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
GRIFFIN INDUSTRIES, INC,
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(Exact name of registrant as specified in charter)
MARYLAND 91-1869317
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 THIRD AVENUE, SUITE 2500
SEATTLE, WASHINGTON 98101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (206) 326-8090
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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)
INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. BUSINESS
(a) General Development of Business
GENERAL. Griffin Industries, Inc. ("Griffin", "Company" or "Issuer"), a
Maryland corporation, is a non-diversified closed-end management investment
company which has filed a notice of election to be regulated as a business
development company ("BDC") under the Investment Company Act of 1940 ("1940
Act"). The Company was incorporated on October 14, 1997. The Company has not
conducted any operations to date. Its principal office is located at 1111 Third
Avenue, 25th Floor, Seattle, Washington, 98101 and its telephone number is (206)
326-8090. The Company has been organized to provide investors with the
opportunity to participate with a modest amount in venture capital investments
that are generally not available to the public and that typically require
substantially larger financial commitments. In addition, the Company will
provide professional management and administration that might otherwise be
unavailable to investors if they were to engage directly in venture capital
investing. The Company has recently elected to be regulated as a Business
Development Company ("BDC") under the Investment Company Act, and will operate
as a non-diversified company as that term is defined in the Investment Company
Act.
USE OF PROCEEDS. The proceeds of this offering will be applied in the
estimated amounts set forth below.
Amount Percent
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Gross Offering Proceeds ...................$1,000,000 100.00%
Legal Fees and Expenses Associated............$ (115,000) 15.00%
with Offering
Blue Sky Registration Fees....................$ ( 50,000) 5.00%
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Amount Available for Investment,
Subsequent Years' Operating Costs,
Organizational Costs and Distribution
Expenses......................................$ 835,000 83.50%
Pending their investment as described herein, the Company will invest its
available funds in interest-bearing bank accounts, Treasury securities and/or
certificates of deposit with maturities of less than one year. The Company may
also invest such funds in commercial paper (rated or unrated) and other
short-term securities. Cash, cash items, securities issued or guaranteed by the
United States Treasury or United States government agencies and high quality
debt securities (commercial paper rated in the two highest rating categories by
Moody's Investor Services, Inc. or Standard & Poor's Corporation or, if not
rated, issued by a company having an outstanding debt issue so rated or
corporate bonds rated at least AA) with maturities of less than one year at the
time of investment will qualify for determining whether the Company has 70% of
its total assets invested in types of assets specified in Section 55 of the
Investment Company Act.
(b) Financial Information About Industry Segments.
Not applicable; the Company has not commenced business and has no reserves.
(c) Narrative Description of Business.
GENERAL. The Company is in the business of investing in emerging companies
that are in the growth stage of development by providing investment capital and
actively providing managerial assistance and otherwise helping to build those
companies. Initially, Griffin will seek to invest in companies that are in the
equipment rental industry and specifically in those companies that rent heavy
and industrial machinery and equipment used in land escavating and in the
construction industry. In addition, the company has targeted the following
industries in which it may seek to invest: Business equipment rentals, temporary
and permanent staffing companies and companies involved in information
technology.
The Company has not yet commenced operations and is registering its shares
of common stock pursuant to Section 12(g) of the Securities Exchange Act of 1934
("Exchange Act"), in compliance with the requirement of Section 54(a)(2) of the
Investment Company Act of 1940 ("1940 Act").
DEFINITION AND NATURE OF BUSINESS DEVELOPMENT COMPANIES
The 1940 Act defines a business development company ("BDC") as a closed end
management investment company that provides small businesses that qualify as an
"eligible portfolio company" with investment capital and also significant
managerial assistance. A BDC is required under the 1940 Act to 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 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. 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.
An example of an eligible portfolio company is a new start up company or a
privately owned company that has not yet gone "public" by selling its shares in
the open market and has not applied for having its shares listed on a nationally
recognized exchange such as the NYSE (New York Stock Exchange), the American
Stock Exchange (AMEX), or the National Association of Securities Dealers'
Automated Quotation System (NASDAQ), National Market System. An eligible
portfolio company can also be one which is subject to filing, has filed, or has
recently emerged from reorganization protection under Chapter 11 of the
Bankruptcy Act.
As a BDC, the Company 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.
A BDC may invest the remaining 30% of its total assets in non-Qualifying Assets,
including companies that are not Eligible Portfolio Companies. The foregoing
percentages will be determined, in the case of financings in which the Company
commits to provide financing prior to funding the commitment, by the amount of
the Company's total assets represented by the value of the maximum amount of
securities to be issued by the borrower or lessee to the Company pursuant to
such commitment.
INVESTMENT OBJECTIVES
CAPITAL APPRECIATION. The Company's investment objective is to obtain long
term capital appreciation from investments in emerging and established companies
that the Managers believe offer special opportunities for growth. The Company
plans on accomplishing this by: (1) investing in and providing strategic,
managerial, and operational support to emerging growth companies primarily
engaged in the equipment rental business, temporary and permanent staffing, in
the information technology business and in other industries and businesses that
the Company's management determines are likely to grow significantly in the next
five to seven years.
INVESTMENT OBJECTIVES MAY NOT BE CHANGED OR MODIFIED WITHOUT A SHARE HOLDER
VOTE. The following investment objectives of the Company cannot be changed
without a vote of the holders of a majority of the voting securities. However,
the manner in which the company intends to achieve its investment objectives is
within the discretion of the Company's Board of Directors and management and may
be changed at any time by Board action.
The goal of Griffin is to identify and invest in prospective portfolio
companies whose equity has the potential for significant appreciation, and to
minimize portfolio losses by careful selection of such portfolio companies and
active participation with its portfolio companies.
Griffin will invest in those companies that are capable of being market
leaders and which are at a stage of development that would benefit from
Griffin's business development and management support, financing, and market
knowledge. The Company, however, will not be limited to investing in portfolio
companies that are exclusively in the equipment rental, temporary and permanent
staffing and the information technology industries.
The Company will realize value for its shareholders by selling the equity
securities of its Portfolio Companies for a profit, either to private investors
or by taking the Portfolio Companies public (generally through an offer to
Griffin's shareholders of rights to purchase stock of the portfolio company in
its initial public offering). Value will also be realized through continued
ownership in the Portfolio Companies, consulting fees received in connection
with assisting in the continued operations of the emerging companies and through
the sale of a partial or the complete ownership interest in its Portfolio
Companies. There can be no assurance, however, that the Company will be
successful in selling any equity securities of its Portfolio Companies for a
profit at any time in the future.
INVESTMENT POLICIES OF THE ISSUER
For purposes of these investment policies and unless otherwise specified,
references to the percentage of the Company's total assets "invested" in
securities of a company will be deemed to refer, in the case of financings in
which the Company commits to provide financing prior to funding the commitment,
to the amount of the Company's total assets represented by the value of the
maximum amount of securities to be issued by the eligible portfolio company to
Griffin pursuant to such commitment; the Company 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 Company has previously
acquired or committed to purchase. UNLESS OTHERWISE STATED HEREIN, OR PROHIBITED
BY THE INVESTMENT COMPANY ACT OF 1940, ALL OF THE FOLLOWING INVESTMENT POLICIES
ARE SUBJECT TO CHANGE WITHOUT THE PRIOR VOTE OF THE HOLDERS OF A MAJORITY OF THE
VOTING SECURITIES OF GRIFFIN. SEE RISK FACTORS.
INVESTMENT GUIDELINES. In selecting investments for the Company's initial
portfolio, the Company will endeavor to meet the following investment
guidelines, as established by the Company's initial board of directors. The
Company may, however, make investments that do not conform to one or more of
these guidelines when deemed appropriate by the Company. Such investments might
be made if the Company 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 terms or features.
TYPES OF INVESTMENTS: Griffin will only seek to acquire controlling
interests or the rights to acquire a controlling interest (where a "controlling
interest" is defined as greater than twenty five percent of the issued capital
stock) in each of its eligible portfolio companies in exchange for cash and/or
Griffin common stock or other asset(s) held by Griffin. Thus, Griffin will not
invest in any portfolio company in which it cannot acquire an immediate
controlling interest or secure the rights to acquire a controlling interests in
such portfolio company within a period of twelve months from the date of the
initial investment. In addition, the Company will seek to diversify its
portfolio based on the stage of development of its eligible portfolio companies
by limiting the Company's aggregate investment in securities of companies that,
in the opinion of the Board, are in the start-up stage to a maximum of twenty
five percent of the Company's total assets. Thus, upon the successful closing of
this offering, the Company's total assets are likely to be approximately
$800,000 in cash and/or marketable securities. In such case, the aggregate
investment the Company will make towards start up stage companies will be twenty
five percent of said amount, or $200,000. The Company will seek to invest the
remainder of the Company's assets in securities of companies that, in the
opinion of the Company, are in the growth or mezzanine stage. Due to its limited
resources post closing of this offering, the Company will not make any
investments in companies that are in the seed capital stage. For purpose of
these investment guidelines, the stages of development are defined as follows:
A) 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
companies likely do not have financial support from either venture
capitalists or larger companies making strategic investments.
B) 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.
C) Emerging growth stage companies have initiated or are about to
initiate full-scale operations and sales, but may not be showing a
profit.
D) 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 Company, and it is possible that other investors or
market analysts would classify a company differently than the classification
used by the Company.
QUALITY OF INVESTMENT GUIDELINES. The Company will seek to invest at least
75% of the Company's total investment capital raised pursuant to this offering
and all subsequent offerings during the next 6 months in equity of emerging
companies that meet the following criteria:
A) The eligible portfolio company has a minimum capitalization of at
least $1,000,000.00;
B) The eligible portfolio company has at least six months available cash
to fund its operations and indications from other equity investors of
additional investment;
C) The eligible portfolio company's business plan contemplates
sales/revenues of at least $25 million within 5 years;
D) The eligible portfolio company is within an industry, that is in the
opinion of Griffin's management, to be rapidly expanding or will
experience significant growth over the next several years;
E) All mezzanine and growth stage Portfolio Companies in which Griffin
will invest will require a careful evaluation of their financial
records, including an evaluation of the following:
1) Audited financial statements and notes to the financial
statements including: Management discussion of operations and
liquidity; details regarding all forms of actual compensation of
management and affiliates by the entity; details regarding the
contractual rights of management and affiliates to compensation
by the entity; number of shares outstanding at the beginning of
the period and the end of the period and an explanation of the
difference, if any, and a detailed discussion of the entity's
rights and obligations under any joint ventures entered into
(whether before or after the offering) along with a full
discussion of any conflicts of interest management may have in
entering into such joint ventures on behalf of the entity.
2) Equipment list and appraisal of equipment;
3) Facilities, current product descriptions;
4) Current management resumes, employment contracts;
5) All material contracts (and amendments) currently in effect,
including, without limitation, leases, sales, purchase,
financing, distribution, franchise, intellectual property,
employment, insurance, employee benefit, and joint-venture
contracts; currently outstanding contractual offers by and to the
target company;
6) Correspondence with contracting parties regarding contract
interpretation, claims, or threats of contract litigation;
7) Documents relating to the target company's internal
determinations as to whether it can, or should, fulfill a
particular contract;
8) Documents relating to material acquisitions and divestitures for
the immediately preceding five years, particularly agreements
involving covenants by or in favor of the target company;
9) Certified copies of the company's Certificate or Articles of
Incorporation and all amendments thereto to date, as well as any
proposed amendments;
10) Certified copies of the company's Bylaws, as amended to date;
11) Minute books of the company, including minutes of the meetings of
the board of directors, any committee (whether of the board or
otherwise), and shareholders for the last five years to date;
12) The company's stock transfer or stock ledger books;
13) The form(s) of the company's stock certificates and the language
of all legends or specific terms appearing thereon;
14) All stock option, bonus, incentive, or pension plans, and any
other agreements to issue shares of the company or any of its
subsidiaries in the future;
15) All agreements relating to the beneficial ownership, voting
rights, or pledge of the company's common or preferred stock;
16) All agreements under which registration or preemptive rights are
granted to shareholders of the company;
17) All agreements, offering circulars, letters of intent, written
proposals, or memoranda of any oral proposals for the
disposition, acquisition, or distribution of any of the assets or
shares of the company;
18) List of all shareholders of the company, cross-checked against
the stock books and disclosing the status of ownership of each
(e.g., joint, in trust, minor);
19) An opinion from auditors regarding the fully paid and non
assessable character of the company's shares;
20) All shareholder correspondence with the company for the last
year;
INDEPENDENT APPRAISAL. Also, in investing in later stage companies and in
other cases which warrant such an evaluation, the Company will have a detailed
appraisal made of the company to be invested in by a business appraiser who is
certified by the American Society of Appraisers.
DIVERSIFICATION. As a BDC, Griffin must invest at least 70% of its total
assets in Qualifying Assets consisting of eligible portfolio companies and
certain other assets including cash and cash equivalents. In order to receive
favorable pass-through tax treatment on its distributions to its shareholders,
the Company intends to diversify its pool of investments in such a manner so as
to qualify as a diversified closed end management investment company. However,
because of the limited size of this offering and the resultant funding
available, the Company will likely be classified as a "non-diversified" closed
end investment company under the 40 Act. Until the Company qualifies as a RIC
"Registered Investment Company", it will not be subject to the diversification
requirements applicable to RICs under the Internal Revenue Code and receive
favorable pass through tax treatment on distributions made out to its
shareholders. Commencing with the close of this offering, the Company will seek
to increase the diversification of the Company'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 Company will be able to meet those
requirements.
To qualify as a RIC, the Company must meet the issuer diversification
standards under the Internal Revenue Code that require that, at the close of
each quarter of the Company'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 Company's total assets is invested in
the securities of a single issuer and the Company 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 Company's total assets "invested" in securities of a company will be deemed
to refer, in the case of financings in which the Company commits to provide
financing prior to funding the commitment, to the amount of the Company's total
assets represented by the value of the securities issued by the eligible
portfolio company to the Company at the time each portion of the commitment is
funded.
WARRANTS AND EQUITY SECURITIES. Griffin will acquire warrants to purchase
equity securities and/or convertible preferred stock of the eligible portfolio
companies in connection with providing venture financing. 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 eligible portfolio company, and will likely be affected by the price
and terms of securities issued by the eligible portfolio company to other
venture capitalists and other holders. 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 eligible portfolio company 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 the issuance; the Company generally negotiates registration rights with the
borrower or lessee that may provide (i) "piggyback" registration rights, which
permit the Company under certain circumstances to include some or all of the
securities owned by it in a registration statement filed by the eligible
portfolio company, or (ii) in very rare circumstances, "demand" registration
rights permitting the Company under certain circumstances to require the
eligible portfolio company to register the securities under the 1933 Act (in
some cases at the Company's expense). The Company will generally negotiate "net
issuance" provisions in the warrants, which allow the Company 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 states in the warrant.
Griffin will make available significant managerial assistance through its
officers to certain companies whose securities are held in the Company's
portfolio but will not be obligated to do so. Although each warrant or preferred
stock purchase will contain customary and negotiated representations,
warranties, covenants and events of default to protect the Company, typically,
the Company will retain a seat on the Board of the eligible portfolio company,
retain covenants against subordination of its dividend and liquidation
preferences associated with its preferred shares, and secure, whenever possible
and practicable, its interest against land, equipment and other tangible assets
of the eligible portfolio company.
LEVERAGE. The Company intends to borrow money from and issue debt
securities to banks, insurance companies and other lenders to obtain additional
funds. Under the 1940 Act, the Company 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 Company'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 Company'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 Company borrows money, provision be made to prohibit
the declaration of any dividends or other distribution on the shares (other than
a dividend payable in shares), or the repurchase by the Company of shares, if,
after payment of such dividend or repurchase of shares, the Asset Coverage of
such borrowings would be below 200%. If the Company 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
that the Company pledge portfolio assets as collateral for loans. If the Company
is unable to service the borrowings, the Company may risk the loss of such
pledged assets. Lenders are also expected to require that the Company agree to
loan covenants limiting the Company's ability to incur additional debt or
otherwise limiting the Company's flexibility, the loan agreements may provide
for acceleration of the maturity of the indebtedness if certain financial tests
are not met. To minimize risks associated with leveraging, the Company will not
seek borrowings that have less than 400% of Asset Coverage, or borrow more than
25% of its assets minus its liabilities.
TEMPORARY INVESTMENTS. Pending investment in venture financing transactions
and pending distributions, the Company 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 Company 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 Company may invest include
commercial paper, bankers' acceptances and certificates of deposit of domestic
or foreign issuers.
The Company also may enter into repurchase agreements that are fully
collateralized by U.S. government securities with banks or recognized securities
dealers in which the Company 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 Company 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 Company if the other party
to the transaction defaults.
RESERVE MANAGEMENT. The Company must retain significant reserves for a
number of years after the Offering Close Date in order to have sufficient funds
for equity-oriented follow-on investments in Portfolio Companies. The Company
intends on registering additional common stock for subsequent sale to meet the
funding requirements for such follow on investments. As such, the Company will
likely have cash reserves from subsequent common stock sales. In order to
enhance the rate of return on these reserves and increase the amounts ultimately
available for equity-oriented investments and Company operating expenses, the
Company will engage in a reserve management strategy that may include making
secured loans to its Portfolio Companies, potential Portfolio Companies, or
similar types of corporations. The Company also expects to invest some portion
of these reserves in either publicly traded securities or in mutual funds,
subject to applicable legal limits or SEC exemptive orders.
AVERAGE INVESTMENT. The amount of funds committed to a Portfolio Company
and the ownership percentage received will vary depending on the maturity of the
company, the quality and completeness of the management team, the perceived
business opportunity, the capital required compared to existing capital, and the
potential return. Although investment amounts will vary considerably, the
Company's Management expect that the average investment (including follow-on
investments) will be between $250,000 and $5,000,000.
OTHER INVESTMENT POLICIES. The Company will not sell securities short,
purchase securities on margin (except to the extent the Company's permitted
borrowings are deemed to constitute margin purchases), write puts or calls,
purchase or sell commodities or commodity contracts. The Company will not
underwrite the securities of other companies, except to the extent the Company
may be deemed an underwriter upon the disposition of restricted securities
acquired in the ordinary course of the Company's business.
NON-QUALIFYING ASSET INVESTMENTS. The Company intends to invest its assets
not required to be invested in Qualified Assets in acquiring commercial and
residential real estate and in purchasing securities in publicly traded
companies that cannot be classified as Eligible Portfolio Companies under the
1940 Act.
TAX INFORMATION
The following is a general summary of certain of the United States federal
income tax laws relating to the Company and investors in its units. 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 Company's ability to qualify as a RIC or, if the Company 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 Company 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 Company 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 Company Shares.
TAXATION OF THE COMPANY AS AN ORDINARY CORPORATION. It is anticipated that,
commencing with the second year of its investment operations, the Company 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 Company 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 Company will meet the requirements to qualify as a RIC.
TAXATION OF THE COMPANY AS A RIC. CONSEQUENCES OF CONVERTING FROM AN
ORDINARY CORPORATION TO A RIC. In order to qualify as a RIC, the Company 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 Company 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 Company 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
Company qualifies as a RIC that is held by the Company 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
Company'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
Company would not be able to use any net operating loss carryforwards relating
to periods prior to the first year in which the Company 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 Company 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 Company 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 Company 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
Company 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 Company must diversify its assets so that, at the close of each
quarter of the Company'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 Company 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 Company's total assets is invested in
the securities of a single issuer and the Company does not own more than 10% of
the outstanding voting securities of a single issuer) ("Diversification
Requirement"); and (d) the Company must file an election to be treated as a RIC.
If, after initially qualifying as a RIC, the Company 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 Company were to attempt to requalify as
a RIC, the Company could be subject to the tax consequences described in the
immediately preceding paragraph if such legislation were to apply to a
re-election of a previously disqualified RIC.
The Company 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 Company, and on which it pays federal income tax, would be
treated as having been distributed.
The Company 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.
TAXATION OF THE COMPANY'S SHAREHOLDERS IF THE COMPANY QUALIFIES AS A RIC.
Dividends paid to shareholders that are attributable to the Company'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 Company'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 Company 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 Company
and received by shareholders on December 31 of the year declared. This will
prevent the application of the Excise Tax, discussed above, to the Company as a
result of the delay in the payment of the dividends.
If, for any calendar year, the Company'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 Company is required to withhold 31% of reportable payments (which may
include dividends and capital gain distributions) to individuals and certain
other non-corporate shareholders who do not provide the Company 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 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.
Individuals and certain other shareholders will be required to include in
their gross income an amount of certain Company 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 Company 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 Company 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
Company 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 Company 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 Company 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 Company as
UBTI. Dividends distributions by the Company 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
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING, BUT
NOT NECESSARILY LIMITED TO, THE SEVERAL FACTORS DESCRIBED BELOW. EACH
PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY AND THIS OFFERING BEFORE
MAKING AN INVESTMENT DECISION.
RECENTLY ORGANIZED "DEVELOPMENT STAGE" COMPANY; LIMITED RESOURCES; NO
PRESENT SOURCE OF REVENUES; NO OPERATING HISTORY; RELIANCE ON MANAGEMENT. The
Company is newly organized and has not yet entered into any definitive financing
transactions with any Portfolio Companies it will finance. Although the
Company's Chairman and two of its advisory directors have had prior experience
relating to the identification, evaluation and acquisition of target businesses,
the Company has no such experience and, accordingly, there is only a limited
basis upon which to evaluate the Company's prospects for achieving its intended
business objectives. To date, the Company's efforts have been limited primarily
to organizational activities and this offering. The Company has limited
resources and has had no revenues to date. In addition, the Company will not
achieve any revenues (other than interest income upon the proceeds of this
offering) until, at the earliest it is able to sell its position of securities
in an underlying portfolio company for a profit. The Company could require
substantial time to become fully invested. Pending investment, all cash that the
Company has received pursuant to this offering will be committed to short-term,
high grade investments that present relatively low investment risk but provide a
correspondingly lower return. The Company will be wholly dependent for the
selection, structuring, closing and monitoring of all of its investments on the
diligence and skill of its management, acting under the supervision of the
Company's board of directors. There can be no assurance that the Company will
attain its investment objective. Landon Barretto and Greg Zeitler, the senior
officers of the Company, have no experience in acquiring and investing in growth
stage companies and will have primary responsibility for the selection of the
companies in which the Company will invest, the negotiation of the terms of such
investments and the monitoring of such investments after they are made. Although
Messrs. Barretto and Zeitler intend to devote such time as is necessary to the
affairs of the Company, they are not required to devote full time to the
management of the Company. Furthermore, there can be no assurance that either
officer will remain associated with Griffin or that, if either officer ceased to
be associated with Griffin, Griffin would be able to find a qualified person or
persons to fill their positions.
DILUTION. The present shareholders of the Company have acquired an interest
in the Company at a total cost substantially less than the total cost the public
investors will pay for their shares. Therefore, the public investors will bear
most of the risk of loss. As of October 20, 1997, the Company authorized a total
of 4,800,000 shares of common stock for issuance and 2,500,000 shares of its
Series A Convertible Preferred Stock authorized for issuance, which equals to a
net tangible book value of $7,300.00 or approximately $.001 per share. On
November 19, 1997, pursuant to a consent to action by the Board of Directors of
the Company, the Company agreed to rescind the authorization of 4,100,000 shares
of common stock originally authorized on October 16, 1997 from certain officers
and directors of the Company. The Board recommended such action to minimize the
dilutive effects of this original issuance.
No sales of the Company's stock have occurred to date. As of December 8,
1997, the officers, directors and other present shareholders were authorized to
receive 700,000 shares of common stock and 2,500,000 shares of the Series A
Convertible Preferred Stock for which they will contribute a total of $3,200.00
in cash or an average of $.001 per share. If the maximum number of shares being
offered are sold, the present shareholders will own 700,000 shares or 41.18% of
the Company's common stock to be outstanding, and the public purchasers will own
1,000,000 shares or 58.82% of the Company's common stock to be outstanding, for
which the public purchasers will have paid to the Company a total of $1,000,000
(or $1.00 per share.) The following table illustrates the per share dilution
without giving effect to the exercise of the Series A Convertible Preferred
Stock:
Maximum Sold
Public offering price per share of common (1) $1.00
Net Asset Value per share before offering (2) $.001
Increase per share attributable to new $.4902
Investors
Net Asset Value per share after offering (3) $.4912
Dilution of Net Asset Value per share to new $.5088
investors
(1) Offering price before deduction of offering expenses.
(2) Determined by dividing the number of shares of common stock
outstanding into the net asset value of the company.
(3) After deduction of offering expenses of $165,000 consisting of legal
fees and blue sky registration expenses.
The following table summarizes the comparative ownership and capital
contributions of present shareholders and public investors assuming the maximum
number of shares are sold:
<TABLE>
<CAPTION>
Percent
Total of total Average
Percent consid- consid- price
Shares of total eration eration per
Owned Shares paid paid share
----- ------ ---- ---- -----
<S> <C> <C> <C> <C> <C>
Present Shareholders 700,000 41.18 $700 0.07% $.001
Public Investors 1,000,000 58.82 $1,000,000 99.93% $1.00
</TABLE>
RECENT NOTICE OF INTENT TO ELECT BDC STATUS. The Company has, on October
17, 1997, filed with the Securities and Exchange Commission its intent to elect
in good faith, within ninety days from the date of such filing, to be regulated
as a Business Development Company under the 1940 Act and be subject to Sections
54 through 65 of said Act (BDC Provisions). Upon making this election, the
Company is required to file a notice of its election and thus will be subject to
the provisions of 1940 Act as it applies to Business Development Companies as of
the date of such election. Thus, prior to filing its notice of election, the
Company is not subject to the BDC Provisions of the 1940 Act. Although the
Management of the Company has no intention of changing the status of the Company
or in any way changing its current intent of being regulated as a business
development company, there is no assurance that the Company will elect to be
regulated as a business development company within 90 days of the date of filing
its intent to be so regulated. This has several repercussions to the investor
that may not be apparent at first. For example, should the Company choose not to
elect to be regulated as a BDC under the 1940 Act (BDC Status), several of the
restrictions imposed by the 1940 Act as it applies to transactions between
affiliated persons and a business development company would not be applicable.
Thus, notwithstanding an election of BDC status, an affiliated person of Griffin
is not required to seek prior approval from the Securities and Exchange
Commission or pursuant to approval from the majority of voting shareholders of
the Company before entering into a transaction that would be otherwise be
classified as 'interested' or in which they have a material direct or indirect
interest.
INVESTMENT RISKS
Substantial appreciation of the equity securities of Portfolio Companies is
essential to achieving the Company's return objectives with respect to its
investments.
NATURE OF RISKS IN INVESTING IN GROWTH STAGE COMPANIES. Although
investments in growth stage companies offer the opportunity for significant
gains, each investment involves a high degree of business and financial risk
that can result in substantial losses. Among these are the risks associated with
investing in companies in an early-stage of development or with little or no
operating history, companies operating at a loss or with substantial variations
in operating results from period to period, and companies with the need for
substantial additional capital to support expansion or to achieve or maintain a
competitive position. Such companies may face intense competition, including
competition from companies with greater financial resources, more extensive
development, manufacturing, marketing, and service capabilities, and a larger
number of qualified managerial and technical personnel. Although the Company
intends on mitigating its risk exposure by limiting its investments in early
stage companies, there is no assurance that the portfolio companies in which it
chooses to place a majority of its investment capital are not facing the same
risks of companies that are inherent in start up companies. In addition, growth
stage companies are likely to have a very limited operating history and thus
evaluating their worthiness for investment will be more subjective on their
future potential for growth and cannot be predicated on operating successes. The
Company anticipates that it may make significant equity investments in companies
in rapidly growing industries and changing high-technology fields; such
companies may face special risks of product obsolescence and may encounter
intense competition from other companies. These risks are explained in more
detail below.
TECHNOLOGY. Particularly in early-stage companies, a major risk is the
potential inability of a Portfolio Company to commercialize its technology or
product concept with the resources it has available. Although many of the
Portfolio Companies may be later-stage companies that have developed products,
the ultimate success of such companies will depend to a large extent on their
ability to continue to create new products and improve existing ones. There can
be no assurance that the development efforts of any Portfolio Company will be
successful or, if successful, will be completed within the budget or time period
originally estimated. Additional funds may be necessary to complete such
development, and there is no assurance that such funds will be available from
any source.
MARKETING. The markets for new products and services may be highly
competitive, rapidly changing, or both. Commercial success is frequently
dependent on marketing and support resources, the effectiveness and sufficiency
of which are very difficult to predict accurately. While this is a significant
risk for all Portfolio Companies, it is one of the principal economic risks of
second- and third-stage Portfolio Companies, which are anticipated to receive a
large portion of the Company's equity investments. There can be no assurance
that the marketing efforts of any particular Portfolio Company will be
successful or that any such company's products or services can be sold at a
price and volume that will allow it to be profitable. High technology products
and services often have a limited market or life-span. No assurance can be given
that the products or services of a particular Portfolio Company will not become
obsolete or require significantly more capital to obtain or maintain an adequate
market share for the success of the business.
PERSONNEL. The success of any venture is dependent upon the availability of
qualified personnel. The day-to-day operations crucial to success will be in the
hands of the management of each Portfolio Company. Each company's management
must have a philosophy and personality appropriate for that company's particular
stage of development. Early-stage companies typically need entrepreneurial
talents, while more mature companies require a higher level of infrastructure
and managerial coordination. Competition for qualified personnel is intense at
any stage of development. High turnover of personnel has become endemic in many
rapidly growing industries and could severely disrupt a Portfolio Company's
implementation of its business plan. Similarly, the ability of a Portfolio
Company's personnel, particularly its founders, to accept and make the difficult
transitions that occur as the company matures is hard to predict or manage. No
assurance can be given that the Portfolio Companies will be able to attract and
retain the qualified personnel necessary for success, or that the Company's
Management can select Portfolio Companies that have, or can obtain, the
necessary management resources.
MANAGEMENT. The success of the Company will depend upon the success of the
Portfolio Companies and, in great part, upon the abilities of their management.
Although the Company's Management, in conjunction with other venture capital
investors, expect to provide Portfolio Companies with a great deal of assistance
(particularly with regard to capital formation, major personnel decisions, and
strategic planning), the day-to-day operations will be in the hands of the
management of the Portfolio Companies. As the Portfolio Companies have yet to be
identified, Investors must rely upon the Company's Management to select
Portfolio Companies that have, or can obtain, the necessary management
resources. There can be no assurance that such selection will be successful.
COMPETITION. Most emerging markets are highly competitive. The Company
anticipates that nearly all Portfolio Companies will compete against firms with
more experience and greater financial resources than such companies.
ADDITIONAL CAPITAL. The Company's Management expect that most Portfolio
Companies will require additional equity financing to satisfy their working
capital requirements. The amount of additional equity financing needed will
depend upon the maturity and objectives of the particular company. Each round of
venture financing (whether from the Company or other investors) is typically
intended to provide a Portfolio Company with enough capital to reach the next
major valuation milestone. If the funds provided are not sufficient, a company
may have to raise additional capital at a price unfavorable to the existing
investors, including the Company. The availability of capital is generally a
function of capital market conditions that are beyond the control of the Company
or any Portfolio Company. There can be no assurance that the Company's
Management or the Portfolio Companies will be able to predict accurately the
future capital requirements necessary for success or that additional funds will
be available from any source.
TIME REQUIRED TO MATURITY OF INVESTMENT. The Company's Management intend to
invest funds available for equity investments as rapidly as is consistent with
the investment objectives of the Company. However, it is anticipated that there
will be a significant period of time (up to one to three years) before the
Company has completed the initial selection of Portfolio Companies for its first
round of equity investments. Venture capital investments typically take from
four to eight years from the date of initial investment to reach a state of
maturity at which liquidation can be considered. In light of the foregoing, it
is unlikely that any significant distributions of the proceeds from the
liquidation of equity investments will be made until the later years of the
Company.
ILLIQUIDITY OF VENTURE CAPITAL INVESTMENTS. It is anticipated that most of
the holdings in Portfolio Companies will be securities that are subject to
restrictions on resale. Generally, unless the securities are subsequently
registered under the Securities Act of 1933 (the "Securities Act"), the Company
will not be able to sell these securities unless it meets all of the conditions
of Rule 144 or another rule under the Securities Act that permits limited sales
under specified conditions. When restricted securities are sold to the public,
the Company may be deemed an "underwriter," or possibly a controlling person,
with respect thereto for the purpose of the Securities Act and may be subject to
liability as such under the Securities Act.
Other practical limitations may inhibit the Company's ability to sell or
distribute the securities of Portfolio Companies. For example, the Company may
own a relatively large percentage of a Portfolio Company's outstanding
securities, or customers, other investors, financial institutions, or management
may be relying on the Company's continued investment. Sales of securities of
Portfolio Companies may also be limited by the overall condition of the
securities market. In the past few years, the market for equity securities has
been volatile, especially for securities of high-technology companies.
Accordingly, the market price for public portfolio securities may be adversely
affected by factors unrelated to the operating performance of the Portfolio
Companies. The above limitations on liquidity of the Company's equity
investments could prevent a successful sale thereof, result in delay of any
sale, or reduce the amount of proceeds that might otherwise be realized.
NEED FOR FOLLOW-ON INVESTMENTS. Following its initial investment in
Portfolio Companies, the Company anticipates that it will be called upon to
provide additional funds to Portfolio Companies or have the opportunity to
increase its investment in a successful situation. See "Business of the
Company." Although the Company intends to maintain reasonable reserves and may
borrow to make follow-on equity investments, there is no assurance that the
Company will make follow-on investments or that the Company will have sufficient
funds to make all such investments. If the Company is unwilling or unable to
make a follow-on equity investment, the negative impact on a Portfolio Company
in need of such investment may be substantial. The Company's failure to make a
follow-on investment may also result in a significant reduction in the Company's
ownership percentage in a Portfolio Company or a missed opportunity for the
Company to increase its participation in a successful situation.
RISKS OF THE COMPANY
PORTFOLIO COMPANIES UNIDENTIFIED. As of the date of this Prospectus, the
Company has not made any equity commitments to any Portfolio Company. Therefore
prospective investors will not have an opportunity to carefully evaluate any of
the Portfolio Companies that the Company may eventually invest in and such
evaluation will be entirely dependent upon the Company's Management for
selecting and negotiating with these Portfolio Companies. If the Company makes
material financing commitments to Portfolio Companies before the Offering Close
Date, this Offering Circular will be supplemented and any and all future
amendments will be posted on the Company's website under New Developments which
will include any additional information about such companies.
POTENTIAL LOSS OF ENTIRE INVESTMENT; FUNDING AND PORTFOLIO BALANCE. The
Company will begin investment operations immediately. There is currently no
assurance that the Company will be successful in raising the maximum of
$1,000,000 will be raised by the Offering Close Date. The Company will disburse
the first $165,000 raised pursuant to this to pay for expenses associated with
preparing this offering and in registering this offering in each of the fifty
States. SEE USE OF PROCEEDS. Therefore, should the company be unsuccessful in
raising greater than $165,000 prior to the Offering Close Date, there is
substantial risk of loss of the entire investment made by the initial investors
of the Company. The number of investments, portfolio balance, and potential
profitability of the Company could be affected by the amount of funds at its
disposal and, if it were to continue investment operations with only a minimum
amount of capitalization, the Company's investment return might be adversely
affected by a single investment decision. At a lower funding level the number
and diversity of investments will be smaller.
SUBSTANTIAL INITIAL LOSSES. It is anticipated that most of the
capitalization of the Company, except for operating cash reserves and funds set
aside for follow-on investments in then-existing Portfolio Companies, will be
expended or committed by the end of the year 2001, which is expected to be prior
to the receipt of any substantial realized gains by the Company. The Company's
Management anticipate that the Company and a number of the Portfolio Companies
will sustain substantial losses in the initial three or four years of operation.
It is possible that these losses may never be recovered. There can be no
assurance that the Company will ever be profitable.
RELIANCE ON MANAGEMENT. All decisions with respect to the management of the
Company will be made exclusively by the Directors. Investors, except for the
Company's Management, will have no right or power to take part in the management
of the Company and will not receive any of the detailed financial information
issued by Portfolio Companies that is available to the Directors and the
Company's Management.
ERISA CONSIDERATIONS. In considering an investment in the Company by a
tax-exempt entity such as an employee benefit plan or individual retirement
account subject to the requirements of the Employee Retirement Income Security
Act of 1974 ("ERISA"), the fiduciary acting on behalf of such entity should be
satisfied that such an investment is consistent with Sections 404 and 406 of
ERISA and that the investment is prudent in light of the entity's cash flow and
other objectives. To this end the Department of Labor has issued regulations
that would characterize the assets of certain entities in which tax-exempt
entities invest as "plan assets." Because the Company is expected to qualify as
a "venture capital operating company" and the shares are "publicly offered
securities" within the meaning of the regulations, the Company assets should not
be considered plan assets. However, fiduciaries of tax-exempt entities are urged
to consult their own advisors prior to investing in the Company.
COMPETITION FOR INVESTMENTS. The Company expects to encounter competition
from other entities having similar investment objectives (including others that
are affiliated with the Company's Management). Historically, the primary
competition for venture capital investments has been from venture capital funds
and corporations, venture capital affiliates of large industrial and financial
companies, small business investment companies, and wealthy individuals.
Additional competition is anticipated from foreign investors and from large
industrial and financial companies investing directly rather than through
venture capital affiliates. Many of the Company's competitors are subject to
regulatory requirements substantially different from those to which the Company
is subject, and, as a consequence, they may have a competitive advantage to the
extent that the regulations under which the Company operates restrict its
abilities to take certain actions. The Company will frequently be a co-investor
with other professional venture capital groups, and these relationships with
other groups may expand the Company's access to investment opportunities.
COMPETITION. Other entities and individuals compete for investments similar
to those proposed to be made by the Company, some of whom may have greater
resources than the Company. Furthermore, the Company's need to comply with
provisions of the 1940 Act pertaining to BDCs and, if the Company qualifies as a
RIC, provisions of the Internal Revenue Code pertaining to RICs might restrict
the Company's flexibility as compared with its competitors. The need to compete
for investment opportunities may make it necessary for the Company to offer
Portfolio Companies more attractive transaction terms than otherwise might be
the case.
DISTRIBUTIONS. There can be no assurance that any distributions to the
Investors will be made by the Company or that aggregate distributions, if any,
will equal or exceed the Investors' investment in the Company. Sales of
Portfolio Company securities will be the principal source of distributable cash
to the Investors. The Directors have absolute discretion in the timing of
distributions to the Investors, but the income tax liability of the Investors
depends on the profits of the Company, regardless of whether distributions are
made. Securities acquired by the Company through equity investments will be held
by the Company and will be sold or distributed at the sole discretion of the
Directors.
PORTFOLIO COMPANY LIABILITIES. The Company will participate actively in the
management of many Portfolio Companies, often having representatives serve as a
member of a Portfolio Company's Board of Directors. Consequently, the Company
may be subject to liability from lawsuits against its representatives as
directors. Because director liability insurance is typically not available at a
reasonable price, the Company's assets, including assets not related to those
Portfolio Companies, may be exposed to the claims of creditors of such Portfolio
Companies. The Company's Management will try to limit Company exposure to such
claims and liabilities where practical; however, such efforts may not be
successful. Although Investors generally will be liable only for the respective
amounts of their Capital Contributions, liability for Portfolio Company claims
or liabilities would adversely affect the amount of cash available for
distribution to the Investors.
DISCRETIONARY USE OF PROCEEDS. The Company's Management has broad
discretion with respect to the specific application of the net proceeds of this
offering, although substantially all of the net proceeds held in the Escrow
Account from this offering are intended to be applied for investments in
eligible portfolio companies which satisfy the Company's Investment Criteria.
ILLIQUIDITY OF INVESTMENTS. The Company 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 capital investments in the securities of portfolio companies
are privately negotiated transactions, and there is no established trading
market in which securities can be sold. In the case of warrants or equity
securities, the Company 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
Company's warrants or equity securities or exchanges them for publicly traded
securities of the acquirer. The feasibility of such transactions depends upon
the portfolio company'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 Company'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
Company, 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 Company's investments, a substantial
portion of the Company'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 Company will be classified as a
"non-diversified" investment company under the 1940 Act. At such time as the
Company meets certain asset diversification requirements, the Company intends to
qualify as a RIC under the Internal Revenue Code and will thereafter seek to
meet the diversification standards thereunder. Nevertheless, the Company's
assets may be subject to a greater risk of loss than if its investments were
more widely diversified.
Indemnification and Exculpation. The Company's Articles of Incorporation
provide for indemnification of directors, officers, employees and agents of the
Company to the full extent permitted by Maryland law and the 1940 Act. The
Articles of Incorporation also contain a provision eliminating personal
liability of a Company director or officer to the Company or its shareholders
for monetary damages for certain breaches of their duty of care.
Selection of Disinterested Directors. Griffin intends that, prior to the
closing of its Regulation E offering, a majority of the Company'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.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
The Company has not commenced business and has no revenues or assets.
ITEM 2. FINANCIAL INFORMATION
The Company has not commenced business and has no revenues or assets.
ITEM 3. PROPERTIES
The Company has not commenced business and has no assets. It is anticipated
that the Company's principal assets following commencement of operations will be
securities.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
The Registrant has 700,000 shares of Common Stock and 2,500,000 shares of
Series A Preferred stock authorized for issuance as of the date of filing this
Registration Statement. It is anticipated that, at the closing of its exempt
public offering pursuant to Regulation E, the Registrant will have approximately
3,700,000 shares of Common Stock issued and outstanding and 2,500,000 shares of
Series A preferred stock issued and outstanding, of which 700,000 shares of
common stock and 2,500,000 shares of the Series A Preferred stock will be owned
by officers, interested directors and affiliates to the Issuer.
The following persons, as of October 15, 1997, either control the issuer as
specified in section 2(a)(9) of the Investment Company Act of 1940 and/or are
owners of more than five percent of any class of securities of the issuer.
Name Title/Class Amount % Class Owned(1)
- ---- ----------- ------ ----------------
Landon Barretto Common 500,000 29.41
Series A Preferred(2) 2,500,000 100.00
Greg Zeitler Common 200,000 11.76
The above named individuals based on their percent holdings of the
Company's Common Stock, are deemed to have controlling interests in the issuer
as specified in section 2(a)(9) of the 1940 Act.
- -----------------
(1) Percent issued and outstanding based on completion of initial exempt
public offering of 1,000,000 shares of common stock pursuant to
Regulation E.
(2) Series A Convertible Preferred Shares are redeemable on a one for five
shares of common stock basis, where such conversion is subject to the
occurrence of a significant redemption event as described more fully
in Item 6 below.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Landon Barretto* President, Chairman, Chief Executive
1111 Third Avenue, 25th Floor Officer
Seattle, Washington 98101
Kim Steele Interim Chief Financial Officer
1802 N. Carson Street, #256
Carson City, NV 89701
Greg Zeitler* Executive Vice President, Chief
1111 Third Avenue, 25th Floor Operating Officer
Seattle, Washington 98101
Omar A. Rizvi, Esq.* Interim Corporate Secretary
980 North Michigan Avenue
Suite 1400
Chicago, Illinois 60611
</TABLE>
- ----------------------------------------
* Interested person of the Company within the meaning of the 1940 Act.
The Board of Directors of the Company anticipates electing two additional
disinterested directors. The Company's disinterested directors will each receive
an annual fee from the Company of $3,000.00 to be determined at a later date.
Such directors also will be reimbursed by the Company 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 Company's compensation from the Company for their services as
directors or officers is described more fully below.
The business backgrounds of the Company's directors and officers are as follows:
LANDON BARRETTO. Mr. Barretto is the founder, President, Chairman of the
Board and Chief Executive Officer of the Company. Mr. Barretto is also the
President and CEO of Barretto Pacific Corporation, a Nevada company that
provides financial intermediary services to public companies. In addition, Mr.
Barretto was President of Landon Barretto Investor Services between 1984 and mid
1986, which was an introducing broker for Frankwell Enterprises of Hong Kong, a
Securities and Commodities trading firm. From 1987 through 1993 Mr. Barretto was
President of Landon Barretto Corporation, a financial intermediary providing
financing to privately held companies. Mr. Barretto graduated in 1983 from
Hawaii Pacific University with a degree in business management.
GREG ZEITLER. Mr. Zeitler is the Chief Operating Officer of the Company.
Mr. Zeitler's previous experience includes acting as a Principal in the Barretto
Pacific Corporation; was responsible for managing and operating manufacturing
and retail operations for Brixton Industries between 1994 through 1995; acted as
the District Manager of Tee-Comm Electronics between 1993-1994 where he was
responsible for managing and operating a provincial branch office; acted as a
Financial Services Consultant between 1991-1993 for the Equinox Financial Group,
a financial consulting firm. Mr. Zeitler is a 1991 Administrative Management
Program Graduate of the British Columbia Institute of Technology.
JACK W. MATZ, JR. Mr. Matz will serve as a member of the Board of Directors
of the Company. Mr. Matz formerly was the Chairman and Chief Executive Officer
of SA Telecommunications, a Dallas, Texas based publicly traded long distance
telephone company. For more than eight years, Mr. Matz served as the founder and
President of the company and its predecessor, Strategic Abstract & Title
Corporation. Mr. Matz has also served as a director and/or executive officer of
the following privately held corporations: Strategic Industries, Inc. an
investment company (1982-1989), El Dorado Systems (Canada) Inc., a computer
systems consulting firm (1983-1986), HCS Drilling and Operating Corporation, an
oil and gas firm (1981-1984) and Koewell Oil and Gas Corporation (1980-1981).
Prior to these relationships, Mr. Matz held numerous positions with the Chrysler
Corporation, ending with the position of zone sales manager for the Rocky
Mountain States in 1981.
GERRY GILL. Mr. Gill will also serve as a member of the Board of Directors
of the Company. Mr. Gill is the President and Chief Executive Officer of
Chai-Na-Ta Corporation, a publicly traded company. Chai-Na-Ta is the largest
ginseng company in the world. In addition, Mr. Gill has over 27 years of
experience in corporate management and marketing. From 1990 to 1993 he was Vice
President of Chai-Na-Ta and in June, 1993, he assumed the role of President.
From 1982 to 1990 he was Executive Vice President and Chief Operating Officer of
Yashamina International, a Japanese based firm producing and marketing
industrial fasteners.
ITEM 6. EXECUTIVE COMPENSATION.
The Company has not had any operations nor has it paid any remuneration to
any of its officers or directors to date. The Company's Chief Executive Officer
and President have agreed not to receive any salary or any other form of cash
compensation from the Company until such time that the Company has successfully
acquired a controlling interest within a portfolio company. As such time, the
officers and directors of the Company have agreed to have the issue of setting
their respective cash compensation levels to be determined.
Name & Position Salary($)
Landon Barretto -0-
CEO
Greg Zeitler -0-
COO
All officers & directors as a
group -0-
The Company's disinterested directors will each receive an annual fee from
the Company of $3,000.00. Such directors will also be reimbursed by the Company
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 $500.00
On November 19, 1997, the Board of Directors approved the authorization of
Executive Employee Performance Warrants, which provide incentive warrants to the
Chief Executive Officer, Chief Financial Officer and Chief Operating Officer and
pursuant to such authorized for issuance 3,100,000 warrants to purchase the
equivalent amount of common stock to Mr. Landon Barretto and 300,000 warrants to
purchase the equivalent amount of common stock to Mr. Greg Zeitler, where each
warrant is redeemable for one share of common stock upon payment of a $1.00 per
warrant redemption price to the Company. The warrants will vest and are
redeemable at a rate equal to the cumulative earnings per share as reported by
the Company in its annual audited financial statements as a percentage of one
dollar cumulative earnings per share for the years 1998, 1999, and 2000. For
example, if the Company earns $0.15 EPS in 1998, $0.30 EPS in 1999 and $0.55 EPS
in 2000, then its executive employees that are employed in the following
calendar year may exercise 15% of their aggregate warrants in 1999, 30% of their
warrants in 2000 and the remaining 55% of their warrants in 2001.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions With Management and Others
Notwithstanding the foregoing, the Company has not entered into any
transaction, or series of similar transactions, since the beginning of the
registrant's last fiscal year, or any any currently proposed transaction, or
series of similar transactions, to which the registrant or any of its
subsidiaries was or is to be a party, in which the amount involved exceeds
$60,000 and in which any of the following persons had, or will have, a direct or
indirect material interest.
On October 8, 1997, the Registrant entered into a professional legal
services agreement with the law firm of Rizvi & Associates, LLP, ("R&A,LLP") to
provide certain legal services, for drafting of the company's initial offering
circular pursuant to Regulation E, state blue sky compliance, and to act as
interim corporate secretary for a period of three months commencing from the
date the exempt offering circular is filed with the Securities and Exchange
Commission. In consideration for the above services, the Registrant agreed to
compensate R&A,LLP in the amount of $140,000. Omar A. Rizvi, the Managing
Partner of R&A,LLP, was also elected to serve and currently serves as the
interim corporate secretary of the Issuer, and, as a result of such
relationships, is likely to receive an indirect or direct material interest as a
result of the October 8, 1997 professional legal services agreement.
(b) Certain Business Relationships
The President and Chief Executive Officer of the Registrant, Mr. Landon
Barretto, is also the President and majority and controlling shareholder of
Barretto Pacific Corporation, a Nevada corporation which maintains offices in
Vancouver, British Columbia. Although there is no present management contract
for services between Barretto Pacific Corporation and the Registrant, it is
anticipated that during the upcoming fiscal year Barretto Pacific Corporation
will provide all or substantially all of the executive, managerial and
administrative services (together "Management Services") required by the
Registrant from its Vancouver and Seattle offices in exchange for which Barretto
Pacific Corporation will receive a monthly management fee ("Monthly Service
Fee") from the Registrant which will be periodically calculated to include (1)
the combined salaries and other approved compensation for Mssrs. Barretto,
Zeitler and such other employees of Barretto Pacific Corporation that perform
services by and/or on behalf of the registrant greater than 35 hours per week;
and (2) other general and administrative costs associated with performing the
foregoing services by Barretto Pacific Corporation at its Vancouver and Seattle
offices, including but not limited to a total or partial payment of office rent
due at the Vancouver facility, telephone expenses, heat, utilities and similar
items. Although Mssrs. Barretto and Zeitler will not receive any salary directly
from the registrant, as a result of the foregoing contemplated contractual
agreement, it is likely that Mssrs. Barretto, Zeitler and other employees of
Barretto Pacific Corporation will receive a material and direct beneficial
interest from the registrant equivalent to their respective salaries from the
registrant. In addition, because Mssrs. Barretto and Zeitler are both officers
and/or directors and controlling shareholders of the Registrant and employees of
Barretto Pacific Corporation, it is unlikely that the salaries fixed to be paid
to themselves and to other members of Barretto Pacific Corporation, or the
Monthly Service Fee itself can be said will be negotiated at arms length.
(c) Indebtedness of Management
None.
(d) Transactions With Promoters.
On December 22, 1997, the Company ("Issuer") entered into a warrant
agreement and investor relations consulting agreement with Savings and
Retirement Service, LLC, a Texas LLC, ("SRS") in which the Company is to issue
SRS as consideration for SRS entering into the Investor Relations Consulting
Agreement ("IRCA Agreement") common stock purchase warrants to purchase up to
150,000 shares (the "Warrant Shares") of the Company's common stock, par value
$0.001 per share (the "Common Stock"), each Warrant entitling the holder thereof
to purchase one share of Common Stock at a redemption price of $1.00. SRS, in
turn, will provide the Registrant for a period of twelve months from the date of
the IRCA Agreement, with Investor Relations Services including:
(a) The dissemination of information which [Issuer] will provide to [SRS]
regarding [Issuer's] business and affairs, in the United States of America
in jurisdictions where the [Issuer's] securities are recognized as well as
dissemination through print and electronic media outlets, as well as to
[SRS] existing base of clients and business associations;
(b) Communication on an ongoing basis with members of [SRS] existing base of
clients and business associations concerning [Issuer's] business, business
developments, and other material public information which is provided by
[Issuer] to [SRS];
(c) [SRS] shall make itself available to field and answer questions raised by
members of [SRS'] existing base of clients where such questions are of a
general nature and concern the [Issuer's] business and business
developments.
The Company will be required to pay all organizational and offering
expenses (including accounting, legal, printing, clerical, filing and other
expenses) incurred by the Company & R&A, LLP in connection with the organization
of the Company and this offering, estimated at $165,000. The Company will also
pay all operating expenses except those specifically required to be borne by
R&A, LLP and SRS, LLC, 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 Company, (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 Company's custodian, transfer and
dividend disbursing agent, (ix) compensation and expenses of the Company'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 capital
transactions and legal actions to enforce the Company'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 Company in any
trade organizations and (xiv) expenses associated with litigation and other
extraordinary or non-recurring expenses.
Other operating expenses required to be borne by the Company are: (i) all
costs and fees incident to the selection and investigation of prospective
Company investments, such as travel expenses and professional fees including
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 Company and all necessary office equipment and services, including telephone
service, heat, utilities and similar items and (iii) the cost of providing the
Company with such corporate, administrative and clerical personnel including
officers and directors of the Company who are interested persons of the Barretto
Pacific Corporation and are acting in their respective capacities as officers
and directors) as the Company's board of directors reasonably deems necessary or
advisable to perform the services required to be performed by Barretto Pacific
Corporation on behalf of the Registrant.
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 pursuant to Regulation E of the 1933 Act.
Because the first $5,000,000 raised will be from shares that will be
acquired by investors in transactions involving an exempt public offering
pursuant to Regulation E, they will be unrestricted or "free-trading" securities
and may be freely traded, transferred, assigned, pleadged or otherwise disposed
of at the time of issuance.
(b) Holders
The Company has 700,000 shares of common stock authorized for issuance but
no shares outstanding at the time of this filing. The 700,000 shares of common
stock to be issued will be held by approximately 2 shareholders.
(c) Dividends
The Company 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 Company.
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
Company'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 Company's final quarterly dividend
distribution for the year.
The Company 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 Company, in new loans or
leases. The Company will also distribute to investors all proceeds received from
principal payments and sales of investments, net of reserves and expenses,
principal repayments on the Company'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 Company
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
The present shareholders of the Company have acquired an interest in the
Company at a total cost substantially less than the total cost the public
investors will pay for their shares. Therefore, the public investors will bear
most of the risk of loss. As of October 20, 1997, the Company had a total of
4,800,000 shares of common stock authorized for issuance and 2,500,000 shares of
its Series A Convertible Preferred Stock authroized for issuance, which equals
to a net tangible book value of $7,300.00 once issued or approximately $.001 per
share. On November 19, 1997, pursuant to a consent to action by the Board of
Directors of the Company, the Company agreed to rescind the authorization of
4,100,000 shares of common stock originally authroized on October 16, 1997 from
certain officers and directors of the Company. The Board recommended such action
to minimize the dilutive effects of this original issuance.
As of December 8, 1997, the officers, directors and other present
shareholders will own 700,000 shares of common stock and 2,500,000 shares of the
Series A Convertible Preferred Stock for which they will contribute a total of
$3,200.00 in cash or an average of $.001 per share. If the maximum number of
shares being offered during the Company's initial Reg. E offering are sold
(Maximum=1,000,000 common shares), the present shareholders will own 700,000
shares or 41.18% of the Company's common stock to be outstanding, and the public
purchasers will own 1,000,000 shares or 58.82% of the Company's common stock to
be outstanding, for which the public purchasers will have paid to the Company a
total of $1,000,000 (or $1.00 per share.) The following table illustrates the
per share dilution without giving effect to the exercise of the Series A
Convertible Preferred Stock:
Maximum Sold
Public offering price per share of common (1) $1.00
Net Asset Value per share before offering (2) $.001
Increase per share attributable to new $.4902
Investors
Net Asset Value per share after offering (3) $.4912
Dilution of Net Asset Value per share to new $.5088
investors
(1) Offering price before deduction of offering expenses.
(2) Determined by dividing the number of shares of common stock
outstanding into the net asset value of the company.
(3) After deduction of offering expenses of $165,000 consisting of legal
fees and blue sky registration expenses.
The following table summarizes the comparative ownership and capital
contributions of present shareholders and public investors assuming the maximum
number of shares are sold:
<TABLE>
<CAPTION>
Percent
Total of total Average
Percent consid- consid- price
Shares of total eration eration per
Owned Shares paid paid share
<S> <C> <C> <C> <C> <C>
Present Shareholders 700,000 41.18 $700 0.07% $.001
Public Investors 1,000,000 58.82 $1,000,000 99.93% $1.00
</TABLE>
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
GENERAL. The Company is authorized to issue two classes of capital stock,
50,000,000 shares of "Common Stock", $.001 par value and 5,000,000 shares of
"Preferred Stock", $.001 par value, respectively. The holders of the Company's
outstanding shares of common stock will elect all of the directors and are
entitled to one vote per share of Common Stock on all matters submitted to
shareholder vote. Holders of Common Stock do not have preemptive or preferential
rights to acquire any shares of the capital stock of the Corporation, and any or
all of such shares, wherever 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
consideration and on such terms as the Board of Directors determine of the
Corporation determine in their discretion without first offering the shares to
any shareholder of record.
All of the shares of the Corporation's authorized capital stock, when
issued for such consideration as the Board may determine shall be fully paid and
nonassessable. The Board of Directors have the discretion and may, by adoption
of a resolution of Bylaw, designate one or more Series of Preferred Stock and
have the power to determine the conversion and/or redemption rights, preferences
and privileges of each such Series of Preferred Stock provided that such
conversion and/or redemption rights, preferences and privileges of any Series of
Preferred Stock does not subordinate or otherwise limit the conversion and/or
redemption rights, preferences and/or privileges of any previously issued Series
of Preferred Stock.
The Company has through Board Action designated a Series A Convertible
Preferred Stock, where each Series A Convertible Preferred Stock, upon and
subject to the occurrence of a redemption event or transaction, will convert
into five shares of Common Stock. The Board has approved the following as
acceptable redemption events which activate the conversion rights of the Series
A Convertible Preferred Stock:
(a) Any event or transaction, where the consummation of such event or
transaction would constitute a control change of the corporation;
(b) Any tender offer of shares made pursuant to Section 14 of the
Securities Act of 1933 which, upon approval and completion, would
effectuate a significant change of control of the corporation;
(c) A liquidation or dissolution of the Company.
Except as otherwise required under the 1940 Act, voting power for the
election of directors and for all other purposes shall be exclusively vested in
the holders of 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.
In the event of a liquidation or dissolution of the Company, the holders of
the Common Stock shall be entitled to receive all of the net assets of the
Company. The assets so distributed to the stockholders shall be distributed
among such stockholders, in case 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 Company.
TRANSFERABILITY OF SHARES. The offer and sale of the shares of Common Stock
and together as, will be exempt from registration under the 1933 Act on the
ground that their issuance and sale is exempt from such registration
requirements pursuant to Regulation E of said Act. The Company intends to
register its units and underlying securities therein pursuant to Regulation S-B
and will file an appropriate registration statement under the Securities
Exchange Act of 1934.
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 Company anticipates
soliciting proxies from shareholders for each annual meeting. The Company's
Articles of Incorporation can be amended by the affirmative vote of at least a
majority of the Company's Shares outstanding and entitled to vote.
The Company currently intends to issue share certificates. The ownership of
uncertificated shares will be recorded on a stock ledger maintained by the
Company'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 Company'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 Company 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 Company's Articles of Incorporation provide that each holder of Shares
will be required, upon demand, to disclose to the Company 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 Company,
to comply with requirements of any other appropriate taxing authority, or to
comply with the provisions of the 1940 Act or ERISA.
To purchase Shares, a prospective investor must deliver to the Company a
completed, executed copy of the Subscription Agreement, such agreement and the
signature page to be in the form provided with the Offering Memorandum. The
Company may in its discretion require any prospective investor to complete an
investor questionnaire in form acceptable to the Company 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 Company. The rights and obligations under
the Subscription Agreements may not be transferred or assigned by a subscriber
without the consent of the Company.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation law of the State of Maryland, under which the Company 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 Company
contain a provision limiting the liability of its directors and officers to the
Company 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 Company's Articles
of Incorporation and Bylaws require the Company 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 Company's Bylaws provide that the Company may purchase and maintain
insurance on behalf of any person who is or was a director, officer or agent of
the Company 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 Company
would have the power to indemnify him or her against such liability provided no
such insurance 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 Company has not commenced business and has prepared no financial
statements.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company 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.
GRIFFIN INDUSTRIES, INC.
Date: January 20, 1998 By: /s/ LANDON BARRETTO
------------------- --------------------------------
Landon Barretto,
Chief Executive Officer
GRIFFIN INDUSTRIES, INC.
(the "Company" or "Registrant")
EXHIBIT INDEX
FORM 10
EXHIBIT DESCRIPTION
3(i) Articles of Incorporation of the Company filed with the Maryland Secretary
of State on October 14, 1997.
3(ii)Bylaws of the Company.
4.1 Form of Subscription Agreement between the Company and Individual
Investors, previously filed.
4.2 Form of Warrant Agreement between the Company and Savings and Retirement
Services, LLC.
10.1 Form of Investor Relations Consulting Agreement between the Company and
Savings and Retirement Services, LLC.
10.2 Form of Legal Services Agreement between the Company and Rizvi &
Associates, LLP
ARTICLES OF INCORPORATION
OF
GRIFFIN INDUSTRIES, INC.
FIRST: Incorporation: The undersigned Landon Barretto, whose address is
1111 Third Avenue Tower, 25th Floor, Seattle, Washington, 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 Griffin
Industries, Inc.
THIRD: Corporate Purposes: The Corporation is formed for the following
purpose or purposes:
A. To transact all lawful business for which a corporation may be incorporated
pursuant to the Maryland Corporation Code.
B. To manufacture, purchase or otherwise acquire and to hold, own, mortgage or
otherwise lien, pledge, lease, sell, assign, exchange, transfer or in any
manner dispose of, and to invest, deal and trade in and with good, wares,
merchandise and personal property of any and every class and description,
within or without the State of Maryland.
C. To acquire the goodwill, rights and property and to undertake the whole or
any part of the assets and liabilities of any person, firm, association or
corporation; to pay for the same in cash, the stock of the corporation,
bonds or otherwise; to hold or in any manner dispose of the whole or any
part of the property so purchased; to conduct in any lawful manner the
whole or any part of any business so acquired and to exercise all the
powers necessary or convenient in and about the conduct and management of
such business.
D. To guarantee, purchase or otherwise acquire, hold, sell, assign, transfer,
mortgage, pledge or otherwise dispose of shares of the capital stock, bonds
or other evidences of indebtedness created by other corporations and, while
the holder of such stock , to exercise all the rights and privileges of
ownership, including the right to vote thereon, to the same extent as a
natural person might or could do.
E. To purchase or otherwise acquire, apply for, register, hold, use sell, or
in any manner deal with patents, inventions, improvements, processes,
formulas, trademarks, trade names, rights and licenses secured under
letters patent, copyright or otherwise.
F. To enter into make and perform contracts of every kind for any lawful
purpose, with any person, firm, association, or corporation, town, city,
county, body politic, state, territory, government, colony or dependency
thereof.
G. To borrow money for any of the purposes of the corporation and to draw,
make, accept, endorse, discount, execute, issue, sell, pledge or otherwise
dispose of promissory notes, drafts, bills of exchange, warrants, bonds,
debentures and other negotiable or nonnegotiable, transferable or
nontransferable instruments and evidences of indebtedness, and to secure
the payment thereof and the interest thereon by mortgage or pledge,
conveyance or assignment in trust of the whole or any par of the property
of the corporation at the time owned or thereafter acquired.
H. To lend money to, or guarantee the obligations of, or to otherwise assist
the directors of the corporation or any other corporation the majority of
whose voting capital stock is owned by the corporation, upon the
affirmative vote of at least a majority of the outstanding shares entitled
to vote for directors.
I. To purchase, take, own, hold, deal in, mortgage or otherwise pledge, and to
lease, sell, exchange, convey, transfer or in any manner whatever dispose
of real property, within or without the State of Maryland.
J. To purchase, hold, sell and transfer the shares of its capital stock.
K. To have one or more offices and to conduct any or all operations and
business and to promote its objects, within or without the State of
Maryland, without restrictions as to place or amount.
L. To do any or all of the things herein set forth as principal, agent,
contractor, trustee, partner or otherwise, alone or in company with others.
M. 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
N. 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 201 East
Baltimore Street, Suite 630, Baltimore, Maryland, 21202.
FIFTH: Name and Address of Resident Agent. The name and address of the
resident agent of the Corporation in the State of Maryland is Harbor City
Research, 201 E. Baltimore Street, Suite 630, Baltimore, Maryland, 21202.
SIXTH: Shares of Stock.
A. The Corporation shall be authorized to issue two classes of capital
stock, designated as Common Stock and Preferred Stock respectively. The
Corporation shall be authorized to issue 50,000,000 shares of Common Stock,
$.001 par value, and 5,000,000 shares of Preferred Stock, $.001 par value.
B. Holders of Common Stock 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. The Board of Directors of the Corporation may, by adoption of a
resolution or Bylaw, designate one or more Series of Preferred Stock and shall
have the power to determine the conversion and/or redemption rights, preferences
and privileges of each such Series of Preferred Stock provided that such
conversion and/or redemption rights, preferences and privileges of any Series of
Preferred Stock does not subordinate or otherwise limit the conversion and/or
redemption rights, preferences and/or privileges of any previously issued Series
of Preferred Stock.
F. Except as otherwise required under the 1940 Act, voting power for the
election of directors and for all other purposes shall be exclusively vested in
the holders of 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 of the net assets
of the Corporation. The assets so 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 deems necessary to comply with provisions of the
Internal Revenue Code of 1986 applicable to the Corporation, to comply with the
provisions of the appropriate taxing authority, or to comply with the provisions
of the 1940 Act or the Employee Retirement Income Security Act of 1974, as any
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. Landon Barretto 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.
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 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: 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 11 day of October, 1997.
/s/ Landon Barretto
----------------------------------
Landon Barretto
00021.BYL.97
BYLAWS
OF
GRIFFIN INDUSTRIES, INC.
(A MARYLAND CORPORATION)
ARTICLE I
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL
Section 1. Name. The name of the corporation is Griffin Industries, Inc.
Section 2. Principal Offices. The principal office of the Corporation is in
the City of Seattle. 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 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 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.
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 Illinois) a
written request to any officer of the Corporation or its resident agent in
Illinois 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 Illinois 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.
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 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 Illinois.
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 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,
or by two or more Directors, at the time and place (within or without the State
of Illinois) 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, email 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. Receipt by the Secretary of the
Corporation of an email acknowledgement that notice has been transmitted to any
Director together with a telephone message alerting said Director of such email
notice, shall constitute waiver of notice.
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.
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.
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, 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.
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 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 an 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 Chairman and 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 the chief 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 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 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,
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 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 Illinois.
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 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.
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 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 Mryland 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 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 by proxy, or (b) more than fifty percent of the Corporation's
outstanding shares.
GRIFFIN INDUSTRIES, INC.
SUBSCRIPTION AGREEMENT
The undersigned (the "Subscriber"), hereby subscribes to purchase shares of
Common Stock, $.001 par value ("Shares"), issued by Griffin Industries, Inc., a
Maryland corporation (the "Company"), in the amount set forth on the signature
page below ("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 Offering Circular dated November 5, 1997 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 Company hereby agrees
to sell to the Subscriber, and the Subscriber irrevocably subscribes for and
agrees to purchase from the Company, Shares in the amount of its Commitment.
2. MANNER OF PAYMENT. Payments made to purchase Shares shall be made on or
before the payment date (the "Payment Date"). which shall occur no later than
fourteen business days from the date of this Agreement. Payments shall be made
by wire transfer or by personal check.
3. PAYMENT DEFAULT. If payment for the purchase of Shares is received by
the Company 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 Company 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 Company 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 Company
to pursue one or more of these remedies will not preclude the Company from
pursuing any rights it may have to seek judicial enforcement of the Subscriber's
subscription obligation.
4. 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 Company. The Company may
withhold consent to the assignment of this Agreement in its sole discretion.
Except as provided in Section 3 hereof, neither this Agreement nor any rights or
interests herein may be assigned by the Company.
5. 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
Company. Without limiting the foregoing, the Company may withhold consent to a
proposed transfer if the Company 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 Company 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 Company, 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 Company determines,
after consideration of an opinion of counsel for the proposed transferee and
such additional counsel as the Company may wish to consult on the matter, will
not make it more difficult for the Company to comply with the requirements of
the 1933 Act applicable to the Company 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 4 and this Section 5 and with the
pertinent provisions of the Articles of Incorporation of the Company, the
Subscriber will not effect a transaction restricted by either such Section
without advance notice to the Company and prior written approval by the Company.
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
Company expressly consents in writing to the assumption of the transferor's
Subscription Agreement by another party.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants that:
(i) The Company 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
Company's Offering Circular ("Offering Circular") and to issue the Shares
subscribed for hereby. This Agreement and any other documents executed and
delivered by the Company in connection herewith have been duly authorized,
executed and delivered by the Company, and are the legal, valid and binding
obligations of the Company enforceable in accordance with their respective
terms.
(ii) The execution and delivery of this Agreement and any other documents
executed and delivered by the Company 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 Company is subject, the provisions of
the charter, by-laws or other governing documents of the Company or any
indenture, mortgage or other instrument or agreement to which the Company is a
party or by which it is bound and does not require on the part of the Company
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 Company has filed a notice of intent with the Securities and
Exchange Commission, pursuant to Section 54(a) of the 1940 Act, to in good faith
elect to be subject to the provisions of Sections 55 through 65 of the 1940 Act.
7. 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 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 Company's investment objectives, policies and strategies, (x)
the decision to invest plan assets in the Company 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 Company, and is consistent with the
duties and responsibilities imposed upon fiduciaries with regard to their
investment decisions under ERISA; and (z) if the Company's underlying assets are
deemed to be "plan assets" of ERISA Plan investors, such fiduciaries shall be
deemed to have appointed the Company as investment managers of the ERISA Plan
Subscribers with respect to the assets managed in the Company.
(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 Company is not obligated
to file a registration statement or a notification of registration under the
1933 Act or any state securities law, nor does the Company 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 Company 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 E
thereunder.
(vi) The Subscriber has received and carefully reviewed the Offering
Circular and understands that any information provided other than in the
Offering Circular has been furnished on the understanding that the Subscriber
will refer to the Offering Circular for an authoritative statement on all
matters covered therein with respect to the Company 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 Company, and has received responses
to such questions that it has chosen to ask. Subscriber acknowledges that any
information is not intended to predict actual performance of the Company and
that Subscriber has not relied on such information or that purpose. Subscriber
understands that past performance does not guarantee future results
(vii) The Subscriber recognizes that an investment in the Company 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 Offering Circular. 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 Company
or any of its 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 Company or any of its employees, directors,
officers or agents, expressly or by implication, other than as contained in the
Offering Circular, 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 acknowledges that he/she meets the minimum suitability
requirements set forth by the Company with respect to this offering.
Specifically, Subscriber warrants that:
1) his or her net worth is in excess of SIXTY THOUSAND DOLLARS
($60,000.00) which is exclusive of home, furnishings and
automobiles and any liabilities secured by those assets and his
or her expected income (for the upcoming fiscal year) is at least
TWENTY FIVE THOUSAND DOLLARS ($25,000.00); or
2) his or her net worth is in excess of ONE HUNDRED FIFTY THOUSAND
DOLLARS ($150,000.00), which is exclusive of home, furnishings
and automobiles and any liabilities secured by those assets; and
3) Subscriber is not investing more than TEN PERCENT (10%) of his or
her net worth with the Company pursuant to this offering.
8. COVENANTS OF THE SUBSCRIBER. The Subscriber agrees with the Company
that:
(i) For so long as the Subscriber owns Shares, the Subscriber shall, upon
request, disclose to the Company such information with respect to direct or
indirect holdings of such Shares as the Company deems necessary to comply with
provisions of the Internal Revenue Code of 1986 applicable to the Company, 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
Company 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 Company may
reasonably require.
(iii) The Subscriber will indemnify and hold the Company 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 Company.
9. 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 Company has received notice in accordance with the provisions
hereof. The address of the Company for all purposes shall be 1111 Third Avenue,
25th Floor, Seattle, Washington 98101, 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.
10. 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 Washington.
11. 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.
12. 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.
13. 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 Company, becomes an Agreement binding on the Company as
of the date of the signature signifying acceptance set forth on the attached
signature page.
SUBSCRIBER agrees to purchase _____________ shares of common stock of
Griffin Industries, Inc. in the amount of ______________ dollars, which is
immediately payable by check submitted with this subscription agreement payable
to "Griffin Industries, Inc." or payable via wire transfer within two business
days to Key Bank of Washington, Seattle, Washington to the account of "Griffin
Industries, Inc.", with the routing and 125000574 account number 471661008105.
SUBSCRIBER
- --------------------------------------- --------------------
Signed: Date
Please Type or Print the following information:
Name: ________________ ___ __________________________
First Init. Last
Home Address: _____________________________________________________________
Street
---------------------------- ------ -----------
City State Zip
Home Phone: ___________________ Work Phone: ________________
Other (Pager/Cellular)________________
Social Security Number or Taxpayer ID: ______-___-_____________
1
FORM OF
WARRANT AGREEMENT
This WARRANT AGREEMENT dated as of December ___, 1997, between Griffin
Industries, Inc., a Maryland corporation (the "Company") with its principal
place of business at 1111 Third Avenue, Suite 2500, Seattle, Washington, 98101
and Savings and Retirement Service, LLC, a Texas Limited Liability Company
("SRS"), with offices at 15603 Kuykendahl Drive, Suite 350A, Houston, Texas
77090, together with any transferee of Warrants or Warrant Shares, the "Warrant
Holders(s)".
WHEREAS, the Company proposes to issue to SRS as consideration for SRS
entering into the Investor Relations Consulting Agreement, which is incorporated
and made a part of herein, common stock purchase warrants (the "Warrants") to
purchase up to 150,000 shares (the "Warrant Shares") of the Company's common
stock, par value $0.001 per share (the "Common Stock"), each Warrant entitling
the holder thereof to purchase one share of Common Stock at a redemption price
of $1.00
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth herein and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound hereby, agree as follows:
1. ISSUANCE OF WARRANTS; FORM OF WARRANT. The Company will issue and
deliver the Warrants to Warrant Holders on the Closing Date referred to in the
Investor Relations Consulting Agreement. The aggregate number of Warrants to be
issued and delivered shall be 150,000 (subject to further limitation as provided
herein). The Warrants shall be exercisable on or after December 20, 1997. The
text of each Warrant shall be substantially as set forth in the Warrant
Certificate. The Warrants shall be executed on behalf of the Company by the
manual or facsimile signature of the present or any future Chairman of the
Board, President, or Vice President of the Company, attested by the manual or
facsimile signature of the present or future Secretary or an Assistant Secretary
of the Company. A Warrant bearing the manual or facsimile signature of
individuals who were at any time the proper officers of the Company shall bind
the Company notwithstanding that such individuals or any of them shall have
ceased to hold such offices prior to the delivery of such Warrant or did not
hold such offices on the date of this Warrant Agreement. The demand and the
piggy-back registration rights set forth in Section 16 hereof may be exercised
at any time during the term of the Warrants.
Warrants shall be dated as of the date of execution thereof by the Company
either upon initial issuance or upon division, exchange, substitution or
transfer.
2. REPRESENTATIONS AND WARRANTIES.
(a) The Company hereby represents and warrants as follows:
(i) POWER AND AUTHORITY. The Company has all requisite corporate
power and authority, and has taken all corporate action
necessary, to execute, deliver and perform this Warrant
Agreement, to grant, issue, and deliver the Warrants and to
authorize and reserve for issuance and, upon payment from time to
time of the Exercise Price or exercise of Net Share Warrants, to
issue and deliver the shares of Common Stock or other securities
issuable upon exercise of the Warrants. This Warrant Agreement
has been duly executed and delivered by the Company. (ii)
RESERVATION, ISSUANCE AND DELIVERY OF COMMON STOCK. There have
been reserved for issuance, and the Company shall at all times
keep reserved, out of the authorized and unissued shares of
Common Stock, a number of shares sufficient to provide for the
exercise of the rights of purchase represented by the Warrants,
and such shares, when issued or upon a net exercise in accordance
with the terms of the Warrants and of this Warrant Agreement,
will be legally and validly issued, fully paid and non-
assessable and will be free of any preemptive rights of
shareholders or any restrictions.
(b) The Warrant Holder hereby represents and warrants as follows:
(i) ACCREDITED INVESTOR. The Warrant Holder is an "accredited
investor" within the meaning of Rule 501 under Regulation D
promulgated under the Securities Act, is experienced in
evaluating investments in companies such as the Company, has such
knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of its investment
and has the ability to bear the entire economic risk of its
investment. The Warrant Holder has made its own evaluation of its
investment in the Warrants, based upon such information as is
available to it and without reliance upon the Company or any
other person or entity, and the Warrant Holder agrees that
neither the Company nor any other person or entity has any
obligation to furnish any additional information to the Warrant
Holder except as expressly set forth herein.
3. CONDITIONS PRECEDENT. SRS's obligations hereunder shall be subject to
satisfaction of the following conditions on the Closing Date referred to in the
Investor Relations Consulting Agreement:
(a) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Warrant Agreement and the Warrants and
all other legal matters relating to this Warrant Agreement, the Warrants and the
transactions contemplated hereby shall be satisfactory in all respects to SRS,
in their reasonable judgment, and the Company shall have furnished to SRS all
documents and information that they may reasonably request to enable them to
pass judgment upon such matters.
(b) There shall have been duly tendered to SRS or upon the order of SRS a
certificate or certificates representing the Warrants.
4. REGISTRATION. The Warrants shall be numbered and shall be registered on
the books of the Company (the "Warrant Register") as they are issued. The
Warrants shall be registered initially in such names and such denominations as
SRS has specified to the Company.
5. EXCHANGE OF WARRANT CERTIFICATES. Subject to any restriction upon
transfer set forth in this Warrant Agreement, each Warrant certificate may be
exchanged at the option of the Warrant Holder thereof for another certificate or
certificates of different denominations entitling the Warrant Holder thereof to
purchase upon surrender to the Company or its duly authorized agent a like
aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitle such Warrant Holder to purchase. Any Warrant Holder
desiring to exchange a Warrant certificate or certificates shall make such
request in writing delivered to the Company, and shall surrender, properly
endorsed, the certificate or certificates to be so exchanged. Thereupon, the
Company shall execute and deliver to the person entitled thereto a new Warrant
certificate or certificates, as the case may be, as so requested. Any Warrant
issued upon exchange, transfer or partial exercise of the Warrants shall be the
valid obligation of the Company, evidencing the same generic rights and entitled
to the same generic benefits under this Warrant Agreement as the Warrants
surrendered for such exchange, transfer or exercise.
6. TRANSFER OF WARRANTS. Subject to the provisions of Section 14 hereof,
the Warrants shall be transferable only on the Warrant Register upon delivery to
the Company of the Warrant certificate or certificates duly endorsed by the
Warrant Holder or by his duly authorized attorney-in-fact or legal
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. In all cases of transfer by an attorney- in-fact, the
original power of attorney, duly approved, or an official copy thereof, duly
certified, shall be deposited with the Company. In case of transfer by
executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited with the Company in its discretion. Upon any registration of
transfer, the Company shall deliver a new Warrant or Warrants to the person
entitled thereto.
7. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Each Warrant entitles the Warrant Holder thereof to purchase one share
of Common Stock during the time period and subject to the conditions set forth
in the respective Warrant Certificates at an exercise price of [$1.00] per
share, subject to adjustment in accordance with Section 12 hereof (the "Exercise
Price"). Each Warrant terminates on the fifth anniversary of the date on which
such Warrant becomes exercisable in accordance with its terms (the "Expiration
Date").
(b) The Exercise Price and the number of shares issuable upon exercise of
Warrants are subject to adjustment upon the occurrence of certain events,
pursuant to the provisions of Section 12 of this Warrant Agreement. Subject to
the provisions of this Warrant Agreement, each Warrant Holder shall have the
right, which may be exercised as expressed in such Warrants, to purchase from
the Company (and the Company shall issue and sell to such Warrant Holder) the
number of fully paid and nonassessable shares of Common Stock specified in such
Warrants, upon surrender to the Company, or its duly authorized agent, of such
Warrants, with the purchase form on the reverse thereof duly filled in and
signed and upon a net exercise pursuant to this subsection of this Warrant
Agreement, for the number of shares in respect of which such Warrants are then
exercised. The Warrant Holder may make an exercise of Warrants for "Net Warrant
Shares." The number of Net Warrant Shares will be determined as described by the
following formula: Net Warrant Shares = [WS x (MP-EP)]/MP. "WS" is the number of
Warrant Shares issuable upon exercise of the Warrants or portion of Warrants in
question. "MP" is the Market Price of the Common Stock on the last trading day
preceding the date of the request to exercise the Warrants. "Market Price" shall
mean the then current market price per share of Common Stock, as determined in
paragraph 12.1(e). "EP" shall mean the Exercise Price. Subject to paragraph 7(c)
hereof, upon such surrender of Warrants and upon a net exercise as aforesaid,
the Company at its expense shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Warrant Holder and in
such name or names as the Warrant Holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased upon the
exercise of such Warrants in respect of any fraction of a share of such stock
otherwise issuable upon such surrender. Such certificate or certificates shall
be deemed to have been issued, and any person so designated to be named therein
shall be deemed to have become a holder of record of such shares, as of the date
of the surrender of such Warrants and receipt of shares by net exercise as
aforesaid. The rights of purchase represented by the Warrants shall be
exercisable, at the election of the Warrant Holders thereof, either in full or
from time to time in part and, in the event that any Warrant is exercised in
respect of less than all of the shares purchasable on such exercise at any time
prior to the Expiration Date, a new certificate evidencing the remaining Warrant
or Warrants will be issued.
(c) So long as the Company satisfies the continued listing requirements of
the American Stock Exchange Market or another National Securities Exchange, the
exercise rights set forth above shall be limited so that upon the exercise of
the Warrants, the Warrant Holder's aggregate ownership of the Company will be
less than 20% of the shares of Common Stock outstanding on the date of issuance
of the Warrants; provided that such limitation shall cease and this Section 7(c)
shall become null and void upon the approval of the issuance of the Warrants by
the shareholders of the Company, the American Stock Exchange or the National
Association of Securities Dealers, Inc. or upon such other event as shall allow
the conversion or exercise or both, as appropriate, without violating the
applicable requirements of the American Stock Exchange.
8. COMPLIANCE WITH GOVERNMENT REGULATIONS. The Company covenants that if
any share of Common Stock required to be reserved for purposes of exercise or
conversion of Warrants require, under any federal or state law or applicable
governing rule or regulation of any national securities exchange, registration
with or approval of any governmental authority, or listing on any such national
securities exchange, before such shares may be issued upon exercise, the Company
will use its commercially reasonable efforts to cause such shares to be duly
registered, approved or listed on the relevant national securities exchange, as
the case may be.
9. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes, if
any, attributable to the initial issuance of Warrant Shares upon the exercise of
Warrants and any securities issued pursuant to Section 12 hereof; provided,
however, that the Company shall not be required to pay any tax or taxes which
may be payable in respect of any transfer involved in the issue or delivery of
any Warrants or certificates for Warrant Shares and any securities issued
pursuant to Section 12 hereof in a name other than that of the Warrant Holder of
such Warrants.
10. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and in substitution for the Warrant lost, stolen, or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest.
11. RESERVATION OF WARRANT SHARES; PURCHASE AND CANCELLATION OF WARRANTS.
The Company shall at all times reserve, out of the authorized and unissued
shares of Common Stock, a number of shares sufficient to provide for the
exercise of the rights of purchase represented by the Warrants, and the transfer
agent for the Common Stock ("Transfer Agent") and every subsequent transfer
agent for any shares of the Company's capital stock issuable upon the exercise
of any of the rights of purchase aforesaid are hereby irrevocably authorized and
directed at all times until the Expiration Date to reserve such number of
authorized and unissued shares as shall be requisite for such purpose. The
Company will keep a copy of this Warrant Agreement on file with the Transfer
Agent and with every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of the rights of purchase represented
by the Warrants. The Company will supply the Transfer Agent and any such
subsequent transfer agent with duly executed stock certificates for such purpose
and will itself provide or otherwise make available any cash which may be
issuable as provided by Section 13 of this Warrant Agreement. The Company will
furnish to the Transfer Agent and any such subsequent transfer agent a copy of
all notices of adjustments, and certificates related thereto, transmitted to
each Warrant Holder pursuant to Section 12.3 hereof. All warrants surrendered in
the exercise of the rights thereby evidenced shall be canceled, and such
canceled Warrants shall constitute sufficient evidence of the number of shares
of stock which have been issued upon the exercise of such Warrants (subject to
adjustment as herein provided). No shares of stock shall be subject to
reservation in respect of the Warrants subsequent to the Expiration Date except
to the extent necessary to comply with the terms of this Warrant Agreement.
12. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The number
and kind of securities purchasable upon the exercise of each Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as hereafter defined.
12.1. MECHANICAL ADJUSTMENTS. The number of Warrant Shares issuable upon
the exercise of each Warrant and the Warrant Price shall be subject to
adjustment as follows:
(a) In case the Company shall (i) pay a dividend to holders of Common
Stock in shares of Common Stock or make a distribution to holders
of Common Stock in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a larger number of shares
of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock or (iv)
issue by reclassification of its shares of Common Stock other
securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is
the surviving corporation), the number of Warrant Shares
purchasable upon exercise of each Warrant immediately prior
thereto shall be adjusted so that the Warrant Holder shall be
entitled to receive the kind and number of Warrant Shares or
other securities of the Company which he would have owned or have
been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately
prior to the happening of such event or any record date with
respect thereto regardless of whether the Warrants are
exercisable at the time of the happening of such event or at the
time of any record date with respect thereto. An adjustment made
pursuant to this paragraph (a) shall become effective immediately
after the effective date of such event retroactive to the record
date, if any, for such event.
(b) In case the Company shall issue rights, options, or warrants to
holders of its outstanding Common Stock, without any charge to
such holders, entitling them to subscribe for shares of Common
Stock at a price per share which is lower at the record date
mentioned below than the Exercise Price, then (i) the Exercise in
effect immediately prior to such issuance shall immediately be
reduced to the price that is equivalent to such consideration
received by the Company upon such issuance and (ii) the number of
Warrant Shares thereafter purchasable upon the exercise of each
Warrant shall be increased in direct proportion to the increase
in the number of shares of Common Stock outstanding on a fully
diluted basis immediately prior to such issuance; provided that
if such shares of Common Stock, options or other convertible
securities are issued for consideration per share less than the
Exercise Price at the date of such issue or sale, the number of
shares of Common Stock that immediately prior to such issuance
the Warrant Holder shall have been entitled to purchase pursuant
to this Warrant shall be increased to the greater of (i) that
number of shares of Common Stock that immediately prior to such
issuance the Warrant Holder shall have been entitled to purchase
pursuant to this Warrant multiplied by a fraction, the numerator
of which is the Exercise Price and the denominator of which is
such consideration per share, and (ii) the number of shares of
Common Stock otherwise calculated under this Section 12.1. Such
adjustment shall be made whenever such rights, options, or
warrants are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to
receive such rights, options, or warrants; provided that this
Section 12.1(b) shall expire and be of no force and effect on or
after December 20, 1998.
(c) In case the Company shall distribute to holders of its shares of
Common Stock evidences of its indebtedness or assets (including
cash dividends or other cash distributions) or rights, options,
or warrants, or convertible or exchangeable securities containing
the right to subscribe for or purchase shares of Common Stock
(excluding those referred to in paragraph (b) above), then in
each case the number of Warrant Shares thereafter purchasable
upon the exercise of each Warrant shall be determined by
multiplying the number of Warrant Shares theretofore purchasable
upon the exercise of each Warrant by a fraction, of which the
numerator shall be the then current market price per share of
Common Stock (as determined in accordance with paragraph (e)
below) on the date of such distribution, and of which the
denominator shall be the then current market price per share of
Common Stock, less the then fair value (as determined in good
faith by the Board of Directors of the Company) of the portion of
the assets or evidences of indebtedness so distributed or of such
subscription rights, options, or warrants, or of such convertible
or exchangeable securities applicable to one share of Common
Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective on the date of
distribution retroactive to the record date for the determination
of stockholders entitled to receive such distribution.
In the event of distribution by the Company to holders of its shares
of Common Stock of stock of a subsidiary or securities
convertible into or exercisable for such stock, then in lieu of
an adjustment in the number of Warrant Shares purchasable upon
the exercise of each Warrant, the Warrant Holder, upon the
exercise thereof at any time after such distribution, shall be
entitled to receive from the Company, such subsidiary, or both,
as the Company shall determine, the stock or other securities to
which such Warrant Holder would have been entitled if such
Warrant Holder had exercised such Warrant immediately prior
thereto regardless of whether the Warrants are exercisable at
such time, all subject to further adjustment as provided in this
subsection 12.1; provided, however, that no adjustment in respect
of dividends or interest on such stock or other securities shall
be made during the term of a Warrant or upon the exercise of a
Warrant; provided further that this Section 12.1(c) shall expire
and be of no force and effect on or after December 20, 1998.
(d) In case the Company shall sell and issue shares of Common Stock
(other than pursuant to rights, options, warrants, or convertible
securities initially issued before the date of this Agreement) or
rights, options, warrants, or convertible securities containing
the right to subscribe for or purchase shares of Common Stock
(excluding shares, rights, options, warrants, or convertible
securities issued in any of the transactions described in
paragraphs (a), (b) or (c) above) at a price per share of Common
Stock (determined, in the case of such rights, options, warrants
or convertible securities, by dividing (w) the total of the
amount received or receivable by the Company (determined as
provided below) in consideration of the sale and issuance of such
rights, options, warrants, or convertible securities, by (x) the
total number of shares of Common Stock covered by such rights,
options, warrants, or convertible securities) lower than the
Exercise Price in effect immediately prior to such sale and
issuance, then (i) the Exercise in effect immediately prior to
such issuance shall immediately be reduced to the price that is
equivalent to such consideration received by the Company upon
such issuance and (ii) the number of Warrant Shares thereafter
purchasable upon the exercise of the Warrants shall be increased
in direct proportion to the increase in the number of shares of
Common Stock outstanding on a fully diluted basis immediately
prior to such issuance; provided that if such shares of Common
Stock, options or other convertible securities (other than
Excluded Stock) are issued for consideration per share less than
the Exercise Price at the date of such issue or sale, the number
of shares of Common Stock that immediately prior to such issuance
the Warrant Holder shall have been entitled to purchase pursuant
to this Warrant shall be increased to the greater of (i) that
number of shares of Common Stock that immediately prior to such
issuance the Warrant Holder shall have been entitled to purchase
pursuant to this Warrant multiplied by a fraction, the numerator
of which is the Exercise Price and the denominator of which is
such consideration per share, and (ii) the number of shares of
Common Stock otherwise calculated under this Section 12.1. Such
adjustment shall be made successively whenever such an issuance
is made; provided that this Section 12.1(d) shall expire and be
of no force and effect on or after December 20, 1998. For the
purposes of such adjustments, the consideration received or
receivable by the Company for rights, options, warrants, or
convertible securities shall be deemed to be the consideration
received by the Company for such rights, options, warrants, or
convertible securities, plus the consideration or premiums stated
in such rights, options, warrants, or convertible securities to
be paid for the shares of Common Stock covered thereby. In case
the Company shall sell and issue shares of Common Stock, or
rights, options, warrants, or convertible securities containing
the right to subscribe for or purchase shares of Common Stock,
for a consideration consisting, in whole or in part, of property
other than cash or its equivalent, then in determining the "price
per share of Common Stock" and the "consideration received or
receivable by the Company" for purposes of the first sentence of
this paragraph (d), the Board of Directors shall determine, in
its discretion, the fair value of said property.
(e) For the purpose of any computation under paragraphs (b), (c), and
(d) of this Section, the current market price per share of Common
Stock at any date shall be the average of the daily closing
prices of the Company's Common Stock, for five consecutive
trading days ending one trading day before the date of such
computation. The closing price for each day shall be the last
such reported sales price regular way or, in case no such
reported sale takes place on such day, the average of the closing
bid and asked prices regular way for such day, in each case on
the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading or, if not listed
or admitted to trading, the average of the closing bid and asked
prices of the Common Stock in the over-the-counter market as
reported by NASDAQ or any comparable system. In the absence of
one or more such quotations, the Board of Directors of the
Company shall determine the current market price, in good faith,
on the basis of such quotations as it considers appropriate.
Notwithstanding the foregoing, for the purpose of any calculation
under paragraph (d) above (A) with respect to any issuance of
options under the Company's employee or director compensation
stock option plans as in effect or as adopted by the Board of
Directors of the Company on the date hereof, the term "current
market price", in such instances, shall mean the fair market
price on the date of the issuance of any such option determined
in accordance with the Company's employee compensation stock
option plans as in effect or adopted by the Board of Directors of
the Company on the date hereof; and (B) with respect to any
issuances of Common Stock (or rights, options, warrants, or
convertible securities containing the right to subscribe for or
purchase shares of Common Stock) in connection with bona fide
corporate transactions (other than issuances in such transactions
for cash or similar consideration), the term "fair market price"
shall mean the fair market price per share as determined in
arm's-length negotiations by the Company and such other parties
(other than affiliates or subsidiaries of the Company) to such
transactions as reflected in the definitive documentation with
respect thereto, unless such determination is not reasonably
related to the closing market price on the date of such
determination.
(f) In any case in which this Section 12.1 shall require that any
adjustment in the number of Warrant Shares be made effective as
of immediately after a record date for a specified event, the
Company may elect to defer until the occurrence of the event the
issuing to the holder of any Warrant exercised after that record
date the shares of Common Stock and other securities of the
Company, if any, issuable upon the exercise of any Warrant over
and above the shares of Common Stock and other securities of the
Company, if any, issuable upon the exercise of any Warrant prior
to such adjustment; provided, however, that the Company shall
deliver to such Warrant Holder a due bill or other appropriate
instrument evidencing the holder's right to receive such
additional shares or securities upon the occurrence of the event
requiring such adjustment.
(g) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require
an increase or decrease of at least one percent (1%) in the
number of Warrant Shares purchasable upon the exercise of each
Warrant; provided, however, that any adjustments which by reason
of this paragraph (g) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the nearest
one-thousandth of a share.
(h) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as herein provided, the
Warrant Price payable upon the exercise of each Warrant shall be
adjusted by multiplying such Warrant Price immediately prior to
such adjustment by a fraction, of which the numerator shall be
the number of Warrant Shares purchasable upon the exercise of
such Warrant immediately prior to such adjustment, and of which
the denominator shall be the number of Warrant Shares purchasable
immediately.
(i) No adjustment in the number of Warrant Shares purchasable upon
the exercise of each Warrant need be made under paragraphs (b),
(c) and (d) if the Company issues or distributes to each Warrant
Holder the rights, options, warrants, or convertible or
exchangeable securities, or evidences of indebtedness or assets
referred to in those paragraphs which each Warrant Holder would
have been entitled to receive had the Warrants been exercised
prior to the happening of such event or the record date with
respect thereto regardless of whether the Warrants are
exercisable at the time of the happening of such event or at the
time of any record date with respect thereto. No adjustment need
be made for a change in the par value of the Warrant Shares.
(j) For the purpose of this Section 12.1, the terms "shares of Common
Stock" shall mean (i) the class of stock designated as the Common
Stock of the Company at the date of this Agreement, or (ii) any
other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of changes in
par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of
an adjustment made pursuant to paragraph (a) above, the Warrant
Holders shall become entitled to purchase any securities of the
Company other than shares of Common Stock, thereafter the number
of such other securities so purchasable upon exercise of each
Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with
respect to the Warrant Shares contained in paragraphs (a) through
(i), inclusive, above, and the provisions of Section 7 and
Section 12.2 through 12.5, inclusive, with respect to the Warrant
Shares, shall apply on like terms to any such other securities.
(k) Upon the expiration of any rights, options, warrants, or
conversion or exchange privileges, if any thereof shall not have
been exercised, the Warrant Price and the number of shares of
Common Stock purchasable upon the exercise of each warrant shall,
upon such expiration, be readjusted and shall thereafter be such
as it would have been had it been originally adjusted (or had the
original adjustment not been required, as the case may be) as if
(A) the only shares of Common Stock so issued were the shares of
Common Stock, if any, actually issued or sold upon the exercise
of such rights, options, warrants, or conversion or exchange
rights and (B) such shares of Common Stock, if any, were issued
or sold for the consideration actually received by the Company
upon such exercise plus the aggregate consideration, if any,
actually received by the Company for the issuance, sale or grant
of all such rights, options, warrants, or conversion or exchange
rights whether or not exercised; provided, however, that no such
readjustment shall have the effect of increasing the Warrant
Price or decreasing the number of Warrant Shares by an amount in
excess of the amount of the adjustment initially made with
respect to the issuance, sale or grant of such rights, options,
warrants, or conversion or exchange rights.
(l) In addition to the adjustments set forth above, the Exercise
Price shall be immediately reduced and the number of Warrant
Shares shall be immediately increased, in each case, on a pari
passu basis with the conversion, exercise, or strike price of any
other derivative securities of the Company whether now
outstanding or hereafter issued.
12.2. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may, at its option,
at any time during the term of the Warrants, reduce the then current Exercise
Price to any amount determined appropriate by the Board of Directors of the
Company.
12.3. NOTICE OF ADJUSTMENT. When the number of Warrant Shares purchasable
upon the exercise of each Warrant or the Exercise Price of such Warrant Shares
is adjusted, as herein provided, the Company shall promptly mail by first class,
postage prepaid, to each Warrant Holder notice of such adjustment or adjustments
and a certificate of a firm of independent public accountants selected by the
Board of Directors of the Company (who may be the regular accountants employed
by the Company) setting forth the number of Warrant Shares purchasable upon the
exercise of each Warrant and the Exercise Price of such Warrant Shares after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.
Such certificate, absent manifest error, shall be conclusive evidence of the
correctness of such adjustment.
12.4. PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION, ETC. In
case of any consolidation of the Company with or merger of the Company into
another person or in case of any sale, transfer, or lease to another person of
all of or substantially all the assets of the Company, the Company or such
successor or purchaser, as the case may be, shall execute with each Warrant
Holder an agreement that each Warrant Holder shall have the right thereafter
upon payment of the Exercise Price in effect immediately prior to such action to
purchase upon exercise of each Warrant the kind and amount of shares and other
securities and property which the Warrant Holder would have owned or have been
entitled to receive after the happening of such consolidation, merger, sale,
transfer, or lease had such Warrant been exercised immediately prior to such
action regardless of whether the Warrants are exercisable at the time of such
action. Such agreement shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
12. The provisions of this Section 12.4 shall similarly apply to successive
consolidations, mergers, sales, transfers, or leases.
12.5. STATEMENT ON WARRANTS. Even though Warrants heretofore or hereafter
issued may continue to express the same price and number and kind of shares as
are stated in the Warrants initially issuable pursuant to this Warrant
Agreement, the parties understand and agree that such Warrants will represent
rights consistent with any adjustments in the Exercise Price or the number or
kind of shares purchasable upon the exercise of the Warrants.
13. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractional Warrant Shares on the exercise of Warrants. If more than one Warrant
shall be presented for exercise in full at the same time by the same Warrant
Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 13,
be issuable on the exercise of any Warrant (or specified portion, thereof), the
Company shall pay an amount in cash equal to the closing price for one share of
the Common Stock on the trading day immediately preceding the date the Warrant
is presented for exercise, multiplied by such fraction.
14. REGISTRATION UNDER THE SECURITIES ACT OF 1933. SRS represents and
warrants to the Company that it will not dispose of the Warrant or Warrant
Shares except pursuant to (i) an effective registration statement, or (ii) an
applicable exemption from registration under the Securities Act of 1933 (the
"Act"). In connection with any sale by SRS pursuant to clause (ii) of the
preceding sentence, it shall furnish to the Company an opinion of counsel
reasonably satisfactory to the Company to the effect that such exemption from
registration is available in connection with such sale.
15. CERTIFICATE TO BEAR LEGENDS. The Warrants shall be subject to a
stop-transfer order and the certificate or certificates therefor shall bear the
following legend by which each Warrant Holder shall be bound:
"THE WARRANTS REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY OTHER STATE. THE WARRANTS
REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, OR (II) AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT. ANY SALE PURSUANT TO CLAUSE (II) OF THE PRECEDING SENTENCE MUST
BE ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION
WITH SUCH SALE."
The Warrant Shares or other securities issued upon exercise of the Warrants
shall, unless issued pursuant to an effective registration statement, be subject
to a stop-transfer order and the certificate or certificates evidencing any such
Warrant Shares or securities shall bear the following legend by which the
Warrant Holder thereof shall be bound:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO
(I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (II) AN
APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. ANY SALE
PURSUANT TO CLAUSE (II) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE."
16. REGISTRATION RIGHTS. The Warrant Shares shall have the right to be
registered in the Company's immediately subsequent registration statement filed
on Form SB-2 or other appropriate form pursuant to the Securities Act of 1933.
Such right shall be exercised by each such Warrant Holder by providing written
notice to the Company within twenty business days of receiving notification from
the Company of its intention to file a registration statement as described
hereinabove.
17. NO RIGHTS AS STOCKHOLDERS; NOTICE TO WARRANT HOLDERS. Nothing contained
in this Warrant Agreement or in any of the Warrants shall be construed as
conferring upon the Warrant Holders or their transferees the right to vote or to
receive dividends or to consent or to receive notice as stockholders in respect
of any meeting of stockholders for the election of directors of the Company or
any other matter, or any rights whatsoever as stockholders of the Company. If,
however, at any time prior to the expiration of the Warrants and prior to their
exercise, any of the following events shall occur:
(a) the Company shall declare any dividend payable in any securities upon
its shares of Common Stock or make any distribution (other than a cash
dividend) to the holders of its shares of Common Stock; or
(b) the Company shall offer to the holders of its shares of Common Stock
any additional shares of Common Stock or securities convertible into
or exchangeable for shares of Common Stock or any right to subscribe
to or purchase any thereof; or
(c) a dissolution, liquidation, or winding up of the Company (other than
in connection with a consolidation, merger, sale, transfer, or lease
or all or substantially all of its property, assets, and business as
an entirety) shall be proposed, then in any one or more of said events
the Company shall give notice in writing of such event to the Warrant
Holders as provided in Section 20 hereof, with such notice to be
completed at least 15 days prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, or subscription
rights, or for the determination of stockholders entitled to vote on
such proposed dissolution, liquidation or winding up. Such notice
shall specify such record date or the date of closing the transfer
books, as the case may be. Failure to provide or receive such notice
or any defect therein or in the mailing thereof shall not affect the
validity of any action taken in connection with such dividend,
distribution, or subscription rights, or such proposed dissolution,
liquidation ,or winding up.
18. EXPENSES. Each party shall be responsible for its own costs and
expenses incurred in connection with the preparation, review, negotiation,
execution, and delivery of this Warrant Agreement and all other related
documents.
19. RIGHT TO INFORMATION. The Company, in accordance with Section 16(c)
above, will provide to all Warrant Holders and to all holders of Warrant Shares,
on a timely basis, copies of all documents and reports delivered to its
shareholders.
20. NOTICES. Any notice pursuant to this Warrant Agreement to be given or
made by the holder of any Warrant or Warrant Shares to or on the Company shall
be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed as follows:
Griffin Industries, Inc. 1111 Third Avenue, Suite 2500, Seattle, Washington
98101; Attention: General Counsel
SRS, LLC. 15603 Kuykendahl Drive, Suite 350A, Houston, Texas 77090
Attention: Dave Hughes
Notices or demands authorized by this Warrant Agreement to be given or made
to or on the Warrant Holder of any Warrant or Warrant Shares shall be
sufficiently given or made (except as otherwise provided in this Warrant
Agreement) if sent by registered mail, return receipt requested, postage
prepaid, addressed to such Warrant Holder at the address of such Warrant Holder
as shown on the Warrant Register or the Common Stock Register, as the case may
be.
21. GOVERNING LAW. THIS WARRANT AGREEMENT, THE WARRANTS AND ALL RELATED
DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF WASHINGTON, WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. ANY DISPUTE HEREUNDER OR UNDER
THE WARRANTS OR RELATED DOCUMENTS SHALL BE DETERMINED EXCLUSIVELY IN ACCORDANCE
WITH SECTION 8.7 OF THE NOTE PURCHASE AGREEMENT.
22. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Holders may
from time to time supplement or amend this Warrant Agreement in order to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Holder may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which shall not
adversely affect the interests of the Warrant Holders. Any amendment to this
Warrant Agreement may be effected with the consent of Warrant Holders of at
least a majority of the total then outstanding Warrants (for this purpose
Warrant Shares shall be deemed to be Warrants in the proportion that Warrant
Shares are then issuable upon the exercise of Warrants); provided that any
amendment which shall have the effect of materially adversely affecting the
interests of any Warrant Holder shall not be effective with respect to such
Warrant Holder if such Warrant Holder shall not have consented thereto.
23. SURVIVAL OF COVENANTS. All covenants and agreements made herein shall
survive the execution and delivery of this Warrant Agreement and the Warrants
and shall remain in force and effect until the Expiration Date of all Warrants.
24. SUCCESSORS. All representations and warranties of the Company and all
covenants and agreements of this Warrant Agreement by or for the benefit of the
Company or the Warrant Holders shall bind and inure to the benefit of their
respective successors and assigns hereunder.
25. BENEFITS OF THIS WARRANT AGREEMENT. Nothing in this Warrant Agreement
shall be construed to give to any person or corporation other than the Company
and the Warrant Holders, any legal or equitable right, remedy, or claim under
this Warrant Agreement, but this Warrant Agreement shall be for the sole and
exclusive benefit of the Company and the holders of the Warrants and Warrant
Shares.
26. CAPTIONS. The captions of the sections and subsections of this Warrant
Agreement have been inserted for convenience and shall have no substantive
effect.
27. COUNTERPARTS. This Warrant Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
such counterparts together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed on the day, month and year first above written.
Griffin Industries, Inc. Savings & Retirement Services, LLC
- ----------------------------- ----------------------------------
Name: Landon Barretto Name:
Title: President, CEO Title:
INVESTOR RELATIONS CONSULTING AGREEMENT
This Investor Relations Consulting Agreement ("Agreement") is entered this
___ day of December, 1997 by and between Griffin Industries, Inc., ("Client"), a
Maryland corporation with its principal place of business at 1111 Third Avenue,
Suite 2500, Seattle, Washington 98101 and Savings and Retirement Services, LLC,
("Consultant") a Texas Limited Liability Company, with its principal place of
business at 15603 Kuykendahl Drive, Suite 350A, Houston, Texas 77090, "Client"
and "Consultant" hereinafter referred to together as "parties", agree as
follows:
1. The term of this Agreement shall be twelve months commencing on December
20, 1997 and expiring on December 20, 1998 (the "Term"). The term may be
extended for such periods of time and upon such terms and conditions as may be
mutually agreed upon, in writing, by the parties, and may be canceled in writing
by either party at the conclusion of the second month of the term.
2. In consideration of the fee and the covenants herein contained,
Consultant shall provide services (the "Services") to the Client which shall
consist of the following:
(a) The dissemination of information which Client will provide to
Consultant regarding Client's business and affairs, in the United States of
America in jurisdictions where the Client's securities are recognized as well as
dissemination through print and electronic media outlets, as well as to
Consultant's existing base of clients and business associations; (b)
Communication on an ongoing basis with members of Consultant's existing base of
clients and business associations concerning Client's business, business
developments, and other material public information which is provided by Client
to Consultant; (c) Consultant shall make itself available to field and answer
questions raised by members of Consultant's existing base of clients where such
questions are of a general nature and concern the Client's business and business
developments.
Consultant shall perform the aforesaid Services to each of Consultant's
existing base of clients that have invested in the securities of Client during
the Term.
3. It is mutually agreed between the parties that Consultant's services
will not include any services that constitute the rendering of legal opinions or
performance of services in the ordinary purview of a registered broker or
dealer.
4. Without limiting the generality of the foregoing, Client agrees that
Consultant's services hereunder are not intended to include the printing and
mailing of any documentary material on behalf of Client. Any expenses incur by
Consultant in such respect, with express authority and approval by Client, shall
be separately reimbursed to Consultant by Client;
5. Consultant shall receive as full compensation for the Services, warrants
to purchase a maximum of 150,000 common shares of Client, as evidenced and
subject to the terms of the attached Warrant Agreement which has been separately
entered into by the parties. ("Warrant Agreement");
6. Consultant shall only engage in promotion of Client regarding its
business and affairs. Client reserves the right to contract other firms to
provide similar services and expressly acknowledges that, subject to the
following proviso, Consultant shall be entitled to provide similar services as
provided hereunder to other companies;
7. Consultant represents and warrants that the Services will be performed
in a competent and efficient manner and that they will at all times be performed
in compliance with all applicable laws and legal requirements;
8. Consultant shall use its bona fide efforts to promote the interests of
Client and shall, during the term of the Agreement, devote as much time,
attention and ability to the promotion of the business of Client as is necessary
to provide effective promotion of Client and its affairs;
9. Consultant is not an agent nor has an agency relationship been created
between the Consultant and Client as a result of this Agreement. Consultant will
have no authority, express or implied, to commit or otherwise obligate Client in
any manner whatsoever except to the extent specifically provided herein or to
the extent expressly authorized by Client;
10. Notwithstanding anything herein to the contrary, it is acknowledged and
agreed that the relationship between Client-Consultant is not and will not
become that of employer-employee, joint ventures nor partnership and,
furthermore, that the relationship that exists between Client-Consultant is
solely that of independent contractors;
11. Consultant shall not, either during the Term of the Agreement or at any
time thereafter, directly or indirectly, divulge, publish or disclose any
information regarding the affairs or business of Client or its affiliates other
than that which is expressly authorized and provided by Client without the prior
consent of Client, and Consultant shall not use for Consultant's own purposes,
or any purposes other than those of Client, any information Consultant may
acquire with respect to its affairs, business, or projects. Upon the termination
of this Agreement for any reason, Consultant shall promptly deliver all
documents and other promotional aids, correspondence and, contracts and all such
documents and other property shall be delivered in accordance with the direction
of Client;
12. Client hereby represents that the information as to its capital
structure and business affairs as set forth in its offering circular and other
SEC filings are accurate and complete;
13. Any notice required or permitted to be given by this Agreement shall be
in writing and may be given by personal delivery or postage prepaid, registered
or certified mail. Such notices shall be addressed to the receiving party at its
respective addresses set forth above or at such other addresses as either party
may, by notice, designate. Notices personally given shall be deemed to be given
as of the date of delivery and mailed notices shall be deemed to be given as of
the date of actual receipt;
14. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns, as the
case may be;
15. Each provision and paragraph of this Agreement is declared to
constitute a separate and distinct covenant and to be severable from all other
such separate and distinct covenants under this Agreement. If any covenant or
provision herein contained is determined to be void or unenforceable, in whole
or in part, such determination shall not affect or impair the validity or
enforceability of any other covenant or provision contained in this Agreement
and the remaining provisions of this Agreement shall be valid and enforceable to
the fullest extent provided by law;
16. This Agreement may not be assigned;
17. Notwithstanding the attached Warrant Agreement, this Agreement
replaces, supersedes, and cancels all prior Agreements, representations, and
understandings between Client and Consultant in respect of the subject matter of
this Agreement;
18. The provisions of this Agreement and the relationship between the
parties shall be construed in accordance with and governed by the laws of the
State of Washington. The parties hereby attorn to the jurisdiction of the courts
of the State of Washington;
19. No amendment or waiver of any provision of this Agreement shall be
binding upon a party unless made in writing and signed by such party;
20. The parties will execute and deliver all such further documents and
instruments and do all such further acts and things as may be required to carry
out the full intent and meaning of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day, month and year first above written.
CLIENT CONSULTANT
Griffin Industries, Inc. Savings & Retirement Services, LLC
- ----------------------------- ----------------------------------
Name: Landon Barretto Name:
Title: President, CEO Title:
October 8, 1997
Mr. Landon Barretto
Barretto Pacific Corporation
1111 Third Ave. Tower, 25th Fl.
Seattle, WA 98101
Dear Landon:
This letter agreement (the "Agreement") will confirm the terms and
conditions of our mutual understanding concerning the engagement of Rizvi &
Associates, LLP ("Consultant") by your firm, Barretto Pacific Corporation,
("Barretto") to do the following and to act in the following capacities:
1. Prepare and file Articles of Incorporation, prepare Bylaws, draft
appropriate minutes and board resolutions for a Maryland corporation
by the name of Griffin Industries, Inc. ("Griffin" or the "Company")
or such other name as available in the State of Maryland and agreed
upon by Barretto or its employees.
2. Prepare a draft offering circular ("Griffin Offering Circular") in
compliance with Regulation E of the Securities Act of 1933, for a
direct public offering of securities ("Griffin Securities") by
Griffin, its agents, assigns, or designees;
3. Prepare and file all appropriate forms with the Securities and
Exchange Commission in connection with the Griffin Offering Circular;
4. Prepare and file all appropriate forms and notice applications needed
to comply with the United States Blue Sky Laws concerning initial
issuer transactions in each of the States in which the Griffin
Offering Circular will be presented;
5. Prepare and file all appropriate forms and notice applications needed
to comply with the Canadian Securities Laws and other appropriate
Provincial laws and regulations as they may apply in each of the
respective provinces in which the Griffin Offering Circular will be
presented for the sale of Griffin Securities.
6. To act as Interim Corporate Secretary or Assistant Secretary of
Griffin for such period as may be reasonably necessary for Griffin to
find, hire and train a Corporate Secretary, where said appointment
shall not exceed three months from the date of completion of the
Griffin Offering Circular.
All of the above tasks and understandings together shall be described
hereinafter as "Consulting Work". All references herein to dollars shall refer
to United States currency.
In exchange for covenanting to faithfully performing the aforementioned
Consulting Work, Griffin shall agree to the following;
7. Compensation: In exchange for providing a significant amount of
existing work product to Barretto and Griffin consisting of adapting
the contents of an offering circular which has been developed over the
past six months for a different company by Consultant and where said
offering circular will be used as a template for the Griffin Offering
Circular, Griffin, upon formation, and Barretto as third party
guarantor, agrees to the following terms of employment of Consultant:
a) Consultant shall receive the sum of $7,000 as an initial retainer
to commence the Consulting Work;
b) Consultant shall receive the sum of $10,000 within one business
day of delivering the first completed draft of the Griffin
Offering Circular to Barretto for initial review.
c) Consultant shall receive the sum of $8,000 upon completion of and
on the same business day of filing the Griffin Offering Circular
and all accompanying exhibits as required by Form 1-E with the
United States Securities and Exchange Commission.
d) Consultant shall receive an additional $115,000 as additional
compensation for the preparation and completion of the Consulting
Work, payable as follows:
(i) $50,000 will be disbursed to Consultant within one business
day after receipt of the first $100,000 of funds received by
Griffin, its associates, assigns, or designees pursuant to
the Griffin Offering Circular or any variation thereof hence
adapted;
(ii) $45,000 disbursed to Consultant within one business day
after receipt of the second $100,000 of funds received by
Griffin, its associates, assigns or designees pursuant to
funds raised in connection with the Griffin Offering
Circular or any variation thereof hence adapted;
(iii)$20,000 disbursed to Consultant within one business day
after receipt of the third $100,000 received by Griffin, its
associates, assigns or designees pursuant to funds raised in
connection with the Griffin Offering Circular or any
variation thereof hence adapted;
All disbursements pursuant to paragraphs 8(d)(i)-(iii) above shall be made
on receipt of funds by Griffin whether said funds so received by Griffin are in
the form of cash, cash equivalents, or free trading marketable securities. In
the event that Griffin receives free trading marketable securities, Consultant
agrees to receive compensation in the form of such securities, where the market
value of said securities will be determined and based on the bid price of said
securities one day prior to the due date of each payment.
Additional Covenants and Representations:
8. We represent and warrant that the services will be performed in a
competent and efficient manner and that they will at all times be performed in
compliance with all applicable laws and legal requirements. We further agree to
provide Barretto with a time line estimate of the approximate time each part of
the Consulting Work will be completed;
9. You agree to provide us with monthly statements of the account in which
you will deposit all proceeds received pursuant to the offering contemplated
herein. You shall use your bona fide efforts to promote the interests of Griffin
and shall, during the term of the Agreement, devote as much time, attention and
ability to the promotion of the business of Griffin as is necessary to provide
effective promotion of Griffin and the sale of its initial public offering of
securities pursuant to the Griffin Offering Circular;
10. Any notice required or permitted to be given by this Agreement shall be
in writing and may be given by personal delivery or postage prepaid, registered
or certified mail. Such notices shall be addressed to the receiving party at our
respective addresses set forth above or at such other addresses as either of us
may, by notice, designate. Notices personally given shall be deemed to be given
as of the date of delivery and electronic and/or mailed notices shall be deemed
to be given as of the date of delivery;
11. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns, as the
case may be;
12. Each provision and paragraph of this Agreement is declared to
constitute a separate and distinct covenant and to be severable from all other
such separate and distinct covenants under this Agreement. If any covenant or
provision herein contained is determined to be void or unenforceable, in whole
or in part, such determination shall not affect or impair the validity or
enforceability of any other covenant or provision contained in this Agreement
and the remaining provisions of this Agreement shall be valid and enforceable to
the fullest extent provided by law;
13. This Agreement may not be assigned;
14. This Agreement replaces, supersedes, and cancels all prior Agreements,
representations, and understandings between the Company and yourselves in
respect of the subject matter of this Agreement;
15. The provisions of this Agreement and the relationship between the
parties shall be construed in accordance with and governed by the laws of the
State of California. The parties hereby attorn to the jurisdiction of the courts
of the State of California, venue of San Francisco County;
16. No amendment or waiver of any provision of this Agreement shall be
binding upon a party unless made in writing and signed by such party;
17. The parties will execute and deliver all such further documents and
instruments and do all such further acts and things as may be required to carry
out the full intent and meaning of this Agreement.
18. The parties agree that facsimile counterparts of this agreement shall
constitute originals as that term is defined by the United States Federal Rules
of Evidence Code Section 800, et. seq. and that the parties herein agree to
receipt of and treatment of facsimile initials and signatures a constituting an
original acknowledgement herein.
If the foregoing meets your approval, please sign a copy of this letter
agreement and return a copy thereof in non-electronic format to me at your
earliest convenience.
Yours Very Truly,
/s/ Omar A. Rizvi
Omar A. Rizvi, Esq.
Managing Partner
Rizvi & Associates, L.L.P.
Agreed to By:
/s/ Landon Barretto
Landon Barretto
Barretto Pacific Corporation
President & CEO
