<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 22, 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. 2
[ ] Post-Effective Amendment No. ____
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 1
BRANTLEY CAPITAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
20600 CHAGRIN BOULEVARD
SUITE 1150
CLEVELAND, OHIO 44122
(Address of Principal Executive Offices)(Zip Code)
(Registrant's Telephone Number, Including Area Code: (216) 283-4800)
MICHAEL J. FINN
BRANTLEY CAPITAL MANAGEMENT, LTD.
20600 CHAGRIN BOULEVARD
SUITE 1150
CLEVELAND, OHIO 44122
(Name and Address of Agent for Service)
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 22, 1996
10,000,000 SHARES
BRANTLEY CAPITAL CORPORATION
COMMON STOCK
------------------
All of the 10,000,000 shares of common stock, $.01 par value (the "Common
Stock"), offered hereby are being offered by Brantley Capital Corporation, a
newly organized Maryland corporation (the "Company"). The Company is a
closed-end, non-diversified investment company which has elected to be treated
as a business development company (a "Business Development Company") under the
Investment Company Act of 1940 (the "Investment Company Act"). Brantley Capital
Management, Ltd. (the "Investment Adviser"), a registered investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), will
act as adviser to the Company.
The Company's investment objective is the realization of long-term capital
appreciation in the value of its investments. To achieve this objective, the
Company intends to invest primarily in private equity securities and, to a
lesser extent, in post-venture small-cap public securities. 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 NATIONAL
MARKET SYSTEM UNDER THE SYMBOL "BBDC." THE SECURITIES OFFERED HEREBY INVOLVE A
HIGH DEGREE OF RISK, INCLUDING THE COMPANY'S LACK OF PRIOR OPERATING HISTORY,
THE ILLIQUID NATURE OF A SUBSTANTIAL MAJORITY OF THE COMPANY'S INVESTMENTS, AND
UNCERTAINTY REGARDING THE VALUE OF THE COMPANY'S INVESTMENTS. COMMON STOCK OF
CLOSED-END INVESTMENT COMPANIES HAS IN THE PAST FREQUENTLY TRADED AT DISCOUNTS
FROM ITS NET ASSET VALUE AND INITIAL OFFERING PRICE. THE RISK OF LOSS ASSOCIATED
WITH THIS CHARACTERISTIC OF CLOSED-END INVESTMENT COMPANIES MAY BE GREATER FOR
INVESTORS EXPECTING TO SELL COMMON STOCK PURCHASED IN THIS OFFERING SOON AFTER
THE COMPLETION OF THIS OFFERING. THE COMPANY PRESENTLY DOES NOT INTEND TO USE
BORROWED FUNDS TO MAKE INVESTMENTS; HOWEVER, IT RESERVES THE RIGHT TO DO SO. SEE
"RISK FACTORS."
This Prospectus sets forth concisely the information about the Company that
a prospective investor ought to know before investing and should be retained for
future reference. Additional information has been filed with the Securities and
Exchange Commission and is available from the Company upon written or oral
request and without charge. See "Additional Information."
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<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)..................................... $100,000,000 -- $100,000,000
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</TABLE>
(Footnotes on following page)
The Common Stock is offered severally by the Underwriters named herein,
subject to prior sale, when, as and if received and accepted by them, subject to
their right to reject orders, in whole or in part, and to certain other
conditions. It is expected that delivery of the certificates representing the
Common Stock will be made on or about , 1996.
------------------
EVEREN SECURITIES, INC. MCDONALD & COMPANY MORGAN KEEGAN & COMPANY, INC.
SECURITIES, INC.
NEEDHAM & COMPANY, INC. STIFEL, NICOLAUS & COMPANY
INCORPORATED
FIRST OF MICHIGAN CORPORATION NATCITY INVESTMENTS,
INC.
, 1996
<PAGE> 4
(1) The Company and the Investment Adviser have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933 (the "Securities Act"). The Investment Adviser (not
the Company) will pay the Underwriting Discounts and Commissions in the
amount of 7.0% of the aggregate initial public offering price of Common
Stock in connection with sales of Common Stock in this Offering. In
addition, the Investment Adviser will pay the Principal Underwriter a
one-time structuring fee of $500,000 at the close of the Offering. See "The
Investment Advisory Agreement" and "Underwriting."
(2) Before deducting organizational expenses and expenses of the Offering
estimated to be $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 1,500,000 additional shares of Common Stock from the Company
solely to cover over-allotments, if any. If the option is exercised in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $115,000,000, $0 and $115,000,000, respectively
(before deducting the amount set forth in footnote (2) above). See
"Underwriting."
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form N-2 (the "Registration
Statement") under the Investment Company Act and the Securities Act with respect
to the Common Stock offered by this Prospectus. This Prospectus, which is a part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement or the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement, including the exhibits and schedules thereto.
The Registration Statement and the exhibits and schedules thereto filed
with the Commission may be inspected, without charge, at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Seven World Trade Center, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company will furnish to its stockholders annual reports containing
audited financial statements, quarterly unaudited statements for the first three
calendar quarters of each year and such other periodic reports as it may
determine to furnish or as may be required by law.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
APPEARING ELSEWHERE HEREIN. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS
PROSPECTUS IN ITS ENTIRETY.
THE COMPANY
Brantley Capital Corporation (the "Company") has been formed to invest
primarily in the equity securities and equity-linked debt securities of private
companies. In addition, the Company intends to invest a portion of its assets in
equity securities of post-venture small-cap public companies. The Company's
investment objective is the realization of long-term capital appreciation in the
value of its investments. 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, Ltd. (the "Investment Adviser"), based in
Cleveland, Ohio, will act as adviser to the Company. It will be responsible, on
a day-to-day basis, for the selection and supervision of portfolio investments.
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. 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 10,000,000 shares of its
Common Stock at the initial public offering price
of $10.00 per share. The Underwriters have been
granted a 45-day option to purchase up to an
aggregate of 1,500,000 additional shares to cover
over-allotments, if any. See "Underwriting."
Investment per investor.... Minimum of 500 shares of Common Stock (200 shares
for IRAs). Shares in excess of the applicable
minimum must be purchased in 100 share increments.
Common Stock to be
outstanding after the
Offering................. 10,000,000 shares. See "Description of Capital
Stock."
Proposed Nasdaq National
Market symbol............ BBDC
Use of proceeds............ To make investments in accordance with the
Company's investment policies and objectives. See
"Use of Proceeds."
Distributions.............. The Company intends to pay quarterly dividends from
net investment income. See "Federal Income Tax
Matters."
Dividend Reinvestment and
Cash Purchase Plan......... All cash distributions to stockholders will be
reinvested automatically under the Company's
Dividend Reinvestment and Cash Purchase Plan in
additional whole and fractional shares of Common
Stock unless a stockholder or its representative
elects to receive cash. See "Dividend Reinvestment
and Cash Purchase Plan" and "Federal Income Tax
Matters."
Leverage and borrowing..... The Company presently does not intend to use
borrowed funds to make investments, however, it
reserves the right to do so. The Company from time
to time may borrow on a short-term basis against
maturities of its investments for purposes of
meeting short-term cash needs. Also, it may borrow
funds from time to time and at quarter end in order
(i) to maintain sufficient cash assets necessary to
meet the requirements for qualification as a
Business Development Company and the
diversification requirements to qualify as a
regulated investment company for federal income tax
purposes, and (ii) to make distributions necessary
to qualify as a regulated investment company for
federal income tax purposes. All borrowings by the
Company will be subject to the percentage limits
permitted by the Investment Company Act and any
other applicable federal or state laws. See "Risk
Factors -- Use of Leverage" and "Investment
Objectives and Policies."
Stock options.............. The Company has adopted a stock option plan and,
subject to approval by the Commission, has adopted
a disinterested director option plan, pursuant to
which plans, 1,250,000 shares of Common Stock have
been reserved for future issuance upon the exercise
of options that may be granted to directors,
officers and employees of the Company. See
"Management -- Stock Options."
5
<PAGE> 8
Risk factors............... The securities offered hereby involve a high degree
of risk including, but not limited to, the
Company's lack of prior operating history;
dependence upon its Investment Adviser; investments
in privately-owned companies; investments in
small-cap public companies; the illiquid nature of
many of the Company's investments; dependence on
the state of the public offering market or
availability of strategic buyers; risks relating to
potential conflicts of interest; potential delays
in investing Offering proceeds and making
distributions; possible borrowing by the Company;
competition for investments; potential need for
follow-on investments in portfolio companies;
unspecified use of investment proceeds; possible
portfolio valuation problems; lack of
diversification; possible loss of pass-through tax
treatment; and a potentially limited public market
for, or discounted trading of, the Common Stock of
the Company. See "Risk Factors."
Anti-takeover provisions... The Board of Directors of the Company is divided
into three classes of directors serving staggered
three-year terms. This structure is intended to
provide a greater likelihood of continuity of
management for the Company because such continuity
may be necessary for the Company to realize the
full value of its investments. A staggered Board of
Directors may serve to deter hostile takeovers of
the Company, as may certain other measures adopted
by the Company, 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 $100,000,000 based on the sale of 10,000,000
shares in the Offering.
(4) Payable to the Investment Adviser.
(5) Assumes no leverage.
(6) Includes estimated accounting, legal, administrative, stockholder relations,
transfer agent, stock record and custodian expenses.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Company. These amounts assume no leverage and
are based upon payment by the Company of operating expenses at the levels set
forth in the table above.
<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
There has been no prior trading market for the Common Stock and there can
be no assurance that a regular trading market will develop, or that, if
developed, it will be sustained. In addition, shares of closed-end investment
companies, such as the Company, often trade below their net asset value. The net
asset value of the Common Stock immediately following this Offering may be less
than the initial offering price.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be approximately $100,000,000 or $115,000,000 if the
Underwriters' over-allotment is exercised in full (before deduction of
organizational expenses and expenses of the Offering estimated to be $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, Ltd., 20600 Chagrin Boulevard, Suite 1150,
Cleveland, Ohio 44122, will serve as the Investment Adviser to the Company. The
Investment Adviser will be responsible, on a day-to-day
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basis, for the selection and supervision of portfolio investments and for
management oversight of the Company's records and financial reporting
requirements. The Company will pay the Investment Adviser an annual management
fee of 2.85% of the Company's net 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 10,000,000 shares of Common Stock
in the Offering, it is estimated that the Company's annual operating expenses,
including the Management Fee paid to the Investment Adviser, will be
approximately $4,000,000 (approximately 4.0% of the net proceeds of this
Offering). While the foregoing estimate has been made in good faith, there can
be no assurance that actual annual expenses will not be substantially greater
than such estimate as a result of increases in costs, such as costs of transfer
agent, stock record, custodian and stockholder relations activities and
professional and similar services, that cannot be predicted and are beyond the
control of the Company. See "The Investment Advisory Agreement."
Organizational expenses and expenses of the Offering payable by the Company
are estimated to be approximately $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
director of Brantley Capital Management, Ltd., which serves as the Investment
Adviser to the Company. Mr. Pinkas was the founding partner of BVP I, a venture
capital fund started in 1987. Mr. Pinkas led the formation of BVP II and BVP III
and serves as a general partner of the general partners of BVP I, BVP II and BVP
III. BVP I, BVP II and BVP III have made venture capital investments similar to
the investments to be made by the Company in private companies. From 1981 to
1987, Mr. Pinkas was active in venture capital management and financing as a
founding director and investor in seven early-stage companies. He serves on the
boards of directors of several portfolio companies in which BVP I, BVP II and
BVP III have invested, including Gliatech, Inc., Pediatric Services of America,
Inc., Medirisk, Inc. and Quad Systems Corporation. He earned A.B. and A.M.
degrees from Harvard University and a J.D. from the University of Pennsylvania.
Michael J. Finn is President and a director of the Company and is President
and a director of the Investment Adviser. Mr. Finn also serves as a general
partner of the general partners of BVP II and BVP III. From 1987 to 1995, Mr.
Finn served as portfolio manager and vice president of the Venture Capital Group
of Sears Investment Management Company ("SIMCO") in Chicago. In this capacity,
Mr. Finn managed the development of a $150 million portfolio of private equity
investments, including the investment of over $24 million directly in 25
operating companies. From 1983 to 1987, he led the development of a $250 million
venture capital program for the State of Michigan Department of Treasury as its
deputy director. In 1982, Mr. Finn founded and served as president of the
Michigan Certified Development Corporation, a small business development
corporation which financed over $50 million of investments in six companies in
Michigan during the period 1982 to 1984. In 1976, he launched the Forward
Development Corporation, an entity sponsored by the U.S. Small Business
Administration for small business financing. He currently serves on the boards
of directors of Rhomas Group, Inc., Medirisk, Inc., Pediatric Services of
America, Inc. and Silvon Software, Inc. He earned B.S. and M.S. degrees from
Michigan State University.
Paul H. Cascio serves as Vice President and Secretary of the Company and as
Vice President 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,
Ltd., 20600 Chagrin Boulevard, Suite 1150, Cleveland, Ohio 44122, will serve as
investment adviser to the Company. The Investment Adviser will, subject to the
overall supervision of the Company's Board of Directors, administer the
Company's business affairs and furnish the Company with office facilities and
clerical, bookkeeping and record keeping services at such facilities. See
"Management."
The Investment Adviser will be responsible for oversight of the
administrator responsible for the financial records required to be maintained by
the Company and will assist in the preparation of financial information for
reports to stockholders and reports filed with the Commission. In addition, the
Investment Adviser will assist the Company in determining and publishing the
Company's net asset value, oversee both the preparation and filing of the
Company's tax returns, the printing and dissemination of stockholder reports,
and generally oversee the payment of the Company's expenses and the performance
of administrative and professional services rendered to the Company by others.
In return for the Investment Adviser's services, the Company will pay to
the Investment Adviser an annual management fee of 2.85% of the Company's net
assets, determined at the end of each calendar quarter, and payable quarterly in
arrears, throughout the term of the Investment Advisory Agreement.
The Company and the Investment Adviser have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act. In addition, the Investment Adviser (not the Company) will pay
the Underwriters a commission in the 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 National Market System prior to the payment
date of the dividend or distribution, and 95% of the opening sales price on the
payment date, which may be up to three months after the date as of which the net
asset value of the shares of Common Stock was last determined.
Participants also have the option commencing on January 1 of each year, of
making additional annual cash payments to the Dividend Reinvestment and Cash
Purchase Plan in any amount of $1,000 or more up to $10,000. Larger amounts may
be accepted with the prior approval of the Plan Agent. The Plan Agent will use
all funds received from participants to purchase shares of Common Stock in the
open market on or about February 28. Any voluntary funds must be received no
later than 10 days prior to such date and any prior deposit may be withdrawn if
written request for withdrawal is received by the Plan Agent no later than 10
days prior to such date.
The Plan Agent will maintain all stockholder accounts in the Dividend
Reinvestment and Cash Purchase Plan and furnish written confirmation of all
transactions in an account. Common Stock in the Dividend Reinvestment and Cash
Purchase Plan will be held in the name of the participant and each stockholder's
proxy will include any Dividend Reinvestment and Cash Purchase Plan holdings.
There is no charge to the participants for reinvesting dividends and
distributions or for voluntary cash payments. The Plan Agent's fees will be paid
by the Company. There will be no brokerage charges with respect to shares of
Common Stock issued directly by the Company for participants in the Dividend
Reinvestment and Cash Purchase Plan. However, each participant will pay a pro
rata share of brokerage charges for shares purchased in the market.
The Company and the Plan Agent reserve the right to terminate the Dividend
Reinvestment and Cash Purchase Plan. Further, the Dividend Reinvestment and Cash
Purchase Plan may be amended by agreement between the Company and the Plan Agent
upon 30 days notice to participants. A participant may withdraw from the
Dividend Reinvestment and Cash Purchase Plan upon written request to the Plan
Agent, in which event, no further Common Stock purchases will be made for such
withdrawing participant and all shares of Common Stock and funds held for such
participant will be forwarded to the participant or to the Participant's order.
All communications regarding the Dividend Reinvestment and Cash Purchase Plan
should be directed to State Street Bank and Trust Company as Plan Agent.
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<PAGE> 41
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue 25,000,000 shares of Common Stock, par
value $.01 per share. As of October 30, 1996, all of the outstanding capital
stock of the Company was owned and controlled by Robert P. Pinkas and Michael J.
Finn. However, following the Offering, Messrs. Pinkas and Finn will not own or
control a majority of the outstanding capital stock of the Company. The holders
of Common Stock are entitled to one vote per share on all matters submitted for
action by the stockholders. There is no provision for cumulative voting rights
with respect to the election of directors. Accordingly, the holders of more than
50% of the outstanding Common Stock will have the power to elect all of the
directors. The holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of funds legally available
therefor. In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of liabilities and
after provision has been made for each class of securities, if any, having
preference over the Common Stock. Holders of Common Stock, as such, have no
conversion, preemptive or other subscription rights and there are no redemption
provisions applicable to the Common Stock. All of the outstanding shares of
Common Stock are, and the shares of Common Stock offered hereby, when issued
against the consideration set forth in this Prospectus, will be, fully-paid and
non-assessable. Certificates evidencing the number of shares of Common Stock
owned by each stockholder of record will be available upon request by such
stockholder.
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Amendment and Restatement of the Charter and its
Bylaws provide for the Board of Directors to be divided into three classes of
directors serving staggered three-year terms. This provision has been included
in the Articles of Amendment and Restatement of the Charter and the Bylaws to
provide greater likelihood of continuity of management for the Company since the
nature of the Company's investments is such that continuity of management for a
substantial period may be necessary to realize the full value of the investments
made by the Company. A staggered Board of Directors may serve to deter hostile
takeovers of the Company. The Board of Directors has considered this provision
and determined that it is in the best interests of the stockholders.
Under the Maryland General Corporation Law, a Maryland corporation may not
engage in any business combination with any "interested stockholder" or any
affiliate of the interested stockholder for a period of five years following the
date on which the interested stockholder became an interested stockholder except
under certain specified conditions. An "interested stockholder" for this purpose
is any holder or affiliate of any holder of 10% or more of the corporation's
stock. The law also restricts the voting rights of "control shares" acquired in
a "control share acquisition," as defined in the law. As permitted by the law,
the Company's Articles of Amendment and Restatement of the Charter exempt from
the application of these provisions any shares of the Company that may now or in
the future be owned by an employee stock ownership or similar plan.
In addition, the Company's Articles of Amendment and Restatement of the
Charter contain certain special voting provisions. First, a director may be
removed by the stockholders only for cause and then only by a vote of the
holders of at least 75% of the shares entitled to be cast on the matter. Second,
in order to convert the Company from a closed-end to an open-end investment
company, the affirmative vote of at least 75% of the Continuing Directors (as
defined below) and by the holders of at least 75% of the shares entitled to be
cast on the matter. A "Continuing Director" for these purposes is any member of
the Board of Directors of the Company who (i) is not a person or affiliate of a
person who enters or proposes to enter into a business combination, as defined
in the Maryland General Corporation Law, with the Company (an "Interested
Party") and (ii) who has been a member of the Board of Directors of the Company
for a period of at least 12 months, or is a successor of a Continuing Director
who is unaffiliated with an Interested Party and has been recommended to succeed
a Continuing Director by a majority of the Continuing Directors then on the
Board of Directors of the Company. In addition, the Company's Bylaws provide
that a meeting of the stockholders
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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. 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..................................................... 10,000,000
==========
</TABLE>
The Underwriters have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. There is no underwriting discount or
commission charged to the investors on purchases of Common Stock in the
Offering. The Investment Adviser (not the Company) will pay the Underwriters a
commission in the amount of 7.0% of the aggregate initial public offering price
of Common Stock in connection with sales of Common Stock in this Offering and
will pay the Principal Underwriter a one-time structuring fee of $500,000 upon
the close of the Offering. See "The Investment Advisory Agreement."
The Underwriters may allow to selected dealers a concession of not more
than $ per share of Common Stock; and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share of
Common Stock to certain other dealers. The concession to selected dealers and
reallowances to other dealers may be changed by the Underwriters. The shares of
Common Stock are offered subject to receipt and acceptance by the Underwriters,
and to certain other conditions, including the right to reject orders in whole
or in part.
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<PAGE> 44
The Company has granted an option to the Underwriters, exercisable during
the 45-day period after the date of this Prospectus, to purchase up to a maximum
of 1,500,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial Common Stock to be purchased by the
Underwriters. To the extent the Underwriters exercise this option, each of the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares in approximately the same proportion as set forth in the above
table. The Underwriters may purchase such shares only to cover over-allotments
made in connection with this Offering.
The Principal Underwriter currently intends to act as a market maker with
respect to the shares of Common Stock. However, it is under no obligation to do
so and, if it chooses to do so, may cease such activities without notice.
The Investment Adviser, from its own funds, has agreed to make payments to
the Principal Underwriter for consultation and statistical and factual
information with respect to the Company's market performance and general
economic and business conditions. See "The Investment Advisory Agreement."
The Underwriting Agreement provides that the Company and the Investment
Adviser will indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, or will contribute to payments the
Underwriters may be required to make in respect thereof. However, such
indemnification is subject to the provisions of Section 17(l) of the Investment
Company Act which provides, in part, that no agreement shall contain a provision
which protects or purports to protect an underwriter of an investment company or
Business Development Company against any liability to such company or its
security holders to which it would otherwise be subject due to its misfeasance,
bad faith or gross negligence in the performance of its duties, or reckless
disregard of its obligations and duties under such agreement.
The Company has agreed with the Underwriters not to issue any shares or
securities convertible into or exercisable or exchangeable for, or warrants,
options or rights to purchase or acquire, shares of the Company, or enter into
any agreement to do any of the foregoing for a period of 120 days after the date
of this Prospectus without the written consent of the Principal Underwriter,
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...................................................... 74,650
--------
Net assets (25,000,000 shares of Common Stock authorized;
10,535 shares issued and outstanding)........................................... $105,350
========
Net asset value per share......................................................... $ 10
========
</TABLE>
See accompanying notes to statement of assets and liabilities.
F-2
<PAGE> 47
BRANTLEY CAPITAL CORPORATION
Notes to Statement of Assets and Liabilities
October 29, 1996
A. ORGANIZATION AND BUSINESS PURPOSES
Brantley Capital Corporation (the "Company"), a Maryland corporation, was
organized on August 1, 1996, and has had no operations to date other than
matters relating to its organization and registration as a closed-end,
non-diversified investment company organized as a business development company
under the Investment Company Act of 1940, and the sale and issuance to the
principal stockholders of Brantley Capital Management, Ltd. (the "Investment
Adviser") of 10,350 shares of common stock (the "Common Stock") for an aggregate
purchase price of $105,350. The registration and offering of the Company's
Common Stock (the "Offering") is for 10,000,000 shares (not including the
underwriters' over-allotment option) at a proposed maximum offering price per
share of $10.00.
B. DEFERRED ORGANIZATION COSTS AND OFFERING COSTS
Deferred organization costs relating to the Company will be deferred and
amortized on a straight-line basis for a five-year period beginning at the
commencement of operations of the Company.
Offering costs payable by the Company will be charged to capital at the
time of issuance of Common Stock in the Offering. Underwriting commissions in
the amount of 7.0% of the aggregate initial public offering price of the Common
Stock, plus a one-time charge of $500,000 payable to the principal underwriter,
will be paid by the Investment Adviser.
C. INVESTMENT ADVISORY AGREEMENT
The Company will enter into an investment advisory agreement with the
Investment Adviser pursuant to which the Investment Adviser will, among other
things, provide investment advisory services to the Company and will be
responsible for the management of the Company's portfolio in accordance with the
Company's investment policies and for making decisions to buy, sell, or hold
particular securities.
D. STOCK OPTION PLANS
Concurrent with the initial public offering, a stock option plan has been
authorized, which reserves 1,175,000 shares of Common Stock and provides for
grants to officers and employees. Upon the closing of the Offering, options to
purchase 350,000 shares of Common Stock at $10.00 per share will be granted to
the Company's executive officers. These options will become exercisable as to
one-third of the Option Shares on the first anniversary of the closing of the
Offering, as to an additional one-third of the Option Shares on the second
anniversary of the closing of the Offering and as to the remaining one-third of
the Option Shares on the third anniversary of the closing of the Offering.
In addition, the Company has adopted a stock option plan relating to 75,000
shares of Common Stock and providing for option grants solely to the
disinterested directors of the Company (the "Disinterested Director Option
Plan"), subject to receipt of an order of the Securities and Exchange Commission
approving such Plan as fair and reasonable and not involving overreaching of the
Company or its stockholders.
F-3
<PAGE> 48
BRANTLEY CAPITAL CORPORATION
Appendix to Prospectus
As disclosed in the "Investment Objectives and Policies" section of the
attached Prospectus, Brantley Capital Corporation (the "Company") will have
certain latitude in conducting its investment activities. In doing so, the
Company will not: (i) purchase securities on margin, except such short-term
credits as are necessary for the clearance of transactions, (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.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
10,000,000 SHARES
OF COMMON STOCK
BRANTLEY CAPITAL
CORPORATION
--------------------
PROSPECTUS
, 1996
--------------------
EVEREN SECURITIES, INC.
MCDONALD & COMPANY
SECURITIES, INC.
MORGAN KEEGAN & COMPANY, INC.
NEEDHAM & COMPANY, INC.
STIFEL, NICOLAUS & COMPANY
INCORPORATED
FIRST OF MICHIGAN CORPORATION
NATCITY INVESTMENTS, INC.
------------------------------------------------------
------------------------------------------------------
<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 National 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, Ltd., a Delaware corporation (the "Investment
Adviser"), a majority of the outstanding capital stock of which is owned by Mr.
Pinkas, Chairman, Chief Executive Officer, Chief Financial Officer, Treasurer
and a director 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
director 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.
C-3
<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 22nd 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 22, 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 22, 1996
- -----------------------------
Michael J. Finn
/s/ L. PATRICK BALES Director November 22, 1996
- -----------------------------
L. Patrick Bales
/s/ BENJAMIN F. BRYAN Director November 22, 1996
- -----------------------------
Benjamin F. Bryan
/s/ RICHARD MOODIE Director November 22, 1996
- -----------------------------
Richard Moodie
</TABLE>
C-5
<PAGE> 1
EXHIBIT 2.A.2.
CORRECTED AND CONFORMED
ARTICLES OF AMENDMENT AND
RESTATEMENT OF THE CHARTER
OF
BRANTLEY CAPITAL CORPORATION
BRANTLEY CAPITAL CORPORATION, a Maryland corporation having its principal
office in the State of Maryland at 32 South Street, Baltimore, Maryland 21202
(hereinafter called the "Corporation") hereby certifies to the State Department
of Assessments and Taxation that:
1. The Corporation desires to amend and restate its charter.
2. The amendment and restatement of the Corporation's charter was advised
by the Board of Directors and approved by the initial stockholders.
3. The total number of all classes of stock which the Corporation was
heretofore authorized to issue is One Thousand (1,000) shares, all of one class,
of the par value of One Cent ($.01) each and of the aggregate par value of Ten
Dollars ($10.00).
4. The total number of shares of all classes of stock of the Corporation as
increased, and the number, par value and description of the shares are as set
forth in Article FOURTH of these Articles of Amendment and Restatement of the
Charter of the Corporation.
5. The following are the Articles of Incorporation of the Corporation as
amended and restated:
FIRST: NAME. The name of the Corporation is BRANTLEY CAPITAL CORPORATION.
SECOND: PURPOSE. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law, including, without limitation,
to act as a closed-end, non-diversified management investment company, electing
status as a business development company under the Investment Company Act of
1940, as amended (the "Investment Company Act"); provided, however, that the
Corporation may cease to be treated as a business development company upon
compliance with the requirements of the Investment Company Act with respect
thereto.
THIRD: PRINCIPAL OFFICE AND RESIDENT AGENT. The post office address of the
place at which the principal office of the Corporation in the State of Maryland
is located is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202. The name and post office address of the Corporation's
resident agent in the State of Maryland is The Corporation Trust Incorporated,
32 South Street, Baltimore, Maryland 21202.
<PAGE> 2
FOURTH: CAPITAL STOCK.
Section 1. The Corporation has authority to issue one class of capital
stock as follows: 25,000,000 shares of common stock of the par value of One Cent
($.01) per share the ("Common Stock"), having an aggregate par value of
$250,000.
Section 2. All preferences, rights, including rights to the dividends,
voting powers, restrictions and qualifications of or with respect to the shares
of Common Stock of the Corporation are and shall be in all respects subject and
subordinate to and limited, qualified and controlled by any and all
prohibitions, limitations, restrictions and qualifications with respect thereto
expressed in or resulting from compliance with (i) the laws of Maryland, (ii)
the terms and provisions of or with respect to any shares of any class of
preferred stock of the Corporation that are hereafter authorized and whether
before or after the classification thereof and whether the terms and provisions
thereof are those fixed by these Articles of Incorporation or by the Board of
Directors pursuant to any authority or power in these Articles of Incorporation,
or (iii) the other provisions of these Articles of Incorporation.
Section 3. Unless otherwise provided in these Articles of Incorporation,
the Board of Directors shall have the power to issue shares of capital stock of
the Corporation from time to time for such consideration and in such form as may
be fixed from time to time pursuant to the direction of the Board of Directors.
Section 4. Unless otherwise expressly provided in these Articles of
Incorporation, the holders of each share of capital stock of the Corporation
shall be entitled to one vote for each full share of capital stock, and a
fractional vote for each fractional share of capital stock then outstanding in
his or her name in the books of the Corporation. On any matter submitted to a
vote of stockholders, all shares of the Corporation then issued and outstanding
and entitled to vote, irrespective of the class of such shares, shall be voted
in the aggregate and not by class; provided, however, that (i) when otherwise
required by the General Corporation Law of the State of Maryland, (ii) when
required by the Investment Company Act, or (iii) when the matter does not affect
any interest of the particular class, then only stockholders of the affected
class shall be entitled to vote thereon unless otherwise expressly provided in
any amendment or supplement to these Articles. Stockholders of the Corporation
shall not be entitled to cumulative voting in the election of directors or on
any other matter unless otherwise expressly provided in any amendment or
supplement to these Articles creating any new class of stock.
Section 5. The presence in person or by proxy of the holders of record of
the majority of all shares of capital stock of the Corporation issued and
outstanding and entitled to vote thereat shall constitute a quorum for the
transaction of any business at all meetings of the stockholders of the
Corporation, except as otherwise provided by the Investment Company Act, the
General Corporation Law of the State of Maryland or in these Articles of
Incorporation.
Section 6. Except as otherwise provided in these Articles of Incorporation,
and notwithstanding any provision of the Laws of the State of Maryland requiring
action to be taken or authorized by the affirmative vote of the holders of a
designated proportion greater than a majority of the votes of all classes of
capital stock of the Corporation (or of any class entitled to vote thereon as a
separate class), such action shall be valid and effective if taken or authorized
-2-
<PAGE> 3
by the affirmative vote of the holders of a majority of the aggregate number of
shares of capital stock of the Corporation outstanding and entitled to vote
thereon.
Section 7. No holder of shares of capital stock of the Corporation shall,
as such holder, have any preemptive right to purchase or subscribe for any part
of any new or additional issue of stock of any class, or of rights or options to
purchase any stock, or of securities convertible into, or carrying rights or
options to purchase, stock of any class, whether now or hereafter authorized or
whether issued for money, for a consideration other than money or by way of a
dividend or otherwise, and all such rights are hereby waived by each holder of
Common Stock and of any other class of stock or securities of the Corporation
that may hereafter be created.
Section 8. The holders of capital stock of the Corporation may remove a
director for cause provided that the holders of at least 75% of the shares
entitled to be cast on the matter approve such action.
Section 9. The Corporation hereby elects to be subject to Title 3, Subtitle
7 of the General Corporation Law of the State of Maryland which governs the
Voting Rights of Certain Control Shares, provided, however, that the provisions
of Subtitle 7 shall not apply to any shares of the Corporation that are owned by
an employee stock ownership or similar plan.
Section 10. All persons who shall acquire capital stock in the Corporation
shall acquire the same subject to the provisions of these Articles of
Incorporation.
FIFTH: BOARD OF DIRECTORS. The directors shall initially be divided into
three classes, designated Class I, Class II and Class III. All classes shall be
as nearly equal in number as possible, and initially, Class I will consist of
one director, Class II will consist of two directors, and Class III will consist
of two directors. The directors as initially classified shall hold office for
terms as follows: the Class I director, Richard Moodie, shall hold office until
the date of the annual meeting of stockholders in 1997 or until a successor
shall be elected and qualified; the Class II directors, L. Patrick Bales and
Benjamin F. Bryan shall hold office until the date of the annual meeting of
stockholders in 1998 or until their successors shall be elected and qualified;
and the Class III directors, Robert P. Pinkas and Michael J. Finn shall hold
office until the date of the annual meeting of stockholders in 1999 or until
their successors shall be elected and qualified. Upon expiration of the term of
office of each class as set forth above, the directors in each such class shall
be elected for a term of three years to succeed the directors whose terms of
office expire. Each director shall hold office until the expiration of his or
her term and until his or her successor shall have been elected and qualified,
or until his or her death, or until he or she shall have resigned, or until he
or she shall have been removed as provided by these Articles of Incorporation,
the Corporation's Bylaws, the Investment Company Act or the General Corporation
Law of the State of Maryland. Any director may be removed for cause at any
meeting of stockholders by a vote of 75% of all of the votes entitled to be
cast for the election of directors at a meeting duly called for that purpose,
which meeting will be held upon the written request of the Chairman of the
Board, the Chief Executive Officer or the President of the Corporation.
-3-
<PAGE> 4
The Corporation may, through its Bylaws, fix the number of directors and
divide the directors into classes and prescribe the tenure of office of the
several classes.
SIXTH: MANAGEMENT OF THE AFFAIRS OF THE CORPORATION.
Section 1. All corporate powers and authority of the Corporation (except as
at the time otherwise provided by statute, by these Articles of Incorporation or
by the Corporation's Bylaws) shall be vested in and exercised by the Board of
Directors.
Section 2. The Board of Directors shall have the power to fix an initial
offering price for the shares of capital stock of the Corporation, which shall
yield to the Corporation not less than the par value thereof, at which price the
shares of capital stock of the Corporation shall be offered for sale, and to
determine from time to time thereafter the offering price which shall yield to
the Corporation not less than the par value thereof from sales of the shares of
its capital stock; provided, however, that sales by the Corporation of its
shares of capital stock for less than net asset value (as defined in the
Investment Company Act) shall be in accordance with the applicable requirements
of the Investment Company Act.
Section 3. The Board of Directors may from time to time declare and pay
dividends or distributions, in stock or in cash, on any or all classes of
capital stock; provided that dividends or distributions on shares of any class
of capital stock shall be paid only out of earnings, surplus, or other lawfully
available assets belonging to such class.
Section 4. The Board of Directors shall have the power in its discretion to
distribute to the stockholders of the Corporation in any fiscal year as
dividends, including dividends designated in whole or in part as capital gains
distributions, amounts sufficient, in the opinion of the Board of Directors, to
enable the Corporation to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, or any successor or comparable
statute thereof, and regulations promulgated thereunder (collectively, the
"Code"), and to avoid liability of the Corporation for federal income tax in
respect of that year and to make other appropriate adjustments in connection
therewith.
Section 5. The Board of Directors shall have the power, in its discretion,
to make such elections as to the tax status of the Corporation as may be
permitted or required under the Code, without the vote of stockholders of the
Corporation.
Section 6. The Board of Directors shall have exclusive authority to make,
alter or repeal from time to time any of the Bylaws of the Corporation, except
to the extent that these Articles of Incorporation, the Bylaws or the Investment
Company Act otherwise provide.
Section 7. The Board of Directors shall have the power from time to time to
determine whether and to what extent, and at what times and places and under
what conditions the accounts and books of the Corporation or any of them shall
be open to the inspection of stockholders, and no stockholder shall have any
right to inspect any account, book or document of the Corporation except to the
extent required by the General Corporation Law of the State of Maryland or
permitted by the Corporation's Bylaws.
-4-
<PAGE> 5
Section 8. To the extent permitted under the General Corporation Law of the
State of Maryland, the Corporation may purchase shares of its capital stock upon
such terms and conditions and for such consideration as the Board of Directors
shall deem advisable.
Section 9. The net asset value of the property and assets of the
Corporation shall be determined in accordance with the Investment Company Act,
and at such times as the Board of Directors may direct, by deducting from the
total market or appraised value of all of the property and assets of the
Corporation, all debts, obligations and liabilities of the company (including,
but without limitation of the generality of any of the foregoing, any or all
debts, obligations, liabilities or claims of any and every kind and nature,
whether fixed, accrued, or unmatured, and any reserves or charges, determined in
accordance with generally accepted accounting principles, for any or all
thereof, whether for taxes, including estimated taxes or unrealized book
profits, expenses, contingencies or otherwise).
Section 10. The Board of Directors from time to time may change the
Corporation's name, without the vote or consent of the stockholders of the
Corporation, in any manner and to the extent now or hereafter permitted by the
General Corporation Law of the State of Maryland and by these Articles of
Incorporation.
Section 11. The Corporation may be converted from a closed-end to an
open-end investment company by a vote of at least 75% of the Continuing
Directors (as defined below) and by the holders of at least 75% of the shares
entitled to be cast on the matter. A "Continuing Director" for these purposes is
any member of the Board of Directors who (i) is not a person or affiliate of a
person who enters or proposes to enter into a business combination, as defined
in the Maryland General Corporation Law, with the Corporation (an "Interested
Party") and (ii) who has been a member of the Board of Directors of the
Corporation for a period of at least 12 months, or is a successor of a
Continuing Director who is unaffiliated with an Interested Party and has been
recommended to succeed a Continuing Director by a majority of the Continuing
Directors then on the Board of Directors of the Corporation.
Section 12. In addition to the powers and authorities granted herein and by
statute expressly conferred upon it, the Board of Directors is authorized to
exercise all powers and do all acts that may be exercised or done by the
Corporation pursuant to the provisions of the General Corporation Law of the
State of Maryland, these Articles of Incorporation and the Bylaws of the
Corporation.
SEVENTH: DETERMINATIONS AS TO ACCOUNTING MATTERS. Any determination made in
good faith, so far as accounting matters are involved, in accordance with
generally accepted accounting principles by or pursuant to the authority or the
direction of the Board of Directors, (i) as to the amount of assets, obligations
or liabilities of the Corporation, (ii) as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, (iii) as to the amount of any
reserves or charges set up and the propriety thereof, (iv) as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
such reserves or charges shall have been created, shall have been paid or
discharged or is then or thereafter required to be paid or discharged), (v) as
to the price of any security owned by the Corporation, (vi) as to any other
matters relating to the issuance,
-5-
<PAGE> 6
sales, redemption or other acquisition or disposition of any securities by the
Corporation or any securities or shares of capital stock of the Corporation, or
(vii) as to any reasonable determination made in good faith by the Board of
Directors as to whether any transaction constitutes a purchase of securities on
"margin," a sale of securities "short," or an underwriting or the sale of, or a
participation in any underwriting or selling group in connection with the public
distribution of, any securities, shall be final and conclusive, and shall be
binding upon the Corporation and all its stockholders, past, present and future,
and shares of capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares of capital
stock or acceptance of share certificates, that any and all such determinations
shall be binding as aforesaid. No provision of these Articles of Incorporation
shall be effective to (a) require a waiver of compliance with any provision of
the Securities Act of 1933, as amended (the "Securities Act"), the Investment
Company Act or of any valid rule, regulation or order of the Securities and
Exchange Commission thereunder or (b) protect or purport to protect any director
or officer of the Corporation against any liability to the Corporation or its
security holders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
EIGHTH: LIMITATIONS ON LIABILITY; INDEMNIFICATION.
Section 1. To the fullest extent that limitations on the liability of
directors and officers is permitted by Maryland statutory or decisional law, as
amended or interpreted, no director or officer of the Corporation shall have any
liability to the Corporation or its stockholders for monetary damages. This
limitation on liability applies to events occurring at the time a person serves
as a director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which liability is
asserted. No amendment of these Articles of Incorporation or repeal of any of
the provisions hereof shall limit or eliminate the benefits provided to
directors and officers under this provision with respect to any act or omission
which occurred prior to such amendment or repeal.
Section 2. Any person who was or is a party or is threatened to be made a
party in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is a current or former director or officer of the Corporation
or is or was serving while a director or officer of the Corporation at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
enterprise or employee benefit plan, shall be indemnified by the Corporation
against judgments, penalties, fines, excise taxes, settlements and reasonable
expenses (including attorneys' fees) actually incurred by such person in
connection with such action, suit or proceeding to the fullest extent
permissible under the General Corporation Law, the Securities Act and the
Investment Company Act, as such statutes are now or hereafter in force. In
addition, the Corporation shall also advance expenses to its currently acting
and its former directors and officers to the fullest extent that indemnification
of directors and officers is permitted by the General Corporation Law, the
Securities Act and the Investment Company Act. The Board of Directors may by
bylaw, resolution or agreement make further provisions for indemnification of
the directors, officers, employees and agents to the fullest extent permitted by
the General Corporation Law.
-6-
<PAGE> 7
Section 3. No provision of this Article EIGHTH shall be effective to
protect or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its stockholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
respective offices.
NINTH: PERPETUAL EXISTENCE. The duration of the Corporation shall be
perpetual.
TENTH: AMENDMENTS. From time to time any of the provisions of these
Articles of Incorporation may be amended, altered or repealed (including any
amendment that changes the terms of any of the outstanding shares of capital
stock by classification, reclassification or otherwise), and other provisions
that may, under the General Corporation Law of the State of Maryland, the
Investment Company Act, securities law, or other laws in force at the time, be
lawfully contained in articles of incorporation may be added or inserted upon
the vote of a majority of the shares of capital stock of the Corporation
outstanding and entitled to vote thereon, including a majority of any class
entitled to vote thereon. All rights at any time conferred upon the stockholders
of the Corporation by these Articles of Incorporation are subject to the
provisions of this Article TENTH.
The term "Articles of Incorporation" or "Charter" as used herein and in the
Bylaws of the Corporation shall be deemed to mean these Articles of
Incorporation as from time to time amended, restated or supplemented.
-7-
<PAGE> 8
IN WITNESS WHEREOF, BRANTLEY CAPITAL CORPORATION has caused these presents
to be signed in its name and on its behalf by its Chief Executive Officer and
attested by its Secretary on October 29, 1996.
BRANTLEY CAPITAL CORPORATION
By /s/ ROBERT P. PINKAS
------------------------------
Chief Executive Officer
ATTEST:
/s/ PAUL H. CASCIO
- ------------------------------
Paul H. Cascio, Secretary
ACKNOWLEDGEMENT
The undersigned, Robert P. Pinkas, Chief Executive Officer of BRANTLEY
CAPITAL CORPORATION, who executed on behalf of said Corporation the foregoing
Articles of Amendment and Restatement of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said Corporation, the
foregoing Articles of Amendment and Restatement to be the corporate act of said
Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under penalties of
perjury.
By /s/ ROBERT P. PINKAS
----------------------------------
Chief Executive Officer
-8-
<PAGE> 1
EXHIBIT 2.b.
BYLAWS
OF
BRANTLEY CAPITAL CORPORATION
(a Maryland Corporation)
(corrected and conformed as of November 21, 1996)
These bylaws ("Bylaws") are made as of the 29th day of October, 1996 and
adopted pursuant to the Articles of Incorporation establishing Brantley Capital
Corporation (the "Corporation") dated August 1, 1996, as from time to time
amended, restated or supplemented (hereinafter called the "Articles"). All words
and terms capitalized in these Bylaws shall have the meaning or meanings set
forth for such words or terms in the Articles unless otherwise noted.
ARTICLE I
Offices
-------
The registered office of the Corporation in the State of Maryland shall be
at 32 South Street, Baltimore, Maryland 21202.
The principal executive office of the Corporation shall be at 20600 Chagrin
Boulevard, Suite 1150, Cleveland, Ohio 44122.
The Corporation may have such other offices in such places as the Board of
Directors of the Corporation may from time to time determine.
ARTICLE II
Meetings of Stockholders
------------------------
Section 2.1. ANNUAL MEETING. An annual meeting of the stockholders of the
Corporation shall be held on such date and at such hour as may from time to time
be designated by the Board of Directors and stated in the notice of such meeting
for the purpose of electing directors and for the transaction of such other
business as may be properly brought before the meeting.
Section 2.2. SPECIAL MEETINGS. Special meetings of the stockholders for
any purpose or purposes may be called by the Chairman of the Board, the Chief
Executive officer, the President or the Board of Directors. Special meetings of
stockholders shall also be called by the Secretary upon receipt of the request
in writing signed by stockholders entitled to cast a majority of all votes
entitled to be cast at such meeting. Such request shall state the purpose or
purposes of the proposed meeting and the matters proposed to be acted on at
such proposed meeting. The Secretary shall inform the stockholders who make
such request of the reasonably estimated costs of preparing and mailing such
notice of
<PAGE> 2
meeting and upon payment to the Corporation of such costs, the Secretary shall
give notice as required in this Article to all stockholders entitled to notice
of such meeting. Unless requested by stockholders entitled to cast a majority of
all votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
upon at any special meeting of stockholders held during the preceding 12 months.
At a special meeting of stockholders, no business shall be transacted and no
corporate action taken other than that stated in the notice of said meeting
unless all of the stockholders of the Corporation entitled to vote thereat are
present in person or by proxy, in which case any and all business may be
transacted at the meeting even though the meeting is held without notice.
Section 2.3. PLACE OF MEETINGS. Any annual or special meeting of the
stockholders shall be held at such place within the United States as the Board
of Directors may from time to time designate.
Section 2.4. NOTICE OF MEETINGS; WAIVER OF NOTICES. Written notice of the
place, date and time of the holding of each annual and special meeting of the
stockholders and the purpose or purposes of each special meeting shall be given
personally or by mail, not less than 10 nor more than 60 days before the date of
such meeting, to each stockholder entitled to notice of the meeting. Notice by
mail shall be deemed to be duly given when deposited in the United States mail
or similar means addressed to the stockholder at the stockholder's address as it
appears on the records of the Corporation, with postage or any fees thereon
prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless after the adjournment the Board of Directors shall fix a
new record date for any adjourned meeting or the adjournment is for more than 30
days, notice of such adjourned meeting need not be given if the time and place
to which the meeting shall be adjourned is announced at the meeting at which the
adjournment is taken.
Section 2.5. QUORUM AND ADJOURNMENT. At any meeting of the stockholders,
the holders of a majority in number of shares of stock of the Corporation
entitled to vote at the meeting present in person or by proxy shall constitute a
quorum for the transaction of any business, except as otherwise provided by
statute or by the Articles or these Bylaws. A meeting of stockholders convened
on the date for which it was called may be adjourned as permitted under the laws
of the State of Maryland. If a quorum shall not be present or represented at
such meeting of stockholders, a majority of the stockholders entitled to vote
thereat present in person or represented by proxy, shall have the power to
adjourn the meeting. At any adjourned session of a meeting at which a quorum
shall be present or represented, any business may be transacted that might have
been transacted at the meeting as originally noticed. The absence from any
meeting of holders of a number of shares of stock of the Corporation which may
be required by the General Corporation Law of the State of Maryland, the
Investment Company Act or any other applicable statute, the Articles,
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or these Bylaws, for action on any given matter shall not prevent action at the
same meeting on any other matter or matters which may properly come before the
meeting if the holders of the number of shares of stock of the Corporation
required for action on such matters are present at such meeting in person or by
proxy.
Section 2.6. ORGANIZATION. At each meeting of the stockholders, the
Chairman of the Board, or in his or her absence or inability to act, the Chief
Executive Officer, or in his or her absence, the President, shall act as
chairman of the meeting. The Secretary, or in the Secretary's absence or
inability to act, any person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes thereof.
Section 2.7. ORDER OF BUSINESS. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
Section 2.8. VOTING. Except as otherwise provided by statute or the
Articles, each holder of record of shares of stock of the Corporation having
voting power shall be entitled at each meeting of the stockholders to one vote
for every share of such stock standing in the name of such stockholder on the
record of stockholders of the Corporation as of the record date determined
pursuant to Article X hereof.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of 11 months from the date thereof, unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed valid
unless challenged on or prior to its exercise. Except as otherwise provided by
applicable law, the Articles or these Bylaws, any corporate action to be taken
by vote of the stockholders shall be authorized by a majority of the total votes
cast at a meeting of stockholders by the stockholders present in person or
represented by proxy and entitled to vote on such action.
Section 2.9. INSPECTORS OF ELECTION. In advance of any meeting of the
stockholders, the Board of Directors may appoint inspectors of election to act
at the meeting or any adjournment thereof (the "Inspectors of Election"). If
Inspectors of Election are not so appointed, the chairman, if any, of any
meeting of the stockholders may, and on the request of any stockholder or his or
her proxy shall, appoint Inspectors of Election of the meeting. The number of
Inspectors of Election shall be either one or more. If appointed at the meeting
on the request of one or more stockholders or proxies, a majority of votes cast
shall determine whether one or more Inspectors of Election are to be appointed,
but failure to allow such determination by the stockholders shall not affect the
validity of the appointment of Inspectors of Election. In case any person
appointed as Inspector of Election fails to appear or fails or refuses to act,
the vacancy may be filled by appointment made by the Board of Directors in
advance of the convening of the meeting or at the meeting by the person acting
as chairman. Inspectors, before entering upon the discharge of their duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with
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strict impartiality and according to the best of their ability. The Inspectors
of Election shall determine the number of outstanding shares of stock owned by
stockholders, the voting power of each, the shares of stock represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results, and
do such other acts as may be proper to conduct the election or vote with
fairness to all stockholders. If there are three or more Inspectors of Election,
the decision, act or certificate of a majority is effective in all respects as
the decision, act or certificate of all. On request of the chairman, if any, of
the meeting, or of any stockholder or his or her proxy, the Inspectors of
Election shall make a report in writing of any challenge or question or matter
determined by them and shall execute a certificate of any facts found by them.
No director or candidate for office of director shall act as inspector of an
election of directors. Inspectors of Election need not be stockholders.
Section 2.10. RECORDS OF MEETINGS OF STOCKHOLDERS. At each meeting of the
stockholders there shall be open for inspection the minutes of the last previous
meeting of stockholders and a list of the stockholders, certified to be true and
correct by the Secretary or other proper agent of the Corporation, as of the
record date of the meeting. Such list of stockholders shall contain the name of
each stockholder in alphabetical order, the stockholder's address and shares of
stock owned by such stockholder. Stockholders shall have the right to inspect
books and records of the Corporation during normal business hours for any
purpose not harmful to the Corporation.
Section 2.11. ADVANCE NOTICE PROVISIONS FOR ELECTION OF DIRECTORS. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors (or
any duly authorized committee thereof), or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 2.11 and on the record date for the
determination of stockholders entitled to vote at such meeting, and (ii) who
complies with the notice procedures set forth in this Section 2.11.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting, not less than 60 days nor more than 90 days
prior to the date of the annual meeting; provided, however, that in the event
that less than 70 days notice or prior public disclosure of the date of the
annual meeting is given or made to stockholders, notice by the stockholders in
order to be timely must be so received not later than the close of business on
the tenth day following the day on which such notice of the date of the annual
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meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth day following the date on which notice of the
date of the special meeting was mailed or public disclosure of the date of the
special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person, and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice, and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
2.11. If the chairman of the meeting determines that a nomination was not made
in accordance with the foregoing procedures, the chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
Section 2.12. ADVANCE NOTICE PROVISIONS FOR BUSINESS TO BE TRANSACTED AT
ANNUAL MEETING. No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof), or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (i) who
is a stockholder of record on the date of the giving of the notice provided for
in this Section 2.12 and on the record date for the determination of
stockholders entitled to vote at such annual meeting, and (ii) who complies with
the notice procedures set forth in this Section 2.12.
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In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the date of the annual meeting;
provided, however, that in the event that less than 70 days notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business, and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 2.12; provided, however, that once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 2.12 shall be deemed to preclude discussion by any
stockholder of any such business. If the chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
ARTICLE III
Board of Directors
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Section 3.1. MANAGEMENT OF THE CORPORATION. The property, business and
affairs of the Corporation shall be managed under the direction of its Board of
Directors, and all of the powers of the Corporation may be exercised by or under
authority of the Board of Directors except as conferred upon or reserved to the
stockholders by law, by the Articles or by these Bylaws.
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Section 3.2. NUMBER OF DIRECTORS. The number of directors of the
Corporation shall, until further action is taken by the Board of Directors, be
five. By vote of a majority of the entire Board of Directors, the number of
directors fixed by the Articles or by these Bylaws may be increased or decreased
from time to time up to a maximum of seven, but shall never be less than three.
Section 3.3. TENURE AND CLASSES OF DIRECTORS. The directors shall be
divided into three classes, designated Class I, Class II and Class III. All
classes shall be as nearly equal in number as possible, and initially, Class I
will consist of one director, Class II will consist of two directors, and Class
III will consist of two directors. The directors as initially classified shall
hold office for terms as follows: the Class I director, Richard Moodie, shall
hold office until the date of the annual meeting of stockholders in 1997 or
until a successor shall be elected and qualified; the Class II directors, L.
Patrick Bales and Benjamin F. Bryan shall hold office until the date of the
annual meeting of stockholders in 1998 or until their successors shall be
elected and qualified; and the Class III directors, Robert P. Pinkas and Michael
J. Finn shall hold office until the date of the annual meeting of stockholders
in 1999 or until their successors shall be elected and qualified. Upon
expiration of the term of office of each class as set forth above, the directors
in each such class shall be elected for a term of three years to succeed the
directors whose terms of office expire. Each director shall hold office until
the expiration of his or her term and until his or her successor shall have been
elected and qualified, or until his or her death, or until he or she shall have
resigned, or until he or she shall have been removed as provided by the
Articles, these Bylaws, or by any other applicable state or federal laws.
Section 3.4. VACANCIES. Except as otherwise required by the Investment
Company Act, any vacancy occurring in the Board of Directors for any cause other
than by reason of an increase in the number of directors may be filled by a
majority of the remaining members of the Board of Directors, although such
majority is less than a quorum. Any vacancy occurring by reason of an increase
in the number of directors may be filled by an action of a majority of the
entire Board of Directors. A director elected by the Board of Directors to fill
a vacancy shall be elected to hold office until the next annual meeting of
stockholders or until a successor is elected and qualified. If at any time less
than 50% of all directors holding office were elected by the stockholders, a
meeting of the stockholders must be held within 60 days to fill vacancies.
At any annual meeting of stockholders, stockholders shall be entitled to
elect directors to fill any vacancies in the Board of Directors that have arisen
since the preceding annual meeting of stockholders (whether or not any such
vacancy has been filled by election of a new director by the Board of Directors)
and any director not elected by the stockholders shall hold office until his or
her successor shall be elected and shall qualify.
Section 3.5. REMOVAL. Any director may be removed with or without cause at
any time by written instrument signed by at least two-thirds of the other
directors. Any director who requests to be retired, or who has become physically
or mentally incapacitated or is otherwise unable to serve, may be retired by
written instrument signed by a majority of the other directors. Any director may
be removed with or without cause at any meeting
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of stockholders by a vote of at least 75% of all of the votes entitled to be
cast for the election of directors at a meeting duly called for that purpose,
which meeting will be held upon the written request of the Chairman of the
Board, the Chief Executive Officer or the President of the Corporation.
Section 3.6. COMPENSATION OF DIRECTORS. Directors may receive compensation
for services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board
of Directors.
Section 3.7. POWER TO ISSUE AND SELL STOCK. The Board of Directors may from
time to time authorize by resolution the issuance and sale of any of the
Corporation's authorized shares of stock to such persons as the Board of
Directors shall deem advisable.
Section 3.8. POWER TO DECLARE DIVIDENDS. The Board of Directors, from time
to time as it may deem advisable, may declare and the Corporation may pay
dividends, in cash, property, or shares of stock of the Corporation, out of any
source available for dividends, to the stockholders according to their
respective rights and interests.
ARTICLE IV
Meetings of the Board of Directors
----------------------------------
Section 4.1. PLACE OF MEETINGS. Meetings of the Board of Directors, regular
or special, may be held at any place in or out of the State of Maryland as the
Board of Directors may from time to time determine or as shall be specified in
the notice of such meeting.
Section 4.2. ANNUAL MEETINGS. The first meeting of each newly elected Board
of Directors shall be held as soon as practicable after the meeting of
stockholders at which the directors were elected or, in the absence of such
annual stockholders' meeting, at such time and place as the Board of Directors
may provide. No notice of such meeting shall be necessary, if held immediately
after the adjournment, and at the site, of the meeting of stockholders.
Section 4.3. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board of Directors.
Section 4.4. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held upon the call of the Chairman of the Board, the Chief Executive
Officer or the President, at such time, on such day and at such place, as shall
be designated in the notice of the meeting.
Section 4.5. NOTICE. Notice of every special meeting shall be given by mail
(which term shall include next business day courier service) or by electronic
transmission
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(which term shall include cablegram, telecopy or facsimile) or delivered
personally, to each director at his or her business address as set forth in the
records of the Corporation. Such notice shall be delivered not less than two
days preceding the meeting. Notice of a meeting of directors may be waived
before or after any meeting by signed written waiver. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
stated in the notice or waiver of notice of such meeting, and no notice need be
given of action proposed to be taken by written consent. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting.
Section 4.6. CHAIRMAN OF THE BOARD; RECORDS. The Board of Directors shall
elect a Chairman of the Board from among their number, pursuant to the
provisions of Article V of these Bylaws. Such Chairman of the Board shall act as
chairman at all meetings of the Board of Directors; in his or her absence the
Chief Executive Officer shall act as chairman; in the absence of the Chairman of
the Board and the Chief Executive Officer, the President shall act as chairman;
and, in the absence of the Chairman of the Board, the Chief Executive Officer
and the President, the directors present shall elect one of their number to act
as temporary chairman. The results of all actions taken at a meeting of the
Board of Directors, or by written consent of the directors, shall be recorded by
the Secretary.
Section 4.7. COMMITTEES. The Board of Directors may appoint from among its
members an Executive Committee and other committees composed of two or more
directors, and may delegate to such committees any or all of the powers of the
Board of Directors in the management of the business and affairs of the
Corporation except the power to declare dividends or distributions on stock, to
issue stock, to recommend to stockholders any action that requires stockholders'
approval, to fill a vacancy on the Board of Directors, to amend these Bylaws or
to approve any merger or share exchange which does not require stockholder
approval. In the absence of any member of any such committee, the members
thereof present at any meeting, whether or not they constitute a quorum, may
appoint a member of the Board of Directors to act in the place of such absent
member. Committees shall keep minutes of their proceedings and shall report the
same to the Board of Directors at the meeting next succeeding, and any action by
a committee shall be subject to revisions and alteration by the Board of
Directors, provided that no rights of third persons shall be affected by any
such revision or alteration.
Section 4.8. QUORUM. At all meetings of the Board of Directors, a majority
of the entire Board of Directors shall constitute a quorum for the transaction
of business and the action of a majority of the directors present at any meeting
at which a quorum is present shall be the action of the Board of Directors
unless the concurrence of a greater proportion is required for such action by
the General Corporation Law of the State of Maryland, the Articles or these
Bylaws. If a quorum shall not be present at any meeting of directors, the
directors present thereat may by a majority vote adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present.
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Section 4.9. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted by
the Articles of Incorporation or by these Bylaws, the members of the Board of
Directors or any committee designated by the Board of Directors, may participate
in a meeting of the Board of Directors or such committee, as the case may be, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
Section 4.10. CONSENT OF DIRECTORS IN LIEU OF MEETING. Any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if a written consent to such
action is signed by all members of the Board of Directors or of such committee,
as the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or committee.
ARTICLE V
Officers
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Section 5.1. OFFICERS OF THE CORPORATION; COMPENSATION. The officers of the
Corporation shall be elected by the Board of Directors and shall consist of a
Chairman of the Board, a Chief Executive Officer, a President, a Secretary, a
Treasurer and such other officers or assistant officers, including Vice
Presidents, as may be designated from time to time by the Board of Directors.
Any two or more of the offices may be held by the same person, provided,
however, that no one person may serve as both President and Vice President, if
any, and provided further, that any person who holds more than one office in the
Corporation may not act in more than one capacity to execute, acknowledge or
verify any instrument required by law to be executed, acknowledged or verified
by more than one officer. The Board of Directors may designate a Vice President,
if any, as an Executive Vice President and may designate the order in which any
other Vice Presidents may act. No officer of the Corporation need be a director.
The Board of Directors may determine what, if any, compensation shall be paid to
officers of the Corporation.
Section 5.2. ELECTION AND TENURE. The Board of Directors shall elect the
Chairman of the Board, Chief Executive Officer, President, Secretary, Treasurer
and such other officers as the Board of Directors shall deem necessary or
appropriate in order to carry out the business of the Corporation. The Chairman
of the Board and such officers shall hold office until resignation or removal in
accordance with Section 5.3 and until their successors have been duly elected
and qualified. The Board of Directors may fill any vacancy in or add any
additional officers at any time.
Section 5.3. REMOVAL OF OFFICERS; RESIGNATION. Any officer may be removed
at any time, with or without cause, by action of a majority of the directors
whenever in the judgment of the Board of Directors the best interests of the
Corporation will be served thereby. This provision shall not prevent the making
of a contract of employment for a
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definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the Chairman of the Board of the Chief
Executive Officer, and such resignation shall take effect immediately, or at a
later date according to the terms of such notice in writing.
Section 5.4. BONDS AND SURETY. Any officer may be required by the Board of
Directors to be bonded for the faithful performance of his or her duties in such
amount and with such sureties as the Board of Directors may determine.
Section 5.5. CHAIRMAN OF THE BOARD. The Chairman of the Board shall, if
present, preside at meetings of the stockholders and, if present, meetings of
the Board of Directors of the Corporation. The Chairman of the Board may sign
and execute in the name of the Corporation deeds, mortgages, bonds, contracts or
other instruments. The Chairman shall, when requested, counsel with and advise
the other officers of the Corporation and shall perform such other duties as he
may agree with the President or as the Board of Directors may from time to time
determine.
Section 5.6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
the chief executive officer of the Corporation, and shall have the powers and
perform the duties incident to that position. Subject to the Board of Directors,
the Chief Executive Officer shall be in general and active charge of the entire
business and affairs of the Corporation, and shall be its chief policy-making
officer. The Chief Executive Officer shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or as provided
in these Bylaws. In the absence of the Chairman of the Board, the Chief
Executive Officer shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors. The Chief Executive Officer shall be, ex
officio, a member of all standing committees. Subject to direction of the Board
of Directors, the Chief Executive Officer shall have the power, in the name and
on behalf of the Corporation, to execute any and all loan documents, contracts,
agreements, deeds, mortgages, and other instruments in writing, and to employ
and discharge employees and agents of the Corporation. Unless otherwise directed
by the Board of Directors, the Chief Executive Officer shall have full authority
and power, on behalf of all of the directors, to attend and to act and to vote,
on behalf of the Corporation at any meetings of business organizations in which
the Corporation holds an interest, or to confer such powers upon any other
persons, by executing any proxies duly authorizing such persons.
Section 5.7. PRESIDENT AND VICE-PRESIDENTS. The President shall be the
chief operating officer of the Corporation and, subject to the Board of
Directors, shall have general supervision, direction and control of the business
of the Corporation and of its employees and shall exercise such general powers
of management as are usually vested in the office of president of a corporation.
In the absence of the Chairman of the Board and the Chief Executive Officer, the
President shall preside at all meetings of the stockholders and at all meetings
of the Board of Directors. The President shall be, ex officio, a member of all
standing committees. Subject to direction of the Board of Directors, the
President shall have the power, in the name and on behalf of the Corporation, to
execute any and all
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loan documents, contracts, agreements, deeds, mortgages, and other instruments
in writing, and to employ and discharge employees and agents of the Corporation.
Unless otherwise directed by the Board of Directors, the President shall have
full authority and power, on behalf of all of the directors, to attend and to
act and to vote, on behalf of the Corporation at any meetings of business
organizations in which the Corporation holds an interest, or to confer such
powers upon any other persons, by executing any proxies duly authorizing such
persons. The President shall have such further authorities and duties as the
Board of Directors shall from time to time determine. In the absence or
disability of the President, the Vice Presidents in order of their rank or the
Vice President, if any, designated by the Board of Directors, shall perform all
of the duties of the President, and when so acting shall have all the powers of
and be subject to all of the restrictions upon the President. Subject to the
direction of the Chairman of the Board, the Chief Executive Officer, the
President and the Treasurer, any Vice President shall have the power in the name
and on behalf of the Corporation to execute any and all loan documents,
contracts, agreements, deeds, mortgages and other instruments in writing, and,
in addition, shall have such other duties and powers as shall be designated from
time to time by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer, or the President.
Section 5.7. SECRETARY. The Secretary shall keep the minutes of all
meetings of, and record all votes of, stockholders, Board of Directors and any
committees of directors, provided that, in the absence or disability of the
Secretary, the Board of Directors may appoint any other person to keep the
minutes of a meeting and record votes. The Secretary shall attest the signature
or signatures of the officer or officers executing any instrument on behalf of
the Corporation. The Secretary shall also perform any other duties commonly
incident to such office in a Maryland corporation and shall have such other
authorities and duties as the Board of Directors shall from time to time
determine.
Section 5.8. TREASURER. Except as otherwise directed by the Board of
Directors, the Treasurer shall have the general supervision of the monies,
funds, securities, notes receivable and other valuable papers and documents of
the Corporation, and shall have and exercise under the supervision of the Board
of Directors, the Chairman of the Board and the President all powers and duties
normally incident to his or her office. He or she may endorse for deposit or
collection all notes, checks and other instruments payable to the Corporation or
to its order. He or she shall deposit all funds of the Corporation as may be
ordered by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President. He or she shall keep accurate account of the
books of the Corporation's transactions which shall be the property of the
Corporation and which, together with all other property of the Corporation in
his or her possession, shall be subject at all times to the inspection and
control of the Board of Directors. Unless the Board of Directors shall otherwise
determine, the Treasurer shall be the principal accounting officer of the
Corporation and shall also be the principal financial officer of the
Corporation. He or she shall have such other duties and authorities as the Board
of Directors shall from time to time determine. Notwithstanding anything to the
contrary herein contained, the Board of Directors may authorize any adviser or
administrator to maintain bank accounts and deposit and disburse funds on behalf
of the Corporation.
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<PAGE> 13
Section 5.9. OTHER OFFICERS AND DUTIES. The Board of Directors may elect
such other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business of the
Corporation. Assistant officers shall act generally in the absence of the
officer whom they assist and shall assist that officer in the duties of his or
her office. Each officer, employee and agent of the Corporation shall have such
other duties and authority as may be conferred upon him or her by the Board of
Directors or delegated to him or her by the Chairman of the Board, the Chief
Executive Officer or the President.
ARTICLE VI
Custody of Securities
---------------------
Section 6.1. EMPLOYMENT OF CUSTODIAN. The Corporation shall have the option
to act as a self-custodian in accordance with the provisions set forth in
Section 17(f) of the Investment Company Act and Rule 17f-2 thereunder or place,
and at all times maintain, in the custody of a custodian (including any
sub-custodian for the custodian) all funds, securities and similar investments
owned by the Corporation. The custodian, if any, (and any sub-custodian) shall
be an institution conforming to the requirements of Section 17(f) of the
Investment Company Act and the rules of the United States Securities and
Exchange Commission (the "Commission") thereunder. The custodian, if any, shall
be appointed from time to time by the Board of Directors which shall fix its
remuneration.
Section 6.2. APPOINTMENT AND DUTIES. The Board of Directors may at any time
employ a custodian or custodians with authority as its agent, but subject to
such restrictions, limitations and other requirements, if any, as may be
contained in these Bylaws:
(1) to hold the securities owned by the Corporation and deliver the
same upon written order;
(2) to receive and receipt for any moneys due to the Corporation and
deposit the same in its own banking affiliate or elsewhere as the Board of
Directors may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized to do so by the Board of Directors, to keep the
books and accounts of the Corporation and furnish clerical and accounting
services; and
(5) if authorized to do so by the Board of Directors, to compute the
net income and net assets of the Corporation;
all upon such basis of compensation as will be agreed upon between the Board of
Directors and the custodian. The Board of Directors may also authorize the
custodian to employ one
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<PAGE> 14
or more sub-custodians, from time to time, to perform such of the acts and
services of the custodian and upon such terms and conditions as may be agreed
upon between the custodian and such sub-custodian and approved by the Board of
Directors.
Section 6.3. CENTRAL CERTIFICATE SYSTEM. Subject to such rules, regulations
and orders as the Commission may adopt, the Board of Directors may direct the
custodian to deposit all or any part of the securities owned by the Corporation
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, as amended, or with any
such other person or entity with which the Board of Directors may authorize
deposit in accordance with the Investment Company Act, pursuant to which system
all securities of any particular class or series of any issuer deposited within
the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities. All such
deposits shall be subject to withdrawal only upon the order of the Corporation.
Section 6.4. TERMINATION OF CUSTODIAN AGREEMENT. Upon termination of the
custodian agreement, if any, or inability of the custodian to continue to serve,
the Board of Directors shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall call as
promptly as possible a special meeting of the stockholders to determine whether
the Corporation shall function without a custodian or shall be liquidated. If so
directed by vote of the holders of a majority of the outstanding shares of stock
of the Corporation entitled to vote, the custodian shall deliver and pay over
all property of the Corporation held by it as specified in such vote.
ARTICLE VII
Capital Stock
-------------
Section 7.1. ISSUANCE OF CERTIFICATES. A certificate or certificates
representing the number of shares of stock of the Corporation owned by
stockholders shall be available upon request to each stockholder. A certificate
shall state (i) the name of the Corporation, (ii) the name of the stockholder or
other person to whom it is issued and (iii) the class of stock and number of
shares represented by the certificate.
Section 7.2. STOCK LEDGER; TRANSFER OF STOCK. The Corporation shall
maintain at the offices of its transfer agent an original stock ledger
containing the names and addresses of all stockholders and the number of shares
of stock held by each stockholder. Such stock ledger may be in written form or
any other form capable of being converted into written form within a reasonable
time for visual inspection.
The Corporation shall be entitled to recognize the exclusive rights of a
person registered on its books as the owner of shares of stock, and shall not be
bound to recognize any legal, equitable or other claim to or interest in such
shares of stock on the part of any
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<PAGE> 15
other person, whether or not it shall have received express or other notice
thereof, except as otherwise provided by the laws of the State of Maryland.
Transfers of shares of stock of the Corporation shall be made on the stock
records of the Corporation only by the registered holder thereof, or by his or
her attorney thereunto authorized by power of attorney duly executed and filed
with the Secretary or with the transfer agent or transfer clerk and accompanied
by a duly executed stock transfer power and the payment of all taxes thereon.
ARTICLE VIII
Indemnification and Insurance
-----------------------------
Section 8.1. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS.
The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee, agent, partner or
trustee of another corporation, partnership, joint venture, trust or other
enterprise, against all judgments, penalties, fines and settlements and against
all reasonable expenses, including attorneys' fees, actually incurred by him or
her in connection with such Proceeding to the fullest extent permitted by law,
provided that:
(a) such person acted in good faith and (i) in the case of conduct in
such person's official capacity with the Corporation, in a manner he or she
reasonably believed to be in the best interests of the Corporation and (ii)
in all other cases, in a manner he or she reasonably believed not opposed
to the best interests of the Corporation;
(b) with respect to any criminal proceeding, such person had no
reasonable cause to believe his or her conduct was unlawful;
(c) unless ordered or permitted by a court, indemnification shall be
made only as authorized in the specific case upon (i) a determination that
indemnification of such person is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in subparagraphs
(a) and (b) above, and (ii) such other authorizations and determinations as
may be required by law to be made, by (A) the Board of Directors of the
Corporation by the vote of a majority of a quorum consisting of directors
who are neither "interested persons" of the Corporation as defined in the
Investment Company Act nor parties to such Proceeding or if such quorum
cannot be obtained, by a majority vote of a committee of the Board of
Directors consisting solely of two or more such directors who are duly
designated to act in the matter by a majority vote of the full Board of
Directors, or (B) independent legal counsel in a written opinion, which
counsel shall be selected
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<PAGE> 16
in accordance with such procedures as may be required by law; provided,
however, that such counsel shall make only such determinations and
authorizations as are permitted by law to be made by independent counsel,
or (C) the stockholders of the Corporation acting in accordance with the
Articles and the Bylaws of the Corporation and applicable law;
(d) in the case of a Proceeding by or in the right of the Corporation
to procure a judgment in its favor, no indemnification shall be made except
for the payment of expenses reasonably incurred by such person in
connection therewith; provided, however, that if such person shall have
been adjudged to be liable for negligence or misconduct in the performance
of his or her duties to the Corporation, no indemnification shall be made
with respect to the expense incurred by such person in connection with such
Proceeding unless, and only to the extent that, the court in which such
Proceeding is brought, or a court of equity in the county or other local
jurisdiction in which the Corporation has its principal office, shall
determine upon application that, despite adjudication of liability but in
view of all the circumstances of the case, he or she is fairly and
reasonably entitled to indemnity for such expenses which such court shall
deem proper; and
(e) no indemnification or other protection shall be made or given to
any director or officer of the Corporation against any liability to the
Corporation or to its stockholders to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of their
respective offices.
Expenses (including attorneys' fees) incurred in defending a Proceeding
will be paid by the Corporation in advance of the final disposition thereof to
the fullest extent permitted by law.
The termination of any Proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that such person has not met the applicable
standard of conduct set forth in subparagraphs (a) and (b) above.
Section 8.2. INSURANCE OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
partner, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or her and
incurred by him or her in or arising out of his or her position, whether or not
the Corporation would have the power to indemnify him or her against such
liability. However, any insurance purchased will not protect or purport to
protect any officer or director against liabilities for willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
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<PAGE> 17
ARTICLE IX
Corporate Seal
--------------
The Corporation shall not have or use a corporate seal.
ARTICLE X
Record Date
-----------
The Board of Directors may fix, in advance, a date as the record date for
the purpose of determining stockholders entitled to notice of, or to vote at,
any meeting of stockholders, or stockholders entitled to receive payment of any
dividend or distribution or the allotment of any rights, or in order to make a
determination of stockholders for any other purpose. Such date in any case shall
be not more than 90 days, and in case of a meeting of stockholders not less than
10 days, prior to the date on which the particular action requiring such
determination of stockholders is to be taken.
ARTICLE XI
Miscellaneous
-------------
Section 11.1. DEPOSITORIES. In accordance with Article VI of these Bylaws,
the funds of the Corporation shall be deposited in such depositories as the
Board of Directors shall designate and shall be drawn out on checks, drafts or
other orders signed by such officer, officers, agent or agents (including any
adviser or administrator), as the Board of Directors may from time to time
authorize.
Section 11.2. SIGNATURE. All contracts and other instruments shall be
executed an behalf of the Corporation by such officer, officers, agent or
agents, as provided in these Bylaws or as the Board of Directors may from time
to time by resolution or authorization provide.
Section 11.3. FISCAL YEAR. The fiscal year of the Corporation shall end on
December 31 of each year, subject, however, to change from time to time by the
Board of Directors.
Section 11.4. BOOKS AND RECORDS. The books and records of the Corporation
shall be kept at such places as the Board of Directors may determine, provided
however, that the original or a certified copy of these Bylaws, including any
amendments thereto, shall be kept at the Corporation's principal executive
office.
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<PAGE> 18
Section 11.5. NET ASSET VALUE. The value of the Corporation's net assets
shall be determined at such times and by such method as set forth in the
Corporation's Articles of Incorporation.
ARTICLE XII
Amendment of Bylaws
-------------------
Section 12.1. AMENDMENT AND REPEAL OF BYLAWS. In accordance with Article
TENTH of the Articles, the Board of Directors shall have the power to alter,
amend or repeal these Bylaws or adopt new bylaws at any time. The Board of
Directors shall in no event adopt bylaws that are in conflict with the Articles,
the General Laws of the State of Maryland, the Investment Company Act or other
applicable federal securities laws.
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<PAGE> 1
Exhibit 2.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, LTD., a Delaware
corporation (the "Adviser").
WHEREAS, the Company is a newly organized, non-diversified
closed-end management investment company that has elected status as a business
development company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), the shares of common stock of the Company ("Common
Stock") of which are registered under the Securities Act of 1933, as amended;
WHEREAS, the Company is authorized to issue shares of Common
Stock representing the interests in the assets of the Company;
WHEREAS, the Adviser is an investment adviser registered as
such under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"); and
WHEREAS, the Company desires at this time to retain the
Adviser to render investment advisory and management services to the Company,
and the Adviser is willing to render such services;
NOW THEREFORE, in consideration of the mutual promises and
covenants herein contained, it is agreed by and between the parties hereto as
follows:
1. Appointment. The Company hereby appoints the Adviser
to act as investment adviser of the Company for the period and on the terms set
forth in this Agreement. The Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. Investment Duties. Subject to the supervision of the
Company's board of directors (the "Board of Directors"), the Adviser will
provide a continuous investment program for the Company and will determine from
time to time what securities and other investments will be purchased, retained,
or sold by the Company. Subject to investment policies and guidelines
established by the Board of Directors, the Adviser will identify, evaluate, and
structure the investments to be made by the Company, arrange debt financing for
the Company, provide portfolio management and servicing of securities held in
the Company's portfolio, and administer the Company's day-to-day affairs.
3. Administrative 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
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<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 director, officer, agent or employee of the Adviser,
who may also be a director, officer, agent or employee of the Company, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
nature or dissimilar nature.
7. Expenses.
(a) The Company will pay all expenses (including without
limitation accounting, legal, printing, clerical, filing, and other
expenses) incurred by the Company, the Adviser or its affiliates on
behalf of the Company in connection with the organization of the
Company and the initial offering of its shares of Common Stock (the
"Offering"); provided, however, that the Company shall have no
responsibility for any commissions or other fees paid to the
Underwriters in connection with the Offering or any borrowings
incurred by the Adviser in connection therewith. Except as otherwise
expressly provided for in Section 7(b) of this Agreement, during the
term of this Agreement the Company will bear all of its expenses
incurred in its operations including but not limited to the following:
(i) brokerage and commission expense and other transaction costs
incident to the acquisition and dispositions of investments, (ii)
federal, state, and local taxes and fees, including transfer taxes and
filing fees, incurred by or levied upon the Company, (iii) interest
charges and other fees in connection with borrowings by the Company,
(iv) fees and expenses payable to the Commission and any fees and
expenses of state securities regulatory authorities, (v) expenses of
printing and distributing reports and notices to stockholders, (vi)
costs of proxy solicitation, (vii) costs of meetings of stockholders
and the Board of Directors, (viii) charges and expenses of the
Company's custodian, 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.
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<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 Board of
Directors reasonably deems necessary or advisable to perform the
services required to be performed by the Adviser under this Agreement,
and (iv) all commissions and other fees payable to the Underwriters in
connection with the Offering and all costs and expenses relating to
any borrowings by the Adviser incurred in connection therewith.
(c) The Company may pay directly any expenses incurred by
it in its normal operations and, if any such payment is consented to
by the Adviser and acknowledged as otherwise payable by the Adviser
pursuant to this Agreement, the Company may reduce the fee payable to
the Adviser pursuant to Paragraph 8 thereof by such amount. To the
extent that such deductions exceed the fee payable to the Adviser on
any quarterly payment date, such excess shall be carried forward and
deducted in the same manner from the fee payable on succeeding
quarterly payment dates.
(d) The payment or assumption by the Adviser of any
expense of the Company that the Adviser is not required by this
Agreement to pay or assume shall not obligate the Adviser to pay or
assume the same or any similar expense of the Company on any
subsequent occasion.
8. Compensation.
(a) For the services provided and the expenses assumed
pursuant to this Agreement, the Company will pay to the Adviser an
annual management fee of 2.85% of the Company's net assets, determined
at the end of each calendar quarter and payable quarterly in arrears.
(b) If this Agreement becomes effective or terminates
before the end of any fiscal quarter, the annual management fee for
the period from the effective day to the end of the fiscal quarter or
from the beginning of such quarter to the date of termination, as the
case may be, shall be prorated according to the proportion which such
period bears to the full fiscal quarter in which such effectiveness or
termination occurs.
(c) If (i) the Adviser, (ii) a director, officer, agent
or employee of the Adviser, (iii) a company controlling, controlled
by, or under common control with
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<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.
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<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, LTD.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
ATTEST:
- ------------------------------
Name:
------------------------
Title:
-------------------------
-7-
<PAGE> 1
EXHIBIT 2.h.1
FORM OF
BRANTLEY CAPITAL CORPORATION
Common Stock
($.01 Par Value)
____________
UNDERWRITING AGREEMENT
November __, 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 10,000,000 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 1,500,000 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, Ltd. ("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 1,500,000 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 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 a closed-end, non-diversified
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 National Market
System.
(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 incorporated as a
corporation 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 National Market System.
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 National
Market System.
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:
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<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.
(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 National Market System 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 National Association of Securities Dealers Automated
Quotation Market System, (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
19
<PAGE> 20
as the Representatives may specify; provided that in no event shall the maximum
number of 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, LTD.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000
==========
</TABLE>
<PAGE> 24
EXHIBIT A
Form of Opinion of
Counsel to the Company
1. The Company has been duly organized and is 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 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 Shares 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 Maryland law.
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 such counsel
expresses 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.
A-1
<PAGE> 25
7. 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.
8. 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.
9. 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.
10. 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 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.
11. 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.
12. 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,
A-2
<PAGE> 26
decision or finding might materially and adversely affect the Company, except
as set forth in or contemplated by the Registration Statement and the
Prospectus.
13. To such counsel's knowledge, the Company is not in violation
of its Articles of Amendment and Restatement of the Charter 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.
14. The shares have been duly authorized for listing by Nasdaq
National Market System upon official notice of issuance.
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 paragraphs 4
and 9 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
paragraphs 4 and 9 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.
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
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<PAGE> 27
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 corporation in good standing under the laws of the State of
Delaware with corporate power and authority to conduct its business as
described in the Registration Statement and the Prospectus.
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
obligation 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; 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 Articles of Incorporation or Bylaws 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.
4. 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 in the 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 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
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<PAGE> 29
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 General Corporation Law 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.i.1.
BRANTLEY CAPITAL CORPORATION
1996 STOCK OPTION PLAN
FOR OFFICERS AND EMPLOYEES
Brantley Capital Corporation, a Maryland corporation (the "Company")
hereby establishes the Brantley Capital Corporation 1996 Stock Option Plan (the
"Plan") effective upon the date of the closing of the initial public offering
of the shares of $.01 par value common stock (the "Common Stock") of the
Company (the "Effective Date"). Grants may be made hereunder prior to
stockholder approval, provided that any such grants shall be subject to such
stockholder approval.
1. Purpose of Plan
The purpose of the Plan is to advance the best interests of the
Company by providing those persons who have a 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.
2. Definitions
Unless the context clearly indicates otherwise, capitalized terms used
and not elsewhere defined in this Plan shall have the meanings ascribed to such
terms in this Section 2:
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean (i) a Participant's theft or embezzlement, or
attempted theft or embezzlement, of money or property of the Company, a
Participant's perpetration or attempted perpetration of fraud, or a
Participant's participation in a fraud or attempted fraud, on the Company or a
Participant's unauthorized appropriation of, or a Participant's attempt to
misappropriate, any tangible or intangible assets or property of the Company,
(ii) any act or acts of disloyalty, dishonesty, misconduct, moral turpitude, or
any other act or acts by a Participant injurious to the interest, property,
operations, business or reputation of the Company, (iii) a Participant's
commission of a felony or conviction of any crime the commission of which
results in injury to the Company, (iv) a Participant's failure or inability to
carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company, or (v)
any material violation of any restriction on the disclosure or use of
confidential information of the Company or on competition with the Company or
its current or future affiliates, in each case as determined in the reasonable
judgment of the Committee or the Board.
<PAGE> 2
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute.
"Committee" shall mean the Compensation Committee of the Board which
shall consist of not less than two persons each of whom shall be both a
Non-Employee Director and an Outside Director. The members of the Committee
shall be appointed from time to time by the Board. Members of the Committee
shall not participate in the Plan and, at any time within one year prior to the
first anniversary of the Effective Date of the Plan or within one year prior to
appointment to the Committee, as the case may be, (a) shall not have been
eligible to receive options under the Plan and (b) shall not have been a person
to whom stock options could be granted pursuant to any other plan of the
Company or any of its subsidiaries, except for the Disinterested Director
Option Plan.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall mean the Company's common stock, par value $.01
per share.
"Company" shall mean Brantley Capital Corporation, a Maryland
corporation.
"Current Market Value" or "fair market value" of shares of Common
Stock shall be the average of the closing sales prices, as reported in The Wall
Street Journal, at which shares of Common Stock of the Company were traded on
the last five days on which trading in the shares of Common Stock was reported
to have taken place on the Nasdaq National Market System prior to the grant of
the Option Shares.
"Disability" shall mean the inability, due to illness, accident,
injury, physical or mental incapacity or other disability, of any Participant
to carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company for a
period of at least 90 consecutive days or for shorter periods aggregating at
least 120 days (whether or not consecutive) during any 12 month period, as
determined in the reasonable judgment of the Committee.
"Disinterested Director Option Plan" shall mean the stock option plan
that has been adopted by the Company, subject to receipt of an order of the
Commission approving such plan, solely for the Non-Employee Directors of the
Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"IRS" shall mean the Internal Revenue Service.
"Non-Employee Director" shall have the same meaning as that term is
defined in Rule 16b-3(b) of the rules of the Commission promulgated under the
Exchange Act.
"Outside Director" shall have the same meaning as that term is
defined in Section 162(m) of the Code and the regulations of the IRS adopted
thereunder, as such section and regulations may from time to time be amended or
interpreted.
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<PAGE> 3
"Participant" shall mean any officer or employee of the Company who
has been selected to participate in the Plan by the Committee.
"Sale of the Company" shall mean a merger or consolidation or a sale
of all or substantially all of the Company's Common Stock or assets.
3. Administration
The Plan shall be administered by the Committee. Subject to the
limitations of the Plan, the Committee shall have the sole and complete
authority to: (a) select Participants, (b) grant Options (as defined in Section
4 below) to Participants in such forms and amounts as it shall determine, (c)
impose such limitations, restrictions and conditions upon such Options as it
shall deem appropriate, (d) interpret the Plan and adopt, amend and rescind
administrative guidelines and other rules and regulations relating to the Plan,
(e) correct any defect or omission or reconcile any inconsistency in the Plan
or in any Option granted hereunder, and (f) make all other determinations and
take all other actions necessary or advisable for the implementation and
administration of the Plan. The Committee's determinations on matters within
its authority shall be conclusive and binding upon the Participants, the
Company and all other persons. All expenses associated with the administration
of the Plan shall be borne by the Company. The Committee may delegate to one
or more of its members or to one or more agents such non-discretionary
administrative duties as it may deem advisable, and the Committee or any person
to whom it has delegated any such duties may employ one or more persons to
render advice with respect to any responsibility the Committee or such person
may have under the Plan.
The Committee may employ attorneys, consultants, accountants or other
persons, and the Committee, the Company and its officers, employees and
directors shall be entitled to rely upon the advice, opinions or valuations of
any such person. No member of the Committee shall be personally liable for any
action, determination or interpretation made with respect to the Plan or awards
made pursuant to the Plan, and all members of the Committee shall be fully
protected by the Company in respect of any such action, determination or
interpretation.
To the extent that any provision of the Plan does not conform with the
requirements under the 1940 Act, the General Corporation Law of the State of
Maryland or any other applicable statutes or rules, the Committee may make such
modifications to the Plan or to any Option granted pursuant to the Plan so as
to conform this Plan and any Options granted pursuant to the Plan to such
requirements.
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<PAGE> 4
4. Scope of Plan; Limitation on Aggregate Shares
The aggregate number of shares of Common Stock with respect to which
Options may be granted under the Plan and which may be issued upon the exercise
thereof shall not exceed 1,175,000 shares of Common Stock; provided, however,
that the type and the aggregate number of shares which may be subject to
Options shall be subject to adjustment in accordance with the provisions of
Section 7(i) below; and provided, further, that to the extent any Options
expire unexercised or are cancelled, terminated or forfeited in any manner
without the issuance of Common Stock, as the case may be, thereunder, such
shares shall again be available for issuance under the Plan. The shares of
Common Stock available under the Plan may be either authorized and unissued
shares, treasury shares or a combination thereof, as the Committee shall
determine.
Notwithstanding any other provision of the Plan, the maximum number of
shares of Common Stock with respect to which Options may be granted under the
Plan to any individual Participant, in any fiscal year, is 400,000. The
Committee at any time may in its sole discretion limit the number of Options
that can be exercised in any taxable year of the Company, to the extent
necessary to prevent the application of Section 162(m) of the Code (or any
similar or successor provision), provided that the Committee may not postpone
the earliest date on which Options can be exercised beyond the last day of the
stated term of such Options.
5. Eligibility
Options may be granted only to officers and employees of the Company.
A director of the Company who is not also an employee of the Company shall not
be eligible to receive any Options under the Plan. In determining the
employees to whom Options shall be granted and the number and type of shares to
be awarded, the Committee may take into account the nature of the services
provided by the respective employees, their present and potential contributions
to the success of the Company, the anticipated number of years of effective
service remaining, and such other factors as the Committee shall deem relevant
in connection with accomplishing the purposes of the Plan. An employee who has
been granted an Option under the Plan may be granted additional Options if the
Committee shall so determine. Nothing contained in the Plan shall be construed
to limit the right of the Company to grant Options otherwise than under the
Plan in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise of the business and assets of any corporation, firm
or association, including Options granted employees thereof who become
employees of the Company, or for any other proper corporate purpose.
6. Awards
(a) Options. The Committee may grant Options to Participants in
accordance with this Section 6. Each Option granted under the Plan shall be
evidenced by a written agreement in such form as the Board shall approve and
shall be subject to Section 5 above and to the terms and conditions in this
Section 6.
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<PAGE> 5
(b) Form of Option. Options granted under this Plan shall be
non-qualified stock options and are not intended to be "incentive stock
options" within the meaning of Section 422 of the Code or any successor
provision.
(c) Exercise Price. The Exercise Price of Option Shares will be
the greater of (i) the Current Market Value on the date of the Option grant
(the "Grant Date") and (ii) the current net asset value of the shares of Common
Stock. The net asset value of the shares of Common Stock shall be determined
by the Board pursuant to the procedures described in Appendix A to this Plan.
(d) Exercisability. Options shall be exercisable at such time or
times as the Committee shall determine at or subsequent to grant; provided,
however, that no Option shall be exercisable in whole or in part for a period
of at least six months commencing on the date of grant. If an employee has
more than one Option grant, it will not be necessary to exercise in any
particular sequence. No Option may be exercised more than 10 years after the
Grant Date.
(e) Exercise of Options. An Option, or portion thereof, shall be
exercised by delivery of a written notice of exercise to the Secretary of the
Company and payment of the Exercise Price for the Option Shares being purchased
pursuant to the Option. Option Shares under the 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.
In order to facilitate the purchase of Option Shares, the Company may
make arms-length loans to Participants in the Plan in accordance with Sections
57(j)(2) and 62(1) of the 1940 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
Independent Directors of the Company on the basis that such loan is in the best
interests of the Company and its stockholders.
Subject to Section 7(i), below, upon receipt of notice and payment,
and where requested by the Participant, the Company shall issue and deliver to
the Participant (or other person entitled to exercise the Option) a certificate
or certificates for the number of shares as to which the exercise is made.
Options may not be exercised for fractional shares of Common Stock.
(f) Terms of Options. The Committee shall determine the term of
each Option, which term shall in no event exceed 10 years from the Grant Date.
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<PAGE> 6
7. General Provisions
(a) Conditions and Limitations on Exercise. An Option may be made
exercisable in one or more installments, upon the happening of certain events,
upon the passage of a specified period of time, upon the fulfillment of certain
conditions or upon the achievement by the Company of certain performance goals,
as the Committee shall decide in each case when the Option is granted.
(b) Sale of the Company. In the event of a Sale of the Company,
the Committee may provide, in its sole discretion, that any Option which was
granted at least six months prior to such Sale shall become immediately
exercisable by any Participant who is employed by the Company at the time of
the Sale of the Company and that such Option shall terminate if not exercised
as of the date of the Sale of the Company or other prescribed period of time.
(c) Written Agreement. Each Option granted hereunder to a
Participant shall be embodied in a written agreement (an "Option Agreement")
which shall be signed by the Participant and by the Company and shall be
subject to the terms and conditions prescribed herein (including, but not
limited to, (i) the right of the Company to repurchase from each Participant
and such Participant's transferees, all shares of Common Stock issued or
issuable to such Participant on the exercise of an Option in the event of such
Participant's termination of employment, (ii) holdback and other registration
right restrictions in the event of a public registration of any equity
securities of the Company and (iii) any other terms and conditions which the
Committee shall deem necessary and desirable).
(d) Listing, Registration and Compliance with Laws and
Regulations. Options shall be subject to the requirement that if at any time
the Committee shall determine, in its discretion, that the listing,
registration or qualification of the shares subject to the Options upon any
securities exchange or under any state or federal securities or other law or
regulation, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition to or in connection with the granting of
the Options or the issuance or purchase of shares thereunder, no Options may be
granted or exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee. The holders of such Options
will supply the Company with such certificates, representations and information
as the Company shall request and shall otherwise cooperate with the Company in
obtaining such listing, registration, qualification, consent or approval.
In the case of officers and other persons subject to Section 16(b) of
the Exchange Act the Committee may at any time impose any limitations upon the
exercise of an Option that, in the Committee's discretion, are necessary or
desirable in order to comply with such Section 16(b) and the rules and
regulations thereunder. If the Company, as part of an offering of securities
or otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised,
the Committee, may, in its discretion and without the Participant's consent, so
reduce such period on not less than 15 days' written notice to the holders
thereof.
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<PAGE> 7
With respect to this Plan and any other option plan of the Company, 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 such option plans 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 1940 Act and are
subject to change.
(e) Nontransferability. Options may not be transferred other than
by will or the laws of descent and distribution and, during the lifetime of the
Participant, may be exercised only by such Participant (or his or her legal
guardian or legal representative). In the event of the death of a Participant,
exercise of Options granted hereunder shall be made only to the extent that the
deceased Participant was entitled thereto at the date of his or her death,
unless otherwise provided by the Committee in such Participant's Option
Agreement.
(f) Expiration of Options.
(i) Normal Expiration. In no event shall any part of any
Option be exercisable after the date of expiration thereof (the
"Expiration Date"), as determined by the Committee pursuant to Section
6(f) above.
(ii) Early Expiration Upon Termination of Employment.
Except as otherwise provided by the Committee in the Option Agreement,
any portion of a Participant's Option that was not vested and
exercisable on the date of the termination of such Participant's
employment for whatever reason shall expire and be forfeited as of
such date; provided, however, that: (1) if any Participant dies or
becomes subject to any Disability, such Participant's Option will
expire 90 days after the date of death or Disability, but in no event
after the Expiration Date, (2) if any Participant retires, such
Participant's Option will expire 90 days after the date of his or her
retirement, but in no event after the Expiration Date, and (3) if any
Participant is discharged for any reason other than for Cause, such
Participant's Option will expire 30 days after the date of discharge,
but in no event after the Expiration Date.
(g) Rights of Participants. Nothing in the Plan shall interfere
with or limit in any way the right of the Company to terminate any
Participant's employment at any time (with or without Cause), nor confer upon
any Participant any right to continue in the employ of the Company for any
period of time or to continue his or her present (or any other) rate of
compensation and, except as otherwise provided under this Plan or by the
Committee in the Option Agreement, in the event of any Participant's
termination of employment (including, but not limited to, the termination of a
Participant's employment by the Company without Cause) any portion of such
Participant's Option that was not previously vested and exercisable will expire
and be forfeited as of the date of such termination. No employee shall have a
right to be selected as a Participant or, having been so selected, to be
selected again as a Participant.
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<PAGE> 8
(h) Withholding of Taxes. The Company shall be entitled, if
necessary or desirable, to withhold from any Participant from any amounts due
and payable by the Company to such Participant (or secure payment from such
Participant in lieu of withholding) the amount of any withholding or other tax
due from the Company with respect to any shares of Common Stock issuable under
the Plan, and the Company may defer issuance of any shares of Common Stock
pursuant to an Option unless indemnified to its satisfaction. An Option
Agreement may provide that any Participant may satisfy any withholding tax
obligation by a cash payment to the Company or by delivery of previously owned
shares of Common Stock (which the Participant has held for at least six months
and to which the Participant has good title, free and clear of all liens and
encumbrances); provided, however, that the method of satisfying any withholding
tax obligation shall be in compliance with Section 16 of the Exchange Act and
the rules and regulations thereunder.
(i) Adjustments. In the event of a reorganization,
recapitalization, stock dividend or stock split, or combination or other change
in the shares of Common Stock, as the case may be, the Committee may, in order
to prevent the dilution or enlargement of rights under outstanding Options,
make such adjustments in the number and type of shares authorized by the Plan,
the number and type of shares covered by outstanding Options and the exercise
prices specified therein as may be determined to be appropriate and equitable.
(j) Amendment, Suspension and Termination of Plan. The Committee
may suspend or terminate the Plan or any portion thereof at any time and may
amend it from time to time in such respects as the Committee may deem
advisable; provided, however, that no such amendment shall be made without
stockholder approval to the extent any such amendment would (i) materially
increase the benefits accruing to Participants under the Plan, (ii) materially
increase the number of securities which may be issued pursuant to the Plan
other than pursuant to Section 7(i), (iii) materially modify the requirements
of the Plan, (iv) change the manner of determining the minimum Option Price
other than to change the manner of determining the Current Market Value or net
asset value of the Common Stock, (v) change the period during which Options may
be granted or exercised, (vi) provide for the administration of the Plan other
than by a committee of Non-Employee Directors within the meaning of Rule 16b-3
of the Commission promulgated under the Exchange Act, or (vii) otherwise cause
the Plan to fail to comply with the requirements of Rule 16b-3 of the
Commission promulgated under the Exchange Act or any law, agreement or the
rules of any exchange upon which the Common Stock is listed, and no such
amendment, suspension or termination shall impair the rights of Participants
under outstanding Options without the consent of the Participants affected
thereby. No Options shall be granted hereunder after the tenth anniversary of
the adoption of the Plan.
(k) Amendment, Modification and Cancellation of Outstanding
Options. The Committee may amend or modify any Option in any manner to the
extent that the Committee would have had the authority under the Plan initially
to grant such Option; provided that no such amendment or modification shall
impair the rights of any Participant under any Option without the consent of
such Participant. With the Participant's consent the Committee may cancel any
Option and issue a new Option to such Participant.
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<PAGE> 9
(l) Governing Law. The General Corporation Law of the State of
Maryland shall govern all issues concerning the relative rights of the Company
and its stockholders and the construction, validity and interpretation of this
Plan.
(m) Successors and Assigns. The Plan shall be binding upon all
successors and assigns of a Participant, including, without limitation, the
estate of such Participant and the executor, administrator or trustee of such
estate, or any receiver or trustee in bankruptcy or representative of such
Participant's creditors, or any other legal representative of such Participant.
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<PAGE> 10
FORM OF OPTION GRANT LETTER
____________, 199__
[Name and Address of Officer or Employee]
Re: Grant of Non-Qualified Stock Option Under the
Brantley Capital Corporation 1996 Stock Option Plan
for Officers and Employees
Dear ________:
Brantley Capital Corporation (the "Company") is pleased to advise you
that in consideration for your service as an [officer/employee] of the Company,
the Company hereby grants to you a stock option (the "Option") under the
Brantley Capital Corporation 1996 Stock Option Plan for Officers and Employees
(the "Plan"), a copy of which is attached hereto. This letter sets forth the
terms of that grant, which is effective as of ________________, 199__ (the
"Effective Date").
1. Definitions. Unless the context clearly indicates otherwise,
capitalized terms used and not elsewhere defined in this letter agreement (the
"Agreement") shall have the meanings set forth below:
"Board" shall mean the Board of Directors of Brantley Capital
Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor statute.
"Common Stock" shall mean the Company's Common Stock, par
value $.01 per share.
"Company" shall mean Brantley Capital Corporation, a Maryland
corporation.
"Current Market Value" or "fair market value" of shares of
Common Stock shall be the average of the closing sales prices, as reported in
The Wall Street Journal, at which shares of Common Stock of the Company were
traded on the last five days on which trading in the shares of Common Stock was
reported to have taken place on the Nasdaq National Market System prior to the
grant of the Option Shares.
"Disability" shall mean your inability, due to illness,
accident, injury, physical or mental incapacity or other disability, to carry
out effectively your duties and obligations as an officer or employee.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
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<PAGE> 11
"Option Shares" shall mean (i) all shares of Common Stock
issued or issuable upon the exercise of Options and (ii) all shares of Common
Stock, or other equity securities, issued with respect to the Common Stock
referred to in clause (i) above by way of stock dividend or stock split or in
connection with any conversion, merger, consolidation or recapitalization or
other reorganization affecting the Common Stock. Option Shares will continue
to be Option Shares in the hands of any holder other than you (except for
purchasers pursuant to a public offering under the Securities Act), and each
such transferee thereof will succeed to the rights and obligations of a holder
of Option Shares hereunder.
"Participant" shall mean the recipient of Options pursuant to
this letter.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and any successor statute.
2. Option.
(a) Terms. Your Option is to purchase up to _______
shares of Common Stock (the "Option Shares") at an exercise price per share of
$________ (the "Exercise Price"), which Exercise Price is equal to the greater
of (i) the Current Market Value on the date first written above and (ii) the
current net asset value of the shares of Common Stock. The net asset value of
the shares of Common Stock shall be determined by the Board pursuant to the
procedures described in Appendix A to the Plan. The Exercise Price shall be
payable upon exercise as set forth in Section 2(b) below. Your Option will
expire at the close of business on _________________, 200__ (the "Expiration
Date"), subject to earlier expiration in connection with the termination of
your service as a director of the Company as provided in Sections 3(a) and
3(b)(ii) below. Your Option is not intended to be an "incentive stock option"
within the meaning of Section 422 of the Code.
(b) Payment of Exercise Price. Subject to Section 3
below, your Option may be exercised in whole or in part upon payment of the
Exercise Price multiplied by the number of Option Shares to be acquired.
Payment shall be made in cash (including certified or cashier's check, or money
order) or, in the discretion of the Board, by delivery of a number of shares of
Common Stock already owned by you for at least six months and to which you have
good title, free and clear of all liens and encumbrances, with an aggregate
fair market value equal to the aggregate Exercise Price of the Option Shares,
or any combination of cash and previously owned shares.
3. Exercisability.
(a) Normal Vesting. Your Option shall be exercisable in
whole or in part as to one-third of the Option Shares on the first anniversary
of the Grant Date, as to an additional one-third of the Option Shares on the
second anniversary of the Grant Date and as to the remaining one-third of the
Option Shares on the third anniversary of the Grant Date. No Option may be
exercised more than 10 years after the Grant Date.
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<PAGE> 12
(b) Effect of Termination of Service as an Officer or
Employee. Any portion of your Option that is not vested and exercisable on the
date of the termination of your employment for whatever reason shall expire and
be forfeited as of such date; provided, however, that: (1) if you die or your
employment terminates because of Disability, your Option will expire 90 days
after such termination of employment, but in no event after the Expiration
Date, (2) if you retire, your Option will expire 90 days after the date of your
retirement, but in no event after the Expiration Date, and (3) if you are
discharged for any reason other than for Cause, your Option will expire 30 days
after the date of such discharge, but in no event after the Expiration Date.
4. Procedure for Exercise. You may exercise all or any portion
of your Option, to the extent it has vested and is outstanding, at any time
after six months following the Grant Date and from time to time prior to its
expiration, by delivering written notice to the Company (to the attention of
the Company's Secretary), together with payment of the Exercise Price in
accordance with the provisions of Section 2(b) above. As a condition to any
exercise of your Option, you will make all customary investment representations
and covenants which the Company requires. All of such representations and
covenants shall be made in a form satisfactory to the Company and its counsel.
5. Conformity with Plan. Your Option is intended to conform in
all respects with, and is subject to all applicable provisions of, the Plan,
which is incorporated herein by reference. Inconsistencies between this
Agreement and the Plan shall be resolved in accordance with the terms of the
Plan. By executing and returning the enclosed copy of this Agreement, you
acknowledge your receipt of this Agreement and the Plan and agree to be bound
by all of the terms of this Agreement and the Plan.
6. Withholding of Taxes. The Company shall be entitled, if
necessary or desirable, to withhold from you from any amounts due and payable
by the Company to you (or secure payment from you in lieu of withholding) the
amount of any withholding or other tax due from the company with respect to any
Option Shares issuable under this Plan, and the Company may defer such issuance
unless indemnified by you to its satisfaction.
7. Adjustments. In the event of a reorganization,
recapitalization, stock dividend or stock split, or combination or other change
in the shares of Common Stock, the Board may, in order to prevent the dilution
or enlargement of rights under your Option, make such adjustments in the number
and type of shares authorized by the Plan, the number and type of shares
covered by your Option and the Exercise Price specified herein, as the Board
may determine to be appropriate and equitable, subject, in each case, to
compliance with the terms and provisions of the Plan and Rule 16b-3 of the
Exchange Act.
8. Securities Laws Restrictions on Transfer of Option Shares.
You represent that when you exercise your Option you will be purchasing Option
Shares for your own account and not on behalf of others. You understand and
acknowledge that federal and state securities laws govern and restrict your
right to offer, sell or otherwise dispose of any Option Shares unless your
offer, sale or other disposition thereof is registered under the Securities Act
and state securities laws, or in the opinion of the Company's counsel, such
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<PAGE> 13
offer, sale or other disposition is exempt from registration or qualification
thereunder. You agree that you will not offer, sell or otherwise dispose of
any Option Shares in any manner which would: (i) require the Company to file
any registration statement with the Securities and Exchange Commission (or any
similar filing under state law) or to amend or supplement any such filing or
(ii) violate or cause the Company to violate the Securities Act, the rules and
regulations promulgated thereunder or any other state or federal law. You
further understand that the certificates for any Option Shares you purchase
will bear such legends as the Company deems necessary or desirable in
connection with the Securities Act or other rules, regulations or laws. You
may not sell, transfer or dispose of any Option Shares (except pursuant to an
effective registration statement under the Securities Act) without first
delivering to the Company an opinion of counsel reasonably acceptable in form
and substance to the Company and its counsel that registration under the
Securities Act or any applicable state securities law is not required in
connection with such transfer.
9. Non-Transferability of Option. Your Option is personal to you
and is not transferable by you other than by will or intestacy. During your
lifetime only you (or your guardian or legal or personal representative) may
exercise your Option. In the event of your death, your Option may be exercised
only by the executor or administrator of your estate, or your heirs, legatees
or legal or personal representative.
10. Holdback. You agree not to effect any public sale or
distribution of any equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and the 180 days after the effectiveness of any
underwritten public offering of any of the Company's equity securities, except
as part of such underwritten registration or public offering if otherwise
permitted.
11. Transfers in Violation of Agreement. Any transfer or
attempted transfer of the Option or any Option Shares in violation of any
provision of this Agreement shall be void, and the Company shall not record
such transfer on its books or treat any purported transferee of the Option or
such Option Shares as the owner of the Option or such Option Shares for any
purpose.
12. Remedies. The parties hereto will be entitled to enforce
their rights under this Agreement specifically, to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other rights
existing in their favor. The parties hereto acknowledge and agree that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party hereto may, in its sole discretion, apply to any
court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief (without posting bond or other security) in order to
enforce or prevent any violation of the provisions of this Agreement.
13. Amendment. Except as otherwise provided herein or in the
Plan, any provision of this Agreement may be amended or waived only with the
prior written consent of you and the Company.
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<PAGE> 14
14. Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto will bind and inure to the benefit of
the respective successors and permitted assigns of the parties hereto whether
so expressed or not.
15. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which
taken together shall constitute one and the same Agreement.
17. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
18. Governing Law. The General Corporation Law of the State of
Maryland shall govern all questions concerning the relative rights of the
Company and its stockholders and the construction, validity and interpretation
of this Agreement.
19. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
or five business days after mailing by certified or registered mail, return
receipt requested and postage prepaid, to the recipient. Such notices, demands
and other communications shall be sent to you at your address first written
above and to the Company at the address indicated below:
Brantley Capital Corporation
20600 Chagrin Boulevard
Suite 1150
Cleveland, Ohio 44122
Attention: Secretary of the Company
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
20. Entire Agreement. This Agreement constitutes the entire
understanding between you and the Company, and supersedes all other agreements,
whether written or oral, with respect to the acquisition by you of Common Stock
of the Company.
Please execute the extra copy of this Agreement in the space below and
return it to the Company's Secretary at its executive offices to confirm your
understanding and acceptance of the agreements contained in this Agreement.
Upon receipt of your executed copy of this Agreement, this Agreement shall be
effective as of the Effective Date.
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<PAGE> 15
Very truly yours,
BRANTLEY CAPITAL CORPORATION
By _______________________________
Name _____________________________
Title ____________________________
Enclosures: 1. Extra copy of this Agreement
2. Copy of the Plan
The undersigned hereby acknowledges having read this Agreement and the
Plan and hereby agrees to be bound by all provisions set forth herein and in
the Plan effective as of the date first written above.
PARTICIPANT
_________________________________
[Name]
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<PAGE> 16
APPENDIX A
VALUATION OF PORTFOLIO SECURITIES
On a quarterly basis, and at such other times as deemed appropriate
under the circumstances, the Board 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 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 Board, 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 of 1933. 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.
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<PAGE> 17
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 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 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 Board. 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 Board will review the Company's valuation policies from time to
time to determine their appropriateness. The Board 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 Board; (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 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, 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.
A-2
<PAGE> 1
Exhibit 2.i.2.
BRANTLEY CAPITAL CORPORATION
DISINTERESTED DIRECTOR OPTION PLAN
Brantley Capital Corporation, a Maryland corporation (the "Company")
hereby establishes the Brantley Capital Corporation Disinterested Director
Option Plan (the "Plan") effective upon the later of (i) the closing of the
initial public offering of the shares of $.01 par value common stock (the
"Common Stock") of the Company, and (ii) the receipt of an order of the
Securities and Exchange Commission (the "Commission") approving the Plan as
fair and reasonable, and not involving overreaching of the Company or its
stockholders.
1. Purpose
The purpose of the Plan is to attract and retain highly qualified
people who are not employees of the Company or any of its affiliates to serve
as directors of the Company (each, a "Disinterested Director"), and to
encourage Disinterested Directors to own shares of the Company's Common Stock.
2. Definitions
Unless the context clearly indicates otherwise, capitalized terms used
and not elsewhere defined in this Plan shall have the meanings ascribed to such
terms in this Section 2:
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall mean the common stock, $.01 par value per share,
of the Company.
"Company" shall mean Brantley Capital Corporation, a Maryland
corporation.
"Current Market Value" or "fair market value" of shares of Common
Stock shall be the average of the closing sales prices, as reported in The Wall
Street Journal, at which shares of Common Stock of the Company were traded on
the last five days on which trading in the shares of Common Stock was reported
to have taken place on the Nasdaq National Market System prior to the grant of
the Option Shares.
<PAGE> 2
"Disinterested Director" shall mean a member of the Board who is not
an officer or employee of the Company or any of its affiliates.
"Effective Date" shall mean the later of (i) the closing of the
initial public offering of the shares of Common Stock of the Company, and (ii)
the receipt of an order of the Commission approving the Plan as fair and
reasonable, and not involving overreaching of the Company or its stockholders.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exercise Price" shall have the meaning set forth in Section 6, below.
"Option" shall mean an option granted under the provisions of Section
6 of this Plan to purchase Common Stock. The Company intends that Options
shall constitute non-qualified stock options (and not incentive stock options)
within the meaning of Section 422 of the Code.
"Option Shares" shall mean (i) all shares of Common Stock issued or
issuable upon the exercise of Option granted pursuant to Section 6 of this Plan
and (ii) all shares of Common Stock, or other equity securities, issued with
respect to the Common Stock referred to in clause (i) above by way of stock
dividend or stock split or in connection with any conversion, merger,
consolidation or recapitalization or other reorganization affecting the Common
Stock. Option Shares will continue to be Option Shares in the hands of any
holder other than you (except for purchasers pursuant to a public offering
under the Securities Act), and each such transferee thereof will succeed to the
rights and obligations of a holder of Option Shares hereunder.
"Participant" shall mean a Disinterested Director who is granted an
Option pursuant to this Plan.
"Plan" shall mean this Brantley Capital Corporation Disinterested
Director Option Plan.
"Securities Act" shall mean the Securities Act of 1933, as amended.
3. Administration
Grants of Options under the Plan shall be automatic as provided in
Section 6(a) below. All questions of interpretation of the Plan or of any
options issued hereunder shall be determined by the Board. Any or all powers
of the Board under the Plan may be exercised by a committee consisting of the
directors with no interest in this Plan, or of other persons appointed by the
Board.
4. Eligibility and Consideration
Only Disinterested Directors shall be eligible to participate in the
Plan.
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<PAGE> 3
5. Shares Available for Options
(a) Subject to adjustment under Section 5(b) below, Options may be
granted under the Plan in respect of a maximum of 75,000 shares of Common
Stock. Shares subject to an Option that expires or terminates unexercised
shall again be available for Options hereunder to the extent of such expiration
or termination. Shares issued under the Plan may consist in whole or in part
of authorized but unissued shares or treasury shares.
(b) In the event of any stock dividend, stock split,
recapitalization, reorganization, merger, consolidation, combination or
exchanges of shares, or any other similar change affecting the Common Stock of
the Company, an appropriate adjustment to reflect any such change shall be made
in the total number and class of shares for which Options may be granted and
the number and class of shares and the price per share of any Option
theretofore granted to the extent unexercised. Such adjustment shall be as
determined by the Board, provided, however, that any such computation shall be
rounded to the nearest whole share and no such modification shall require the
issuance of fractional shares.
6. Stock Options
Each Option granted under the Plan shall be evidenced by a written
agreement in such form as the Board shall approve and shall be subject to
Section 4 and the following terms and conditions:
(a) Grant of Options
Each Disinterested Director shall automatically be granted an
Option to purchase 2,000 shares of Common Stock (subject to adjustment as
provided in Section 5(b) above) upon the later of (i) the closing of the
initial public offering of the Company's Common Stock pursuant to a
registration under the Securities Act and the 1940 Act and (ii) the receipt of
an exemptive order from the Commission approving the Plan (the "Initial
Grant"). For all purposes of this Plan, the date of the Initial Grant shall be
the date which is five business days following the later of (i) the date of the
closing of such public offering and (ii) the receipt of such order from the
Commission. Following the Initial Grant, each Disinterested Director then
serving shall automatically be granted, immediately following the annual
meeting of stockholders of the Company in 1997 and immediately following each
annual meeting of stockholders thereafter throughout the term of the Plan, an
Option to purchase 2,000 shares of Common Stock (subject to adjustment as
provided in Section 5(b) above) with the date of grant of such Option Shares to
be the date of the applicable annual meeting; provided, however, that any such
grant shall be delayed until the date which is five business days following the
receipt of an exemptive order from the Commission approving the Plan. The date
on which any Option Shares are granted pursuant to this Section 6(a) is
referred to as the "Grant Date."
(b) Exercise Price
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<PAGE> 4
The Exercise Price of Option Shares will be the greater of (i)
the Current Market Value on the Grant Date and (ii) the current net asset value
of the shares of Common Stock. The net asset value of the shares of Common
Stock shall be determined by the Board pursuant to the procedures described in
Appendix A to this Plan.
(c) Exercisability
Each Option shall be exercisable in whole or in part with
respect to all of the Option Shares on the first anniversary of the Grant Date.
No Option may be exercised more than 10 years after the Grant Date.
(d) Termination of Service
If service on the Board by a Disinterested Director terminates
for any reason other than disability or death, the then outstanding Options of
such Disinterested Director thereafter may be exercised, to the extent
exercisable at the time of termination, for a period of 90 days from the date
of such termination but in no event after the stated expiration date of each
Option. If service on the Board by a Disinterested Director terminates by
reason of disability or death, the then outstanding Options of such
Disinterested Director shall become exercisable upon the later of (i) six
months after the Grant Date, and (ii) the date of such termination by
disability or death, and thereafter may be exercised for a period of one year
from the date of such termination but in no event after the stated expiration
date of each Option. The rights of the Disinterested Director may be exercised
by such director's guardian or legal or personal representative in the case of
disability or death.
7. Exercise of Options
An Option, or portion thereof, shall be exercised by delivery of a
written notice of exercise to the Secretary of the Company and payment of the
Exercise Price for the Option Shares being purchased pursuant to the Option.
Option Shares under the 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.
In order to facilitate the purchase of Option Shares, the Company may
make arms-length loans to participants in the Plan in accordance with Sections
57(j)(2) and 62(1) of the 1940 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 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.
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<PAGE> 5
Subject to Section 8, below, upon receipt of notice and payment, and
where requested by the Participant, the Company shall issue and deliver to the
Participant (or other person entitled to exercise the Option) a certificate or
certificates for the number of shares as to which the exercise is made.
Options may not be exercised for fractional shares of Common Stock.
8. Withholding of Taxes
The Company shall be entitled, if necessary or desirable, to withhold
from any Participant from any amounts due and payable by the Company to such
Participant (or secure payment from such Participant in lieu of withholding)
the amount of any withholding or other tax due from the Company with respect to
any shares of Common Stock issuable under the Plan, and the Company may defer
issuance of any shares of Common Stock pursuant to an Option unless indemnified
to its satisfaction. An Option Agreement may provide that any Participant may
satisfy any withholding tax obligation by a cash payment to the Company or by
delivery of previously owned shares of Common Stock (which the Participant has
held for at least six months and to which the Participant has good title, free
and clear of all liens and encumbrances); provided, however, that the method of
satisfying any withholding tax obligation shall be in compliance with Section
16 of the Exchange Act and the rules and regulations thereunder.
9. Transferability
Options will not be transferable except for disposition by will or
intestacy. During the lifetime of the Participant, only he or she may exercise
an Option or any portion thereof; provided, however, that if the Participant is
disabled, an Option may be exercised by such Participant's legal or personal
representative. After the death of the Participant, any exercisable portion of
an Option may be exercised by his or her personal representative or by any
person empowered to do so under the deceased Participant's will or under the
then applicable laws of descent and distribution. The Company may require
appropriate proof from any person of his or her right or power to exercise the
Option or any portion thereof. Except as provided above, no Option or interest
or right therein or part thereof shall be liable for the debts, contracts, or
engagement of the Participant or his or her successors in interest or shall be
subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means, whether such disposition is
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment, or any other legal or equitable proceedings (including bankruptcy)
and any such attempted disposition shall be null and void and of no effect.
10. Legal Requirements
Notwithstanding any other provision of the Plan, the Company shall not
be obligated to offer or sell any shares of Common Stock upon exercise of an
Option unless the shares to be issued upon such exercise are at that time
effectively registered or exempt from registration under the Securities Act and
the offer and sale of such shares are otherwise in compliance with all
applicable federal and state securities laws and the requirements of any
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<PAGE> 6
stock exchange or similar agency on which the Company's securities may then be
listed or quoted. The Company shall have no obligation to register the
securities covered by this Plan under the federal securities laws or take any
other steps as may be necessary to enable the securities covered by this Plan
to be offered and sold under federal or other securities laws. Upon exercising
all or any portion of an Option, a Participant (or other person then exercising
such Option) may be required to furnish representations or undertakings deemed
appropriate by the Company to enable the offer and sale of the shares of Common
Stock upon exercise of the Option or subsequent transfers of any interest in
such shares to comply with the Securities Act and other applicable securities
laws. Certificates evidencing shares of Common Stock issued pursuant to
Options shall bear any legend required by, or useful for the purposes of
compliance with, applicable securities laws, this Plan or the agreements
evidencing the Options.
It is the intention of the Company that the Plan comply in all
respects with Rule 16b-3 promulgated under Section 16(b) of the Exchange Act
and that eligible directors remain disinterested persons for purposes of
administering other employee benefit plans of the Company and having such other
plans be exempt from Section 16(b) of the Exchange Act. Therefore, if any Plan
provision should be found not to be in compliance with Rule 16b-3 or if any
Plan provision would disqualify eligible directors from remaining disinterested
persons, that provision shall be deemed null and void, and in all events the
Plan shall be construed in favor of its meeting the requirements of Rule 16b-3.
With respect to this Plan and any other option plan of the Company, 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 such option plans 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 1940 Act and are
subject to change.
11. Effective Date; Duration; Suspension and Amendment
The Plan shall become effective upon the later of (i) the closing of
the initial public offering of the Company's Common Stock and (ii) the receipt
of an order of the Commission approving the Plan as fair and reasonable, and
not involving overreaching of the Company or its stockholders. The Plan shall
terminate automatically on December 31, 2006 unless terminated earlier by the
Board. The Board may suspend the Plan at any time. The Board may amend the
Plan at any time; provided, however, that no amendment may be made without the
approval of the stockholders of the Company if such amendment would (i)
increase the total number of shares for which Options may be granted, (ii)
change the manner of determining the purchase price of shares of Common Stock
under the Plan, (iii) change the class of persons eligible to receive Options
under the Plan, (iv) change the provisions relating to the administration of the
Plan, or (v) in any other manner cause the Plan to fail to comply with Rule
16b-3 under the Exchange Act or any other requirement of applicable law or
regulation. Notwithstanding any other provision of this Plan, in no event
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<PAGE> 7
shall the provisions of this Plan be amended more frequently than once every
six months other than to comport with changes in the Code or the rules
thereunder. The Board may terminate the Plan at any time but such termination
shall not affect Options already granted and such Options shall remain in full
force and effect as if the Plan had not been terminated. No shares of Common
Stock shall be issued or sold under this Plan after the termination of the
Plan, except upon exercise of Options granted before termination.
12. Limitation of Rights
Neither the Plan nor the granting of any Option hereunder shall
constitute an agreement or understanding that the Company will retain a
director for any period of time or at any particular rate of compensation. The
holder of an Option shall have no rights as a stockholder with respect to
Option Shares as to which the Option has not been exercised and payment made
pursuant to the Plan.
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<PAGE> 8
FORM OF OPTION GRANT LETTER
____________, 199__
[Name and Address of Disinterested Director Participant]
Re: Grant of Non-Qualified Stock Option Under the
Brantley Capital Corporation Disinterested Director
Option Plan
Dear ________:
Brantley Capital Corporation (the "Company") is pleased to advise you
that in consideration for your service as a member of the Company's
Board of Directors, the Company hereby grants to you a stock option (the
"Option") under the Brantley Capital Corporation Disinterested Director Option
Plan (the "Plan"), a copy of which is attached hereto. This letter sets forth
the terms of that grant, which is effective as of ________________, 199__ (the
"Effective Date").
1. Definitions. Unless the context clearly indicates otherwise,
capitalized terms used and not elsewhere defined in this letter agreement (the
"Agreement") shall have the meanings set forth below:
"Board" shall mean the Board of Directors of Brantley Capital
Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor statute.
"Common Stock" shall mean the Company's Common Stock, par
value $.01 per share.
"Company" shall mean Brantley Capital Corporation, a Maryland
corporation.
"Current Market Value" or "fair market value" of shares of
Common Stock shall be the average of the closing sales prices, as reported in
The Wall Street Journal, at which shares of Common Stock of the Company were
traded on the last five days on which trading in the shares of Common Stock was
reported to have taken place on the Nasdaq National Market System prior to the
grant of the Option Shares.
"Disability" shall mean your inability, due to illness,
accident, injury, physical or mental incapacity or other disability, to carry
out effectively your duties and obligations as a member of the Board or to
participate effectively and actively in the management of the Company by the
Board.
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<PAGE> 9
"Disinterested Director" shall mean any director of the
Company who is not also an officer or employee of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Option Shares" shall mean (i) all shares of Common Stock
issued or issuable upon the exercise of Option and (ii) all shares of Common
Stock, or other equity securities, issued with respect to the Common Stock
referred to in clause (i) above by way of stock dividend or stock split or in
connection with any conversion, merger, consolidation or recapitalization or
other reorganization affecting the Common Stock. Option Shares will continue
to be Option Shares in the hands of any holder other than you (except for
purchasers pursuant to a public offering under the Securities Act), and each
such transferee thereof will succeed to the rights and obligations of a holder
of Option Shares hereunder.
"Participant" shall mean a Disinterested Director who is
granted an Option pursuant to the Plan.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and any successor statute.
2. Option.
(a) Terms. Your Option is to purchase up to 2,000 shares
of Common Stock (the "Option Shares") at an exercise price per share of
$________ (the "Exercise Price"), which Exercise Price is equal to the greater
of (i) the Current Market Value on the date first written above and (ii) the
current net asset value of the shares of Common Stock. The net asset value of
the shares of Common Stock shall be determined by the Board pursuant to the
procedures described in Appendix A to the Plan. The Exercise Price shall be
payable upon exercise as set forth in Section 2(b) below. Your Option will
expire at the close of business on _________________, 200__ (the "Expiration
Date"), subject to earlier expiration in connection with the termination of
your service as a director of the Company as provided in Sections 3(a) and
3(b)(ii) below. Your Option is not intended to be an "incentive stock option"
within the meaning of Section 422 of the Code.
(b) Payment of Exercise Price. Subject to Section 3
below, your Option may be exercised in whole or in part upon payment of the
Exercise Price multiplied by the number of Option Shares to be acquired.
Payment shall be made in cash (including certified or cashier's check, or money
order) or by delivery of a number of shares of Common Stock already owned by
you for at least six months and to which you have good title, free and clear of
all liens and encumbrances, with an aggregate fair market value equal to the
aggregate Exercise Price of the Option Shares, or any combination of cash and
previously owned shares.
3. Exercisability.
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<PAGE> 10
(a) Normal Vesting. Your Option shall be exercisable in
whole or in part with respect to all of the Option Shares on the first
anniversary of the date first written above. No Option may be exercised more
than 10 years after such date.
(b) Effect of Termination of Service as a Director.
(i) Death or Disability. Notwithstanding Section
3(a) above, if you die while serving as a director of the Company, or
if you must terminate your service as a director of the Company
because of Disability, your Option shall become exercisable upon the
later of (i) six months after the Grant Date, and (ii) the date of
termination of your service by disability or death, and thereafter may
be exercised for a period of one year from the date of such
termination but in no event after the Expiration Date set forth in
Section 2(a) above. Your rights may be exercised by your guardian or
legal or personal representative in the case of your disability or
death.
(ii) Other Termination of Service as a Director.
If your service as a director terminates for reasons other than death
or Disability, your Option thereafter may be exercised, to the extent
exercisable at the time of termination of your service, for a period
of 90 days from the date of such termination but in no event after the
Expiration Date set forth in Section 2(a) above. Any portion of your
Option that was not vested and exercisable on such date will expire
and be forfeited.
4. Procedure for Exercise. You may exercise all or any portion
of your Option, to the extent it has vested and is outstanding, at any time
after six months following the Grant Date and from time to time prior to its
expiration, by delivering written notice to the Company (to the attention of
the Company's Secretary), together with payment of the Exercise Price in
accordance with the provisions of Section 2(b) above. As a condition to any
exercise of your Option, you will make all customary investment representations
and covenants which the Company requires. All of such representations and
covenants shall be made in a form satisfactory to the Company and its counsel.
5. Conformity with Plan. Your Option is intended to conform in
all respects with, and is subject to all applicable provisions of, the Plan,
which is incorporated herein by reference. Inconsistencies between this
Agreement and the Plan shall be resolved in accordance with the terms of the
Plan. By executing and returning the enclosed copy of this Agreement, you
acknowledge your receipt of this Agreement and the Plan and agree to be bound
by all of the terms of this Agreement and the Plan.
6. Withholding of Taxes. The Company shall be entitled, if
necessary or desirable, to withhold from you from any amounts due and payable
by the Company to you (or secure payment from you in lieu of withholding) the
amount of any withholding or other tax due from the company with respect to any
Option Shares issuable under this Plan, and the Company may defer such issuance
unless indemnified by you to its satisfaction.
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<PAGE> 11
7. Adjustments. In the event of a reorganization,
recapitalization, stock dividend or stock split, or combination or other change
in the shares of Common Stock, the Board may, in order to prevent the dilution
or enlargement of rights under your Option, make such adjustments in the number
and type of shares authorized by the Plan, the number and type of shares
covered by your Option and the Exercise Price specified herein as may be
determined of share to be appropriate and equitable, subject, in each case, to
compliance with the terms and provisions of the Plan and Rule 16b-3 of the
Exchange Act.
8. Securities Laws Restrictions on Transfer of Option Shares.
You represent that when you exercise your Option you will be purchasing Option
Shares for your own account and not on behalf of others. You understand and
acknowledge that federal and state securities laws govern and restrict your
right to offer, sell or otherwise dispose of any Option Shares unless your
offer, sale or other disposition thereof is registered under the Securities Act
and state securities laws, or in the opinion of the Company's counsel, such
offer, sale or other disposition is exempt from registration or qualification
thereunder. You agree that you will not offer, sell or otherwise dispose of
any Option Shares in any manner which would: (i) require the Company to file
any registration statement with the Securities and Exchange Commission (or any
similar filing under state law) or to amend or supplement any such filing or
(ii) violate or cause the Company to violate the Securities Act, the rules and
regulations promulgated thereunder or any other state or federal law. You
further understand that the certificates for any Option Shares you purchase
will bear such legends as the Company deems necessary or desirable in
connection with the Securities Act or other rules, regulations or laws. You
may not sell, transfer or dispose of any Option Shares (except pursuant to an
effective registration statement under the Securities Act) without first
delivering to the Company an opinion of counsel reasonably acceptable in form
and substance to the Company and its counsel that registration under the
Securities Act or any applicable state securities law is not required in
connection with such transfer.
9. Non-Transferability of Option. Your Option is personal to you
and is not transferable by you other than by will or intestacy. During your
lifetime only you (or your guardian or legal or personal representative) may
exercise your Option. In the event of your death, your Option may be exercised
only by the executor or administrator of your estate, or your heirs, legatees
or legal or personal representative.
10. Holdback. You agree not to effect any public sale or
distribution of any equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and the 180 days after the effectiveness of any
underwritten public offering of any of the Company's equity securities, except
as part of such underwritten registration or public offering if otherwise
permitted.
11. Transfers in Violation of Agreement. Any transfer or
attempted transfer of the Option or any Option Shares in violation of any
provision of this Agreement shall be void, and the Company shall not record
such transfer on its books or treat any purported transferee of the Option or
such Option Shares as the owner of the Option or such Option Shares for any
purpose.
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<PAGE> 12
12. Remedies. The parties hereto will be entitled to enforce
their rights under this Agreement specifically, to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other rights
existing in their favor. The parties hereto acknowledge and agree that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party hereto may, in its sole discretion, apply to any
court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief (without posting bond or other security) in order to
enforce or prevent any violation of the provisions of this Agreement.
13. Amendment. Except as otherwise provided herein or in the
Plan, any provision of this Agreement may be amended or waived only with the
prior written consent of you and the Company.
14. Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto will bind and inure to the benefit of
the respective successors and permitted assigns of the parties hereto whether
so expressed or not.
15. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which
taken together shall constitute one and the same Agreement.
17. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
18. Governing Law. The General Corporation Law of the State of
Maryland shall govern all questions concerning the relative rights of the
Company and its stockholders and the construction, validity and interpretation
of this Agreement.
19. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
or five business days after mailing by certified or registered mail, return
receipt requested and postage prepaid, to the recipient. Such notices, demands
and other communications shall be sent to you at your address first written
above and to the Company at the address indicated below:
Brantley Capital Corporation
20600 Chagrin Boulevard
Suite 1150
Cleveland, Ohio 44122
Attention: Secretary of the Company
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<PAGE> 13
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
20. Entire Agreement. This Agreement constitutes the entire
understanding between you and the Company, and supersedes all other agreements,
whether written or oral, with respect to the acquisition by you of Common Stock
of the Company.
Please execute the extra copy of this Agreement in the space below and
return it to the Company's Secretary at its executive offices to confirm your
understanding and acceptance of the agreements contained in this Agreement.
Upon receipt of your executed copy of this Agreement, this Agreement shall be
effective as of the Effective Date.
Very truly yours,
BRANTLEY CAPITAL CORPORATION
By ____________________________________
Robert P. Pinkas Chairman
of the Board, Chief Executive
Officer, Chief Financial
Officer and Treasurer
Enclosures: 1. Extra copy of this Agreement
2. Copy of the Plan
The undersigned hereby acknowledges having read this Agreement and the
Plan and hereby agrees to be bound by all provisions set forth herein and in
the Plan effective as of the date first written above.
PARTICIPANT
________________________________________
[Name]
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<PAGE> 14
APPENDIX A
VALUATION OF PORTFOLIO SECURITIES
On a quarterly basis, and at such other times as deemed appropriate
under the circumstances, the Board 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 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 Board, 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 of 1933. 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.
A-1
<PAGE> 15
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 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 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 Board. 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 Board will review the Company's valuation policies from time to
time to determine their appropriateness. The Board 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 Board; (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 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, 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.
A-2
<PAGE> 1
EXHIBIT 2.j.
CUSTODIAN CONTRACT
Between
BRANTLEY CAPITAL CORPORATION
and
STATE STREET BANK AND TRUST COMPANY
Global/Corp
Closed-end/22B
<PAGE> 2
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By
It 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States 1
2.1 Holding Securities 1
2.2 Delivery of Securities 2
2.3 Registration of Securities 4
2.4 Bank Accounts 4
2.5 Availability of Federal Funds 4
2.6 Collection of Income 4
2.7 Payment of Fund Monies 5
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased 6
2.9 Appointment of Agents 6
2.10 Deposit of Fund Assets in U.S. Securities System 6
2.11 Fund Assets Held in the Custodian's Direct
Paper System 8
2.12 Segregated Account 8
2.13 Ownership Certificates for Tax Purposes 9
2.14 Proxies 9
2.15 Communications Relating to Portfolio
Securities 9
2.16 Reports to Fund by Independent Public Accountants 9
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States 10
3.1 Appointment of Foreign Sub-Custodians 10
3.2 Assets to be Held 10
3.3 Foreign Securities Systems 10
3.4 Holding Securities 11
3.5 Agreements with Foreign Banking Institutions 11
3.6 Access of Independent Accountants of the Fund 11
3.7 Reports by Custodian 11
3.8 Transactions in Foreign Custody Account 11
3.9 Liability of Foreign Sub-Custodians 12
3.10 Liability of Custodian 12
<PAGE> 3
3.11 Reimbursement for Advances 13
3.12 Monitoring Responsibilities 13
3.13 Branches of U.S. Banks 13
3.14 Tax Law 13
4. Proper Instructions 14
5. Actions Permitted Without Express Authority 14
6. Evidence of Authority 14
7. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income 15
8. Records 15
9. Opinion of Fund's Independent Accountants 15
10. Compensation of Custodian 16
11. Responsibility of Custodian 16
12. Effective Period, Termination and Amendment 17
13. Successor Custodian 18
14. Interpretive and Additional Provisions 18
15. Massachusetts Law to Apply 19
16. Prior Contracts 19
17. Reproduction of Documents 19
18. Shareholder Communications Election 19
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between Brantley Capital Corporation, a corporation
organized and existing under the laws of Maryland, having its principal place
of business at 20600 Chagrin Blvd, Suite 1150, Cleveland, OH 44122 hereinafter
called the "Fund", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its assets,
including securities which it desires to be held in places within the United
States ("domestic securities") and securities it desires to be held outside
the United States ("foreign securities") pursuant to the provisions of the
Articles of Incorporation. The Fund agrees to deliver to the Custodian all
securities and cash owned by it, and all payments of income, payments of
principal or capital distributions received by it with respect to all
securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock, $ 0.01 par
value, ("Shares") of the Fund as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of the Fund held or
received by the Fund and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 4),
the Custodian shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable vote by the
Board of Directors of the Fund, and provided that the Custodian shall have no
more or less responsibility or liability to the Fund on account of any actions
or omissions of any sub-custodian so employed than any such sub-custodian has
to the Custodian. The Custodian may employ as sub-custodian for the Fund's
foreign securities and other assets the foreign banking institutions and
foreign securities depositories designated in Schedule A hereto but only in
accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of the Fund all non-cash property, to be held by it in the
United States including all domestic securities owned by the Fund, other
than (a) securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a book-entry
system authorized by the U.S. Department of the Treasury and certain
federal agencies (each, a "U.S. Securities System") and (b) commercial
paper of an issuer for which State Street Bank and Trust Company acts as
issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian (the "Direct Paper
System") pursuant to Section 2.11.
<PAGE> 5
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by the Fund held by the Custodian or in a U.S. Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility or
liability for any loss arising from the delivery of such securities
prior to receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
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9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund, which
may be in the form of cash or obligations issued by the United
States government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be credited to
the Custodian's account in the book-entry system authorized by the
U.S. Department of the Treasury, the Custodian will not be held
liable or responsible for the delivery of securities owned by the
Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only against
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the "Exchange
Act") and a member of The National Association of Securities
Dealers, Inc. ("NASD"), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures Commission
Merchant registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar organization
or organizations, regarding account deposits in connection with
transactions by the Fund;
14) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors or of the Executive Committee
signed by an officer and certified by the Secretary or an Assistant
Secretary, specifying the securities of the Fund to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and naming
the person or persons to whom delivery of such securities shall be
made.
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2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the Fund
or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund, unless
the Fund has authorized in writing the appointment of a nominee to be
used in common with other registered investment companies having the same
investment adviser as the Fund, or in the name or nominee name of any
agent appointed pursuant to Section 2.9 or in the name or nominee name of
any sub-custodian appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the Fund under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in "street
name", the Custodian shall utilize its best efforts only to timely collect
income due the Fund on such securities and to notify the Fund on a best
efforts basis only of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund, subject
only to draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of the
Fund, other than cash maintained by the Fund in a bank account established
and used in accordance with Rule 17f-3 under the Investment Company Act of
1940. Funds held by the Custodian for the Fund may be deposited by it to
its credit as Custodian in the Banking Department of the Custodian or in
such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or trust
company shall be qualified to act as a custodian under the Investment
Company Act of 1940 and that each such bank or trust company and the funds
to be deposited with each such bank or trust company shall be approved by
vote of a majority of the Board of Directors of the Fund. Such funds
shall be deposited by the Custodian in its capacity as Custodian and shall
be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of the Fund which are
deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to United States registered securities held hereunder to
which the Fund shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to United States bearer domestic
securities if, on the date of payment by the issuer, such securities are
held by the Custodian or its agent thereof and shall credit such income,
as collected, to the Fund's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other
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<PAGE> 8
income items requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder. Income due the
Fund on United States securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith, other than
to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of
the income to which the Fund is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of the
Fund but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or options on
futures contracts to the Custodian (or any bank, banking firm or
trust company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to
act as a custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the Fund or in the
name of a nominee of the Custodian referred to in Section 2.3 hereof
or in proper form for transfer; (b) in the case of a purchase
effected through a U.S. Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case of a
purchase involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of repurchase
agreements entered into between the Fund and the Custodian, or
another bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Fund of securities owned by the
Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Fund or (e) for
transfer to a time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer may be effected prior to receipt
of a confirmation from a broker and/or the applicable bank pursuant
to Proper Instructions as defined in Article 4;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2 hereof;
3) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for the
account of the Fund: interest, taxes, management, accounting,
transfer agent and legal fees, and operating expenses of the Fund
whether or not such expenses are to be in whole or part capitalized
or treated as deferred expenses;
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<PAGE> 9
4) For the payment of any dividends declared pursuant to the
governing documents of the Fund;
5) For payment of the amount of dividends received in respect of
securities sold short;
6) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Board of Directors or of the Executive Committee of the Fund
signed by an officer of the Fund and certified by its Secretary or
an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the person
or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Notwithstanding Sections 2.2 and 2.7 of the Contract, entitled Delivery of
Securities and Payment of Fund Monies, respectively, the Custodian can (i)
make payment of Fund monies for the purchase of securities prior to the
receipt of such securities: and (ii) deliver Fund securities prior to the
receipt of payment for such securities; provided, that the Custodian can
pay Fund monies and purchase Fund securities in accordance with this
Contract only to the extent that the Fund instructs it to do so in writing
(the "Special Instructions"), which Special Instructions shall be standing
and effective until such time as the Fund notifies the Custodian otherwise
in writing. The Fund agrees to indemnify and hold the Custodian harmless
for any and all liability arising out of transactions executed in
accordance with the Special Instructions, except for losses resulting from
the Custodian's negligence, lack of good faith, or willful misconduct.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such of
the provisions of this Article 2 as the Custodian may from time to time
direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by the Fund in a
clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
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<PAGE> 10
1) The Custodian may keep domestic securities of the Fund in a
U.S. Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the U.S. Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to domestic
securities of the Fund which are maintained in a U.S. Securities
System shall identify by book-entry those securities belonging to
the Fund;
3) The Custodian shall pay for domestic securities purchased for
the account of the Fund upon (i) receipt of advice from the U.S.
Securities System that such securities have been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account of
the Fund. The Custodian shall transfer domestic securities sold for
the account of the Fund upon (i) receipt of advice from the U.S.
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer and payment for
the account of the Fund. Copies of all advices from the U.S.
Securities System of transfers of domestic securities for the
account of the Fund shall identify the Fund, be maintained for the
Fund by the Custodian and be provided to the Fund at its request.
Upon request, the Custodian shall furnish the Fund confirmation of
each transfer to or from the account of the Fund in the form of a
written advice or notice and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's transactions in the
U.S. Securities System for the account of the Fund;
4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the U.S. Securities System's accounting system,
internal accounting control and procedures for safeguarding domestic
securities deposited in the U.S. Securities System;
5) The Custodian shall have received the initial certificate
required by Article 12 hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the U.S. Securities System by reason
of any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from failure of
the Custodian or any such agent to enforce effectively such rights
as it may have against the U.S. Securities System; at the election
of the Fund, it shall be entitled to be subrogated to the rights of
the Custodian with respect to any claim against the U.S. Securities
System or any other person which the Custodian may have as a
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<PAGE> 11
consequence of any such loss or damage if and to the extent that
the Fund has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of
the Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the records of
the Custodian to reflect such payment and transfer of securities to
the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund upon the making of an entry on the
records of the Custodian to reflect such transfer and receipt of
payment for the account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business day
following such transfer and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's transaction in the
U.S. Securities System for the account of the Fund;
6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may reasonably
request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in an
account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered
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<PAGE> 12
national securities exchange (or the Commodity Futures Trading Commission
or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or
written by the Fund or commodity futures contracts or options thereon
purchased or sold by the Fund, (iii) for the purposes of compliance by
the Fund with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of the
Board of Directors or of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of the Fund held by it and in connection
with transfers of such securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of the Fund or a nominee of the Fund, all proxies, without indication
of the manner in which such proxies are to be voted, and shall promptly
deliver to the Fund such proxies, all proxy soliciting materials and all
notices relating to such securities.
2.15 Communications Relating to Fund Securities. Subject to the provisions of
Section 2.3, the Custodian shall transmit promptly to the Fund all written
information (including, without limitation, pendency of calls and
maturities of domestic securities and expirations of rights in connection
therewith and notices of exercise of call and put options written by the
Fund and the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the domestic securities being
held for the Fund. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Fund all written information
received by the Custodian from issuers of the domestic securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Fund desires to take action with respect
to any tender offer, exchange offer or any other similar transaction, the
Fund shall notify the Custodian at least three business days prior to the
date on which the Custodian is to take such action.
2.16 Reports to Fund by Independent Public Accountants The Custodian shall
provide the Fund, at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system,
internal accounting control and procedures for
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safeguarding securities, futures contracts and options on futures
contracts, including domestic securities deposited and/or maintained in a
U.S. Securities System, relating to the services provided by the
Custodian under this Contract; such reports, shall be of sufficient scope
and in sufficient detail, as may reasonably be required by the Fund, to
provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies,
the reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Fund's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon receipt
of "Proper Instructions", as defined in Section 4 of this Contract,
together with a certified resolution of the Fund's Board of Directors, the
Custodian and the Fund may agree to amend Schedule A hereto from time to
time to designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the employment
of any one or more such sub-custodians for maintaining custody of the
Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities transactions. The
Custodian shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Funds shall be
maintained in a clearing agency which acts as a securities depository or
in a book-entry system for the central handling of securities located
outside of the United States (each a "Foreign Securities System") only
through arrangements implemented by the foreign banking institutions
serving as sub-custodians pursuant to the terms hereof (Foreign Securities
Systems and U.S. Securities Systems are collectively referred to herein as
the "Securities Systems"). Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a Foreign
Sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash
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<PAGE> 14
property of the Fund which are maintained in such account shall identify
by book-entry those securities and other non-cash property belonging to
the Fund and (ii) the Custodian shall require that securities and other
non-cash property so held by the Foreign Sub-custodian be held separately
from any assets of the Foreign Sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the Fund's assets will
not be subject to any right, charge, security interest, lien or claim of
any kind in favor of the foreign banking institution or its creditors or
agent, except a claim of payment for their safe custody or administration;
(b) beneficial ownership of the Fund's assets will be freely transferable
without the payment of money or value other than for custody or
administration; (c) adequate records will be maintained identifying the
assets as belonging to the Fund; (d) officers of or auditors employed by,
or other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for the
Fund, will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Fund held by the foreign sub-custodian
will be subject only to the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of such
foreign banking institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the Fund's
securities and other assets and advices or notifications of any transfers
of securities to or from each custodial account maintained by a foreign
banking institution for the Custodian on behalf of the Fund indicating, as
to securities acquired for the Fund, the identity of the entity having
physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of Sections
2.2 and 2.7 of this Contract shall apply, mutatis mutandis to the foreign
securities of the Fund held outside the United States by foreign
sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the
Fund and delivery of securities maintained for the account of the Fund
may be effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or
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market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor
(or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent as
set forth in Section 2.3 of this Contract, and the Fund agrees to hold
any such nominee harmless from any liability as a holder of record of
such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care in
the performance of its duties and to indemnify, and hold harmless, the
Custodian and each Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.13 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this
paragraph 3.10, in delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility to the Fund for
any loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose including the purchase or sale
of foreign exchange or of contracts for foreign exchange, or in the event
that the Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own
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<PAGE> 16
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of
such Funds assets to the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection with
the initial approval of this Contract. In addition, the Custodian will
promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the
Funds assets are maintained in a foreign branch of a banking institution
which is a "bank" as defined by Section 2(a)(5) of the Investment Company
Act of 1940 meeting the qualification set forth in Section 26(a) of said
Act. The appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained in
an interest bearing account established for the Fund with the Custodian's
London branch, which account shall be subject to the direction of the
Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America or
any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the tax
law of jurisdictions other than those mentioned in the above sentence,
including responsibility for withholding and other taxes, assessments or
other governmental charges, certifications and governmental reporting.
The sole responsibility of the Custodian with regard to such tax law shall
be to use reasonable efforts to assist the Fund with respect to any claim
for exemption or refund under the tax law of jurisdictions for which the
Fund has provided such information.
13
<PAGE> 17
4. Proper Instructions
Proper Instructions as used herein means a writing signed or initialled by
one or more person or persons as the Board of Directors shall have from time to
time authorized. Each such writing shall set forth the specific transaction or
type of transaction involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in
writing. Upon receipt of a certificate of the Secretary or an Assistant
Secretary as to the authorization by the Board of Directors of the Fund
accompanied by a detailed description of procedures approved by the Board of
Directors, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Directors and the Custodian are satisfied that such procedures afford adequate
safeguards for the Fund's assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.12.
5. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its duties
under this Contract, provided that all such payments shall be
accounted for to the Fund;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer
and other dealings with the securities and property of the Fund
except as otherwise directed by the Board of Directors of the Fund.
6. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any
action by the Board of
14
<PAGE> 18
Directors pursuant to the Articles of Incorporation as described in such vote,
and such vote may be considered as in full force and effect until receipt by
the Custodian of written notice to the contrary.
7. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of the Fund and/or compute the net asset value per share of
the outstanding shares of the Fund or, if directed in writing to do so by the
Fund, shall itself keep such books of account and/or compute such net asset
value per share. If so directed, the Custodian shall also calculate weekly the
net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent weekly of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net
asset value per share and the weekly income of the Fund shall be made at the
time or times described from time to time in the Fund's currently effective
prospectus.
8. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder. All such records shall be the property of the Fund and shall at
all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by the Fund and held by the Custodian and shall, when requested to do so
by the Fund and for such compensation as shall be agreed upon between the Fund
and the Custodian, include certificate numbers in such tabulations.
9. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-2, and Form N-SAR or other annual
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
10. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.
15
<PAGE> 19
11. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in good faith without negligence. It shall
be entitled to rely on and may act upon advice of counsel (who may be counsel
for the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances
beyond the reasonable control of the Custodian or any sub-custodian or
Securities System or any agent or nominee of any of the foregoing, including,
without limitation, nationalization or expropriation, imposition of currency
controls or restrictions, the interruption, suspension or restriction of
trading on or the closure of any securities market, power or other mechanical
or technological failures or interruptions, computer viruses or communications
disruptions, acts of war or terrorism, riots, revolutions, work stoppages,
natural disasters or other similar events or acts; (ii) errors by the Fund or
the Investment Advisor in their instructions to the Custodian provided such
instructions have been in accordance with this Contract; (iii) the insolvency
of or acts or omissions by a Securities System; (iv) any delay or failure of
any broker, agent or intermediary, central bank or other commercially prevalent
payment or clearing system to deliver to the Custodian's sub-custodian or agent
securities purchased or in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company, corporation, or other
body in charge or registering or transferring securities in the name of the
Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any
consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security
or Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of
competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
16
<PAGE> 20
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned
to the Fund being liable for the payment of money or incurring liability of
some other form, the Fund, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the
Fund assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
12. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Directors of the Fund has approved the initial use
of a particular Securities System, as required by Rule 17f-4 under the
Investment Company Act of 1940, as amended and that the Custodian shall not act
under Section 2.11 hereof in the absence of receipt of an initial certificate
of the Secretary or an Assistant Secretary that the Board of Directors has
approved the initial use of the Direct Paper System; provided further, however,
that the Fund shall not amend or terminate this Contract in contravention of
any applicable federal or state regulations, or any provision of the Articles
of Incorporation, and further provided, that the Fund may at any time by action
of its Board of Directors (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
17
<PAGE> 21
13. Successor Custodian
If a successor custodian shall be appointed by the Board of Directors of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
14. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund, may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall
be annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision
of the Articles of Incorporation of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
18
<PAGE> 22
15. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
16. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
17. Reproduction of Documents
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto all/each agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding,
whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that
any enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
18. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian
"no", the Custodian will not provide this information to requesting companies.
If the Fund tells the Custodian "yes" or does not check either "yes" or "no"
below, the Custodian is required by the rule to treat the Fund as consenting to
disclosure of this information for all securities owned by the Fund or any
funds or accounts established by the Fund. For the Fund's protection, the Rule
prohibits the requesting company from using the Fund's name and address for any
purpose other than corporate communications. Please indicate below whether the
Fund consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [X] The Custodian is not authorized to release the Fund's name,
address, and share positions.
19
<PAGE> 23
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the day of , 1996.
ATTEST BRANTLEY CAPITAL CORPORATION
By
- -------------------------- -----------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
By
------------------------------------
Executive Vice President
<PAGE> 24
Schedule A
The following foreign banking institutions and foreign securities depositories
have been approved by the Board of Directors of Brantley Capital Corporation
for use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
- -------------------------------
Fund's Authorized Officer
Date:
--------------------------
<PAGE> 1
EXHIBIT 2.k.1.
REGISTRAR,
TRANSFER AGENCY AND SERVICE AGREEMENT
between
BRANTLEY CAPITAL CORPORATION
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
Page
1. Terms of Appointment; Duties of the Bank 1
2. Fees and Expenses 2
3. Representations and Warranties of the Bank 3
4. Representations and Warranties of the Fund 3
5. Data Access and Proprietary Information 4
6. Indemnification 5
7. Standard of Care 6
8. Covenants of the Fund and the Bank 7
9. Termination of Agreement 7
10. Assignment 8
11. Amendment 8
12. Massachusetts Law to Apply 8
13. Force Majeure 8
14. Consequential Damages 9
15. Merger of Agreement 9
16. Counterparts 9
17. Reproduction of Documents 9
<PAGE> 3
REGISTRAR, TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the day of , 1996 , by and between
BRANTLEY CAPITAL CORPORATION, a Maryland corporation, having its principal
office and place of business at 20600 Chagrin Blvd, Suite 1150, Cleveland, OH
44122 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts
trust company having its principal office and place of business at 225 Franklin
Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its registrar, transfer agent,
dividend disbursing agent, custodian of certain retirement plans and agent in
connection with certain other activities, and the Bank desires to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the Fund
hereby employs and appoints the Bank to act as, and the Bank agrees to act
as registrar, transfer agent for the Fund's authorized and issued shares
of its common stock, ("Shares"), dividend disbursing agent, custodian of
certain retirement plans and agent in connection with any dividend
reinvestment plan as set out in the prospectus of the Fund, corresponding
to the date of this Agreement.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time
by agreement between the Fund and the Bank, the Bank shall:
(i) Issue and record the appropriate number of Shares
as authorized and hold such Shares in the appropriate
Shareholder account;
(ii) Effect transfers of Shares by the registered
owners thereof upon receipt of appropriate documentation;
(iii) Execute transactions directly with broker-dealers authorized
by the Fund who shall thereby be deemed to be acting on
behalf of the Fund.
(iv) Prepare and transmit payments for dividends and
distributions declared by the Fund;
<PAGE> 4
(v) Act as agent for Shareholders pursuant to the dividend
reinvestment and cash purchase plan as amended from time to
time in accordance with the terms of the agreement to be
entered into between the Shareholders and the Bank; and
(vi) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the Bank
of indemnification satisfactory to the Bank and protecting the
Bank and the Fund, and the Bank at its option, may issue
replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i)
perform all the customary services of a registrar, transfer agent,
dividend disbursing agent, custodian of certain retirement plans and
agent of the dividend reinvestment and cash purchase plan as
described in Section 1 consistent with those requirements in effect
as at the date of this Agreement. The detailed definition,
frequency, limitations and associated costs (if any) set out in the
attached fee schedule, include but not limited to: maintaining all
Shareholder accounts, preparing Shareholder meeting lists, mailing
proxies, mailing Shareholder reports to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts
where applicable, preparing and filing U.S. Treasury Department
Forms 1099 and other appropriate forms required with respect to
dividends and distributions by federal authorities for all
registered Shareholders.
(c) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees to pay the Bank an annual maintenance fee as set out in the initial
fee schedule attached hereto. Such fees and out-of-pocket expenses and
advances identified under Section 2.2 below may be changed from time to
time subject to mutual written agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees to
reimburse the Bank for out-of-pocket expenses, including but not limited
to confirmation production, postage, forms, telephone, microfilm,
microfiche, tabulating proxies, records storage, or advances incurred by
the Bank for the items set out in the fee schedule attached hereto. In
addition, any other expenses incurred by the Bank at the request or with
the consent of the Fund, will be reimbursed by the Fund.
2
<PAGE> 5
2.3 The Fund agrees to pay all fees and reimbursable expenses within five
days following the receipt of the respective billing notice. Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
Shareholder accounts shall be advanced to the Bank by the Fund at least
seven (7) days prior to the mailing date of such materials.
3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and Bylaws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1 It is a corporation duly organized and existing and in good standing
under the laws of Maryland.
4.2 It is empowered under applicable laws and by its Articles of
Incorporation and Bylaws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Articles of Incorporation and
Bylaws have been taken to authorize it to enter into and perform this
Agreement.
4.4 It is a closed-end, non-diversified investment company which has elected
to be treated as a business development company under the Investment
Company Act of 1940, as amended (the "1940 Act");
4.5 To the extent required by federal securities laws a registration
statement under the Securities Act of 1933, as amended, is currently
effective, and appropriate state securities law filings
3
<PAGE> 6
have been made with respect to all Shares of the Fund being offered for
sale; information to the contrary will result in immediate notification
to the Bank.
4.6 It shall make all required filings under federal and state securities
laws.
5. Data Access and Proprietary Information
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank
on data bases under the control and ownership of the Bank or other third
party ("Data Access Services") constitute copyrighted, trade secret, or
other proprietary information (collectively, "Proprietary Information") of
substantial value to the Bank or other third party. In no event shall
Proprietary Information be deemed Customer Data. The Fund agrees to
treat all Proprietary Information as proprietary to the Bank and further
agrees that it shall not divulge any Proprietary Information to any person
or organization except as may be provided hereunder. Without limiting the
foregoing, the Fund agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance with the
Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion
of the Proprietary Information, and if such access is inadvertently
obtained, to inform the Bank in a timely manner of such fact and
dispose of such information in accordance with the Bank's
instructions;
(d) to refrain from causing or allowing third-party data acquired
hereunder from being retransmitted to any other computer facility or
other location, except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties; and
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under
other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
4
<PAGE> 7
5.2 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make no
claim against the Bank arising out of the contents of such third-party
data, including, but not limited to, the accuracy thereof. DATA ACCESS
SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN
CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE
BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information, (such transactions constituting a
"COEFI"), then in such event the Bank shall be entitled to rely on the
validity and authenticity of such instruction without undertaking any
further inquiry as long as such instruction is undertaken in conformity
with security procedures established by the Bank from time to time.
6. Indemnification
6.1 The Bank shall not be responsible for, and the Fund shall indemnify and
hold the Bank harmless from and against, any and all losses, damages,
costs, charges, counsel fees, payments, expenses and liability arising out
of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken
in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct which
arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors of
information, records, documents or services which (i) are received by
the Bank or its agents or subcontractors, and (ii) have been prepared,
maintained or performed by the Fund or any other person or firm on
behalf of the Fund including but not limited to any previous transfer
agent or registrar.
5
<PAGE> 8
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state.
(f) The negotiation and processing by the Bank of checks not made payable
to the order of the Bank, the Fund, the Fund's management company,
transfer agent or distributor or the retirement account custodian or
trustee for a plan account investing in Shares, which checks are
tendered to the Bank for the purchase of Shares (i.e., checks made
payable to prospective or existing Shareholders, such checks are
commonly known as "third party checks").
6.2 At any time, the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the Bank
under this Agreement, and the Bank and its agents or subcontractors shall
not be liable and shall be indemnified by the Fund for any action taken or
omitted by it in reliance upon such instructions or upon the opinion of
such counsel. The Bank, its agents and subcontractors shall be protected
and indemnified in acting upon any paper or document, reasonably believed
to be genuine and to have been signed by the proper person or persons, or
upon any instruction, information, data, records or documents provided the
Bank or its agents or subcontractors by machine readable input, telex, CRT
data entry or other similar means authorized by the Fund, and shall not be
held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper manual
or facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
6.3 In order that the indemnification provisions contained in this Section 6
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of
such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to defend
against said claim in its own name or in the name of the Bank. The Bank
shall in no case confess any claim or make any compromise in any case in
which the Fund may be required to indemnify the Bank except with the
Fund's prior written consent.
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<PAGE> 9
7. Standard of Care
The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not
be liable for loss or damage due to errors unless said errors are caused by
its negligence, bad faith, or willful misconduct or that of its employees.
8. Covenants of the Fund and the Bank
8.1 The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Articles of Incorporation and Bylaws of the Fund and all
amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared
or maintained by the Bank relating to the services to be performed by the
Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules,
and will be surrendered promptly to the Fund on and in accordance with its
request.
8.4 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any
other person, except as may be required by law.
8.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Bank will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
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<PAGE> 10
9. Termination of Agreement
9.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund. Additionally, the Bank reserves the right to charge
for any other reasonable expenses associated with such termination and/or
a charge equivalent to the average of three (3) months' fees.
10. Assignment
10.1 Except as provided in Section 10.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
10.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
10.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(1) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(1)"); (ii) a
BFDS subsidiary duly registered as a transfer agent pursuant to Section
17A(c)(1); or (iii) a BFDS affiliate; provided, however, that the Bank
shall be as fully responsible to the Fund for the acts and omissions of
any subcontractor as it is for its own acts and omissions.
11. Amendment
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
12. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the Commonwealth of
Massachusetts.
13. Force Majeure
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party
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<PAGE> 11
shall not be liable for damages to the other for any damages resulting from
such failure to perform or otherwise from such causes.
14. Consequential Damages
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
15. Merger of Agreement
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
16. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
17. Reproduction of Documents
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto all/each agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not
such reproduction was made by a party in the regular course of business,
and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
BRANTLEY CAPITAL CORPORATION
BY:
------------------------------------
ATTEST:
- -----------------------------------
STATE STREET BANK AND TRUST COMPANY
BY:
---------------------------------
Executive Vice President
ATTEST:
- ----------------------------------
<PAGE> 1
EXHIBIT 2.k.2.
ADMINISTRATION AGREEMENT
Agreement dated as of , 1996 by and between State Street
Bank and Trust Company, a Massachusetts trust company (the "Administrator"), and
Brantley Capital Corporation (the "Fund").
WHEREAS, the Fund is a closed-end, non-diversified investment company
which has elected to be treated as a business development company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain the Administrator to furnish
certain administrative services to the Fund, and the Administrator is willing to
furnish such services, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF ADMINISTRATOR
The Fund hereby appoints the Administrator to act as administrator
with respect to the Fund for purposes of providing certain administrative
services for the period and on the terms set forth in this Agreement. The
Administrator accepts such appointment and agrees to render the services stated
herein.
The Fund will initially consist of the portfolio(s) and/or class(es)
of shares (each an "Investment Fund") listed in Schedule A to this Agreement.
In the event that the Fund establishes one or more additional Investment Funds
with respect to which it wishes to retain the Administrator to act as
administrator hereunder, the Fund shall notify the Administrator in writing.
Upon written acceptance by the Administrator, such Investment Fund shall become
subject to the provisions of this Agreement to the same extent as the existing
Investment Funds, except to the extent that such provisions (including those
relating to the compensation and expenses payable by the Fund and its Investment
Funds) may be modified with respect to each additional Investment Fund in
writing by the Fund and the Administrator at the time of the addition of the
Investment Fund.
2. DELIVERY OF DOCUMENTS
The Fund will promptly deliver to the Administrator copies of each of
the following documents and all future amendments and supplements, if any:
a. The Fund's charter document and by-laws;
b. The Fund's currently effective registration statement under the
Securities Act of 1933, as amended (the "1933 Act"), and all
amendments and supplements thereto as in effect from time to
time;
<PAGE> 2
c. Certified copies of the resolutions of the Board of Directors of
the Fund (the "Board") authorizing (1) the Fund to enter into
this Agreement and (2) certain individuals on behalf of the Fund
to (a) give instructions to the Administrator pursuant to this
Agreement and (b) sign checks and pay expenses;
d. A copy of the investment advisory agreement between the Fund and
its investment adviser; and
e. Such other certificates, documents or opinions which the
Administrator may, in its reasonable discretion, deem necessary
or appropriate in the proper performance of its duties.
3. REPRESENTATION AND WARRANTIES OF THE ADMINISTRATOR
The Administrator represents and warrants to the Fund that:
a. It is a Massachusetts trust company, duly organized, existing and
in good standing under the laws of The Commonwealth of
Massachusetts;
b. It has the corporate power and authority to carry on its business
in The Commonwealth of Massachusetts;
c. All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement;
d. No legal or administrative proceedings have been instituted or
threatened which would impair the Administrator's ability to
perform its duties and obligations under this Agreement; and
e. Its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or
obligation of the Administrator or any law or regulation
applicable to it.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Administrator that:
a. It is a corporation, duly organized and existing and in good
standing under the laws of the State of Maryland;
b. It has the corporate power and authority under applicable laws
and by its charter and by-laws to enter into and perform this
Agreement;
c. All requisite proceedings have been taken to authorize it to
enter into and perform this Agreement;
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<PAGE> 3
d. It is a closed-end, non-diversified investment company which
has elected to be treated as a business development company
under the 1940 Act;
e. A registration statement under the 1933 Act and has been filed
and will be effective and remain effective during the term of
this Agreement. The Fund also warrants to the Administrator that
all necessary filings under the securities laws of the states in
which the Fund offers or sells its shares will have been made and
will be current during the term of this Agreement;
f. No legal or administrative proceedings have been instituted or
threatened which would impair the Fund's ability to perform its
duties and obligations under this Agreement;
g. Its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or
obligation of the Fund or any law or regulation applicable to it;
and
h. As of the close of business on the date of this Agreement, the
Fund is authorized to issue shares of capital stock, and it will
initially offer shares, in the authorized amounts as set forth in
Schedule A to this Agreement.
5. ADMINISTRATION SERVICES
The Administrator shall provide the following services, in each case,
subject to the control, supervision and direction of the Fund and the review and
comment by the Fund's auditors and legal counsel and in accordance with
procedures which may be established from time to time between the Fund and the
Administrator:
a. Oversee the determination and publication of the Fund's net asset
value in accordance with the Fund's policy as adopted from time
to time by the Board;
b. Oversee the maintenance by the Fund's custodian of certain books
and records of the Fund as required under Rule 31a-1(b) of the
1940 Act;
c. Prepare the Fund's federal, state and local income tax returns
for review by the Fund's independent accountants and filing by
the Fund's treasurer;
d. Review calculation, submit for approval by officers of the Fund
and arrange for payment of the Fund's expenses;
e. Prepare for review and approval by officers of the Fund financial
information for the Fund's semi-annual and annual reports, proxy
statements and other
3
<PAGE> 4
communications required or otherwise to be sent to Fund
shareholders, and arrange for the printing and dissemination of
such reports and communications to shareholders;
f. Prepare for review by an officer of and legal counsel for the
Fund the Fund's periodic financial statements required to be
filed with the Securities and Exchange Commission ("SEC") as
parts of Form 10K and 10Q. Brantley Capital Corporation is
responsible for preparing Forms 10K and 10Q other than the
financial statements;
g. Prepare reports relating to the business and affairs of the Fund
as may be mutually agreed upon and not otherwise prepared by the
Fund's investment adviser, custodian, legal counsel or
independent accountants;
h. Make such reports and recommendations to the Board concerning the
performance of the independent accountants as the Board may
reasonably request;
i. Make such reports and recommendations to the Board concerning the
performance and fees of the Fund's custodian and transfer and
dividend disbursing agent ("Transfer Agent") as the Board may
reasonably request or deems appropriate;
j. Oversee and review calculations of fees paid to the Fund's
investment adviser, custodian and Transfer Agent;
k. Consult with the Fund's officers, independent accountants, legal
counsel, custodian and Transfer Agent in establishing the
accounting policies of the Fund;
l. Review implementation of any dividend reinvestment programs
authorized by the Board;
m. Respond to, or refer to the Fund's officers or Transfer Agent,
shareholder inquiries relating to the Fund;
n. Provide periodic testing of portfolios to assist the Fund's
investment adviser in complying with Internal Revenue Code
mandatory qualification requirements, the requirements of the
1940 Act and Fund prospectus limitations as may be mutually
agreed upon. The Administrator will rely on the Fund's
investment adviser's determination that an investment is an
Eligible Portfolio Company under the 1940 Act.
The Administrator shall provide the office facilities and the personnel
required by it to perform the services contemplated herein.
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<PAGE> 5
6. FEES; EXPENSES; EXPENSE REIMBURSEMENT
The Administrator shall receive from the Fund such compensation for
the Administrator's services provided pursuant to this Agreement as may be
agreed to from time to time in a written fee schedule approved by the parties
and initially set forth in Schedule B to this Agreement. The fees are accrued
daily and billed monthly and shall be due and payable upon receipt of the
invoice. Upon the termination of this Agreement before the end of any month,
the fee for the part of the month before such termination shall be prorated
according to the proportion which such part bears to the full monthly period and
shall be payable upon the date of termination of this Agreement. In addition,
the Fund shall reimburse the Administrator for its out-of-pocket costs incurred
in connection with this Agreement.
The Fund agrees promptly to reimburse the Administrator for any
equipment and supplies specially ordered by or for the Fund through the
Administrator and for any other expenses not contemplated by this Agreement that
the Administrator may incur on the Fund's behalf at the Fund's request or with
the Fund's consent.
The Fund will bear all expenses that are incurred in its operation and
not specifically assumed by the Administrator. Expenses to be borne by the
Fund, include, but are not limited to: organizational expenses; cost of
services of independent accountants and outside legal and tax counsel (including
such counsel's review of the Fund's registration statement, proxy materials,
federal and state tax qualification as a regulated investment company and other
reports and materials prepared by the Administrator under this Agreement); cost
of any services contracted for by the Fund directly from parties other than the
Administrator; cost of trading operations and brokerage fees, commissions and
transfer taxes in connection with the purchase and sale of securities for the
Fund; investment advisory fees; taxes, insurance premiums and other fees and
expenses applicable to its operation; costs incidental to any meetings of
shareholders including, but not limited to, legal and accounting fees, proxy
filing fees and the costs of preparation, printing and mailing of any proxy
materials; costs incidental to Board meetings, including fees and expenses of
Board members; the salary and expenses of any officer, director\trustee or
employee of the Fund; costs incidental to the preparation, printing and
distribution of the Fund's registration statements and any amendments thereto
and shareholder reports; cost of typesetting and printing of prospectuses; cost
of preparation and filing of the Fund's tax returns, Form N-1A or N-2 and Form
N-SAR, and all notices, registrations and amendments associated with applicable
federal and state tax and securities laws; all applicable registration fees and
filing fees required under federal and state securities laws; fidelity bond and
directors' and officers' liability insurance; and cost of independent pricing
services used in computing the Fund's net asset value.
The Administrator is authorized to and may employ or associate with
such person or persons as the Administrator may deem desirable to assist it in
performing its duties under this Agreement; provided,however, that the
compensation of such person or persons shall be paid by the Administrator and
that the Administrator shall be as fully responsible to the Fund for the acts
and omissions of any such person or persons as it is for its own acts and
omissions.
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<PAGE> 6
7. INSTRUCTIONS AND ADVICE
At any time, the Administrator may apply to any officer of the Fund
for instructions and may consult with its own legal counsel or outside counsel
for the Fund or the independent accountants for the Fund at the expense of the
Fund, with respect to any matter arising in connection with the services to be
performed by the Administrator under this Agreement. The Administrator shall
not be liable, and shall be indemnified by the Fund, for any action taken or
omitted by it in good faith in reliance upon any such instructions or advice or
upon any paper or document believed by it to be genuine and to have been signed
by the proper person or persons. The Administrator shall not be held to have
notice of any change of authority of any person until receipt of written notice
thereof from the Fund. Nothing in this paragraph shall be construed as imposing
upon the Administrator any obligation to seek such instructions or advice, or to
act in accordance with such advice when received.
8. LIMITATION OF LIABILITY AND INDEMNIFICATION
The Administrator shall be responsible for the performance of only
such duties as are set forth in this Agreement and, except as otherwise provided
under Section 6, shall have no responsibility for the actions or activities of
any other party, including other service providers. The Administrator shall
have no liability for any error of judgement or mistake of law or for any loss
or damage resulting from the performance or nonperformance of its duties
hereunder unless solely caused by or resulting from the gross negligence or
willful misconduct of the Administrator, its officers or employees. The
Administrator shall not be liable for any special, indirect, incidental, or
consequential damages of any kind whatsoever (including, without limitation,
attorneys' fees) under any provision of this Agreement or for any such damages
arising out of any act or failure to act hereunder. In any event, the
Administrator's liability under this Agreement shall be limited to its total
annual compensation earned and fees paid hereunder during the preceding twelve
months for any liability or loss suffered by the Fund including, but not limited
to, any liability relating to qualification of the Fund as a regulated
investment company or any liability relating to the Fund's compliance with any
federal or state tax or securities statute, regulation or ruling.
The Administrator shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its control,
including without limitation, work stoppage, power or other mechanical failure,
computer virus, natural disaster, governmental action or communication
disruption, nor shall any such failure or delay give the Fund the right to
terminate this Agreement.
The Fund shall indemnify and hold the Administrator harmless from all
loss, cost, damage and expense, including reasonable fees and expenses for
counsel, incurred by the Administrator resulting from any claim, demand, action
or suit in connection with the Administrator's acceptance of this Agreement, any
action or omission by it in the performance of its duties hereunder, or as a
result of acting upon any instructions reasonably believed by it to have been
duly authorized by the Fund, provided that this indemnification shall not apply
to actions or omissions of the Administrator, its officers or employees in cases
of its or their own gross negligence or willful misconduct.
The Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability subject to the indemnification
6
<PAGE> 7
provided above. In the event the Fund elects to assume the defense of any such
suit and retain counsel, the Administrator or any of its affiliated persons,
named as defendant or defendants in the suit, may retain additional counsel but
shall bear the fees and expenses of such counsel unless (i) the Fund shall have
specifically authorized the retaining of such counsel or (ii) the Administrator
shall have determined in good faith that the retention of such counsel is
required as a result of a conflict of interest.
The indemnification contained herein shall survive the termination of
this Agreement.
9. CONFIDENTIALITY
The Administrator agrees that, except as otherwise required by law or
in connection with any required disclosure to a banking or other regulatory
authority, it will keep confidential all records and information in its
possession relating to the Fund or its shareholders or shareholder accounts and
will not disclose the same to any person except at the request or with the
written consent of the Fund.
10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS; RECORDS
The Fund assumes full responsibility for complying with all
securities, tax, commodities and other laws, rules and regulations applicable to
it.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Administrator agrees that all records which it maintains for the Fund shall
at all times remain the property of the Fund, shall be readily accessible during
normal business hours, and shall be promptly surrendered upon the termination of
the Agreement or otherwise on written request. The Administrator further agrees
that all records which it maintains for the Fund pursuant to Rule 31a-1 under
the 1940 Act will be preserved for the periods prescribed by Rule 31a-2 under
the 1940 Act unless any such records are earlier surrendered as provided above.
Records shall be surrendered in usable machine-readable form.
11. SERVICES NOT EXCLUSIVE
The services of the Administrator to the Fund are not to be deemed
exclusive, and the Administrator shall be free to render similar services to
others. The Administrator shall be deemed to be an independent contractor and
shall, unless otherwise expressly provided herein or authorized by the Fund from
time to time, have no authority to act or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
12. TERM, TERMINATION AND AMENDMENT
This Agreement shall become effective on .
The Agreement shall remain in effect for a period of from the
effective date, and shall automatically continue in effect thereafter with
respect to the Fund unless terminated in writing by either party at the end of
such period or thereafter on sixty (60) days' prior written notice given by
either party to the other party. Termination of this Agreement with respect to
any given Investment Fund shall in no way affect the continued validity of this
Agreement with respect to any other Investment Fund. Upon termination of this
Agreement, the Fund shall pay to the Administrator such compensation and any
reimbursable expenses as
7
<PAGE> 8
may be due under the terms hereof as of the date of such termination, including
reasonable out-of-pocket expenses associated with such termination. This
Agreement may be modified or amended from time to time by mutual written
agreement of the parties hereto.
13. NOTICES
Any notice or other communication authorized or required by this
Agreement to be given to either party shall be in writing and deemed to have
been given when delivered in person or by confirmed facsimile, or posted by
certified mail, return receipt requested, to the following address (or such
other address as a party may specify by written notice to the other): if to the
Fund: , Attn: , fax: ; if to the Administrator: State Street
Bank and Trust Company, 1776 Heritage Drive, North Quincy, Massachusetts 02171,
Attn: Sharon B. Morin, Vice President and Counsel, fax: (617) 985-2497.
14. NON-ASSIGNABILITY
This Agreement shall not be assigned by either party hereto without
the prior consent in writing of the other party, except that the Administrator
may assign this Agreement to a successor of all or a substantial portion of its
business, or to a party controlling, controlled by or under common control with
the Administrator.
15. SUCCESSORS
This Agreement shall be binding on and shall inure to the benefit of
the Fund and the Administrator and their respective successors and permitted
assigns.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding between the parties
hereto with respect to the subject matter hereof and supersedes all previous
representations, warranties or commitments regarding the services to be
performed hereunder whether oral or in writing.
17. WAIVER
The failure of a party to insist upon strict adherence to any term of
this Agreement on any occasion shall not be considered a waiver nor shall it
deprive such party of the right thereafter to insist upon strict adherence to
that term or any term of this Agreement. Any waiver must be in writing signed
by the waiving party.
18. SEVERABILITY
If any provision of this Agreement is invalid or unenforceable, the
balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any person or circumstance it shall nevertheless remain
applicable to all other persons and circumstances.
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<PAGE> 9
19. GOVERNING LAW
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
20. COUNTERPARTS
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
21. REPRODUCTION OF DOCUMENTS
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
BRANTLEY CAPITAL CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
STATE STREET BANK AND TRUST COMPANY
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
9
<PAGE> 10
ADMINISTRATION AGREEMENT
BRANTLEY CAPITAL CORPORATION
SCHEDULE A
LISTING OF INVESTMENT FUNDS AND AUTHORIZED SHARES
Investment Fund Authorized Shares
10
<PAGE> 11
ADMINISTRATION AGREEMENT
BRANTLEY CAPITAL CORPORATION
SCHEDULE B
FEES AND EXPENSES
11
<PAGE> 1
Exhibit 2.L.
[JENNER & BLOCK LETTERHEAD]
November 22, 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 11,500,000 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 22, 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 11,500,000 shares of Common Stock to be sold by the
Company to the public pursuant to the Registration Statement (including the
1,500,000 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,
JENNER & BLOCK
<PAGE> 1
EXHIBIT 2.N.
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 30, 1996, in the Registration Statement
(Form N-2 No. 333-10785) and related Prospectus of Brantley Capital Corporation
for the registration of 10,000,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
November 22, 1996
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Exhibit 2.s.
BRANTLEY CAPITAL CORPORATION
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered
into on this ____ day of ________, 1996 between BRANTLEY CAPITAL CORPORATION, a
Maryland corporation (the "Corporation"), and _________________ ("Indemnitee").
INTRODUCTION
The Corporation is a closed-end, non-diversified investment company
which has elected to be treated as a business development company under the
Investment Company Act of 1940 (the "1940 Act"). The Corporation has been
formed to invest in the equity securities and equity-linked debt securities of
private companies and in the equity securities of post-venture small-cap public
companies.
IT IS, THEREFORE, AGREED:
1. INCORPORATION OF INTRODUCTION. The introduction set forth
above is hereby incorporated in and made part of this Agreement.
2. INDEMNIFICATION. The Corporation shall forever indemnify, and
keep indemnified Indemnitee, from and against any and all expenses (including,
without limitation, expenses of investigation and preparation and reasonable
fees and disbursements of Indemnitee's counsel, accountants or other experts),
judgments, fines, penalties and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, and whether or not such action is by or in the right of the
Corporation, its affiliates or such other enterprises with respect to which
Indemnitee serves or has served as a director or officer, by reason of or
relating to the fact that Indemnitee is or was a director or officer of the
Corporation or an affiliate of the Corporation, or is or was serving at the
request of the Corporation as a director, officer or trustee of another
corporation, partnership, joint venture, trust or other enterprise, and whether
or not the cause of such action, suit or proceeding occurred before or after
the date of this Agreement.
For purposes of this Agreement, the term "expenses" shall
include, without limitation, those incurred to establish a right to and compel
payment of indemnification and/or contribution under this Agreement, any other
Agreement, the Corporation's Bylaws or the General Corporation Law of the State
of Maryland, and to establish coverage and compel payment under a directors'
and officers' liability insurance policy.
In the event that, under applicable law, the entitlement of
Indemnitee to be indemnified hereunder shall depend upon whether Indemnitee
shall have acted in good faith and (i) in the case of conduct in such person's
official capacity with the Corporation, in a manner he reasonably believed to
be in the best interests of the Corporation and (ii) in all other cases, in a
manner he reasonably believed to be not opposed to the best interests of
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the Corporation, and with respect to criminal actions or proceedings, had no
reasonable cause to believe his conduct was unlawful, or shall have acted in
accordance with some other defined standard of conduct, or whether fees and
disbursements of counsel and other costs and amounts are reasonable, the burden
of proof of establishing that Indemnitee has not acted in accordance with such
standard and that such costs and amounts are unreasonable shall rest with the
corporation and Indemnitee shall be presumed to have acted in accordance with
such standard, such costs and amounts shall be presumed to be reasonable and
Indemnitee shall be entitled to indemnification unless, and only unless, based
upon a preponderance of the evidence, it shall be determined by a court of
competent jurisdiction that Indemnitee has not met such standard or, with
respect to the amount of indemnification, that such costs and amounts are not
reasonable (in which case Indemnitee shall be indemnified to the extent such
costs and amounts are determined by such court to be reasonable). The
foregoing shall not be construed to limit indemnification under this Agreement
to circumstances in which Indemnitee has acted within the standards of care set
forth in the General Corporation Law of the State of Maryland. In any event,
and not as a condition or in limitation of the foregoing, indemnification to
which Indemnitee is entitled hereunder shall be made immediately upon the
determination that Indemnitee has met such standard (i) by the Board of
Directors of the Corporation by a majority vote of a quorum consisting of
directors who are neither "interested persons" of the Corporation as defined in
the 1940 Act and who were not parties to such action, suit or proceeding, (ii)
if such a quorum is not obtainable, by a majority vote of a committee of the
Board of Directors consisting solely of two or more directors who are duly
designated to act in the matter by a majority vote of the full Board of
Directors, (iii) by independent legal counsel in a written opinion, or (iv) by
the stockholders of the Corporation.
Notwithstanding any other provision of this Section 2, no
indemnification or other protection shall be made or given to the Indemnitee
against any liability to the Corporation or its stockholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
3. NOTICE. Indemnitee shall notify the Corporation in writing of
any matter with respect to which Indemnitee intends to seek indemnification
hereunder as soon as reasonably practicable following the receipt by Indemnitee
of written threat thereof, provided, however, that failure to so notify the
Corporation shall not constitute a waiver by Indemnitee of his rights
hereunder.
4. ADVANCEMENT. In the event of any action, suit or proceeding
against Indemnitee which may give rise to a right of indemnification from the
Corporation pursuant to this Agreement, following written request to the
Corporation by Indemnitee, the Corporation shall advance to Indemnitee amounts
to cover expenses incurred by Indemnitee in defending such action, suit or
proceeding in advance of the final disposition thereof upon receipt of (i) an
undertaking by or on behalf of Indemnitee to repay such amount if it shall
ultimately be determined by final judgment of a court of competent jurisdiction
that he is not entitled to be indemnified by the Corporation hereunder, and
(ii) satisfactory evidence as to the amount of such expenses. Indemnitee's
written certification together with a copy
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of the statement paid or to be paid by Indemnitee shall constitute satisfactory
evidence absent manifest error.
5. CONTRIBUTION.
(a) If the indemnification provided in Section 2 should
under applicable law be unenforceable or insufficient to hold Indemnitee
harmless in respect of any and all expenses, judgments, fines, penalties and
amounts paid in settlement, then the Corporation agrees, subject to the
provisions of Section 5(b) below, that for purposes of this Section 5 only, the
Corporation shall, upon written notice from Indemnitee, be treated as if it
were a party who was or was threatened to be made a party to such threatened,
pending or contemplated action, suit or proceeding and the Corporation shall
contribute to the amounts paid or payable by the Indemnitee as a result of such
expenses, judgments, fines, penalties and amounts paid in settlement in such
proportion as is appropriate to reflect the relative benefits accruing to the
Corporation on the one hand and Indemnitee on the other which arose out of the
event underlying such action, suit or proceeding and also the relative fault of
the Corporation on the one hand and Indemnitee on the other in connection with
such event, as well as any other relevant equitable considerations. For
purposes of this Section 5, the relative benefit of the Corporation shall be
deemed to be the benefits accruing to it and to all of its directors, officers,
employees and agents (other than Indemnitee), as a group and treated as one
entity, and the relative benefit of Indemnitee shall be deemed to be an amount
not greater than Indemnitee's annual compensation from the Corporation and its
subsidiaries during the first calendar year in which the event forming the
basis for such action, suit or proceeding was alleged to have occurred. The
relative fault shall be determined by reference to, among other things, the
fault of the Corporation and all of its directors, officers, employees and
agents (other than Indemnitee) on the one hand, as a group and treated as one
entity, and Indemnitee's and such group's relative intent, knowledge, access to
information and opportunity to have altered or prevented the action or
inaction, or alleged action or inaction, forming the basis for such action,
suit or proceeding.
(b) No provision of this Section 5 shall operate to
create a right of contribution in favor of Indemnitee if it is judicially
determined that, with respect to any such action, suit or proceeding to which
Subsection (a) pertains, Indemnitee intentionally caused or contributed to the
injury complained of with the actual knowledge that such injury would occur.
6. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim for
indemnification (including the advancement of expenses) under Section 2 is not
paid in full by the Corporation within 45 days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement
of expenses, in which case the applicable period shall be 20 days, the
Indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Indemnitee
shall be entitled to be paid also the expense of procuring or defending such
suit. In any suit brought by the Indemnitee to enforce a right to
indemnification hereunder (but not by the Indemnitee to enforce a right to an
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advancement of expenses) it shall be a defense that the Indemnitee has not met
the applicable standard of care set forth in the General Corporation Law of the
State of Maryland or the 1940 Act. In any suit by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final
adjudication that the Indemnitee has not met the applicable standard of care
set forth in the General Corporation Law of the State of Maryland or the 1940
Act. Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made determination
prior to the commencement of any such suit that indemnification of the
Indemnitee is proper in the circumstances because the Indemnitee has met the
applicable standard of care set forth in the General Corporation Law of the
State of Maryland or the 1940 Act, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the Indemnitee has not met such applicable standard of
care, shall create a presumption that the Indemnitee has not met the applicable
standard of care or, in the case of such a suit brought by the Indemnitee, be a
defense to such suit. In any suit brought by the Indemnitee to enforce a right
to indemnification or to an advancement of expenses hereunder, or by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the Indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Section 6 or
otherwise shall be on the Corporation.
7. OTHER INDEMNIFICATION. The indemnification rights granted to
Indemnitee under this Agreement shall not be deemed exclusive of, or in
limitation of, any rights to which Indemnitee may be entitled under Maryland
law, the Corporation's Articles of Incorporation or Bylaws, any other
agreement, vote of stockholders or directors or otherwise. If Indemnitee is
entitled to indemnification other than pursuant to this Agreement, or is
entitled to receive payments pursuant to a directors' and officers' liability
insurance policy, Indemnitee may choose one or more sources or bases of such
indemnification and payments in his sole discretion, provided, however, that
Indemnitee shall not be entitled to duplicate payments if such payments would
cause the total amount received by Indemnitee to exceed the total sum of
expenses, judgments, fines, penalties and amounts paid in settlement actually
incurred by Indemnitee.
8. BINDING EFFECT. The rights granted to Indemnitee hereunder
shall inure to the benefit of Indemnitee, his personal representative, heirs,
executors, administrators and beneficiaries, and this Agreement shall be
binding upon the Corporation, its successors and assigns. The indemnification,
contribution and advancement of expenses pursuant to this Agreement shall
continue after Indemnitee ceases his service as either a director or officer of
the Corporation.
9. MARYLAND LAW; CONSTRUCTION. This Agreement shall be governed
by the laws of the State of Maryland. If any provision of this Agreement is
invalid as applied to any fact or circumstance, it shall be modified to the
minimum extent necessary to render it valid, and its invalidity shall not
affect the validity of any other provision or of the same provision as applied
to any other fact or circumstance.
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10. COUNTERPARTS. This Agreement may be executed by any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement
the day and year first stated above.
BRANTLEY CAPITAL CORPORATION
By:
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Robert P. Pinkas
Chairman of the Board, Chief Executive Officer,
Chief Financial Officer and Treasurer
INDEMNITEE
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[Name]
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