 5 hereof.
No termination or suspension pursuant to this Section shall affect your
authority under Section 7 hereof to over any short position under this
Agreement.
Upon termination of this Agreement with respect to the offering of the
Securities, all authorizations, rights and obligations hereunder shall cease,
except (i) the mutual obligations to settle accounts hereunder, (ii) our
obligation to pay any transfer taxes which may be assessed and paid on account
of any sales hereunder for our account, (iii) our obligation with respect to
purchases which may be made by you from time to time thereafter to cover any
short position incurred under this Agreement, (iv) our agreements contained in
the first and their paragraphs of Section 10 hereof and (v) the obligations of
any defaulting Underwriter, all of which shall continue until fully discharged.
The accounts arising pursuant to this Agreement with respect to the
offering of the Securities shall be settled and paid as soon as practicable
after termination hereof with respect to such offering, except that you may
reserve such amount as you deem advisable to cover any additional contingent
expenses.
You are authorized at any time: (a) To make partial distributions of
credit balances or call for the payment of debit balances (b) To determine the
amounts to be paid to or by us, which determination will be final and
conclusive; (c) As compensation for your services in connection with this
Agreement with respect to the offering of the Securities, to charge our account
and pay to yourselves, when final accounting is made, an amount per security to
be determined by you (not to exceed the amount or the percentage of the
Underwriters' gross spread per security specified in the Invitation) for each
Security which we have agreed or shall become committed to purchase
<PAGE> 5
pursuant to the Underwriting Agreement; (d) To charge our account with (i) all
transfer taxes on sales made for our account and (ii) our underwriting
proportion of all expenses (other than transfer taxes) incurred by you, as
Representatives of the several Underwriters, in connection with the
transactions contemplated by this Agreement with respect to the offering of the
Securities; (e) To hold any of our funds at any time in your hands with your
general funds without accountability for interest.
12. Blue Sky Qualification. Upon request, you will inform us as to
the jurisdictions in which you have been advised by counsel that the Securities
have been registered or qualified for sale under the respective securities or
Blue Sky laws, but you do not assume any responsibility or obligation as to our
right to sell the Securities in any jurisdiction.
You are authorized to file or cause to be filed a Further State Notice
with the Department of State of New York.
13. Default by Underwriters. Default by any Underwriter in respect
of its obligations or in any way affect the liability of such defaulting
Underwriter to the other Underwriters for damages resulting from such default.
If one or more Underwriters default under the Underwriting Agreement, if
provided in the Underwriting Agreement you may (but shall not be obligated to)
arrange for the purchase by other, which may include yourselves or other
nondefaulting Underwriters, of all or a portion of the Securities not taken up
by the defaulting Underwriters.
If such arrangements are made, the respective original underwriting
commitments of the non-defaulting Underwriters and the amounts of the
Securities to be purchased by others, if any, shall be taken as the basis for
all rights and obligations hereunder, but this shall not in any way affect the
liability of any defaulting Underwriter to the other Underwriters for damages
resulting from its default, nor shall any such default relieve any other
Underwriter of any of its obligations hereunder or under the underwriting
Agreement except as herein or therein provided. In addition, in the event of
default by one or more Underwriters in respect of their obligations under the
Underwriting Agreement to purchase the Securities agreed to be purchased by
them thereunder and, to the extent that arrangements shall not have been made
by you for any person to assume the obligations of such defaulting Underwriter
or Underwriters, we agree to assume our proportionate share, based upon our
original underwriting commitment, of the obligation of each such defaulting
Underwriter (subject to the limitations contained in the Underwriting
Agreement) without relieving such defaulting Underwriter of its liability
therefore.
In the event of default by one or more Underwriters in respect of
their obligations under this Agreement to take up and pay for any securities
purchased, or to deliver any securities sold or over allotted, by you for the
respective accounts of the Underwriters, or to bear their proportion of
expenses or liabilities pursuant to this Agreement, and to the extent that
arrangements shall not have been made by you for any persons to assume the
obligations of such defaulting Underwriter or Underwriters, we agree to assume
our proportionate share, based upon our original underwriting commitment, of
the obligations of each defaulting Underwriter without relieving any such
defaulting Underwriter of its liability therefor.
14. Distribution of Prospectuses; Offering Circulars. We are
familiar with Securities Act of 1933 Release No. 4968 and Rule 15c2-8 under the
1934 Act, relating to the distribution of preliminary and final prospectuses,
and we confirm that we will comply therewith, to the extent applicable, in
connection with any sale of Securities. You shall cause to be made available
to us, to the extent made available to you by the Issuer, such number of copies
of the Prospectus as we may reasonable request for purposes contemplated by the
1933 Act, the 1934 Act and the rules and regulations thereunder.
If an Invitation states that the offering is subject to the 48-hour
prospectus delivery requirement set forth in Rule 15c2-8(b), our Acceptance of
the Invitation shall be deemed to constitute confirmation that we have
delivered for we will deliver) a copy of the preliminary prospectus to all
persons to whom we expect tot confirm a sale of Securities and that such
deliver was effected (or will be effected) at least 48 hours prior to the
mailing of such confirmations of sale.
We will keep an accurate record of the names and addresses of all
persons to whom we give copies of the Registration Statement, the Prospectus,
the Offering Circular or any preliminary prospectus or offering circular (or
any amendment or supplement thereto), and, when furnished with any subsequent
amendment to the Registration Statement, any subsequent prospectus or offering
circular or any memorandum outlining changes in the Registration Statement or
any prospectus or offering circular, we will, upon your request, promptly
forward copies thereof to such persons.
Our Acceptance of an Invitation relating to an offering made pursuant
to an Offering Circular shall constitute our agreement that, if requested by
you, we promptly will furnish a copy of any amendment to a preliminary or final
Offering Circular to each person to whom we shall have furnished a previous
preliminary or final Offering Circular. Our Acceptance shall constitute our
confirmation that we have delivered, and our agreement that we will deliver,
all preliminary and final Offering Circulars required for compliance with the
applicable federal and state laws and the applicable rules and regulations of
any regulatory body promulgated thereunder governing the use and distribution
of offering circulars by underwriters and, to the extent consistent with such
laws, rules and regulations, our Acceptance shall constitute our confirmation
that we have deliver, and our agreement that we will deliver, all preliminary
and final Offering Circulars which would be required if the provisions of the
Rule 15c2-8 (or any successor provision) under the 1934 Act applied to such
offering.
15. Miscellaneous. Nothing in this Agreement shall constitute us
partners with you or with the Underwriters. Our obligations and the
obligations of be read to make or otherwise each of the other Underwriters are
several and not joint. Each Underwriter elects to be excluded from the
application of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue
Code of 1986, as amended. Default by any Underwriter with respect to the
Underwriting Agreement shall not release us from any of the obligations
thereunder or hereunder.
Unless we have promptly notified you in writing otherwise, our name as
it should appear in the Prospectus or Offering Circular and our address are set
forth below.
Any notice from you to us shall be deemed to have been given if
mailed, telegraphed, faxed or hand delivered, or telephoned and subsequently
confirmed in writing, to our address appearing below.
<PAGE> 6
We confirm that we are a member in good standing of the NASD or that
we are a foreign bank or dealer, not eligible for membership in the NASD. In
making sales of Securities, if we are such a member, we agree to comply with
all applicable rules of the NASD, including, without limitation, the NASD's
Interpretation with Respect to Free-Riding and Withholding and Section 24 of
Article 111 of the NASD's Rules of Fair Practice, or, if we are such a foreign
bank or dealer, we agree to comply with such Interpretation, Sections 8, 24 and
36 of such Article as though we were such a member and Section 25 of such
Article as it applies to a non-member broker or dealer in a foreign country.
If we are a foreign bank or dealer and we are not registered as a
broker-dealer under Section 15 of the 1934 Act, we agree that while we are
acting as an Underwriter with respect to the Securities and in any event
during the term of this Agreement with respect to the offering of the
Securities, we will not directly or indirectly engage in any transactions in
the United States, with nationals or residents of the United States, or with
any other person whereby we would be subject to the jurisdiction of the 1933
Act or 1934 Act (except for the purchases provided for in the Underwriting
Agreement and transactions contemplated by Section 5, 7 and 8 hereof) in (i)
Securities, (ii) Common Stock, if the Securities are Common Stock or securities
of the issuer that may be exchanged for or converted into Common Stock or (iii)
any other securities of the Issuer designated in the Invitation.
If we are a foreign bank or dealer, we represent that in connection
with sales and offers to sell Securities made by us outside the United State
(a) we will not offer or sell any Securities in any jurisdiction except in
compliance with applicable laws and (b) we will either furnish to each person
to whom any such sale or offer is made a copy of the then current preliminary
prospectus or offering circular, if any, of the Prospectus or Offering Circular
(as then amended or supplemented), as the case may be or inform such person
that such preliminary prospectus or offering circular, if any, or Prospectus or
Offering Circular will be available upon request. Any offering material in
addition to the then current preliminary prospectus or offering circular or the
Prospectus or Offering Circular furnished by us to any person in connection
with any offers or sales referred to in the preceding sentence (i) shall be
prepared and so furnished at our sole risk and expense and (ii) shall not
contain information relating to the Securities or the Issuer which is
inconsistent in any respect with the information contained in the then current
preliminary prospectus or offering circular, if any, or in the Prospectus or
Offering Circular (as then amended or supplements), as the case may be. It is
understood that no action has been taken by you or the issuer or any seller of
the Securities to permit a public offering in any jurisdiction other than the
United States where action would be required for such purpose.
We also confirm that our commitment to purchase Securities pursuant to
the Underwriting Agreement will not result in a violation of Rule 15c3-1 under
the 1934 Act or of any similar provisions of any applicable rules of any
securities exchange to which we are subject or of any restriction imposed upon
us by an such exchange or any governmental authority.
We agree that we will notify you immediately of any development before
the termination of this Agreement with respect to the offering of the
Securities which makes untrue or incomplete any information that we have given
or are deemed to have given in response to the Underwriters' Questionnaire.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
<PAGE> 7
Please confirm this Agreement and deliver a copy to us.
Very truly yours,
NAME OF FIRM: ____________________________
By:__________________________________________
Authorized Officer or Partner
Address:
_____________________________________________
_____________________________________________
_____________________________________________
Confirmed as of the date first above written.
EVEREN SECURITIES, INC.
By:____________________________________________
<PAGE> 8
Exhibit A to Master Agreement Among Underwriters
Unless otherwise defined, capitalized terms used herein have the
meanings assigned thereto in the Master Agreement Among Underwriters dated
April 30, 1991, between EVEREN Securities, Inc. ("EVEREN") and you (such
agreement as amended or supplemented from time to time, being hereinafter
called the "Agreement"). Reference will be made to this Master Underwriters'
Questionnaire in each Invitation described in Section 1 of the Agreement
received by you from EVEREN in connection with offerings of securities in which
EVEREN is acting as representative or the manager of the representatives of the
several Underwriters. Your Acceptance of any such Invitation should respond to
this Master Underwriters' Questionnaire.
(1) Neither you nor any of your directors, officers or partners has a
material relationship (as "Material" is defined in Regulation C under the 1933
Act) with the Issue, its parent (if any), any other seller of the Securities or
any guarantor of the Securities;
(2) Neither you nor any of your directors, officer or partners,
separately or as a "group" (as that term is defined in Section 13(d)(3) of the
1934 Act), owns of record or beneficially 5% or more of any class of voting
securities of the Issuer, its parent (if any), any other seller of the
Securities or any guarantor of the Securities nor do you have any knowledge
that 5% or more of any class of voting securities of the issuer is held or will
be held subject to any voting trust or other similar agreement;
(3) You have not prepared any report or memorandum for external use in
connection with the proposed offer;
(4) If the Securities are to be issued under an indenture qualified
under the Trust Indenture Act of 1939 (the "1939 Act");
(a) neither you nor any of your directors, officer or partners
is an affiliate (as defined in Rule 0-2(b) under the 1939 Act) of the Trustee,
or its parent (if any ) and neither the Trustee nor its parent (if any) nor any
of their directors or executive officers is a director, officer, partner,
employee, appointee or representative of yours as those terms are defined in
the 1939 Act or in the relevant instructions to Form T-1 thereunder;
(b) neither you nor any of your directors, officers or
partners , separately or as a group owns beneficially 1% or more of any class
of voting securities of the Trustee or its parent, if any; and
(c) if you are a corporation, you do not have outstanding nor
have you assumed or guaranteed any securities otherwise than in your corporate
name, and neither the Trustee nor its parent (if any) is a holder of such
securities.
(5) Other than as stated or to be stated in the Agreement, the EVEREN
Securities, Inc. Master Dealer Agreement or the Underwriting Agreement relating
to the proposed Offering, you do not know of or have reason to believe that (a)
there are any discounts or commissions to be allowed or paid to Underwriters or
any other items that would be deemed by the NASD to constitute underwriting
compensation for purposes of the NASD's Rules of Fair Practice, (b) there are
any discounts or commissions to be allowed or paid to dealers, including all
cash, securities, contracts or other considerations to be received by any
dealer in connection with the sale of the Securities, (c) there is an intention
to over-allot or (d) the price of any security may be stabilized to facilitate
the offering of the Securities.
(6) In the case of a Registered Offering where the Registration
Statement is on Form S-1, you have not prepared any engineering, management or
similar reports or memoranda relating to broad aspects of the business,
operations or products of the Issuer, its parent (if any) or any guarantor
within the past 12 months (except for reports solely comprised of
recommendation to buy, sell or hold the securities of the Issuer, its parent
(if any) or any guarantor, unless such recommendations have changed within the
past six months). If any such report or memorandum has been prepared, furnish
to EVEREN (a) three copies thereof and (b) a statement as to the actual or
proposed use, identifying (i) each class of persons (institutional mailing
lists, retail clients, etc.) who have received or will received the report
memorandum, (ii) the number of copies distributed to each such class and (iii)
the period of distribution.
(7) If the Issuer is a public utility, you are not a "holding company
or a "subsidiary company" or an "affiliate" of a "holding company" or of a
"public utility company, " each as defined in the Public Utility Holding
Company Act of 1935.
(8) Neither you nor any of your directors, officers, partners or
"persons associated with" you (as defined in the By-Laws of the NASD) nor, to
your knowledge, any "related person" (defined by the NASD to include counsel,
financial consultants and advisors, finders, members of the selling or
distribution group and any other persons associated with or related to any of
the foregoing) nor any other broker-dealer (a) within the last 18 months have
purchased in private transactions, or intend before, at or within six months
after the commencement of the public offering of the Securities, to purchase in
private transactions, any securities of the Issuer or any subsidiary thereof,
or (2) within the last 12 months had any dealing with the Issuer, any selling
security holder or any subsidiary or controlling person thereof (other than
relating to the proposed Underwriting Agreement) as to which document or
information are required to be field with the NASD pursuant to its Statement of
Policy Concerning Venture Capital and Other Investments by Broker/Dealers Prior
to Public Offerings or its Interpretation with Respect to Review of Corporate
Financing.
(9) You may, in accordance with and pursuant to the financial
responsibility requirements of Rule 15c3-1 under the Exchange Act, agree to
purchase the amount of Securities to be purchased by you.
(10) If the Issuer of the Securities has not had a registration
statement effective under the 1933 Act and does not intend to register any
securities under Section 12 of the 1934 Act, you do not intend to confirm sales
of the Securities to any accounts over which you exercise discretionary
authority.
<PAGE> 1
EXHIBIT 2.h.3.
MASTER DEALER AGREEMENT
January 1, 1996
EVEREN Securities, Inc.
77 W. Wacker Drive
Chicago, Illinois 60601
Ladies and Gentlemen:
From time to time in connection with public offerings of securities
underwritten by you, or by a group of Underwriters represented by you, we may
be offered the opportunity to purchase a portion of such securities, as
principal, at a discount from the public offering price. Such discount
represents a selling concession or reallowance granted as consideration for
services rendered by us in the distribution of such securities. We understand
that you are requesting us to agree to the following terms and provisions, and
make the following representations, which, together with any additional terms
and provisions set forth in any wire, letter or telecopy sent to us in
connection with a particular offering, will govern all such purchases of
securities and the reoffering thereof by us.
We agree that if we subscribe to, or purchase, any such securities, such
action will constitute our reaffirmation of all of the terms and provision of
this Agreement shall apply separately to each offering.
1. General Terms. When you are acting as Representative of the several
Underwriters in offering securities to us, it is understood that all offers are
made subject to prior sale of the subject securities, when, as and if such
securities are delivered to and accepted by the Underwriters and subject to the
approval of legal matters by their counsel. In such cases, any order from us
for securities will be strictly subject to confirmation and you reserve the
right in your absolute discretion to reject any order in whole or in part.
Upon release by you, we may reoffer such securities at the public offering
price fixed by you. With your consent, we may allow a discount, not in excess
of the reallowance fixed by you, in selling such securities to other dealers,
provided that in doing so we comply with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (the "NASD"). Upon your
request, we will advise you of the identity of any dealer to whom we allow such
a discount and any Underwriter or dealer from whom we receive such a discount.
After the securities are released for sale to the public, you may vary the
public offering price and other selling terms.
We represent that we have at all times complied, and will continue to
comply, with the provisions of Rule 10b-6 of the Securities and Exchange
Commission and all other state and federal securities laws applicable to this
offering.
We agree to advise you from time to time upon request, prior to the
termination of this Agreement with respect to any offering of securities
covered hereby, of the number or amount of offered securities remaining unsold
which were purchased by us from you or from any dealer at a concession from the
public offering price and, on your request, we will resell to you any such
securities remaining unsold at the public offering price less an amount to be
determined by you not in excess of the concession allowed to us.
If prior to the termination of this Agreement with respect to any offering
of securities covered hereby, you purchase or contract to purchase any
securities which were purchased by us from you or from any dealer at a
concession from the public offering price (including any securities represented
by certificates which may have been issued on transfer of or in exchange for
certificates originally representing such securities), in your discretion you
may (i) sell for our account the securities so purchased and debit or credit
our account for the loss or profit resulting from such sale, (ii) charge our
account with an amount equal to the concession to dealers with respect thereto
and credit such amount against the cost thereof or (iii) require us to purchase
such securities at a price equal to the total cost of such purchase including
commissions, accrued interest, amortization of original issue discount or
dividends and transfer taxes on redelivery.
2. Delivery and Payment. If we purchase any securities from you
hereunder, we agree that such purchases will be evidenced by your written
confirmation and will be subject to the terms and conditions set forth in the
confirmation and in any offering circular or prospectus relating to such
securities.
<PAGE> 2
Unless you advise us otherwise, securities purchased by us from you
hereunder shall be paid for in full at the public offering price (plus accrued
interest, amortization of original issue discount or dividends, if any), or, if
you shall so advise us, at such price (plus accrued interest, amortization of
original issue discount or dividends, if any) less the applicable concession,
at the office of EVEREN Securities, Inc. 77 W. Wacker Drive, Chicago, Illinois
60601, at such time and on such day as you may advise us, by certified or
official bank check payable in New York Clearing House funds to the order of
EVEREN Securities, Inc. against delivery of the securities. If we are called
upon to pay the public offering price for the securities purchased by us, the
applicable concession will be paid to us, less any amounts charged to our
account pursuant to Article 1 above, promptly after this Agreement terminates
with respect to any offering of securities covered hereby.
3. Termination. You will advise us of the date and time of termination of
this Agreement or of any designated provisions hereof with respect to any
offering of securities covered hereby. With respect to any offering of
securities covered hereby, this Agreement shall in any event terminate 30
business days after the date of the initial date of such offering of securities
unless sooner terminated by you.
4. Representation and Agreements. We represent that we are a member in
good standing of the NASD or that we are a foreign bank or dealer not eligible
for membership in the NASD which agrees to make no sales if securities within
the United States, its territories or its possessions, or to person who are
citizens thereof or resident therein. In making sales of securities, if we are
such a member of the NASD, we agree to comply with all applicable rules of the
NASD, including, without limitation, the NASD's Interpretation with Respect to
Free-Riding and Withholding and Section 24 of Article 111 of the NASD's Rules
of Fair Practice, or, if we are such a foreign bank or dealer, we agree to
comply with such Interpretation, Sections 8, 24 and 36 of such Article as
though we were such a member and Section 25 of such Article as it applies to a
non-member broker or dealer in a foreign country. We represent that we are
fully familiar with the above provisions of the Rules of Fair Practice of the
NASD.
If we are a foreign bank or dealer, we represent that in connection with
sales and offers to sell securities made by us outside the United States, (a)
we will not offer or sell any securities in any jurisdiction except in
compliance with applicable laws and (b) we will either furnish to each person
to whom any such sale or offer is made a copy of the then current offering
circular or prospectus or inform such person that such offering circular or
prospectus will be available upon request. It is understood that no action has
been taken to permit a public offering in any jurisdiction other than the
United States where action would be required for such purpose.
We agree that in connection with any offering of securities covered by
this Agreement we will comply with the applicable provisions of the Securities
Act and the Securities Exchange Act of 1934, as amended, (the "Exchange Act")
and the applicable rules and regulations of the Securities and Exchange
Commission thereunder, the applicable rules and regulations of the NASD, and
the applicable rules of any securities exchange having jurisdiction over the
offering. Without limiting the generality of the foregoing, we agree that we
will comply with such prospectus delivery requirements of Rule 15c2-8 under the
Exchange Act as are applicable to us.
5. Delivery of Prospectuses and Information. If the securities have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), we confirm that we are familiar with the rules and policies of the
Securities and Exchange Commission relating to the distribution of preliminary
and final prospectuses, and we agree that we will comply therewith in any
offering of securities covered by this Agreement. In any offering of
securities covered by this Agreement, we are not authorized to give any
information or make any representation no contained in the offering circular or
prospectus relating thereto.
6. Your Authority and Obligations. We agree that you have full authority
to take such action as may seem advisable to you in respect to all matters
pertaining to the offering of the securities. You shall not be liable to us
for any act or omissions, except for obligation expressly assumed by you in
this Agreement.
7. Notices. All communications to you relating to the subject matter of
this Agreement shall be addressed to the Syndicate Department, EVEREN
Securities, Inc., 77 W. Wacker Drive, Chicago, Illinois, 60601, and any notices
to us shall be deemed to have been duly given if mailed or telegraphed to us at
the address shown below.
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<PAGE> 3
8. Blue Sky Matters. You will not have any responsibility with respect
to the right of any dealer to sell securities in any jurisdiction,
notwithstanding any information you may furnish in that connection.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
Very truly yours,
By ________________________________
Authorized Signatory
Address:
_________________________________________
_________________________________________
_________________________________________
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<PAGE> 1
EXHIBIT 2.n.
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 30, 1996, in the Registration Statement
(Form N-2 No. 333-10785) and related Prospectus of Brantley Capital Corporation
for the registration of 10,000,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
October 30, 1996
