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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
Venture Lending & Leasing II, Inc.
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(Exact name of registrant as specified in charter)
Maryland 77-0456589
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2010 North First Street, Suite 310
San Jose, CA 95131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 436-8577
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Securities to be registered pursuant to 12(b) of the Act: None
Securities to be registered pursuant to 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. BUSINESS
(a) General Development of Business
GENERAL. Venture Lending & Leasing II, Inc. ("Fund"), a Maryland
corporation, is a newly organized, non-diversified closed-end management
investment company electing status as a business development company ("BDC")
under the Investment Company Act of 1940 ("1940 Act"). The Fund's investment
objective is to achieve a high total return. The Fund will provide asset-based
financing to carefully selected venture capital-backed companies, in the form
of secured loans, installment sales contracts or equipment leases. The Fund
generally will receive warrants to acquire equity securities of the companies
in which the Fund invests in connection with the Fund's loans or equipment
leases. Westech Advisors, Inc. ("Westech Advisors" or the "Manager") will serve
as the Fund's Investment Manager. Siguler Guff Advisers, LLC ("Adviser to the
Manager") will serve adviser to Westech Advisors with respect to Westech
Advisors' administrative duties to the Fund. See Items 5 and 7 for the
information about the Manager and the Adviser to the Manager. The Fund was
incorporated on May 19, 1997. Its principal office is located at 2010 North
First Street, Suite 310, San Jose, California 95131 and its telephone number is
(408) 436-8577.
The Fund has not yet commenced operations and is registering its shares
of Common Stock, $.001 par value ("Shares"), pursuant to Section 12(g) of the
Securities Exchange Act of 1934 ("Act"), in compliance with the requirement of
Section 54(a)(2) of the 1940 Act. The Fund will offer its Shares in an
offering exempt from the registration requirements of the Securities Act of
1933 ("1933 Act") pursuant to Regulation D thereunder ("Regulation D") and will
sell its Shares in that offering solely to "accredited investors", as that term
is defined under Regulation D.
USE OF PROCEEDS. The Fund intends to apply the net proceeds of this
offering to enter into venture lending transactions, to a greater extent, and
leasing transactions, to a lesser extent, with Eligible Portfolio Companies and
with other companies, and to make associated equity investments, in furtherance
of its investment objective and policies. The Fund will seek to require
payment by investors pursuant to each capital call of only that portion of the
total dollar amount subscribed for that the Fund expects will be needed to fund
commitments entered into within a reasonable time after such capital call. It
is currently anticipated that all capital subscribed for will be called, and
that substantially all the proceeds of this offering will be invested in
venture loans and leases, within 36 months after the Fund has first accepted
subscriptions from investors in this offering, although under the terms of the
subscription agreement the Fund will be permitted to make capital calls at any
time until the fourth anniversary after the first closing of the offering.
(b) Financial Information About Industry Segments.
Not applicable; the Fund has not commenced business and has no
reserves.
(c) Narrative Description of Business.
Investment Program.
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GENERAL. The Fund's investment objective is to achieve a high total
return. The Fund will provide asset-based financing to carefully selected
venture capital-backed companies, in the form of secured loans, or to a lesser
extent, installment sales contracts or equipment leases. The Fund generally
will receive warrants to acquire equity securities in connection with its
portfolio investments. The Fund will make available significant managerial
assistance through its officers to certain companies whose securities are held
in the Fund's portfolio, as described under "Regulation". There can be no
assurance that the Fund will attain its investment objective.
As a BDC, the Fund must invest at least 70% of its total assets in
qualifying assets ("Qualifying Assets") consisting of (a) "eligible portfolio
companies" as defined in the 1940 Act ("Eligible Portfolio Companies") and (b)
certain other assets including cash and cash equivalents. 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 BDC and has an affiliate of a BDC
on its board of directors; or (iii) meets such other criteria as may be
established by the SEC. The Fund may invest up to 30% of its total assets in
non-Qualifying Assets, including companies that are not Eligible Portfolio
Companies (for example, because the company's securities are quoted on the
National Association of Securities Dealers' Automated Quotation System
("NASDAQ")) and Eligible Portfolio Companies as to which the Fund does not
offer to make available significant managerial assistance. The foregoing
percentages will be determined, in the case of financings in which the Fund
commits to provide financing prior to funding the commitment, by the amount of
the Fund's total assets represented by the value of the maximum amount of
securities to be issued by the borrower or lessee to the Fund pursuant to such
commitment.
VENTURE LOANS AND LEASES. Venture loans generally will be made
pursuant to a negotiated written loan agreement, and be evidenced by promissory
notes secured by the equipment or other assets of the borrower financed with
the proceeds of such loans, and in some cases secured by a broader lien on
substantially all of the borrower's assets (especially where loan proceeds are
permitted to be used for purposes other than financing equipment). The Fund
will receive periodic payments (usually monthly) of interest and principal, and
will generally receive a final payment in the nature of additional interest in
an amount equal to a percentage of the original loan amount, payable at
maturity of the loan (whether as stated or accelerated). Venture leases will
consist of a lease from the Fund to the lessee of the assets to be financed,
with periodic payments of rent and, in most cases, with a put option to sell
the assets to the lessee at the end of the lease term for a predetermined or
formula price. The interest rate and amortization terms of venture loans, the
rental rate and put provisions of leases, and all other transaction terms will
be individually negotiated between the Fund and each borrower or lessee. If
the Fund qualifies as a regulated investment Company ("RIC"), provisions of the
Internal Revenue Code may restrict the terms to which the Fund may enter into
venture leases and the extent to which venture leases may be used.
The documentation for loans or leases will include negotiated
representations, warranties, covenants and events of default intended to
protect the Fund customary for commercial transactions of this type and size.
Typical material terms include covenants to maintain the equipment or other
assets underlying the loan or lease and keep it adequately insured,
prohibitions against sale or other disposition of the assets or assignment of
the loan or lease except under specified conditions, and acceleration
provisions making the remaining outstanding amounts under the loan or lease
immediately due and payable and giving rise to a right to take possession of
the underlying assets upon certain events of default, including failure to make
required payments and failure to comply with specified
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covenants. There can be no assurance that the value of the underlying assets at
the time of default will be at least equal to the outstanding amount due under
the loan or lease.
Typically, loans or leases will be structured as commitments by the
Fund to provide financing, in one or more advances during a specified period of
time, or credit availability. The commitment of the Fund to finance future
asset acquisitions or working capital needs is typically subject to the absence
of any default under the loan or lease and compliance by the borrower or lessee
with requirements relating to, among other things, the type of assets to be
acquired. Although the Fund's commitment generally will provide that the Fund
is not required to continue to fund additional asset purchases or working
capital needs if there is a material adverse change in the borrower's or
lessee's financial condition, it is possible that a borrower's or lessee's
financial condition will not be as strong at the time the Fund funds a
commitment.
WARRANTS AND EQUITY SECURITIES. The Fund generally will acquire
warrants to purchase equity securities of the borrower or lessee in connection
with asset financings. The terms of the warrants, including the expiration
date, exercise price and terms of the equity security for which the warrant may
be exercised, will be negotiated individually with each borrower or lessee, and
will likely be affected by the price and terms of securities issued by the
company to its venture capitalists and other holders. Based upon the Manager's
past experience, it is anticipated that most warrants will be for a term of
five to ten years, and will have an exercise price based upon the price at
which the borrower or lessee most recently issued equity securities or, if a
new equity offering is imminent, will next issue equity securities. The equity
securities for which the warrant will be exercised generally will be common
stock (of which there may be one or more classes) or convertible preferred
stock. Substantially all the warrants and underlying equity securities will be
restricted securities under the 1933 Act at the time of issuance; the Fund
generally negotiates registration rights with the borrower or lessee that may
provide (i) "piggyback" registration rights, which permit the Fund under
certain circumstances to include some or all of the securities owned by it in a
registration statement filed by the borrower or lessee, or (ii) in very rare
circumstances, "demand" registration rights permitting the Fund under certain
circumstances to require the borrower or lessee to register the securities
under the 1933 Act (in some cases at the Fund's expense). The Fund will
generally negotiate "net issuance" provisions in the warrants, which allow the
Fund to receive upon exercise of the warrant without payment of any cash a net
amount of shares determined by the increase in the value of the issuer's stock
above the exercise price stated in the warrant.
Investment Policies
For purposes of these investment policies and unless otherwise
specified, references to the percentage of the Fund's total assets "invested"
in securities of a company will be deemed to refer, in the case of financings
in which the Fund commits to provide financing prior to funding the commitment,
to the amount of the Fund's total assets represented by the value of the
maximum amount of securities to be issued by the borrower or lessee to the Fund
pursuant to such commitment; the Fund will not be required to divest securities
in its portfolio or decline to fund an existing commitment because of a
subsequent change in the value of securities the Fund has previously acquired
or committed to purchase.
DIVERSIFICATION STANDARDS. The Fund will be classified as a
"non-diversified" closed-end investment company under the 1940 Act. Until the
Fund qualifies as a RIC, it will not be subject to
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the diversification requirements applicable to RICs under the Internal Revenue
Code. Commencing with the first capital call, the Manager will seek to
increase the diversification of the Fund's portfolio so as to make it possible
to meet the RIC diversification requirements, as described below. There can be
no assurance, however, that the Fund will be able to meet those requirements.
To qualify as a RIC, the Fund must meet the issuer diversification
standards under the Internal Revenue Code that require that, at the close of
each quarter of the Fund's taxable year, (i) not more than 25% of the market
value of its total assets is invested in the securities of a single issuer, and
(ii) at least 50% of the market value of its total assets is represented by
cash, cash items, government securities, securities of other RICs and other
securities (with each investment in such other securities limited so that not
more than 5% of the market value of the Fund's total assets is invested in the
securities of a single issuer and the Fund does not own more than 10% of the
outstanding voting securities of a single issuer). For purposes of the
diversification requirements under the Internal Revenue Code, the percentage of
the Fund's total assets "invested" in securities of a company will be deemed to
refer, in the case of financings in which the Fund commits to provide financing
prior to funding the commitment, to the amount of the Fund's total assets
represented by the value of the securities issued by the borrower or lessee to
the Fund at the time each portion of the commitment is funded.
The Fund will invest no more than 25% of its total assets in securities
of companies in any single industry. The broad industry categories in which
the Fund anticipates that most of its investments will fall (and within each of
which there may be several "industries" for purposes of the industry
diversification policy) include computer and semiconductor-related,
medical/biotechnology and communications.
INVESTMENT GUIDELINES. In selecting investments for the Fund's
portfolio, the Manager will endeavor to meet the following investment
guidelines, as established by the Fund's board of directors. The Fund may,
however, make investments that do not conform to one or more of these
guidelines when deemed appropriate by the Manager. Such investments might be
made if the Manager believes that a failure to conform in one area is offset by
exceptional strength in another or is compensated for by a higher yield,
favorable warrant issuance or other attractive transaction terms or features.
STAGE OF DEVELOPMENT GUIDELINES. The Manager will seek to diversify
the Fund's portfolio based on the stage of development of borrowers or lessees
by limiting the Fund's aggregate investment in securities of companies that, in
the opinion of Westech Advisors, are in the start-up stage to 35% of the Fund's
total assets. The Manager will seek to invest the remainder of the Fund's
assets in securities of companies that, in the opinion of the Manager, are in
the emerging growth stage or mezzanine stage, except that the Manager may
invest up to 5% of the Fund's total assets in securities of companies that, in
the opinion of the Manager, are in the seed capital stage. The Fund would
invest in seed capital stage companies for strategic purposes, with the goal of
making additional, larger investments if the company succeeds. For purposes of
these investment guidelines, the stages of development are defined as follows:
- Seed capital companies represent the earliest stage of
development. These companies have raised relatively modest
equity capital to prove a concept and qualify for start-up
capital. Their activities generally are limited to product
development, scientific and market research, recruiting a
management team and developing a business plan. These
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companies likely do not have financial support from either
venture capitalists or larger companies making strategic
investments.
- Start-up stage companies are completing or have recently
completed product development and initial marketing, but have
not sold their products commercially. Generally such firms have
made market studies, assembled key management, developed a
business plan and are ready to commence operations.
- Emerging growth stage companies have initiated or are about to
initiate full-scale operations and sales, but may not be showing
a profit.
- Mezzanine stage companies are approaching or have attained break
even or profitability and are continuing to expand. An
acquisition or initial public offering may be imminent.
Classification of a company by stage of development necessarily
involves a subjective judgment by the Manager, and it is possible that other
investors or market analysts would classify a company differently than the
classification used by the Fund.
QUALITY GUIDELINES. The Manager will seek to invest at least 65% of
the Fund's aggregate investments (determined over the life of the Fund) in
venture loans or leases that meet the following criteria:
Borrower/Lessee Criteria
- The company has a minimum capitalization of at least $1 million.
- The company has at least nine months' available cash to fund its
operations (excluding the cost of the financing to be provided
by the Fund) and indications from its equity investors that they
will make investments necessary to provide such cash.
- At least two venture capital investors have indicated a current
intention to make additional equity financing available to the
company, or the company has a forecasted positive cash flow.
- The company's business plan contemplates sales of at least $25
million within five years.
- The company has or will consummate equity venture capital
financing prior to funding the assets to be acquired.
Transaction Criteria
- The term of the loan or lease does not exceed 60 months, and
does not extend beyond December 31, 2005.
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- At least 75% of the assets to be financed are, in the opinion of
the Manager, critical to the company's day-to-day operations.
- At least 75% of the assets to be financed are moveable and, in
the opinion of the Manager, readily remarketable.
Equity Venture Capital Support Criteria
- At least two of the company's equity venture capital investors
(including the lead investor) have (i) in the opinion of the
Manager, significant venture capital industry experience and
(ii) at least $50 million under management.
SPECIAL SITUATIONS. The Manager may invest up to 10% of the Fund's
aggregate investments determined over the life of the Fund in special situation
investments. Such special situations would include providing bridge financing
to a company which is in the process of raising additional private equity,
planning an initial public offering or is seeking to enter into a business
combination through which it would be acquired. In addition, special
situations would also include investments in a "troubled" company undergoing a
restructuring or recapitalization of its existing debt or equity, and making
investments in subordinated debt.
INTERNATIONAL INVESTMENTS. The Manager may invest up to 10% of its
aggregate investments determined over the life of the Fund in United States
based companies that have international operations with assets located in
foreign divisions, subsidiaries or affiliated entities. If reasonably
practicable, such investment would be secured by the assets located in such
foreign divisions in addition to being secured by any assets located in the
United States.
LEVERAGE. The Fund intends to borrow money from and issue debt
securities to banks, insurance companies and other lenders to obtain additional
funds to originate venture loans and leases. Under the 1940 Act, the Fund may
not incur borrowings unless, immediately after the borrowing is incurred, such
borrowings would have "Asset Coverage" of at least 200%. "Asset Coverage"
means the ratio which the value of the Fund's total assets, less all
liabilities not represented by (i) the borrowings and (ii) any other
liabilities constituting "senior securities" under the 1940 Act, bears to the
aggregate amount of such borrowings and senior securities. The practical
effect of this limitation is to limit the Fund's borrowings and other senior
securities to 50% of its total assets less its liabilities other than the
borrowings and other senior securities. The 1940 Act also requires that, if
the Fund borrows money, provision be made to prohibit the declaration of any
dividend or other distribution on the Shares (other than a dividend payable in
Shares), or the repurchase by the Fund of Shares, if, after payment of such
dividend or repurchase of Shares, the Asset Coverage of such borrowings would
be below 200%. If the Fund is unable to pay dividends or distributions in the
amounts required under the Internal Revenue Code, it might not be able to
qualify as a RIC or, if qualified, to continue to so qualify.
The use of leverage increases investment risk. Lenders are expected to
require that the Fund pledge portfolio assets as collateral for loans. If the
Fund is unable to service the borrowings, the Fund may risk the loss of such
pledged assets. Lenders are also expected to require that the Fund agree to
loan covenants limiting the Fund's ability to incur additional debt or
otherwise limiting the Fund's flexibility, and loan agreements may provide for
acceleration of the maturity of the
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indebtedness if certain financial tests are not met. To minimize risks
associated with lending money at fixed rates, the Fund may enter into interest
rate hedging transactions with respect to all or any portion of the Fund's
investments. There can be no assurance that such interest rate hedging
transactions will be available in forms acceptable to the Fund. In addition,
entering into interest rate hedging transactions raises costs to the Fund.
TEMPORARY INVESTMENTS. Pending investment in asset financing
transactions and pending distributions, the Fund will invest excess cash in (i)
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities; (ii) repurchase agreements fully collateralized by U.S.
government securities; (iii) short-term high-quality debt instruments of U.S.
corporations; and (iv) pooled investment funds whose investments are restricted
to those described above. All such investments will mature in one year or
less. The U.S. government securities in which the Fund may invest include U.S.
government securities backed by the full faith and credit of the U.S.
government (such as Treasury bills, notes and bonds) as well as securities
backed only by the credit of the issuing agency. Corporate securities in which
the Fund may invest include commercial paper, bankers' acceptances and
certificates of deposit of domestic or foreign issuers.
The Fund also may enter into repurchase agreements that are fully
collateralized by U.S. government securities with banks or recognized
securities dealers in which the Fund purchases a U.S. government security from
the institution and simultaneously agrees to resell it to the seller at an
agreed-upon date and price. The repurchase price is related to an agreed-upon
market rate of interest rather than the coupon of the debt security and, in
that sense, these agreements are analogous to secured loans from the Fund to
the seller. Repurchase agreements carry certain risks not associated with
direct investments in securities, including possible declines in the market
value of the underlying securities and delays and costs to the Fund if the
other party to the transaction defaults.
OTHER INVESTMENT POLICIES. The Fund will not sell securities short,
purchase securities on margin (except to the extent the Fund's permitted
borrowings are deemed to constitute margin purchases), write puts or calls,
purchase or sell commodities or commodity contracts or purchase or sell real
estate. The Fund will not underwrite the securities of other companies, except
to the extent the Fund may be deemed an underwriter upon the disposition of
restricted securities acquired in the ordinary course of the Fund's business.
The Fund's investment objective, investment policies and investment
guidelines (other than its status as a BDC) are not fundamental policies and
may be changed by the Fund's board of directors at any time without shareholder
approval.
Regulation
The Small Business Incentive Act of 1980 ("1980 Provisions") modified
the provisions of the 1940 Act that are applicable to a closed-end investment
company. After filing its election to be treated as a BDC, 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 1940 Act).
The following is a brief description of the 1940 Act, as modified by the 1980
Provisions, and is qualified in its entirety by reference to the full text of
the 1940 Act and the rules thereunder.
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Generally, to be eligible to elect BDC status, a company must engage in
the business of furnishing capital and offering significant managerial
assistance to Eligible Portfolio Companies. More specifically, in order to
qualify as a BDC, a company must (i) be a domestic company; (ii) have
registered as a class of its securities or have filed a registration statement
with the SEC pursuant to Section 12 of the 1934 Act; (iii) operate for the
purpose of investing in the securities of certain types of Eligible Portfolio
Companies; (iv) offer to extend significant managerial assistance to such
Eligible Portfolio Companies; (v) have a majority of disinterested directors;
and (vi) file (or under certain circumstances, intend to file) a proper notice
of election with the SEC. The National Securities Markets Improvement Act of
1996 relaxed the requirement set forth in clause (iv), above, in certain
respects; in this regard, a BDC is not required to offer significant managerial
assistance to an issuer (x) which has total assets of not more than $4,000,000
and capital and surplus of not less than $2,000,000 or (y) with respect to any
other issuer that meets such criteria as the SEC otherwise may provide.
"Making available significant managerial assistance" is defined under
the 1940 Act, in relevant part, as (i) an arrangement whereby the BDC, through
its officers, directors, employees or general partners, offers to provide and,
if accepted, does provide, significant guidance and counsel concerning the
management, operations or business objectives of a portfolio company; or (ii)
the exercise by a BDC of a controlling influence over the management or polices
of the portfolio company by the BDC acting individually or as part of a group
acting together which controls the portfolio company. The officers of the Fund
intend to offer to provide managerial assistance, including advice on equipment
acquisition and financing, cash flow and expense management, general financing
opportunities, acquisition opportunities and opportunities to access the public
securities markets, to the great majority of companies to whom the Fund
provides venture loans or leases. In some instances, officers of the Fund
might serve on the board of directors of borrowers or lessees.
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 BDC and has an
affiliate of a BDC on its board of directors; or (iii) meets such other
criteria as may be established by the SEC. Control under the 1940 Act is
presumed to exist where a BDC owns more than 25% of the outstanding voting
securities of the eligible portfolio company.
The 1940 Act prohibits or restricts BDCs from investing in certain
types of companies, such as brokerage firms, insurance companies, investment
banking firms, and investment companies. Moreover, the 1940 Act limits the
type of assets that BDCs may acquire to certain prescribed Qualifying Assets
and certain assets necessary for its operations (such as office furniture,
equipment, and facilities) if, at the time of acquisition, less than 70% of the
value of BDC's assets consist of Qualifying Assets. Qualifying Assets include:
(i) privately acquired securities of companies that were Eligible Portfolio
Companies at the time such BDC acquired their securities; (ii) securities of
bankrupt or insolvent companies; (iii) securities of Eligible Portfolio
Companies controlled by a BDC; (iv) securities received in exchange for or
distributed with respect to any of the foregoing; and (v) cash items,
government securities and high-quality short-term debt. The 1940 Act also
places restrictions on the nature of transactions in which, and the persons
from whom, securities can be purchased in order for the securities to be
considered Qualifying 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.
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The Fund, as a BDC, may sell its securities at a price that is below
its net asset value per share provided a majority of the Fund's disinterested
directors has determined that such sale would be in the best interests of the
Fund and its shareholders and upon the approval by the holders of a majority of
its outstanding voting securities, including a majority of the voting
securities held by non-affiliated persons, of such policy or practice within
one year of such sale. A majority of the disinterested directors also must
determine in good faith, in consultation with the underwriters of the offering
if the offering is underwritten, that the price of the securities being sold is
not less than a price which closely approximates market value of the
securities, less any distribution discounts or commissions. As defined in the
1940 Act, the term "majority of the outstanding voting securities" of the Fund
means the vote of (i) 67% or more of the Fund's Shares present at a meeting, if
the holders of more than 50% of the outstanding Shares are present or
represented by proxy, or (ii) more than 50% of the Fund's outstanding Shares,
whichever is less.
Many of the transactions involving a company and its affiliates (as
well as affiliates of those affiliates) which were prohibited without the prior
approval of the Securities and Exchange Commission ("SEC") under the 1940 Act
prior to its amendment by the 1980 Provisions are permissible for BDCs,
including the Fund, upon the prior approval of a majority of the Fund's
disinterested directors and a majority of the directors having no financial
interest in the transactions. However, certain transactions involving certain
persons related to the Fund, including its directors, officers, Westech
Advisors and the Adviser to the Manager, may still require the prior approval
of the SEC. In general, (i) any person who owns, controls, or holds power to
vote, more than 5% of the Fund's outstanding Shares (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 Fund's
disinterested directors, and, in some situations, the prior approval of the
SEC, before engaging in certain transactions with the Fund or any company
controlled by the Fund. The 1940 Act generally does not restrict transactions
between the Fund and its Eligible Portfolio Companies. While a BDC may change
the nature of its business so as to cease being a BDC (and in connection
therewith withdraw its election to be treated as a BDC) only if authorized to
do so by a majority vote (as defined by the 1940 Act) of its outstanding voting
securities, shareholder approval of changes in other fundamental investment
policies of a BDC is not required (in contrast to the general 1940 Act
requirement, which requires shareholder approval for a change in any
fundamental investment policy).
Taxation
The following is a general summary of certain of the United States
federal income tax laws relating to the Fund and investors in its Shares. This
discussion is based on the Internal Revenue Code, regulations, published
rulings and procedures and court decisions as of the date hereof. The tax law,
as well as the implementation thereof, is subject to change, and any such
change might interfere with the Fund's ability to qualify as a RIC or, if the
Fund so qualifies, to maintain such qualification. This discussion does not
purport to deal with all of the United States federal income tax consequences
applicable to the Fund or to all categories of investors, some of whom may be
subject to special rules. In addition, it does not address state, local,
foreign or other taxes to which the Fund or its investors may be subject, or
any proposed changes in applicable tax laws. Investors should consult their
tax advisers with respect to an investment in Fund Shares.
TAXATION OF THE FUND AS AN ORDINARY CORPORATION.
It is anticipated that, commencing with the second year of its
investment operations, the Fund will seek to meet the requirements, including
diversification requirements, to qualify for the special pass-through status
available to RICs under the Internal Revenue Code, and thus to be relieved of
federal income tax on that part of its net investment income and realized
capital gains that it distributes to shareholders. Unless and until the Fund
meets these requirements, it will be taxed as an ordinary corporation on its
taxable income for that year (even if that income is distributed to
shareholders) and all distributions out of its earnings and profits will be
taxable to shareholders as dividends; thus, such income will be subject to a
double layer of tax (although corporate shareholders may be entitled to a
dividends-received deduction). There is no assurance that the Fund will meet
the requirements to qualify as a RIC.
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TAXATION OF THE FUND AS A RIC
Consequences of Converting From an Ordinary Corporation to a RIC. In
order to qualify as a RIC, the Fund must, at the end of the first year in which
it so qualifies, have no accumulated earnings and profits from years in which
it was not taxed as a RIC. To meet this requirement, the Fund must, before the
end of the first year in which it qualifies as a RIC, distribute as dividends
all of its accumulated earnings and profits. In addition to the foregoing,
pursuant to a published notice of the Internal Revenue Service, the Fund must
either (i) elect to recognize gain on the disposition of any asset during the
ten year period (the "Recognition Period") beginning on the first day of the
first taxable year for which the Fund qualifies as a RIC that is held by the
Fund as of the beginning of such Recognition Period, to the extent of the
excess of (a) the fair market value of such asset as of the beginning of such
Recognition Period over (b) the Fund's adjusted basis in such asset as of the
beginning of such Recognition Period (such excess, hereinafter, "built-in
gain"), taxable at the highest regular corporate rates or (ii) immediately
recognize and pay tax on any such built-in gain with respect to any of its
portfolio holdings and, as described above, distribute the earnings and profits
from such deemed sales. As a RIC, the Fund would not be able to use any net
operating loss carryforwards relating to periods prior to the first year in
which the Fund qualifies as a RIC. The Administration, in effect, has proposed
that clause (ii) automatically apply to an ordinary corporation that converts
to a RIC after January 1, 1998 if the value of the assets of such corporation
exceeds $5,000,000. Even if enacted in its present form, it is unlikely that
this proposed legislation would apply since the Manager intends to cause the
Company to elect RIC status prior to January 2, 1998. In any event, the amount
of any such "built-in gain" is likely to be fairly nominal as of the date of
conversion.
RIC Qualification Requirements. To qualify as a RIC, the Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income and net short-term capital gain) ("Distribution Requirement") and must
meet several additional requirements. Among the requirements are the
following: (a) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to loans of
securities and gains from the sale or other disposition of securities or other
income derived with respect to its business of investing in securities ("Income
Requirement"); (b) the Fund must derive less than 30% of its gross income each
taxable year from gains from the sale or other disposition of securities held
for less than three months; (c) the Fund must diversify its assets so that, at
the close of each quarter of the Fund's taxable year, (i) not more than 25% of
the market value of its total assets is invested in the securities of a single
issuer or in the securities of two or more issuers that the Fund controls and
that are engaged in the same or similar trades or businesses or related trades
or businesses and (ii) at least 50% of the market value of its total assets is
represented by cash, cash items, government securities, securities of other
RICs and other securities (with each investment in such other securities
limited so that not more than 5% of the market value of the Fund's total assets
is invested in the securities of a single issuer and the Fund does not own more
than 10% of the outstanding voting securities of a single issuer)
("Diversification Requirement"); and (d) the Fund must file an election to be
treated as a RIC. If, after initially qualifying as a RIC, the Fund fails to
qualify for treatment as a RIC for a taxable year, it would be taxed as an
ordinary corporation on its taxable income for that year and all distributions
out of its earnings and profits would be taxable to shareholders as dividends
(that is, ordinary income). In such a case, there may be substantial tax and
other costs associated with re-qualifying as a RIC. Although there is
substantial uncertainty on several relevant issues, if the Administration's
proposal were enacted and in effect as of the date the Fund were to attempt to
requalify as a RIC, the Fund could be subject to the tax consequences described
in
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<PAGE> 12
the immediately preceding paragraph if such legislation were to apply to a
re-election of a previously disqualified RIC.
The Fund would be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year at
least 98% of its ordinary income for such calendar year and 98% of its capital
gain net income for the one-year period ending on October 31 of such calendar
year, plus certain other amounts. For these purposes, any taxable income
retained by the Fund, and on which it pays federal income tax, would be treated
as having been distributed.
The Fund currently intends to distribute in each year for which it
qualifies as a RIC substantially all of its net investment income and capital
gain net income so as to not be subject to federal income or excise taxes.
Effect of Certain Investments and Investment Practices. The Fund's
venture lending and leasing activities will generally be unlike the typical
activities engaged in by most investment companies that seek to qualify as RICs
for federal income tax purposes. Certain aspects of these activities may at
times make it more difficult for the Fund to satisfy the requirements for
qualifying as a RIC than is true for other investment companies.
For example, because the timing of borrowings under the Fund's loan or
lease commitments will be primarily controlled by the borrower or lessee, it is
possible that, due to borrowings being made under some commitments at a faster
pace than others, the Fund might experience difficulty in meeting the
Diversification Requirement as of the close of a fiscal quarter. This
difficulty might be exacerbated during the early period of the Fund's
existence, when the Fund will own venture loans or leases to, and have
outstanding financing commitments with respect to, fewer borrowers or lessees
than will be the case for later periods. If the Fund does not meet the
Diversification Requirement as of the close of any fiscal quarter by reason of
a discrepancy existing immediately after the acquisition of any security or
other property which is wholly or partly the result of such acquisition during
such quarter, it generally will not lose its status as a RIC for such quarter
if such discrepancy is eliminated within 30 days after the close of such
quarter and in such cases it shall be considered to have met such requirements
at the close of such quarter. There can be no assurance, however, that the
Fund will be able to eliminate a discrepancy within the 30 day period.
The Fund's ability to enter into venture leasing transactions will be
limited by the Fund's intention to qualify as a RIC because, depending on the
terms of the leases, they may fail to qualify as assets either satisfying the
Diversification Requirement or producing income that would satisfy the Income
Requirement. Given the complexity of this area and the factual nature of the
determination, the Fund can offer no assurance or guarantee as to how each
venture lease will be characterized.
To the extent that the terms of venture loans provide for the receipt
by the Fund of additional interest at the end of the loan term or the terms of
venture leases provide for the receipt by the Fund of a purchase price for the
asset at the end of the lease term ("residual income"), the Fund would be
required to accrue such residual income over the life of the loan or lease, and
to include such accrued income in its gross income for each taxable year even
if it receives no portion of such residual income in that year. Thus, in order
to meet the Distribution Requirement and avoid payment of income taxes or the
Excise Tax on undistributed income, the Fund may be required in a particular
year to distribute as a dividend an amount in excess of the total amount of
income it actually receives. Those
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<PAGE> 13
distributions will be made from the Fund's cash assets, from amounts received
through amortization of loans or leases or from borrowed funds.
TAXATION OF THE FUND'S SHAREHOLDERS IF THE FUND QUALIFIES AS A RIC
General. Dividends paid to shareholders that are attributable to the
Fund's net investment income will be taxable to shareholders as ordinary
income. Capital gain distributions are taxable as long-term capital gains
regardless of how long the shareholder has held the Shares. It is not
anticipated that a significant portion of the Fund's dividends will qualify for
the dividends-received deduction for corporations.
Distributions are generally taxable to shareholders at the time the
distribution is received. However, any distribution declared by the Fund in
October, November or December, made payable to shareholders of record in such a
month and paid the following January, is deemed to have been paid by the Fund
and received by shareholders on December 31 of the year declared. This will
prevent the application of the Excise Tax, discussed above, to the Fund as a
result of the delay in the payment of the dividends.
If, for any calendar year, the Fund's total distributions exceed its
net investment income and net capital gains, the excess will generally be
considered a tax-free return of capital to a shareholder to the extent of the
shareholder's adjusted basis in its shares and then as capital gain. The
amount treated as tax-free return of capital will reduce the adjusted basis of
a shareholder's Shares, thereby increasing the potential gain or reducing the
potential loss on the sale of the Shares.
In general, upon the sale or other disposition of Shares, the selling
shareholder will recognize a gain or loss equal to the difference between the
amount realized on the sale and the seller's adjusted basis in the Shares. Any
loss realized will be disallowed to the extent the seller has acquired (or
entered into a contract to acquire) substantially identical Shares within a
period beginning 30 days before the disposition of Shares and ending 30 days
after the disposition. In such case, the basis of the Shares acquired will be
adjusted to reflect the disallowed loss. Gain or loss realized upon a sale of
Shares generally will be treated as a capital gain or loss. The gain or loss
will be a long-term capital gain or loss if the Shares were held for more than
one year. In addition, if the Shares sold were not held for more than six
months, any loss on the sale will be treated as long-term capital loss to the
extent of any capital gain dividend received by the shareholder with respect to
such Shares.
The Fund is required to withhold 31% of reportable payments (which may
include dividends and capital gain distributions) to individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number or who otherwise are subject to backup
withholding. The certification of a shareholder's taxpayer identification
number will be included in the Subscription Agreement to be provided with the
Private Offering Memorandum.
Federal withholding taxes at a rate of 30% (or a lesser treaty rate)
may apply to distributions to shareholders who are nonresident aliens or
foreign partnerships, trust or corporations. The rules governing United States
federal income taxation of foreign shareholders are complex, and prospective
non-U.S. shareholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in Shares, including any reporting requirements.
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<PAGE> 14
Individuals and certain other shareholders will be required to include
in their gross income an amount of certain Fund expenses relating to the
production of gross income that are allocable to the shareholder. These
shareholders, therefore, will therefore be deemed to receive gross income from
the Fund in excess of the distributions they actually receive. Such allocated
expenses may be deductible by an individual shareholder as a miscellaneous
itemized deduction, subject to the limitation on miscellaneous itemized
deductions not exceeding 2% of adjusted gross income.
The Fund will notify shareholders following the end of each calendar
year of the amounts of dividends and capital gain distributions paid or deemed
paid during the year.
Tax-Exempt Investors. Qualified plans, Individual Retirement Accounts
and investors exempt from taxation under the internal Revenue Code Section
501(c)(3) (collectively, "Tax-Exempt Entities") are generally exempt from
taxation except to the extent that they have unrelated business taxable income
("UBTI") (determined in accordance with Internal Revenue Code Sections
511-514). If the Fund qualifies as a RIC, it is likely that distributions to a
Tax-Exempt Entity shareholder that are treated as dividends will not be
considered UBTI and will therefore be exempt from federal income tax even if
the Fund borrows to acquire its investment assets. Under Section 512(b) of the
Internal Revenue Code, UBTI does not include dividends received by a Tax-Exempt
Entity. As a general rule, the income tax provisions relating to corporation
apply to RICs, unless Subchapter M of the Internal Revenue Code provides
otherwise, and thus Section 512(b) should apply to exclude from UBTI dividends
paid by a RIC to a Tax-Exempt Entity. This conclusion is also supported by
Revenue Ruling 66-106, which applies Section 512(b) to exclude from UBTI
dividends paid to the tax-exempt shareholders of a real estate investment trust
("REIT"), a conduit entity that invests in real estate and is substantially
similar to a RIC for tax purposes, on the same theory. However, if a
Tax-Exempt Entity borrows money to purchase its Shares, a portion of its income
from the Fund will constitute UBTI pursuant to the "debt-financed property:
rules.
Social clubs, voluntary employee benefit associates, supplemental
unemployment benefit trusts, and qualified group legal service organizations
that are exempt from taxation under Internal Revenue Code Sections 501(c)(7),
(9), (17) and (20), respectively, are subject to different UBTI rules, which
generally will require them to characterize distributions from the Fund as
UBTI. Dividends distributions by the Fund to a charitable organization that is
a private foundation should constitute investment income for purposes of the
excise tax on net investment income of private foundations imposed by Section
4940 of the Internal Revenue Code.
Risk Factors
GENERAL
No Operating History; Reliance on Management. The Fund is newly
organized and has not yet entered into any financing transactions or identified
any specific transactions it will finance. The Fund could require substantial
time to become fully invested. Pending investment, all cash that the Fund has
received pursuant to capital calls will be committed to short-term, high grade
investments that present relatively low investment risk but provide a
correspondingly lower return.
The Fund will be wholly dependent for the selection, structuring,
closing and monitoring of its investments on the diligence and skill of its
Manager, acting under the supervision of the Fund's board
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<PAGE> 15
of directors. Although the principals of Westech Advisors have over 25 years'
of combined experience in investing in venture lending and leasing
transactions, there can be no assurance that the Fund will attain its
investment objective. Ronald W. Swenson and Salvador O. Gutierrez, the senior
officers of Westech Advisors, will have primary responsibility for the
selection of the companies in which the Fund will invest, the negotiation of
the terms of such investments and the monitoring of such investments after they
are made. Although Messrs. Swenson and Gutierrez intend to devote such time as
is necessary to the affairs of the Fund, they are not required to devote full
time to the management of the Fund. Furthermore, there can be no assurance
that either officer will remain associated with Westech Advisors or that, if
either officer ceased to be associated with Westech Advisors, Westech Advisors
would be able to find a qualified person or persons to fill their positions.
Illiquid Investment. The Shares will not be registered under the
Securities Laws and are subject to substantial restrictions on transfer. There
will be no trading market for the Shares, and shareholders are likely to be
required to hold their Shares until the final liquidation of the Fund. An
investment in the Fund is therefore illiquid and should be considered only by
investors financially able to maintain their investment for the long term.
Subscription Terms; Risk of Forced Sale of Shares. Under the terms of
the Subscription Agreements and to the extent permitted by law, the Fund will
have the following remedies if a subscriber defaults in its payment obligations
under the Subscription Agreement: (i) cancellation of the balance of the
subscriber's Share subscription, (ii) assignment of the balance of the
subscriber's Share subscription and/or (iii) repurchase of the Shares by the
Fund at a price equal to the lesser of (a) the price paid for the Shares by the
subscriber or (b) 60% of the Shares' then current net asset value (the
"Discounted Share Price"). Notably, the Fund would have the right to
repurchase such Shares from a subsequent transferee of the Shares at the
Discounted Share Price. Consequently, subscribers may experience difficulty in
finding a purchaser for the Shares, and any purchase price paid therefor would
likely be at a substantial discount to the Shares' fair market value.
Therefore, a subscriber is subject to the risk that if it cannot fund its
subscription obligation, its Shares may be repurchased by the Fund at a
substantial discount to their value. In addition, even if a subscriber's
shares were not repurchased by the Fund, such subscriber would lose its
percentage of ownership and the rights related thereto if the subscriber is
unable to make subsequent purchases as required by subsequent capital calls of
the Fund.
Long-Term Investment. After the fourth anniversary following the first
closing of this offering, the Fund will cease to make new investments in
venture loans or leases (except pursuant to commitments made before such fourth
anniversary) and will distribute to investors the proceeds of repayment,
prepayment or sale of its investments, net of any principal repayments on
borrowings, expenses or other obligations of the Fund, amounts paid on exercise
of warrants and certain other amounts. The Fund's Articles of Incorporation
provide that, on December 31, 2005, the Fund automatically will be dissolved
without any action by shareholders. From and after such dissolution, the
Fund's activities will be limited to the winding-up of its affairs, the
liquidation of its remaining assets and the distribution of the net proceeds
thereof to shareholders. Although the Fund generally would not invest in any
loan or lease with a maturity date later than December 31, 2005, it is possible
that, due to a default by a borrower or lessee or a transaction restructuring
due to a borrower's or lessee's financial difficulties, the Fund will not fully
realize on a loan or lease by the original maturity date. Furthermore, the
Fund may not be able to sell warrants it receives from borrowers or lessees, or
the equity securities it receives upon exercise of such warrants, for a
significant period of time due to
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<PAGE> 16
legal or contractual restrictions on resale or the absence of a liquid
secondary market. As a result, the liquidation process might not be completed
for a significant period after the Fund's dissolution. In addition, it is
possible that, if certain of the Fund's assets are not liquidated within a
reasonable time after the Fund's dissolution, the Fund may elect to make a
distribution in kind of all or part of such assets to shareholders. In such
case, shareholders would bear any expenses attendant to the liquidation of such
assets.
Competition. Other entities and individuals compete for investments
similar to those proposed to be made by the Fund, some of whom may have greater
resources than the Fund. Furthermore, the Fund's need to comply with
provisions of the 1940 Act pertaining to BDCs and, if the Fund qualifies as a
RIC, provisions of the Internal Revenue Code pertaining to RICs might restrict
the Fund's flexibility as compared with its competitors. The need to compete
for investment opportunities may make it necessary for the Fund to offer
borrowers or lessees more attractive transaction terms than otherwise might be
the case.
Leverage. The Fund's ability to borrow money to make additional loans
or leases creates leverage. While leverage can enhance the return on invested
capital, if the return on the investments purchased with borrowed funds fails
to cover the fixed cost of the borrowings, or if the return is negative, the
value of the Fund's net assets will decline more rapidly than would be the case
in the absence of leverage. For this reason, leverage is considered a
speculative investment technique. The Fund will pledge portfolio assets as
collateral for borrowings. If the Fund is unable to service its borrowings,
because of the failure of the obligors on the Fund's loans or leases to make
debt service or lease payments, or due to other factors, the Fund may risk the
loss of the pledged assets. In addition, if the interest rates on floating or
variable rate borrowings increase at a time that the Fund holds fixed rate
loans or leases, or holds variable rate loans or leases whose interest rates do
not increase as much as the rate on Fund's borrowings, the Fund's income and
yield will be adversely affected. If the income from assets purchased with
borrowed funds fails to cover the cost of the borrowing, the Fund would be in a
better position had it not borrowed at all. To minimize risks associated with
lending money at fixed rates, the Fund may enter into interest rate hedging
transactions with respect to all or any portion of the Fund's investments.
There can be no assurance that such interest rate hedging transactions will be
available on terms acceptable to the Fund. In addition, entering into interest
rate hedging transactions raises costs to the Fund.
Conversely, the ability of the Fund to attain its investment objective
depends in part on its ability to borrow money on favorable terms, and there
can be no assurance that the Fund will be able to do so. Lenders may require
that the Fund agree to loan covenants that could restrict its flexibility in
the future. In order to repay its indebtedness in a timely fashion, the Fund
may be required to dispose or seek prepayment of assets at a time it would
otherwise not do so. Under the 1940 Act, if the Fund borrows money, provision
must be made to prohibit the declaration of any dividend or other distribution
on the Shares (other than a dividend payable in Shares), or the repurchase by
the Fund of Shares, if after payment of such dividend or repurchase of Shares
the value of the Fund's total assets, less all liabilities not represented by
(i) the borrowings and (ii) any other liabilities constituting "senior
securities" under the 1940 Act, is less than 200% of the aggregate amount of
such borrowings and senior securities. If the Fund is unable to pay dividends
or distributions in the amounts required under the Internal Revenue Code, it
might not be able to qualify as a RIC or, if qualified, to continue to so
qualify.
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<PAGE> 17
Regulation. The Fund has elected to be treated as a BDC under the
Small Business Incentive Act of 1980, which modified the 1940 Act. Although
the 1980 Provisions exempt BDCs from registration under the 1940 Act and
relieve such companies from compliance with many provisions of the 1940 Act,
the 1980 Provisions impose on BDCs greater restrictions in some respects on
permitted types of investments. Moreover, the applicable provisions of the
1940 Act continue to impose numerous restrictions on the activities of the
Fund, including restrictions on leverage and on the nature of its investments.
While the Fund is not aware of any judicial rulings under, and is aware of only
a few administrative interpretations of, the 1980 Provisions, there can be no
assurance that the 1980 Provisions will be interpreted or administratively
implemented in a manner consistent with the Fund's objectives or manner of
operation.
Litigation. The Fund could be subject to litigation by borrowers or
lessees, based on theories of "lender liability" or otherwise, in connection
with the exercise of its rights as secured lender or lessor. The defense of
such a lawsuit, even if ultimately determined to be without merit, could be
costly and time-consuming.
Tax Status. The Fund must meet a number of requirements, described
under "Federal Income Taxation", to qualify as a RIC and, if qualified, to
continue to so qualify. For example, the Fund must meet specified asset
diversification standards under the Internal Revenue Code which might be
difficult to meet if the borrowers or lessees under some loans or leases drew
down their committed financing at a faster rate than other borrowers or
lessees, particularly during the early periods of the Fund's operations. If the
Fund experiences difficulty in meeting the diversification requirement for any
fiscal quarter, it might accelerate capital calls or borrowings in order to
increase the portion of the Fund's total assets represented by cash, cash items
and U.S. government securities as of the close of the following fiscal quarter
and thus attempt to meet the diversification requirement. However, the Fund
would incur additional interest and other expenses in connection with any such
accelerated borrowings, and increased investments by the Fund in cash, cash
items and U.S. government securities (whether the funds to make such
investments are derived from called equity capital or from accelerated
borrowings) are likely to reduce the Fund's return to investors. Furthermore,
there can be no assurance that the Fund would be able to meet the
diversification requirements through such actions. Failure to qualify as a RIC
would deny the Fund pass-through status and, in a year in which the Fund has
taxable income, would have a significant adverse effect on the return to
investors.
When the Fund elects to convert its status from that of an ordinary, or
C, corporation to that of a RIC, it must choose to either (i) pay tax whenever
an asset is sold during the ten years following the conversion on, at most, the
amount of gain which would have been realized had the property been sold on the
conversion date, or (ii) treat the entire amount of "built-in gain" as income
at the time of conversion. Part of the Clinton Administration's current budget
would eliminate the choice in (i) above and, therefore, force recognition of
any "built-in gain" at the time of conversion to RIC status. As noted in the
discussion under "Federal Income Taxation", it is unlikely the amount of any
such gain will be realized at the time the Fund intends to elect RIC status.
There is substantial uncertainty, however, as to how this proposal might
affect, if at all, a corporation which had previously been qualified as a RIC,
lost such qualification and then sought to re-qualify. It is possible that
such a corporation would have to recognize the entire amount of "built-in gain"
when it re-elects RIC status, even gain which accrued during prior periods of
RIC status.
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<PAGE> 18
Allocation of Expenses. If the Fund qualifies as a RIC, individuals
and certain other shareholders will be required to include in their gross
income an amount of certain Fund expenses relating to the production of gross
income that are allocable to the shareholder. These shareholders will
therefore be deemed to receive gross income from the Fund in excess of the
distributions they actually receive. Such allocated expenses may be deductible
by an individual shareholder as a miscellaneous itemized deduction, subject to
the limitation on miscellaneous itemized deductions not exceeding 2% of
adjusted gross income.
INVESTMENT RISKS
Credit Risks. The companies with which the Fund will enter into
financing transactions in most cases will not at that time have achieved
profitability, may experience substantial fluctuations in their operating
results or, in some cases, will not have significant operating revenues. The
ability of these companies to meet their obligations to the Fund will therefore
depend to a significant extent on the willingness of a borrower's or lessee's
equity venture capital investors to provide additional equity financing, which
in turn will depend on the borrower's or lessee's success in meeting its
business plan, the market climate for venture capital investments generally and
many other factors. The companies for which the Fund will provide financing
will frequently be engaged in the development of new products or technologies,
and the success of these efforts, or the ability of the companies to
successfully manufacture or market products or technologies developed, cannot
be assured. These companies frequently face intense competition, including
competition from companies with greater resources, and may face risks of
product or technological obsolescence or rapidly changing regulatory
environments which could adversely affect their prospects. The success of such
companies often depend on the management talents and efforts of one person or
small group of persons whose death, disability or resignation would adversely
affect their businesses.
Remedies Upon Default. In the event of a default on a loan or lease,
the Fund's available remedies would include legal action against the borrower
or lessee and foreclosure or repossession of collateral given by the borrower
or lessee, including the equipment or other assets being financed. The Fund
could experience significant delays in exercising its rights as a secured
lender or lessor and might incur substantial costs in taking possession of the
underlying assets and taking other steps to protect its investment.
Furthermore, the requirements under the laws of the various states for creating
and perfecting a security interest in the assets underlying a loan or lease are
technical and complex, and even minor deviations from the required procedures
could impair the Fund's security interest in the underlying assets. Venture
Lending & Leasing, Inc. ("VLLI") is a BDC organized by Westech Advisors and
Sigular Guff Advisers, LLC, and engaged in the same business as the Fund. The
Fund and VLLI will enter into intercreditor agreements which could limit the
Fund's flexibility in pursuing its remedies as a secured creditor, and reduce
the proceeds realized from foreclosing or taking possession of the collateral.
Under the intercreditor agreements, the Fund would agree that its security
interest would be treated in parity with the security interest of VLLI,
regardless of which security interest would have priority under applicable law.
The Fund will utilize certain of its funds in investments that involve
the financing of equipment assets. Equipment assets are often subject to rapid
depreciation or obsolescence such that there can be no assurance that the value
of the assets underlying a loan or lease to finance such assets will not
depreciate during the term of the transaction below the amount of the
borrower's or lessee's obligations. In addition, although borrowers or lessees
will be required under the transaction documents to provide customary insurance
for the assets underlying a loan or lease, and will be prohibited from
disposing of the assets without the Fund's consent, compliance with these
covenants
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<PAGE> 19
cannot be assured and, in the event of non-compliance, the assets could become
unavailable to the Fund due to destruction, theft, sale or other circumstances.
The Fund's ability to obtain payment beyond the assets underlying the loan or
lease from the borrower or lessee might be limited by bankruptcy or similar
laws affecting creditors' rights. Therefore, there can be no assurance that the
Fund would ultimately collect the full amount owed on a defaulted loan or
lease.
Speculative Nature of Warrants. The value of the warrants that the
Fund generally will receive in connection with its portfolio investments is
dependent on the value of the equity securities for which the warrants can be
exercised. The value of such securities is dependent primarily on the success
of the company's business strategy and the growth of its earnings, but also
depends on general economic and equity market conditions. The prospects for
achieving consistent profitability in the case of many companies in which the
Fund will invest are speculative. The warrants and equity securities for which
the warrants can be exercised generally will be restricted securities that
cannot readily be sold for some period of time. If the value of the equity
securities underlying a warrant does not increase above the exercise price
during the life of the warrant, the Fund would permit the warrant to expire
unexercised and the warrant would then have no value.
Illiquidity of Investments. The Fund anticipates that substantially
all of its portfolio investments (other than short-term investments) will
consist of securities that at the time of acquisition are subject to
restrictions on sale and for which no ready market will exist. Restricted
securities cannot be sold publicly without prior agreement with the issuer to
register the securities under the 1933 Act, or by selling such securities under
Rule 144 or other provisions of the 1933 Act which permit only limited sales
under specified conditions. Venture loans and leases are privately negotiated
transactions, and there is no established trading market in which such loans or
leases can be sold. In the case of warrants or equity securities, the Fund
generally will realize the value of such securities only if the issuer is able
to make an initial public offering of its shares, or enters into a business
combination with another company which purchases the Fund's warrants or equity
securities or exchanges them for publicly-traded securities of the acquiror.
The feasibility of such transactions depends upon the borrower's or lessee's
financial results as well as general economic and equity market conditions.
Furthermore, even if the restricted warrants or equity securities owned become
publicly-traded, the Fund's ability to sell such securities may be limited by
the lack of or limited nature of a trading market for such securities. When
restricted securities are sold to the public, the Fund, under certain
circumstances, may be deemed an "underwriter" or a controlling person with
respect thereto for the purposes of the 1933 Act, and be subject to liabilities
as such under that Act.
Because of the illiquidity of the Fund's investments, a substantial
portion of the Fund's assets will be carried at fair value as determined by the
board of directors. This value will not necessarily reflect the value of the
assets which may be realized upon a sale.
Non-Diversified Status. The Fund will be classified as a
"non-diversified" investment company under the 1940 Act. At such time as the
Fund meets certain asset diversification requirements, the Fund intends to
qualify as a RIC under the Internal Revenue Code and will thereafter seek to
meet the diversification standards thereunder. Nevertheless, the Fund's assets
may be subject to a greater risk of loss than if its investments were more
widely diversified.
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<PAGE> 20
CONFLICTS OF INTEREST
Transactions by Other Clients. The Fund's board of directors has
determined that so long as VLLI has capital available to invest in loan or
lease transactions with final maturities earlier than December 31, 2002 (the
date on which VLLI will be dissolved), the Fund will invest in each portfolio
company that VLLI invests in ("Investments"). The amount of each Investment
will be allocated between the Fund and VLLI in accordance with the "Committed
Equity Capital" of the Fund and VLLI so long as VLLI has capital available to
invest. The Committed Equity Capital of VLLI is $46,700,000. If this
offering is fully subscribed, the Committed Equity Capital of the Fund will be
$100,000,000. If the minimum amount is raised, the Committed Equity Capital
of the Fund will be $50,00,000. Therefore, if the offering is fully
subscribed, each Investment will be allocated approximately two-thirds to the
Fund and one-third to VLLI. If the minimum amount is raised, Investments will
be allocated approximately one-half to the Fund and one-half to VLLI. In any
case, VLLI can only invest to the extent that it has capital available for
investment; after VLLI no longer has capital available for investment, VLLI
will no longer invest in transactions in which the Fund invests. As of May 19,
1997, VLLI has approximately $9,340,000 of capital committed to VLLI which has
not yet been called from its shareholders but must be called if at all, by July
5, 1998. This means that the funds with which VLLI has available to invest
with the Fund consist of (a) $9,340,000 plus (b) amounts which VLLI borrows by
leveraging its available capital funds plus (c) any proceeds from principal
payments received on loans and leases, plus the proceeds from the sale of
securities in an amount equal to the cost basis of securities sold. After
June 30, 1998, VLLI will no longer be permitted to enter into new commitments
to borrowers or lessees; however, VLLI will be permitted to fund existing
commitments from the sources described above. While investing the Fund's
capital in the same companies in which VLLI is also investing could provide the
Fund with greater diversification and access to larger transactions, it could
also result in a slower pace of investment than would be the case if the Fund
were investing in companies by itself.
Although VLLI and the Fund intend to invest in the same Companies in
the respective propor tions described above, the Fund may, at any time, with
the approval of its board of directors, (i) discontinue investing with VLLI
with respect to any or all future investments or (ii) choose to invest in
different proportions with VLLI than described above. In addition, the Fund
has no control over VLLI, and VLLI, which is not required to invest with the
Fund in any particular proportion or at all, may choose to discontinue
investing with the Fund or to invest in different proportions than described in
this paragraph. In the event that VLLI and the Fund invest in other than the
pro rata manner described above (which can occur only with board approval of
each), the Manager may have a conflict of interest in determining which of VLLI
and the Fund will invest in a particular company and, if both, in what
proportions. The Fund may also engage in loan or lease transactions with
companies that are preexisting borrowers or lessees from VLLI.
To the extent that portfolios of clients, other than VLLI, that are
advised by the Manager (but in which the Manager has no proprietary interest)
invest in opportunities available to the Fund, the Manager will allocate such
opportunities among the Fund and such other clients in a manner deemed fair and
equitable considering all of the circumstances in accordance with procedures
approved by the Fund's board of directors (including a majority of the
disinterested directors).
Intercreditor Agreements. In transactions in which both the Fund and
VLLI invest pro rata, it is expected that the Fund and VLLI will enter into an
intercreditor agreements pursuant to which the Fund and VLLI will cooperate in
pursuing their remedies following a default by one of the borrowers or lessees.
Under the intercreditor agreements, each party would agree that its security
interest would be treated in parity with the security interest of the other
party, regardless of which security interest would have priority under
applicable law. The proceeds realized from the sale of any collateral or the
exercise of any other creditor's rights will be allocated between the Fund and
VLLI pro rata in accordance with their respective investments. As a result of
such intercreditor agreements, the Fund would have less flexibility in pursuing
its remedies following a default than it would have had there been no
intercreditor agreement, and the Fund may realize fewer proceeds. In addition,
because the Fund and VLLI invest at the same time in the same borrower or
lessee, such borrower or lessee would be required to service two loans rather
than one. Any additional administrative costs or burdens resulting therefrom
may make the Fund a less attractive lender, and may make it more difficult for
the Fund to acquire such loans or leases.
19
<PAGE> 21
Incentive Compensation. The compensation payable to Westech Advisors
and the Adviser to the Manager will be based in part upon a percentage of the
Fund's distributions to shareholders after shareholders have received aggregate
distributions in a specified amount. Westech Advisors and the Adviser to the
Manager believe this compensation structure might benefit the Fund by creating
a greater identity of economic interest between the Fund and the Manager and
the Adviser to the Manager. However, the incentive compensation structure might
also create an incentive for the Westech Advisors and the Adviser to the
Manager to make investments that are riskier or more speculative than would be
the case in the absence of incentive compensation.
Effect of Borrowings. After the first two years of the Fund's
investment operations, the Management Fee will be based on the value of the
Fund's total assets, including assets purchased with borrowed funds.
Therefore, decisions by the Manager to cause the Fund to borrow additional
funds will increase the quarterly fees payable to the Manager and the Adviser
to the Manager. The Fund's overall borrowing limits, however, are set by the
Fund's board of directors in light of its fiduciary duty to the shareholders.
Indemnification and Exculpation. The Fund's Articles of Incorporation
provide for indemnifica tion of directors, officers, employees and agents
(including Westech Advisors and the Adviser to the Manager) of the Fund to the
full extent permitted by Maryland law and the 1940 Act, including the advance
of expenses and reasonable counsel fees. The Articles of Incorporation also
contain a provision eliminating personal liability of a Fund director or
officer to the Fund or its shareholders for monetary damages for certain
breaches of their duty of care.
Selection of Disinterested Directors. Westech Advisors intends that,
prior to the closing of this offering, a majority of the Fund's directors will
be disinterested directors. Although the continued tenure of all directors
will be subject to annual election by shareholders, the initial selection of
directors, including the disinterested directors, is made by the Manager.
Employees.
The fund expects to have no employees and will rely on the Manager and
its officers (all of whom are employed and paid by the Manager) to administer
its affairs, subject to the supervision of the Fund's Board of Directors.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
The Fund has not commenced business and has no revenues or assets.
ITEM 2. FINANCIAL INFORMATION
The Fund has not commenced business and has no revenues or assets.
ITEM 3. PROPERTIES
The Fund has not commenced business and has no assets. It is
anticipated that the Fund's principal assets following commencement of
operations will be securities.
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<PAGE> 22
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
The Fund has no Shares outstanding as of the date of this Private
Offering Memorandum. It is anticipated that, prior to the first closing of
this offering, Westech Advisors will purchase one Share at a price of $1,000 as
the Fund's initial capital. Therefore, until immediately subsequent to the
first capital call to purchase the Shares offered pursuant to this offering,
Westech Advisors will be deemed to "control" the Fund.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Fund are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Ronald W. Swenson* 52 Chairman, Chief Executive Officer and Director
2010 North First Street, Suite 310
San Jose, CA 95131
Salvador O. Gutierrez* 53 Chief Operating Officer, Chief Financial
2010 North First Street, Suite 310 Officer and Director
San Jose, CA 95151
George W. Siguler 50 Advisory Director
630 Fifth Avenue, 16th Floor
New York, NY 10111
Michael G. McCaffery 43 Advisory Director
555 California Street, Suite 2600
San Francisco, CA 94104
Patricia A. Breshears 62 Vice President and Secretary
2010 North First Street, Suite 310
San Jose, CA 95131
</TABLE>
- --------------------------------------
* Interested person of the Fund within the meaning of the 1940 Act.
The board of directors of the Fund anticipates electing three
additional disinterested directors. The Fund's disinterested directors will
each receive an annual fee from the Fund of $5,000. Such directors also will
be reimbursed by the Fund for their expenses in attending meetings of the board
of directors or any committee thereof and will receive a fee for attendance in
person at any meeting at a per diem rate of $500. The Fund's interested
directors and officers are employees of the Manager and receive no compensation
from the Fund for their services as directors or officers, other than reimburse
ment of their expenses in attending meetings. The Fund's advisory directors
are employees of the Adviser to the Manager or the Placement Agent and receive
no compensation from the Fund for their services as directors or officers,
other than reimbursement of their expenses in attending meetings. The Fund's
Placement Agent is Robertson, Stephens & Company LLC, a broker-dealer
Registered under the Federal Securities laws ("Placement Agent").
21
<PAGE> 23
The business backgrounds of the Fund's directors and officers are as
follows:
RONALD W. SWENSON is Chairman, Chief Executive Officer, and Director of
the Manager and his business background is set forth under "Management -- The
Manager".
SALVADOR O. GUTIERREZ is the Chief Operating Officer and Chief
Financial Officer of the Manager and his business background is set forth under
"Management -- The Manager".
GEORGE W. SIGULER is Managing Director of the Adviser to the Manager
and his business background is set forth under "Management -- Adviser to the
Manager".
MICHAEL G. MCCAFFERY is President and Chief Executive Officer of the
Placement Agent, Robertson, Stephens & Company LLC. Mr. McCaffery previously
served as Director of Investment Banking at Robertson, Stephens & Company LLC,
where he had responsibility for Corporate Finance, Mergers & Acquisitions and
Private Placements. Mr. McCaffery graduated from the Stanford Graduate School
of Business with an M.B.A., concentrating on accounting and finance. He
received an M.A. from Merton College, Oxford University, Oxford, England, where
he attended as a Rhodes Scholar. He also received a B.A. from Princeton
University, where he attended the Woodrow Wilson School of Public and
International Affairs.
PATRICIA A. BRESHEARS is Vice President of the Manager and
administrator and corporate secretary of Western Technology. Before joining
Western Technology in 1984, she was office manager for F.A. Hoyt, Ltd., a
transportation equipment lessor, and from 1976-1980, she was a senior
documentation specialist for Crocker Equipment Leasing, Inc.
THE MANAGER
Westech Advisors, the Investment Manager, is a corporation organized by
the principals of Western Technology for the purpose of serving as Investment
Manager to VLLI and the Fund. Western Technology, an independent asset-based
financing organization headquartered in San Jose, California, was founded in
1980 and has originated more than $200 million in asset-based financing for
venture capital-backed companies. Messrs. Swenson and Gutierrez, the sole
executive officers of Westech Advisors, each own 50% of its voting securities.
Westech Advisors' principal business address is 2010 North First Street, Suite
310, San Jose, California 95131.
Messrs. Swenson and Gutierrez will have primary responsibility for the
Fund's investment program. The business backgrounds of Messrs. Swenson and
Gutierrez are as follows:
RONALD W. SWENSON is the Chief Executive Officer of Westech Advisors
and President and a Director of Western Technology. Mr. Swenson was the
founder of Western Technology in 1980. From 1978-1980, Mr. Swenson was Director
of Marketing for Magnuson Computer Systems, with responsibility for product
planning, sales support and developing financial leasing and service functions.
Before that, he was a Business Manager for Control Data Corp., responsible for
P&L, engineering and marketing for several major computer and peripheral
product lines and, earlier, a Program Manager at Control Data for disk storage
licensing with foreign companies.
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<PAGE> 24
SALVADOR O. GUTIERREZ is the President and Chief Financial Officer of
Westech Advisors and Senior Vice President-Chief Financial Officer and a
Director of Western Technology. Before joining Western Technology in 1987, Mr.
Gutierrez was head of corporate lending for Home Federal Bank of San Diego and,
from 1982-1984, was a senior credit officer for Imperial Bank in Palo Alto. In
both positions, Mr. Gutierrez dealt extensively with loans to young
high-technology companies. Prior to joining Imperial Bank, Mr. Gutierrez was a
corporate lending officer for Wells Fargo Bank, holding various senior lending
positions over his ten-year tenure. At Wells Fargo, Mr. Gutierrez handled
major leasing companies and many high-technology companies in the San Francisco
Bay Area. Mr. Gutierrez also had marketing responsibility for Latin America
for Wells Fargo Leasing.
ADVISER TO THE MANAGER
Siguler Guff Advisers, LLC, the adviser to Westech Advisors, is an
independent investment advisory firm that, together with its affiliates,
manages or co-manages individual private equity accounts and three private
equity funds, in addition to the Fund and VLLI, with total committed capital in
excess of $400 million. Siguler Guff Advisers, LLC is a Delaware limited
liability company whose voting securities are beneficially owned as follows:
45% by George W. Siguler, 45% by Drew J. Guff and 10% by Donald P. Spencer.
The principal business address of Siguler Guff Advisers, LLC is 630 Fifth
Avenue, 16th Floor, Rockefeller Center, New York, New York 10111.
Messrs. Siguler and Spencer will have primary responsibility for
advising the Manager. The business backgrounds of Messrs. Siguler and Spencer
are as follows:
GEORGE W. SIGULER, a founder and Managing Director of Siguler Guff
Advisers, LLC and its affiliates, was a Managing Director of Mitchell Hutchins
Institutional Investors, Inc. ("Mitchell Hutchins") and head of its Private
Equity Group from 1991 until late 1995. Mr. Siguler was Director and President
of Associated Capital Advisers, Inc. (investment management firm) from 1990
through 1991 and was Vice Chairman and a director of Monarch Capital
Corporation (financial services holding company) from 1984 through 1991. Mr.
Siguler was head of Monarch's investment management subsidiary and oversaw the
company's common stock and bond portfolios and established Monarch's private
equity investment group. From 1983-1984, Mr. Siguler served in the Reagan
Administration as Chief of Staff of the U.S. Department of Health and Human
Services, with oversight responsibility for a $300 billion budget and 150,000
employees. He was a founding partner of the Harvard Management Company in the
early 1970s and initiated and managed its private equity activity. Mr. Siguler
is a director or senior officer of Business Mortgage Investors, Inc. (private
real estate investment trust), Venture Lending & Leasing, Inc. (business
development company), Endowment Advisers (private equity investment affiliate
of The Common Fund) and Novacare, Inc.
DONALD P. SPENCER, 42, a founder and Managing Director of Siguler Guff
Advisers, LLC and its affiliates, was with Mitchell Hutchins and its parent
corporation from 1989 until late 1995, ultimately serving as a Senior Vice
President and portfolio manager in its Private Equity Group. He also serves as
an officer of Business Mortgage Investors, Inc. and Venture Lending & Leasing,
Inc. He previously was a First Vice President and Associate General Counsel
for Mitchell Hutchins's parent corporation. From 1986-1989, Mr. Spencer was
senior vice president and general counsel of Atalanta/Sosnoff Capital
Corporation, an institutional money manager and, from 1980-1986, was an
23
<PAGE> 25
associate attorney at two major New York law firms specializing in
representation of financial services companies.
ITEM 6. EXECUTIVE COMPENSATION.
The Fund will pay no compensation to its officers who are "interested
persons" (as defined in the 1940 Act) of the Manager or the Advisor to the
Manager or to its directors other than its disinterested directors. The Fund's
disinterested directors will each receive an annual fee from the Fund of
$5,000. Such directors also will be reimbursed by the Fund for their expenses
in attending meetings of the Board of Directors or any committee thereof and
will receive a fee for attendance in person at any meeting at a per diem rate
of $500.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions With Management and Others
The Manager of the Fund and the Adviser to the Manager also serve as
Investment Manager and Fund Manager, respectively, to VLLI. The Fund will make
investments through venture loans and leases in companies in which VLLI will
also invest. Under the policies adopted by the Fund's board of directors, the
Fund's investment and VLLI's investment in the same transaction will be made,
pro rata in accordance with the Committed Equity Capital of the Fund and VLLI
until such time as VLLI is no longer able to make such investments by reason of
its term or available capital committed to VLLI. While investing the Fund's
capital in the same companies in which VLLI is also investing could provide the
Fund with greater diversification and access to larger transactions, it could
also result in a slower pace of investment than would be the case if the Fund
were investing in companies by itself.
Although VLLI and the Fund intend to invest in the same companies in
the respective proportions described above, the Fund may, at any time, with the
approval of its board of directors, (i) discontinue investing with VLLI with
respect to any or all future investments or (ii) choose to invest in different
proportions with VLLI than described above. In addition, the Fund has no
control over VLLI, and VLLI, which is not required to invest with the Fund in
any particular proportion or at all, may choose to discontinue investing with
the Fund or to invest in different proportions than described in this
paragraph. In the event that VLLI and the Fund invest in other than the pro
rata manner described above (which can occur only with board approval of each),
the Manager may have a conflict of interest in determining which of VLLI and
the Fund will invest in a particular company and, if both, in what proportions.
The Fund also may engage in loan and lease transactions with companies that are
pre-existing borrowers or lessees from VLLI.
To the extent that portfolios of clients other than VLLI which are
advised by the Manager (but in which the Manager has no proprietary interest)
invest in opportunities available to the Fund, the Manager will allocate such
opportunities among the Fund and such other clients in a manner deemed fair and
equitable considering all of the circumstances in accordance with procedures
approved by the Fund's board of directors (including a majority of the
disinterested directors).
Until the Fund has called and invested at least 75% of the total
amounts subscribed for by investors, except as provided below, neither the
Manager nor the Adviser to the Manager nor any
24
<PAGE> 26
"Controlled Person" of either will, without the consent of the Fund, sponsor,
distribute or act as investment adviser or manager to any pooled investment
vehicle other than the Fund or VLLI or act as investment adviser or manager to
any client if the investment program of such pooled investment vehicle or
client includes the provision of asset-backed financing to venture
capital-backed companies as a primary or major component. In the event that
the Fund elects to irrevocably release investors from any uncalled portion of
their subscription obligations as to new investments, the "total amount
subscribed for by investors" shall be deemed reduced to reflect such release.
The foregoing restriction shall not be deemed to prohibit the Manager, the
Adviser to the Manager, or any Controlled Person of either from acting as
investment adviser or manager with respect to any existing client of such party
as of May 19, 1997; provided, however, that until the 75% investment threshold
described above has occurred, such party shall not, without the consent of the
Fund, accept from such existing clients any additional investment funds (other
than amounts required for follow-on investments to existing investments) beyond
the funds invested or committed by such existing clients as of May 19, 1997. A
"Controlled Person" of the Manager or the Adviser to the Manager as used in
this paragraph means any entity (i) 50% or more of whose voting securities are
beneficially owned by the Manager or (ii) 50% or more of whose voting
securities are controlled by any of the "Key Executives" of the Manager or the
Adviser to the Manager. For purposes of this paragraph, the "Key Executives"
of the Manager are Ronald W. Swenson and Salvador O. Gutierrez; the "Key
Executive" of the Adviser to the Manager is George W. Siguler.
The Fund is offering the Shares directly to institutional investors and
the following individual investors (the "Direct Individual Investors"): (i)
shareholders of VLLI and its affiliates, (ii) affiliates of the Manager and
Adviser to the Manager, and (iii) such other individuals to which the Fund and
the Placement Agent shall agree. The Fund's Placement Agent is offering the
Shares to (i) individuals other than the Direct Institutional Investors and
(ii) such institutional investors to which the Fund and the Placement Agent
agree. The Placement Agent is a broker-dealer registered under the 1934 Act
and a member of the National Association of Securities Dealers, Inc. Each
investor purchasing Shares through the Fund's Placement Agent shall pay to
the Placement Agent, at the first capital call to each such investors, in
addition to the purchase price, a brokerage fee equal to 2% of such investor's
total capital commitment to the Fund (regardless of when or if such capital is
called).
The Placement Agent has entered into an Engagement Letter with the Fund
pursuant to which it will act as placement agent. As compensation for its
services to the Fund, the Placement Agent will receive from the Manager an
amount calculated based on the Incentive Fee (defined under Item 7(d)).
Specifically, the Placement Agent will be paid quarterly an amount equal to
10% of the Incentive Fee portion of the Management Fee which is attributable
to subscriptions made by investors purchasing through the Placement Agent.
For example, if 20% of the subscriptions are made by investors purchasing
through the Placement Agent, the Placement Agent would receive 10% of
one-fifth of any Incentive Fee. In addition, the Placement Agent will be
reimbursed by the Fund for its reasonable expenses incurred in placing the
Shares.
(b) Certain Business Transactions
Certain of the current directors and officers of the Fund are officers
of the Managers. Certain of the current directors are officers of the Adviser
to the Manager. See "Transactions with Promoters" below for a description of
the Fund's Management Agreement with the Managers ("Management Agreement").
(c) Indebtedness of Management
None.
(d) Transactions With Promoters.
Westech Advisors and Siguler Guff Advisers may be deemed promoters of
the Fund. The Fund will enter into a Management Agreement with the Manager and
the Adviser to the Manager, pursuant to which Westech Advisors will, with the
advice of the Adviser to the Manager and subject to the investment policies and
guidelines established by the board of directors, identify, evaluate, structure
and close the investments to be made by the Fund, arrange debt financing for
the Fund, provide portfolio management and servicing of loans or leases held in
the Fund's portfolio, and administer the Fund's day-to-day affairs. Westech
Advisors will have primary responsibility for origination and servicing of
venture loans and leases; the Adviser to the Manager will advise Westech
Advisors with respect to administrative matters for the Fund.
The Fund will be required to pay all organizational and offering
expenses (including accounting, legal, printing, clerical, filing and other
expenses) incurred by the Fund; the Placement Agent; or either of Westech
Advisors or the Adviser to the Manager or their affiliates on behalf of the
Fund in connection with the organization of the Fund and this offering,
estimated at $300,000. The
25
<PAGE> 27
Fund will also pay all operating expenses except those specifically required to
be borne by Westech Advisors or the Adviser to the Manager, including (i)
brokerage and commission expense and other transaction costs incident to the
acquisition and dispositions of investments and the creation and perfection of
security interests with respect thereto, (ii) federal, state and local taxes
and fees, including transfer taxes and filing fees, incurred by or levied upon
the Fund, (iii) interest charges and other fees in connection with borrowings,
(iv) SEC fees and expenses and any fees and expenses of state securities
regulatory authorities, (v) expenses of printing and distributing reports and
notices to shareholders, (vi) costs of proxy solicitation, (vii) costs of
meetings of shareholders and the board of directors, (viii) charges and
expenses of the Fund's custodian, transfer and dividend disbursing agent, (ix)
compensation and expenses of the Fund's disinterested directors, and expenses
of all directors in attending board or shareholder meetings, (x) legal and
auditing expense, including expenses incident to the documentation for, and
consummation of, venture lending and leasing transactions and legal actions to
enforce the Fund's rights under such loans and leases; (xi) costs of any
certificates representing the Shares, (xii) costs of stationery and supplies,
(xiii) the costs of membership by the Fund in any trade organizations and (xiv)
expenses associated with litigation and other extraordinary or non-recurring
expenses.
The operating expenses required to be borne by the Manager and the
Adviser to the Manager are: (i) all costs and fees incident to the selection
and investigation of prospective Fund investments, such as travel expenses and
professional fees (but excluding legal and accounting fees and other costs
incident to the documentation, closing or consummation of such transactions),
(ii) the cost of adequate office space for the Fund and all necessary office
equipment and services, including telephone service, heat, utilities and
similar items and (iii) the cost of providing the Fund with such corporate,
administrative and clerical personnel (including officers and directors of the
Fund who are interested persons of the Manager and the Adviser to the Manager
and are acting in their respective capacities as officers and directors) as the
Fund's board of directors reasonably deems necessary or advisable to perform
the services required to be performed by the Manager and the Adviser to the
Manager under the Management Agreement.
As compensation for their services to the Fund, the Manager and the
Adviser to the Manager, together, will receive a management fee ("Management
Fee"), whether before or after dissolution of the Fund, computed and paid
quarterly for the first two years following the first closing of this offering,
at an annual rate of 2.5% of the amount of the Fund's Committed Equity Capital
(regardless of when or if such committed capital is called) as of the last day
of each such fiscal quarter; and computed and paid quarterly for each quarter
thereafter, at an annual rate of 2.5% of the Fund's total assets (including
amounts derived from borrowed funds) as of the last day of each such fiscal
quarter. For purposes of calculating the Management Fee, any capital committed
to the Fund at a closing subsequent to the first closing (regardless of when or
if such committed capital is called) shall be deemed to have been committed as
of the first closing. To illustrate, assuming the Fund has a first closing for
$75 million on July 15, 1997, and a second closing for $25 million on November
15, 1997, then the $25 million committed on November 15, 1997 will be treated
as if it had been committed on July 15, 1997 for purposes of calculating the
Management Fee. Therefore, on November 15, 1997, for the $25 million committed
at the second closing, the Fund would pay to the Manger $156,250 (i.e., 1/4 of
2.5% of $25 million) for the Management Fee attributable to the quarter ending
October 15, 1997. On January 15, 1998, the Fund would pay to the Manager
$625,000 (i.e., 1/4 of 2.5% of $100 million) for the Management Fee
attributable to the quarter ending on such date.
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<PAGE> 28
The Management Fee will be divided between Westech Advisors and the
Adviser to the Manager in accordance with their agreement. Committed Equity
Capital is the aggregate amount of subscription obligations for the purchase of
the Fund's shares (including any amounts of such obligations that have been
satisfied). These fees are higher than those of most investment companies,
although they are comparable to those of many privately-offered funds investing
in venture capital investments.
In addition to the Management Fee, Westech Advisors and the Adviser to
the Manager will together receive a monthly incentive fee (the "Incentive Fee")
after shareholders have received a return of funds ("Payout") equal to the
following: (a) cumulative dividends and distributions equal to 100% of all
amounts paid, as of the date of calculation, by shareholders to the Fund (and
not including any of the 2% placement fees paid to the Placement Agent by
certain of the shareholders) for the purchase of Shares plus (b) a preferred
return on all amounts paid, as of the date of calculation, equal to an 8%
cumulative, non-compounded annual return on such amounts. After Payout has
been achieved, all amounts available to be paid as dividends and distributions
to shareholders in accordance with the Fund's distribution policies will be
distributed as follows (whether before or after dissolution of the Fund): 80%
as dividends to the Fund's shareholders, and 20% to the Manager and the
Adviser to the Manager, together, as the Incentive Fee. Notwithstanding the
foregoing, the Incentive Fee shall not accrue or be paid until the Fund is no
longer permitted to make capital calls under the Subscription Agreements or
irrevocably waives any right to do so. The Incentive Fee will be payable to
the Manager and the Adviser to the Manager as promptly as practicable
following the end of each month for which it is earned, and will be divided
between Westech Advisors and the Adviser to the Manager in accordance with
their agreement; provided, however, that 10% of that portion of the Incentive
Fee that is attributable to subscriptions made by investors purchasing through
the Placement Agent will be paid quarterly to the Placement Agent.
Notwithstanding the foregoing, the Incentive Fee shall not accrue or be paid
until the Fund is no longer permitted to make capital calls under the
Subscription Agreements or irrevocably waives any right to do so.
In addition, if the Management Agreement is terminated by the Fund for
any reason prior to the dissolution of the Fund and the final distribution in
liquidation of all the Fund's assets to shareholders, the Fund will pay Westech
Advisors and the Adviser to the Manager, together, an annual fee ("Post-
Termination Fee"), in addition to any Management Fee and Incentive Fee
previously paid to or earned by the Manager and the Adviser to the Manager,
calculated and paid with respect to the Attributable Assets of the Fund (as
defined below in this paragraph), in a similar manner as the Incentive Fee is
calculated and paid, as though the entire Fund consisted of the Attributable
Assets as of the date of termination and disregarding any Capital Contributions
subsequent to the date of termination. "Attributable Assets" are all
securities or other assets held in the Fund's portfolio, including securities
receivable, as of the time of termination of the Management Agreement, and any
assets to which the Fund is or may become entitled under the terms of any
securities or other assets held in the Fund's portfolio, including but not
limited to warrants issuable under the terms of venture loans or leases, and
securities issuable upon exercise of any warrants, but excluding cash and cash
equivalents. The Post-Termination Fee will be paid only if, prior to the
payment of any such Post-Termination Fee, the Fund receives an opinion of its
counsel to the effect that payment of the Post-Termination Fee is permissible
under the applicable provisions of the 1940 Act and the Investment Advisers Act
of 1940, and applicable rules, regulations and interpretations of the SEC
thereunder. If the Fund's counsel concludes that an exemptive order or
no-action letter of the SEC is required to permit the Fund to pay the
Post-Termination Fee or to provide such counsel with adequate assurances
27
<PAGE> 29
upon which the aforementioned opinion can be based, the Fund, upon the request
of the Manager, will seek, together with the Manager, to obtain such an
exemptive order or no-action letter. The Fund currently anticipates that a
no-action letter or exemptive order will be required to enable the Fund's
counsel to render the aforementioned opinion. The Post-Termination Fee will be
payable as promptly as practicable following the end of any fiscal year for
which it is earned.
If the Manager or the Adviser to the Manager or certain of their
affiliates receives any compensation from a company whose securities are held
in the Fund's portfolio in connection with the provision to that company of
significant managerial assistance, the compensation due to the Manager or the
Adviser to the Manager hereunder shall be reduced by the amount of such fee.
Such compensation could include directors' fees paid to officers of the Manager
or the Adviser to the Manager for serving on the boards of directors of
borrowers or lessees, or finder's or consulting fees paid to Westech Advisors
or the Adviser to the Manager for the services such as locating acquisition
candidates or additional or alternative sources of financing.
Under the Management Agreement, the Manager and the Adviser to the
Manager will not be liable for any error in judgment or mistake of law or for
any loss suffered by the Fund in connection with the Management Agreement,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Managers in the performance of their duties or from reckless
disregard of their duties and obligations under the Management Agreement. The
Management Agreement will continue in effect for a period longer than two years
from its date of execution only if such continuation is approved at least
annually by the board of directors or a majority of the outstanding voting
securities of the Fund, and by a majority of the directors who are not parties
to the Management Agreement or interested persons of such parties. The
Management Agreement is terminable by vote of the Fund's board of directors or
by the holders of a majority of the outstanding voting securities of the Fund,
at any time without penalty, on 60 days' written notice to the Manager. The
Management Agreement may also be terminated by the Manager on 60 days' written
notice to the Fund and will terminate automatically upon its assignment.
ITEM 8. LEGAL PROCEEDINGS
None.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
(a) Market Information
The offer and sale of the Shares will not be registered under the 1933
Act on the ground that their issuance and sale is exempt from such registration
requirements as not involving a public offering pursuant to Section 4(2) of the
1933 Act.
Because the Shares will be acquired by investors in transactions "not
involving a public offering", they will be "restricted securities" and may be
required to be held indefinitely. Shares may not be sold, transferred,
assigned, pledged or otherwise disposed of without registration under
applicable securities laws or pursuant to an exemption from registration (in
which case the shareholder
28
<PAGE> 30
will at the option of the Fund be required to provide the Fund with a legal
opinion, in form and substance satisfactory to the Fund, that registration is
not required). Accordingly, an investor must be willing to bear the economic
risk of investment in the Shares until the Fund is liquidated. No sale,
transfer, assignment, pledge or other disposition, whether voluntary or
involuntary, of the Shares may be made except by registration of the transfer
on the Fund's books. Each transferee will be required to execute an instrument
agreeing to be bound by these restrictions and the other restrictions imposed
on the Shares by the Subscription Agreement and to execute such other
instruments or certifications as are reasonably required by the Fund or the
Manager. A transfer of all or some of the Shares owned by a shareholder will
not relieve the shareholder of any unfulfilled subscription obligation, unless
the Fund expressly consents in writing to the assumption of the transferor's
Subscription Agreement by the transferee or another party. The Fund may
withhold consent to such an assumption at its absolute discretion.
(b) Holders
The Fund has no Shares outstanding as of the date of this Private
Offering Memorandum. It is anticipated that, prior to the first closing of
this offering, Westech Advisors will purchase one Share at a price of $1,000 as
the Fund's initial capital. Therefore, until immediately subsequent to the
first capital call to purchase the Shares offered pursuant to this offering,
Westech Advisors will be deemed to "control" the Fund.
(c) Dividends
The Fund intends to distribute to shareholders substantially all of its
net investment income and net realized capital gains, if any, as determined for
income tax purposes. Applicable law, including provisions of the 1940 Act, may
limit the amount of dividends and other distributions payable by the Fund.
Income dividends will generally be paid quarterly to shareholders of record on
the last day of each preceding calendar quarter end. Substantially all of the
Fund's net capital gain (the excess of net long-term capital gain over net
short-term capital loss) and net short-term capital gain, if any, will be
distributed at least annually with the Fund's final quarterly dividend
distribution for the year.
Until the fourth anniversary following the first closing of this
offering, the Manager will seek to reinvest the proceeds of matured, repaid or
resold investments, net of required distributions to shareholders, principal
payments on borrowings and expenses or other obligations of the Fund, in new
loans or leases. Beginning on the fourth anniversary of the Fund's first
closing, the Fund will also distribute to investors all proceeds received from
principal payments and sales of investments, net of reserves and expenses,
principal repayments on the Fund's borrowings, amounts required to fund
financing commitments entered into before such fourth anniversary, and any
amounts paid on exercise of warrants. Distributions of such amounts are likely
to cause annual distributions to exceed the earnings and profits of the Fund
available for distribution, in which case such excess will be considered a tax
free return of capital to a shareholder to the extent of the shareholder's
adjusted basis in his shares and then as capital gain.
ITEM 10. RECENT SALES OF UNREGULATED SECURITIES
See Item 9(b)
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<PAGE> 31
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
GENERAL. The holders of the Fund's outstanding shares will elect all
the directors and are entitled to one vote per Share on all matters submitted
to shareholder vote. All Shares will participate equally in dividends and
distributions and in the proceeds of any liquidation. Shares have no
preference, conversion, exchange or cumulative voting rights. The Fund has
200,000 Shares authorized.
Annual meetings of shareholders will be held beginning in 1998 and
special meetings may be called by the Chairman of the board of directors or
President, a majority of the board of directors or shareholders holding at
least 25% of the outstanding Shares entitled to be voted at a meeting. The
Fund anticipates soliciting proxies from shareholders for each annual meeting.
The Fund's Articles of Incorporation can be amended by the affirmative vote of
at least a majority of the Fund's Shares outstanding and entitled to vote.
The Fund does not currently intend to issue share certificates. The
Fund, pursuant to its Bylaws, is authorized to issue share certificates upon
the approval of the Fund's board of directors and may in the future decide to
issue stock certificates to certain or all of the Fund's shareholders. The
ownership of uncertificated Shares will be recorded on a stock ledger
maintained by the Fund's transfer agent. Share ownership may only be
transferred in compliance with the provisions set forth herein under
"Transferability of Shares". The transfer agent for the Shares shall notify
the proposed purchaser of the Shares that the Shares are subject to certain
rights and restrictions including, without limitation, the Fund's right, to the
extent permitted by law, to repurchase the Shares at a price equal to the
lesser of: (i) 60% of the Shares' then current net asset value or (ii) the
price at which the original subscriber purchased the Shares if the original
owner of such Shares should default upon its obligation to make future required
capital contributions. At the time of issue or registration of transfer of any
uncertificated Shares, the Fund or its transfer agent will deliver to the
person designated by the registered holder of such Shares an account statement
specifying the number and class of Shares being issued or transferred and
certain other information. Share certificates, if any, will bear legends
reflecting restrictions on their transferability, the existence of issuer's
repurchase rights, and certain other matters.
The Fund's Articles of Incorporation provide that each holder of Shares
will be required, upon demand, to disclose to the Fund such information with
respect to direct or indirect holdings of Shares as is deemed necessary to
comply with provisions of the Internal Revenue Code applicable to the Fund, to
comply with requirements of any other appropriate taxing authority, or to
comply with the provisions of the 1940 Act or ERISA.
CLOSING AND CAPITAL CALLS. The Fund will accept subscription
agreements, and such agreements shall become binding, at one or more closings
during the Offering Period. The first closing will take place on or before
July 15, 1997, but only if the Fund has received subscriptions for an aggregate
amount of $50 million. The Manager, however, may extend the date through
December 31, 1997. Subsequent closings shall occur if at all no later than
nine months following the first closing of this Offering. The Fund will issue
Shares from time to time at capital calls which will be made at such times as
it needs capital to fund investment commitments. In the event that the Fund
30
<PAGE> 32
does not receive subscriptions for $50 million, no subscriptions will be
accepted. At the first capital call, Shares will be issued at a price of
$1,000 per Share.
If the Fund accepts subscriptions from new investors at a closing
subsequent to the first closing, it will issue a capital call for those new
subscribers to purchase Shares with a subscription price equal to the same
percentage of their total subscription obligations as has previously been
satisfied by subscribers who participated in previous closings. As a result,
subsequent Subscribers will have invested the same percentage of their total
capital commitment as previous Subscribers. Shares will be issued at
subsequent capital calls at the greater of the Fund's then current net asset
value per Share and $1,000 per Share. Management anticipates that the Fund's
net asset value per Share at subsequent closings will be less than $1,000 per
Share. During the Offering Period, the Fund will be charged a Management Fee
immediately following each closing at which subscriptions from new investors
are accepted such that the Management Fee will equal the fee which would have
been payable if the additional capital commitments had been subscribed for at
the first closing.
The Fund will give investors whose subscriptions have been received and
accepted at least 15 days' written notice of each capital call. Shares
purchased pursuant to subsequent capital calls will be issued at the greater of
(i) $1,000 or (ii) the Fund's then current net asset value per Share, which may
be more or less than the purchase price of Shares purchased pursuant to
previous capital calls. The Fund will seek to require payment by investors
pursuant to each capital call of only that portion of the dollar amount
subscribed for that the Fund expects will be needed for commitments or
investments in venture loans and leases within a reasonable time after such
capital call. The amount and timing of capital calls may be affected by the
diversification requirements under the Internal Revenue Code for qualification
as a RIC. To the extent that all capital has not been called by the fourth
anniversary following the first closing of this offering, the Fund will not be
entitled to make further capital calls, and any remaining subscriptions will
lapse as to the uncalled portion of capital.
Following the first closing at which a subscriber purchases Shares, the
Fund or its transfer agent will provide the Subscriber a countersigned copy of
the subscriber's Subscription Agreement and an account statement indicating
that Shares have been credited to the subscriber's account. Similar account
statements will be issued after each capital call. shareholders will have
dividend and voting rights only with respect to Shares that have been purchased
at any given time.
To purchase Shares, a prospective qualified investor must deliver to
the Fund two completed, executed copies of the Subscription Agreement, such
agreement and the signature page to be in the form provided with the Private
Offering Memorandum. Upon receipt of a capital call notice, the prospective
investor must also pay by check or wire transfer to an account designated by
the Fund, before the due date specified by the Fund, the payment for the
initial number of Shares required to be purchased under the Subscription
Agreement. The Fund may in its discretion require any prospective investor to
complete an investor questionnaire in form acceptable to the Fund before
accepting such prospective investor's subscription.
Subscriptions may be made only by executing and delivering a
Subscription Agreement in the form specified by the Fund. The rights and
obligations under the Subscription Agreements may not be transferred or
assigned by a subscriber without the consent of the Fund.
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<PAGE> 33
Interest will be charged on amounts due under the Subscription
Agreement and received by the Fund later than fourteen business days after the
date the payment is due, calculated at a daily rate equal on an annualized
basis to four percentage points over the highest rate of interest reported from
time to time as a "prime rate" by The Wall Street Journal (but not in excess of
the maximum rate of interest permitted by law). If a default in a payment
under the Subscription Agreement (including interest charges) remains uncured
for 30 days following a payment date, to the extent permitted by law, the Fund,
at its option, may pursue any or all of the following remedies: (i) cancel the
balance of the subscriber's Share subscription (including the installment as to
which the subscriber had defaulted), (ii) assign the remaining balance of the
subscriber's Share subscription (including the installment as to which the
Subscriber has defaulted) to another investor selected by the Fund and/or (iii)
repurchase the Shares previously purchased by the defaulting subscriber at a
purchase price per Share equal to the lesser of (a) 60% of the Shares' then
current net asset value or (b) the price at which the Subscriber purchased the
Shares. The election by the Fund to pursue one or more of these remedies will
not preclude the Fund from pursuing any rights it may have to seek judicial
enforcement of the Subscriber's subscription obligation.
DISSOLUTION OF THE FUND. Until the fourth anniversary following the
first closing of this offering, the Fund will, subject to market conditions,
invest the proceeds of repayment, prepayment or sale of its investments, net of
any principal repayments on borrowings and expenses or other obligations of the
Fund, in additional venture loans and leases. Thereafter, the Fund will cease
to make new investments in venture loans or leases (other than amounts required
to fund financing commitments entered into before such fourth anniversary) and
will distribute to investors the proceeds of repayment, prepayment or sale of
its investments, net of (i) any principal repayments on borrowings, (ii)
expenses or other obligations of the Fund, (iii) amounts paid on exercise of
warrants or other convertible securities and (iv) any follow-on investment to
an existing venture loan or lease made to increase the likelihood of ultimate
realization of the investment and determined by the board of directors to be in
the best interests of the Fund.
The Fund's Articles of Incorporation provide that, on December 31,
2005, the Fund automatically will be dissolved without any action by
shareholders. From and after such dissolution, the Fund's activities will be
limited to the winding-up of its affairs, the liquidation of its remaining
assets and the distribution of the net proceeds thereof to shareholders.
Although the Fund generally will not invest in any loan or lease with a
maturity date later than December 31, 2005, it is possible that, due to a
default by a borrower or lessee or a transaction restructuring due to a
borrower's or lessee's financial difficulties, the Fund will not fully realize
on a loan or lease by the original maturity date. Furthermore, the Fund may
not be able to sell warrants it receives from borrowers or lessees, or the
equity securities it receives upon exercise of such warrants, for a significant
period of time due to legal or contractual restrictions on resale or the
absence of a liquid secondary market. As a result, the liquidation process
might not be completed for a significant period after the Fund's dissolution.
In addition, it is possible that, if certain of the Fund's assets are not
liquidated within a reasonable time after the Fund's dissolution, the Fund may
elect to make a distribution in kind of all or part of such assets to
shareholders. In such case, shareholders would bear any expenses attendant to
the liquidation of such assets.
TRANSFERABILITY OF SHARES. The offer and sale of the Shares will not
be registered under the 1933 Act on the ground that their issuance and sale is
exempt from such registration requirements as not involving a public offering
pursuant to Section 4(2) of the 1933 Act.
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<PAGE> 34
Because the Shares will be acquired by investors in transactions "not
involving a public offering", they will be "restricted securities" and may be
required to be held indefinitely. Shares may not be sold, transferred,
assigned, pledged or otherwise disposed of without registration under
applicable securities laws or pursuant to an exemption from registration (in
which case the shareholder will at the option of the Fund be required to
provide the Fund with a legal opinion, in form and substance satisfactory to
the Fund, that registration is not required). Accordingly, an investor must be
willing to bear the economic risk of investment in the Shares until the Fund is
liquidated. No sale, transfer, assignment, pledge or other disposition,
whether voluntary or involuntary, of the Shares may be made except by
registration of the transfer on the Fund's books. Each transferee will be
required to execute an instrument agreeing to be bound by these restrictions
and the other restrictions imposed on the Shares by the Subscription Agreement
and to execute such other instruments or certifications as are reasonably
required by the Fund or the Manager. A transfer of all or some of the Shares
owned by a shareholder will not relieve the shareholder of any unfulfilled
subscription obligation, unless the Fund expressly consents in writing to the
assumption of the transferor's Subscription Agreement by the transferee or
another party. The Fund may withhold consent to such an assumption at its
absolute discretion.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation law of the State of Maryland, under which the Fund is
incorporated, permits the articles of incorporation of a Maryland corporation
to include a provision limiting the liability of its directors and officers to
the corporation and its stockholders for money damages, subject to specified
restrictions. The law does not, however, allow the liability of directors and
officers to the corporation or its stockholders to be limited to the extent
that (1) it is proved that the person actually received an improper benefit or
profit or (2) a judgment or other final adjudication is entered in a proceeding
based on a finding that the person's action, or failure to act, was the result
of active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. The Articles of Incorporation of the Fund
contain a provision limiting the liability of its directors and officers to the
Fund and its shareholders to the fullest extent permitted from time to time by
the laws of Maryland (but not in violation of the 1940 Act). The Maryland
corporation law also permits a corporation to indemnify its directors, officers
and agents, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that the act or omissions of the party
seeking to be indemnified was material to the matter giving rise to the
proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, or the party actually received an improper personal
benefit, or, in the case of any criminal proceeding, the party had reasonable
cause to believe that the act or omission was unlawful. The Fund's Articles of
Incorporation and Bylaws require the Fund to indemnify its directors, officers
and agents (including the Manager and Adviser to the Manager) to the fullest
extent permitted from time to time by the laws of Maryland, subject to the
limitations on indemnification under the 1940 Act.
The Fund's Bylaws provide that the Fund may purchase and maintain
insurance on behalf of any person who is or was a director, officer or agent of
the Fund against any liability asserted against that person and incurred by
that person in or arising out of his or her position, whether or not the Fund
would have the power to indemnify him or her against such liability provided no
such insurance
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<PAGE> 35
so purchased will protect or purport to protect any officer or director against
liabilities for willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Fund has not commenced business and has prepared no financial
statements.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Fund has not commenced business and has prepared no financial
statements.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements - None
(b) Exhibits - See Exhibit Index following signature page in this
Registration Statement, which Exhibit Index is incorporated herein by
reference.
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
VENTURE LENDING & LEASING II, INC.
Date: May 21, 1997 By: /s/ RONALD W. SWENSON
------------------- --------------------------------
Ronald W. Swenson,
Chief Executive Officer
34
<PAGE> 36
VENTURE LENDING & LEASING II, INC.
(the "Company")
EXHIBIT INDEX
TO
FORM 10 REGISTRATION STATEMENT
EXHIBIT DESCRIPTION
3(i) Articles of Incorporation of the Company filed with the Maryland
Secretary of State on May 19, 1997.
3(ii) Bylaws of the Company.
4.1 Form of Subscription Agreement between the Company and Individual
Investors.
4.2 Form of Subscription Agreement between the Company and Institutional
Investors.
4.3 Form of Subscriptions Agreement between the Company and Individual
Investors Purchasing Through the Placement Agent (including Investor
Questionaire).
4.4 Form of Subscription Agreement between the Company and Institutional
Investors Purchasing Through the Placement Agent (including Investor
Questionaire).
10.1 Form of Custodian Agreement between the Company and BankBoston, N.A.
10.2 Form of Stock Transfer Agent Fee Services Agreement between the Company
and BankBoston, N.A.
10.3 Form of Intercreditor Agreement between the Company and Venture
Lending & Leasing, Inc.
35
<PAGE> 1
ARTICLES OF INCORPORATION
OF
VENTURE LENDING & LEASING II, INC.
FIRST: Incorporation: The undersigned Ronald W. Swenson, whose address is
2010 North First Street, Suite 310, San Jose California 95131, being at least
eighteen years of age, does hereby form a corporation under the general laws of
the State of Maryland.
SECOND: Name of Corporation: The name of the Corporation is Venture Lending &
Leasing II, Inc.
THIRD: Corporate Purposes: The Corporation is formed for the following purpose
or purposes:
A. To conduct, operate, and carry on the business of a close-end,
management investment company that has elected to be treated as a business
development company, pursuant to the Investment Company Act of 1940, as amended
("1940 Act"); provided, however, that the Corporation may cease to be treated
as a business development company upon compliance with the requirements of the
1940 Act with respect thereto; and
B. To exercise and enjoy all powers, rights and privileges
granted to and conferred upon corporations by the Maryland General Corporation
Law now or hereafter in force.
FOURTH: Address of Principal Office. The post office address of the principal
office of the Corporation in the State of Maryland is The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202-3242.
FIFTH: Name and Address of Resident Agent. The name and address of the
resident agent of the Corporation in the State of Maryland is The Corporation
Trust Incorporated, 32 South Street, Baltimore, Maryland 21202-3242.
7038723.03
<PAGE> 2
SIXTH: Shares of Stock:
A. The total number of shares of all classes of capital stock which
the Corporation has authority to issue is 200,000 shares of Common Stock, $.001
par value, having an aggregate par value of $200.
B. Stockholders shall not have preemptive or preferential rights to
acquire any shares of the capital stock of the Corporation, and any or all of
such shares, whenever authorized, may be issued, or may be reissued and
transferred if such shares have been reacquired and have treasury status, to
any person, firm, corporation, trust, partnership, association or other entity
for such lawful consideration and on such terms as the Board of Directors
determines in its discretion without first offering the shares to any such
holder.
C. All shares of the Corporation's authorized capital stock, when
issued for such consideration as the Board of Directors may determine, shall be
fully paid and nonassessable.
D. The Board of Directors of the Corporation may, by adoption of a
resolution or Bylaw, impose restrictions upon the transferability by
shareholders of shares of the Corporation's capital stock.
E. No shares of the Corporation's capital stock shall have any
conversion or exchange rights or privileges or have cumulative voting rights.
F. Except as otherwise required under the 1940 Act, voting power
for the election of directors and for all other purposes shall be vested
exclusively in the holders of the Common Stock. Each holder of a full or
fractional share of Common Stock shall be entitled, in the case of full shares,
to one vote for each such share and, in the case of fractional shares, to a
fraction of one vote corresponding to the fractional amount of each such
fractional share, in each case based upon the number of shares registered in
such holder's name on the books of the Corporation.
G. In the event of the liquidation or dissolution of the
Corporation, the holders of the Common Stock shall be entitled to receive all
the net assets of the Corporation. The assets so
-2-
7038723.03
<PAGE> 3
distributed to the stockholders shall be distributed among such stockholders,
in cash or in kind at the option of the directors, in proportion to the number
of full and fractional shares of the class held by them and recorded on the
books of the Corporation.
H. Each holder of shares of capital stock shall, upon demand,
disclose to the Corporation such information with respect to direct or indirect
holdings of such shares as the directors or any officer or agent of the
Corporation designated by the directors deem necessary to comply with
provisions of the Internal Revenue Code of 1986 applicable to the Corporation,
to comply with requirements of any other appropriate taxing authority, or to
comply with the provisions of the 1940 Act or of the Employee Retirement Income
Security Act of 1974, as any of said laws may be amended from time to time.
SEVENTH: Board of Directors: The Corporation shall have at least three
directors; provided that if there is no stock outstanding, the number of
directors may be less than three but not less than one. Ronald W. Swenson shall
act as sole director of the Corporation until his successor has been duly
chosen and qualified.
EIGHTH: Management of the Affairs of the Corporation.
A. All corporate powers and authority of the Corporation
shall be vested in and exercised by the Board of Directors except as otherwise
provided by statute, these Articles, or the Bylaws of the Corporation.
B. The Board of Directors shall have the power to adopt,
alter, or repeal the Bylaws of the Corporation, unless the Bylaws otherwise
provide.
C. The Board of Directors shall have the power to determine whether
and to what extent, and at what times and places, and under what conditions and
regulations the accounts and books of the Corporation (other than the stock
ledger) shall be open to inspection by stockholders. No stockholder shall have
any right to inspect any account, book, or document of the Corporation except
to the extent permitted by statute or the Bylaws.
-3-
7038723.03
<PAGE> 4
D. The Board of Directors shall have the power to determine, in
accordance with generally accepted accounting principles, the Corporation's net
income, its total assets and liabilities, and the net asset value of the shares
of capital stock of the Corporation. The Board of Directors may delegate such
power to any one or more of the directors or officers of the Corporation, its
investment adviser, administrator, custodian, or depositary of the
Corporation's assets, or another agent of the Corporation appointed for such
purposes.
E. Except as otherwise required under the 1940 Act, the Board of
Directors shall have the power to make distributions, including dividends, from
any legally available funds in such amounts, and in a manner and to the
stockholders of record as of such a date, as the Board of Directors may
determine.
NINTH: Stockholder Liability. The stockholders shall not be liable to any
extent for the payment of any debt of the Corporation.
TENTH: Majority of Votes. Except as otherwise provided in these Articles, under
the 1940 Act, or under any provision of Maryland law requiring approval by a
greater proportion than a majority of the votes entitled to be cast in order to
take or authorize any action, any action may be taken or authorized by the
Corporation upon the affirmative vote of a majority of the votes entitled to be
cast thereon.
ELEVENTH: Special Voting Requirements: Control Shares.
A. The Corporation shall not be governed by the provisions
of Section 3-602 of the Maryland General Corporation Law.
B. Any acquisition of shares of the stock of the Corporation, by
any person and at any time, shall be generally exempted from the requirements
of subtitle 7 of Title 3 of the Maryland General Corporation Law.
TWELFTH: Limitation on Liability.
A. To the maximum extent permitted by the laws of Maryland law
(but not in violation of any applicable requirement or limitation of the 1940
Act), in each case as currently in effect
-4-
7038723.03
<PAGE> 5
or as may hereafter be amended:
1. No director or officer of the Corporation shall be
liable to the Corporation or its stockholders for
money damages; and
2. The Corporation shall indemnify and advance
expenses as provided in the Bylaws of the
Corporation to its present and past directors,
officers, employees and agents (including any
person or firm appointed by the Corporation to
serve as investment adviser or any similar
function), and persons who are serving or have
served at the request of the Corporation in
similar capacities for other entities.
B. No amendment, alteration, or repeal of this Article or the
adoption, alteration, or amendment of any other provision of these Articles or
the Bylaws of the Corporation inconsistent with this Article, shall adversely
affect any limitation on liability or indemnification of any person under this
Article with respect to any act or failure to act which occurred prior to such
amendment, alteration, repeal, or adoption.
THIRTEENTH: Limited Term of Existence. The Corporation shall have a limited
period of existence and shall cease to exist at the close of business on
December 31, 2005, except that the Corporation shall continue to exist for the
purpose of paying, satisfying, and discharging any existing debts or
obligations, collecting and distributing its assets, and doing all other acts
required to liquidate and wind up its business and affairs. After the close of
business on December 31, 2005, if the Corporation has not liquidated and wound
up its business and affairs, the directors shall become trustees of the
Corporation's assets for purposes of liquidation with the full powers granted
to directors of a corporation which has voluntarily dissolved under subtitle 4
of Title 3 of the Maryland General Corporation Law or any successor statute as
are necessary to liquidate the Corporation and wind up its affairs, but in no
event with lesser power than the powers granted by such subtitle granted under
the Maryland General Corporation Laws as of the date of incorporation of the
Corporation.
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FOURTEENTH: Right of Amendment. Any provision of these Articles may be
amended, altered, or repealed upon the affirmative vote of two-thirds of all
the votes entitled to be cast on the matter.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation and
acknowledge the same to be my act on this 15th day of May, 1997.
/s/ RONALD W. SWENSON
----------------------------------
Ronald W. Swenson
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<PAGE> 1
VENTURE LENDING & LEASING II, INC.
A Maryland Corporation
BYLAWS
April 31, 1997
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BYLAWS
OF
VENTURE LENDING & LEASING II, INC.
(A MARYLAND CORPORATION)
ARTICLE I
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL
Section 1. Name. The name of the corporation is Venture Lending & Leasing II,
Inc.
Section 2. Principal Offices. The principal office of the Corporation in the
City of Baltimore. The Corporation may, in addition, establish and maintain
such other offices and places of business as the Board of Directors may, from
time to time, determine.
Section 3. Seal. The corporate seal of the Corporation shall be circular in
form and shall bear the name of the Corporation, the year of its incorporation,
and the word "Maryland". The form of the seal shall be subject to alteration by
the Board of Directors and the seal may be used by causing it or a facsimile to
be impressed or affixed or printed or otherwise reproduced. Any officer or
director of the Corporation shall have authority to affix the corporate seal of
the Corporation to any document requiring the same.
ARTICLE II
SHAREHOLDERS
Section 1. Annual Meetings. An annual meeting of shareholders to elect
directors and transact any other business within the Corporation's powers will
be held at such time as is set by the Board of Directors during the month of
May of each calendar year.
Section 2. Special Meetings. Special meetings of shareholders may be called at
any time by the Chairman of the Board, or President, or by a majority of the
Board of Directors, and shall
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be held at such time and place as may be stated in the notice of the meeting.
Special meetings of the shareholders may be called by the Secretary upon the
written request of the holders of shares entitled to vote not less than
twenty-five percent of all the votes entitled to be cast at such meeting,
provided that (1) such request shall state the purposes of such meeting and the
matters proposed to be acted on, and (2) the shareholders requesting such
meeting shall have paid to the Corporation the reasonably estimated cost of
preparing and mailing the notice thereof, which the Secretary shall determine
and specify to such shareholders. No special meeting shall be called upon the
request of shareholders to consider any matter which is substantially the same
as a matter voted upon at any special meeting of the shareholders held during
the preceding twelve months, unless requested by the holders of a majority of
all shares entitled to be voted at such meeting.
Section 3. Notice of Meetings. The Secretary shall cause notice of the place,
date, and hour, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, to be mailed, postage prepaid, not less than
ten nor more than ninety days before the date of the meeting, to each
shareholder entitled to vote at such meeting at his or her address as it
appears on the records of the Corporation at the time of such mailing. Notice
shall be deemed to be given when deposited in the United States mail addressed
to the shareholders as aforesaid. Notice of any shareholders' meeting need not
be given to any shareholder who shall sign a written waiver of such notice
whether before or after the time of such meeting, or to any shareholder who is
present at such meeting in person or by proxy. Notice of adjournment of a
shareholders' meeting to another time or place need not be given if such time
and place are announced at the meeting. Irregularities in the notice of any
meeting to, or the nonreceipt of any such notice by, any of the shareholders
shall not invalidate any action otherwise properly taken by or at any such
meeting.
Section 4. Quorum and Adjournment of Meetings. The presence at any
shareholders' meeting, in person, by telephone conference, or by proxy, of
shareholders entitled to cast a majority of the votes shall be necessary and
sufficient to constitute a quorum
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for the transaction of business. In the absence of a quorum, the holders of a
majority of shares entitled to vote at the meeting and present in person or by
proxy, or, if no shareholder entitled to vote is present in person or by proxy,
any officer present entitled to preside or act as secretary of such meeting may
adjourn the meeting without determining the date of the new meeting or from
time to time without further notice to a date not more than 120 days after the
original record date. Any business that might have been transacted at the
meeting originally called may be transacted at any such adjourned meeting at
which a quorum is present.
Section 5. Chief Executive Officer. Except as otherwise provided in the
Articles of Incorporation or by applicable law, at each shareholders' meeting
each shareholder shall be entitled to one vote for each share of stock of the
Corporation validly issued and outstanding and registered in his or her name on
the books of the Corporation on the record date fixed in accordance with
Section 5 of Article VI hereof, either in person or by proxy appointed by
instrument in writing subscribed by such shareholder or his or her duly
authorized attorney, except that no shares held by the Corporation shall be
entitled to a vote.
Except as otherwise provided in the Articles of Incorporation, these Bylaws, as
required by provisions of the Investment Company Act of 1940, as amended ("1940
Act") or as required under Maryland law, all matters shall be decided by a vote
of the majority of the votes validly cast. The vote upon any question shall be
by ballot whenever requested by any person entitled to vote, but, unless such a
request is made, voting may be conducted in any way approved at the meeting.
At any meeting at which there is an election of Directors, the chairman of the
meeting may, and upon the request of the holders of ten percent of the stock
entitled to vote at such election shall, appoint two inspectors of election who
shall first subscribe an oath or affirmation to execute faithfully the duties
of inspectors at such election with strict impartiality and according to the
best of their ability, and shall, after the election, make a certificate of the
result of the vote taken. No candidate for the office of Director shall be
appointed as an inspector.
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Section 6. Validity of Proxies. The right to vote by proxy shall exist only if
the instrument authorizing such proxy to act shall have been signed by the
shareholder or by his or her duly authorized attorney. Unless a proxy provides
otherwise, it shall not be valid more than eleven months after its date. All
proxies shall be delivered to the Secretary of the Corporation or to the person
acting as Secretary of the meeting before being voted, who shall decide all
questions concerning qualification of voters, the validity of proxies, and the
acceptance or rejection of votes. If inspectors of election have been appointed
by the chairman of the meeting, such inspectors shall decide all such
questions. A proxy with respect of stock held in the name of two or more
persons shall be valid if executed by one of them unless at or prior to
exercise of such proxy the Corporation receives a specific written notice to
the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a shareholder shall be deemed valid unless challenged at or prior to
its exercise.
Section 7. Stock Ledger and List of Shareholders. It shall be the duty of the
Secretary or Assistant Secretary of the Corporation to cause an original or
duplicate stock ledger to be maintained at the office of the Corporation's
transfer agent. 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.
Any one or more persons, each of whom has been a shareholder of record of the
Corporation for more than six months next preceding such request, who owns in
the aggregate five percent or more of the outstanding capital stock of the
Corporation, may submit (unless the Corporation at the time of the request
maintains a duplicate stock ledger at its principal office in Maryland) a
written request to any officer of the Corporation or its resident agent in
Maryland for a list of the shareholders of the Corporation. Within twenty days
after such a request, there shall be prepared and filed at the Corporation's
principal office in Maryland a list containing the names and addresses of all
shareholders of the Corporation and the number of shares of each class held by
each shareholder, certified as correct by an officer of the Corporation, by its
stock transfer agent, or by its registrar.
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Section 8. Action Without Meeting. Any action required or permitted to be taken
by shareholders at a meeting of shareholders may be taken without a meeting if
(1) all shareholders entitled to vote on the matter sign a written consent to
the action, (2) all shareholders entitled to notice of the meeting but not
entitled to vote at it sign a written waiver of any right to dissent, and (3)
the consents and waivers are filed with the records of the meetings of
shareholders. Such consent shall be treated for all purposes as a vote at the
meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. Except as otherwise provided by operation of law, by the
Articles of Incorporation, or by these Bylaws, the business and affairs of the
Corporation shall be managed under the direction of and all the powers of the
Corporation shall be exercised by or under authority of its Board of Directors.
Section 2. Number and Term of Directors. Except for the initial Board of
Directors, the Board of Directors shall consist of not fewer than three nor
more than five Directors, as specified by a resolution of a majority of the
entire Board of Directors. Directors need not be shareholders of the
Corporation. All acts done at any meeting of the Directors or by any person
acting as a Director, so long as his or her successor shall not have been duly
elected or appointed, shall, notwithstanding that it be afterwards discovered
that there was some defect in the election of the Directors or of such person
acting as a Director or that they or any of them were disqualified, be as valid
as if the Directors or such other person, as the case may be, had been duly
elected and were or was qualified to be Directors or a Director of the
Corporation. Each Director shall hold office until his or her successor is
elected and qualified or until his or her earlier death, resignation, or
removal.
Section 3. Election. Unless otherwise required by the 1940 Act, at each annual
meeting of shareholders, Directors shall be elected by vote of the holders of a
majority of the shares present in person or by proxy and entitled to vote
thereon. A
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plurality of all the votes cast at a meeting at which a quorum is present is
sufficient to elect a Director.
Section 4. Vacancies and Newly Created Directorships. If any vacancies shall
occur in the Board of Directors by reason of death, resignation, removal, or
otherwise, or if the authorized number of Directors shall be increased, the
Directors then in office shall continue to act, and such vacancies (if not
previously filled by the shareholders) may be filled by a majority of the
Directors then in office, although less than a quorum, except that a newly
created Directorship may be filled only by a majority vote of the entire Board
of Directors; provided, however, that if, at any time that there are
shareholders of the Corporation, immediately after filling such vacancy at
least two-thirds (2/3) of the Directors then holding office shall have been
elected to such office by the shareholders of the Corporation. In the event
that at any time, other than the time preceding the first annual shareholders'
meeting, less than a majority of the Directors of the Corporation holding
office at that time were elected by the shareholders, a meeting of the
shareholders shall be held promptly and in any event within sixty days for the
purpose of electing Directors to fill any existing vacancies in the Board of
Directors, unless the Securities and Exchange Commission shall by order extend
such period.
Section 5. Removal. At any shareholders' meeting duly called, provided a quorum
is present, the shareholders may remove any director from office (either with
or without cause) and may elect a successor or successors to fill any resulting
vacancies for the unexpired terms of the removed director or directors. A
majority of all the votes entitled to be cast for the election of directors is
sufficient to remove a Director.
Section 6. Annual and Regular Meetings. The annual meeting of the Board of
Directors for choosing officers and transacting other proper business shall be
held at such other time and place as the Board may determine. The Board of
Directors from time to time may provide by resolution for the holding of
regular meetings and fix their time and place within or outside the State of
Maryland. Except as otherwise provided in the 1940 Act, notice of such annual
and regular meetings need not be given, provided that notice of any change in
the time or place of such
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meetings shall be sent promptly to each Director not present at the meeting at
which such change was made, in the manner provided for notice of special
meetings. Except as otherwise provided under the 1940 Act, members of the Board
of Directors or any committee designated thereby may participate in a meeting
of such Board or committee by means of a conference telephone or similar
communications equipment that allows all persons participating in the meeting
to hear each other at the same time.
Section 7. Special Meetings. Special meetings of the Board of Directors shall
be held whenever called by the Chairman of the Board, the Vice Chairman, the
President (or, in the absence or disability of the President, by any Vice
President), the Treasurer, or by two or more Directors, at the time and place
(within or without the State of Maryland) specified in the respective notice or
waivers of notice of such meetings. Notice of special meetings, stating the
time and place, shall be (1) mailed to each Director at his or her residence or
regular place of business at least three days before the day on which a special
meeting is to be held or (2) delivered to him or her personally or transmitted
to him or her by telegraph, telecopy, telex, cable, or wireless at least one
day before the meeting.
Section 8. Waiver of Notice. No notice of any meeting need be given to any
Director who is present at the meeting or who waives notice of such meeting in
writing (which waiver shall be filed with the records of such meeting) either
before or after the time of the meeting.
Section 9. Quorum and Voting. At all meetings of the Board of Directors, the
presence of one half or more of the number of Directors then in office shall
constitute a quorum for the transaction of business, provided that, at any time
that there shall be more than one director, there shall be present at least two
directors. In the absence of a quorum, a majority of the Directors present may
adjourn the meeting, from time to time, until a quorum shall be present. The
action of a majority of the Directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors, unless concurrence of a
greater proportion is required for such action by law, by the Articles of
Incorporation, or by these Bylaws.
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Section 10. Action Without a Meeting. Except as otherwise provided under the
1940 Act, 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 or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board or committee.
Section 11. Compensation of Directors. Directors shall be entitled to receive
such compensation from the Corporation for their services as may from time to
time be determined by resolution of the Board of Directors.
ARTICLE IIIA
ADVISORY DIRECTORS
Section 1. Advisory Directors. The Board of Directors may elect one or more
persons (who may or may not be officers of the Corporation) to serve as
Advisory Directors of the Corporation. Advisory Directors shall attend meetings
of the Board of Directors, and provide advice and assistance to the Board of
Directors as requested. Advisory Directors will not be deemed members of the
Board of Directors, and will not vote on any matter requiring a vote of the
Board of Directors.
Section 2. Election, Removal, etc. The election, tenure, qualifications,
removal and resignation of Advisory Directors shall be governed by the
provisions of Article V of these By-Laws dealing with the election, tenure,
qualifications, removal and resignation of officers.
Section 3. Indemnification and Insurance. An Advisory Director shall be
entitled to the same Indemnification and Insurance provided under Article IX of
these By-Laws as that which would apply to an officer or director of the
Corporation.
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ARTICLE IV
COMMITTEES
Section 1. Organization. By resolution adopted by the Board of Directors, the
Board may designate one or more committees of the Board of Directors, including
an Executive Committee. The Chairmen of such committees shall be elected by the
Board of Directors. Each committee must be comprised of one or more members,
each of whom must be a Director and shall hold committee membership at the
pleasure of the Board. The Board of Directors shall have the power at any time
to change the members of such committees and to fill vacancies in the
committees. The Board may delegate to these committees any of its powers,
except the power to authorize dividends on stock, authorize the issuance of
stock (except as permitted under Title 2 of the Annotated Corporations and
Associations Code of Maryland ("Code")), recommend to shareholders any action
requiring shareholders' approval, amend these Bylaws, approve any merger or
share exchange which does not require shareholder approval, approve or
terminate any contract with an "investment adviser" or "principal underwriter,"
as those terms are defined in the 1940 Act, or to take any other action
required by the 1940 Act to be taken by the Board of Directors.
Section 2. Executive Committee. Unless otherwise provided by resolution of the
Board of Directors, when the Board of Directors is not in session, the
Executive Committee, if one is designated by the Board, shall have and may
exercise all powers of the Board of Directors in the management of the business
and affairs of the Corporation that may lawfully be exercised by an Executive
Committee. The President and Chairman shall automatically be members of the
Executive Committee.
Section 3. Proceedings and Quorum. In the absence of an appropriate resolution
of the Board of Directors, each committee may adopt such rules and regulations
governing its proceedings, quorum, and manner of acting as it shall deem proper
and desirable. In the event any member of any committee is absent from any
meeting, the members thereof present at the 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.
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Section 4. Other Committees. The Board of Directors may appoint other
committees, each consisting of one or more persons, who need not be Directors.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the Board of Directors, but shall not
exercise any power which may lawfully be exercised only by the Board of
Directors or a committee thereof.
ARTICLE V
OFFICERS
Section 1. General. The officers of the Corporation shall be a Chairman; Chief
Executive Officer; Vice President; Treasurer; and Secretary and may include one
or more Vice Presidents, Assistant Secretaries, or Assistant Treasurers, and
such other officers as may be appointed in accordance with the provisions of
Section 11 of this Article.
Section 2. Election, Tenure and Qualifications. The officers of the
Corporation, except those appointed as provided in Section 11 of this Article
V, shall be elected by the Board of Directors at its first meeting or such
subsequent meetings as shall be held prior to its first annual meeting, and
thereafter annually at its annual meeting. If any officers are not elected at
any annual meeting, such officers may be elected at any subsequent regular or
special meeting of the Board. Except as otherwise provided in this Article V,
each officer elected by the Board of Directors shall hold office until the next
annual meeting of the Board of Directors and until his or her successor shall
have been elected and qualified. Any person may hold one or more offices of the
Corporation except that no one person may serve concurrently as both President
and Vice President. A person who holds more than one office in the Corporation
may not act in more than one capacity to execute, acknowledge, or verify an
instrument required by law to be executed, acknowledged, or verified by more
than one officer. No officer, other than the Chairman or [Vice Chairman], need
be a Director.
Section 3. Vacancies and Newly Created Officers. If any vacancy shall occur in
any office by reason of death, resignation, removal, disqualification, or other
cause, or if any new office shall be created, such vacancies or newly created
offices may be
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filled by the Board of Directors at any regular or special meeting or, in the
case of any office created pursuant to Section 11 hereof, by any officer upon
whom such power shall have been conferred by the Board of Directors.
Section 4. Removal and Resignation. Any officer may be removed from office by
the vote of a majority of the members of the Board of Directors given at a
regular meeting or any special meeting called for such purpose. Any officer may
resign from office at any time by delivering a written resignation to the Board
of Directors, the President, the Chairman, the Secretary, or any Assistant
Secretary. Unless otherwise specified therein, such resignation shall take
effect upon delivery.
Section 5. President. The President shall be the chief executive officer of the
Corporation and, in the absence of the Chairman, shall preside at all
shareholders' meetings and at all meetings of the Board of Directors. Subject
to the supervision of the Board of Directors, the President shall have general
charge of the business, affairs, and property of the Corporation and general
supervision over its officers, employees, and agents. Except as the Board of
Directors may otherwise order, the President may sign in the name and on behalf
of the Corporation all deeds, bonds, contracts, or agreements. The President
shall exercise such other powers and perform such other duties as from time to
time may be assigned by the Board of Directors.
Section 6. Chairman. The Chairman shall be an executive officer of the
Corporation and shall preside at all shareholders' meetings and at all meetings
of the Board of Directors, and may be ex officio a member of all committees of
the Board of Directors. Except as the Board of Directors may otherwise order,
the Chairman may sign in the name and on behalf of the Corporation all deeds,
bonds, contracts, or agreements. The Chairman shall exercise such other powers
and perform such other duties as from time to time may be assigned by the Board
of Directors.
Section 7. The Vice Chairman shall be the chief operating officer of the
Corporation and, in the absence of the Chairman, shall preside at the all
shareholders' meetings and at all meetings of the Board of Directors. Except as
the Board of Directors may otherwise order, the Vice Chairman may sign in the
name and on
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behalf of the Corporation all deeds, bonds, contracts, or agreements. The Vice
Chairman shall exercise such other powers and perform such other duties as from
time to time may be assigned by the Board of Directors.
Section 8. Vice President. The Board of Directors may from time to time elect
one or more Vice Presidents who shall have such powers and perform such duties
as from time to time may be assigned to them by the Board of Directors or the
President. The Board of Directors may establish titles among the Vice
Presidents denoting their relative seniority. At the request of, or in the
absence or in the event of the disability of, the President, the Vice President
(or, if there are two or more Vice Presidents, then the senior of the Vice
Presidents present and able to act) may perform all the duties of the President
and, when so acting, shall have all the powers of and be subject to all the
restrictions upon the President.
Section 9. Treasurer and Assistant Treasurers. The Treasurer shall be the
principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, the Treasurer shall have
general supervision of the funds and property of the Corporation and of the
performance by the Custodian of its duties with respect thereto. The Treasurer
shall render to the Board of Directors, whenever directed by the Board, an
account of the financial condition of the Corporation and of all transactions
as Treasurer; and as soon as possible after the close of each financial year
the Treasurer shall make and submit to the Board of Directors a like report for
such financial year. The Treasurer shall perform all acts incidental to the
office of Treasurer, subject of the control of the Board of Directors.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, may perform all the duties of the Treasurer.
Section 10. Secretary and Assistant Secretaries. The Secretary shall attend to
the giving and serving of all notices of the Corporation and shall record all
proceedings of the meetings of the shareholders and Directors in books to be
kept for that
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purpose. The Secretary shall keep in safe custody the seal of the Corporation,
and shall have responsibility for the records of the Corporation, including the
stock books and such other books and papers as the Board of Directors may
direct and such books, reports, certificates, and other documents required by
law to be kept, all of which shall at all reasonable times be open to
inspection by any Director. The Secretary shall perform such other duties which
appertain to this office or as may be required by the Board of Directors.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary or the Board of Directors may assign, and, in the absence of the
Secretary, may perform all the duties of the Secretary.
Section 11. Subordinate Officers. The Board of Directors from time to time may
appoint such other officers and agents as it may deem advisable, each of whom
shall have such title, hold office, for such period, have such authority, and
perform such duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities, and duties. Any officer or
agent appointed in accordance with the provisions of this Section 11 may be
removed, either with or without cause, by any officer upon whom such power of
removal shall have been conferred by the Board of Directors.
Section 12. Remuneration. The salaries or other compensation, if any, of the
officers of the Corporation shall be fixed from time to time by resolution of
the Board of Directors in the manner provided by Section 9 of Article III,
except that the Board of Directors may by resolution delegate to any person or
group of persons the power to fix the salaries or other compensation of any
subordinate officers or agents appointed in accordance with the provisions of
Section 11 of this Article V.
Section 13. Surety Bond. The Board of Directors may require any officer or
agent of the Corporation to execute a bond (including, without limitation, any
bond required by the 1940 Act and the rules and regulations of the Securities
and Exchange Commission promulgated thereunder) to the Corporation in such sum
and with such surety or sureties as the Board of Directors may determine,
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conditioned upon the faithful performance of his or her duties to the
Corporation, including responsibility for negligence and for the accounting of
any of the Corporation's property, funds or securities that may come into his
or her hands.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates of Stock. The interest of each shareholder of the
Corporation may be evidenced by certificates for shares of stock in such form
as the Board of Directors may from time to time authorize; provided, however,
the Board of Directors may, in its discretion, authorize the issuance of
noncertificated shares. No certificate shall be valid unless it is signed by
the Chairman, President, or a Vice President and countersigned by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation and sealed with the seal of the Corporation, or bears the facsimile
signatures of such officers and a facsimile of such seal. In case any officer
who shall have signed any such certificate, or whose facsimile signature has
been placed thereon, shall cease to be such an officer (because of death,
resignation, or otherwise) before such certificate is issued, such certificate
may be issued and delivered by the Corporation with the same effect as if he or
she were such officer at the date of issue.
In the event that the Board of Directors authorizes the issuance of
non-certificated shares of stock, the Board of Directors may, in its discretion
and at any time, discontinue the issuance of share certificates and may, by
written notice to the registered owners of each certificated share, require the
surrender of share certificates to the Corporation for cancellation. Such
surrender and cancellation shall not affect the ownership of shares of the
Corporation.
Section 2. Transfer of Shares. Subject to the provisions of the next sentence
of this Section 2 of Article VI, Shares of the Corporation shall be
transferable on the books of the Corporation by the holder of record thereof in
person or by his or her duly authorized attorney or legal representative (i)
upon surrender and cancellation of any certificate or certificates for the same
number of shares of the same class, duly endorsed or accompanied
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by proper instruments of assignment and transfer, with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require, or (ii) as otherwise prescribed by the Board of Directors. the Board
of Directors may, from time to time, adopt limitations and rules and
regulations with reference to the transfer of the shares of stock of the
Corporation to comply with the requirements of the Securities Act of 1933, as
amended, or other applicable laws. The Corporation shall be entitled to treat
the holder of record of any share of stock as the absolute owner thereof for
all purposes, and accordingly shall not be bound to recognize any legal,
equitable, or other claim or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by law or the statutes of the State of Maryland.
Section 3. Stock Ledgers. The stock ledgers of the Corporation, containing the
names and addresses of the shareholders and the number of shares held by them
respectively, shall be kept at the principal offices of the Corporation or, if
the Corporation employs a transfer agent, at the offices of the transfer agent
of the Corporation.
Section 4. Transfer Agents and Registrars. The Board of Directors may from time
to time appoint or remove transfer agents and registrars of transfers for
shares of stock of the Corporation, and it may appoint the same person as both
transfer agent and registrar. Upon any such appointment being made, all
certificates representing shares of capital stock thereafter issued shall be
countersigned by one of such transfer agents or by one of such registrars or by
both and shall not be valid unless so countersigned. If the same person shall
be both transfer agent and registrar, only one countersignature by such person
shall be required.
Section 5. Fixing of Record Date. The Board of Directors may fix in advance a
date as a record date for the determination of the shareholders entitled to
notice of or to vote at any shareholders' meeting or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or to
receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion, or
exchange of stock, or for the purpose
-15-
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<PAGE> 17
of any other lawful action, provided that (1) such record date shall be within
ninety days prior to the date on which the particular action requiring such
determination will be taken; (2) the transfer books shall not be closed for a
period longer than twenty days; and (3) in the case of a meeting of
shareholders, the record date shall be at least ten days before the date of the
meeting.
Section 6. Lost, Stolen or Destroyed Certificates. Before issuing a new
certificate for stock of the Corporation alleged to have been lost, stolen, or
destroyed, the Board of Directors or any officer authorized by the Board may,
in its discretion, require the owner of the lost, stolen, or destroyed
certificate (or his or her legal representative) to give the Corporation a bond
or other indemnity, in such form and in such amount as the Board or any such
officer may direct and with such surety or sureties as may be satisfactory to
the Board or any such officer, sufficient to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft, or
destruction of any such certificate or the issuance of such new certificate.
ARTICLE VII
FISCAL YEAR AND ACCOUNTANT
Section 1. Fiscal Year. The fiscal year of the Corporation shall, unless
otherwise ordered by the Board of Directors, be twelve calendar months ending
on the 31st day of December.
Section 2. Accountant.
A. The Corporation shall employ an independent public accountant or a firm of
independent public accountants as its Accountant to examine the accounts of the
Corporation and to sign and certify financial statements filed by the
Corporation. The Accountant's certificates and reports shall be addressed both
to the Board of Directors and to the shareholders. The employment of the
Accountant shall be conditioned upon the right of the Corporation to terminate
the employment forthwith without any penalty by vote of a majority of the
outstanding voting securities at any shareholders' meeting called for that
purpose.
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<PAGE> 18
B. A majority of the members of the Board of Directors who are not
"interested persons" (as defined in the 1940 Act) of the Corporation shall
select the Accountant at any meeting held within thirty days before or after
the beginning of the fiscal year of the Corporation or before the annual
shareholders' meeting in that year. The selection shall be submitted for
ratification or rejection at the next succeeding annual shareholders' meeting.
If the selection is rejected at that meeting, the Accountant shall be selected
by majority vote of the Corporation's outstanding voting securities, either at
the meeting at which the rejection occurred or at a subsequent meeting of
shareholders called for the purpose of selecting an Accountant.
C. Any vacancy occurring between annual meetings due to the resignation of
the Accountant may be filled by the vote of a majority of the members of the
Board of Directors who are not interested persons.
ARTICLE VIII
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Corporation shall 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 (and any sub-custodian) shall be a bank or trust
company of good standing having an aggregate capital, surplus, and undivided
profits not less than fifty million dollars ($50,000,000) or such other
financial institution or other entity as shall be permitted by rule or order of
the Securities and Exchange Commission. The Custodian shall be appointed from
time to time by the Board of Directors, which shall fix its remuneration.
Section 2. Termination of Custodian Agreement. Upon termination of the
agreement for services with the Custodian 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
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<PAGE> 19
shareholders to determine whether the Corporation shall function without a
Custodian or shall be liquidated. If so directed by resolution of the Board of
Directors or by vote of the holders of a majority of the outstanding shares of
stock of the Corporation, the Custodian shall deliver and pay over all property
of the Corporation held by it as specified in such vote.
Section 3. Other Arrangements. The Corporation may make such other arrangements
for the custody of its assets (including deposit arrangements) as may be
required by any applicable law, rule, or regulation.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
Section 1. Indemnification of Officers, Directors, Employees and Agents. The
Corporation shall indemnify its present and past directors, officers,
employees, and agents (including any "investment adviser" or "principal
underwriter," as those terms are defined in the 1940 Act), and any persons who
are serving or have served at the request of the Corporation as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or enterprise, to the full extent provided and allowed by Section 2-418
of the Code concerning corporations, as amended from time to time or any other
applicable provisions of law. Notwithstanding anything herein to the contrary,
no director, officer, investment adviser, or principal underwriter of the
Corporation shall be indemnified in violation of Sections 17(h) and (i) of the
1940 Act. Expenses incurred by any such person in defending any proceeding to
which he or she is a party by reason of service in the above-referenced
capacities shall be paid in advance or reimbursed by the Corporation to the
full extent permitted by law, including Sections 17(h) and (i) of the 1940 Act.
Section 2. Insurance of Officers, Directors, Employees and Agents. The
Corporation may purchase and maintain insurance on behalf of any person who is
or was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust,
or other enterprise, against any liability asserted against that person and
incurred by that person in or arising out of his or her
-18-
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<PAGE> 20
position, whether or not the Corporation would have the power to indemnify him
or her against such liability. Notwithstanding the foregoing, any insurance so
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 duty.
Section 3. Amendment. No amendment, alternation, or repeal of this Article or
the adoption, alteration, or amendment of any other provision of the Articles
of Incorporation or Bylaws inconsistent with this Article shall adversely
affect any right or protection of any person under this Article with respect to
any act or failure to act which occurred prior to such amendment, alteration,
repeal, or adoption.
ARTICLE X
AMENDMENTS
Section 1. General. Except as provided in Section 2 of this Article X, all
Bylaws of the Corporation, whether adopted by the Board of Directors or the
shareholders, shall be subject to amendment, alteration, or repeal, and new
Bylaws may be made by the affirmative vote of a majority of either: (1) the
holders of record of the outstanding shares of stock of the Corporation
entitled to vote, at any annual or special meeting, the notice or waiver of
notice of which shall have specified or summarized the proposed amendment,
alteration, repeal, or new Bylaw; or (2) the Directors, at any regular or
special meeting the notice or waiver of notice of which shall have specified or
summarized the proposed amendment, alteration, repeal, or new Bylaw.
Section 2. By Shareholders Only. No amendment of any section of these Bylaws
shall be made except by the shareholders of the Corporation if the Bylaws
provide that such section may not be amended, altered, or repealed except by
the shareholders. From and after the issue of any shares of the capital stock
of the Corporation, no amendment, alteration, or repeal of this Article X shall
be made except by the affirmative vote of the holders of either: (a) more than
two-thirds of the Corporation's outstanding shares present at a meeting at
which the holders of more than fifty percent of the outstanding shares are
present in person or
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<PAGE> 21
by proxy, or (b) more than fifty percent of the Corporation's outstanding
shares.
-20-
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<PAGE> 1
VENTURE LENDING & LEASING II, INC.
SUBSCRIPTION AGREEMENT
The undersigned (the "Subscriber"), hereby subscribes to purchase
shares of Common Stock, $.001 par value ("Shares"), issued by Venture Lending &
Leasing II, Inc., a Maryland corporation (the "Fund"), in the amount set forth
on the signature page below (the "Capital Commitment"), on the terms and
conditions set forth herein. (Capitalized terms used and not defined in this
Agreement have the meanings assigned to them in the Private Offering Memorandum
referred to below.)
1. SALE AND PURCHASE OF SHARES. Subject to the terms and conditions
set forth in this Agreement, and in reliance upon the representations and
warranties of the respective parties set forth in this Agreement, the Fund
hereby agrees to sell to the Subscriber, and the Subscriber irrevocably
subscribes for and agrees to purchase from the Fund, Shares in the amount of
its Capital Commitment.
2. CLOSINGS. The Fund will hold a Closing ("Closing") on or before
December 31, 1997 but only if, as of such date, the Fund has received
subscriptions for an aggregate amount of at least $50 million in Shares, and
may hold one or more additional Closings involving different investors from
time to time thereafter, but not later than nine months following the initial
Closing. At each Closing, the Fund shall execute and deliver to the Subscriber
a duplicate original of this Agreement indicating the amount of the Capital
Commitment as to which the Subscription has been accepted, which shall
thereafter be deemed the Subscriber's Capital Commitment for all purposes
hereunder.
3. CAPITAL CALLS. Subscriber agrees to purchase Shares with a
purchase price equal to the amount of the Subscriber's Capital Commitment, in
one or more installments and in the amounts and on the dates specified by the
Fund in one or more written notices ("Capital Calls") conforming to the
requirements of this Agreement. The purchase price per Share of the Shares
purchased pursuant to each Capital Call will be the greater of (a) $1,000 or
(b) the Fund's net asset value per Share ("Net Asset Value") on the date of
each purchase, as determined in conformity with the requirements of the
Investment Company Act of 1940, as amended ("1940 Act").
If, at the time of the Closing at which the Subscriber's subscription
is accepted, Capital Calls have been given to other investors whose
subscriptions were accepted at prior Closings ("Earlier Investors"), then
Subscriber will purchase Shares at the Closing with a purchase price equal to
the Subscriber's Capital Commitment multiplied by a fraction, the numerator of
which is the aggregate amount of all Capital Calls that have been made to
Earlier Investors and the denominator of which is the aggregate amount of all
Capital Commitments of Earlier Investors. The purchase price for the Shares so
purchased will be the greater of (a) $1,000 or (b) Net Asset Value on the date
of such purchase.
Capital Calls shall be deemed made when mailed to the Subscriber at
least 15 days before the date for the purchase of Shares specified in the
Capital Call, by first class mail to the Subscriber's address specified on the
signature page of this Agreement or such other address as the Subscriber shall
notify the Fund in writing. No Capital Call shall be made after the fourth
anniversary of the first Closing, and any uncalled portion of the Subscriber's
Capital Commitment as of that anniversary date will lapse as to the uncalled
portion of the Commitment.
4. MANNER OF PAYMENT. Payments made to purchase Shares specified in a
Capital Call shall be made on or before the payment date specified in the
Capital Call therefor (the "Payment Date"). Payments shall be made by wire
transfer or by personal check, in accordance with payment instructions included
with each Capital Call.
<PAGE> 2
5. PAYMENT DEFAULT. If payment for the purchase of Shares is received
by the Fund from the Subscriber later than 14 days after the Payment Date,
interest will be charged on the overdue amount, calculated at a daily rate
equal on an annualized basis to four percentage points over the highest rate of
interest reported from time to time as a "prime rate" by The Wall Street
Journal (provided that, if such rate is in excess of the maximum rate of
interest permitted by law, interest will be charged at such maximum rate). If
a default in a payment under this Subscription Agreement (including interest
charges) remains uncured for 30 days following a payment date, the Fund may, at
its option, pursue any or all of the following remedies: (i) cancel the balance
of the Subscriber's subscription (including the installment as to which the
Subscriber had defaulted), (ii) assign the remaining balance of the
Subscriber's subscription (including the installment as to which the Subscriber
has defaulted) to another investor selected by the Fund and/or (iii) repurchase
the Shares previously purchased by the Subscriber at a purchase price per Share
equal to the lesser of 60% of the Shares' then-current Net Asset Value or the
prices at which the Subscriber purchased the Shares. The election by the Fund
to pursue one or more of these remedies will not preclude the Fund from
pursuing any rights it may have to seek judicial enforcement of the
Subscriber's subscription obligation.
6. RESTRICTION ON ASSIGNMENT OF SUBSCRIPTION AGREEMENT. Neither this
Agreement nor any rights or interests herein may be assigned by the Subscriber
nor may the obligations of the Subscriber be assumed or performed by another,
other than a successor to the entire business and affairs of the Subscriber,
without the express prior written consent of the Fund. The Fund may withhold
consent to the assignment of this Agreement in its sole discretion. Except as
provided in Section 5 hereof, neither this Agreement nor any rights or
interests herein may be assigned by the Fund
7. RESTRICTION ON TRANSFER OR ASSIGNMENT OF SHARES. Neither the
Shares to be issued hereunder nor any right or interest therein may be sold,
assigned, pledged or otherwise transferred by the Subscriber without the
consent of the Fund. Without limiting the foregoing, the Fund may withhold
consent to a proposed transfer if the Fund reasonably determines that any of
the following requirements are not met:
(i) The transfer is made to an institutional or individual
accredited investor who the Fund determines would have been eligible
to participate in the initial offering of the Shares, in a transaction
that, in the opinion of counsel for the Subscriber and counsel for the
Fund, complies with the requirements of the Securities Act of 1933
(the "1933 Act") and any applicable state securities laws;
(ii) The transfer is made in a transaction that the Fund determines,
after consideration of an opinion of counsel for the proposed
transferee and such additional counsel as the Fund may wish to consult
on the matter, will not make it more difficult for the Fund to comply
with the requirements of the 1933 Act applicable to the Fund and its
operations, applicable state securities laws, the 1940 Act, the
Internal Revenue Code of 1986, as amended (the "Code") or the Employee
Retirement Income Security Act of 1974 ("ERISA"); and
(iii) The transfer is made to a transferee who agrees to be bound by
all the provisions of this Agreement that pertain to an owner of
Shares, including provisions relating to the repurchase of the Shares
being transferred in the event of a payment default by the party
liable to meet additional capital calls hereunder.
To facilitate compliance with Section 6 and this Section 7 and with
the pertinent provisions of the Articles of Incorporation of the Fund, the
Subscriber will not effect a transaction restricted by either such Section
without advance notice to the Fund and prior written approval by the Fund.
2
<PAGE> 3
A transfer of all or some of the Shares owned by a shareholder will
not relieve the shareholder of any unfulfilled subscription obligation, unless
the Fund expressly consents in writing to the assumption of the transferor's
Subscription Agreement by another party.
8. REPRESENTATIONS AND WARRANTIES OF THE FUND. The Fund represents
and warrants that:
(i) The Fund is duly organized, validly existing and in good
standing under the laws of the State of Maryland and has the power and
authority to carry on its business as now conducted and as proposed to
be conducted in the Fund's Private Offering Memorandum ("Memorandum")
and to issue the Shares subscribed for hereby. This Agreement and any
other documents executed and delivered by the Fund in connection
herewith have been duly authorized, executed and delivered by the
Fund, and are the legal, valid and binding obligations of the Fund
enforceable in accordance with their respective terms.
(ii) The execution and delivery of this Agreement and any
other documents executed and delivered by the Fund in connection
herewith do not, and the performance and consummation of the
transactions set forth or contemplated herein will not, contravene or
result in a default under any provision of existing law or regulations
to which the Fund is subject, the provisions of the trust instrument,
charter, by-laws or other governing documents of the Fund or any
indenture, mortgage or other instrument or agreement to which the Fund
is a party or by which it is bound and does not require on the part of
the Fund any approval, authorization, license or filing from or with
any federal, state, municipal or foreign board or agency (except such
approvals, authorizations, licenses or filings as have been obtained
or made).
(iii) The Fund has filed an election with the Securities and
Exchange Commission, pursuant to Section 54(a) of the 1940 Act, to be
subject to the provisions of Sections 55 through 65 of the 1940 Act.
9. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER. The Subscriber
represents and warrants that:
(i) This Agreement and any other documents executed and
delivered by the Subscriber in connection herewith have been duly
executed and delivered by the Subscriber, and are the legal, valid and
binding obligations of the Subscriber enforceable in accordance with
their respective terms.
(ii) If the Subscriber is an Individual Retirement Account
("IRA"), (a) the Subscriber has the power and authority to purchase
the Shares subscribed for hereby, (b) the execution and delivery of
this Agreement and any other documents executed and delivered by the
Subscriber in connection herewith do not, and the performance and
consummation of the transactions set forth or contemplated herein will
not, contravene or result in a default under any provision of existing
law or regulations to which the Subscriber is subject or the
provisions of any custodial agreement, trust instrument or other
governing documents of the Subscriber, and (c) the Subscriber has
caused this Agreement to be executed by one or more of its custodians
or trustees thereunto duly authorized.
(iii) If the Subscriber is an employee benefit plan as defined
in ERISA (an "ERISA Plan"), (a) the execution and delivery of this
Agreement and any other documents executed and delivered by the
Subscriber in connection herewith do not, and the performance and
consummation of the transactions set forth or contemplated herein will
not, contravene or result in a default under any provision of existing
law or regulations to which the Subscriber is subject or the
provisions of any trust instrument or other governing
3
<PAGE> 4
documents of the Subscriber; (b) the Subscriber has caused this
Agreement to be executed by one or more of its fiduciaries thereunto
duly authorized; and (c) such fiduciaries, by executing and delivering
this Agreement on behalf of such ERISA Plan, represent and warrant
that (w) they and their co-fiduciaries, if any, have been informed of
the Fund's investment objectives, policies and strategies, (x) the
decision to invest plan assets in the Fund was made with appropriate
consideration of relevant investment factors with regard to such ERISA
Plan; (y) such decision was made by such fiduciaries without reliance
on any investment advice or recommendation provided by the Fund,
Westech Investment Advisors, Inc. ("Westech Investment Advisors") or
Siguler Guff Advisers, L.L.C. ("Siguler Guff Advisers") and is
consistent with the duties and responsibilities imposed upon
fiduciaries with regard to their investment decisions under ERISA; and
(z) if the Fund's underlying assets are deemed to be "plan assets" of
ERISA Plan investors, such fiduciaries shall be deemed to have
appointed Westech Investment Advisors and Siguler Guff Advisers as
investment managers of the ERISA Plan Subscribers with respect to the
assets managed in the Fund.
(iv) The Shares being subscribed for by the Subscriber will be
purchased for the account of the Subscriber for investment only and
not with a view to, or with any intention of, a distribution or resale
thereof, in whole or in part, or the grant of any participation
therein. The Subscriber acknowledges that the Shares have not been
registered under the 1933 Act or any state securities laws, cannot be
disposed of unless they are subsequently registered under the 1933 Act
and any applicable state securities laws, or an exemption from
registration is available. The Subscriber further understands that
the Fund is not obligated to file a registration statement or a
notification of registration under the 1933 Act or any state
securities law and has no intention to do so, nor does the Fund have
any other obligation to take or refrain from taking any action that
would make available any exemption for the sale of Shares without
registration.
(v) The Subscriber acknowledges that the Fund will accept this
subscription, and issue the Shares as contemplated hereunder, in a
transaction intended to be exempt from registration under the 1933 Act
under Regulation D thereunder. The Subscriber represents and warrants
that it has reviewed the definition of "accredited investor" under
Regulation D, as set forth in the Appendix to this Agreement, and
confirms that it meets the requirements for qualification as an
"accredited investor."
(vi) The Subscriber has received and carefully reviewed the
Memorandum and understands that any information provided other than in
the Memorandum has been furnished on the understanding that the
Subscriber will refer to the Memorandum for an authoritative statement
on all matters covered therein with respect to the Fund and other
information concerning the Offering. The Subscriber has had reasonable
time and opportunity to ask questions and receive answers concerning
the terms and conditions of the offering and the proposed operations
of the Fund, and has received responses to such questions that it has
chosen to ask. To the extent that Subscriber may have received any
information regarding the past results of similar funds managed by
Westech Investment Advisors, Siguler Guff Advisers or any of their
affiliates, Subscriber acknowledges that such information is not
intended to predict actual performance of the Fund and that Subscriber
has not relied on such performance results for that purpose. In this
regard, the Subscriber understands that past performance does not
guarantee future results The investment performance of the Fund
differ substantially from the performance to date of similar funds
managed by Westech Investment Advisors, Siguler Guff Advisers or any
of their affiliates.
(vii) The Subscriber recognizes that an investment in the Fund
involves certain risks and it has taken full cognizance of and
understands the risk factors relating to a purchase of Shares,
including those set forth under the headings "Risk Factors" in the
Memorandum. The Subscriber is capable of bearing a high degree of
risk, including the possibility of a loss of its investment and the
lack of a public market such that it will not be possible to readily
liquidate the investment. The Subscriber has such knowledge and
experience in business
4
<PAGE> 5
and financial matters as to be capable of evaluating the merits and
risks of an investment in the Shares and protecting its own interest
in connection with the investment in the Shares.
(viii) The Subscriber acknowledges that it has not relied upon
the Fund, Westech Investment Advisors, Siguler Guff Advisers or any of
their employees, directors, officers or agents for any investment,
tax, legal or ERISA advice in connection with its purchase of Shares
and that the Subscriber has consulted, to the extent necessary, its
own advisers with respect to the investment, tax, legal or ERISA
considerations of a purchase of Shares.
(ix) The Subscriber acknowledges that there have been no
guarantees or warranties made to it by the Fund, Westech Investment
Advisors, Inc., Siguler Guff Advisers, L.L.C., or any of their
employees, directors, officers or agents, expressly or by implication,
other than as contained in the Memorandum, with respect to (i) the
approximate length of time that it will be required to remain an owner
of its Shares; or (ii) the percentage of profit and/or the amount or
type of consideration, profit or loss to be realized as a result of
its investment.
10. COVENANTS OF THE SUBSCRIBER. The Subscriber agrees with the Fund
that:
(i) For so long as the Subscriber owns Shares, the
Subscriber shall, upon request, disclose to the Fund such information
with respect to direct or indirect holdings of such Shares as the Fund
deems necessary to comply with provisions of the Internal Revenue Code
of 1986 applicable to the Fund, to comply with requirements of any
other appropriate taxing authority, or to comply with the provisions
of the 1940 Act, as any of said laws may be amended from time to time.
(ii) The Subscriber, if an IRA or an ERISA Plan, will furnish
to the Fund promptly upon its request the information called for by
applicable "prohibited transaction" regulations of the Department of
Labor and any other information with respect to Subscriber's parties
in interest as the Fund may reasonably require.
(iii) The Subscriber will indemnify and hold the Fund harmless
from and against any and all loss, damage or liability due to or
arising out of a breach of any representation or warranty of the
Subscriber in this Agreement or any other document furnished by it to
the Fund.
11. NOTICES. The address of the Subscriber for all purposes shall be
the address set forth on the signature page to this Agreement, or such other
address of which the Fund has received notice in accordance with the provisions
hereof. The address of the Fund for all purposes shall be c/o Westech
Investment Advisors, Inc., 2010 North First Street, Suite 310, San Jose, CA
95131, or such other address of which the Subscriber has received notice in
accordance with the provisions hereof. Any notice or communication to be given
under this Agreement shall be made in writing and, unless otherwise herein
provided, shall be deemed to have been given when sent by first class to such
party at such address.
12. APPLICABLE LAW. This Agreement and the rights and obligations of
the parties hereunder shall be construed in accordance with and governed by the
laws of the State of New York.
13. COUNTERPARTS; OTHER AGREEMENTS. This Agreement may be executed in
any number of counterparts, and each of such counterparts shall, for all
purposes, constitute one agreement binding on all the parties, notwithstanding
that all parties are not signatories to the same counterpart.
14. MISCELLANEOUS. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives and
assigns.
5
<PAGE> 6
This Agreement constitutes the entire agreement among the parties
pertaining to the subject matter contained in this Agreement and supersedes all
prior understandings of the parties. The invalidity or unenforceability of any
one provision of this Agreement shall in no way affect the validity of any
other provision, and all other provisions shall remain in full force and
effect. No waiver by any party of any breach of any term hereof shall be
construed as a waiver of any subsequent breach of that term or any other term
of the same or of a different nature.
15. TAX CERTIFICATION. The Subscriber certifies that (1) the taxpayer
identification provided above the Subscriber signature is correct and (2) the
Subscriber is not subject to backup withholding because (i) the Subscriber has
not been notified that the Subscriber is subject to backup withholding as a
result of failure to report interest and dividends or (ii) the Internal Revenue
Service has not notified the Subscriber that the Subscriber is subject to
backup withholding. [Strike out clause (2) if incorrect.]
IN WITNESS WHEREOF, this Agreement has been executed by the Subscriber
as of the date of the Subscriber's signature set forth on the signature page
hereto and, if accepted by the Fund, becomes an Agreement binding on the Fund
as of the date of the signature signifying acceptance set forth on the attached
signature page.
6
<PAGE> 7
APPENDIX A
DEFINITION OF "ACCREDITED INVESTOR" CONTAINED IN REGULATION D
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
(1) Any bank as defined in section 3(a)(2) of the Act, or any savings
and loan association or other institution as defined in section 3(a)(5)(A) of
the Act whether acting in its individual or fiduciary capacity; any broker or
dealer registered pursuant to section 15 of the Securities Exchange Act of
1934; any insurance company as defined in section 2(13) of the Act; any
investment company registered under the Investment Company Act of 1940 or a
business development company as defined in section 2(a)(48) of that Act; any
Small Business Investment Company licensed by the US Small Business
Administration under section 301(c) or (d) of the Small Business Investment Act
of 1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total assets
in excess of $5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in section 3(21) of such act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are accredited investors;
(2) Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the issuer
of the securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited
investors.
<PAGE> 1
VENTURE LENDING & LEASING II, INC.
SUBSCRIPTION AGREEMENT
The undersigned (the "Subscriber"), hereby subscribes to purchase
shares of Common Stock, $.001 par value ("Shares"), issued by Venture Lending &
Leasing II, Inc., a Maryland corporation (the "Fund"), in the amount set forth
on the signature page below (the "Capital Commitment"), on the terms and
conditions set forth herein. (Capitalized terms used and not defined in this
Agreement have the meanings assigned to them in the Private Offering Memorandum
referred to below.)
1. SALE AND PURCHASE OF SHARES. Subject to the terms and conditions
set forth in this Agreement, and in reliance upon the representations and
warranties of the respective parties set forth in this Agreement, the Fund
hereby agrees to sell to the Subscriber, and the Subscriber irrevocably
subscribes for and agrees to purchase from the Fund, Shares in the amount of
its Capital Commitment.
2. CLOSINGS. The Fund will hold a Closing ("Closing") on or before
December 31, 1997 but only if, as of such date, the Fund has received
subscriptions for an aggregate amount of at least $50 million in Shares, and
may hold one or more additional Closings involving different investors shall,
from time to time thereafter, but not later than nine months following the
initial Closing. At each Closing, the Fund shall execute and deliver to the
Subscriber a duplicate original of this Agreement indicating the amount of the
Capital Commitment as to which the Subscription has been accepted, which shall
thereafter be deemed the Subscriber's Capital Commitment for all purposes
hereunder.
3. CAPITAL CALLS. Subscriber agrees to purchase Shares with a
purchase price equal to the amount of the Subscriber's Capital Commitment, in
one or more installments and in the amounts and on the dates specified by the
Fund in one or more written notices ("Capital Calls") conforming to the
requirements of this Agreement. The purchase price per Share of the Shares
purchased pursuant to each Capital Call will be the greater of (a) $1,000 or
(b) the Fund's net asset value per Share ("Net Asset Value") on the date of
each purchase, as determined in conformity with the requirements of the
Investment Company Act of 1940, as amended ("1940 Act").
If, at the time of the Closing at which the Subscriber's subscription
is accepted, Capital Calls have been given to other investors whose
subscriptions were accepted at prior Closings ("Earlier Investors"), then
Subscriber will purchase Shares at the Closing with a purchase price equal to
the Subscriber's Capital Commitment multiplied by a fraction, the numerator of
which is the aggregate amount of all Capital Calls that have been made to
Earlier Investors and the denominator of which is the aggregate amount of all
Capital Commitments of Earlier Investors. The purchase price for the Shares so
purchased will be the greater of (a) $1,000 or (b) Net Asset Value on the date
of such purchase.
Capital Calls shall be deemed made when mailed to the Subscriber at
least 15 days before the date for the purchase of Shares specified in the
Capital Call, by first class mail to the Subscriber's address specified on the
signature page of this Agreement or such other address as the Subscriber shall
notify the Fund in writing. No Capital Call shall be made after the fourth
anniversary of the first Closing, and any uncalled portion of the Subscriber's
Capital Commitment as of that anniversary date will lapse as to the uncalled
portion of the Commitment.
4. MANNER OF PAYMENT. Payments made to purchase Shares specified in a
Capital Call shall be made on or before the payment date specified in the
Capital Call therefor (the "Payment Date"). Payments shall be made by wire
transfer or by personal check, in accordance with payment instructions included
with each Capital Call.
<PAGE> 2
5. PAYMENT DEFAULT. If payment for the purchase of Shares is received
by the Fund from the Subscriber later than 14 days after the Payment Date,
interest will be charged on the overdue amount, calculated at a daily rate
equal on an annualized basis to four percentage points over the highest rate of
interest reported from time to time as a "prime rate" by The Wall Street
Journal (provided that, if such rate is in excess of the maximum rate of
interest permitted by law, interest will be charged at such maximum rate). If
a default in a payment under this Subscription Agreement (including interest
charges) remains uncured for 30 days following a payment date, the Fund may, at
its option, pursue any or all of the following remedies: (i) cancel the balance
of the Subscriber's subscription (including the installment as to which the
Subscriber had defaulted), (ii) assign the remaining balance of the
Subscriber's subscription (including the installment as to which the Subscriber
has defaulted) to another investor selected by the Fund and/or (iii) repurchase
the Shares previously purchased by the Subscriber at a purchase price per Share
equal to the lesser of 60% of the Shares' then-current Net Asset Value or the
prices at which the Subscriber purchased the Shares. The election by the Fund
to pursue one or more of these remedies will not preclude the Fund from
pursuing any rights it may have to seek judicial enforcement of the
Subscriber's subscription obligation.
6. RESTRICTION ON ASSIGNMENT OF SUBSCRIPTION AGREEMENT. Neither this
Agreement nor any rights or interests herein may be assigned by the Subscriber
nor may the obligations of the Subscriber be assumed or performed by another,
other than a successor to the entire business and affairs of the Subscriber,
without the express prior written consent of the Fund. The Fund may withhold
consent to the assignment of this Agreement in its sole discretion. Except as
provided in Section 5 hereof, neither this Agreement nor any rights or
interests herein may be assigned by the Fund
7. RESTRICTION ON TRANSFER OR ASSIGNMENT OF SHARES. Neither the
Shares to be issued hereunder nor any right or interest therein may be sold,
assigned, pledged or otherwise transferred by the Subscriber without the
consent of the Fund. Without limiting the foregoing, the Fund may withhold
consent to a proposed transfer if the Fund reasonably determines that any of
the following requirements are not met:
(i) The transfer is made to an institutional or individual
accredited investor who the Fund determines would have been eligible
to participate in the initial offering of the Shares, in a transaction
that, in the opinion of counsel for the Subscriber and counsel for the
Fund, complies with the requirements of the Securities Act of 1933
(the "1933 Act") and any applicable state securities laws;
(ii) The transfer is made in a transaction that the Fund determines,
after consideration of an opinion of counsel for the proposed
transferee and such additional counsel as the Fund may wish to consult
on the matter, will not make it more difficult for the Fund to comply
with the requirements of the 1933 Act applicable to the Fund and its
operations, applicable state securities laws, the 1940 Act, the
Internal Revenue Code of 1986, as amended (the "Code") or the Employee
Retirement Income Security Act of 1974 ("ERISA"); and
(iii) The transfer is made to a transferee who agrees to be bound by
all the provisions of this Agreement that pertain to an owner of
Shares, including provisions relating to the repurchase of the Shares
being transferred in the event of a payment default by the party
liable to meet additional capital calls hereunder.
To facilitate compliance with Section 6 and this Section 7 and with
the pertinent provisions of the Articles of Incorporation of the Fund, the
Subscriber will not effect a transaction restricted by either such Section
without advance notice to the Fund and prior written approval by the Fund.
2
<PAGE> 3
A transfer of all or some of the Shares owned by a shareholder will
not relieve the shareholder of any unfulfilled subscription obligation, unless
the Fund expressly consents in writing to the assumption of the transferor's
Subscription Agreement by another party.
8. REPRESENTATIONS AND WARRANTIES OF THE FUND. The Fund represents
and warrants that:
(i) The Fund is duly organized, validly existing and in good
standing under the laws of the State of Maryland and has the power and
authority to carry on its business as now conducted and as proposed to
be conducted in the Fund's Private Offering Memorandum ("Memorandum")
and to issue the Shares subscribed for hereby. This Agreement and any
other documents executed and delivered by the Fund in connection
herewith have been duly authorized, executed and delivered by the
Fund, and are the legal, valid and binding obligations of the Fund
enforceable in accordance with their respective terms.
(ii) The execution and delivery of this Agreement and any
other documents executed and delivered by the Fund in connection
herewith do not, and the performance and consummation of the
transactions set forth or contemplated herein will not, contravene or
result in a default under any provision of existing law or regulations
to which the Fund is subject, the provisions of the trust instrument,
charter, by-laws or other governing documents of the Fund or any
indenture, mortgage or other instrument or agreement to which the Fund
is a party or by which it is bound and does not require on the part of
the Fund any approval, authorization, license or filing from or with
any federal, state, municipal or foreign board or agency (except such
approvals, authorizations, licenses or filings as have been obtained
or made).
(iii) The Fund has filed an election with the Securities and
Exchange Commission, pursuant to Section 54(a) of the 1940 Act, to be
subject to the provisions of Sections 55 through 65 of the 1940 Act.
9. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER. The Subscriber
represents and warrants that:
(i) The Subscriber is duly organized, validly existing and in
good standing under the laws of the jurisdiction wherein it is
organized and has the power and authority to carry on the activities
in which it is engaged and to purchase the Shares subscribed for
hereby. This Agreement and any other documents executed and delivered
by the Subscriber in connection herewith have been duly authorized,
executed and delivered by the Subscriber, and are the legal, valid and
binding obligations of the Subscriber enforceable in accordance with
their respective terms.
(ii) The execution and delivery of this Agreement and any
other documents executed and delivered by the Subscriber in connection
herewith do not, and the performance and consummation of the
transactions set forth or contemplated herein will not, contravene or
result in a default under any provision of existing law or regulations
to which the Subscriber is subject, the provisions of the trust
instrument, charter, by-laws or other governing documents of the
Subscriber or any indenture, mortgage or other instrument or agreement
to which the Subscriber is a party or by which it is bound and does
not require on the part of the Subscriber any approval, authorization,
license or filing from or with any federal, state, municipal or
foreign board or agency (except such approvals, authorizations,
licenses or filings as have been obtained or made).
(iii) If the Subscriber is an employee benefit plan as defined
in ERISA (an "ERISA Plan"), (a) the execution and delivery of this
Agreement and any other documents executed and delivered by the
Subscriber in connection herewith do not, and the performance and
consummation of the transactions set forth or contemplated herein will
not, contravene or result in a default under any provision of existing
law or regulations to which the Subscriber is subject or the
provisions of any trust instrument or other governing documents of the
Subscriber; (b) the Subscriber has caused this Agreement to be
executed by one or more of its fiduciaries thereunto duly authorized;
and (c) such fiduciaries, by executing and delivering this Agreement
on behalf of such ERISA Plan, represent and warrant that (w) they and
their co-fiduciaries, if any, have been
3
<PAGE> 4
informed of the Fund's investment objectives, policies and strategies,
(x) the decision to invest plan assets in the Fund was made with
appropriate consideration of relevant investment factors with regard
to such ERISA Plan; (y) such decision was made by such fiduciaries
without reliance on any investment advice or recommendation provided
by the Fund, Westech Investment Advisors, Inc. ("Westech Investment
Advisors") or Siguler Guff Advisers, L.L.C. ("Siguler Guff Advisers")
and is consistent with the duties and responsibilities imposed upon
fiduciaries with regard to their investment decisions under ERISA; and
(z) if the Fund's underlying assets are deemed to be "plan assets" of
ERISA Plan investors, such fiduciaries shall be deemed to have
appointed Westech Investment Advisors and Siguler Guff Advisers as
investment managers of the ERISA Plan Subscribers with respect to the
assets managed in the Fund.
(iv) The Shares being subscribed for by the Subscriber will be
purchased for the account of the Subscriber for investment only and
not with a view to, or with any intention of, a distribution or resale
thereof, in whole or in part, or the grant of any participation
therein. The Subscriber acknowledges that the Shares have not been
registered under the 1933 Act or any state securities laws, cannot be
disposed of unless they are subsequently registered under the 1933 Act
and any applicable state securities laws, or an exemption from
registration is available. The Subscriber further understands that
the Fund is not obligated to file a registration statement or a
notification of registration under the 1933 Act or any state
securities law and has no intention to do so, nor does the Fund have
any other obligation to take or refrain from taking any action that
would make available any exemption for the sale of Shares without
registration.
(v) The Subscriber acknowledges that the Fund will accept this
subscription, and issue the Shares as contemplated hereunder, in a
transaction intended to be exempt from registration under the 1933 Act
under Regulation D thereunder. The Subscriber represents and warrants
that it has reviewed the definition of "accredited investor" under
Regulation D, as set forth in the Appendix to this Agreement, and
confirms that it meets the requirements for qualification as an
"accredited investor."
(vi) The Subscriber has received and carefully reviewed the
Memorandum and understands that any information provided other than in
the Memorandum has been furnished on the understanding that the
Subscriber will refer to the Memorandum for an authoritative statement
on all matters covered therein with respect to the Fund and other
information concerning the Offering. The Subscriber has had reasonable
time and opportunity to ask questions and receive answers concerning
the terms and conditions of the offering and the proposed operations
of the Fund, and has received responses to such questions that it has
chosen to ask. To the extent that Subscriber may have received any
information regarding the past results of similar funds managed by
Westech Investment Advisors, Siguler Guff Advisers or any of their
affiliates, Subscriber acknowledges that such information is not
intended to predict actual performance of the Fund and that Subscriber
has not relied on such performance results for that purpose. In this
regard, the Subscriber understands that past performance does not
guarantee future results The investment performance of the Fund
differ substantially from the performance to date of similar funds
managed by Westech Investment Advisors, Siguler Guff Advisers or any
of their affiliates.
(vii) The Subscriber recognizes that an investment in the Fund
involves certain risks and it has taken full cognizance of and
understands the risk factors relating to a purchase of Shares,
including those set forth under the headings "Risk Factors" in the
Memorandum. The Subscriber is capable of bearing a high degree of
risk, including the possibility of a loss of its investment and the
lack of a public market such that it will not be possible to readily
liquidate the investment. The Subscriber has such knowledge and
experience in business and financial matters as to be capable of
evaluating the merits and risks of an investment in the Shares and
protecting its own interest in connection with the investment in the
Shares.
4
<PAGE> 5
(viii) The Subscriber acknowledges that it has not relied upon
the Fund, Westech Investment Advisors, Siguler Guff Advisers or any of
their employees, directors, officers or agents for any investment,
tax, legal or ERISA advice in connection with its purchase of Shares
and that the Subscriber has consulted, to the extent necessary, its
own advisers with respect to the investment, tax, legal or ERISA
considerations of a purchase of Shares.
(ix) The Subscriber acknowledges that there have been no
guarantees or warranties made to it by the Fund, Westech Investment
Advisors, Siguler Guff Advisers, any of their employees, directors,
officers or agents, expressly or by implication, other than as
contained in the Memorandum, with respect to (i) the approximate
length of time that it will be required to remain an owner of its
Shares; or (ii) the percentage of profit and/or the amount or type of
consideration, profit or loss to be realized as a result of its
investment.
10. COVENANTS OF THE SUBSCRIBER. The Subscriber agrees with the Fund
that:
(i) For so long as the Subscriber owns Shares, the Subscriber
shall, upon request, disclose to the Fund such information with
respect to direct or indirect holdings of such Shares as the Fund
deems necessary to comply with provisions of the Internal Revenue Code
of 1986 applicable to the Fund, to comply with requirements of any
other appropriate taxing authority, or to comply with the provisions
of the 1940 Act, as any of said laws may be amended from time to time.
(ii) The Subscriber, if an IRA or an ERISA Plan, will furnish
to the Fund promptly upon its request the information called for by
applicable "prohibited transaction" regulations of the Department of
Labor and any other information with respect to Subscriber's parties
in interest as the Fund may reasonably require.
(iii) The Subscriber will indemnify and hold the Fund harmless
from and against any and all loss, damage or liability due to or
arising out of a breach of any representation or warranty of the
Subscriber in this Agreement or any other document furnished by it to
the Fund.
11. NOTICES. The address of the Subscriber for all purposes shall be
the address set forth on the signature page to this Agreement, or such other
address of which the Fund has received notice in accordance with the provisions
hereof. The address of the Fund for all purposes shall be c/o Westech
Investment Advisors, Inc., 2010 North First Street, Suite 310, San Jose, CA
95131, or such other address of which the Subscriber has received notice in
accordance with the provisions hereof. Any notice or communication to be given
under this Agreement shall be made in writing and, unless otherwise herein
provided, shall be deemed to have been given when sent by first class to such
party at such address.
12. APPLICABLE LAW. This Agreement and the rights and obligations of
the parties hereunder shall be construed in accordance with and governed by the
laws of the State of New York.
13. COUNTERPARTS; OTHER AGREEMENTS. This Agreement may be executed in
any number of counterparts, and each of such counterparts shall, for all
purposes, constitute one agreement binding on all the parties, notwithstanding
that all parties are not signatories to the same counterpart.
14. MISCELLANEOUS. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives and
assigns.
This Agreement constitutes the entire agreement among the parties
pertaining to the subject matter contained in this Agreement and supersedes all
prior understandings of the parties. The invalidity or unenforceability of any
one provision of this Agreement shall in no way affect the validity of any
other provision, and all other provisions shall
5
<PAGE> 6
remain in full force and effect. No waiver by any party of any breach of any
term hereof shall be construed as a waiver of any subsequent breach of that
term or any other term of the same or of a different nature.
15. TAX CERTIFICATION. The Subscriber certifies that (1) the taxpayer
identification provided above the Subscriber signature is correct and (2) the
Subscriber is not subject to backup withholding because (i) the Subscriber has
not been notified that the Subscriber is subject to backup withholding as a
result of failure to report interest and dividends or (ii) the Internal Revenue
Service has not notified the Subscriber that the Subscriber is subject to
backup withholding. [Strike out clause (2) if incorrect.]
IN WITNESS WHEREOF, this Agreement has been executed by the Subscriber
as of the date of the Subscriber's signature set forth on the signature page
hereto and, if accepted by the Fund, becomes an Agreement binding on the Fund
as of the date of the signature signifying acceptance set forth on the attached
signature page.
6
<PAGE> 7
APPENDIX A
DEFINITION OF "ACCREDITED INVESTOR" CONTAINED IN REGULATION D
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
(1) Any bank as defined in section 3(a)(2) of the Act, or any savings
and loan association or other institution as defined in section 3(a)(5)(A) of
the Act whether acting in its individual or fiduciary capacity; any broker or
dealer registered pursuant to section 15 of the Securities Exchange Act of
1934; any insurance company as defined in section 2(13) of the Act; any
investment company registered under the Investment Company Act of 1940 or a
business development company as defined in section 2(a)(48) of that Act; any
Small Business Investment Company licensed by the US Small Business
Administration under section 301(c) or (d) of the Small Business Investment Act
of 1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total assets
in excess of $5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in section 3(21) of such act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are accredited investors;
(2) Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the issuer
of the securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited
investors.
<PAGE> 1
VENTURE LENDING & LEASING II, INC.
SUBSCRIPTION AGREEMENT
FOR
INDIVIDUALS PURCHASING THROUGH PLACEMENT AGENT
The undersigned (the "Subscriber"), hereby subscribes to purchase
shares of Common Stock, $.001 par value ("Shares"), issued by Venture Lending &
Leasing II, Inc., a Maryland corporation (the "Fund"), in the amount set forth
on the signature page below (the "Capital Commitment"), on the terms and
conditions set forth herein. (Capitalized terms used and not defined in this
Agreement have the meanings assigned to them in the Private Offering Memorandum
referred to below.)
1. SALE AND PURCHASE OF SHARES; PLACEMENT FEE. Subject to the terms
and conditions set forth in this Agreement, and in reliance upon the
representations and warranties of the respective parties set forth in this
Agreement, the Fund hereby agrees to sell to the Subscriber, and the Subscriber
irrevocably subscribes for and agrees to purchase from the Fund, Shares in the
amount of its Capital Commitment.
Subscribers shall pay to the Fund for the benefit of Robertson,
Stephens & Company LLC (the "Placement Agent") a placement agent fee (a
"Placement Agent Fee") equal to two percent of the Capital Commitment of the
Subscriber at the first closing at which the Subscriber purchases Shares. If a
Subscriber subsequently makes an additional Capital Commitment, the Placement
Agent shall be paid an additional Placement Agent Fee equal to two percent of
that additional Capital Commitment at the time such additional Capital
Commitment is made.
2. CLOSINGS. The Fund will hold a Closing ("Closing") on or before
December 31, 1997 but only if, as of such date, the Fund has received
subscriptions for an aggregate amount of at least $50 million in Shares, and
may hold one or more additional Closings involving different investors from
time to time thereafter, but not later than nine months following the initial
Closing. At each Closing, the Fund shall execute and deliver to the Subscriber
a duplicate original of this Agreement indicating the amount of the Capital
Commitment as to which the Subscription has been accepted, which shall
thereafter be deemed the Subscriber's Capital Commitment for all purposes
hereunder.
3. CAPITAL CALLS. Subscriber agrees to purchase Shares with a purchase
price equal to the amount of the Subscriber's Capital Commitment, in one or
more installments and in the amounts and on the dates specified by the Fund in
one or more written notices ("Capital Calls") conforming to the requirements of
this Agreement. The purchase price per Share of the Shares purchased pursuant
to each Capital Call will be the greater of (a) $1,000 or (b) the Fund's net
asset value per Share ("Net Asset Value") on the date of each purchase, as
determined in conformity with the requirements of the Investment Company Act of
1940, as amended ("1940 Act").
If, at the time of the Closing at which the Subscriber's subscription
is accepted, Capital Calls have been given to other investors whose
subscriptions were accepted at prior Closings ("Earlier Investors"), then
Subscriber will purchase Shares at the Closing with a purchase price equal to
the Subscriber's Capital Commitment multiplied by a fraction, the numerator of
which is the aggregate amount of all Capital Calls that have been made to
Earlier Investors and the denominator of which is the aggregate amount of all
Capital Commitments of Earlier Investors.
99999/0901
05/19/97
DPS/111508/Indiv.
<PAGE> 2
The purchase price for the Shares so purchased will be the greater of (a)
$1,000 or (b) Net Asset Value on the date of such purchase.
Capital Calls shall be deemed made when mailed to the Subscriber at
least 15 days before the date for the purchase of Shares specified in the
Capital Call, by first class mail to the Subscriber's address specified on the
signature page of this Agreement or such other address as the Subscriber shall
notify the Fund in writing. No Capital Call shall be made after the fourth
anniversary of the first Closing, and any uncalled portion of the Subscriber's
Capital Commitment as of that anniversary date will lapse as to the uncalled
portion of the Commitment.
4. MANNER OF PAYMENT. Payments made to purchase Shares specified in a
Capital Call shall be made on or before the payment date specified in the
Capital Call therefor (the "Payment Date"). Payments shall be made by wire
transfer or by personal check, in accordance with payment instructions included
with each Capital Call.
5. PAYMENT DEFAULT. If payment for the purchase of Shares is received
by the Fund from the Subscriber later than 14 days after the Payment Date,
interest will be charged on the overdue amount, calculated at a daily rate
equal on an annualized basis to four percentage points over the highest rate of
interest reported from time to time as a "prime rate" by The Wall Street
Journal (provided that, if such rate is in excess of the maximum rate of
interest permitted by law, interest will be charged at such maximum rate). If a
default in a payment under this Subscription Agreement (including interest
charges) remains uncured for 30 days following a payment date, the Fund may, at
its option, pursue any or all of the following remedies: (i) cancel the balance
of the Subscriber's subscription (including the installment as to which the
Subscriber had defaulted), (ii) assign the remaining balance of the
Subscriber's subscription (including the installment as to which the Subscriber
has defaulted) to another investor selected by the Fund and/or (iii) repurchase
the Shares previously purchased by the Subscriber at a purchase price per Share
equal to the lesser of 60% of the Shares' then-current Net Asset Value or the
prices at which the Subscriber purchased the Shares. The election by the Fund
to pursue one or more of these remedies will not preclude the Fund from
pursuing any rights it may have to seek judicial enforcement of the
Subscriber's subscription obligation.
6. RESTRICTION ON ASSIGNMENT OF SUBSCRIPTION AGREEMENT. Neither this
Agreement nor any rights or interests herein may be assigned by the Subscriber
nor may the obligations of the Subscriber be assumed or performed by another,
other than a successor to the entire business and affairs of the Subscriber,
without the express prior written consent of the Fund. The Fund may withhold
consent to the assignment of this Agreement in its sole discretion. Except as
provided in Section 5 hereof, neither this Agreement nor any rights or
interests herein may be assigned by the Fund
7. RESTRICTION ON TRANSFER OR ASSIGNMENT OF SHARES. Neither the Shares
to be issued hereunder nor any right or interest therein may be sold, assigned,
pledged or otherwise transferred by the Subscriber without the consent of the
Fund. Without limiting the foregoing, the Fund may withhold consent to a
proposed transfer if the Fund reasonably determines that any of the following
requirements are not met:
(i) The transfer is made to an institutional or individual
accredited investor who the Fund determines would have been eligible
to participate in the initial offering of the Shares, in a transaction
that, in the opinion of counsel for the Subscriber and counsel for the
Fund, complies with the requirements of the Securities Act of 1933
(the "1933 Act") and any applicable state securities laws;
(ii) The transfer is made in a transaction that the Fund determines,
after consideration of an opinion of counsel for the proposed
transferee and such additional counsel as the Fund may wish to consult
on the matter, will not make it more difficult for the Fund to comply
with the requirements of the 1933 Act applicable to the Fund and its
operations, applicable state securities laws, the 1940 Act, the
Internal Revenue
<PAGE> 3
Code of 1986, as amended (the "Code") or the Employee Retirement
Income Security Act of 1974 ("ERISA"); and
(iii) The transfer is made to a transferee who agrees to be bound by
all the provisions of this Agreement that pertain to an owner of
Shares, including provisions relating to the repurchase of the Shares
being transferred in the event of a payment default by the party
liable to meet additional capital calls hereunder.
To facilitate compliance with Section 6 and this Section 7 and with
the pertinent provisions of the Articles of Incorporation of the Fund, the
Subscriber will not effect a transaction restricted by either such Section
without advance notice to the Fund and prior written approval by the Fund.
A transfer of all or some of the Shares owned by a shareholder will
not relieve the shareholder of any unfulfilled subscription obligation, unless
the Fund expressly consents in writing to the assumption of the transferor's
Subscription Agreement by another party.
8. REPRESENTATIONS AND WARRANTIES OF THE FUND. The Fund represents and
warrants that:
(i) The Fund is duly organized, validly existing and in good
standing under the laws of the State of Maryland and has the power and
authority to carry on its business as now conducted and as proposed to
be conducted in the Fund's Private Offering Memorandum ("Memorandum")
and to issue the Shares subscribed for hereby. This Agreement and any
other documents executed and delivered by the Fund in connection
herewith have been duly authorized, executed and delivered by the
Fund, and are the legal, valid and binding obligations of the Fund
enforceable in accordance with their respective terms.
(ii) The execution and delivery of this Agreement and any
other documents executed and delivered by the Fund in connection
herewith do not, and the performance and consummation of the
transactions set forth or contemplated herein will not, contravene or
result in a default under any provision of existing law or regulations
to which the Fund is subject, the provisions of the trust instrument,
charter, by-laws or other governing documents of the Fund or any
indenture, mortgage or other instrument or agreement to which the Fund
is a party or by which it is bound and does not require on the part of
the Fund any approval, authorization, license or filing from or with
any federal, state, municipal or foreign board or agency (except such
approvals, authorizations, licenses or filings as have been obtained
or made).
(iii) The Fund has filed an election with the Securities and
Exchange Commission, pursuant to Section 54(a) of the 1940 Act, to be
subject to the provisions of Sections 55 through 65 of the 1940 Act.
9. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER. The Subscriber
represents and warrants that:
(i) This Agreement and any other documents executed and
delivered by the Subscriber in connection herewith have been duly
executed and delivered by the Subscriber, and are the legal, valid and
binding obligations of the Subscriber enforceable in accordance with
their respective terms.
(ii) If the Subscriber is an Individual Retirement Account
("IRA"), (a) the Subscriber has the power and authority to purchase
the Shares subscribed for hereby, (b) the execution and delivery of
this Agreement and any other documents executed and delivered by the
Subscriber in connection herewith do not, and the performance and
consummation of the transactions set forth or contemplated herein will
not, contravene or result in a default under any provision of existing
law or regulations to which the Subscriber is subject or the
provisions of any custodial agreement, trust instrument or other
governing documents of the Subscriber, and (c) the Subscriber has
caused this Agreement to be executed by one or more of its custodians
or trustees thereunto duly authorized.
3
<PAGE> 4
(iii) If the Subscriber is an employee benefit plan as
defined in ERISA (an "ERISA Plan"), (a) the execution and delivery of
this Agreement and any other documents executed and delivered by the
Subscriber in connection herewith do not, and the performance and
consummation of the transactions set forth or contemplated herein will
not, contravene or result in a default under any provision of existing
law or regulations to which the Subscriber is subject or the
provisions of any trust instrument or other governing documents of the
Subscriber; (b) the Subscriber has caused this Agreement to be
executed by one or more of its fiduciaries thereunto duly authorized;
and (c) such fiduciaries, by executing and delivering this Agreement
on behalf of such ERISA Plan, represent and warrant that (w) they and
their co-fiduciaries, if any, have been informed of the Fund's
investment objectives, policies and strategies, (x) the decision to
invest plan assets in the Fund was made with appropriate consideration
of relevant investment factors with regard to such ERISA Plan; (y)
such decision was made by such fiduciaries without reliance on any
investment advice or recommendation provided by the Fund, Westech
Investment Advisors, Inc. ("Westech Investment Advisors") or Siguler
Guff Advisers, L.L.C. ("Siguler Guff Advisers") and is consistent with
the duties and responsibilities imposed upon fiduciaries with regard
to their investment decisions under ERISA; and (z) if the Fund's
underlying assets are deemed to be "plan assets" of ERISA Plan
investors, such fiduciaries shall be deemed to have appointed Westech
Investment Advisors and Siguler Guff Advisers as investment managers
of the ERISA Plan Subscribers with respect to the assets managed in
the Fund.
(iv) The Shares being subscribed for by the Subscriber will
be purchased for the account of the Subscriber for investment only and
not with a view to, or with any intention of, a distribution or resale
thereof, in whole or in part, or the grant of any participation
therein. The Subscriber acknowledges that the Shares have not been
registered under the 1933 Act or any state securities laws, cannot be
disposed of unless they are subsequently registered under the 1933 Act
and any applicable state securities laws, or an exemption from
registration is available. The Subscriber further understands that the
Fund is not obligated to file a registration statement or a
notification of registration under the 1933 Act or any state
securities law and has no intention to do so, nor does the Fund have
any other obligation to take or refrain from taking any action that
would make available any exemption for the sale of Shares without
registration.
(v) The Subscriber acknowledges that the Fund will accept
this subscription, and issue the Shares as contemplated hereunder, in
a transaction intended to be exempt from registration under the 1933
Act under Regulation D thereunder. The Subscriber represents and
warrants that it has reviewed the definition of "accredited investor"
under Regulation D, as set forth in the Appendix to this Agreement,
and confirms that it meets the requirements for qualification as an
"accredited investor."
(vi) The Subscriber has received and carefully reviewed the
Memorandum and understands that any information provided other than in
the Memorandum has been furnished on the understanding that the
Subscriber will refer to the Memorandum for an authoritative statement
on all matters covered therein with respect to the Fund and other
information concerning the Offering. The Subscriber has had reasonable
time and opportunity to ask questions and receive answers concerning
the terms and conditions of the offering and the proposed operations
of the Fund, and has received responses to such questions that it has
chosen to ask. To the extent that Subscriber may have received any
information regarding the past results of similar funds managed by
Westech Investment Advisors, Siguler Guff Advisers or any of their
affiliates, Subscriber acknowledges that such information is not
intended to predict actual performance of the Fund and that Subscriber
has not relied on such performance results for that purpose. In this
regard, the Subscriber understands that past performance does not
guarantee future results The investment performance of the Fund differ
substantially from the performance to date of similar funds managed by
Westech Investment Advisors, Siguler Guff Advisers or any of their
affiliates.
(vii) The Subscriber recognizes that an investment in the
Fund involves certain risks and it has taken full cognizance of and
understands the risk factors relating to a purchase of Shares,
including those
4
<PAGE> 5
set forth under the headings "Risk Factors" in the Memorandum. The
Subscriber is capable of bearing a high degree of risk, including the
possibility of a loss of its investment and the lack of a public
market such that it will not be possible to readily liquidate the
investment. The Subscriber has such knowledge and experience in
business and financial matters as to be capable of evaluating the
merits and risks of an investment in the Shares and protecting its own
interest in connection with the investment in the Shares.
(viii) The Subscriber acknowledges that it has not relied
upon the Fund, Westech Investment Advisors, Siguler Guff Advisers or
any of their employees, directors, officers or agents for any
investment, tax, legal or ERISA advice in connection with its purchase
of Shares and that the Subscriber has consulted, to the extent
necessary, its own advisers with respect to the investment, tax, legal
or ERISA considerations of a purchase of Shares.
(ix) The Subscriber acknowledges that there have been no
guarantees or warranties made to it by the Fund, Westech Investment
Advisors, Inc., Siguler Guff Advisers, L.L.C., or any of their
employees, directors, officers or agents, expressly or by implication,
other than as contained in the Memorandum, with respect to (i) the
approximate length of time that it will be required to remain an owner
of its Shares; or (ii) the percentage of profit and/or the amount or
type of consideration, profit or loss to be realized as a result of
its investment.
(x) The Subscriber either has previously furnished to the
Fund a completed and signed Offering Questionnaire or has completed
and signed the Offering questionnaire attached hereto as Appendix I.
The information in the Subscriber's most recently completed and signed
Offering Questionnaire previously delivered or being delivered to the
Fund with this Subscription Agreement is true, correct and complete in
all respects as of the date hereof and is incorporated herein by
reference.
10. COVENANTS OF THE SUBSCRIBER. The Subscriber agrees with the Fund
that:
(i) For so long as the Subscriber owns Shares, the Subscriber
shall, upon request, disclose to the Fund such information with
respect to direct or indirect holdings of such Shares as the Fund
deems necessary to comply with provisions of the Internal Revenue Code
of 1986 applicable to the Fund, to comply with requirements of any
other appropriate taxing authority, or to comply with the provisions
of the 1940 Act, as any of said laws may be amended from time to time.
(ii) The Subscriber, if an IRA or an ERISA Plan, will furnish
to the Fund promptly upon its request the information called for by
applicable "prohibited transaction" regulations of the Department of
Labor and any other information with respect to Subscriber's parties
in interest as the Fund may reasonably require.
(iii) The Subscriber will indemnify and hold the Fund
harmless from and against any and all loss, damage or liability due to
or arising out of a breach of any representation or warranty of the
Subscriber in this Agreement or any other document furnished by it to
the Fund.
11. NOTICES. The address of the Subscriber for all purposes shall be
the address set forth on the signature page to this Agreement, or such other
address of which the Fund has received notice in accordance with the provisions
hereof. The address of the Fund for all purposes shall be c/o Westech
Investment Advisors, Inc., 2010 North First Street, Suite 310, San Jose, CA
95131, or such other address of which the Subscriber has received notice in
accordance with the provisions hereof. Any notice or communication to be given
under this Agreement shall be made in writing and, unless otherwise herein
provided, shall be deemed to have been given when sent by first class to such
party at such address.
5
<PAGE> 6
12. APPLICABLE LAW. This Agreement and the rights and obligations of
the parties hereunder shall be construed in accordance with and governed by the
laws of the State of New York.
13. COUNTERPARTS; OTHER AGREEMENTS. This Agreement may be executed in
any number of counterparts, and each of such counterparts shall, for all
purposes, constitute one agreement binding on all the parties, notwithstanding
that all parties are not signatories to the same counterpart.
14. MISCELLANEOUS. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and assigns.
This Agreement constitutes the entire agreement among the parties
pertaining to the subject matter contained in this Agreement and supersedes all
prior understandings of the parties. The invalidity or unenforceability of any
one provision of this Agreement shall in no way affect the validity of any
other provision, and all other provisions shall remain in full force and
effect. No waiver by any party of any breach of any term hereof shall be
construed as a waiver of any subsequent breach of that term or any other term
of the same or of a different nature.
15. TAX CERTIFICATION. The Subscriber certifies that (1) the taxpayer
identification provided above the Subscriber signature is correct and (2) the
Subscriber is not subject to backup withholding because (i) the Subscriber has
not been notified that the Subscriber is subject to backup withholding as a
result of failure to report interest and dividends or (ii) the Internal Revenue
Service has not notified the Subscriber that the Subscriber is subject to
backup withholding. [Strike out clause (2) if incorrect.]
IN WITNESS WHEREOF, this Agreement has been executed by the Subscriber
as of the date of the Subscriber's signature set forth on the signature page
hereto and, if accepted by the Fund, becomes an Agreement binding on the Fund
as of the date of the signature signifying acceptance set forth on the attached
signature page.
6
<PAGE> 7
APPENDIX A
DEFINITION OF "ACCREDITED INVESTOR" CONTAINED IN REGULATION D
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
(1) Any bank as defined in section 3(a)(2) of the Act, or any savings
and loan association or other institution as defined in section 3(a)(5)(A) of
the Act whether acting in its individual or fiduciary capacity; any broker or
dealer registered pursuant to section 15 of the Securities Exchange Act of
1934; any insurance company as defined in section 2(13) of the Act; any
investment company registered under the Investment Company Act of 1940 or a
business development company as defined in section 2(a)(48) of that Act; any
Small Business Investment Company licensed by the US Small Business
Administration under section 301(c) or (d) of the Small Business Investment Act
of 1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total assets
in excess of $5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in section 3(21) of such act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are accredited investors;
(2) Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the issuer
of the securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited
investors.
<PAGE> 8
Appendix I to
Subscription Agreement
OFFERING QUESTIONNAIRE
VENTURE LENDING & LEASING II, INC.
(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)
- -------------------------------------------------------------------------------
INSTRUCTIONS:
This Questionnaire is being distributed to a select group of investors, each of
whom Robertson, Stephens & Company LLC, the placement agent for Venture Lending
& Leasing II, Inc. (the "Fund"), believes may find purchase of shares of Common
Stock of the Fund ("Shares") suitable for such investor's long-range investment
objectives. The primary purpose of this Questionnaire is to elicit information
sufficient to permit the Fund reasonably to conclude that you have sufficient
investment sophistication and ability to take financial risk to meet the
standards for availability of the private offering exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Act"), the qualification requirements of the California Corporate Securities
Law of 1968, as amended (the "California Securities Law"), and the
qualification or registration requirements of any other applicable securities
law.
If, in completing this Questionnaire, you are in doubt regarding the meaning or
implication of any of the terminology or regarding the significance of any
particular question, please contact Rick Bianchina, 555 California Street,
Suite 2600, San Francisco, California 94104, telephone (415) 781-9700.
If the answer to any question is "None" or "Not Applicable," please so state.
YOUR ANSWERS WILL AT ALL TIMES BE KEPT STRICTLY CONFIDENTIAL. EACH PERSON
SIGNING THIS QUESTIONNAIRE AGREES, HOWEVER, THAT THE FUND OR THE PLACEMENT
AGENT MAY PRESENT THIS QUESTIONNAIRE TO SUCH PARTIES AS THEY DEEM APPROPRIATE
IF CALLED ON TO ESTABLISH THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION OF
THE SHARES UNDER THE ACT REGISTRATION OR QUALIFICATION OF THE SHARES UNDER THE
CALIFORNIA SECURITIES LAW OR ANY OTHER SECURITIES LAW.
Unless you have already furnished a completed and signed Offering Questionnaire
to the Fund, or have otherwise furnished to the Fund all of the information
elicited by this Questionnaire, and unless the information furnished is still
true and complete, please complete, sign, date and return one copy of this
Questionnaire.
Note for Certain Employee Benefit Plans: If you are a self-directed plan that
believes it is an "accredited investor" because investment decisions are made
solely by persons that are accredited investors (see Part D, category (3)),
please furnish a separate Questionnaire with respect to you and each such
person participating in making the investment decision.
Note for Trusts: If you are a trust that believes it is an "accredited
investor" described in Part D, category (4), please furnish a separate
Questionnaire with respect to you and each person participating in making the
investment decision (except that persons participating in making the investment
decision need not complete Parts D and E).
Note for Certain Entities: If you are an entity that believes it is an
"accredited investor" by virtue of the accredited investor status of each
equity owner thereof (see Part D, category (13)), please furnish a separate
Questionnaire with respect to you and each such equity owner.
<PAGE> 9
A. IDENTIFYING INFORMATION.
Both entities and individual subscribers should complete this Part A, inserting
the information requested with respect to the subscriber, not any person who is
completing this Questionnaire on the subscriber's behalf, except that if you
are acting as a custodian for a minor whose funds will be invested, please so
indicate and complete the information with respect both to you and the minor.
Full Name(s):
------------------------------------------------------------------
In what state do you maintain your principal residence? (If you have resided in
this state less than one year, or plan to change your state of residence,
please explain.)
Is there any reason you might be considered a resident of another state (e.g.,
live part of the year, have an office or business, registered to vote, pay
taxes or hold a driver's license in another state)? If so, please explain:
If you are a corporation, trust, limited liability company, partnership,
association or other entity, please identify which type of entity, the
jurisdiction under the laws of which you are organized and existing, and the
jurisdiction where your principal place of business is located:
Nature of Employment
-----------------------------------------------------------
If self-employed, nature of business:
B. EMPLOYMENT AND BACKGROUND.
If you are an individual, please furnish all of the following
information regarding yourself. If a husband and wife are investing jointly,
please furnish all of the following information with respect to each spouse and
identify the spouse to whom the information pertains. If you are an entity or
are investing jointly with a person other than your spouse, please furnish all
of the following information in this Part B regarding each officer, partner,
trustee or other person who will participate in the investment decision. If you
are acting as a custodian of a minor whose funds will be invested, please
furnish information in this Part B regarding yourself only.
EDUCATION
College/University Degree Major Year
- --------------------- -------- -------------------------- ----------
- --------------------- -------- -------------------------- ----------
- --------------------- -------- -------------------------- ----------
2.
<PAGE> 10
EMPLOYMENT
Name of Current Employer:
------------------------------------------------------
- -------------------------------------------------------------------------------
Name of Current Employer
of Spouse/Co-investor:
---------------------------------------------------------
- -------------------------------------------------------------------------------
Date of Birth:
-----------------------------------------------------------------
Marital Status:
----------------------------------------------------------------
Number of Dependents:
----------------------------------------------------------
Describe briefly all positions (including directorships) held during the past
five years which were related to financial, business, accounting, economics,
taxation or investment matters and which you feel demonstrate your investment
sophistication. Where appropriate, briefly describe the business of the company
or other entity in which the position was held:
Other background in business (particularly in the securities business),
economics, finance, accounting, taxation, law, investing or related fields
(include any relevant educational experience) that demonstrates investment
sophistication:
Describe briefly any legal actions, including lawsuits, arbitrations and
mediations, involving securities, commodities or other investments, in which
you have been involved in the past five years. State the names of the parties
to the proceeding, whether you were a plaintiff or defendant, where the action
took place (i.e., name of court, location of arbitration), a brief description
of the dispute and the resolution of the matter:
3.
<PAGE> 11
C. INVESTMENT BACKGROUND AND OBJECTIVES.
Both entities and individual subscribers should complete this Part C, inserting
the information requested with respect to the subscriber, not any person who is
completing this Questionnaire on the subscriber's behalf.
Approximate number of years you have been investing:
---------------------------
Please indicate the frequency of your investments in:
Real estate other than your principal residence (directly or through
partnerships or other entities managed by others):
( ) often, ( ) occasionally, ( ) seldom, ( ) never
Mutual funds and private investment vehicles (such as the Fund):
( ) often, ( ) occasionally, ( ) seldom, ( ) never
Marketable securities (stocks, bonds, debentures, notes):
( ) often, ( ) occasionally, ( ) seldom, ( ) never
Privately held corporations and partnerships and start-up ventures (stocks,
bonds, debentures, notes, partnership interests):
( ) often, ( ) occasionally, ( ) seldom, ( ) never
Change in Amounts Invested. Is the total amount of your investments currently
substantially more than the total amount typically invested over the past
several years (other than as the result of market increases)? Yes
----------
No
--------
If yes, please give details (e.g., when did increase occur, what was
approximate value of total prior portfolio):
Order of Objectives (number preferences
from 1 to 3, from most preferred to least)
[ ] Capital Appreciation
[ ] Income
[ ] Liquidity
4.
<PAGE> 12
D. "ACCREDITED INVESTOR".
If the subscriber is an "accredited investor" as that term is defined in
Regulation D under the Act, under the rules of the California Commissioner of
Corporations under section 25102(f) of the California Securities Law, and under
other applicable securities laws and regulations, please indicate by
initialling the category or categories that accurately describe the
subscriber's situation:
(1) A natural person (not an entity) whose individual net worth,
- --- or joint net worth with his or her spouse, at the time of his or her
purchase exceeds $1,000,000;
(2) A natural person (not an entity) who [initial appropriate
- --- blank(s)] (a) ___ had an individual income in excess of $200,000 in each
of the preceding two years or (b) ___ had joint income with his or her
spouse in excess of $300,000 in each of those years and (c) in either
case (a) or (b), has a reasonable expectation of reaching the same
income level in the current year;
(3) An employee benefit plan within the meaning of Title I of the
- --- Employee Retirement Income Security Act of 1974, [initial appropriate
blank] (a) if the investment decision is made by a plan fiduciary, as
defined in section 3(21) thereof, which is (i) ___ a bank, (ii) ___ a
savings and loan association, (iii) ___ an insurance company or (iv)
___ a registered investment adviser, or (b) ___ if the employee benefit
plan has total assets in excess of $5,000,000, or (c) ___ if the
employee benefit plan is a self-directed plan, with investment
decisions made solely by persons that are accredited investors;
(4) A trust, with total assets in excess of $5,000,000, not formed
- --- for the specific purpose of acquiring the securities of the Fund being
offered, whose purchase is directed by a person who has such knowledge
and experience in financial and business matters that he or she is
capable of evaluating the merits and risks of the prospective
investment in the Fund;
(5) (a) A bank as defined in section 3(a)(2) of the Act, whether
- --- acting in its individual or fiduciary capacity;
(5) (b) A savings and loan association or other institution as
- --- defined in section 3(a)(5)(A) of the Act, whether acting in its
individual or fiduciary capacity;
(6) A broker or dealer registered pursuant to section 15 of the
- --- Securities Exchange Act of 1934;
(7) An insurance company as defined in section 2(13) of the Act;
- ---
(8) An investment company registered under the Investment Company
- --- Act of 1940 or a business development company as defined in section
2(a)(48) of the Investment Company Act of 1940;
(9) A Small Business Investment Company licensed by the U.S.
- --- Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958;
(10) A private business development company as defined in section
- --- 202(a)(22) of the Investment Advisers Act of 1940;
5.
<PAGE> 13
(11) [Initial applicable blank] (a) ___ An organization described
- --- in section 501(c)(3) of the Internal Revenue Code, as amended December
29, 1981, or (b) ___ a corporation, a Massachusetts or similar business
trust, or a partnership not formed for the specific purpose of
acquiring the securities of the Fund being offered, or (c) ___ a plan
established or maintained by a state or its political subdivisions or
any agency or instrumentality of a state or its political subdivisions,
for the benefit of its employees, in either case (a), (b) or (c) with
total assets in excess of $5,000,000 (in case (a), such total assets
include endowment, annuity and life income funds and are to be
determined according to the investor's most recent audited financial
statements);
(12) A director or executive officer of the Fund; or
- ---
(13) An entity in which all the equity owners are accredited
- --- investors.
If you have indicated category (3)(c) or (13) above, please list below the
names and categories of accreditation of the accredited investors making the
investment decisions (category (3)(c)) or who are the equity owners (category
(13)) (attach additional pages if necessary):
Accredited
Investor
Person Making Decision/Equity Owner Category
--------------------------------------------------- ------------
--------------------------------------------------- ------------
--------------------------------------------------- ------------
Special Note for Trusts, Partnerships and Certain Plans: The application of the
"accredited investor" categories to trusts (including Massachusetts or similar
business trusts), partnerships and self-employed individual retirement plans is
subject to complex regulatory interpretations and may differ under state and
federal law. Accordingly, such an entity attempting to qualify may be required
to deliver additional information, including a satisfactory opinion of its
counsel.
E. PURCHASER REPRESENTATIVE.
You will be eligible to invest in the Fund only if you, either alone or
together with your "purchaser representative" (such as an investment adviser,
attorney, accountant or other consultant), have such knowledge and experience
in financial and business matters that you are capable of evaluating the merits
and risks of an investment in the Fund and have the capacity to protect your
own interests in connection with your proposed investment in the Fund. Do you
intend to have a "purchaser representative" advise you in order to meet this
requirement? Yes No
----- -----
If yes, the Fund will furnish to you additional information and a Purchaser
Representative Questionnaire for completion before considering whether to
accept your subscription. In the meantime, please furnish the information
indicated below with respect to your purchaser representative:
Name: Firm:
----------------------------- -----------------------
Address: Telephone:
-------------------------- ------------------
- ----------------------------------
6.
<PAGE> 14
F. SIGNATURE.
To the best of my knowledge and belief, the above information supplied by me is
true and correct in all respects. I agree that I will notify the Fund
immediately of any material change in any of the foregoing information prior to
consummation of my purchase of Shares. I understand that the information being
furnished in this Questionnaire is required to enable the Fund and the Fund to
determine whether offers and sales to me of Shares may be made without
registration under Federal and state securities laws.
Date: , 19
--------------- ---- -----------------------------------------
Signature
-----------------------------------------
(Print name)
7.
<PAGE> 1
VENTURE LENDING & LEASING II, INC.
SUBSCRIPTION AGREEMENT
FOR
INSTITUTIONS PURCHASING THROUGH PLACEMENT AGENT
The undersigned (the "Subscriber"), hereby subscribes to purchase
shares of Common Stock, $.001 par value ("Shares"), issued by Venture Lending &
Leasing II, Inc., a Maryland corporation (the "Fund"), in the amount set forth
on the signature page below (the "Capital Commitment"), on the terms and
conditions set forth herein. (Capitalized terms used and not defined in this
Agreement have the meanings assigned to them in the Private Offering Memorandum
referred to below.)
1. SALE AND PURCHASE OF SHARES; PLACEMENT FEE. Subject to the terms
and conditions set forth in this Agreement, and in reliance upon the
representations and warranties of the respective parties set forth in this
Agreement, the Fund hereby agrees to sell to the Subscriber, and the Subscriber
irrevocably subscribes for and agrees to purchase from the Fund, Shares in the
amount of its Capital Commitment.
Subscriber shall pay to the Fund for the benefit of Robertson,
Stephens & Company LLC (the "Placement Agent") a placement agent fee (a
"Placement Agent Fee") equal to two percent of the Capital Commitment of the
Subscriber at the first closing at which the Subscriber purchases Shares. If a
Subscriber subsequently makes an additional Capital Commitment, the Placement
Agent shall be paid an additional Placement Agent Fee equal to two percent of
that additional Capital Commitment at the time such additional Capital
Commitment is made.
2. CLOSINGS. The Fund will hold a Closing ("Closing") on or before
December 31, 1997 but only if, as of such date, the Fund has received
subscriptions for an aggregate amount of at least $50 million in Shares, and
may hold one or more additional Closings involving different investors shall,
from time to time thereafter, but not later than nine months following the
initial Closing. At each Closing, the Fund shall execute and deliver to the
Subscriber a duplicate original of this Agreement indicating the amount of the
Capital Commitment as to which the Subscription has been accepted, which shall
thereafter be deemed the Subscriber's Capital Commitment for all purposes
hereunder.
3. CAPITAL CALLS. Subscriber agrees to purchase Shares with a purchase
price equal to the amount of the Subscriber's Capital Commitment, in one or
more installments and in the amounts and on the dates specified by the Fund in
one or more written notices ("Capital Calls") conforming to the requirements of
this Agreement. The purchase price per Share of the Shares purchased pursuant
to each Capital Call will be the greater of (a) $1,000 or (b) the Fund's net
asset value per Share ("Net Asset Value") on the date of each purchase, as
determined in conformity with the requirements of the Investment Company Act of
1940, as amended ("1940 Act").
If, at the time of the Closing at which the Subscriber's subscription
is accepted, Capital Calls have been given to other investors whose
subscriptions were accepted at prior Closings ("Earlier Investors"), then
Subscriber will purchase Shares at the Closing with a purchase price equal to
the Subscriber's Capital Commitment multiplied by a fraction, the numerator of
which is the aggregate amount of all Capital Calls that have been made to
Earlier Investors and the denominator of which is the aggregate amount of all
Capital Commitments of Earlier Investors.
99999/0901
05/19/97
DPS/111509/instit
<PAGE> 2
The purchase price for the Shares so purchased will be the greater of (a)
$1,000 or (b) Net Asset Value on the date of such purchase.
Capital Calls shall be deemed made when mailed to the Subscriber at
least 15 days before the date for the purchase of Shares specified in the
Capital Call, by first class mail to the Subscriber's address specified on the
signature page of this Agreement or such other address as the Subscriber shall
notify the Fund in writing. No Capital Call shall be made after the fourth
anniversary of the first Closing, and any uncalled portion of the Subscriber's
Capital Commitment as of that anniversary date will lapse as to the uncalled
portion of the Commitment.
4. MANNER OF PAYMENT. Payments made to purchase Shares specified in a
Capital Call shall be made on or before the payment date specified in the
Capital Call therefor (the "Payment Date"). Payments shall be made by wire
transfer or by personal check, in accordance with payment instructions included
with each Capital Call.
5. PAYMENT DEFAULT. If payment for the purchase of Shares is received
by the Fund from the Subscriber later than 14 days after the Payment Date,
interest will be charged on the overdue amount, calculated at a daily rate
equal on an annualized basis to four percentage points over the highest rate of
interest reported from time to time as a "prime rate" by The Wall Street
Journal (provided that, if such rate is in excess of the maximum rate of
interest permitted by law, interest will be charged at such maximum rate). If a
default in a payment under this Subscription Agreement (including interest
charges) remains uncured for 30 days following a payment date, the Fund may, at
its option, pursue any or all of the following remedies: (i) cancel the balance
of the Subscriber's subscription (including the installment as to which the
Subscriber had defaulted), (ii) assign the remaining balance of the
Subscriber's subscription (including the installment as to which the Subscriber
has defaulted) to another investor selected by the Fund and/or (iii) repurchase
the Shares previously purchased by the Subscriber at a purchase price per Share
equal to the lesser of 60% of the Shares' then-current Net Asset Value or the
prices at which the Subscriber purchased the Shares. The election by the Fund
to pursue one or more of these remedies will not preclude the Fund from
pursuing any rights it may have to seek judicial enforcement of the
Subscriber's subscription obligation.
6. RESTRICTION ON ASSIGNMENT OF SUBSCRIPTION AGREEMENT. Neither this
Agreement nor any rights or interests herein may be assigned by the Subscriber
nor may the obligations of the Subscriber be assumed or performed by another,
other than a successor to the entire business and affairs of the Subscriber,
without the express prior written consent of the Fund. The Fund may withhold
consent to the assignment of this Agreement in its sole discretion. Except as
provided in Section 5 hereof, neither this Agreement nor any rights or
interests herein may be assigned by the Fund
7. RESTRICTION ON TRANSFER OR ASSIGNMENT OF SHARES. Neither the Shares
to be issued hereunder nor any right or interest therein may be sold, assigned,
pledged or otherwise transferred by the Subscriber without the consent of the
Fund. Without limiting the foregoing, the Fund may withhold consent to a
proposed transfer if the Fund reasonably determines that any of the following
requirements are not met:
(i) The transfer is made to an institutional or individual
accredited investor who the Fund determines would have been eligible
to participate in the initial offering of the Shares, in a transaction
that, in the opinion of counsel for the Subscriber and counsel for the
Fund, complies with the requirements of the Securities Act of 1933
(the "1933 Act") and any applicable state securities laws;
(ii) The transfer is made in a transaction that the Fund determines,
after consideration of an opinion of counsel for the proposed
transferee and such additional counsel as the Fund may wish to consult
on the matter, will not make it more difficult for the Fund to comply
with the requirements of the 1933 Act applicable to the Fund and its
operations, applicable state securities laws, the 1940 Act, the
Internal Revenue
2
<PAGE> 3
Code of 1986, as amended (the "Code") or the Employee Retirement
Income Security Act of 1974 ("ERISA"); and
(iii) The transfer is made to a transferee who agrees to be bound by
all the provisions of this Agreement that pertain to an owner of
Shares, including provisions relating to the repurchase of the Shares
being transferred in the event of a payment default by the party
liable to meet additional capital calls hereunder.
To facilitate compliance with Section 6 and this Section 7 and with
the pertinent provisions of the Articles of Incorporation of the Fund, the
Subscriber will not effect a transaction restricted by either such Section
without advance notice to the Fund and prior written approval by the Fund.
A transfer of all or some of the Shares owned by a shareholder will
not relieve the shareholder of any unfulfilled subscription obligation, unless
the Fund expressly consents in writing to the assumption of the transferor's
Subscription Agreement by another party.
8. REPRESENTATIONS AND WARRANTIES OF THE FUND. The Fund represents and
warrants that:
(i) The Fund is duly organized, validly existing and in good
standing under the laws of the State of Maryland and has the power and
authority to carry on its business as now conducted and as proposed to
be conducted in the Fund's Private Offering Memorandum ("Memorandum")
and to issue the Shares subscribed for hereby. This Agreement and any
other documents executed and delivered by the Fund in connection
herewith have been duly authorized, executed and delivered by the
Fund, and are the legal, valid and binding obligations of the Fund
enforceable in accordance with their respective terms.
(ii) The execution and delivery of this Agreement and any
other documents executed and delivered by the Fund in connection
herewith do not, and the performance and consummation of the
transactions set forth or contemplated herein will not, contravene or
result in a default under any provision of existing law or regulations
to which the Fund is subject, the provisions of the trust instrument,
charter, by-laws or other governing documents of the Fund or any
indenture, mortgage or other instrument or agreement to which the Fund
is a party or by which it is bound and does not require on the part of
the Fund any approval, authorization, license or filing from or with
any federal, state, municipal or foreign board or agency (except such
approvals, authorizations, licenses or filings as have been obtained
or made).
(iii) The Fund has filed an election with the Securities and
Exchange Commission, pursuant to Section 54(a) of the 1940 Act, to be
subject to the provisions of Sections 55 through 65 of the 1940 Act.
9. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER. The Subscriber
represents and warrants that:
(i) The Subscriber is duly organized, validly existing and in
good standing under the laws of the jurisdiction wherein it is
organized and has the power and authority to carry on the activities
in which it is engaged and to purchase the Shares subscribed for
hereby. This Agreement and any other documents executed and delivered
by the Subscriber in connection herewith have been duly authorized,
executed and delivered by the Subscriber, and are the legal, valid and
binding obligations of the Subscriber enforceable in accordance with
their respective terms.
(ii) The execution and delivery of this Agreement and any
other documents executed and delivered by the Subscriber in connection
herewith do not, and the performance and consummation of the
transactions set forth or contemplated herein will not, contravene or
result in a default under any provision of existing law or regulations
to which the Subscriber is subject, the provisions of the trust
instrument, charter, by-laws or other governing documents of the
Subscriber or any indenture, mortgage or other instrument or agreement
3
<PAGE> 4
to which the Subscriber is a party or by which it is bound and does
not require on the part of the Subscriber any approval, authorization,
license or filing from or with any federal, state, municipal or
foreign board or agency (except such approvals, authorizations,
licenses or filings as have been obtained or made).
(iii) If the Subscriber is an employee benefit plan as
defined in ERISA (an "ERISA Plan"), (a) the execution and delivery of
this Agreement and any other documents executed and delivered by the
Subscriber in connection herewith do not, and the performance and
consummation of the transactions set forth or contemplated herein will
not, contravene or result in a default under any provision of existing
law or regulations to which the Subscriber is subject or the
provisions of any trust instrument or other governing documents of the
Subscriber; (b) the Subscriber has caused this Agreement to be
executed by one or more of its fiduciaries thereunto duly authorized;
and (c) such fiduciaries, by executing and delivering this Agreement
on behalf of such ERISA Plan, represent and warrant that (w) they and
their co-fiduciaries, if any, have been informed of the Fund's
investment objectives, policies and strategies, (x) the decision to
invest plan assets in the Fund was made with appropriate consideration
of relevant investment factors with regard to such ERISA Plan; (y)
such decision was made by such fiduciaries without reliance on any
investment advice or recommendation provided by the Fund, Westech
Investment Advisors, Inc. ("Westech Investment Advisors") or Siguler
Guff Advisers, L.L.C. ("Siguler Guff Advisers") and is consistent with
the duties and responsibilities imposed upon fiduciaries with regard
to their investment decisions under ERISA; and (z) if the Fund's
underlying assets are deemed to be "plan assets" of ERISA Plan
investors, such fiduciaries shall be deemed to have appointed Westech
Investment Advisors and Siguler Guff Advisers as investment managers
of the ERISA Plan Subscribers with respect to the assets managed in
the Fund.
(iv) The Shares being subscribed for by the Subscriber will
be purchased for the account of the Subscriber for investment only and
not with a view to, or with any intention of, a distribution or resale
thereof, in whole or in part, or the grant of any participation
therein. The Subscriber acknowledges that the Shares have not been
registered under the 1933 Act or any state securities laws, cannot be
disposed of unless they are subsequently registered under the 1933 Act
and any applicable state securities laws, or an exemption from
registration is available. The Subscriber further understands that the
Fund is not obligated to file a registration statement or a
notification of registration under the 1933 Act or any state
securities law and has no intention to do so, nor does the Fund have
any other obligation to take or refrain from taking any action that
would make available any exemption for the sale of Shares without
registration.
(v) The Subscriber acknowledges that the Fund will accept
this subscription, and issue the Shares as contemplated hereunder, in
a transaction intended to be exempt from registration under the 1933
Act under Regulation D thereunder. The Subscriber represents and
warrants that it has reviewed the definition of "accredited investor"
under Regulation D, as set forth in the Appendix to this Agreement,
and confirms that it meets the requirements for qualification as an
"accredited investor."
(vi) The Subscriber has received and carefully reviewed the
Memorandum and understands that any information provided other than in
the Memorandum has been furnished on the understanding that the
Subscriber will refer to the Memorandum for an authoritative statement
on all matters covered therein with respect to the Fund and other
information concerning the Offering. The Subscriber has had reasonable
time and opportunity to ask questions and receive answers concerning
the terms and conditions of the offering and the proposed operations
of the Fund, and has received responses to such questions that it has
chosen to ask. To the extent that Subscriber may have received any
information regarding the past results of similar funds managed by
Westech Investment Advisors, Siguler Guff Advisers or any of their
affiliates, Subscriber acknowledges that such information is not
intended to predict actual performance of the Fund and that Subscriber
has not relied on such performance results for that purpose. In this
regard, the Subscriber understands that past performance does not
guarantee future results The investment performance of the
4
<PAGE> 5
Fund differ substantially from the performance to date of similar
funds managed by Westech Investment Advisors, Siguler Guff Advisers or
any of their affiliates.
(vii) The Subscriber recognizes that an investment in the
Fund involves certain risks and it has taken full cognizance of and
understands the risk factors relating to a purchase of Shares,
including those set forth under the headings "Risk Factors" in the
Memorandum. The Subscriber is capable of bearing a high degree of
risk, including the possibility of a loss of its investment and the
lack of a public market such that it will not be possible to readily
liquidate the investment. The Subscriber has such knowledge and
experience in business and financial matters as to be capable of
evaluating the merits and risks of an investment in the Shares and
protecting its own interest in connection with the investment in the
Shares.
(viii) The Subscriber acknowledges that it has not relied
upon the Fund, Westech Investment Advisors, Siguler Guff Advisers or
any of their employees, directors, officers or agents for any
investment, tax, legal or ERISA advice in connection with its purchase
of Shares and that the Subscriber has consulted, to the extent
necessary, its own advisers with respect to the investment, tax, legal
or ERISA considerations of a purchase of Shares.
(ix) The Subscriber acknowledges that there have been no
guarantees or warranties made to it by the Fund, Westech Investment
Advisors, Siguler Guff Advisers, any of their employees, directors,
officers or agents, expressly or by implication, other than as
contained in the Memorandum, with respect to (i) the approximate
length of time that it will be required to remain an owner of its
Shares; or (ii) the percentage of profit and/or the amount or type of
consideration, profit or loss to be realized as a result of its
investment.
(x) The Subscriber either has previously furnished to the
Fund a completed and signed Offering Questionnaire or has completed
and signed the Offering questionnaire attached hereto as Appendix I.
The information in the Subscriber's most recently completed and signed
Offering Questionnaire previously delivered or being delivered to the
Fund with this Subscription Agreement is true, correct and complete in
all respects as of the date hereof and is incorporated herein by
reference.
10. COVENANTS OF THE SUBSCRIBER. The Subscriber agrees with the Fund
that:
(i) For so long as the Subscriber owns Shares, the Subscriber
shall, upon request, disclose to the Fund such information with
respect to direct or indirect holdings of such Shares as the Fund
deems necessary to comply with provisions of the Internal Revenue Code
of 1986 applicable to the Fund, to comply with requirements of any
other appropriate taxing authority, or to comply with the provisions
of the 1940 Act, as any of said laws may be amended from time to time.
(ii) The Subscriber, if an IRA or an ERISA Plan, will furnish
to the Fund promptly upon its request the information called for by
applicable "prohibited transaction" regulations of the Department of
Labor and any other information with respect to Subscriber's parties
in interest as the Fund may reasonably require.
(iii) The Subscriber will indemnify and hold the Fund
harmless from and against any and all loss, damage or liability due to
or arising out of a breach of any representation or warranty of the
Subscriber in this Agreement or any other document furnished by it to
the Fund.
11. NOTICES. The address of the Subscriber for all purposes shall be
the address set forth on the signature page to this Agreement, or such other
address of which the Fund has received notice in accordance with the provisions
hereof. The address of the Fund for all purposes shall be c/o Westech
Investment Advisors, Inc., 2010
5
<PAGE> 6
North First Street, Suite 310, San Jose, CA 95131, or such other address of
which the Subscriber has received notice in accordance with the provisions
hereof. Any notice or communication to be given under this Agreement shall be
made in writing and, unless otherwise herein provided, shall be deemed to have
been given when sent by first class to such party at such address.
12. APPLICABLE LAW. This Agreement and the rights and obligations of
the parties hereunder shall be construed in accordance with and governed by the
laws of the State of New York.
13. COUNTERPARTS; OTHER AGREEMENTS. This Agreement may be executed in
any number of counterparts, and each of such counterparts shall, for all
purposes, constitute one agreement binding on all the parties, notwithstanding
that all parties are not signatories to the same counterpart.
14. MISCELLANEOUS. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and assigns.
This Agreement constitutes the entire agreement among the parties
pertaining to the subject matter contained in this Agreement and supersedes all
prior understandings of the parties. The invalidity or unenforceability of any
one provision of this Agreement shall in no way affect the validity of any
other provision, and all other provisions shall remain in full force and
effect. No waiver by any party of any breach of any term hereof shall be
construed as a waiver of any subsequent breach of that term or any other term
of the same or of a different nature.
15. TAX CERTIFICATION. The Subscriber certifies that (1) the taxpayer
identification provided above the Subscriber signature is correct and (2) the
Subscriber is not subject to backup withholding because (i) the Subscriber has
not been notified that the Subscriber is subject to backup withholding as a
result of failure to report interest and dividends or (ii) the Internal Revenue
Service has not notified the Subscriber that the Subscriber is subject to
backup withholding. [Strike out clause (2) if incorrect.]
IN WITNESS WHEREOF, this Agreement has been executed by the Subscriber
as of the date of the Subscriber's signature set forth on the signature page
hereto and, if accepted by the Fund, becomes an Agreement binding on the Fund
as of the date of the signature signifying acceptance set forth on the attached
signature page.
6
<PAGE> 7
APPENDIX A
DEFINITION OF "ACCREDITED INVESTOR" CONTAINED IN REGULATION D
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
(1) Any bank as defined in section 3(a)(2) of the Act, or any savings
and loan association or other institution as defined in section 3(a)(5)(A) of
the Act whether acting in its individual or fiduciary capacity; any broker or
dealer registered pursuant to section 15 of the Securities Exchange Act of
1934; any insurance company as defined in section 2(13) of the Act; any
investment company registered under the Investment Company Act of 1940 or a
business development company as defined in section 2(a)(48) of that Act; any
Small Business Investment Company licensed by the US Small Business
Administration under section 301(c) or (d) of the Small Business Investment Act
of 1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total assets
in excess of $5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in section 3(21) of such act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are accredited investors;
(2) Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the issuer
of the securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited
investors.
<PAGE> 8
Appendix I to
Subscription Agreement
OFFERING QUESTIONNAIRE
VENTURE LENDING & LEASING II, INC.
(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)
- -------------------------------------------------------------------------------
INSTRUCTIONS:
This Questionnaire is being distributed to a select group of investors, each of
whom Robertson, Stephens & Company LLC, the placement agent for Venture Lending
& Leasing II, Inc. (the "Fund"), believes may find purchase of shares of Common
Stock of the Fund ("Shares") suitable for such investor's long-range investment
objectives. The primary purpose of this Questionnaire is to elicit information
sufficient to permit the Fund reasonably to conclude that you have sufficient
investment sophistication and ability to take financial risk to meet the
standards for availability of the private offering exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Act"), the qualification requirements of the California Corporate Securities
Law of 1968, as amended (the "California Securities Law"), and the
qualification or registration requirements of any other applicable securities
law.
If, in completing this Questionnaire, you are in doubt regarding the meaning or
implication of any of the terminology or regarding the significance of any
particular question, please contact Rick Bianchina, 555 California Street,
Suite 2600, San Francisco, California 94104, telephone (415) 781-9700.
If the answer to any question is "None" or "Not Applicable," please so state.
YOUR ANSWERS WILL AT ALL TIMES BE KEPT STRICTLY CONFIDENTIAL. EACH PERSON
SIGNING THIS QUESTIONNAIRE AGREES, HOWEVER, THAT THE FUND OR THE PLACEMENT
AGENT MAY PRESENT THIS QUESTIONNAIRE TO SUCH PARTIES AS THEY DEEM APPROPRIATE
IF CALLED ON TO ESTABLISH THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION OF
THE SHARES UNDER THE ACT REGISTRATION OR QUALIFICATION OF THE SHARES UNDER THE
CALIFORNIA SECURITIES LAW OR ANY OTHER SECURITIES LAW.
Unless you have already furnished a completed and signed Offering Questionnaire
to the Fund, or have otherwise furnished to the Fund all of the information
elicited by this Questionnaire, and unless the information furnished is still
true and complete, please complete, sign, date and return one copy of this
Questionnaire.
Note for Certain Employee Benefit Plans: If you are a self-directed plan that
believes it is an "accredited investor" because investment decisions are made
solely by persons that are accredited investors (see Part D, category (3)),
please furnish a separate Questionnaire with respect to you and each such
person participating in making the investment decision.
Note for Trusts: If you are a trust that believes it is an "accredited
investor" described in Part D, category (4), please furnish a separate
Questionnaire with respect to you and each person participating in making the
investment decision (except that persons participating in making the investment
decision need not complete Parts D and E).
Note for Certain Entities: If you are an entity that believes it is an
"accredited investor" by virtue of the accredited investor status of each
equity owner thereof (see Part D, category (13)), please furnish a separate
Questionnaire with respect to you and each such equity owner.
<PAGE> 9
A. IDENTIFYING INFORMATION.
Both entities and individual subscribers should complete this Part A, inserting
the information requested with respect to the subscriber, not any person who is
completing this Questionnaire on the subscriber's behalf, except that if you
are acting as a custodian for a minor whose funds will be invested, please so
indicate and complete the information with respect both to you and the minor.
Full Name(s):
------------------------------------------------------------------
In what state do you maintain your principal residence? (If you have resided in
this state less than one year, or plan to change your state of residence,
please explain.)
Is there any reason you might be considered a resident of another state (e.g.,
live part of the year, have an office or business, registered to vote, pay
taxes or hold a driver's license in another state)? If so, please explain:
If you are a corporation, trust, limited liability company, partnership,
association or other entity, please identify which type of entity, the
jurisdiction under the laws of which you are organized and existing, and the
jurisdiction where your principal place of business is located:
Nature of Employment
-----------------------------------------------------------
If self-employed, nature of business:
B. EMPLOYMENT AND BACKGROUND.
If you are an individual, please furnish all of the following
information regarding yourself. If a husband and wife are investing jointly,
please furnish all of the following information with respect to each spouse and
identify the spouse to whom the information pertains. If you are an entity or
are investing jointly with a person other than your spouse, please furnish all
of the following information in this Part B regarding each officer, partner,
trustee or other person who will participate in the investment decision. If you
are acting as a custodian of a minor whose funds will be invested, please
furnish information in this Part B regarding yourself only.
EDUCATION
College/University Degree Major Year
- --------------------- -------- -------------------------- ----------
- --------------------- -------- -------------------------- ----------
- --------------------- -------- -------------------------- ----------
2.
<PAGE> 10
EMPLOYMENT
Name of Current Employer:
------------------------------------------------------
- -------------------------------------------------------------------------------
Name of Current Employer
of Spouse/Co-investor:
---------------------------------------------------------
- -------------------------------------------------------------------------------
Date of Birth:
-----------------------------------------------------------------
Marital Status:
----------------------------------------------------------------
Number of Dependents:
----------------------------------------------------------
Describe briefly all positions (including directorships) held during the past
five years which were related to financial, business, accounting, economics,
taxation or investment matters and which you feel demonstrate your investment
sophistication. Where appropriate, briefly describe the business of the company
or other entity in which the position was held:
Other background in business (particularly in the securities business),
economics, finance, accounting, taxation, law, investing or related fields
(include any relevant educational experience) that demonstrates investment
sophistication:
Describe briefly any legal actions, including lawsuits, arbitrations and
mediations, involving securities, commodities or other investments, in which
you have been involved in the past five years. State the names of the parties
to the proceeding, whether you were a plaintiff or defendant, where the action
took place (i.e., name of court, location of arbitration), a brief description
of the dispute and the resolution of the matter:
3.
<PAGE> 11
C. INVESTMENT BACKGROUND AND OBJECTIVES.
Both entities and individual subscribers should complete this Part C, inserting
the information requested with respect to the subscriber, not any person who is
completing this Questionnaire on the subscriber's behalf.
Approximate number of years you have been investing:
---------------------------
Please indicate the frequency of your investments in:
Real estate other than your principal residence (directly or through
partnerships or other entities managed by others):
( ) often, ( ) occasionally, ( ) seldom, ( ) never
Mutual funds and private investment vehicles (such as the Fund):
( ) often, ( ) occasionally, ( ) seldom, ( ) never
Marketable securities (stocks, bonds, debentures, notes):
( ) often, ( ) occasionally, ( ) seldom, ( ) never
Privately held corporations and partnerships and start-up ventures (stocks,
bonds, debentures, notes, partnership interests):
( ) often, ( ) occasionally, ( ) seldom, ( ) never
Change in Amounts Invested. Is the total amount of your investments currently
substantially more than the total amount typically invested over the past
several years (other than as the result of market increases)? Yes
----------
No
--------
If yes, please give details (e.g., when did increase occur, what was
approximate value of total prior portfolio):
Order of Objectives (number preferences
from 1 to 3, from most preferred to least)
[ ] Capital Appreciation
[ ] Income
[ ] Liquidity
4.
<PAGE> 12
D. "ACCREDITED INVESTOR".
If the subscriber is an "accredited investor" as that term is defined in
Regulation D under the Act, under the rules of the California Commissioner of
Corporations under section 25102(f) of the California Securities Law, and under
other applicable securities laws and regulations, please indicate by
initialling the category or categories that accurately describe the
subscriber's situation:
(1) A natural person (not an entity) whose individual net worth,
- --- or joint net worth with his or her spouse, at the time of his or her
purchase exceeds $1,000,000;
(2) A natural person (not an entity) who [initial appropriate
- --- blank(s)] (a) ___ had an individual income in excess of $200,000 in each
of the preceding two years or (b) ___ had joint income with his or her
spouse in excess of $300,000 in each of those years and (c) in either
case (a) or (b), has a reasonable expectation of reaching the same
income level in the current year;
(3) An employee benefit plan within the meaning of Title I of the
- --- Employee Retirement Income Security Act of 1974, [initial appropriate
blank] (a) if the investment decision is made by a plan fiduciary, as
defined in section 3(21) thereof, which is (i) ___ a bank, (ii) ___ a
savings and loan association, (iii) ___ an insurance company or (iv)
___ a registered investment adviser, or (b) ___ if the employee benefit
plan has total assets in excess of $5,000,000, or (c) ___ if the
employee benefit plan is a self-directed plan, with investment
decisions made solely by persons that are accredited investors;
(4) A trust, with total assets in excess of $5,000,000, not formed
- --- for the specific purpose of acquiring the securities of the Fund being
offered, whose purchase is directed by a person who has such knowledge
and experience in financial and business matters that he or she is
capable of evaluating the merits and risks of the prospective
investment in the Fund;
(5) (a) A bank as defined in section 3(a)(2) of the Act, whether
- --- acting in its individual or fiduciary capacity;
(5) (b) A savings and loan association or other institution as
- --- defined in section 3(a)(5)(A) of the Act, whether acting in its
individual or fiduciary capacity;
(6) A broker or dealer registered pursuant to section 15 of the
- --- Securities Exchange Act of 1934;
(7) An insurance company as defined in section 2(13) of the Act;
- ---
(8) An investment company registered under the Investment Company
- --- Act of 1940 or a business development company as defined in section
2(a)(48) of the Investment Company Act of 1940;
(9) A Small Business Investment Company licensed by the U.S.
- --- Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958;
(10) A private business development company as defined in section
- --- 202(a)(22) of the Investment Advisers Act of 1940;
5.
<PAGE> 13
(11) [Initial applicable blank] (a) ___ An organization described
- --- in section 501(c)(3) of the Internal Revenue Code, as amended December
29, 1981, or (b) ___ a corporation, a Massachusetts or similar business
trust, or a partnership not formed for the specific purpose of
acquiring the securities of the Fund being offered, or (c) ___ a plan
established or maintained by a state or its political subdivisions or
any agency or instrumentality of a state or its political subdivisions,
for the benefit of its employees, in either case (a), (b) or (c) with
total assets in excess of $5,000,000 (in case (a), such total assets
include endowment, annuity and life income funds and are to be
determined according to the investor's most recent audited financial
statements);
(12) A director or executive officer of the Fund; or
- ---
(13) An entity in which all the equity owners are accredited
- --- investors.
If you have indicated category (3)(c) or (13) above, please list below the
names and categories of accreditation of the accredited investors making the
investment decisions (category (3)(c)) or who are the equity owners (category
(13)) (attach additional pages if necessary):
Accredited
Investor
Person Making Decision/Equity Owner Category
--------------------------------------------------- ------------
--------------------------------------------------- ------------
--------------------------------------------------- ------------
Special Note for Trusts, Partnerships and Certain Plans: The application of the
"accredited investor" categories to trusts (including Massachusetts or similar
business trusts), partnerships and self-employed individual retirement plans is
subject to complex regulatory interpretations and may differ under state and
federal law. Accordingly, such an entity attempting to qualify may be required
to deliver additional information, including a satisfactory opinion of its
counsel.
E. PURCHASER REPRESENTATIVE.
You will be eligible to invest in the Fund only if you, either alone or
together with your "purchaser representative" (such as an investment adviser,
attorney, accountant or other consultant), have such knowledge and experience
in financial and business matters that you are capable of evaluating the merits
and risks of an investment in the Fund and have the capacity to protect your
own interests in connection with your proposed investment in the Fund. Do you
intend to have a "purchaser representative" advise you in order to meet this
requirement? Yes No
----- -----
If yes, the Fund will furnish to you additional information and a Purchaser
Representative Questionnaire for completion before considering whether to
accept your subscription. In the meantime, please furnish the information
indicated below with respect to your purchaser representative:
Name: Firm:
----------------------------- -----------------------
Address: Telephone:
-------------------------- ------------------
- ----------------------------------
6.
<PAGE> 14
F. SIGNATURE.
To the best of my knowledge and belief, the above information supplied by me is
true and correct in all respects. I agree that I will notify the Fund
immediately of any material change in any of the foregoing information prior to
consummation of my purchase of Shares. I understand that the information being
furnished in this Questionnaire is required to enable the Fund and the Fund to
determine whether offers and sales to me of Shares may be made without
registration under Federal and state securities laws.
Date: , 19
--------------- ---- -----------------------------------------
Signature
-----------------------------------------
(Print name)
7.
<PAGE> 1
CUSTODIAN AGREEMENT
THIS AGREEMENT made as of this __________ day of
_______________, 1997, between Venture Lending & Leasing II, Inc., a
corporation organized under the laws of Maryland with its principal place of
business at 2010 North First Street, Suite 310, San Jose, California 95131
(hereinafter called the "Fund"), and BankBoston, N.A., a national banking
association with its principal place of business at 100 Federal Street, Boston,
Massachusetts (hereinafter called the "Custodian").
WHEREAS, the Fund desires that certain securities, cash and
other property shall be hereafter held and administered by the Custodian as the
Fund's agent pursuant to the terms of this Agreement; and
WHEREAS, the Custodian, directly and through its sub-custodian
network, provides services in the ordinary course of its business which will
meet the Fund's needs as provided for hereinafter;
NOW, THEREFORE, in consideration of the mutual promises herein
made, the Fund and the Custodian agree as follows:
Section 1. Definitions.
"Account" shall mean one or more separate accounts maintained
by the Custodian and/or its sub-custodians and other agents in the name of the
Fund and in which the Custodian holds the Assets pursuant to this Agreement.
"Assets" shall mean any security (as defined in Section 2 (1)
of the Securities Act of 1933, as amended, and also shall include any "foreign
security" as that term is defined in Rule 17f-5 under the Investment Company
Act of 1940, as amended), any "contract of sale" of a "commodity" for "future
delivery" (as such terms are defined in the Commodity Exchange Act), any United
States or foreign currency and any other property.
"Officers' Certificate" shall mean a request of directions in
writing or confirmation of an oral request or directions in writing signed in
the name of the Fund by, unless otherwise specifically indicated in any
certified list provided to the Custodian under Section 3, any two officers of
the Fund, other two persons, or combination thereof, in each case specifically
authorized to sign on behalf of the Fund by the Board of Directors of the Fund
(each such officer or other person, hereinafter referred to as an "Authorized
Person").
<PAGE> 2
Section 2. Custodian as Agent.
The Custodian is authorized to act under the terms of this
Agreement as the Fund's agent and shall be representing the Fund whenever
acting within the scope of the Agreement. Subject to the provisions of Section
6, the Custodian is authorized further to appoint sub-custodians and other
agents from time to time to carry out some or all of the duties which the
Custodian is authorized to perform hereunder.
Section 3. Names, Titles and Signature of Fund's Officers.
The President or Vice President of the Fund will certify to
the Custodian a list containing the names, titles, and signatures of those
persons authorized to sign Officers' Certificates ("Authorized Persons"). Said
President or Vice President, or his or her successor, will provide the
Custodian promptly with any changes which may occur from time to time.
The Custodian is authorized to rely and act upon Officers'
Certificates of any persons (if less than two, so indicated) who are Authorized
Persons. Different persons may be "Authorized Persons" for different purposes.
The Fund will provide the Custodian with a list of authenticated specimen
signatures of Authorized Persons, will indicate on such list for what purposes
each Authorized Person is authorized, and will promptly incorporate any changes
to such list for what purposes each Authorized Person is authorized, and will
promptly incorporate any changes to such list as may occur from time to time.
Should the Fund fail to inform the Custodian that an Authorized Person has
ceased to be an Authorized Person, the Custodian shall be entitled to rely upon
the signature of that person (or, where expressly permitted by the terms
hereof, the oral instructions of that person) as if such person were still an
Authorized Person, until notified to the contrary by the Fund.
The Custodian is further authorized to rely upon any
instructions received by any other means and identified as having been
authorized or given by any of such persons; provided, that, (a) the Custodian
and the Fund shall have previously agreed in writing upon the means of
transmission and the method of identification for such instructions; (b) the
Custodian has not been notified by the Fund to cease to recognize such means
and methods, and (c) such means and methods have in fact been used.
If the Fund should choose to have dial-up or other means of
direct access to the Custodian's accounting system for assets in the Account,
the Custodian is also authorized to rely and act upon any instructions received
by the Custodian through any computer terminal device, regardless of whether
such
2
<PAGE> 3
instructions shall in fact have been given or authorized by the Fund, provided
that such instructions are accompanied by passwords which have been mutually
agreed to in writing by the Custodian and the Fund and the Custodian has not
been notified by the Fund to cease recognizing such passwords.
Where dial-up or other direct means of access to the
Custodian's accounting system for Assets is utilized, the Fund agrees to
indemnify the Custodian and hold it harmless from and against any and all
liabilities, losses, damages, costs, reasonable counsel fees, and other
reasonable expenses of every nature suffered or incurred by the Custodian by
reason of or in connection with the willful misfeasance of the Fund in
connection with the use by the Fund or its employees of any terminal device
with access to the Custodian's accounting system for custodial accounts.
Section 4. Receipt and Disbursement of Money.
A. The Custodian shall open and maintain the Account,
subject to debit only by a draft or order by the Custodian acting pursuant to
the terms of this Agreement. The Custodian shall hold in the Account, subject
to the provisions hereof, all cash received by it from or for the account of
the Fund.
1. The Custodian shall make payment of cash to
the Account or shall debit the Account only (a) for the purchase of Assets for
the Fund upon the delivery of such Assets to the Custodian, registered in the
name of the Fund or of the nominee of the Custodian referred to in Section 8
below; (b) for payments in connection with the conversion, exchange or
surrender of Assets owned or subscribed to by the Fund held by or to be
delivered to the Custodian; (c) for payments in connection with the return of
the cash collateral received in connection with Assets loaned by the Fund; (d)
for payments of interest, dividends, taxes and in connection with rights
offerings; or (e) for other proper Fund purposes. All securities and other
Assets accepted in connection with the purchase of such Assets, if (a) usual in
the course of local market practice or (b) specifically required in
instructions from the Fund, shall be accompanied by payment of, or a "due bill"
for, any dividends, interest or other distributions of the issue due the
purchaser.
2. Except as hereinafter provided, the Custodian
shall make any payment for which it receives direction from an Authorized
Person so long as such direction (i) is (x) in writing (or is a facsimile
transmission of a written direction), (y) electronically transmitted to the
Custodian as provided in Section 3 or (z) when written or electronic directions
cannot reasonably be given within the relevant time period, orally when
3
<PAGE> 4
the person giving such direction assures the Custodian that the directions will
be confirmed in writing by an Authorized Persons within twenty-four (24) hours
and (ii) states that such payment is for a purpose permitted under the terms of
this subsection A. Contemporaneously with the execution of this Agreement, the
Fund is furnishing to the Custodian a list of approved bank accounts to which
funds may be wired pursuant to this subsection A if the Officers' Certificates
do not contain such information. The Custodian shall not make any
disbursements nor wire any funds to any account not shown on such list unless
the Custodian shall first have received an Officers' Certificate specifically
amending such list to include such account. The Custodian shall not make any
payment pursuant to paragraph 1(e) of this subsection A unless the Custodian
shall first have received an Officers' Certificate 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 corporate purpose, and naming the person
or persons to whom such payment is to be made. Receipt of an Officer's
Certificate or written notice from an Authorized Person shall be deemed to
establish that payment of cash pursuant to such direction is for a valid
corporate purpose.
3. All funds received by the Custodian in
connection with the sale, transfer, exchange or loan of Assets will be credited
to the Account in immediately available funds as soon as reasonably possible on
the date such received funds are immediately available. Payments for purchase
of Assets for the Account made in immediately available funds will be charged
against the Account on the day of delivery of such Assets and all other
payments will be charged on the business day after the day of delivery.
B. The Custodian is hereby authorized and required to
(a) collect on a timely basis all income and other payments with respect to
Assets held hereunder to which the Fund shall be entitled either by law or
pursuant to custom in the securities business, and to credit such income to the
Account, (b) detach and present for payment all coupons and other income items
requiring presentation as and when they become due, (c) collect interest when
due on Assets held hereunder, and (d) endorse and collect all checks, drafts or
other orders for the payment of money received by the Custodian for the account
of the Fund.
C. If the Custodian agrees to advance cash or securities
of the Custodian for delivery on behalf of the Fund to a third party, any
property received by the Custodian on behalf of the Fund in respect of such
delivery shall serve as security for the Fund's obligation to repay such
advance until such time as such advance is repaid, and, in the case where such
advance is extended for the purchase of Assets which constitute "margin
4
<PAGE> 5
stock" under Regulation U of the Board of Governors of the Federal Reserve
System, such additional Assets of the Fund, as shall be necessary for the
Custodian, in the Custodian's reasonable determination, to be in compliance
with such Regulation U also shall constitute security for the Fund's obligation
to repay such advance. The Fund hereby grants the Custodian a security
interest in such property of the Fund to secure such advance and agrees to
repay such advance promptly without demand from the Custodian (and in any
event, as soon as reasonably practicable following any demand by the
Custodian), unless otherwise agreed by both parties. Should the Fund fail to
repay such advance as required, the Custodian shall be entitled immediately to
apply such security to the extent necessary to obtain repayment of the advance,
subject, in the case of Fund failure to make prompt repayment without demand,
to prior notice to the Fund.
Section 5. Receipt of Other Assets.
The Custodian shall hold in the Account, segregated at all
times from those of any other persons, firms or corporations, pursuant to the
provisions hereof, all Assets received by it from or for the account of the
Fund. All such Assets are to be held or disposed of by the Custodian for, and
subject at all times to the instructions of, the Fund pursuant to the terms of
this Agreement. The Custodian shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any of the Assets, except pursuant
to the directive of the Fund and only for the account of the Fund as set forth
in Section 7 of this Agreement.
The Custodian and its agents (including foreign
sub-custodians) may make arrangements with Depository Trust Fund ("DTC") and
other foreign or domestic depositories or clearing agencies, including the
Federal Reserve Bank and any foreign depository or clearing agency, whereby
certain Assets may be deposited for the purpose of allowing transactions to be
made by bookkeeping entry without physical delivery of such Assets, subject to
such restrictions as may be agreed upon by the Custodian and the Fund. No
foreign depository or clearing agency may be used by the Custodian for such
purposes without the approval of the Fund evidenced by an Officers' Certificate
unless such foreign depository or clearing agency is an "eligible foreign
custodian" (within the meaning of Rule 17f-5 under the Investment Company Act
of 1940) or by appropriate regulatory proceedings has received permission from
the Securities and Exchange Commission to be treated as an "eligible foreign
custodian" for purposes of such Rule. The Custodian shall immediately commence
procedures to replace Assets lost due to robbery, burglary or theft while such
securities are within its
5
<PAGE> 6
control or that of its agents or employees upon discovery of such loss.
Section 6. Foreign Sub-custodians and Other Agents.
(a) It is understood and agreed that the Custodian will
hold the Fund's Assets through sub-custodians located in the foreign
jurisdictions described in Exhibit A and such additional foreign jurisdictions
as may be agreed to in writing by the Custodian and the Fund. The foreign
sub-custodians set forth in Exhibit A shall be the initial sub-custodians for
the corresponding foreign jurisdictions. The Custodian may replace the foreign
sub-custodian for any foreign jurisdiction, shall select the new
sub-custodian(s) for each new foreign jurisdiction added to Exhibit A and may
appoint (and at any time remove) any other entity as its agent to carry out the
provision of this Agreement; provided, however, that any such sub-custodian or
other agent shall be approved by an Officer's Certificate, such approval not to
be unreasonably withheld; and provided further that in no event shall the
Custodian appoint any such sub-custodian unless such sub-custodian is an
"eligible foreign custodian" (within the meaning of Rule 17f-5 under the
Investment Company Act of 1940) or by appropriate regulatory proceedings has
received permission from the Securities and Exchange Commission to be treated
as an "eligible foreign custodian" for purposes of such Rule or the Fund
otherwise agrees in writing. No approval by the Fund of any sub-custodian or
other agent of the Custodian shall exempt the Custodian from using reasonable
care and diligence in selecting such sub-custodian or other agent or relieve
the Custodian of its responsibilities or liabilities hereunder.
The Custodian agrees further that in placing Assets with any
such foreign sub-custodian, it will enter into a written sub-custodian
agreement which shall provide that: (i) the Custodian will be adequately
indemnified and the Assets so placed adequately insured in the event of loss,
as provided in part (b) of this section; (ii) the Assets will not be subject to
any right, charge, security interest, lien or claim of any kind in favor of the
foreign sub-custodian or its creditors (except any claim for payment for the
services provided by such sub-custodian and any related expenses; provided,
however that the Custodian shall use its best efforts promptly to release any
such right, charge, security interest, lien or claim on the assets, except to
the extent such right, charge, security interest, lien or claim arises with
respect to a special request or requirement by the Fund for services the cost
of which and the expenses incurred in connection with which the Fund has not
paid or has declined to pay, it being agreed and understood that, in the
ordinary course, all payments for usual and routine services rendered and
expenses
6
<PAGE> 7
incurred by a sub-custodian shall be the obligation of the Custodian); (iii)
beneficial ownership of the Assets will be freely transferable without payment
of money or value other than for safe custody or administration; (iv) adequate
records will be maintained identifying the Assets as belonging to the Fund; (v)
the Custodian's independent public accountants will be given access to those
records or the confirmation of the contents of those records; and (vi) the
Custodian will receive periodic reports with respect to the safekeeping of the
Assets, including, but not necessarily limited to, notification of any transfer
to or from the Account.
(b) In addition to the indemnities included in Section 13
hereof, the Custodian agrees to indemnify and hold harmless the Fund from any
and all loss or damage incurred or suffered by the Fund as a result of
placement by the Custodian of Assets with a foreign sub-custodian hereunder, to
the extent the Custodian receives indemnification from such foreign
sub-custodian pursuant to part (a)(i) of this section.
(c) With respect to any Assets to be placed with foreign
sub-custodians pursuant to this section, the Custodian represents and warrants
that during the term of this Agreement it will carry Bankers Blanket Bond or
similar insurance for losses incurred as a result of such sub-custodial
arrangements.
(d) The Fund authorizes the Custodian to release any and
all information regarding Assets placed with foreign sub-custodians hereunder
as may be required by court order of a court of competent jurisdiction.
Section 7. Transfer, Exchange and Redelivery of Assets.
The Custodian (or a sub-custodian or any other agent of the
Custodian) shall have sole power to release or deliver any Assets of the Fund
held by the Custodian (or such sub-custodian or agent) pursuant to this
Agreement. The Custodian agrees (and will obtain an undertaking from each
sub-custodian or other agent) that Assets held by the Custodian (or by a
sub-custodian or other agent of the Custodian) will be transferred, exchanged
or delivered only (a) for sales of securities for the account of the Fund in
accordance with (i) "New York Street Practice", (ii) predominant established
practice in the relevant local market, or (iii) specific instructions from the
Fund; or (b) when Assets are called, redeemed or retired or otherwise become
payable; (c) for examination by any broker selling any such securities in
accordance with "street delivery" custom or other relevant local market
practice; (d) in exchange for or upon conversion into other Assets whether
pursuant to any plan of merger, consolidation, reorganization, recapitalization
or readjustment, or
7
<PAGE> 8
otherwise; (e) upon conversion of such Assets pursuant to their terms into
other Assets; (f) upon exercise of subscription, purchase or other similar
rights represented by such Assets pursuant to their terms; (g) for the purpose
of exchanging interim receipts or temporary securities for definitive
securities; (h) for the purpose of tendering Assets; (i) for the purpose of
delivering Assets lent by the Fund; (j) for purposes of delivering collateral
upon redelivery of Assets lent or for purposes of delivering excess collateral;
or (k) for other proper Fund purposes. As to any deliveries made by Custodian
pursuant to items (b), (d), (e), (f), (g), (i), (j) and (k), Assets in exchange
therefor shall be deliverable to the Custodian (or a sub-custodian or other
agent of the Custodian). The Custodian may rely upon any written, electronic
or oral instructions or an Officers' Certificate relating thereto as provided
for in Sections 3 and 4 above.
Section 8. The Custodian's Acts Without Instructions.
Unless and until the Custodian receives instructions to the
contrary, the Custodian (or a sub-custodian or other agent of the Custodian)
shall:
(a) present for payment all coupons and other income items
held by it for the account of the Fund which call for payment upon presentation
and hold the cash received by it upon such payment in the Account; (b) collect
interest and cash dividends and other distributions, provide notice to the Fund
of receipts, and deposit to the Account; (c) hold for the account of the Fund
all stock dividends, rights and similar securities issued with respect to any
Assets held by the Custodian under the terms of this Agreement; (d) execute as
agent on behalf of the Fund all necessary ownership certificates required by
the Internal Revenue Code or the Income Tax Regulations of the United States
Treasury Department, the laws of any State or territory of the United States,
or, in the case of Assets held through foreign sub-custodians, the laws of the
jurisdiction in which such Assets are held, now or hereafter in effect,
inserting the Fund's name on such certificates as the owner of the Assets
covered thereby, to the extent it may lawfully do so; (e) use its best efforts,
in cooperation with the Fund, to file such forms, certificates and other
documents as may be required to comply with all applicable laws and regulations
relating to withholding taxation applicable to the Assets; and (f) use its best
efforts to assist the Fund in obtaining any refund of local taxes to which the
Fund may have a reasonable claim. The Fund agrees to furnish to the Custodian
such information and to execute such forms and other documents as the Custodian
may reasonably request or as otherwise may be reasonably necessary in
connection with the Custodian's performance of its obligations under clauses
(e) and (f).
8
<PAGE> 9
Section 9. Registration of Securities and Other Assets.
Except as otherwise directed by an Officers' Certificate, the
Custodian shall register all securities and other Assets, except such as are in
bearer form, in the name of the Fund or a registered nominee of the Fund or a
registered nominee of the Custodian or a sub-custodian. Securities and other
Assets deposited with DTC or a foreign securities depository permitted under
Section 5 may be registered in the nominee name of DTC or such foreign
securities depository. The Custodian shall execute and deliver all such
certificates in connection therewith as may be required by the applicable
provisions of the Internal Revenue Code, the laws of any State or territory of
the United States, or, in the case of Assets placed with foreign
sub-custodians, the laws of the jurisdiction in which such Assets are held.
The Custodian shall maintain such books and records as may be necessary to
identify the specific Assets held by it hereunder at all times.
The Fund shall from time to time furnish the Custodian
appropriate instruments to enable the Custodian to hold or deliver in proper
form for transfer, or to register in the name of its registered nominee, any
Assets which it may hold for the account of the Fund and which may from time to
time be registered in the name of the Fund.
Section 10. Voting and Other Action.
Neither the Custodian nor any nominee, sub-custodian or other
agent of the Custodian or of DTC or any foreign securities depository shall
exercise any voting rights attributable to the Assets held hereunder by or for
the account of the Fund except in accordance with the instructions contained in
an Officers' Certificate.
The Custodian shall use its best efforts, in cooperation with
the Fund to obtain and deliver (or have obtained and delivered) to the Fund all
notices, proxies and proxy soliciting materials with relation to such Assets,
such proxies to be executed by the registered holder of such Assets (if
registered otherwise than in the name of the Fund), but without indicating the
manner in which such proxies are to be voted.
Section 11. Transfer Tax and Other Disbursements.
The Fund shall pay or reimburse the Custodian from time to
time for any transfer taxes payable upon transfers of Assets made hereunder and
for all other necessary and proper disbursements and expenses made or incurred
by the Custodian in the performance of this Agreement, as required by U.S. law
or the
9
<PAGE> 10
laws of the jurisdiction in which the Assets are held, as the case may be.
The Custodian shall use its best efforts, in cooperation with
the Fund, to execute and deliver such forms, certificates and other documents
in connection with Assets delivered to it or by it under this Agreement as may
be required under the laws of any jurisdiction to exempt from taxation any
exemptible transfers and/or deliveries of any such Assets and shall use its
best efforts to assist the Fund in any other manner which the Fund may
reasonably request in order to establish any such exemption or to obtain a
refund of any such tax.
Section 12. Compensation and the Custodian's Expenses.
The Custodian shall be compensated for its services hereunder
as shall be agreed upon in writing by the parties from time to time and for all
other expenses incurred by the Custodian in the exercise of its duties
hereunder. Such compensation shall be payable by the Fund to the Custodian
promptly following receipt by the Fund of an invoice and any other appropriate
documentation.
If the Custodian submits an invoice and the Fund has requested
further information or documentation with respect to one or more items in the
invoice, the Fund shall nonetheless promptly make payment with respect to those
items for which the Fund has made no such request.
Section 13. Liability of Custodian: Indemnification.
The Custodian shall be liable for and shall indemnify the Fund
for, and hold the Fund harmless from and defend the Fund against, any loss,
damage, cost, judgment, expense or any other liability (including, but not
limited to, the Fund's reasonable legal fees and expenses and any other
reasonable legal fees and expenses which the Fund incurs or for which the Fund
is otherwise liable) incurred by the Fund directly related to or arising from
(a) the failure of the Custodian to act as provided in specific, unambiguous
and complete instructions, relating to the movement of cash or securities of
the Fund (including for these purposes all instructions in "SWIFT") or in
connection with a so called "corporate rights" matter, timely received by the
Custodian in the manner required hereunder, from an Authorized Person or such
person as otherwise provided herein or (b) any negligent act or negligent
failure to act of the Custodian under this Agreement. The Custodian shall not
be liable to the Fund for acting in accordance with the Fund's directions and
instructions or for the acts, omissions, lack of financial responsibility, or
failure to perform its obligations of (i) any person or organization
10
<PAGE> 11
designated by the Fund to be the authorized agent of the Fund as a party to any
transaction or (ii) DTC, any Federal Reserve Bank, any foreign securities
depository or any other United States or foreign depository in connection with
any book entry system that the Custodian is required to use in accordance with
local market practice. The Fund agrees to indemnify the Custodian for, and
hold the Custodian harmless from and defend the Custodian against, any loss,
damage, cost, judgment, expense, or any other liability (including, but not
limited to, the Custodian's reasonable legal fees and expenses or any other
reasonable fees and expenses which the Custodian incurs or for which the
Custodian is otherwise liable) incurred by the Custodian directly relating to
or arising from actions taken pursuant to instructions from an Authorized
Person or such person as otherwise provided herein; provided, however, that the
Custodian shall not be indemnified if it fails to act in accordance with
specific, unambiguous, and complete instructions of the Fund or is negligent
with respect to the manner in which it carries out its obligations hereunder.
As to legal matters which may arise in connection with its following
instructions or otherwise carrying out its obligations hereunder, the Custodian
shall, in exercising its reasonable judgment in the performance of its duties
hereunder, be entitled to receive and act upon the prior advice of counsel and
shall be without liability to the Fund for any action taken or not taken or
other thing done or not done in good faith in reliance upon such advice,
including its determination to decline to follow the Fund's directions and
instructions.
Within a reasonable time after receipt by a party of notice of
the commencement of any action for which such party (the "Indemnified Party")
may seek indemnity, the Indemnified Party will notify the other party (the
"Indemnifying Party") in writing of the commencement thereof; and the omission
so to notify the Indemnifying Party will not relieve the Indemnifying Party
from any liability hereunder as to the particular item for which
indemnification is then being sought, except to the extent that the omission
results in a failure of actual notice to the Indemnifying Party and the
Pndemnifying Party is damaged solely as a result of such failure to give
notice. In case any such action is brought against an Indemnified Party, and
it notifies the Indemnifying Party of the commencement thereof, the
Indemnifying Party will be entitled to participate therein, and to assume the
defense thereof, with counsel who shall be to the reasonable satisfaction of
the Indemnified Party, and after notice from the Indemnifying Party of such
party's election so to assume the defense thereof, the Indemnifying Party will
not be liable to the Indemnified Party for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation.
11
<PAGE> 12
The Indemnifying Party shall not be liable to the Indemnified Party on account
of any settlement of any claim or action effected without the consent of the
Indemnifying Party.
Section 14. Reports by the Custodian.
The Custodian shall furnish the Fund with such reports
concerning transactions in the Account and/or the Assets as may be agreed upon
from time to time. The books and records of the Custodian pertaining to its
actions under this Agreement shall be open to inspection and audit at
reasonable times and upon reasonable notice to the Custodian, by officers of
and auditors employed by the Fund (and such other persons as the Fund may
designate from time to time). All such books and records shall be the property
of the Fund and the Custodian shall forthwith upon the Fund's request, turn
over to the Fund and cease to retain in its files, records and documents
created and maintained by the Custodian pursuant to this Agreement, which are
no longer needed by the Custodian in performance of its services or for its
protection.
Section 15. Termination and Assignment.
This Agreement may be terminated by the Fund or the Custodian,
immediately upon written notice from the Fund or the Custodian, as applicable,
to the other party, if the other party fails materially to perform its
obligations hereunder, and may otherwise be terminated by the Fund or by the
Custodian on one hundred eighty (180) days' notice, given in writing and sent
by registered mail to the Custodian or the Fund as the case may be. Upon
termination of this Agreement, the Custodian shall deliver the Assets of the
Fund to such entity as is designated in writing by the Fund and in the absence
of such a designation may, but shall not be obligated to, deliver them to a
bank or trust company of the Custodian's own selection having an aggregate
capital, surplus and undivided profits as shown by its last published report of
not less than 50 million dollars ($50,000,000), the Assets to be held by such
bank or trust company for the benefit of the Fund under terms similar to those
of this Agreement and the Fund to be obligated to pay to such transferee the
then current rates of such transferee for services rendered by it; provided,
however, that the Custodian may decline to transfer such amount of such Assets
equivalent to all fees and other sums owing by the Fund to the Custodian
(except for such out-of-pocket expenses as are described in Section 12 hereto),
and the Custodian shall have a charge against and security interest in such
amount until all monies owing to it have been paid, or escrowed to its
satisfaction.
12
<PAGE> 13
This Agreement may not be assigned by the Custodian without
the consent of the Fund, authorized or approved by a resolution of the Fund's
Board of Directors.
Section 16. Force Majeure.
The Custodian shall not be liable or accountable for any loss
or damage resulting from any condition or event beyond its reasonable control;
provided, however, that the Custodian shall promptly use its best efforts to
mitigate any such loss or damage to the Fund as a result of any such condition
or event. For the purposes of the foregoing, the actions or inactions of the
Custodian's sub-custodians and other agents shall not be deemed to be beyond
the reasonable control of the Custodian. In connection with the foregoing, the
Custodian agrees (and agrees that it will use its best efforts to obtain the
undertaking of its sub-custodians and other agents to the effect) that the
Custodian (and/or such sub-custodian or agent) shall maintain such alternate
power sources for computer and related systems and alternate channels for
electronic communication with such computers and related systems that the
failure of the primary power source and/or communications channel of the
Custodian (and/or its sub-custodians or other agents) will not foreseeable
result in any loss or damage to the Fund.
Section 17. Third Parties.
This Agreement shall be binding upon and the benefits hereof
shall inure to the parties hereto and their respective successors and assigns.
However, nothing in this Agreement shall give or be construed to give or confer
upon any third party any rights hereunder.
Section 18. Amendments.
The terms of this Agreement shall not be waived, altered,
modified, amended, supplemented or terminated in any manner whatsoever, except
by written instrument signed by both of the parties hereto.
Section 19. Sweep Authorization.
The Bank will automatically invest cash in money market funds
or repurchase agreements made available by the Bank and authorized by Customer.
Section 20. Governing Law.
This Agreement shall be governed and construed in accordance
with the laws of The Commonwealth of Massachusetts.
13
<PAGE> 14
Section 21. Counterparts.
This agreement may be executed in several counterparts, each
of which is an original.
Section 22. Notices.
All notices provided for herein shall be in writing and shall
become effective when deposited in the United States mail, postage prepaid and
certified, addressed (a) if to the Custodian, at BankBoston, N.A., 150 Royall
Street - Mail Stop: 45-02-22, Canton, MA 02021, Attention: Manager, Worldwide
Custody, and, (b) if to the Fund, at 2010 North First Street, Suite 310, San
Jose, CA 95131, Attention: Ronald W. Swenson, or to such other address as
either party may notify the other in writing.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first written above.
VENTURE LENDING & LEASING II, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
BANKBOSTON, N.A.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
14
<PAGE> 15
EXHIBIT A
BANKBOSTON, N.A.
WORLDWIDE CUSTODY
Agent Bank List
NONE
<PAGE> 16
ADDENDUM NO. 1 TO
CUSTODIAN AGREEMENT
DOCUMENT CUSTODY SERVICE
FOR
VENTURE LENDING & LEASING II, INC. (VLLI II)
This Addendum supplements and constitutes a part of the Custodian Agreement
made by and between VLLI II (the "Customer") and The BankBoston, N.A. (the
"Bank") dated _____________________, 1997.
WHEREAS, the Customer has need for certain document custody services which the
Bank is willing and able to provide;
NOW, THEREFORE, in consideration of mutual promises herein made, the Customer
and the Bank agree as follows:
A. The Bank will provide physical safekeeping of documents
executed in connection with loans, leases, and installment
sales contracts held within custodial accounts and
subaccounts;
B. The Bank shall review each document received from or on behalf
of the Customer in accordance with instructions provided by
the Customer from time to time for that purpose;
C. The Bank shall notify the Customer of any missing, incomplete,
or inconsistent documents by means agreeable to Customer and
the Bank. The Customer may deposit such missing documents or
complete or correct the documents as may be specified in
instructions of record.
D. The Bank will release and deliver said documents pursuant to
Customer's direction and instruction as required.
In carrying out the foregoing services, the Bank will use reasonable care in
accordance with standard customs adhered to by banks that act as document
custodians under similar circumstances and conditions.
<PAGE> 17
ADDENDUM NO. 2 TO
CUSTODIAN AGREEMENT
PORTFOLIO ACCOUNTING SERVICES
FOR
VENTURE LENDING & LEASING II, INC. (VLLI II)
This Addendum supplements and constitutes a part of the Custodian Agreement
made by and between VLLI II (the "Customer") and The BankBoston, N.A. (the
"Bank") dated ____________________, 1997.
WHEREAS, the Customer has need for certain accounting and pricing services for
the separate Fund portfolios (the "Portfolios") which the Bank is willing and
able to provide in conjunction with the services as Custodian as aforesaid;
NOW, THEREFORE, in consideration of the mutual promises herein made, the
Customer and the Bank agree as follows:
Section 1. Duties of Bank - General
The Bank is authorized to act under the terms of this Agreement as the Fund's
agent, and as such the Bank will:
a. Maintain and preserve accounts, books, records and other
documents as are required of the Fund under Section 64 of the
Investment Company Act of 1940;
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
the Fund's net asset value;
c. Render such statements or copies of records as are required or
from time to time are reasonably requested by the Fund; and
such other information as the Fund may reasonably request and
that the Bank is in a position to reasonably provide;
d. Facilitate audits of accounts by the Fund's auditors or by any
other auditors employed or engaged by the Fund or by any
regulatory body with jurisdiction over the Fund;
e. Compute the net asset value per share of each Portfolio as of
the time or times specified in the Fund's then-current
offering memorandum or as directed by Board Resolution.
<PAGE> 18
Section 2. Valuation of Securities
Securities will be valued in accordance with the specific provisions of the
Fund's offering memorandum or as directed by Board Resolution.
The Bank will use one or more external pricing services as authorized by the
Customer from time to time. The Bank shall not be liable for any loss, cost,
damage, claim or other matter incurred by or assessed against the Fund,
regardless of how characterized, based on or resulting form the inaccuracy or
other deficiency in any information or data provided to the Bank by Customer or
such vendor and used by the Bank in the performance of its services hereunder
so long as the Bank will use reasonable efforts to assess the accuracy of such
information or data.
Section 3. Computation of Net Asset Value, Public Offering Price Performance
Information
The Bank will compute the net asset value per share of each Portfolio in a
manner consistent with the specific provisions of the Fund's offering
memorandum or as directed by Board Resolution. In general, such computation
will be made by dividing the value of the Fund's portfolio securities, cash and
any other assets, less its liabilities, by the number of shares of the Fund
outstanding. Such computation will be made as of the time or times and on the
days specified in the Fund's then-current offering memorandum or as directed by
Board Resolution.
Section 4. Bank's Reliance on Instructions and Advice
In maintaining the Fund's books of account and making the necessary
computations, the Bank shall be entitled to receive, and may rely upon,
information furnished it by any person certified to the Bank as being
authorized by the Board of Directors of the Fund relating to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Fund;
b. The source of quotations to be used for such securities as may
not be available through the Bank's normal pricing services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the net asset
value and such other computations as may be necessary;
2
<PAGE> 19
e. Notification of transactions in portfolio securities.
3
<PAGE> 1
SCHEDULE A
BANKBOSTON, N.A.
================================================================================
================================================================================
STOCK TRANSFER AGENT SERVICES
FEE AGREEMENT
FOR
VENTURE LENDING & LEASING II, INC.
A. TERM:
The term of this Agreement shall be for a period of three (3) YEARS,
commencing from the effective date of this Agreement, ______, 1997.
This Agreement shall be self renewing, and providing that service mix
and volumes remain constant, the final year's fees listed under the
Fees for Standard Services section shall be Increased by the
accumulated change in the National Employment Cost Index for Service
Producing Industries (Finance, Insurance, Real Estate) for the
preceding years of the contract, as published by the Bureau of Labor
Statistics of the United States Department of Labor. Fees will be
increased on this basis on each successive contract anniversary
thereafter.
B. FEES:
==================================================
$ 834.00 MONTHLY STOCK TRANSFER FEE
==================================================
Base Fee includes all services below. Limitations and additional
services are indicated with additional charges as noted.
C. STANDARD SERVICES:
BankBoston, N.A. ("BankBoston") agrees to provide the following
services to Venture Lending and Leasing II, Inc. ("Venture Lending
II") In accordance with the standard fees set forth In Section B
herein above.
ACCOUNT MAINTENANCE:
1. Annual administrative services as Transfer Agent
2. Annual administrative services as Registrar
3. Maintaining shareholder accounts, Including processing of new
accounts
4. Posting and acknowledging address changes and processing other
routine file maintenance adjustments
<PAGE> 2
VENTURE LENDING & LEASING II, INC.
PAGE 2
5. Posting all transactions, including debit and credit certificates to
the stockholder file
6. Researching and responding to all stockholder Inquiries
CERTIFICATE ISSUANCE SERVICES
7. Certificate issuance, cancellation and registration
8. Daily Transfer Reports
9. Processing window items, mail Items and all legal transfers
10. Combining certificates Into large denominations
11. Processing Indemnity Bonds and replacing lost certificates
12. Maintaining stop-transfers, Including the placing and removing of same
MAILING, REPORTING AND MISCELLANEOUS SERVICES
13. Addressing and enclosing Quarterly Reports, three (3) per annum for
registered shareholders
14. Preparing a full Statistical Report to reflect shareholder base by
geographic residence code, class code, and share group, four (4) per
annum
15. Preparing a full stockholder list, four (4) per annum
16. Coding "multiple" accounts at a single household to suppress mailing
of reports to same
ANNUAL MEETING SERVICES
17. Preparing a full stockholder list as of the Annual Meeting Record Date
18. Administrative coordination in connection with Proxy Material
Distribution
19. Addressing proxy cards
20. Enclosing proxy card along with notice and statement, return envelope
and Annual Report via Bipak envelope
21. Receiving, opening and examining returned proxies
22. Writing In connection with unsigned or improperly executed proxies
23. Providing summary reports on status of tabulation on a daily basis
24. Responding to inquiries as to whether specific accounts have
yet voted
25. Tabulating returned proxies
26, Preparing a final Annual Meeting List reflecting how each account has
voted on each proposal
27. Attending Annual Meeting as Inspector of Election
ABANDONED PROPERTY REPORTING SERVICES;
28. Preparing an Abandoned Property Report, one (1) per annum
<PAGE> 3
VENTURE LENDING & LEASING II, INC.
PAGE 3
29. Preparing a set of labels, one (1) per annum
DIVIDEND SERVICES
As Dividend Disbursing Agent and Paying Agent (checks to be drawn on BankBoston
and funds immediately available in-house on mailing date), BankBoston, N.A.
will perform the following dividend related services:
30. Preparing and mailing quarterly dividends (check includes address
change feature) with an additional enclosure with each dividend check
31. Preparing a hardcopy dividend list as of each dividend record date
32. Preparing and filing Federal Information Returns (Form 1099) of
dividends paid in a year and mailing a statement to each stockholder
33. Preparing and filing State Information Returns of dividends paid in a
year to stockholders resident within such state
34. Preparing and filing annual withholding return (Form 1042) and
payments to the government of income taxes withheld from Non-Resident
Aliens
35. Replacing lost dividend checks
36. Providing photocopies of canceled checks when requested
37. Reconciling paid and outstanding checks
38. Coding "undeliverable" accounts to suppress mailing dividend checks to
same
39. Processing and recordkeeping of accumulated uncashed dividends
40. Furnishing requested dividend information to stockholders
41. Performing the following duties as required by the Interest and
Dividend Tax Compliance Act of 1983:
- Withholding tax from shareholder accounts not in compliance with
the provisions of the Act
- Reconciling and reporting taxes withheld, Including additional
1099 reporting requirements to the Internal Revenue Service
- Responding to shareholder Inquiries regarding the Regulations
- Mailing to new accounts, who have had taxes withheld, to inform
them of procedures to be followed to curtail subsequent back-up
withholding
- Annual mailing to pre-1984 accounts which have not yet been
certified
- Performing shareholder file adjustments to reflect certification
of accounts
D. CONVERSION OF RECORDS
BankBoston agrees to convert stockholder records as provided by
Venture Lending II.
E. ITEMS NOT COVERED
Items not included in the fees set forth in this Agreement for
"Standard Services" such as payment of a stock dividend or any
services associated with a special project are to be billed
separately, on an appraisal basis.
<PAGE> 4
VENTURE LENDING & LEASING II, INC.
PAGE 4
Services required by legislation or regulatory flat which become
effective after the date of this Agreement shall not be a part of
the Standard Services and shall be billed by appraisal.
All out-of-pocket expenses such as telephone line charges
associated with toll-free telephone calls, overprinting of proxy
cards, postage, insurance, stationery, facsimile charges, excess
material disposal, etc. will be billed as incurred.
Good funds to cover postage expenses in excess of $5,000 for
shareholder mailings must be received by BankBoston by 1:00 P.M.
EASTERN TIME on the scheduled mailing date. Postage expenses less
then $5,000 will be billed as incurred.
Overtime charges will be assessed in the event of late delivery of
material for mailings to shareholders unless the mall date is
rescheduled. Such material includes, but is not limited to: proxy
statements, annual and quarterly reports, dividend enclosures and
news releases. Receipt of material for mailing to by BankBoston's
Mail Unit must be in accordance with Shareholder Services' Schedule
of Required Material Delivery Time Frames published in November,
1990.
All services not specifically covered under this Agreement will be
billed in accordance with BankBoston's published Schedule of Fees,
or by appraisal, as applicable.
F. BILLING DEFINITION OF ACCOUNT MAINTENANCE
For billing purposes, number of accounts will be based on open
accounts on file at beginning of each billing period, plus any new
accounts added during that period.
G. TERMINATION
This Agreement is terminable by thirty (30) days written notice by
either party. If this Agreement is terminated by Venture Lending II
there will be a termination charge of 10% of the fees billed during
the preceding twelve (12) months (minimum charge $2,000.00); provided,
however, that if Venture Lending II terminates this Agreement
effective as of any self renewal date, Venture Lending II shall not be
charged more than the actual cost of transferring Venture Lending II's
records to a successor Transfer Agent or to Venture Lending II. This
charge will cover the coordination of BankBoston's termination process
and the cost of transferring Venture Lending II's records to a
successor Transfer Agent or to Venture Lending II.
H. PAYMENT FOR SERVICES
It is agreed that invoices will be rendered and payable on a monthly
basis. Each billing period will, therefore, be of one (1) month
duration.
<PAGE> 5
VENTURE LENDING & LEASING II, INC.
PAGE 5
I. CONFIDENTIALITY
The information contained in this Agreement is confidential and
proprietary in nature. By receiving this Agreement, Venture Lending
II. agrees that none of its directors, officers, employees, or agent
without the prior written consent of BankBoston will divulge, furnish
or make accessible to any third party, except as permitted by the next
sentence, any part of this Agreement or information in connection
therewith which has been or may be made available to it. In this
connection, Venture Lending II. agrees that it will limit access to
the Agreement and such information to only those officers or employees
with responsibilities for analyzing the Agreement and to such
independent consultants hired expressly for the purpose of assisting
in such analysis. In addition, Venture Lending II, agrees that any
persons to whom such information is properly disclosed shall be
informed of the confidential nature of the Agreement and the
information relating thereto, and shall be directed to treat the same
appropriately.
J. ASSIGNABILITY
The Bank may, without further consent on the part of Venture Lending
II, subcontract for the performance hereof with any entity with which
the Bank is affiliated, which entity is duly registered as a transfer
agent pursuant to Section 17A (c) (1) of the Securities Exchange Act
of 1934 provided however, that the Bank shall be as fully responsible
to the Company for the acts and omissions of any subcontractor as it
is for its own acts and omissions.
K. CONTRACT ACCEPTANCE
In witness whereof, the parties hereto have caused this Agreement to
be executed by their respective officers, hereunto duly agreed and
authorized, as of the effective date of this Agreement.
BANKBOSTON, N.A. VENTURE LENDING & LEASING II, INC.
By: /s/ COLLEEN SHEA KEATING By:
------------------------------- -------------------------------
Title: Administration Manager Title:
---------------------------- ----------------------------
Date: May 16, 1997 Date:
----------------------------- -----------------------------
<PAGE> 1
INTERCREDITOR AGREEMENT
This Intercreditor Agreement is made effective as of the
_____ day of ___________, 1997, by and between Venture Lending & Leasing, Inc.,
and Venture Lending & Leasing II, Inc., both Maryland corporations (referred to
herein jointly as "Lenders", and individually as a "Lender").
Recitals
A. Each Lender has entered into a separate Loan Agreement of
even date herewith (each, a "Loan Agreement") with _____________________, a
______________ corporation ("Borrower"), pursuant to which each Lender has
agreed, severally and not jointly, to make secured, term loans to Borrower up
to the amount of such Lender's Commitment. Pursuant to the Loan Agreements,
Borrower has executed or will execute for each Lender's benefit one or more
written security agreements, collateral assignments, pledge agreements and/or
chattel mortgages (collectively, the "Security Documents"), pursuant to which
Borrower grants to each Lender a security interest in certain now owned and
hereafter acquired personal property collateral described on Exhibit "A" to
this Agreement, as such Exhibit may be amended or supplemented from time to
time (the "Collateral"). Borrower has also executed or will execute one or more
Uniform Commercial Code financing statements in favor of each Lender, which
have been filed or will be filed with the Secretary of State of ___________ and
in other jurisdictions or offices.
B. This Agreement sets forth certain rights and duties of the
parties with respect to the Collateral, the parity of each Lender's security
interest in the Collateral and the products and proceeds thereof, and other
rights and obligations among the parties.
NOW, THEREFORE, in consideration of the mutual agreements and
covenants contained herein the parties agree as follows:
1. Definitions. Unless otherwise defined herein, each capitalized
term used in this Agreement has the meaning ascribed thereto in the Loan
Agreements. "Pro Rata" means, as to any Lender at any time, the percentage
equivalent at such time of such Lender's aggregate unpaid principal amount of
Loans, divided by the combined aggregate unpaid principal amount of all Loans
of both Lenders.
2. Priority of Security Interests. Notwithstanding any contrary
priority established by (a) the filing dates of their respective financing
statements, (b) the recording dates of any other security perfection documents,
or (c) which Lender has possession of any of the Collateral, the parties agree
that the Lien of each Lender in the Collateral perfected or to be perfected by
such Lender's Security Documents and financing statements shall be of equal
rank and priority to each other Lender's Lien in the same Collateral, and the
Lien of each Lender in the Collateral shall be deemed an undivided Pro Rata
security interest in all items of Collateral. The equality in priority and pari
passu nature of the Lenders' Liens specified in this Agreement are applicable
irrespective of: the time or order of attachment or perfection of security
interests; the time or order of filing of any Security Documents; or the time
of giving or failure to give notice of the acquisition or expected acquisition
of purchase money or other security interests. This Agreement applies only to
Liens held by Lenders to secure Loans and other advances made under the Loan
Agreements.
3. Effect of Lender's Nonperfection. The agreement herein as to
the equality in priority of Lenders' Liens is expressly conditioned upon the
perfection and nonavoidability of the Lien of each Lender. If the Lien of any
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<PAGE> 2
Lender is (i) determined by a court of competent jurisdiction to be avoidable
for any reason, or (ii) such Lender fails to timely perfect its Lien with
respect to all or any portion of the Collateral (or such perfection is not
maintained without lapse) and as a result thereof the priority of such Lender's
Lien becomes subordinate or junior to a perfected Lien in favor of a third
party under the Uniform Commercial Code or other applicable law, (such Lender
being referred to as an "Affected Lender"), then all losses by Affected Lender
from the Collateral (a "Loss") resulting from such failure to timely perfect or
maintain perfection or from such avoidability shall be borne solely by the
Affected Lender. In the event of any dispute between the Lenders as to the
amount of the Loss, the amount determined by the perfected Lender shall be
presumed correct unless and until rebutted by competent evidence presented by
the Affected Lender. The Affected Lender shall bear the burden of persuasion.
Notwithstanding anything to the contrary in this Section 3, if both Lenders'
Liens are perfected as to particular Collateral on the same day, then the
agreement herein as to the equality in priority of their Liens shall apply to
such Collateral.
4. Notices of Equal Priority. Any Security Document under the
Loan Agreement naming an individual Lender as secured party, collateral
assignee or mortgagee shall contain an unqualified statement in substantially
the following form:
"The security interests of [one Lender] and its successors
and assigns described herein are subject to a certain
Intercreditor Agreement dated ___________, 199_, among
Borrower, [Lender] and [the other Lender]."
Each Lender agrees to execute any and all financing statements, financing
statement amendments, notices and other documents reasonably deemed necessary
by any other Lender to establish and maintain the relative priority agreement
made herein as a matter of public record. Any financing statement in favor of
an individual Lender with respect to the Collateral shall include a statement
substantially as follows:
"Secured Party's security interest in the collateral covered
by this financing statement is subject to an Intercreditor
Agreement dated __________, 199_, among Debtor, Secured Party
and [other Lender]."
5. Lender as Bailee. Each Lender agrees that any time it receives
or otherwise is in possession of any Collateral, whether through foreclosure,
bankruptcy, insolvency proceedings or otherwise, such Collateral and any
proceeds thereof shall be received or held by such Lender as a bailee for the
other Lender for purposes of: maintaining the perfection of Lenders' security
interests in such Collateral; Pro Rata distribution between the Lenders; and
application to their respective claims against Borrower as provided herein and
in any other Loan Document.
6. Unanimity in Enforcement.
6.1 Lenders' Standstill. Without the prior written consent of
the other Lender, which consent shall not be withheld unreasonably (and which
withholding shall be deemed unreasonable if it would prevent the other Lender
from taking action which such Lender or its counsel deems commercially
reasonable under the Uniform Commercial Code or other applicable law), no
Lender shall collect, take possession of, foreclose upon, or exercise any
rights or remedies with respect to the Collateral or Borrower, judicially or
non-judicially, in order to satisfy or collect any Obligations owed in
connection with such Lender's Loan Agreement or attempt to do any of the
foregoing. Except as expressly limited by this Section 6, each Lender may
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2
<PAGE> 3
unilaterally exercise any rights and remedies under its Loan Documents,
including without limiting the generality of the foregoing, the cessation of
any future Loans to Borrower and the acceleration of then outstanding Loans
upon the occurrence of an Event of Default.
6.2 Enforcement Action. Upon default and acceleration of the
Loans by a Lender under applicable provisions of its Loan Agreement, such
Lender (the "Enforcing Lender") may, with the consent of the other Lender (as
required under Section 6.1), proceed with the enforcement of Lenders' rights
against the Collateral for the benefit of Lenders under the Loan Documents. Any
repossession, sale or distribution of proceeds of Collateral shall be
accomplished as required by this Agreement, the Loan Documents, and applicable
law. Effective upon receipt of such consent, the Enforcing Lender is authorized
to exercise all rights and remedies of Lenders under the Loan Documents (an
"Enforcement Action"). Unless the Enforcing Lender shall request further
guidance or consents, any direction by the other Lender to begin Enforcement
Action shall only state that the Enforcing Lender shall begin enforcement, and
shall not specify the manner in which enforcement should proceed. Once the
Enforcing Lender receives an enforcement direction from the other Lender, all
decisions as to how to proceed to enforce the Lenders' rights and remedies,
including, without limitation, the methods and timing of proceeding, may be
made by the Enforcing Lender in its good faith business judgment, with such
consultation with other Lender as Enforcing Lender in its sole discretion deems
reasonable under the circumstances. In the event of one or more foreclosure
sales, Enforcing Lender shall have the right to credit bid on behalf of all
Lenders in respect of their Loans and all other Obligations of Borrower under
the Loan Documents.
6.3 Acquisition of Collateral. If Collateral is acquired by a
Lender by foreclosure sale or otherwise, at the option of such Lender, title
may be taken in the name of such Lender or in the name of a corporation
affiliated with such Lender or other nominee designated by such Lender, in any
case, for the ratable benefit of both Lenders subject to the terms of this
Agreement. Each Lender shall consult with the other Lender as to the general
operation and disposition of any Collateral for which title has been acquired
through foreclosure or otherwise. Neither Lender shall withhold its consent
unreasonably in matters and decisions by the other Lender relating to the
management, operation, or repair of the Collateral so acquired.
6.4 Costs. The costs of repossession, sale, possession and
management (including, without limitation, any costs of holding any Collateral
the title to which is acquired by one Lender on behalf of the Lenders), and
distribution shall be borne Pro Rata by Lenders until repaid by Borrower. Each
Lender shall reimburse the other Lender, as applicable, for its Pro Rata share
of all such costs promptly upon demand. Without limiting any obligations of one
Lender to reimburse the other as contained herein, in the event of Borrower's
failure to pay taxes, assessments, insurance premiums, claims against the
Collateral or any other amount required to be paid by Borrower pursuant to any
Loan Documents, either Lender may (but shall not be obligated to) advance
amounts necessary to pay the same, and the other Lender agrees to reimburse
such Lender promptly upon demand for its Pro Rata share of any such payments.
6.5 Monitoring of Collateral, Risks and Standard of Care.
Whenever a Lender is acting as an Enforcing Lender it shall be acting for the
other Lender for purposes of convenience in enforcing the rights and remedies
of the Lenders arising after an Event of Default and, although such Enforcing
Lender shall have the right, it shall have no obligation to inspect or monitor
any Collateral or to determine whether any Default or Event of Default has
occurred under the other Lender's Loan Documents. The Enforcing Lender shall
not be responsible for the performance or observance of any term, covenant or
condition on the part of Borrower under the other Lender's Loan Documents.
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<PAGE> 4
Each Lender shall undertake such inspections or other monitoring of the
Collateral and Borrower's observance of the terms of such Lender's Loan
Documents as such Lender deems appropriate for its own purposes, and agrees
that it shall not be relying upon the other Lender for the same.
6.6 Relationship of Lenders. Neither the making of their
respective Commitments to Borrower, the execution of this Agreement, the Loan
Agreements or the other Loan Documents, nor any agreement to share any proceeds
or Collateral, nor any Lender acting as an Enforcing Lender is intended to be,
nor shall it be construed to be, the formation of a partnership or joint
venture between the Lenders or the creation of any express, implied or
constructive trust relationship between them. Lenders agree that neither is
acting as a trustee for the other.
6.7 Lender Cooperation. If either Lender obtains possession
of any Collateral (other than cash collateral received in payment of a Loan in
the ordinary course), such Lender shall hold such Collateral for the Pro Rata
benefit of both Lenders. Each Lender agrees to cooperate with each other Lender
in its efforts to realize upon Collateral and to exercise the rights of Lenders
under the Security Documents, including the execution of such instruments,
powers of attorney or other documents as an Enforcing Lender may require to
perform in such capacity.
6.8 Pro Rata Treatment. If at any time after the Loans shall
have been declared due and payable pursuant to the terms of the Loan
Agreements, either Lender shall obtain any payment (whether voluntary,
involuntary, by foreclosure, by application of setoff, or otherwise) of any
principal of or interest on its Loans in excess of its Pro Rata share of
payments ("Excess Payment") received by both Lenders on principal of and
interest on their Loans, then the Lender receiving such Excess Payment shall
make payments ("Sharing Payments") to the other Lender as shall result in both
Lenders receiving their Pro Rata share of payments; provided, however, that if
all or any portion of the Excess Payment is thereafter recovered from the
Lender who received it, then the Sharing Payments theretofore made by the
Lender to the other Lender shall be rescinded and returned to the extent
necessary so the Lenders shall have received the Pro Rata shares to which they
are entitled under the Loan Agreements and this Agreement. References to "Pro
Rata" in this Agreement shall mean "Pro Rata" after any adjustment required
under this Section.
7. Demand for Satisfaction Deemed Given. By executing this
Agreement, each Lender hereby demands of the other Lender satisfaction of its
indebtedness, if such demand is required under Section 9504(1)(c) of the
California UCC. The rights and duties of Lenders in any foreclosure situation
not addressed in this Agreement shall be determined by the provisions of
applicable California law.
8. Consents Under Security Documents. Without the prior written
consent of the other Lender, no Lender will consent to any material
modification, supplement or waiver under any of the Security Documents, or
release any Collateral or otherwise terminate any Lien under any of the
Security Documents, except that no such consent shall be required to release
any Lien covering property which is the subject of a disposition of property
permitted under both of the Loan Agreements.
9. Other Indebtedness of Borrower to Either Lender. Lenders agree
that the Security Documents and financing statements executed in connection
therewith shall provide and perfect security interests and liens in the
Collateral only to secure the Indebtedness of Borrower to Lenders as
contemplated under the Loan Documents even though Borrower may be indebted to
one or both Lenders on account of obligations existing prior to the execution
of the Loan Documents; and each Lender agrees not to make, after the date of
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this Agreement, any secured loans to Borrower which are not contemplated by the
Loan Agreements in their form as of the date hereof (without amendment or
modification thereof) without the prior written consent of the other Lender. In
addition, notwithstanding any provision of this Agreement to the contrary, this
Agreement is not intended to affect the priority of either Lender's security
interests in any specified items of Borrower's equipment which such Lender has
financed prior to the date of such party's Loan Documents. In furtherance, and
not by way of limitation, of the foregoing, such Lender will not share its
priority position or any proceeds of such equipment collateral with any other
Lender or any other party as a result of this Agreement.
10. General Provisions.
10.1 Binding Effect; Assigns. This Agreement shall be binding
on and inure to the benefit of the parties' respective successors and assigns,
each of whom shall have the right to assign and otherwise transfer all or any
portion of this Agreement or the benefits thereof; provided, that neither party
shall delegate or transfer any of its obligations or duties hereunder for any
reason (except as collateral security for a Lender's obligations for borrowed
money), without the prior written approval of the other party, which will not
be unreasonably withheld.
10.2 Entire Agreement. This Agreement represents the entire
understanding and agreement between the parties with respect to the subject
matter hereof, and supersedes and replaces all other agreements and
understandings, oral or written.
10.3 Notices. All notices, requests, consents and other
communications required or permitted under this Agreement shall be given in the
manner set forth in the Loan Agreements.
10.4 Validity. If any provision of this Agreement is contrary
to, prohibited by or deemed invalid under applicable law or regulation, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated
thereby and shall be given full force and effect so far as possible, provided
that no such severability of provisions shall be effective if it materially
changes the economic benefit of this Agreement to any party.
10.5 Governing Law; Captions. This Agreement shall in all
respects be governed, interpreted and construed by the laws of the State of
California[, excluding its conflict of law rule]. Captions where used herein
are solely for convenience and shall not be deemed to affect in any manner the
meaning or intent of this Agreement or any provision hereof.
10.6 Amendments. This Agreement (including any schedule or
exhibit hereto) may be modified or amended only by a writing signed by both
Lenders.
10.7 Attorneys' Fees. If the services of an attorney are
engaged by any party to secure the payment or performance of this Agreement or
otherwise upon the breach or default of another party to this Agreement, or if
any judicial remedy or arbitration is necessary to enforce or interpret any
provision of this Agreement or the rights and duties of any person in relation
thereto, the prevailing party shall be entitled to reasonable attorneys' fees,
costs and other expenses, in addition to any other relief to which such party
may be entitled. The "prevailing party" shall be determined based upon an
assessment by the court or arbitrator of which party's major arguments made or
positions taken in the action or proceedings fairly could be said to have
prevailed over the other party's major arguments or positions on major disputed
issues in the decision or award. Any award of damages following judicial remedy
or arbitration as a result of the breach of this Agreement or
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any of its provisions shall include an award of prejudgment interest from the
date of the breach at the lower of 10% per annum or the maximum amount of
interest allowed by law.
10.8 Counterparts. This Agreement may be executed in any
number of counterparts and by facsimile with the same effect as if the parties
had all signed the same document in ink. All counterparts shall be construed
together and shall constitute one agreement.
10.9 No Third Party Benefit. This Agreement is not intended
to and shall not confer upon any third party any rights or benefits, and is
made solely for the benefit of Lenders.
IN WITNESS WHEREOF, the parties have executed this
Intercreditor Agreement as of the date first above written.
LENDERS:
VENTURE LENDING & LEASING, INC.
By:
---------------------------------
Its:
---------------------------------
VENTURE LENDING & LEASING II, INC.
By:
---------------------------------
Its:
---------------------------------
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Consent of Borrower
Borrower hereby approves of, agrees and consents to all of
the terms and provisions of the foregoing Intercreditor Agreement, agrees to be
bound thereby, and further agrees that any default or event of default by
Borrower under any present or future instrument or agreement between Borrower
and one Lender (which is not waived in writing by such Lender) shall constitute
an immediate default and event of default under all present and future
instruments and agreements between Borrower and the other Lender. Borrower
further agrees that the foregoing Agreement, in and of itself, shall not give
Borrower any rights against any Lender individually or in its capacity as
bailee or collateral agent for the other Lender, and, at any time and from time
to time, the foregoing Agreement may be altered, modified or amended by Lenders
without notice to or the consent of Borrower.
[BORROWER]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
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