<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Plymouth Commercial Mortgage Fund
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
PLYMOUTH COMMERCIAL MORTGAGE FUND
April 4, 1997
Dear Fellow Shareholder:
I am writing to let you know that the first Annual Meeting of
Shareholders of Plymouth Commercial Mortgage Fund (the "Company") will be held
on April 24, 1997 to vote on four important proposals that affect the Company
and your investment in it. As a Shareholder, you have the opportunity to voice
your opinion on these matters. This package contains information about the
proposals and the materials to use when voting by mail.
Please take the time to read the enclosed materials. YOUR PROXY IS
IMPORTANT TO US. SIGNED BUT UNMARKED PROXY BALLOTS WILL BE COUNTED IN
DETERMINING WHETHER A QUORUM IS PRESENT AND WILL BE VOTED IN FAVOR OF EACH OF
THE PROPOSALS, AND, IN THE DISCRETION OF THE PROXY AGENTS, AS TO OTHER MATTERS
THAT MAY COME PROPERLY BEFORE, OR ON MATTERS INCIDENT TO THE CONDUCT OF, THE
ANNUAL MEETING.
The proposals summarized below have been carefully reviewed by the
Company's Board of Trustees (the "Board"). The Board believes these proposals
are in the best interest of Shareholders and recommends that you vote FOR each
proposal.
Your early response will be appreciated and could save the Company the
substantial costs associated with a follow-up meeting. You may be contacted by
a representative of the Company who is soliciting proxies on behalf of the
Board. If signed proxy ballots are not returned in sufficient numbers to
constitute a quorum, the Board intends to re-solicit proxies from Shareholders
who have not responded so that business can be conducted at the Annual Meeting.
Such re-solicitation would be a costly process paid for by the Company.
HERE IS A BRIEF SUMMARY OF THE PROPOSALS:
PROPOSAL 1 is to elect 5 trustees of the Company.
PROPOSAL 2 is to approve the continuation of the investment advisory
agreement between the Company and Greystone Advisers, Inc.
PROPOSAL 3 is to ratify the selection of KPMG Peat Marwick LLP as the
Company's independent public accountant for the year ending December
31, 1997.
PROPOSAL 4 is to clarify certain aspects of the warrants issued to
SouthWest Federated Holding Company, Inc.
VOTING BY MAIL IS QUICK AND EASY. EVERYTHING YOU NEED IS ENCLOSED.
We encourage you to exercise your right as a Shareholder and to vote
on the proposals. To cast your vote, simply complete the proxy ballot enclosed
in this package. Please be sure to sign the card before mailing it in the
postage-paid envelope provided. WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING
OR NOT, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY BALLOT AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
If you have any questions before you vote, please call John Mosher at
(210) 493-3971, Ext. 204. We'll be glad to help you get your vote in quickly.
Thank you for your participation in this important process for the Company.
Sincerely,
Robert R. Swendson
President and Chief Executive Officer
<PAGE> 3
PLYMOUTH COMMERCIAL MORTGAGE FUND
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
NOTICE IS HEREBY GIVEN that the first Annual Meeting (the "Meeting")
of owners of common shares of beneficial interest ("Shareholders") in Plymouth
Commercial Mortgage Fund, a Delaware business trust (the "Company"), will be
held at the offices of Duncan-Smith Co., 311 Third Street, 3rd Floor, San
Antonio, Texas 78205 on Thursday, April 24, 1997, at 8 a.m. Central time. The
purpose of the Meeting is to consider and act upon the following proposals,
which are more fully described in the accompanying proxy statement:
1. To elect 5 trustees to serve for 1 year and until their
successors are elected and qualified.
2. To approve the continuation of the investment advisory
agreement between the Company and Greystone Advisers, Inc.
3. To ratify the selection of KPMG Peat Marwick LLP as the
Company's independent public accountant for the year ending
December 31, 1997.
4. To clarify certain aspects of the warrants issued to SouthWest
Federated Holding Company, Inc.
5. To transact such other business as may properly come before
the Meeting or any adjournment thereof.
The Board of Trustees of the Company has fixed the close of business
on Friday, March 21, 1997, as the record date for the determination of
Shareholders entitled to notice of, and to vote at, the Meeting and any
adjournments thereof.
By order of the Board of Trustees,
Kenneth L. Bennight, Jr.
Vice President and Secretary
April 4, 1997
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY BALLOT PROMPTLY.
==============================================================================
AS A SHAREHOLDER OF THE COMPANY, YOU ARE INVITED TO ATTEND THE MEETING, EITHER
IN PERSON OR BY PROXY. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON, PLEASE COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY BALLOT IN
THE POSTAGE-PAID ENVELOPE PROVIDED. YOUR PROMPT RETURN OF THE PROXY BALLOT
WILL HELP ASSURE THAT A QUORUM, WHICH IS REQUIRED TO CONDUCT BUSINESS, IS
PRESENT AT THE MEETING AND WILL AVOID ADDITIONAL EXPENSES TO THE COMPANY IN
CONNECTION WITH FURTHER SOLICITATION OF PROXIES. MAILING YOUR PROXY BALLOT
WILL NOT PREVENT YOU FROM ATTENDING THE MEETING AND VOTING YOUR BENEFICIAL
INTERESTS IN PERSON, IF YOU LATER CHOOSE TO DO SO.
==============================================================================
<PAGE> 4
PLYMOUTH COMMERCIAL MORTGAGE FUND
C/O
GREYSTONE ADVISERS, INC.
13333 BLANCO ROAD, SUITE 314
SAN ANTONIO, TEXAS 78216-7756
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Trustees of Plymouth Commercial Mortgage Fund, a
Delaware business trust (the "Company"), for use at the Company's first Annual
Meeting (the "Meeting") of owners of common shares of beneficial interest
("Shareholders"), to be held at 8 a.m. Central time on Thursday, April 24,
1997, at the office of Duncan-Smith Co., 311 Third Street, 3rd Floor, San
Antonio, Texas 78205, and at any adjournments thereof. This Proxy Statement
and the accompanying proxy ballot are first being sent to Shareholders on or
about April 4, 1997.
If the accompanying proxy ballot is properly signed and dated and is
received in time for the Meeting, those common shares of beneficial interest
("Shares") held of record by you (i.e., those Shares registered directly in
your name) will be voted as specified on that proxy ballot. If no instructions
are given on the proxy ballot, the Shares covered thereby will be voted FOR the
proposals listed in the accompanying Notice of Annual Meeting of Shareholders
(the "Notice"). Shareholders of record may revoke a proxy at any time before
it is exercised by so notifying the Secretary of the Company in writing at the
above address, by submitting a properly executed proxy with a later date, or by
attending the Meeting and voting in person. Any Shareholder of record
attending the Meeting may vote in person whether or not he or she has
previously executed and returned a proxy ballot.
BACKGROUND OF THE COMPANY AND THE PROPOSALS
The Company was organized under the laws of the State of Delaware on
August 23, 1996 as a business trust, and has elected to be regulated as a
business development company ("BDC") under the Investment Company Act of 1940,
as amended (the "1940 Act"). The Meeting constitutes the first annual meeting
of Shareholders, and has been called to permit Shareholders to consider the
following proposals:
1. To elect 5 trustees to serve for 1 year and until their
successors are elected and qualified.
2. To approve the continuation of the investment advisory
agreement (the "Advisory Agreement") between the Company and
Greystone Advisers, Inc. ("Greystone").
3. To ratify the selection of KPMG Peat Marwick LLP as the
Company's independent public accountant for the year ending
December 31, 1997.
4. To clarify certain aspects of the warrants issued to
SouthWest Federated Holding Company, Inc. ("SWFHC").
5. To transact such other business as may properly come before
the Meeting or any adjournment thereof.
VOTING
On March 21, 1997, there were 921,627 Shares outstanding, each of
which is entitled to one vote. The Shareholders entitled to vote at the Meeting
are those of record as of the close of business on that date. SouthWest
Federated, Inc., which directly owns approximately 2.25% of the Shares, and
Robert R. Swendson, who directly owns 1.09% of the Shares, have agreed to vote
their Shares, on all matters on which Shareholders are required or permitted to
vote, only in the same proportion as the Shares voted by the Company's other
Shareholders. The
<PAGE> 5
foregoing approach is often taken by a majority shareholder which is affiliated
with an investment company, but is not necessarily required.
One-tenth (1/10) of the Shares entitled to vote at the Meeting
constitutes a quorum. If a Share is represented in person or by proxy for any
purpose at the Meeting, it is deemed to be present for quorum purposes.
Abstentions will be counted as present in determining whether a quorum has been
reached. Once a quorum has been reached, a determination must be made as to
the results of the vote on each of the Proposals.
With respect to Proposal 1, to elect the 5 Trustees that currently
serve on the Company's Board, the Trustee nominees each must receive a
plurality of the votes cast at the Meeting, which means that a vote withheld
from a particular nominee or nominees will not affect the outcome of the vote
for that particular nominee or nominees. Proposal 2, to approve the
continuation of the Company's Advisory Agreement, must be approved by a "1940
Act vote," which means a vote of the holders of (a) more than 50% of the
outstanding Shares of the Company or (b) 67% or more of the Shares present at
the Meeting if more than 50% of the outstanding Shares of the Company are
represented at the Meeting in person or by proxy, whichever is less. In this
instance, abstentions are considered in determining the number of votes
required to pass Proposal 2, and will have the same legal effect as a vote
against it. Proposal 3, to ratify the selection of accountants, must be
approved by an affirmative vote of a majority of the votes cast on such
Proposal, and abstentions are not counted in determining the outcome of the
vote on Proposal 3. Approval of Proposal 4, to clarify certain aspects of the
Class A and Class B Warrants issued to SWFHC, must be approved by a majority of
the Company's Shareholders and by the holders of a majority of the Company's
outstanding voting securities that are not affiliated persons of the Company,
and therefore abstentions would count as votes against this Proposal.
In the event that a quorum is not present at the Meeting, or in the
event that a quorum is present but sufficient votes to approve a proposal are
not received, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of a majority of the Shares represented at
the Meeting in person or by proxy. The persons named as proxies will vote
those proxies for such adjournment unless marked to be voted against any
proposal for which an adjournment is sought to permit further solicitation of
proxies. Prior to any such adjournment, Shareholder action may be taken to
transact such other business as may properly come before the Meeting if
sufficient affirmative votes have been received.
INFORMATION REGARDING THIS SOLICITATION
The expense of the Company's solicitation of proxies for the Meeting,
including the cost of preparing, printing, and mailing this Proxy Statement and
the accompanying Notice and proxy ballot, will be borne by the Company. In
addition to the solicitation of proxies by the use of the mails, proxies may be
solicited in person and by telephone, facsimile transmission, or telegram by
Trustees or officers of the Company or by regular employees of Greystone, the
Company's investment adviser, without special compensation therefor, or by a
proxy solicitor.
BENEFICIAL OWNERSHIP OF COMMON STOCK
As of March 21, 1997 there were 921,627 Shares outstanding. Each
Share is entitled to one vote. The following table sets forth information as
of such date with respect to the beneficial ownership of the Company's Shares
by: (i) each person known by the Company to own beneficially more than 5% of
such Shares (ii) each Trustee of the Company; (iii) the Chief Executive Officer
of the Company; and (iv) all Trustees and officers of the Company as a group.
- 2 -
<PAGE> 6
<TABLE>
<CAPTION>
===================================================================================================================
Amount and nature of Percent of
Title of class Name and address of beneficial owner beneficial ownership(1) class
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares of SWFHC(2) 70,697 Shares(3) 7.28%(4)
beneficial
interest, no par Robert R. Swendson(2) 80,747 Shares(5) 8.31%(4)
value
James R. Clifton(6) 65,000 Shares(7) 7.05%
William L. Clifton, Jr.(6) 81,160 Shares(8) 8.81%
Goodhue W. Smith, III 136,197 Shares(9) 14.02%(4)
311 Third Street
San Antonio, TX 78205
Christopher Goldsbury, Jr. 200,000 Shares 21.70%
200 Concord Plaza, Suite 620
San Antonio, TX 78216
Trinity University 50,000 Shares 5.43%
715 Stadium Drive
San Antonio, TX 78212
Willis H. Wagner 5,000 Shares .54%
200 Concord Plaza, Suite 620
San Antonio, TX 78216
All Trustees and Executive 226,247 Shares(3) 23.29%(4)
Officers as a Group
===================================================================================================================
</TABLE>
(1) Directly owned unless otherwise indicated.
(2) 13333 Blanco Road, Suite 314, San Antonio, TX 78216-7756.
(3) Includes 50,000 Shares that may be acquired under presently
exercisable subscription rights directly owned by SWFHC and 20,697
Shares directly owned by SouthWest Federated, Inc., a wholly-owned
subsidiary of SWFHC. Does not include 200,000 Shares that may be
acquired upon exercise of certain conditional warrants.
(4) Reflects the dilutive effect of 50,000 Shares not outstanding but
subject to presently exercisable subscription rights which are deemed
to be outstanding for the purpose of computing this percentage. The
other percentage on this column does not reflect this dilutive effect
because the Shares have not been issued.
(5) Includes 100% of the Shares beneficially owned by SWFHC, the voting or
disposition of which Robert R. Swendson may be deemed to have the
power to direct by virtue of his ownership of approximately 46% of
SWFHC's common stock and his position as president and chief executive
officer of SWFHC and as one of its two directors. Mr. Swendson
disclaims beneficial ownership of the Shares owned by SWFHC.
(6) 4830 Lakewood, Suite 5, Waco, TX 76710.
(7) Includes 20,000 Shares owned by two family trusts of which James R.
Clifton is one of two trustees and 20,000 Shares owned by two family
trusts for the benefit of Mr. Clifton's children of which Mr. Clifton
is not a trustee. Mr. Clifton disclaims beneficial ownership of those
Shares that he does not directly own.
(8) Includes 61,160 Shares owned by three family trusts of which William
L. Clifton, Jr., is one of two trustees and 20,000 Shares owned by two
family trusts for the benefit of Mr. Clifton's children of which
- 3 -
<PAGE> 7
Mr. Clifton is not a trustee. Mr. Clifton disclaims beneficial
ownership of all the Shares attributed to him.
(9) Includes 50,000 Shares owned by five trusts of which Goodhue W. Smith,
III is one of two trustees as well as 100% of the Shares beneficially
owned by SWFHC. Mr. Smith disclaims beneficial ownership of those
Shares that he does not own directly.
1. PROPOSAL 1: ELECTION OF TRUSTEES
BACKGROUND
Shareholders will be asked to consider electing 5 individuals to the
Board of Trustees of the Company. The names of the nominees for election to
the Board of Trustees are Dr. Ronald K. Calgaard, James R. Clifton, Robert R.
Swendson, Goodhue W. Smith III, and Willis H. Wagner. All the individuals
currently serve as Trustees, Mr. Swendson since the Company's founding in
August 1996, Mr. Clifton and Dr. Calgaard since September 13, 1996, and Mr.
Smith and Mr. Wagner since January 30, 1996.
Each of the nominees for Trustee has consented to be named in this
Proxy Statement and to serve as a Trustee if elected. The Board of Trustees
has no reason to believe that any of the nominees named above will become
unavailable for election as a Trustee, but if that should occur before the
Meeting, proxies will be voted for such persons as the Board of Trustees may
recommend.
Certain information regarding the Trustees of the Company is set forth
below.
<TABLE>
<CAPTION>
=========================================================================================================
Position with
Name and Address Company Age Recent Professional Experience
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ronald K. Calgaard Trustee 59 Dr. Calgaard is President of Trinity
715 Stadium Drive University, a post he has held since
San Antonio, Texas 78212 1979. He also serves as a director of
Valero Energy Corporation, a Trustee of
Southwest Research Institute, a member of
the Advisory Board of the San Antonio
Spurs, and a Trustee of Texas Military
Institute.
James R. Clifton Trustee 46 Mr. Clifton is a founder of The Clifton
4830 Lakewood, Suite 5 Group, a private investment partnership
Waco, Texas 76710 formed in January 1996. From 1973 to
January 1996, Mr. Clifton served in a
number of positions for Behrens, Inc., a
family-owned (until 1994) distributor of
pharmaceuticals to independent
pharmacies, including Executive Vice
President, Chief Operating Officer, and
Director.
</TABLE>
- 4 -
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
Goodhue W. Smith, III* Trustee 46 Since its founding in 1978, Mr. Smith has
311 Third Street, 3rd Floor been employed by Duncan-Smith Co., an
San Antonio, TX 78205 investment banking firm located in San
Antonio, Texas, where he currently serves
as a Vice President. Mr. Smith is the
President of Duncan-Smith Securities,
Inc., a registered broker/dealer and
wholly owned subsidiary of Duncan-Smith
Co. He also serves as the Chairman of
the Executive Committee of Citizens
National Bank of Milam County and as a
director of publicly-traded Consolidated
Health Care Associates, Inc.
Robert R. Swendson* Trustee, 53 From 1989 to 1995, Mr. Swendson was
13333 Blanco Road President and employed by SouthWest Federated, Inc., a
Suite 314 Chief Executive purchaser of consumer and commercial
San Antonio, TX 78216 Officer loans which he helped found. Mr.
Swendson remains the company's President
and Chief Executive Officer. He is
currently employed by Greystone, the
Company's investment adviser, as its sole
President and Chief Executive Officer.
Willis H. Wagner Trustee 46 Since 1995, Mr. Wagner has served as the
200 Concord Plaza, Suite 620 Managing Director of SV Capital
San Antonio, TX Management, a venture capital firm
located in San Antonio, Texas. Mr.
Wagner was previously the Chief Financial
Officer for Pace Foods, Ltd. from
1991-1995 and served in several senior
positions with Ernst & Young from
1986-1991.
============================================================================================================
</TABLE>
* Trustee who is an "interested person" of the Company as defined in
the 1940 Act.
COMPENSATION OF EXECUTIVE OFFICERS AND TRUSTEES
Under U.S. Securities and Exchange Commission ("SEC") rules applicable
to BDCs, the Company is required to set forth certain information regarding
certain of its executive officers who received compensation from the Company in
excess of $60,000 in 1996. However, the Company has no employees and does not
pay any cash compensation to its officers. All of the Company's officers are
employed by Greystone, which pays their cash compensation. The Company may
determine in the future to issue options to purchase newly issued Shares to
officers of the Company or other individuals or entities. Any issuance of such
options must be authorized by the Company's Shareholders. The issuance of
Shares of the Company pursuant to the exercise of options could result in a
dilution of the ownership interest and voting power of then-existing
Shareholders.
- 5 -
<PAGE> 9
Compensation of Trustees
The Trustees may provide for their own compensation, and for the
compensation of officers, advisers, administrators, custodians, other agents,
consultants and employees of the Company on such terms as the Trustees deem
appropriate. Currently, each member of the Board of Trustees who is not an
officer of the Company receives a fee of $750 for each meeting of the Board
that the Trustee attends, and an additional meeting fee of $500 per committee
meeting attended, unless the committee meeting occurs on the same day as a
Board meeting, in which case the fee for attending the committee meeting would
be $250.
It is expected that the Board of Trustees will hold a least four
Board meetings per year. None of the Company's officers are compensated by the
Company for attending Board meetings.
Aggregate Trustees' fees for 1996 were $1,500. The following table
sets forth certain details of the compensation paid to Trustees during 1996.
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits Total Compensation
Compensation Accrued as Part of from Company
Name and Position from Company Company Expenses Paid to Trustees
- ----------------- ------------ ---------------- ----------------
<S> <C> <C> <C>
Ronald R. Calgaard $750 0 $750
James R. Clifton 750 0 750
Goodhue W. Smith, III 0 0 0
Robert R. Swendson 0 0 0
Willis H. Wagner 0 0 0
</TABLE>
MEETINGS OF TRUSTEES AND COMMITTEES
During 1996, the Board of Trustees held one (1) special meeting. All
the Trustees then on the Board attended that meeting. In addition, the bylaws
of the Company permit the Trustees, by a vote of a majority of the Trustees then
in office, to elect from their number an Audit Committee, Executive Committee,
Nominating Committee or any other committee. The Board may delegate some or all
of its powers to any such committee except those which by law and the Company's
declaration of trust or bylaws may not be delegated. The Board created an
Interim Valuation Committee, a Compensation Committee and an Audit Committee at
the meeting of the Board of the Trustees that was held on January 30, 1997 (the
"Board Meeting").
The Interim Valuation Committee has the responsibility to value and
revalue, between meetings of the Board of Trustees, any portfolio investments
for which market quotations or sale prices are not readily available, to
approve any loan purchase or sale made on behalf of the Company when such
approval is requested by a seller or purchaser of loans or loan packages.
However, when a purchase of a loan package presents an exposure to any one
borrower greater than $750,000.00, such approval shall also require the
approval of one disinterested Trustee. The Board appointed Messrs. Swendson
and Smith as the members of the Interim Valuation Committee.
The function of the Compensation Committee is to consider the adoption
of a stock option plan, if such plan is proposed, and other compensation
matters that may arise from time to time. The Trustees appointed Dr. Calgaard
and Mr. Wagner as the members of the Compensation Committee.
- 6 -
<PAGE> 10
The members of the Audit Committee work with the Company's independent
public accountant to effect the Company's annual audit and review related
matters. The Board appointed Dr. Calgaard and Messrs. Clifton and Smith as the
members of the Audit Committee.
Each of the members of the above committees holds office at the
pleasure of the Board. As each of the Interim Valuation Committee,
Compensation Committee and Audit Committee was formed in 1997, none held any
meetings in 1996.
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS
INVESTMENT ADVISORY AGREEMENT
The Company is a party to an investment advisory agreement with
Greystone. Pursuant to the investment advisory agreement, Greystone is
entitled to be paid, monthly in arrears, a fee at the rate of 5.94% per annum
on the value of the Company's invested assets, and 0.48% per annum of its cash
and short-term investments. From September 22, 1996 (the date the investment
advisory agreement was approved) through December 31, 1996, the Company
incurred approximately $32,322 in investment advisory fees. The Company did
not pay any advisory fees for the months of September and October. The
advisory agreement is described in further detail in Proposal 2.
Each officer of the Company also is an officer of Greystone. As of
December 31, 1996, all of the shares of Greystone were owned by Robert R.
Swendson, the Company's President and Chief Executive Officer. Greystone has
not issued any options, warrants, or convertible securities of any nature.
EXCHANGE OFFER
The Company's operations began on September 27, 1996 with the
acquisition of all of the interests in SWF 1995 Limited Partnership, a Texas
limited partnership ("SWF-95"), through an offer made to SWF-95's investors to
exchange their equity and subordinated debt interests for Shares of the Company
(the "Exchange Offer"). The Exchange Offer was approximately a $3.6-million
transaction involving the purchase of the various outstanding general
partnership, limited partnership, and subordinated debt interests in SWF-95
(the "SWF-95 interests") and the assumption of certain indebtedness by the
Company in exchange for newly issued Shares or cash, at the option of the
seller of each interest. The Company's purchase price for the SWF-95 interests
was determined by the Company with the assistance of a third-party appraiser.
The following table identifies by name any of the following persons
who had a direct or indirect material interest in the Exchange Offer: each
Trustee or executive officer of the Company; each shareholder of the Company
who is known to own of record or beneficially more than 5% of any class of the
Company's voting securities; and any member of the immediate family of any of
the foregoing persons. The table also includes the following information: the
person's relationship to the Company; the nature and amount of the person's
interest in the Exchange Offer; and the cost of the person's interest.
<TABLE>
<CAPTION>
Name of Person with Amount of Original Cost
Direct or Indirect Material Person's Relationship to Nature of Person's Of Person's
Interest in the Transaction the Company Person's Interest Interest(1) Interest(1)
- --------------------------- ----------- ----------------- -------- --------
<S> <C> <C> <C> <C>
SWFHC 5%+ owner 100% stockholder of $248,320 $166,000
SouthWest Federated, Inc.
("SWFI")
SWFI(2) 5%+ owner General partner of SWF-95 $248,320 $166,000
</TABLE>
- 7 -
<PAGE> 11
<TABLE>
<CAPTION>
Name of Person with Amount of Original Cost
Direct or Indirect Material Person's Relationship to Nature of Person's Of Person's
Interest in the Transaction the Company Person's Interest Interest(1) Interest(1)
- --------------------------- ----------- ----------------- -------- --------
<S> <C> <C> <C> <C>
Robert R. Swendson 5%+ owner; Trustee, 46% stockholder of SWFHC; $114,227 $76,860
President & Chief President of SWFI
Executive Officer
James R. Clifton 5%+ owner; Trustee Owner of SWF-95 $105,100 $100,000
subordinated debt
Mary Lacy Clifton Chase 5%+ owner Limited partner of SWF-95 $169,842 $150,000
and owner of SWF-95
subordinated debt
Eddie W. Spalten 5%+ owner Limited partner of SWF-95 $207,173 $160,000
Margaret Pace Willson(2) 5%+ owner Limited partner of SWF-95 $129,483 $100,000
Rhojcoamt Partnership, Ltd.(2) 5%+ owner Owner of SWF-95 $129,483 $100,000
subordinated debt
Lon A. Critchfield(3) Senior Vice President Senior Vice President of --- ---
SWFI
Larry D. Krause Senior Vice President Vice President, --- ---
Secretary/Treasurer of SWFI
John C. Mosher Vice President & Chief Vice President & Chief --- ---
Financial Officer Financial Officer of SWFI
</TABLE>
- ----------------------
(1) Where determinable.
(2) No longer a 5%+ owner.
(3) During the fiscal year ended on December 31, 1996, Lon A. Critchfield
served with the Company as a Senior Vice President. Mr. Critchfield
resigned from the Company effective March 14, 1997.
ISSUANCE OF SUBORDINATED NOTE, WARRANTS, AND RIGHTS TO SWFHC
For working capital purposes the Company borrowed $250,000 from SWFHC.
As an incentive to make this loan, the Company entered into an agreement to
issue to SWFHC transferable warrants to purchase up to 200,000 Shares at the
greater of $10 per Share or net asset value per Share at the time of issuance,
which expire on September 22, 2006, and transferable rights to subscribe to
50,000 Shares at the greater of $10 per Share or net asset value per Share at
the time the rights are exercised, which expire on May 22, 1996. (The rights
and warrants are described in greater detail below in the sections relevant to
Proposal 4.) The following persons, each of which has the indicated
relationship with the Company, may be deemed to have a direct or indirect
material interest in the issuance of the subordinated note, warrants, and
rights to SWFHC.
- 8 -
<PAGE> 12
<TABLE>
<CAPTION>
Name of Person with
Direct or Indirect Material Person's Relationship Nature of Amount of
Interest in the Transaction to the Company Person's Interest Person's Interest*
--------------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
SWFHC 5%+ owner Holder of subordinated $250,000
notes, warrants, and
subscription rights
Robert R. Swendson 5%+ owner; Trustee, 46% stockholder & $115,000
President & Chief President of SWFHC
Executive Officer
Larry D. Krause Senior Vice President Secretary/Treasurer of ---
SWFHC
</TABLE>
- -------------------------------------
* Where determinable.
CONTINGENT EXPENSE REIMBURSEMENT AGREEMENT
As memorialized in a letter agreement dated September 22, 1996, the
Company has a contingent obligation to reimburse SWFI for various
organizational, consulting, and certain other expenses, including cash
disbursed and to be disbursed to various suppliers of products and services, on
behalf of the Company in connection with determining the financial and legal
feasibility of, and effecting preparations for, the consummation of the
Exchange Offer (collectively, "Start-Up Expenses"). The actual amount of
Start-Up Expenses incurred by SWFI on behalf of the Company was approximately
$70,000. By virtue of its 100% ownership of the common stock of SWFI, SWFHC
may be deemed to have a indirect material interest in this contingent expense
reimbursement agreement. Also, Robert R. Swendson, the owner of 46% of the
outstanding stock of SWFHC, as well as any other stockholders and officers of
SWFHC listed in the table above, may also be deemed to have an indirect
material interest in this transaction. The Company satisfied its obligation to
reimburse SWFI on September 27, 1996.
PAYMENTS TO DUNCAN-SMITH CO. AND DUNCAN-SMITH SECURITIES, INC.
As noted above, Goodhue W. Smith, III is a Vice-President of
Duncan-Smith Co. ("Duncan-Smith") and President of Duncan Smith Securities,
Inc. and holds 33% of Duncan-Smith's equity. Duncan-Smith was deemed to be a
promoter of the Company, and in this capacity received a fee of $3,000 per
month for consulting services from May 1996 through November 1996 from the
Company in connection with determining the financial feasibility of, and
effecting preparations for, the consummation of the Exchange Offer.
Duncan-Smith Securities, Inc., as the sole placement agent for the an offering
that took place in December 1996, received underwriting discounts and
commissions in the amount of $426,000.
INDEBTEDNESS OF MANAGEMENT
No person serving as a Trustee or executive officer of the Company and no
nominee for election as a Trustee at any time since January 1, 1996 is indebted
to the Company.
COMPLIANCE WITH REPORTING REQUIREMENTS OF SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, the
Company's Trustees, executive (and certain other) officers, directors of the
Company's investment adviser, and any persons holding 10% or more of its
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<PAGE> 13
common stock are required to report their beneficial ownership and any changes
therein to the SEC, the National Association of Securities Dealers, Inc. and
the Company. Specific due dates for those reports, including Forms 3, 4 and 5,
have been established, and the Company must report herein any failure on the
part of any of the foregoing individuals to file a required report. Based on
its review of Forms 3, 4 and 5 filed by such individuals, the Company
determined that Dr. Calgaard and Messrs. Clifton, Critchfield, Krause, Mosher
and Swendson each filed a late Form 3 and a late Form 5. Messrs. Bennight,
Hanes, Smith and Wagner each filed a late Form 3.
VOTE REQUIRED
The election of Dr. Calgaard and Messrs. Clifton, Swendson, Smith, and
Wagner requires the affirmative vote of a plurality of the votes cast at a
meeting at which a quorum is present. Under the Company's Declaration of
Trust, the presence in person or by proxy of Shareholders entitled to cast
one-tenth (1/10th) of the votes entitled to be cast thereat shall constitute a
quorum. For this purpose, abstentions will be counted in determining whether a
quorum is present at the Meeting.
THE COMPANY'S BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR EACH OF
THE FOREGOING NOMINEES FOR TRUSTEE NAMED IN THIS PROPOSAL 1.
2. PROPOSAL 2: APPROVE THE CONTINUATION OF THE INVESTMENT ADVISORY
AGREEMENT BETWEEN THE COMPANY AND GREYSTONE
Greystone serves as investment adviser to the Company pursuant to the
Advisory Agreement, dated September 22, 1996, which initially was approved by
the Board of Trustees of the Company, including a majority of the Trustees who
are not parties to the Advisory Agreement or "interested persons" of any such
parties, as that term is defined in the 1940 Act, at a Special Meeting held on
September 13, 1996. The Board of Trustees re-approved the selection of
Greystone as investment adviser to the Company and the Advisory Agreement at
the Board Meeting. The Agreement was last submitted to Shareholders on
September 13, 1996, and Robert R. Swendson, in his capacity as the initial
sole Shareholder of the Trust, approved the Advisory Agreement by a written
consent on that date. The following discussion of the Advisory Agreement is
qualified in its entirety by reference to the Agreement, a copy of which is
attached hereto as Exhibit A.
By approving and re-approving the Advisory Agreement, the Trustees
have acted in what they believe to be the best interests of the Shareholders of
the Company. The Board based its decision to recommend the re-approval of the
Advisory Agreement on the following material factors: (i) Greystone's ability
to provide advisory services, specifically the experience its personnel has in
managing impaired loan portfolios; and (ii) the ability of Greystone to meet
the unique needs of a BDC.
The Board believes that Greystone's personnel have had significant
experience purchasing and resolving impaired loans. Greystone's president,
Robert R. Swendson, and its vice president and controller, Larry Krause, have
been working with impaired loans since 1989 when they helped found SouthWest
Federated, Inc. ("SWFI").
From 1989 to 1996, SWFI invested approximately $20 million to purchase
more than $180 million in impaired commercial mortgages and consumer loans
(outstanding principal balance at the time of purchase). SWFI made these
investments as the general partner for several limited partnerships and for its
own account. Mr. Swendson attributes the success of SWFI to thorough due
diligence prior to making a bid, experienced and patient negotiations with
obligors, and a focus on investor returns.
At the Board Meeting, the Board engaged in a detailed discussion
concerning the advisory fee paid to Greys tone, which is higher than fees
typically paid to funds holding portfolios of marketable securities. The
Trustees considered certain factors underlying the fee arrangements.
Specifically, the Company currently has a
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<PAGE> 14
comparatively small capital base and its investments require a greater amount
of attention than those of a typical registered investment company. The larger
asset bases of a typical investment companies permit these funds to conduct
business with an advisory fee that represents a smaller percentage of their
assets. The Trustees also were apprised by Greys tone that the current
advisory fee was necessary in order for Greys tone to continue operations.
After considering the foregoing and other factors, as well as the standards
that Trustees must meet in approving investment advisory agreements, the
Trustees re-approved the Advisory Agreement and recommended its submission to
Shareholders for consideration.
Although the Advisory Agreement has already received the approvals
required under the 1940 Act, in light of the unique nature of the advisory
services required by the Company and the level of advisory fees under the
Advisory Agreement, the Board of Trustees is seeking approval of the
continuation of the agreement by Shareholders.
THE ADVISORY AGREEMENT
Pursuant to the Advisory Agreement, Greystone directs the investments
of the Company, subject to the supervision, control and policies of the
Company's Board of Trustees. Specifically, Greystone identifies, evaluates,
resolves and monitors the investments made by the Company. By its terms, the
Agreement initially will remain in effect until September 22, 1998 and from
year to year thereafter as long as it is approved, at least annually, by the
Board of Trustees, including a majority of the Trustees who are not "interested
persons" of the Company within the meaning of the 1940 Act, or by vote of the
holders of a majority, as defined in the 1940 Act, of the outstanding voting
securities of the Company.
The Advisory Agreement may be terminated by the Company at any time,
without payment of any penalty, on sixty (60) days written notice to Greystone
if the decision to terminate has been made by the Board or by "vote of a
majority of the outstanding voting securities" of the Company. The Advisory
Agreement will terminate automatically in the event of its "assignment" (as
defined in Section 2(a)(4) of the 1940 Act). Greystone may also terminate the
Advisory Agreement on sixty (60) days written notice to the Company; provided
however, that Greystone may not terminate the Advisory Agreement unless: (a)
the terms of a new investment advisory agreement with Greystone or another
investment advisory agreement have been approved by the Board, including a
majority of its members casting their votes in person who are not parties to
such agreement or "interested persons" of any such party, at a meeting called
for the purpose of voting on such approval; and (b) such new investment
advisory agreement has been approved by the "vote of a majority of the
outstanding voting securities" of the Company.
Under the Advisory Agreement, the Company pays its own operating
expenses, except those specifically required to be borne by Greystone. The
latter include the cost of office space, telephone, equipment and personnel
required to satisfy its obligations under the Advisory Agreement. Expenses
borne by the Company include all expenses of any offering and sale by the
Company of its Shares; fees and disbursements of the Company's outside legal
counsel, accountants and custodian; fees and expenses incurred in effecting
filings with federal and state securities administrators; costs of the
Company's periodic reports and other communications to Shareholders; fees and
expenses of members of the Company's Board of Trustees who are not directors,
officers or employees of Greystone; premiums for the fidelity bond maintained
by the Company; and all costs related to portfolio investments including,
without limitation, financing costs, legal and accounting fees and other
professional or technical fees and expenses (i.e., credit reports, title
searches and delivery charges, property taxes, insurance premiums,
long-distance telephone charges, costs of specialized consultants such as
accountants or industry-specific technical experts, and travel expenses)
incurred in acquiring, monitoring, negotiating, maintaining, working-out, and
effecting disposition of such investments, as well as responding to any
litigation arising therefrom.
Pursuant to the Advisory Agreement, the Company pays to Greystone, on
the 15th day of each month, a fee calculated at the rate of 0.495% (5.94% on an
annual basis) of the month-ending value of the total "invested assets" of the
Company as of the end of the previous month. The Company also pays Greystone a
monthly fee calculated at the annual rate of 0.04% (0.48% on an annual basis)
of cash and short-term investments, payable
- 11 -
<PAGE> 15
monthly. For purposes of calculating the fee to be paid on a monthly basis,
total "invested vassets" is defined as the asset value as determined by the
Board of Trustees as of the end of the previous fiscal quarter minus cash,
short-term investments, intangible assets, and the amount of collections
applied to the carrying cost of the loan portfolio since the end of the
previous quarter, plus the cost of loans purchased since the end of the
previous fiscal quarter and any capitalized advances to protect portfolio
investments or underlying collateral since the end of the previous fiscal
quarter. For the fiscal year ended December 31, 1996, the Company paid
Greystone $32,322 in investment advisory fees which did not include any
advisory fees for September and October. As the sole shareholder of Greystone,
Mr. Swendson has a direct interest in the advisory relationship with Greystone
and the Advisory Agreement and transactions contemplated thereunder. As
discussed earlier, the Company paid to Duncan-Smith, an affiliated person of
the Company, a fee of $3,000 per month for consulting services from May 1996
through November 1996, and to Duncan-Smith's subsidiary, underwriting discounts
and commissions in the amount of $426,000 for an offering that took place in
December 1996.
INFORMATION REGARDING THE ADVISER
Greystone Advisers, Inc. was organized on August 23, 1996 as a
Delaware corporation, and currently is privately held. The address of
Greystone is 13333 Blanco Road, Suite 314, San Antonio, Texas 78216-7756. As
of December 31, 1996, all of the shares of Greystone were owned by Robert R.
Swendson, the Company's President and Chief Executive Officer.
The principal executive officers and directors of Greystone are listed
below. Unless otherwise specified, the address of each such officer or
director is 13333 Blanco Road, Suite 314, San Antonio, Texas 78216-7756.
<TABLE>
<CAPTION>
Name, Title Principal Occupation
----------- --------------------
<S> <C>
Robert R. Swendson, Director, President and Investment Management
Chief Executive Officer
Goodhue W. Smith, III, Director Investment banker with Duncan-Smith Co., President
311 Third Street of Duncan-Smith Securities, Inc.
San Antonio, TX 78205
Larry D. Krause, Senior Vice President Investment Management
John C. Mosher, Vice President and Chief Investment Management
Financial Officer
Kenneth L. Bennight, Jr., Vice President Attorney
and General Counsel
Ted J. Hanes, Vice President Investment Management
</TABLE>
Each of the officers and directors listed above is an officer or
trustee of the Company, respectively. Lon A. Critchfield also served the
adviser as Senior Vice President until his resignation on March 14,1997.
VOTE REQUIRED
The Advisory Agreement must be approved by a vote of the holders of
(a) more than 50% of the outstanding Shares of the Fund or (b) 67% or more of
the Shares of the Company present at the Meeting if more than
- 12 -
<PAGE> 16
50% of the outstanding Shares of the Company are represented at the Meeting in
person or by proxy, whichever is less. If the continuation of the Advisory
Agreement is not approved by the Shareholders, the Board of Trustees will take
such action as it considers necessary or appropriate to protect the interests
of the Company and its Shareholders.
THE COMPANY'S BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR THIS
PROPOSAL 2 TO APPROVE THE CONTINUATION IF THE ADVISORY AGREEMENT BETWEEN THE
COMPANY AND GREYSTONE.
3. PROPOSAL 3: RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANT.
The Board of Trustees of the Company, including a majority of the
Trustees who are not "interested persons" within the meaning of the 1940 Act,
has selected the accounting firm of KPMG Peat Marwick LLP ("KPMG") as the
Company's independent public accountant to audit the Company's financial
statements, and otherwise provide services to the Company as the Company's
independent public accountant for the fiscal year ending December 31, 1997.
The Shareholders will be asked at the Meeting to consider ratifying the
selection of KPMG as independent public accountant for the fiscal year ending
December 31, 1997.
KPMG has served as the Company's independent accountant since its
inception and the Company knows of no direct or indirect financial interest of
KPMG in the Company. A representative of KPMG is expected to be present at the
Meeting and will be available to make a statement if he so desires, and to
respond to appropriate Shareholder inquiries.
The expense recorded during the fiscal year ended December 31, 1996
for the professional services provided to the Company by KPMG consisted of fees
for audit services (which included examination of the consolidated financial
statements of the Company and its subsidiary and review of the filings by the
Company of reports and registration statements) and for non-audit services.
Approximately 80% of the fees were for audit services. The non-audit services,
which were arranged for by management without prior consideration by the Board
of Trustees, consisted of non-audit related consultation and the preparation of
tax returns for the Company and its subsidiary.
VOTE REQUIRED
Approval of the Proposal to ratify the selection of KPMG Peat Marwick
LLP as the Company's independent public accountant requires an affirmative vote
of a majority of the votes cast with respect to the Proposal.
THE COMPANY'S BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR THIS
PROPOSAL 3 TO RATIFY THE SELECTION OF KPMG AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANT.
4. PROPOSAL 4: TO CLARIFY CERTAIN ASPECTS OF THE WARRANTS ISSUED TO
SWFHC
At the Meeting, Shareholders will be asked to vote on a proposal to
clarify the terms under which certain Class A Warrants have been, and Class B
Warrants will be, issued to SWFHC. The Company undertook to issue these
warrants to SWFHC pursuant to respective agreements between the Company and
SWFHC, each dated September 22, 1996 (the "Agreements"). The Agreements
provide that SWFHC will receive warrants to purchase an aggregate total of
200,000 Shares, provided such issuance is permitted under the 1940 Act. The
Company agreed to issue the warrants, as well as rights to subscribe to 50,000
shares, in consideration for SWFHC taking the financial risks attendant to
supporting the formation of the Company (i.e., with respect to a $250,000
subordinated loan for the Company's start-up expenses).
- 13 -
<PAGE> 17
The 1940 Act requires shareholder approval of the issuance of any
warrants. Robert R. Swendson, as the initial sole Shareholder of the Trust,
approved the issuance of the warrants pursuant to the Agreements on September
23, 1996. In addition, the issuance of the warrants was approved by the
Trustees of the Company as required under the 1940 Act on September 23, 1996,
on the basis that such issuance was in the best interest of the Company and its
Shareholders.
According to the principal terms of the Agreements, as clarified in a
letter between the Company and SWFHC dated September 22, 1996, the warrants are
to be issued and become outstanding only to the extent permitted by the 1940
Act. The 1940 Act states that the amount of shares that would result from the
exercise of all outstanding warrants, options, and rights at the time of
issuance shall not exceed 25% of the outstanding shares of a BDC. Accordingly,
based on 921,627 Shares currently outstanding, the Company has issued all of
the Class A Warrants to SWFHC, and will issue the Class B Warrants at some time
in the future.
The terms of the Class A and Class B Warrants are as follows:
1. The Class A Warrant Agreement provides for the issuance of
warrants to purchase one hundred and fifty thousand (150,000)
Shares at the greater of $10.00 per Share or net asset value
per Share on the date of issuance. The warrants expire on
September 22, 2006 and are exercisable only upon the
condition that within three (3) years of the consummation of
an equity offering for $8,000,000 in cash, the Company or one
or more underwriters and selling brokers or dealers on the
Company's behalf shall have received gross cash proceeds of at
least $10,000,000 from one or more sales of newly issues
Shares at an average price of at least Fifteen Dollars
($15.00) per Share (adjusted proportionately for any Share
dividends, splits, or combinations). Thereafter, these
warrants may be transferred or exercised in whole or in part
from time to time. The Company's issuance of 700,000
additional Shares in consummation of an equity offering on
December 26, 1996, increased the total number of outstanding
Shares from 221,627 (immediately following consummation of the
Exchange Offer) to 921,627, permitting the Class A Warrants to
be issued in their entirety on that date with an exercise
price of $10.00 per share.
2. The Class B Warrant Agreement provides for the issuance of
warrants to purchase fifty thousand (50,000) Shares at the
greater of $10.00 per Share or net asset value per Share on
the date of issuance. The warrants expire on September 22,
2006 and are exercisable only upon the condition that within
three (3) years of the consummation of an equity offering for
$8,000,000 in cash, the Company or one or more underwriters
and selling brokers or dealers on the Company's behalf shall
have received gross cash proceeds of at least $10,000,000 from
one or more sales of newly issues Shares at an average price
of at least Twenty Dollars ($20.00) per Share (adjusted
proportionately for any Share dividends, splits, or
combinations). These warrants may be transferred or exercised
in whole or in part from time to time.
As noted above, the Agreements made the exercise of the Warrants
conditional on the Company's raising at least $10,000,000 (gross cash
proceeds), at an average price of $15 or $20 per Share, within three years of
the date on which the Company would consummate an equity offering raising an
anticipated $8,000,000 (the "Offering"). The Company and SWFHC, as parties to
the Agreements (the "Parties"), viewed this reference to $8,000,000 in the text
of the Agreements to be descriptive, rather than a material term of the
Agreements. This reference was included in the Agreements as a means of
indicating, with some specificity, the intent of the Parties as to the date on
which the 3-year period for raising at least $10,000,000 in new equity at the
specified prices would commence. The $8,000,000 figure was viewed by the
Parties as the amount likely to be raised in the Offering. The Parties never
contemplated that the Warrants would not be exercisable merely because a
somewhat lower amount than anticipated was actually raised in the Offering. In
fact, gross proceeds of $7,000,000 were raised in the Offering.
At the Board Meeting, the Board of Trustees reviewed the Agreements
and discussed the original intent of the Parties. Based on its discussion, the
Board determined that it would be contrary to the intent of the Parties at the
time of the execution of the Agreements for 3-year period not to have commenced
because of a non-material reference intended solely to identify the time at
which that period would begin. In addition, the Trustees believe
- 14 -
<PAGE> 18
such a result would be unfair to the holders of the Warrants. Based on the
foregoing, the Trustees concluded that the Class A and Class B Warrants should
be clarified to reflect that they may be exercised in accordance with their
terms, despite a recital in the Agreements that $8,000,000 would be raised in
the Offering, rather than the $7,000,000 that was actually raised.
Accordingly, the Board, including a majority of the Trustees who have no
financial interest in the warrants issued pursuant to the Agreements and who
are not "interested persons" of the Company, as defined in the 1940 Act,
approved clarifying the Warrants by removing the reference to raising
$8,000,000 in equity in the Offering, and submitting this proposal to
Shareholders for approval. The Trustees based their decision on their belief
that the clarification is in the best interest of the Company and its
Shareholders.
In determining whether to approve the proposed clarification of the
Class A and Class B Warrants, Shareholders should be aware that the issuance of
these Warrants would allow SWFHC or its transferees to benefit from any future
increase in the value of the Company's Shares without requiring SWFHC to invest
the exercise price thereof in the Company until such benefit is realizable. As
with any warrant arrangement, the exercise of the Class A and Class B Warrants
would increase the number of outstanding Shares of the Company. Such an
increase would cause the existing Shareholders to experience a corresponding
loss of proportionate voting power and economic interest in the Company. The
Board of Trustees has concluded, however, that the clarification of the terms
of the Class A and B Warrants merely incorporates the actual intent of the
Parties. Although the Class A and Class B Warrants have already received the
approvals required under the 1940 Act, and the Board does not believe that the
clarification described above necessarily requires Shareholder approval, such
approval is being sought in light of the significance of Warrants to the
Company.
VOTE REQUIRED
The Proposal to clarify certain aspects of the Class A and Class B
Warrants to permit the exercise thereof without regard to the amount of equity
raised by the Company in the December 26, 1996 private offering, but otherwise
in accordance with the terms of the Agreements, must be approved by a majority
of the Company's outstanding voting securities, and the holders of a majority
of the Company's outstanding voting securities that are not affiliated persons
of the Company. If clarification of the Class A and the Class B Warrants is
not so approved, the Board of Trustees will take such action as it considers
necessary or appropriate to protect the interests of the Company and its
Shareholders.
THE COMPANY'S BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR THIS
PROPOSAL 4 TO CLARIFY CERTAIN ASPECTS OF THE WARRANTS ISSUED TO SWFHC.
OTHER BUSINESS
The Board of Trustees knows of no other business to be presented for
action at the Meeting. If any matters do come before the Meeting on which
action can properly be taken, it is intended that the proxies shall vote in
accordance with the judgment of the person or persons exercising the authority
conferred by the proxy at the Meeting.
1998 ANNUAL MEETING OF SHAREHOLDERS
The Company expects that the 1998 Annual Meeting of Shareholders will
be held in April 1998 but the exact date, time, and location of such meeting
have yet to be determined. A Shareholder who intends to present a proposal at
that annual meeting must submit the proposal in writing to the Company at the
address of its investment adviser in Texas, no later than December 5, 1997, in
order for the proposal to be considered for inclusion in the Company's proxy
statement for that meeting. The submission of a proposal does not guarantee
its inclusion in the Company's proxy statement or presentation at the meeting
unless certain securities law requirements are met.
- 15 -
<PAGE> 19
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company has enclosed its Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (the "Annual Report"). The Company hereby
incorporates by reference in this Proxy Statement (i) the financial statements
and notes thereto (including the independent public accountant's report of KPMG
Peat Marwick LLP) contained in the Annual Report, and (ii) "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the Annual Report. The Annual Report is not otherwise
incorporated in this Proxy Statement and is not part of this soliciting
material.
MISCELLANEOUS
Shareholders may obtain copies of the Company's annual reports,
without charge, by writing the Company's investment adviser at 13333 Blanco
Road, Suite 314, San Antonio, Texas 78216-7756.
YOUR PROXY IS VERY IMPORTANT TO US. WHETHER YOU PLAN TO ATTEND THE MEETING IN
PERSON OR NOT, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY BALLOT
TODAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR MAY CONVEY YOUR VOTE ON EACH
PROPOSAL BY CALLING 1-800-330-3971.
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<PAGE> 20
EXHIBIT A
PLYMOUTH COMMERCIAL MORTGAGE FUND
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made by and between Plymouth Commercial
Mortgage Fund, a Delaware business trust (the "Company"), and Emerald Advisers,
Inc., a Delaware corporation (the "Adviser").
1. PURPOSE OF THE COMPANY
The Company is a closed-end management investment company that
will elect to be regulated as a business development company under the
Investment Company Act of 1940, as amended (the "1940 Act").
2. THE INVESTMENT ADVISER
The Adviser is registered as an investment adviser with the
U.S. Securities and Exchange Commission (the "SEC") under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), and has entered into
this Agreement with the Company to act as its investment adviser on the terms
set forth herein.
3. OBLIGATIONS OF THE ADVISER
The Company hereby engages the Adviser's services as the
Company's investment adviser. As such, the Adviser will:
(a) advise the Company as to the acquisition and disposition of
securities, loans, real estate interests and other assets in
accordance with the Company's investment policies;
(b) assist the Company in making available and, if requested by
entities in which the Company has invested or is proposing to
invest, in rendering managerial assistance to such entities;
(c) provide to the Company, to the extent required, office space
and facilities and the services of the Adviser's officers and
employees;
(d) maintain the Company's books of account and other records and
files;
(e) report to the Company's Board of Trustees (the "Board"), or to
any committee thereof or officer of the Company acting
pursuant to the authority of the Board, at such times and in
such detail as the Board deems appropriate in order
<PAGE> 21
to enable the Company to determine that its investment
policies are being observed and implemented and that the
Adviser's obligations hereunder are being fulfilled. Any
investment program undertaken by the Adviser pursuant hereto
and any other activities undertaken by the Adviser on the
Company's behalf shall at all times be subject to any
directives of the Board or any duly constituted committee
thereof or officer of the Company acting pursuant to authority
of the Board;
(f) subject to the Company's investment policies and any specific
directives from the Board, effect acquisitions and
dispositions for the Company's account in the Adviser's
discretion and to arrange for the documents evidencing
securities, loans, real estate interests and other assets
acquired on behalf of the Company to be delivered to a
custodian of the Company;
(g) on a continuing basis, monitor, manage and service the
Company's loan portfolio and other investments; and
(h) comply with all applicable rules and regulations of the SEC
and, in addition, conduct its activities under this Agreement
in accordance with other applicable law.
4. STATUS OF THE ADVISER
For a period of two years after the completion of the sale by
Plymouth of newly issues common shares of beneficial interest for cash pursuant
to an offering to be commenced in or about October 1996, the services of the
Adviser to the Company with regard to advice on new loan package purchases are
to be deemed exclusive, and the Adviser shall not be free to render similar
services to others. After this period, the services of the Adviser to the
Company are not to be deemed exclusive, and the Adviser shall be free to render
similar services to others so long as its services to the Company are not
impaired thereby. The Adviser shall be deemed to be an independent contractor
and shall, unless otherwise expressly provided or authorized, have no authority
to act for or represent the Company in any way or otherwise be deemed an agent
of the Company. To the extent that the purchase or sale of securities or other
investments of any issuer may be deemed by the Adviser, and to the extent
permitted by applicable law, to be suitable for two or more accounts managed by
the Adviser, the available securities or investments may be allocated in a
manner believed by the Adviser to be equitable to each account. It is
recognized that in some cases this may adversely affect the price paid or
received by the Company or the size or position obtainable for or disposed of
by the Company.
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<PAGE> 22
5. EXPENSES TO BE PAID BY THE ADVISER
The Adviser shall pay all expenses incurred by it in rendering
the services to be rendered by the Adviser hereunder. Generally, and except as
may otherwise be specified in this Agreement, these expenses include the cost
of office space, telephone service, equipment and personnel required to perform
its obligations under this Agreement. Without limiting the generality of the
foregoing, the Adviser will pay the salaries and other employee benefits of the
persons in its organization whom the Adviser may engage to render such
services, including without limitation persons who may from time to time act as
the Company's officers. Notwithstanding the foregoing, the Board may, in its
sole discretion, award to such officers options to acquire shares of beneficial
interest in the Company, which options shall not be deemed part of their
salaries or other employee benefits for the purpose of this paragraph.
6. EXPENSES TO BE PAID BY THE COMPANY
In general, the Company shall pay all of its operating
expenses and reimburse the Adviser promptly for expenses which the Adviser may
pay on the Company's behalf, except those specifically required to be borne by
the Adviser under this Agreement. Expenses borne by the Company include but
are not limited to:
(a) all expenses of any offering and sale by the Company of its
shares, including promotional expenses;
(b) fees and disbursements of the Company's outside legal counsel
and accountants and the custodian of its investments;
(c) fees and expenses incurred in producing and effecting filings
with federal and state securities administrators;
(d) costs of the Company's periodic reports to (and other
communications with) shareholders;
(e) fees and expenses of members of the Board who are not
directors, officers or employees of the Adviser;
(f) premiums for the fidelity bond maintained by the Company;
(g) all costs related to portfolio investments, including without
limitation financing costs, legal and accounting fees,
expenses related to protecting or maintaining the value of the
loan portfolio or its underlying collateral, and other
professional or technical fees and expenses (e.g., credit
reports, title searches and delivery charges, property taxes,
insurance premiums, long-distance telephone
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<PAGE> 23
charges, costs of specialized consultants such as accountants
or industry-specific technical experts, and travel expenses)
incurred in acquiring, monitoring, negotiating, working-out,
and effecting disposition of such investments, as well as
responding to any litigation arising therefrom; and
(h) all expenses related to any borrowings by the Company.
7. COMPENSATION TO THE ADVISER
During the term of this Agreement, the Company will pay to the
Adviser, on the 15th day of each month: (a) a fee calculated at an effective
annual rate of 5.94% of the Company's invested assets as of the end of the
previous month; and (b) a fee calculated at an effective annual rate of 0.48%
of the Company's cash and short-term investments as of the end of the previous
month.
For purposes of calculating the fee to be paid on a monthly
basis, "invested assets" means the asset value as determined by the Board as of
the end of the previous fiscal quarter minus cash, short-term investments,
intangible assets, and the amount of collections applied to the carrying value
of the loan portfolio since the end of the previous quarter, plus the cost of
loans purchased and capitalized advances to protect portfolio investments or
underlying collateral since the end of the previous quarter. Such values shall
be established using generally accepted accounting principles ("GAAP"). The
fee paid on a monthly basis will be ratified on a quarterly basis by the Board.
8. CERTAIN RECORDS
The Adviser shall keep and maintain all books and records with
respect to the Company's portfolio transactions required by Rule 31a-1 under
the 1940 Act and shall render to the Board such periodic and special reports as
the Board may reasonably request. The Adviser shall also furnish to the
Company any other information that is required to be filed by the Company with
the SEC or sent to shareholders under the 1940 Act (including rules adopted
thereunder) or any exemptive or other relief that the Adviser or the Company
obtains from the SEC. The Adviser agrees that the records that it maintains on
behalf of the Company are the property of the Company and the Adviser will
surrender promptly to the Company any of such records upon the Company's
request; provided, however, that the Adviser may retain a copy of such records.
In addition, for the duration of this Agreement, the Adviser shall preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act any such records as are
required to be maintained by it pursuant to this Agreement, and shall transfer
said records to any successor investment adviser upon the termination of this
Agreement (or, if there is no successor investment adviser, to the Company.)
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<PAGE> 24
9. LIABILITY OF THE ADVISER AND INDEMNIFICATION
The duties of the Adviser shall be confined to those expressly
set forth herein, and no implied duties are assumed by or may be asserted
against the Adviser hereunder. The Adviser may rely on information reasonably
believed by it to be accurate and reliable. The Adviser shall not be liable to
the Company or to any shareholder of the Company for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in carrying out its duties hereunder, except:
(a) for a loss resulting from willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by
reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under
provisions of applicable state law which cannot be waived or
modified hereby;
(b) to the extent specified in Section 36(b) of the 1940 Act
concerning losses resulting from a breach of fiduciary duty
with respect to the Adviser's receipt of compensation; and
(c) for a loss resulting from any breach of any representation and
warranty of the Adviser contained in this Agreement.
In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Adviser, to the fullest extent permitted by applicable law, the Company
hereby agrees to indemnify and hold the Adviser harmless from and against all
claims, actions, suits and proceedings at law or in equity, whether brought or
asserted by a private party or a governmental agency, instrumentality or entity
of any kind, relating to the sale, purchase, pledge of, advertisement of, or
solicitation of sales or purchases of any security (whether of the Company or
otherwise) by the Company, its officers, trustees, employees or agents in
alleged violation of applicable federal, state or foreign laws, rules or
regulations.
As used in this Section 9, the term "Adviser" shall include
any affiliates of the Adviser performing services for the Company contemplated
hereby and the directors, officers, employees and other corporate agents of the
Adviser and such affiliates.
10. APPROVAL OF THE AGREEMENT
The Company represents that: (a) the terms of this Agreement
were approved by the Board, including a majority of its members casting their
votes in person who are not "interested persons" of the Company, at a meeting
held on September 13, 1996, called for the purpose of voting on such approval;
and (b) this Agreement was approved by the "vote of a majority of the
outstanding voting securities" (as defined in Section 2(a)(42) of the 1940 Act)
of the Company, at a meeting held on September 13, 1996. This Agreement shall
continue in
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<PAGE> 25
effect for two (2) years from the date of its execution and thereafter from
year to year as long as such continuance is specifically approved at least
annually by the Board, including a majority of its members casting their votes
in person who are not "interested persons" of the Company at a meeting called
for the purpose of voting on such approval, or by "vote of a majority of the
outstanding voting securities" of the Company.
11. TERMINATION OF THE AGREEMENT
The foregoing notwithstanding, this Agreement may be
terminated by the Company at any time, without payment of any penalty, on sixty
(60) days' written notice to the Adviser if the decision to terminate has been
made by the Board or by "vote of a majority of the outstanding voting
securities" of the Company. This Agreement will terminate automatically in the
event of its "assignment" (as defined in Section 2(a)(4) of the 1940 Act). The
Adviser may also terminate this Agreement on sixty (60) days' written notice to
the Company; provided, however, that the Adviser may not terminate this
Agreement unless: (a) the terms of a new investment advisory agreement with the
Adviser or another investment adviser have been approved by the Board,
including a majority of its members casting their votes in person who are not
parties to such agreement or "interested persons" of any such party, at a
meeting called for the purpose of voting on such approval; and (b) such new
investment advisory agreement has been approved by the "vote of a majority of
the outstanding voting securities" of the Company.
12. JURISDICTION
This Agreement shall be governed by the laws of the State of
Texas.
13. SEVERABILITY
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.
* * *
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<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement
on and as of September 22, 1996.
PLYMOUTH COMMERCIAL EMERALD ADVISERS, INC.
MORTGAGE FUND
By: /s/ Robert R. Swendson By: /s/ John C. Mosher
---------------------- ------------------
Name: Robert R. Swendson Name: John C. Mosher
Title: President Title: Vice President
Attest: /s/ Larry D. Krause Attest: /s/ Larry D. Krause
-------------------- --------------------
Name: Larry D. Krause Name: Larry D. Krause
Title: Senior Vice President/Secretary Title: Senior Vice President/Secretary
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<PAGE> 27
PROXY BALLOT
PLYMOUTH COMMERCIAL MORTGAGE FUND
c/o GREYSTONE ADVISERS, INC.
13333 BLANCO ROAD, SUITE 314
SAN ANTONIO, TEXAS 78216-7756
ANNUAL MEETING OF SHAREHOLDERS
HELD ON APRIL 24, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
OF PLYMOUTH COMMERCIAL MORTGAGE FUND
BY SIGNING AND DATING THE LOWER PORTION OF THIS PROXY BALLOT, YOU AUTHORIZE THE
PROXY AGENTS TO VOTE ON EACH PROPOSAL AS MARKED OR, IF NOT MARKED, TO VOTE
"FOR" THE PROPOSAL, AND TO USE THEIR DISCRETION TO VOTE ON ANY OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
The undersigned hereby appoints John C. Mosher and Kenneth L.
Bennight, Jr. (the "Proxy Agents"), and each of them, attorneys and Proxy
Agents of the undersigned, each with the power of substitution and
resubstitution, to attend, vote and act for the undersigned at the annual
meeting of owners of common shares of beneficial interest ("Shareholders"), and
at any adjournments(s) thereof, of Plymouth Commercial Mortgage Fund (the
"Company") to be held at the office of Duncan-Smith Co., 311 Third Street, 3rd
Floor, San Antonio, Texas 78205, beginning at 8:00 a.m. Central time on
Thursday, April 24, 1997. The Proxy Agents shall cast votes based on the number
of common shares of beneficial interest of the Company that the undersigned may
be entitled to vote with respect to the proposals set forth below, in
accordance with the instructions indicated, if any, and shall have all the
powers that the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said Proxy Agents, or each of them, may lawfully
do by virtue hereof of thereof. For your convenience, you may vote by calling
the Company toll-free at 1-800-330-3971 from 8:30 a.m. and 5:00 p.m. Central
time.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS OF THE COMPANY, THE PROXY STATEMENT DATED APRIL 4, 1997, AND THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996.
1. ELECTION OF TRUSTEES
FOR all nominees listed below / / WITHHOLD AUTHORITY / /
(Except as marked to the contrary below) to vote for all nominees
listed below
<PAGE> 28
(INSTRUCTION: If you intend to withhold authority to vote for any individual
nominee strike a line through the nominee's name in the list below.)
Dr. Ronald K. Calgaard, James R. Clifton, Robert R. Swendson,
Goodhue W. Smith III, and Willis H. Wagner
2. PROPOSAL 2 TO APPROVE THE CONTINUATION OF THE INVESTMENT
ADVISORY AGREEMENT BETWEEN THE COMPANY AND GREYSTONE
ADVISERS, INC.
/ / For / /Against / / Abstain
3. PROPOSAL 3 TO RATIFY THE SELECTION OF KPMG PEAT MARWICK
LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANT FOR THE
YEAR ENDING DECEMBER 31, 1997.
/ / For / /Against / / Abstain
4. PROPOSAL 4 TO CLARIFY CERTAIN WARRANTS ISSUED TO SOUTHWEST
FEDERATED HOLDING COMPANY, INC.
/ / For / /Against / / Abstain
5. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before this meeting.
THE BOARD OF TRUSTEES OF THE FUND
RECOMMENDS A VOTE "FOR" ALL PROPOSALS.
This Proxy may be revoked at any time prior to the meeting by so
notifying the Secretary of the Company in writing at the above address, by
submitting a properly executed proxy with a later date, or by attending the
meeting and voting in person.
Please sign exactly as your name(s) appear(s) hereon. When shares
are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee guardian or fiduciary, please give full title
as such. If a corporation, please sign full corporate name by President or
other authorized officer. If a partnership, please sign in partnership name by
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<PAGE> 29
authorized person. Proxy ballots signed or authorized by telephone by one owner
will be presumed to be valid absent prior written notification to the Company
that more than one owner is required for valid execution.
Dated: , 1997
---------- ------------------------------
Signature
Dated: , 1997
---------- ------------------------------
Signature if held jointly
PLEASE VOTE, SIGN, DATE
AND RETURN THE PROXY
USING THE ENCLOSED
ENVELOPE
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