<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1996
1933 ACT FILE NO. 333-10785
1940 ACT FILE NO. 814-00127
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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. 3
[ ] Post-Effective Amendment No. ____
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 2
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, L.L.C.
20600 CHAGRIN BOULEVARD
SUITE 1150
CLEVELAND, OHIO 44122
(Name and Address of Agent for Service)
COPIES TO:
<TABLE>
<S> <C>
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 NOVEMBER 26, 1996
4,000,000 SHARES
BRANTLEY CAPITAL CORPORATION
COMMON STOCK
------------------
All of the 4,000,000 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, L.L.C. (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. 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
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 SMALLCAP
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.
<TABLE>
<CAPTION>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
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Per Share(3).................................. $10.00 -- $10.00
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Total (4)..................................... $40,000,000 -- $40,000,000
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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 $633,150.
(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 600,000 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 $46,000,000, $0 and $46,000,000, 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. 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 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, L.L.C. (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.
The Company will pay 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. State Street Bank and Trust Company will serve as the Company's
administrator. For its services, the administrator shall be paid an annual fee
based on the Company's average assets on a graduated declining basis beginning
at an annual rate of 0.10%, subject to a minimum annual fee of $95,000 (which at
$40,000,000 of average assets is 0.24%). See "Management," "Prior Experience of
Principals of the Investment Adviser," "The Investment Advisory Agreement" and
"Description of Capital Stock -- Administration."
4
<PAGE> 7
THE OFFERING
Common Stock offered by the
Company.................. The Company is offering 4,000,000 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 600,000 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................. 4,000,000 shares. See "Description of Capital
Stock."
Proposed Nasdaq SmallCap
Market System 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, including high voting provisions
which must be met in order for stockholders to
remove directors or to convert the Company to an
open-end investment 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
<TABLE>
<S> <C>
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 $633,150. 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 $40,000,000 based on the sale of 4,000,000
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.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<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, Chief Financial Officer, Treasurer
and a director, and Michael J. Finn, President and a director 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, Chief Financial
Officer, Treasurer and a director, Michael J. Finn, President and a director,
Paul H. Cascio, Vice President and Secretary 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
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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 "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 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 "The
Company -- 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.
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
The Company has applied for listing on the Nasdaq Small Cap Market System.
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 $40,000,000 or $46,000,000 if the
Underwriters' over-allotment is exercised in full (before deduction of
organizational expenses and expenses of the Offering estimated to be $633,150).
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 and pay the first distribution in January, 1997. 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 is a newly organized, closed-end, non-diversified investment
company incorporated on August 1, 1996 under the General Corporation Law of the
State of Maryland, 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. The Company
intends that, within two years, at least 50% of its total assets will be
invested in private companies to which the Company makes available significant
managerial assistance. See "The Company -- Eligible Portfolio Companies,"
"Regulation" and "Risk Factors -- Potential Delays in Investing Proceeds of
Offering and Making Distributions."
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."
INVESTMENT ADVISER
Brantley Capital Management, L.L.C., 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 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.
Robert P. Pinkas, Chairman, Chief Executive Officer, Chief Financial
Officer, Treasurer and a director, and Michael J. Finn, President and a director
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, Chief Financial Officer, Treasurer and a
director, and Michael J. Finn, President and a director 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. 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 4,000,000 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 $1,600,000 (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 $633,150. Offering expenses, estimated to be
$453,150, 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 other derivatives 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 execution, clearance and settlement capabilities of the
broker or dealer selected and others which are
17
<PAGE> 20
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. 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. 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, (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, or (iii) engage in the purchase or sale
19
<PAGE> 22
of commodities or commodity contracts, including futures contracts (except where
necessary in working out distressed loan or investment situations). See the
Appendix to this 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................ 35 Vice President and Secretary
James R. Bergman.............. 54 Vice President
L. Patrick Bales.............. 54 Director
Benjamin F. Bryan............. 43 Director
Richard Moodie................ 47 Director
</TABLE>
- ------------------
(1) Director who is an "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, Treasurer and a manager
of Brantley Capital Management, L.L.C., 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 manager 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 and Secretary of the Investment Adviser. Mr. Cascio also serves
as a general partner of the general partners of BVP II and BVP 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
21
<PAGE> 24
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 and Vice President of the
Investment Adviser. Mr. Bergman also serves as a general partner of the general
partner of BVP III. 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. 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 employees of
the Company will each receive a monthly fee of $500 for serving on the Board of
Directors and
22
<PAGE> 25
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 options to purchase up to
1,175,000 shares of Common Stock to officers and employees of the Company, with
the maximum amount that any one officer or employee may be awarded in any given
fiscal year to be fixed at options for 400,000 shares of Common Stock (subject
to certain adjustments). 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 will or intestacy. The number of shares of Common Stock
available for options, the number of shares of Common Stock subject to
outstanding
23
<PAGE> 26
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 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
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<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
26
<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 post-surgical scar inhibition, 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,
L.L.C., 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 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 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 provided
that its continuance is approved annually by the Company's Board of Directors or
by vote of the holders of a majority of the Company's outstanding shares of
Common Stock, including, in either case, approval by the directors of the
Company who are not interested persons. The Investment Advisory Agreement may be
terminated by either party without penalty upon at least 60 days' notice to the
other. 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 than 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 are comprised of securities of corporate issuers, 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 SmallCap 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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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
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that is not called by the Chairman and Chief Executive Officer, the President or
a majority of the Board of Directors may be called only by the holders of 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 (the "Transfer Agent") and as the Company's custodian.
ADMINISTRATION
State Street Bank and Trust Company will also serve as the Company's
administrator and, subject to appropriate review and approval by the Board of
Directors or officers of the Company, will (i) oversee the determination and
publication of the Company's net asset value; (ii) oversee the maintenance by
the Company's custodian of certain books and records of the Company; (iii)
prepare income tax returns for review by the Company's independent auditors;
(iv) review and arrange for payment of Company expenses; (v) prepare financial
information to be submitted to Company stockholders and arrange for the printing
and dissemination of reports and communications to stockholders; (vi) prepare
periodic financial information required to be filed with the Commission; (vii)
prepare certain reports relating to the business and affairs of the Company, and
upon request, make recommendations to the Board of Directors concerning the
performance of the independent auditors or the performance and fees of the
custodian and Transfer Agent; (viii) oversee calculations of fees paid to the
Investment Adviser, custodian and Transfer Agent; (ix) provide periodic testing
of portfolios to assist the Company's Investment Adviser in complying with the
Code, the requirements of the Investment Company Act and the limitations in the
Prospectus; and (x) provide such other services as shall be necessary to
administer the ordinary course of the Company's business. For its services, the
administrator shall be paid an annual fee based on the Company's average assets
of (a) 0.10% of the first $100 million, (b) 0.08% of the next $100 million, and
(c) 0.06% of average assets in excess of $200 million, subject to a minimum
annual fee of $95,000 (which at $40,000,000 of average assets is 0.24%). An
additional annual fee of $10,000 will be applied if the Company engages in
leverage transactions other than temporary borrowings. The Company will also
reimburse the administrator for its out-of-pocket expenses.
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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..................................................... 4,000,000
=========
</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.
41
<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 600,000 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,
other than pursuant to the Underwriting Agreement, the Dividend Reinvestment and
Cash Purchase Plan, the Stock Option Plan or the Disinterested Director Option
Plan as contemplated in this Prospectus.
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....................................................... 180,000
--------
180,050
--------
LIABILITIES
- ----------------------------------------------------------------------------------
Liabilities:
Accrued organization costs...................................................... 74,700
--------
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, L.L.C. (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 4,000,000 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, (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, or (iii) engage in the purchase or sale of commodities or
commodity contracts, including futures contracts (except where necessary in
working out distressed loan or investment situations). 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, 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.
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.
TAXATION OF OPTIONS
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 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 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(1) 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.
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 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 positions, the
- ---------------
(1) 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-3
<PAGE> 51
related securities and certain successor positions thereto) may be deferred to a
later taxable year. Writing of call options or buying 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 option position and the
Company's portfolio were deemed to "mimic" the performance of the index
underlying such contract, the option 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). 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. 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 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-4
<PAGE> 52
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
P.O. BOX 8200
BOSTON, MASSACHUSETTS 02266-8200
(800) 426-5523
<PAGE> 53
------------------------------------------------------
------------------------------------------------------
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.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
4,000,000 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.
------------------------------------------------------
------------------------------------------------------
<PAGE> 54
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. 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. Stock Option Plan and Form of Option Grants*
i.2. Disinterested Director Option Plan and Form of Option Grants*
j. Form of Custodian Contract*
k.1 Form of Registrar, Transfer Agency and Service Agreement*
k.2 Form of Administration Agreement*
l. Opinion and Consent of Jenner & Block
n. Consent of Ernst & Young LLP
s. Form of Indemnification Agreement for directors and officers*
</TABLE>
- ---------------
* 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.
C-1
<PAGE> 55
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.................................... $ 39,900.00
National Association of Securities Dealers, Inc. ..................... 12,000.00
Nasdaq SmallCap Market System......................................... 46,250.00
Blue Sky fees and expenses............................................ 10,000.00
Printing expenses..................................................... 80,000.00
Legal fees and expenses............................................... 175,000.00
Accounting fees and expenses.......................................... 50,000.00
Miscellaneous......................................................... 40,000.00
-----------
Total................................................................. $453,150.00
===========
</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, L.L.C., a Delaware limited liability company (the
"Investment Adviser"), a majority of the outstanding membership interests of
which is owned by Mr. Pinkas, Chairman, Chief Executive Officer, Chief Financial
Officer, Treasurer and a manager 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 and a manager of the Investment Adviser, and Paul H. Cascio, Vice
President and Secretary 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
C-2
<PAGE> 56
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, Chief Financial
Officer, Treasurer and a director, Michael J. Finn, President and a director,
and Paul H. Cascio, Vice President and Secretary 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. In addition,
James R. Bergman, Vice President of the Investment Adviser serves as a general
partner of the general partner of BVP III. 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.
Prior to joining BVP III in October 1996, Mr. Bergman founded and was (and
continues to serve as) a general partner of DSV Partners II and III, 1920 Main
Street, Suite 820, Irvine, California 92614.
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.
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<PAGE> 57
ITEM 33. UNDERTAKINGS
(1) Not Applicable.
(2) Not Applicable.
(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> 58
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 26th day of November, 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 November 26, 1996
- ---------------------------------------- Executive Officer, Chief
Robert P. Pinkas Financial Officer, Treasurer
and Director (principal
executive officer and principal
financial and accounting
officer)
/s/ MICHAEL J. FINN President and Director November 26, 1996
- ----------------------------------------
Michael J. Finn
/s/ L. PATRICK BALES Director November 26, 1996
- ----------------------------------------
L. Patrick Bales
/s/ BENJAMIN F. BRYAN Director November 26, 1996
- ----------------------------------------
Benjamin F. Bryan
/s/ RICHARD MOODIE Director November 26, 1996
- ----------------------------------------
Richard Moodie
</TABLE>
C-5
<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 Small Cap 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.
-2-
<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 November, 1996, by and between BRANTLEY CAPITAL CORPORATION, a Maryland
corporation (the "Company"), and BRANTLEY CAPITAL MANAGEMENT, L.L.C., a Delaware
limited liability company (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 Oversight Duties. The Adviser will be
responsible for overseeing administration of the affairs of the Company subject
to the supervision of the Board of Directors and the following understandings:
<PAGE> 2
(a) The Adviser will supervise all aspects of the
operations of the Company, including oversight of transfer agency,
custodial, administrative and accounting services; 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 oversee, but not pay for, the
administrator's responsibilities with respect to 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 oversee the administrator's
responsibilities with respect to the maintenance of all books and
records of the Company and the furnishing to the Board of Directors of
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 any 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
-2-
<PAGE> 3
comply with the requirements of the Investment Company Act, the rules
thereunder, and all other applicable federal and state laws and regulations.
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 manager, 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, administrator, 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.
-3-
<PAGE> 4
(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
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 members
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 manager, officer, agent
or employee of the Adviser, (iii) a company controlling, controlled
by, or under common control with
-4-
<PAGE> 5
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 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.
-5-
<PAGE> 6
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
State Department of Assessments and Taxation of the State of Maryland, and 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.
-6-
<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, L.L.C.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
ATTEST:
- ------------------------------
Name:
------------------------
Title:
-------------------------
-7-
<PAGE> 1
EXHIBIT 2.h.1
BRANTLEY CAPITAL CORPORATION
Common Stock
($.01 Par Value)
____________
UNDERWRITING AGREEMENT
November 26, 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.
as Representatives of the
several Underwriters
c/o EVEREN Securities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601-1694
Ladies and Gentlemen:
Brantley Capital Corporation, a Maryland corporation (the "Company"),
proposes to issue and sell pursuant to the terms of this Agreement an aggregate
of 4,000,000 shares (the "Firm Shares") of the Company's common stock, $.01
par value ("Common Stock"), to you and to the other underwriters named in
Schedule I (collectively, the "Underwriters"), for whom you are acting as
representatives (the "Representatives"). The Company has also agreed to grant
to you and the other Underwriters an option (the "Option") to purchase up to an
additional 600,000 shares of Common Stock (the "Option Shares"), for purposes
of covering over-allotments in the sale of the Firm Shares, on the terms and
for the purposes set forth in Section 1(b). The Firm Shares and the Option
Shares are hereinafter collectively referred to as the "Shares."
The Company and Brantley Capital Management, L.L.C. ("Investment
Adviser"), confirm as follows their respective agreements with the
Representatives and the several other Underwriters:
<PAGE> 2
1. AGREEMENT TO SELL AND PURCHASE.
(a) On the basis of the respective representations,
warranties and agreements of the Company, Investment Adviser, and the
Underwriters herein contained and subject to all the terms and
conditions of this Agreement, the Company agrees to sell to each
Underwriter named below and each Underwriter agrees, severally and not
jointly, to purchase from the Company, the respective number of Firm
Shares set forth opposite its name on Schedule I, all at the purchase
price of $10.00 for each Firm Share.
(b) Subject to all the terms and conditions of this
Agreement, the Company grants the Option to the several Underwriters
to purchase, severally and not jointly, up to 600,000 Option Shares
from the Company at the same price per share as the Underwriters shall
pay for the Firm Shares. The Option may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters and
may be exercised in whole or in part at any time (but not more than
once) on or before the 30th day after the date of this Agreement upon
written or telegraphic notice (the "Option Shares Notice") by the
Representatives to the Company no later than 12:00 noon, Chicago time,
at least two and no more than five business days before the date
specified for closing in the Option Shares Notice (the "Option Closing
Date") setting forth the aggregate number of Option Shares to be
purchased and the time and date for such purchase. On the Option
Closing Date, the Company will issue and sell to the Underwriters the
number of Option Shares set forth in the Option Shares Notice, and
each Underwriter will purchase such percentage of the Option Shares as
is equal to the percentage of Firm Shares that such Underwriter is
purchasing, as adjusted by the Representatives in such manner as they
deem advisable to avoid fractional shares.
(c) The Investment Adviser hereby agrees to make the
payment to the Underwriters with respect to the Firm Shares or the
Option Shares, as the case may be, as required by Section 2 hereof.
(d) The Investment Adviser hereby agrees to make the
payment to EVEREN Securities, Inc. of a fee for structuring and
financial advisory services of $500,000 as set forth in Section 2
hereof.
2. DELIVERY AND PAYMENT. Delivery of the Firm Shares shall be
made by the Company to the Representatives for the accounts of the Underwriters
against payment of the purchase price by wire transfer of immediately available
funds to the order of the Company, at the offices of Jenner & Block, One IBM
Plaza, Chicago, Illinois 60611, or at such other place as shall be agreed upon
by the Representatives and the Company, at 9:00 a.m., Chicago time, on the
third business day (or, if this Agreement is signed after 3:30 p.m. Chicago
time, on the fourth business day) following the date of this Agreement, or at
such time on such other date, not later than seven business days after the date
of this Agreement, as may be agreed upon by the Company and the Representatives
(such date is hereinafter referred to as the "Closing Date").
2
<PAGE> 3
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form and
shall be registered in such names and in such denominations as the
Representatives may direct by notice in writing to the Company at least two
full business days prior to the Closing Date or the Option Closing Date, as the
case may be. For the purpose of expediting the checking and packaging of
certificates for the Shares, the Company agrees to make such certificates
available for inspection at least 24 hours prior to the Closing Date or the
Option Closing Date, as the case may be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the Company to
the respective Underwriters shall be borne by the Company. The Company will
pay and save each Underwriter and any subsequent holder of the Shares harmless
from any and all liabilities with respect to or resulting from any failure or
delay in paying Federal and state stamp and other transfer taxes, if any, which
may be payable or determined to be payable in connection with the original
issuance or sale to such Underwriter of the Firm Shares and Option Shares.
Simultaneous with delivery to the Underwriters of and payment by the
Underwriters for (i) Firm Shares on the Closing Date and (ii) Option Shares on
any Option Closing Date, the Investment Adviser will pay to the Underwriters an
amount equal to seven percent (7%) of the aggregate purchase price for the
Shares to be purchased by the Underwriters on such date, payable in immediately
available funds, by wire transfer to the order of EVEREN Securities, Inc.
Simultaneous with delivery to the Underwriters of and payment by the
Underwriters for the Firm Shares on the Closing Date, the Investment Adviser
will pay to EVEREN Securities, Inc. $500,000 in immediately available funds, in
consideration for its structuring and financial advisory services rendered.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND INVESTMENT
ADVISER. Each of the Company and Investment Adviser severally represents,
warrants and covenants to each Underwriter that:
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement on
Form N-2 (No. 333-10785) and a related preliminary prospectus for the
registration of the Shares under the Securities Act of 1933, as
amended (the "1933 Act"), and the rules and regulations of the
Commission under the 1933 Act and the Investment Company Act of 1940
(the "1940 Act") (the "Rules and Regulations") and has filed such
amendments to such registration statement on Form N-2, if any, and
such amended or supplemented preliminary prospectuses as may have been
required to the date hereof. The Company will prepare and file such
additional
3
<PAGE> 4
amendments to the registration statement and such amended or
supplemented prospectuses as may hereafter be required. Such
registration statement (as amended, if applicable) and the prospectus
constituting a part thereof (including, in each case, the information,
if any, deemed to be part thereof pursuant to Rule 430A(b) of the
Rules and Regulations), as from time to time amended or supplemented
pursuant to the 1933 Act (or otherwise), are hereinafter referred to
as the "Registration Statement" and the "Prospectus," respectively,
except that if any prospectus or amendment or supplement thereto shall
be provided to the Underwriters by the Company for use in connection
with the offering of the Shares which differs from the Prospectus on
file at the Commission at the time the Registration Statement becomes
effective (whether or not such prospectus or amendment or supplement
thereto is required to be filed by the Company pursuant to Rule 497(b)
or Rule 497(h) of the Rules and Regulations), the term "Prospectus"
shall refer to such revised prospectus as so amended or supplemented
from and after the time it is first provided to the Underwriters for
such use.
(b) A Notification of Election to be subject to Sections
54-65 of the 1940 Act on Form N-54A (the "Election") has been prepared
in conformity with Section 54(a) of the 1940 Act and has been filed by
the Company with the Commission under the 1940 Act.
(c) At the time the Registration Statement becomes
effective (the "Effective Date"), at the date the Prospectus is first
filed with the Commission pursuant to Rule 497(c) (if required), at
all times subsequent thereto up to and including the Closing Date and,
if later, the Option Closing Date and when any post-effective
amendment to the Registration Statement becomes effective or any
amendment or supplement to the Prospectus is filed with the
Commission, the Registration Statement and the Prospectus (as amended
or as supplemented if the Company shall have filed with the Commission
any amendment or supplement thereto): (i) did or will comply in all
material respects with all applicable provisions of the 1933 Act, the
1940 Act and the Rules and Regulations; (ii) did or will contain all
statements required to be stated therein in accordance with the 1933
Act, the 1940 Act and the Rules and Regulations; (iii) the
Registration Statement did not and will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein not misleading, and the Prospectus did not and will not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading. The foregoing representations and
warranties in this Section 3(c) do not apply to any statements or
omissions made in reliance on and in conformity with information
relating to any Underwriter furnished in writing to the Company by the
Representatives specifically for inclusion in the Registration
Statement or Prospectus or any amendment or supplement thereto. The
Company acknowledges that the statements set forth under the heading
"Underwriting" in the Prospectus constitute the only information
relating to any Underwriter furnished in writing to the Company by the
Representatives specifically for inclusion in the Registration
Statement.
4
<PAGE> 5
(d) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland.
The Company has all requisite corporate power and authority to own or
lease all the assets owned or leased by it and to conduct its business
as described in the Registration Statement and the Prospectus. The
Company is, and at the Closing Date will be, duly licensed or
qualified to do business as a foreign corporation and in good standing
in all jurisdictions in which such qualification is required except
where the failure to so qualify would not have a material adverse
effect on the Company. The Company has no subsidiaries. Complete and
correct copies of the Articles of Incorporation and of the bylaws of
the Company and all amendments thereto have been delivered to the
Representatives, and no changes therein will be made subsequent to the
date hereof and prior to the Closing Date or, if later, the Option
Closing Date.
(e) The authorized, issued and outstanding shares of
Common Stock have been, and the Shares to be issued and sold by the
Company against payment pursuant to this Agreement of the
consideration set forth herein by the Underwriters, and the shares of
Common Stock issuable in accordance with the terms of the Company's
Dividend Reinvestment and Cash Purchase Plan as described in the
Prospectus, will be, duly authorized, validly issued, fully paid and
nonassessable and will not be subject to any preemptive or similar
right. The description of the Shares of Common Stock and the
description of the Dividend Reinvestment and Cash Purchase Plan in the
Registration Statement and the Prospectus are, and at the Closing Date
will be, complete and accurate in all respects.
(f) The financial statements included in the Registration
Statement present fairly the financial condition of the Company as of
the date thereof and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis. No
other financial statements or schedules of the Company are required by
the 1933 Act, 1940 Act or the Rules and Regulations to be included in
the Registration Statement or the Prospectus. Ernst & Young (the
"Accountants"), who have reported on the financial statements, are
independent accountants with respect to the Company as required by the
1933 Act, the 1940 Act and the Rules and Regulations.
(g) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus
and prior to the Closing Date, except as set forth in or contemplated
by the Registration Statement and the Prospectus, (i) there has not
been and will not have been any material adverse change in the
capitalization of the Company, or in the business, properties,
business prospects, condition (financial or otherwise) or results of
operations of the Company, arising for any reason whatsoever, (ii) the
Company has not incurred nor will it incur any material liabilities or
obligations, direct or contingent, nor has it entered into nor will it
enter into any material transactions other than pursuant to this
Agreement and the transactions referred to herein and (iii) the
Company has not and will not have paid or declared any dividends or
other distributions of any kind on its shares of Common Stock.
5
<PAGE> 6
(h) The Company is registered with the Commission under
the 1940 Act as a non-diversified, closed-end investment company which
has elected to be treated as a business development company under the
1940 Act.
(i) There are no actions, suits or proceedings pending
or, to the knowledge of the Company, threatened against or affecting
the Company or any of its officers in their capacity as such, before
or by any federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign,
wherein an unfavorable ruling, decision or finding might materially
and adversely affect the Company or its business, properties, business
prospects, condition (financial or otherwise) or results of
operations.
(j) The Company has, and at the Closing Date will have,
(i) all governmental licenses, permits, consents, orders, approvals
and other authorizations necessary to carry on its business as
contemplated in the Prospectus, (ii) complied in all respects with all
laws, regulations and orders applicable to it or its business and
(iii) performed all its obligations required to be performed by it,
and is not, and at the Closing Date will not be, in default, under any
contract or other instrument to which it is a party or by which its
property is bound or affected except for any failures to possess,
comply or perform or defaults as would not individually or in the
aggregate materially adversely affect the business, properties,
business prospects, condition (financial or otherwise) or results of
operations of the Company. To the best knowledge of the Company, no
other party under any contract or other instrument to which it is a
party is in default in any material respect thereunder. The Company
is not, nor at the Closing Date will be, in violation of any provision
of its agreement and articles of incorporation or bylaws.
(k) The Company has full power and authority to enter
into this Agreement. This Agreement and the Investment Advisory
Agreement referred to in the Registration Statement (the "Investment
Advisory Agreement") have been duly authorized, executed and delivered
by the Company, constitute valid and binding agreements of the
Company, are enforceable against the Company in accordance with the
terms thereof, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting enforcement of
creditors' rights generally and to general equitable principles, and
comply with all applicable provisions of the 1940 Act. The
performance of this Agreement and the Investment Advisory Agreement,
and the consummation of the transactions contemplated thereby, will
not result in the creation or imposition of any lien, charge or
encumbrance upon any of the assets of the Company pursuant to the
terms or provisions of, or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, or result
in the acceleration of any obligation under, the Articles of
Incorporation or Bylaws of the Company, any indenture, mortgage, deed
of trust, voting trust agreement, loan agreement, bond, debenture,
note agreement or other evidence of indebtedness, lease, contract or
other agreement or instrument to which the Company is a party or by
which the Company or any of its properties is bound or affected, or
violate or conflict with any judgment, ruling, decree, order, statute,
rule or regulation of any
6
<PAGE> 7
court or other governmental agency or body applicable to the business
or properties of the Company.
(l) No consent, approval, authorization or order of, or
any filing or declaration with, any court or governmental agency or
body is required for the consummation by the Company of the
transactions on its part herein contemplated, except such as may be
required under the 1933 Act, the 1940 Act or the Rules and Regulations
and such as may be required under state securities or Blue Sky laws or
the bylaws and rules of the National Association of Securities
Dealers, Inc. (the "NASD") in connection with the purchase and
distribution by the Underwriters of the Shares.
(m) There is no document or contract of a character
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement
which is not described or filed as required, and the descriptions of
any such documents in the Prospectus conform in all material respects
to the provisions of such documents. All such contracts to which the
Company is a party have been duly authorized, executed and delivered
by the Company, constitute valid and binding agreements of the Company
and are enforceable against the Company in accordance with the terms
thereof, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting enforcement of creditors' rights
generally and to general equitable principles.
(n) Neither the Company nor any of its directors,
officers or controlling persons has taken, directly or indirectly, any
action designed, or which might reasonably be expected, to cause or
result, under the Act or otherwise, in, or which has constituted,
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares.
(o) The Company owns no trademarks, service marks or
trade names. The Company has not received any notice of infringement
of or conflict with asserted rights of others with respect to any
trademarks, service marks or trade names which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially adversely affect the conduct of the
business, operations, financial condition or income of the Company.
(p) The Shares have been duly authorized for listing,
subject to official notice of issuance, on The Nasdaq SmallCap Market.
(q) No advertisements have been prepared by the Company
or Investment Adviser for use in the public offering of the Shares.
4. REPRESENTATIONS AND WARRANTIES OF INVESTMENT ADVISER.
Investment Adviser represents and warrants to each Underwriter as follows:
7
<PAGE> 8
(a) Investment Adviser has been duly organized as a
limited liability company under the laws of the State of Delaware with
corporate power and authority to conduct its business as described in
the Prospectus.
(b) Investment Adviser is duly registered as an
investment adviser under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), and is not prohibited by the Advisers
Act or the 1940 Act, or the rules and regulations under such acts,
from acting under the Investment Advisory Agreement for the Company as
contemplated by the Prospectus.
(c) This Agreement and the Investment Advisory Agreement
have been duly authorized, executed and delivered by Investment
Adviser and constitute valid and binding obligations of Investment
Adviser enforceable in accordance with their terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization or other laws
relating to or affecting creditors' rights and to general equity
principles; and neither the execution and delivery of this Agreement
or the Investment Advisory Agreement, nor the performance by
Investment Adviser of its obligations hereunder and thereunder will
conflict with, or result in a breach of, any of the terms and
provisions of, or constitute, with or without giving notice of lapse
of time or both, a default under, any agreement or instrument to which
Investment Adviser is a party or by which it is bound, or any law,
order, rule or regulation applicable to it of any jurisdiction, court,
federal or state regulatory body, administrative agency or other
governmental body, stock exchange or securities association having
jurisdiction over the Investment Adviser or its properties or
operations.
(d) Investment Adviser has the financial resources
available to it necessary for the performance of its services and
obligations as contemplated in this Agreement and the Prospectus.
(e) The description of Investment Adviser in the
Registration Statement and the Prospectus, including the information
set forth in "Prior Experience of the Principals of the Investment
Adviser," does not contain any untrue statement of a material fact or
omit to state any fact required to be stated therein or necessary to
make the statements therein not misleading.
5. CERTIFICATES AS REPRESENTATIONS. Any certificate signed by
any officer of the Company or Investment Adviser and delivered to the
Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company or Investment Adviser, as the case
may be, to the Underwriters as to the matters covered thereby.
6. AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters as follows:
8
<PAGE> 9
(a) The Company will not, either prior to the Effective
Date or thereafter during such period as the Prospectus is required by
law to be delivered in connection with sales of the Shares by an
Underwriter or dealer, file any amendment or supplement to the
Registration Statement or the Prospectus, whether pursuant to the 1933
Act, 1940 Act or otherwise, unless a copy thereof shall first have
been submitted to the Representatives within a reasonable period of
time prior to the filing thereof and the Representatives shall not
have objected thereto in good faith.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective, and will notify the
Representatives promptly, and will confirm such advice in writing, (i)
when the Registration Statement has become effective and when any
post-effective amendment thereto becomes effective, (ii) of any
request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional
information, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose or the threat thereof,
(iv) of the happening of any event during the period mentioned in the
second sentence of Section 6(e) that in the judgment of the Company
makes any statement made in the Registration Statement or the
Prospectus untrue or that requires the making of any changes in the
Registration Statement or the Prospectus in order to make the
statements therein, in light of the circumstances in which they are
made, not misleading and (v) of receipt by the Company or any
representative or attorney of the Company of any other communication
from the Commission relating to the Company, the Registration
Statement, any preliminary prospectus or statement of additional
information or the Prospectus. If at any time the Commission shall
issue any order suspending the effectiveness of the Registration
Statement, the Company will make every reasonable effort to obtain the
withdrawal of such order at the earliest possible moment.
(c) The Company will furnish to the Representatives,
without charge, signed copies of the Notification of Election on Form
N-54A, the Registration Statement as originally filed and of each
amendment thereto, including financial statements, and all exhibits
thereto and will furnish to the Representatives, without charge, for
transmittal to each of the other Underwriters, a conformed copy of the
Registration Statement and each amendment thereto, including financial
statements but without exhibits.
(d) The Company will comply with all the provisions of
any undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to
time, the Company will deliver to each of the Underwriters, without
charge, as many copies of the Prospectus or any amendment or
supplement thereto as the Representatives may reasonably request. The
Company consents to the use of the Prospectus or any amendment or
supplement thereto in accordance with the provisions of the 1933 Act
and with the securities or Blue Sky laws of the jurisdictions in which
the Shares are offered by the several Underwriters
9
<PAGE> 10
and by all dealers to whom the Shares may be sold, both in connection
with the offering or sale of the Shares and for any period of time
thereafter during which the Prospectus is required by law to be
delivered in connection therewith. If during such period of time any
event shall occur that in the judgment of the Company or counsel to
the Underwriters should be set forth in the Prospectus in order to
make any statement therein, in the light of the circumstances under
which it was made, not misleading, or if it is necessary to supplement
or amend the Prospectus to comply with law, the Company will forthwith
prepare and duly file with the Commission an appropriate supplement or
amendment thereto, and will deliver to each of the Underwriters,
without charge, such number of copies thereof as the Representatives
may reasonably request.
(f) Prior to any public offering of the Shares by the
Underwriters, the Company will cooperate with the Representatives and
counsel to the Underwriters in connection with the registration or
qualification of the Shares for offer and sale under the securities or
Blue Sky laws of such jurisdictions as the Representatives may
request; provided, that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to general
service of process in any jurisdiction where it is not now so subject.
(g) During the period of five years commencing on the
Effective Date, the Company will furnish to the Representatives and
each other Underwriter who may so request a copy of such financial
statements and other periodic and special reports as the Company may
from time to time distribute generally to the holders of any class of
its shares of Common Stock, and will furnish to the Representatives
and each other Underwriter who may so request a copy of each annual or
other report it shall be required to file with the Commission.
(h) The Company will make generally available to holders
of its securities as soon as may be practicable but in no event later
than the last day of the fifteenth full calendar month following the
calendar quarter in which the Effective Date falls, an earnings
statement (which need not be audited but shall be in reasonable
detail) for a period of 12 months ended commencing after the Effective
Date, and satisfying the provisions of Section 11(a) of the 1933 Act
(including Rule 158 of the Rules and Regulations).
(i) The Company will not at any time, directly or
indirectly, take any action designed, or which might reasonably be
expected, to cause or result in, or which will constitute,
stabilization of the price of the Shares of Common Stock to facilitate
the sale or resale of any of the Shares.
(j) If, at the time that the Registration Statement
becomes effective, any information shall have been omitted therefrom
in reliance upon Rule 430A of the Rules and Regulations, then
immediately following the execution of this Agreement, the Company
will prepare, and file or transmit for filing with the Commission in
accordance
10
<PAGE> 11
with such Rule 430A and Rule 497(h) of the Rules and Regulations
copies of an amended Prospectus or, if required by such Rule 430A, a
post-effective amendment to the Registration Statement (including an
amended Prospectus) containing all information so omitted.
(k) Until the date 120 days after the date of the
Prospectus, the Company will not, without the prior written consent of
EVEREN Securities Inc., offer, sell, or issue or enter into any
agreement to sell or 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 other than pursuant to this
Agreement, the Company's Dividend Reinvestment Plan or the 1996 Stock
Option Plan or the Disinterested Director Option Plan, as contemplated
in the Prospectus.
(l) The Company will use its best efforts to effect the
listing of the Shares on The Nasdaq SmallCap Market.
7. PAYMENT OF EXPENSES. The Company will pay all expenses
incident to the performance of its obligations under this Agreement, including,
but not limited to, expenses relating to (i) the printing and filing of the
registration statement as originally filed and of each amendment thereto, (ii)
the printing of this Agreement, the Agreement Among Underwriters, any Dealer
Agreements and any Underwriters' Questionnaire, (iii) the preparation, issuance
and delivery of the certificates for the Shares to the Underwriters, (iv) the
fees and disbursements of the Company's counsel and accountants, (v) the
qualification of the Shares under securities laws in accordance with the
provisions of Section 6(f) of this Agreement, including filing fees and any
fees or disbursements of counsel for the Underwriters in connection therewith
and in connection with the preparation of the Blue Sky Survey, (vi) the
printing and delivery to the Underwriters of copies of the registration
statement as originally filed and of each amendment thereto, of the preliminary
prospectuses, and of the Prospectus and any amendments or supplements thereto,
(vii) the printing and delivery to the Underwriters of copies of the Blue Sky
Survey, (viii) the fees and expenses incurred with respect to the filing with
the National Association of Securities Dealers, Inc. and (ix) the fees and
expenses incurred with respect to the listing of the Shares on The Nasdaq
SmallCap Market.
If this Agreement is terminated by the Representatives in accordance
with the provisions of Section 8 or by the Company in accordance with the
provisions of Section 11, the Company or Investment Adviser shall reimburse the
Underwriters for all of their out-of-pocket expenses, including fees and
disbursements of counsel for the Underwriters. In the event the transactions
contemplated hereunder are not consummated, Investment Adviser agrees to pay
all of the costs and expenses set forth in the first paragraph of this Section
7 which the Company would have paid if such transactions were consummated.
8. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of each Underwriter hereunder are subject to the following
conditions:
11
<PAGE> 12
(a) Notification that the Registration Statement has
become effective shall be received by the Representatives not later
than 3:30 p.m., Chicago time, on the date of this Agreement or at such
later date and time as shall be consented to in writing by the
Representatives. If the Company has elected to rely upon Rule 430A of
the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 497(h) of
the Rules and Regulations within the prescribed time period, and prior
to the Closing Date the Company shall have provided evidence
satisfactory to the Underwriters of such timely filing, or a post-
effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall be pending or threatened by the Commission, (ii) no
order suspending the effectiveness of the Registration Statement or
the qualification or registration of the Shares under the securities
or Blue Sky laws of any jurisdiction shall be in effect and no
proceeding for such purpose shall be pending before or threatened or
contemplated by the Commission or the authorities of any such
jurisdiction, (iii) any request for additional information on the part
of the staff of the Commission or any such authorities shall have been
complied with to the satisfaction of the staff of the Commission or
such authorities and (iv) after the date hereof no amendment or
supplement to the Registration Statement or the Prospectus shall have
been filed unless a copy thereof was first submitted to the
Representatives and the Representatives did not promptly object
thereto in good faith, and the Representatives shall have received
certificates, dated the Closing Date (and with respect to the Option
Shares, the Option Closing Date) and signed by the Chief Executive
Officer and Chief Financial Officer of the Company and the President
of the Company (who may, as to proceedings threatened, rely upon the
best of their information and belief), to the effect of clauses (i),
(ii) and (iii).
(c) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall
not have been a material adverse change in the business, business
prospects, management, properties, condition (financial or otherwise)
or results of operations of the Company, taken as a whole, whether or
not arising from transactions in the ordinary course of business, in
each case other than as set forth in or contemplated by the
Registration Statement and the Prospectus.
(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall
have been no litigation or other proceeding instituted against the
Company, the Investment Adviser or any of their officers or directors
in their capacities as such, before or by any federal, state or local
court, commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, in which litigation or
proceeding an unfavorable ruling, decision or
12
<PAGE> 13
finding would materially and adversely affect the business, business
prospects, management, properties, condition (financial or otherwise)
or results of operations of the Company.
(e) Each of the representations and warranties of the
Company and Investment Adviser contained herein shall be true and
correct in all material respects at the Closing Date and, with respect
to the Option Shares, at the Option Closing Date, as if made at the
Closing Date and, with respect to the Option Shares, at the Option
Closing Date, and all covenants and agreements herein contained to be
performed on the part of the Company and Investment Adviser and all
conditions herein contained to be fulfilled or complied with by the
Company and Investment Adviser at or prior to the Closing Date and,
with respect to the Option Shares, at or prior to the Option Closing
Date, shall have been duly performed, fulfilled or complied with.
(f) The Representatives shall have received an opinion,
dated the Closing Date and, with respect to the Option Shares, the
Option Closing Date, in form and substance reasonably satisfactory to
counsel for the Underwriters, from Jenner & Block, counsel to the
Company, to the effect set forth in Exhibit A.
(g) The Representatives shall have received an opinion,
dated the Closing Date and, with respect to the Option Shares, the
Option Closing Date, in form and substance reasonably satisfactory to
counsel for the Underwriters from Jenner & Block, counsel to
Investment Adviser, to the effect set forth in Exhibit B.
(h) The Representatives shall have received an opinion,
dated the Closing Date and, with respect to the Option Shares, the
Option Closing Date, from Vedder, Price, Kaufman & Kammholz, counsel
to the Underwriters, with respect to the Registration Statement, the
Prospectus and this Agreement, which opinion shall be reasonably
satisfactory in all respects to the Representatives.
(i) Concurrently with the execution and delivery of this
Agreement, the Accountants shall have furnished to the Representatives
a letter, dated the date of its delivery, addressed to the
Representatives and in form and substance reasonably satisfactory to
the Representatives, confirming that they are independent accountants
with respect to the Company as required by the 1933 Act and the Rules
and Regulations and with respect to the financial and other
statistical and numerical information contained in the Registration
Statement. At the Closing Date and, as to the Option Shares, the
Option Closing Date, the Accountants shall have furnished to the
Representatives a letter, dated the date of its delivery, which shall
confirm, on the basis of a review in accordance with agreed upon
procedures described therein, that nothing has come to their attention
during the period from the date of the letter referred to in the prior
sentence to a date (specified in the letter) not more than five days
prior to the date of delivery that would require any change in their
letter dated the date hereof if it were required to be dated and
delivered at the Closing Date or the Option Closing Date.
13
<PAGE> 14
(j) At the Closing Date and, as to the Option Shares, the
Option Closing Date, there shall be furnished to the Representatives a
certificate, dated the date of its delivery, signed by both the Chief
Executive Officer and Chief Financial Officer and the President of the
Company, in form and substance reasonably satisfactory to the
Representatives, certifying to the effect that:
(i) each signer of such certificate has carefully
examined the Registration Statement and the Prospectus and (A)
as of the date of such certificate, such documents are true
and correct in all material respects, and the Registration
Statement does not omit to state any material fact required to
be stated therein or necessary in order to make the statements
therein not untrue or misleading and the Prospectus does not
omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not untrue or
misleading and (B) since the Effective Date no event has
occurred as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements
therein not untrue or misleading in any material respect, in
light of the circumstances under which they were made;
(ii) each of the representations and warranties of
the Company contained in this Agreement were, when originally
made, and are, as of the date of such certificate, true and
correct in all material respects; and
(iii) each of the covenants required herein to be
performed by the Company on or prior to the date of such
certificate has been duly, timely and fully performed, and
each condition herein required to be complied with by the
Company on or prior to the date of such certificate, has been
duly, timely and fully complied with.
(k) At the Closing Date and, as to the Option Shares, the
Option Closing Date, there shall be furnished to the Representatives a
certificate of the Investment Adviser, dated as of the date of its
delivery, signed by the president or a vice president of Investment
Adviser, to the effect that the representations and warranties of
Investment Adviser contained in Sections 3 and 4 were, when originally
made, and are, at the time such certificate is dated, true and correct
in all material respects.
(l) The Shares shall be qualified for sale in such states
as the Representatives may reasonably request, and each such
qualification shall be in effect and not subject to any stop order or
other proceeding on the Closing Date or the Option Closing Date, as
the case may be.
(m) Prior to the Closing Date, the Shares shall have been
duly authorized for listing by The Nasdaq SmallCap Market upon
official notice of issuance.
14
<PAGE> 15
(n) The Company and Investment Adviser shall have
furnished to the Representatives such certificates, in addition to
those specifically mentioned herein, as the Representatives may have
reasonably requested as to the accuracy and completeness at the
Closing Date and the Option Closing Date of any statement in the
Registration Statement or the Prospectus, as to the accuracy at the
Closing Date and the Option Closing Date of the representations and
warranties of the Company and Investment Adviser herein, as to the
performance by the Company of its obligations hereunder, or as to the
fulfillment of the conditions concurrent and precedent to the
obligations hereunder of the Representatives.
(o) At the Closing Date and the Option Closing Date,
counsel for the Underwriters shall have been furnished with such
documents and opinions as they may reasonably require for the purpose
of enabling them to pass upon the issuance and sale of the Shares as
herein contemplated and related proceedings, or in order to evidence
the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company and Investment Adviser in connection
with the organization and registration of the Company under the 1940
Act and the issuance and sale of the Shares as herein contemplated
shall be reasonably satisfactory in all material respects in form and
substance to the Representatives and counsel for the Underwriters.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Representatives by notice to the Company at any time at or
prior to the Closing Date, and such termination shall be without liability of
any party to any other party except as provided in Section 7.
9. INDEMNIFICATION.
(a) Each of the Company and Investment Adviser, jointly
and severally, will indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each
person, if any, who controls each Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), from and against any and
all losses, claims, liabilities, expenses and damages (including any
and all investigative, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted) to which they, or any of
them, may become subject under the 1933 Act, the 1940 Act, the
Exchange Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, liabilities,
expenses or damages arise out of or are based on any untrue statement
or alleged untrue statement of a material fact contained in any
preliminary prospectus, the Registration Statement or the Prospectus
(including the information deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) of the Rules and Regulations, if
applicable), or the omission or alleged omission to state in such
document a material fact required to be stated in it or necessary to
make the
15
<PAGE> 16
statements in the Registration Statement not misleading or necessary
to make the statements in the Prospectus, in light of the
circumstances under which they were made, not misleading; provided,
that the Company and Investment Adviser will not be liable to the
extent that such loss, claim, liability, expense or damage arises from
the sale of the Shares in the public offering to any person by an
Underwriter and is based on an untrue statement or omission or alleged
untrue statement or omission made in reliance on and in conformity
with information relating to any Underwriter furnished in writing to
the Company by the Representatives on behalf of any Underwriter
expressly for inclusion in the Registration Statement, any preliminary
prospectus or the Prospectus; and provided further, that the foregoing
indemnification with respect to any preliminary prospectus shall not
inure to the benefit of any Underwriter (or to the benefit of any
person controlling such Underwriter) from whom the person asserting
any such losses, claims, damages or liabilities purchased Shares if a
copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Underwriter to such person, if
such is required by law, at or prior to the written confirmation of
the sale of such Shares to such person and if the Prospectus (as so
amended or supplemented) would have cured the defect giving rise to
such loss, claim, damage or liability. The Company acknowledges that
the statements set forth under the heading "Underwriting" in any
preliminary prospectus and the Prospectus constitute the only
information relating to any Underwriter furnished in writing to the
Company by the Representatives on behalf of the Underwriters expressly
for inclusion in the Registration Statement, any preliminary
prospectus or the Prospectus. This indemnity agreement will be in
addition to any liability that the Company or Investment Adviser might
otherwise have.
(b) Each Underwriter severally will indemnify and hold
harmless the Company, Investment Adviser, each person, if any, who
controls the Company or Investment Adviser within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, each director
of the Company and each officer of the Company who signs the
Registration Statement to the same extent as the foregoing indemnity
from the Company and Investment Adviser to each Underwriter, but only
insofar as losses, claims, liabilities, expenses or damages arise out
of or are based on any untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the
Company by the Representatives on behalf of such Underwriter expressly
for use in the Registration Statement, any preliminary prospectus or
the Prospectus. The Company and Investment Adviser acknowledge that
the statements set forth under the heading "Underwriting" in any
preliminary prospectus and the Prospectus constitute the only
information relating to any Underwriter furnished in writing to the
Company by the Representatives on behalf of the Underwriters expressly
for inclusion in the Registration Statement, any preliminary
prospectus or the Prospectus. This indemnity will be in addition to
any liability that each Underwriter might otherwise have.
16
<PAGE> 17
(c) Any party that proposes to assert the right to be
indemnified under this Section 9 will, promptly after receipt of
notice of commencement of any action against such party in respect of
which a claim is to be made against an indemnifying party or parties
under this Section 9, notify each such indemnifying party of the
commencement of such action, enclosing a copy of all papers served,
but the omission so to notify such indemnifying party will not relieve
it from any liability that it may have to any indemnified party under
this Section unless, and only to the extent that, such omission
results in the forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any
indemnified party and it notifies the indemnifying party of its
commencement, the indemnifying party will be entitled to participate
in and, to the extent that it elects by delivering written notice to
the indemnified party promptly after receiving notice of the
commencement of the action from the indemnified party, jointly with
any other indemnifying party similarly notified, to assume the defense
of the action, with counsel satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of
its election to assume the defense, the indemnifying party will not be
liable to the indemnified party for any legal or other expenses except
as provided below and except for the reasonable costs of investigation
subsequently incurred by the indemnified party in connection with the
defense. The indemnified party will have the right to employ its own
counsel in any such action, but the fees, expenses and other charges
of such counsel will be at the expense of such indemnified party
unless (1) the employment of counsel by the indemnified party has been
authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on advice of counsel) that there
may be legal defenses available to it or other indemnified parties
that are different from or in addition to those available to the
indemnifying party, (3) a conflict or potential conflict exists (based
on advice of counsel to the indemnified party) between the indemnified
party and the indemnifying party (in which case the indemnifying party
will not have the right to direct the defense of such action on behalf
of the indemnified party) or (4) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and
other charges of counsel will be at the expense of the indemnifying
party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable
fees, disbursements and other charges of more than one separate firm
admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. All such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they
are incurred. An indemnifying party will not be liable for any
settlement of any action or claim effected without its written consent
(which consent will not be unreasonably withheld).
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided
for in the foregoing paragraphs of this Section 9 is applicable in
accordance with its terms but for any reason except as set forth
therein is held to be unavailable from the Company, Investment Adviser
or the Underwriters, the
17
<PAGE> 18
Company, Investment Adviser and the Underwriters will contribute to
the total losses, claims, liabilities, expenses and damages (including
any investigative, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, but after deducting any
contribution received by the Company or Investment Adviser from
persons other than the Underwriters, such as persons who control the
Company or Investment Adviser within the meaning of the 1933 Act,
officers of the Company who signed the Registration Statement and
directors of the Company, who also may be liable for contribution) to
which the Company or Investment Adviser and any one or more of the
Underwriters may be subject in such proportion so that the
Underwriters are responsible for that portion represented by the
percentage that the underwriting discount appearing on the cover of
the Prospectus bears to the public offering price appearing on the
cover, and the Company and Investment Adviser are responsible for the
balance. If, but only if, the allocation provided by the foregoing
sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to
reflect not only the relative benefits referred to in the foregoing
sentence but also the relative fault of the Company and Investment
Adviser, on the one hand, and the Underwriters, on the other, with
respect to the statements or omissions which resulted in such loss,
claim, liability, expense or damage, or action in respect thereof, as
well as any other relevant equitable considerations with respect to
such offering. Such relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to
information supplied by the Company, Investment Adviser or the
Representatives on behalf of the Underwriters, the intent of the
parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Company, Investment Adviser and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section
9(e) were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method of allocation that does not take into account the
equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim,
liability, expense or damage, or action in respect thereof, referred
to above in this Section 9(e) shall be deemed to include, for purposes
of this Section 9(e), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this Section 9(e), no Underwriter shall be required to contribute any
amount in excess of the underwriting discounts and other compensation
received by it, and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933
Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute as provided in this Section 9(e) are several
in proportion to their respective underwriting obligations and not
joint. For purposes of this Section 9(e), any person who controls a
party to this Agreement within the meaning of the Act, except, as to
each other, Investment Adviser and EVEREN Securities, Inc., will have
the same rights to contribution as that party, and each officer of the
Company who signed the Registration Statement will have the same
18
<PAGE> 19
rights to contribution as the Company, subject in each case to the
provisions hereof. Any party entitled to contribution, promptly after
receipt of notice of commencement of any action against such party in
respect of which a claim for contribution may be made under this
Section 9(e), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not
relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have under this Section 9(e). No
party will be liable for contribution with respect to any action or
claim settled without its written consent (which consent will not be
unreasonably withheld).
(e) The indemnity and contribution agreements contained
in this Section 9 and the representations and warranties of the
Company and Investment Adviser contained in this Agreement shall
remain operative and in full force and effect regardless of (i) any
investigation made by or on behalf of the Underwriters, (ii)
acceptance of any of the Shares and payment therefor, or (iii) any
termination of this Agreement.
10. TERMINATION. The obligations of the several Underwriters
under this Agreement may be terminated at any time prior to the Closing Date
(or, with respect to the Option Shares, on or prior to the Option Closing
Date), by notice to the Company from the Representatives, without liability on
the part of any Underwriter to the Company, if, prior to delivery and payment
for the Shares (or the Option Shares, as the case may be), in the sole judgment
of the Representatives, (i) trading in any of the equity securities of the
Company shall have been suspended by the Commission, by an exchange that lists
the Shares or by The Nasdaq Stock Market, (ii) trading in securities generally
on the New York Stock Exchange shall have been suspended or limited or minimum
or maximum prices shall have been generally established on such exchange, or
additional material governmental restrictions, not in force on the date of this
Agreement, shall have been imposed upon trading in securities generally by such
exchange or by order of the commission or any court or other governmental
authority, (iii) a general banking moratorium shall have been declared by
either federal or New York State authorities or (iv) any material adverse
change in the financial or securities markets in the United States or in
political, financial economic conditions in the United States or any outbreak
or material escalation of hostilities or other calamity or crisis shall have
occurred, the effect of which is such as to make it, in the sole judgment of
the Representatives, impracticable to market the Shares.
11. SUBSTITUTION OF UNDERWRITERS. If any one or more of the
Underwriters shall fail or refuse to purchase any of the Firm Shares which it
or they have agreed to purchase hereunder, and the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of Firm
Shares, the other Underwriters shall be obligated, severally, to purchase the
Firm Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase, in the proportions which the number of Firm Shares
which they have respectively agreed to purchase pursuant to Section 1 bears to
the aggregate number of Firm Shares which all such non-defaulting Underwriters
have so agreed to purchase, or in such other proportions as the Representatives
may specify; provided that in no event shall the maximum number of
19
<PAGE> 20
Firm Shares which any Underwriter has become obligated to purchase pursuant to
Section 1 be increased pursuant to this Section 11 by more than one-ninth of
such number of Firm Shares without the prior written consent of such
Underwriter. If any Underwriter or Underwriters shall fail or refuse to
purchase any Firm Shares and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
exceeds one-tenth of the aggregate number of the Firm Shares and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Firm Shares are not made within 48 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Underwriter
or the Company for the purchase or sale of any Shares under this Agreement. In
any such case either the Representatives or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. Any
action taken pursuant to this Section 11 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
12. MISCELLANEOUS. Notice given pursuant to any of the provisions
of this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company, at the office of the Company, 20600
Chagrin Boulevard, Suite 1150, Cleveland, Ohio 44122, Attention: Robert P.
Pinkas; (b) if to Investment Adviser, 20600 Chagrin Boulevard, Suite 1150,
Cleveland, Ohio 44122, Attention: Michael J. Finn; or (c) if to the
Underwriters, to the Representatives at the offices of EVEREN Securities, Inc.,
77 West Wacker Drive, Chicago, Illinois 60601, Attention: General Counsel. Any
such notice shall be effective only upon receipt. Any notice under Section 10
or 11 may be made by telex or telephone, but if so made shall be subsequently
confirmed in writing.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company and Investment Adviser and of the controlling
persons, directors and officers referred to in Section 9, their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" as
used in this Agreement shall not include a purchaser, as such purchaser, of
Shares from any of the several Underwriters.
With respect to any obligation of the Company and Investment Adviser
hereunder to make any payment, to indemnify for any liability or to reimburse
for any expense, notwithstanding the fact that such obligation is a joint and
several obligation of the Company and Investment Adviser, the Underwriters (or
any other person to whom such payment, indemnification or reimbursement is
owed) shall pursue the Company with respect thereto prior to pursuing
Investment Adviser.
Any action required or permitted to be taken by the Representatives
under this Agreement may be taken by them jointly or by EVEREN Securities, Inc.
20
<PAGE> 21
This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois applicable to contracts made and to be
performed entirely within such State.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
* * *
21
<PAGE> 22
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Investment Adviser and the several Underwriters.
Very truly yours,
BRANTLEY CAPITAL CORPORATION
By:
---------------------------------------
Title:
BRANTLEY CAPITAL MANAGEMENT, L.L.C.
By:
---------------------------------------
Title:
Confirmed as of the date first above written:
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.
Acting on behalf of themselves
and as the Representatives
of the other several Underwriters
named in Schedule I hereof.
By: EVEREN Securities, Inc.
By:
----------------------------------
Authorized Signatory
22
<PAGE> 23
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Firm Shares
Name To be Purchased
---- ---------------
<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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000
=========
</TABLE>
<PAGE> 24
EXHIBIT A
Form of Opinion of
Counsel to the Company
1. The Company is duly organized and validly existing as a
corporation in good standing under the laws of the State of Maryland and is
duly qualified to do business and is in good standing as a foreign corporation
in Ohio. The Company has full power and authority to own or lease its
properties and to conduct its business as described in the Registration
Statement and the Prospectus and, to such counsel's knowledge, has all
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to carry on its business as contemplated in the
Prospectus, except as specifically described therein.
2. The outstanding Shares of Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable and are free
from any preemptive or similar right. The Shares have been duly authorized
and, when they are issued or sold to and paid for by the Underwriters in
accordance with the terms of the Agreement, will be validly issued, fully paid
and nonassessable and will not be subject to any preemptive or similar right.
3. No consent, approval, authorization or order of, or any filing
or declaration with, any court or governmental agency is required in connection
with the performance by the Company of its obligations under the Agreement,
except such as have been obtained under the 1933 Act and the 1940 Act and such
as may be required under state securities laws, or by the bylaws and rules of
the NASD.
4. The authorized and outstanding Shares of Common Stock of the
Company conform as to legal matters in all material respects to the description
thereof in the Registration Statement and the Prospectus. The form of
certificate used to evidence the Shares is in proper form and complies with all
applicable requirements of the General Corporation Law of the State of
Maryland.
5. At the time the Registration Statement became effective, the
Registration Statement complied in all material respects as to form with the
requirements of the 1933 Act and the 1940 Act (except that we express no
opinion as to financial statements, schedules and other financial and
statistical data contained in the Registration Statement or the Prospectus).
6. The Registration Statement has been declared effective under
the 1933 Act and, to the knowledge of such counsel, no order suspending the
effectiveness of the Registration Statement has been issued and no proceeding
for that purpose has been instituted or is threatened, pending or contemplated
under the 1933 Act.
7. The statements set forth in the Prospectus under the caption
"The Investment Advisory Agreement," insofar as they purport to summarize
certain provisions of the Investment Advisory Agreement, are accurate summaries
of such provisions.
A-1
<PAGE> 25
8. The descriptions in the Prospectus of statutes and regulations
under the headings "The Company -- Eligible Portfolio Companies," "Regulation,"
and "Federal Income Tax Matters," insofar as such descriptions purport to
summarize certain provisions of statutes and regulations, present a fair
summary of such provisions.
9. The Company has the requisite corporate power and authority to
enter into the Agreement, and the Agreement has been duly authorized, executed
and delivered by the Company, is a valid and binding agreement of the Company
and, except for the indemnification and contribution provisions of the
Agreement, as to which such counsel expresses no opinion, is enforceable
against the Company in accordance with the terms thereof subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
enforcement of creditors' rights generally and to general equitable principles.
10. The Investment Advisory Agreement has been duly authorized,
executed and delivered by the Company; the Investment Advisory Agreement
complies in all material respects with applicable provisions of the 1940 Act.
11. The execution and delivery of the Agreement and the Investment
Advisory Agreement by the Company, the consummation by the Company of the
transactions therein contemplated and the compliance by the Company with the
terms of such agreements do not and will not result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of the
Company or any of its subsidiaries pursuant to the terms or provisions of, or
result in a breach or violation of any of the terms or provisions of, or
constitute a default or result in the acceleration of any obligation under, the
Articles of Incorporation, as amended, or Bylaws of the Company, or, to such
counsel's knowledge, any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument known to us
which is material to the Company and to which the Company is a party or by
which it or any of its properties is bound or affected, or violate or conflict
with any judgment, ruling, decree, order, statute, rule or regulation of any
court or other governmental agency applicable to the business or properties of
the Company.
12. The Company is a closed-end non-diversified investment company
which has elected to be treated as a business development company under the
1940 Act, and all required action has been taken by the Company under the 1933
Act and the 1940 Act to make the public offering and consummate the sale of the
Shares pursuant to this Agreement. The provisions of the Articles of
Incorporation and the Bylaws of the Company comply as to form in all material
respects with the requirements of the 1940 Act. A Notification of Election to
be subject to Sections 54-65 of the 1940 Act on Form N-54A has been filed by
the Company with the Commission under the 1940 Act, and such Form N-54A
complies as to form in all material respects with the requirements of Section
54(a) of the 1940 Act.
A-2
<PAGE> 26
13. To such counsel's knowledge, there are no actions, suits or
proceedings pending or threatened against the Company or to which any property
of the Company is subject, before or by any federal or state court or other
governmental agency, wherein an unfavorable ruling, decision or finding might
materially and adversely affect the Company, except as set forth in or
contemplated by the Registration Statement and the Prospectus.
14. To such counsel's knowledge, the Company is not in violation
of its Articles of Incorporation, as amended, or Bylaws or in default under any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument known to us which is material to the
Company and to which the Company is a party or by which it or its properties is
bound or affected, and the Company is not in violation of any judgment, ruling,
decree, order, statute, rule or regulation of any court or other governmental
agency known to such counsel and applicable to the business or properties of
the Company, where such violation or default might have a material adverse
effect on the Company.
15. The shares have been duly authorized for listing by Nasdaq
SmallCap Market System upon official notice of issuance.
16. In addition to the foregoing, such counsel shall state that
while in connection with their participation in the preparation of the
Registration Statement and the Prospectus, such counsel has not independently
verified the accuracy or completeness or fairness of the statements contained
or incorporated therein (except as addressed in the first sentence of paragraph
4 and in paragraphs 7 and 8 above), and the limitations inherent in the
examination made by such counsel and the knowledge available to such counsel
are such that they are unable to assume and they do not assume any
responsibility for such accuracy, completeness or fairness (except as addressed
in the first sentence of paragraph 4 and in paragraphs 7 and 8 above), on the
basis of such counsel's review of the Registration Statement, the Prospectus
and the agreements included as exhibits to the Registration Statement and such
counsel's participation in conferences in connection with the preparation of
the Registration Statement and the Prospectus, such counsel do not believe that
the Registration Statement (excluding the agreements included as exhibits to
the Registration Statement) and the agreements included as exhibits to the
Registration Statement, considered as a whole, as of the effective date of the
Registration Statement, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and such counsel do not believe
that the Prospectus and the agreements included as exhibits to the Registration
Statement, considered as a whole, on the date of the Prospectus or as of the
Closing Date, contained or contain any untrue statement of a material fact or
omitted or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Such counsel shall also state that they
do not know of any contract or other document of a character required to be
filed as an exhibit to the Registration Statement which is not filed as
required.
A-3
<PAGE> 27
Such opinion may be limited to matters governed by federal laws of the
United States, the General Corporation Law of the State of Maryland or the laws
of the State of Illinois.
In rendering the foregoing opinion, counsel may rely, to the extent
they deem such reliance proper, as to matters of fact, upon certificates of
officers of the Company and of government officials. Copies of all such
certificates shall be furnished to counsel to the Underwriters on the Closing
Date.
A-4
<PAGE> 28
EXHIBIT B
Form of Opinion of Counsel to Investment Adviser
1. Investment Adviser has been duly organized and is validly
existing as a limited liability company in good standing under the laws of the
State of Delaware and is duly qualified as a foreign corporation in the State
of Ohio with corporate power and authority to own or lease its properties and
to conduct its business as described in the Registration Statement.
2. Investment Adviser is duly registered as an investment adviser
under the Advisers Act and is not prohibited by the Advisers Act or the 1940
Act, or the rules and regulations under such Acts, from acting under the
Investment Advisory Agreement for the Company as contemplated by the
Prospectus.
3. The Agreement and Investment Advisory Agreement have been duly
authorized, executed and delivered by Investment Adviser, and the Agreement and
the Investment Advisory Agreement each constitutes a valid and binding
agreement of Investment Adviser, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and to general equitable
principles.
4. The execution and delivery of the Agreement and the Investment
Advisory Agreement by the Investment Adviser, the consummation by the
Investment Adviser of the transactions therein contemplated and the compliance
by the Investment Adviser with the terms of such agreements do not and will not
result in the creation or imposition of any lien, charge or encumbrance upon
any of the assets of the Investment Adviser or any of its subsidiaries pursuant
to the terms or provisions of, or result in a breach or violation of any of the
terms or provisions of, or constitute a default or result in the acceleration
of any obligation under, the Certificate of Formation or Operating Agreement of
the Investment Adviser, or, to such counsel's knowledge, any indenture,
mortgage, deed of trust, voting trust agreement, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness, lease, contract or
other agreement or instrument known to us which is material to the Investment
Adviser and to which the Investment Adviser is a party or by which it or any of
its properties is bound or affected, or violate or conflict with any judgment,
ruling, decree, order, statute, rule or regulation of any court or other
governmental agency applicable to the business or properties of the Investment
Adviser.
5. To such counsel's knowledge, there are no actions, suits or
proceedings pending or threatened against the Investment Adviser before or by
any federal or state court, or other governmental agency wherein an unfavorable
ruling, decision or finding might materially and adversely affect the
Investment Adviser except as set forth or contemplated by the Registration
Statement or Prospectus.
In addition to the foregoing, such counsel shall state that while in
connection with their participation in the preparation of the Registration
Statement and the Prospectus, such counsel has not independently verified the
accuracy or completeness or fairness of the statements
B-1
<PAGE> 29
contained or incorporated therein and the limitations inherent in the
examination made by such counsel and the knowledge available to such counsel
are such that they are unable to assume and they do not assume any
responsibility for such accuracy, completeness or fairness on the basis of such
counsel's review of the Registration Statement, the Prospectus and the
agreements included as exhibits to the Registration Statement and such
counsel's participation in conferences in connection with the preparation of
the Registration Statement and the Prospectus, such counsel do not believe that
the Registration Statement (excluding the agreements included as exhibits to
the Registration Statement) and the agreements included as exhibits to the
Registration Statement, considered as a whole, as of the effective date of the
Registration Statement, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and such counsel do not believe
that the Prospectus and the agreements included as exhibits to the Registration
Statement, considered as a whole, on the date of the Prospectus or as of the
Closing Date, contained or contain any untrue statement of a material fact or
omitted or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Such counsel shall also state that they
do not know of any contract or other document of a character required to be
filed as an exhibit to the Registration Statement which is not filed as
required.
Such opinion may be limited to matters governed by federal laws of the
United States, the Limited Liability Company Act of the State of Delaware or
the laws of the State of Illinois.
In rendering the foregoing opinion, counsel may rely, to the extent
they deem such reliance proper, as to matters of fact, upon certificates of
officers of the Company and of government officials. Copies of all such
certificates shall be furnished to counsel to the Underwriters on the Closing
Date.
B-2
<PAGE> 1
Exhibit 2.L.
<TABLE>
Law Offices
<S> <C> <C>
JENNER & BLOCK
WASHINGTON OFFICE A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS LAKE FOREST OFFICE
601 THIRTEENTH STREET, N.W. ONE IBM PLAZA ONE WESTMINSTER PLACE
SUITE 1200 SOUTH CHICAGO, ILLINOIS 60611 LAKE FOREST, IL 60045
WASHINGTON, D.C. 2005 (312) 222-9350 (897) 295-9200
(202) 639-6000 (312) 527-0484 FAX (847) 295-7810 FAX
(202) 639-0666 FAX
</TABLE>
November 26, 1996
Board of Directors
Brantley Capital Corporation
20600 Chagrin Boulevard
Suite 1150
Cleveland, Ohio 44122
Re: Registration Statement on Form N-2
1933 Act File No. 333-10785
1940 Act File No. 814-00127
Gentlemen:
We have acted as special counsel to Brantley Capital
Corporation, a Maryland corporation (the "Company"), in connection with the
filing of the Company's Registration Statement on Form N-2, 1933 Act File No.
333-10785, 1940 Act File No. 814-00127 (as amended, the "Registration
Statement"), relating to the registration under the Securities Act of 1933, as
amended (the "1933 Act"), and the Investment Company Act of 1940, as amended
(the "1940 Act"), of 46,000,000 shares of the Company's common stock, $.01 par
value (the "Common Stock").
In arriving at this opinion, we have examined and relied upon
originals or copies, certified or otherwise identified to our satisfaction, of
the following:
1. The Registration Statement;
2. The underwriting agreement among the Company and the
underwriters referenced in the Registration Statement
(the "Underwriters"), the form of which was filed as
Exhibit 2.h.1 to the Registration Agreement (the
"Underwriting Agreement");
3. The Articles of Incorporation of the Company;
<PAGE> 2
Brantley Capital Corporation
November 26, 1996
Page 2
4. The Articles of Amendment and Restatement of the
Charter of the Company;
5. The Bylaws of the Company;
6. Copies of the corporate records of the Company;
7. Certificates of public officials, certificates of
officers, representatives and agents of the Company
and resolutions of the Board of Directors and
stockholders of the Company; and
8. Such other instruments, documents, statements and
records of the Company and others as we have deemed
relevant and necessary to examine and rely upon for
the purpose of this opinion.
We have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all the documents submitted to us as certified or
photostatic copies, and the authenticity of all such documents.
Based upon the foregoing and in reliance thereon, we are of
the opinion that the up to 46,000,000 shares of Common Stock to be sold by the
Company to the public pursuant to the Registration Statement (including the
600,000 shares of Common Stock subject to the Underwriters' over-allotment
option as set forth in the Underwriting Agreement), when issued and delivered
by the Company in accordance with the terms described in the Registration
Statement, will be legally issued, fully paid and non-assessable by the
Company.
We hereby consent to the reference to this Firm in the
Registration Statement under the caption "Legal Matters" and further consent to
the inclusion of this opinion as Exhibit 2.l to the Registration Statement. In
giving this consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the 1933 Act or the rules
and regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ MARYANN A. WARYJAS
------------------------------
JENNER & BLOCK
by Maryann A. Waryjas
<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 4,000,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
November 26, 1996
