<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ x ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE ROCKIES FUND, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Neuman & Drennen, LLC, 1507 Pine Street, Boulder, Colorado 80302
------------------------------------------------------------------------
(Name of Person Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:____
2) Aggregate number of securities to which transaction applies:_______
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):_____
4) Proposed maximum aggregate value of transaction:___________________
5) Total fee paid:____________________________________________________
[ ] Fee Paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:____________________________________________
2) Form, Schedule or Registration Statement No.: ____________________
3) Filing Party:______________________________________________________
4) Date Filed:________________________________________________________
<PAGE>
<PAGE>
THE ROCKIES FUND, INC.
5373 North Union Boulevard, Suite 100
Colorado Springs, Colorado 80918
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished to the Shareholders of The Rockies Fund,
Inc. (respectively the "Shareholders" and the "Fund" or the "Company") in
connection with the solicitation by the Fund of proxies to be used at the
Annual Meeting of Shareholders and at any adjournments thereof (the
"Meeting"), at the time, place and for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders and at any adjournment
thereof. When the accompanying proxy is properly executed and returned, the
shares of common stock it represents will be voted at the Meeting and, where a
choice has been specified on a proxy, will be voted in accordance with such
specification. If no choice is specified on a proxy, the shares it represents
will be voted FOR the election of three (3) Directors of the Fund, FOR the
ratification of Gerald R. Hendricks & Co., P.C., a Professional Corporation,
as the Fund's independent certified public accountant for the fiscal year
ending December 31, 1999, FOR the ratification and approval of the proposal of
the Board of Directors to withdraw the Company's election to be regulated as a
Business Development Company under the Investment Company Act of 1940 (the
"1940 Act"), FOR the proposal of the Board of Directors that, subject to the
Company withdrawing its election to be regulated as a Business Development
Company under the 1940 Act, the Fund elect to cease to be a reporting company
under Section 13 of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), FOR the proposal and recommendation of the Board of Directors
that subject to the Company ceasing to be subject to regulation under the 1940
Act and ceasing to be a reporting company under the Exchange Act, the Company
adopt and implement a program to repurchase its outstanding securities from
time to time at prices not more than the net asset value per share of such
securities at the time of such repurchase, subject to the discretion and
determination of the Company's Board of Directors, and according to the
judgment of the persons named in the enclosed proxies as to any other action
which may properly come before the Meeting or any adjournment thereof.
In the event the Meeting is, for any reason, adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the Meeting. At the adjourned meeting, any business
may be transacted which might have been transacted at the original Meeting.
ANY PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY WRITTEN NOTICE
MAILED OR DELIVERED TO THE SECRETARY, BY RECEIPT OF A PROXY PROPERLY SIGNED
AND DATED SUBSEQUENT TO AN EARLIER PROXY, AND BY REVOCATION OF A WRITTEN PROXY
BY REQUEST IN PERSON AT THE ANNUAL MEETING OF SHAREHOLDERS. IF NOT SO
REVOKED, THE SHARES REPRESENTED BY THE PROXY WILL BE VOTED IN ACCORDANCE WITH
THE INSTRUCTIONS ON THE PROXY FORM.
This Statement is being mailed on or about October ___, 1999, to
Shareholders eligible to vote at the Meeting. Concurrently with the mailing
of this Statement, the Fund is furnishing to Shareholders its Annual Report
for the fiscal year ended December 31, 1998.
The Fund is bearing all costs of soliciting proxies, and expressly
reserves the right to solicit proxies otherwise than by mail. The
solicitation of proxies by mail may be followed by telephone, telegraph or
other personal solicitations of certain Shareholders and brokers by one or
more of the Directors or by Officers or employees of the Fund. The Fund may
request banks and brokers or other similar agents or fiduciaries for the
voting instructions of beneficial owners and reimburse the expenses incurred
by such agents or fiduciaries in obtaining such instructions. As of the date
of this mailing, however, the Fund has not made any contracts or arrangements
for such solicitations, hence it cannot identify any parties or estimate the
cost of such solicitation.
Only Shareholders of record as of the close of business on October ____,
1999 (the "Record Date"), will be entitled to vote at the Meeting.
Representation of a majority of the Fund's shares of common stock outstanding
on such date, either in person or by proxy, constitutes a quorum for the
Meeting. When a quorum is present, the vote by the holders of a majority of
the shares represented at the Meeting shall decide the proposals to be voted
upon at the Meeting. As of the Record Date, the Fund had outstanding 640,580
shares of common stock ("Shares"), with each Share being entitled to one vote.
<PAGE>
<PAGE>
1. SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth as of September 30, 1999, certain
information with respect to the ownership of the Fund's common stock by
(i) each of the Fund's directors individually, (ii) shareholders known by the
Fund to own beneficially more than five percent (5%) of the outstanding common
stock of the Fund, and (iii) all officers and directors as a group. Each
beneficial owner of the Fund's common stock listed below has sole investment
and voting power of the shares that he beneficially owns, except as noted.
<TABLE>
<CAPTION>
Name and Address Amount and
Title of of Beneficial Nature of Benefi- Percent
Class Owner cial Ownership(1) of Class
- -------- ----------------- ----------------- --------
<S> <C> <C> <C>
Common D.A. Davidson & Co.(2) 236,475 36.9%
Stock 8 Third Street, North
Great Falls, Montana 59401
" Stephen G. Calandrella (3) 239,666 37.43%
5373 North Union Boulevard
Suite 100
Colorado Springs, CO 80918
" Charles C. Powell -0- 0%
4475 Walnut, Suite 2-D
Boulder, Colorado 80301
" Clifford C. Thygesen 2,000 0.3%
4893 Idylwild Trail
Boulder, Colorado 80301
" Barbara A. Hamstad 1,500 0.2%
5373 North Union Boulevard
Suite 100
Colorado Springs, Colorado 80918
" Gina Garcia-Shaw -0- 0%
5373 North Union Boulevard
Suite 100
Colorado Springs, Colorado 80918
" All Officers and
Directors as a
Group (5 Persons) 244,666 37.93%
</TABLE>
- -------------------
(1) Beneficial Owners listed have sole voting and investment power with
respect to the shares unless otherwise indicated.
(2) Voting and investment power with respect to securities held by D.A.
Davidson & Company is exercised by its Board of Directors.
2. ELECTION OF DIRECTORS
The Directors voted to nominate three (3) Directors for election to hold
office until the next Annual Meeting of Shareholders and until their
successors are elected and qualified. Each of the following nominees has
consented to be nominated to serve as a Director of the Fund. All of the
nominees are currently Directors of the Fund.
The Fund's Articles of Incorporation expressly prohibit cumulative
voting. Therefore, the holders of a majority of the Fund's shares could elect
all of the Directors. It is expected that the proxies received by the
Directors' nominees will be voted, except to the extent that authority is
withheld on any proxy as to all or one or more individuals, to elect as
Directors the following nominees, whose principal occupations during the past
five (5) years, directorships and certain other affiliations and information
are set forth below:
A. Information Concerning Nominees
-------------------------------
The following table sets forth certain information about the
nominees for election as directors:
<TABLE>
<CAPTION>
Shares Principal Occupation
Name, Age and Office Beneficially Past Five Years
with Fund Owned and Current Affiliations
- -------------------- ----------- ------------------------
<S> <C> <C>
Stephen G. Calandrella 239,666 Mr. Calandrella has been President and
39, President and Director 37.43% a Director of The Rockies Fund, Inc.
since February 1991 and since February, 1991, and Chief
CEO since January 1994 Executive Officer since January 30,
1994. Mr. Calandrella has previously
served as a Director of several public
companies. Mr. Calandrella currently
serves as President and a member of
the Board of Directors of Global
Casinos, Inc., a publicly-held company
engaged in the ownership and operation
of domestic and international casinos
and limited stakes gaming properties;
and American Educational Products, a
NASDAQ listed manufacturer of
secondary educational materials. Mr.
Calandrella has also engaged in
financing and consulting activities
for development stage companies, which
consist of advising public and private
companies on capital formation
methods, enhancing shareholder
valuations, mergers, acquisitions and
corporate restructurings, as well as
arranging for bridge loans and equity
purchases.
* Mr. Calandrella is considered by the Fund to be a person who is an
"interested person" (as defined in the 1940 Act) of the Fund because he is an
officer of the Fund.
Charles Powell, 45, -0- Mr. Powell is currently Senior Vice
Director since 0% President of Sales of Aurum Software,
February, 1991 a wholly owned subsidiary of Baan
Company. From 1992 to 1996, Mr.
Powell was Vice-President of Finance
for KaPre Software. From March 1992
to June 1993, Mr. Powell was CEO of
Generation 5 Technologies, Inc. From
January 1989 to March 1992, he was
Director of International Operations
at J.D. Edwards & Company, a software
company that develops and distributes
general business application financial
software. Mr. Powell graduated from
the University of Colorado with a
Bachelor of Science degree in
accounting and finance in 1976 and he
received his license as a Certified
Public Accountant in 1976. Mr. Powell
currently serves as a Director for The
Rockies Fund and International
Nursing.
Clifford C. Thygesen, 63 2,000 Mr. Thygesen has been a director of
Director since February 0.3% the Fund since February, 1991. Mr.
1991 Thygesen has also been a Director of
American Educational Products, Inc.
since 1986, and President since
January, 1996. American Educational
Products is a publicly traded company
involved in the manufacture and
distribution of educational products,
with principal offices in Boulder,
Colorado. Mr. Thygesen is also a
current Director of Wall Street Racing
Stables, a publicly-traded company
involved in the ownership, racing and
breeding of thoroughbred horses. Mr.
Thygesen is also a partner in two land
development firms located on Colorado
Springs and Fleming, Colorado. He
received his B.S. degree in Industrial
Administration from the University of
Illinois in 1961.
</TABLE>
B. Meetings and Committees of the Board of Directors
-------------------------------------------------
i. Meetings of the Board of Directors
During the fiscal year ended December 31, 1998, the Company's
Board of Directors held four (4) meetings which were attended, either in
person or by telephone, by 100% of the Board members. Each incumbent director
participated in each action of the Board of Directors. Each director of the
Fund who is not also an officer is paid the sum of $1,000 for each Board
meeting attended in person by such director. All directors are reimbursed for
expenses associated with attendance at Board of Directors meetings of the
Fund. Other than the foregoing, no director receives any additional
compensation or remuneration as a member of the Fund's Board of Directors.
ii. Appraisal and Review
While no formal Appraisal or Review Committee exists, the Board
has established Appraisal and Review procedures to facilitate the Board's
review of all transactions with respect to execution price and brokerage
commissions, to determine if the Fund is receiving "the best execution." The
Board is also responsible for developing and implementing appropriate methods
of evaluation for securities that are not publicly-traded or are otherwise
subject to restrictions upon transfer. Evaluations for such securities are
determined in good faith by the Board of Directors. Finally, the Board has
established and implemented procedures to evaluate and make recommendations
with respect to all investment opportunities presented to the Fund.
iii. Committees
There are no standing audit, compensation or nominating
committees of the Board. The foregoing notwithstanding, Barbara A. Hamstad,
the Fund's Chief Accounting Officer, has been charged with the responsibility
of maintaining all journals and ledgers which the Investment Company Act of
1940, as amended, and the rules and regulations promulgated thereunder,
require the Fund to maintain.
C. Other Executive Officers
------------------------
Barbara A. Hamstad. Mrs. Hamstad has served as Internal Accountant
for The Rockies Fund, Inc. since September of 1993 and as Chief Accounting
Officer and Treasurer since September, 1996. Mrs. Hamstad also serves as
Secretary and Director for Marco Foods, Inc., a small public shell actively
seeking investments. Prior to Mrs. Hamstad's accounting positions she worked
as a Vendor Cost Analyst for Raytheon in Santa Barbara, California. From
January, 1989, through June, 1992, she analyzed vendor cost proposals for
subcontracted components, conducted on-site evaluations of subcontractors, and
developed price recommendations based on detailed analyses of cost structure.
From June 1987 through August 1988, she worked as a Financial Assistant at IDS
Financial Services in San Luis Opisbo, California. Mrs. Hamstad graduated
from California Polytechnic State University, San Luis Obispo, CA, with a
bachelor's degree in Business Administration, concentrating in Financial
Management.
Gina Garcia-Shaw. Mrs. Garcia-Shaw joined the Fund on June 1, 1998,
as Chief Administrative Officer and Corporate Secretary. Prior to her
arrival, Mrs. Garcia-Shaw worked for Pikes Peak Regional Development, a
division of the SBA, as Administrative Manager, from April 1996 through April
1998. Her more specific skills included monthly financial statement
preparation and reviewing Business Plans for potential SBA loans. Mrs.
Garcia-Shaw also brings ten years of experience in banking. October 1988
through April 1996, she was employed by Bank One, which position began as the
Secretary to the Vice President. The last year of her tenure Mrs. Garcia-Shaw
became an Indirect Lender approving car loans for the local dealership. March
1986 through October 1988, she worked as a Loan Operations Assistant for
Colorado National Bank, formerly known as Central Bank.
D. Legal Proceedings
-----------------
During the beginning of 1996, the Fund received requests for
information from the United States Securities and Exchange Commission ("SEC")
related to an investigation begun by the SEC during 1994 into various matters,
including the administrative and record keeping practices of the Fund, its
securities trading activities and those of its officers and directors. On
June 1, 1998, in response to a recommendation of the Commission's staff, the
Commission brought an administrative proceeding against the Company and its
individual directors in which it alleges several violations of federal
securities laws. The Company and its Directors have vigorously defended the
administrative proceeding which was heard before an administrative law judge
in November 1998. As of the date of this Proxy Statement, no determination
has been made on the outcome of this proceeding. There can be no assurance of
the outcome of this matter or its ultimate effect on either the Fund's
financial position or its Directors.
Other than the foregoing, during the last five (5) years no director
or officer of the Company has:
(i) had any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer
either at the time of the bankruptcy or within two (2) years
prior to that time;
(ii) been convicted in a criminal proceeding or subject to a pending
criminal proceeding;
(iii) been subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court
of competent jurisdiction, permanently or temporarily,
enjoining, barring, suspending, or otherwise limiting his
involvement in any type of business, securities or banking
activities; or
(iv) been found by a Court of competent jurisdiction in a civil
action, the Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or
commodities law, and the judgement has not been reversed,
suspended, or vacated.
Mr. Calandrella serves as President of Global Casinos, Inc., a
portfolio and affiliated company. During 1995, Global Casinos, Inc. caused
one of its wholly-owned subsidiaries, Casinos USA, Inc. to file a voluntary
petition for reorganization under Chapter 11 of the United States Bankruptcy
Code. In December 1996, the United States Bankruptcy Court for the District
of Colorado entered an order confirming a Plan of Reorganization for Casinos
USA, Inc.
E. Transactions With Management and Others
---------------------------------------
Notes payable to related parties at December 31, 1998 include $6,500
payable to a related party of the Fund's President, which note is unsecured,
carries interest at the rate of twelve percent (12%) per annum, and is due
upon demand.
As a result of the Fund's investment during 1998 and/or position on
the entity's Board of Directors, the Fund would, at various times during
fiscal 1998, be considered to have been an affiliate of American Educational
Products, Inc., Guardian Technologies, Inc., Global Casinos, Inc., Optimax
Industries, Inc., Cova Technologies, Kinetiks.com, Neco Land Resources, LLC,
Bear Star, LLC, Lone Oak Vineyards and Marco Foods, Inc.
On October 1, 1995, Mr. Calandrella, the Fund's President and
Director, was elected to serve as President of Global Casinos, Inc., a
portfolio company and affiliate of the Fund. In consideration of his services
as President of Global Casinos, Inc., Mr. Calandrella received 9,000 shares in
1996 and has also been granted Incentive Stock Options under the Global
Casinos, Inc. Stock Incentive Plan, exercisable to purchase, in the aggregate,
15,000 shares of common stock at an exercise price of $5.00 per share, all of
which are fully vested.
Mr. Calandrella also serves as a member of the Board of Directors of
Global Casinos, Inc. In consideration of his services as a director of Global
Casinos, Inc., Mr. Calandrella has been granted Non-Qualified Stock Options
exercisable to purchase, in the aggregate, an additional 15,000 shares of
common stock at an exercise price of $5.00 per share, of which 5,000 Non-
Qualified Stock Options are fully vested.
There exists no arrangement or agreement whereby the Fund has any
direct or indirect beneficial interest or pecuniary interest in any of the
securities or other compensation issued to Mr. Calandrella in consideration of
his services as an executive officer or director of Global Casinos, Inc.
F. Compliance With Section 16(a) of the Exchange Act
-------------------------------------------------
Under the Securities Laws of the United States, the Fund's
Directors, its Executive (and certain other) officers, and any persons holding
more than ten percent (10%) of the Fund's common stock are required to report
their ownership of the Fund's common stock and any changes in that ownership
to the Securities and Exchange Commission and the NASDAQ stock market.
Specific due dates for these reports have been established and the Fund is
required to report in this Report any failure to file. Based upon information
provided to the Company, all of these filing requirements were satisfied by
its Officers and Directors and ten percent holders as of December 31, 1998.
G. Director and Executive Compensation
-----------------------------------
The following tables and discussion set forth information with
respect to all plan and non-plan compensation awarded to, earned by or paid to
all directors of the Fund, and for each of the three (3) highest-paid
executive officers that have aggregate compensation from the Fund for the most
recently completed fiscal year in excess of $60,000.00.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or
Retirement Total
Benefits Compensation
Accrued Estimated from Fund
Name of as Part Annual Paid to
Person, Aggregate of Fund Benefits upon Director/
Position Compensation Expenses Retirement Officer
- -------- ------------ -------- ------------- ---------
<S> <C> <C> <C> <C>
Stephen G. $48,000 -0- -0- $48,000
Calandrella,
President and
Director
Charles C. Powell, $3,000 -0- -0- $3,000
Director
Clifford C. $3,000 -0- -0- $3,000
Thygesen, Director
</TABLE>
No other executive officer of the Fund received compensation during
the fiscal year ended December 31, 1998 in excess of $60,000.
All officers and employees of the Company are eligible to participate
in the Company's group health and dental insurance plan. The Company has a
Salary Deferred Simplified Employee Pension Plan (SAR-SEP) adopted in
September, 1994. There has been no employer contribution made to the Plan
since inception, nor does the Company incur any administrative fees associated
with this Plan. The Company currently has no written employment agreements
with any of its executive officers. The Company has not implemented any stock
option, stock bonus, incentive stock option or other similar plans; although
the Company may consider the implementation of such plans in the future.
The Fund has no written employment agreements with Mr. Calandrella or
any other employee.
H. Voting Requirement
------------------
Election of the nominees as directors requires the affirmative vote of
a majority of the Fund's outstanding voting securities as defined in the 1940
Act (the lesser of (i) 67% of the shares represented at a meeting at which
more than 50% of the outstanding shares are represented or (ii) more than 50%
of the outstanding shares).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE ELECTION OF THE NOMINEES AS DIRECTORS
3. RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL YEAR
1999
On February 4, 1999, the client-auditor relationship between the Company
and its principal accountants, Gelfond Hochstadt Pangburn & Co., ceased
effective February 4, 1999. The report of Gelfond Hochstadt Pangburn & Co.
related to the consolidated financial statements of the Company for the fiscal
years ended December 31, 1997 and 1996 contains a reference to the inherent
uncertainty of valuation of certain securities contained in the financial
statements. With the exception of the foregoing, the reports of Gelfond
Hochstadt Pangburn & Co. related to the consolidated financial statements of
the Company for the fiscal years ended December 31, 1997 and 1996 did not
contain any adverse opinion or disclaimer of opinion, or was qualified or
modified as to uncertainty, audit scope, or accounting principles. In
connection with the audits of the Company's financial statements for each of
the fiscal years ended December 31, 1997 and 1996, there were no disagreements
with Gelfond Hochstadt Pangburn & Co. on any matters of accounting principles
or practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of Gelfond Hochstadt Pangburn &
Co., would have caused Gelfond Hochstadt Pangburn & Co. to make reference to
the matter in their report.
The Company has retained the accounting firm of Gerald R. Hendricks & Co.,
P.C. to serve as the Company's independent accountant to audit the Company's
financial statements. This engagement was effective February 4, 1999. Prior
to its engagement as the Company's independent accountant, Gerald R. Hendricks
& Co., P.C. had not been consulted by the Company either with respect to the
application of accounting principles to a specific transaction or the type of
audit opinion that might be rendered on the Company's financial statements or
on any matter that was the subject of any prior disagreement between the
Company and its previous certifying accountant.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE IN FAVOR OF THE APPOINTMENT
If such appointment is not approved by the shareholders, it would be
unlawful for the Fund to file with the United States Securities and Exchange
Commission any financial statement signed or certified by Gerald R. Hendricks
& Co., P.C., a Professional Corporation, and new independent certified public
accountants would have to be appointed and the appointment submitted to
shareholders for approval. A representative of Gerald R. Hendricks & Co.,
P.C. is not expected to be present at the Meeting. However, should a
representative of the accounting firm attend the Meeting, he will be given the
opportunity to make a statement if he so desires, and would be available to
respond to appropriate questions.
4. STATEMENT OF RISKS OF INVESTMENTS IN BUSINESS DEVELOPMENT COMPANIES
A. Regulation.
----------
The Fund has elected to be treated as a Business Development Company
("BDC") under the Small Business Investment Incentive Act of 1980 (the "1980
provisions"), which modifies the Investment Company Act of 1940 (the "1940
Act"). Although the 1980 provisions exempt BDC's from registration under the
1940 Act and relieve such companies from compliance with many of the
provisions of the 1940 Act, the 1980 provisions impose on BDC's greater
restrictions on permitted types of investments. Moreover, the applicable
provisions of the 1940 Act continue to impose numerous restrictions on the
activities of the Fund, including restrictions on the nature of its
investments. There can be no assurance that the 1980 provisions will be
interpreted or administratively implemented in a manner consistent with the
Fund's investment objectives and manner of operation. In the event that the
Fund determines that it can not operate effectively as a BDC, the Fund may at
some future date decide to withdraw its election to be treated as a BDC.
Should the Fund seek to withdraw such election, it must obtain the approval of
stockholders who represent a majority of the Fund's outstanding stock (as
defined in the 1940 Act).
B. Transactions with affiliates; potential conflict of interest.
------------------------------------------------------------
The 1940 Act restricts transactions between the Fund and "affiliated
persons" (as defined in the 1940 Act) including, among others, the Fund's
officers, directors, principals, stockholders and employees, and any
affiliates of such affiliated persons. In many cases, the 1940 Act prohibits
transactions between the Fund and such persons unless the Fund first applies
for and obtains an exemptive order from the Commission. Delays and costs
involved in obtaining necessary approvals may decrease the profitability of
such transactions or make it impracticable or impossible to consummate such
transactions. The Fund's Board of Directors has implemented procedures
designed to regulate investment activity by affiliates in conflict with or in
conjunction with the Fund's activities, including adopting a Code of Ethics
containing provisions designed to prevent employees from engaging in acts
prohibited by Rule 17j-i under the 1940 Act. However, circumstances could
develop which would require Commission approval in advance of proposed
transactions by the Fund or its affiliates with Eligible Portfolio Companies
("Portfolio Company(ies)") or their affiliates. Depending upon the extent of
management's influence and control with respect to such Portfolio Companies
the selection of the affiliates of management to perform various services for
Portfolio Companies may not be a disinterested decision, and the terms and
conditions for the performance of such services and the amount in terms of
compensation to be received therefor may not be determined in arm's length
negotiations. In addition, officers or directors of the Fund or its
affiliates may serve as directors of or act as underwriter or placement agent
or as a consultant to certain Portfolio Companies and, in connection
therewith, earn consulting fees, finder's fees and underwriter's or placement
agent's commissions and other fees and commissions, which may be paid in the
form of cash, securities or other forms of consideration. Moreover, while
members of management are obligated to use their best efforts to provide the
Fund with a continuing and suitable investment program consistent with its
investment objectives and policies, subject to any applicable legal
restrictions, members of management are not required to present to the Fund
any particular investment opportunity which has come to their attention, even
if such opportunity is within the investment objectives and policies of the
Fund. As a result, certain conflicts of interest may exist between the Fund
and its officers and directors (as in the area of corporate opportunities)
which can only be properly resolved through exercise by the officers and
directors of such judgment as is consistent with their fiduciary duties to the
Fund. The Fund's Portfolio Companies may also enter into certain financial
arrangements with the Fund and or its affiliates subject to the appropriate
regulatory guidelines or approvals as required. Additionally, the Fund may
from time to time co-invest in Portfolio Companies with an officer and/or
director of the Fund or with an affiliate of such an officer or director,
subject to the appropriate regulatory guidelines or approvals as required.
Because of their potentially varying investment objectives or other factors,
conflicts could arise between the Fund and its affiliates relating to such co-
investments, which can only be resolved through the exercise by the Fund's
officers and directors of such judgment as is consistent with their fiduciary
duties to the Fund. Even with the proper exercise of such judgment, however,
there can be no assurance that potential conflicts will be resolved in a
manner favorable to the Fund.
C. High risk investments.
---------------------
The Fund currently makes investments in small public and private
companies, some of which are in the early stages of development with little or
no operating history, or more seasoned companies that operate at losses or
which experience substantial fluctuations in operating results. These
companies may also need substantial 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 research and development, manufacturing, marketing
and service capabilities, and a larger number of qualified managerial and
technical personnel. Such companies may have insufficient cash flow to
service their debt obligations, including bridge loans made by the Fund and
may not have the resources to pay principal and/or interest on such loans in
the event of failure to consummate a proposed public offering or inability to
obtain subsequent financing. Additionally, such investments will generally be
unsecured. Moreover, the Fund may take significant positions in companies in
rapidly changing high-technology fields or intensely regulated industries.
Such companies may face additional risks of product and technological
obsolescence or rapidly changing regulatory environments which could adversely
affect such company's prospects, over which the Fund will have no control. As
a result, no assurance can be given that the Fund's investments will not
result in substantial or complete losses.
D. Bridge financing.
----------------
Although, with respect to its bridge financing activities the Fund
has, and intends to continue, to invest primarily in Portfolio Companies which
have entered into a letter of intent relating to a public offering, there is
substantial risk that such offerings will not be consummated. Portfolio
Companies may be unable to repay bridge loans made by the Fund in the event
that a contemplated public offering of securities by any such Portfolio
Company or other transaction involving such company is not consummated.
Additionally, the Fund may invest in companies that have not entered into
letters of intent relating to future public offerings and such transactions
may not be pursued.
E. Limited liquidity of portfolio investments.
------------------------------------------
Currently, a significant portion of the equity participations obtained
in bridge financings and securities purchased in other types of private
placements in which the Fund invests consist of securities that are subject to
restrictions on sale. Restricted securities can not be sold publicly without
prior agreement with the issuer to register these securities under the
Securities Act of 1933, as amended, (the "1933 Act"), or by selling such
securities under Rule 144 or other rules under the 1933 Act which permit only
limited sales under specified conditions. Since it is anticipated that the
Fund will continue to invest in emerging growth companies underwritten by
relatively small underwriters and which may have a limited number of market
makers, the Fund's ability to sell its equity participations and other
securities purchased in private placements may be limited by, and subject to,
the lack or limited nature of a trading market for the securities of Portfolio
Companies and the volatility of the stock market as a whole. Such limitations
could prevent or delay any sale of the Fund's securities or reduce the amount
of proceeds that might otherwise by realized therefrom. Accordingly, the Fund
is substantially dependent upon the ability of the Portfolio Company to
implement a plan which, within a reasonable period of time, would facilitate a
trading market for its securities. Restricted securities generally sell at a
price lower than similar securities that are not subject to restrictions on
sale. When restricted securities are sold to the public, the Fund, under
certain circumstances, may be deemed an "underwriter" or a controlling person
with respect thereto for the purposes of the 1933 Act, and be subject to
liabilities as such under that Act.
F. Possible need for additional investments in Portfolio Companies.
--------------------------------------------------------------
Following its initial investment, the Fund may make additional debt
and equity investments in Portfolio Companies ("Additional Investment(s)") in
order to increase its investment in a successful Portfolio Fund, to exercise
warrants, options, or convertible securities that were acquired in the
original financing, to preserve the Fund's proportionate ownership when a
subsequent financing is planned or to protect the Fund's initial investment
when such Portfolio Companies' performance does not meet expectations. The
Fund will have the discretion to make any Additional Investments as it
determines subject to the availability of capital resources. The failure to
make such Additional Investments may, in certain circumstances, jeopardize the
continued viability of a Portfolio Company and the Fund's initial investment.
The necessity of making Additional Investments may limit the number of
companies in which the Fund has the ability to invest. There can be no
assurance that the Fund will have sufficient funds to make necessary
Additional Investments or that, following an Additional Investment, the Fund
will not lose the entire amount of its initial and Additional Investment. The
Fund has no established criteria in deciding whether to make an Additional
Investment except that management will exercise its business judgment and
apply similar criteria as it does with initial investments. In addition, it
is possible that there may be circumstances under which an Additional
Investment would be considered an affiliated transaction requiring prior
Commission approval. The approval process could be time consuming and costly
and there can be no assurance that such approval would be obtained.
G. Dependence on public offering market.
------------------------------------
The investment strategy of the Fund is based in large part upon the
state of the securities markets in general and the market for public financing
in particular. Changes in these securities markets and general economic
conditions, including economic downturns, fluctuations in interest rates, the
availability of credit, inflation and other factors, may affect the value of
investments of the Fund. The market for public offerings is cyclical in
nature and, accordingly, there can be no assurance that the securities markets
will, at any point in time, be receptive to public offerings, particularly
those of emerging growth companies. Any adverse change in the market for
public offerings could have a material adverse effect on the Fund and could
severely limit the Fund's ability to realize its investment objective.
H. Competition for investments.
---------------------------
The Fund has and expects to continue to encounter competition in its
efforts to locate attractive opportunities for the investment of its capital
from other entities and individuals having similar investment objectives. The
primary competition for desirable investments comes from investment companies,
investment partnerships and wealthy individuals. Some of the competing
entities and individuals have investment managers or advisors with
significantly greater experience, resources and managerial capabilities then
the Fund and are therefore in a better position than the Fund to obtain access
to attractive investments. To the extent that the Fund can compete for such
investments it may only be able to do so on less favorable terms than those
obtained by larger more established investors.
I. Developing companies.
--------------------
Although the Fund believes that developing companies may have
significant potential for price appreciation, higher market and credit risks
are often associated with these companies. Developing companies generally
have limited product lines, markets, market share and financial resources, or
generally are dependent on a smaller inexperienced management team. In
addition, stocks of developing companies may trade less frequently and in more
limited volume and be subject to greater and more abrupt price swings than
stocks of larger companies. There can be no assurance that any of the
developing companies in which the Fund may invest will realize any anticipated
price appreciation.
J. Turnaround and restructuring companies.
--------------------------------------
The Fund has, and may continue, to invest a portion of its assets in
companies involved in "turnaround" or other "restructuring" situations that
management believes, with the infusion of additional working capital and/or
strengthening of the management team, will realize significant price
appreciation and rapid growth in profits. To the extent that these companies
are unable to successfully turnaround or restructure, the Fund's investment is
likely not to appreciate in value and may be lost in its entirety.
K. Dependence on management.
------------------------
The Fund will be substantially dependent upon the services of Mr.
Calandrella, the Fund's President and Portfolio Manager, who has assumed
principal responsibility for the Fund's investments. The Fund is, therefore,
dependent upon the ability of Mr. Calandrella to select what he believes are
appropriate investments for the Fund and upon the personal contacts and
relationships of Mr. Calandrella and other members of the Fund's management in
order for such investment opportunities to be offered to the Fund. The Fund
has not entered into employment, consulting or non-competition agreements with
Mr. Calandrella or any of its other officers. Therefore, there can be no
assurance that such officers will remain associated with the Fund in any
particular capacity or that they will not, in the future, compete, directly or
indirectly, with the Fund. In the event that any officers of the Fund cease
to be associated with the Fund, the Fund will seek to find a qualified person
or persons to fill their positions. There can, however, be no assurance that
such individuals can be engaged by the Fund. The loss of services of any of
the Fund's officers could have an adverse effect on the Fund.
L. Reduced Access to, and Limited Participation in, Management.
-----------------------------------------------------------
As a result of the decision by the Board of Directors to amend the
Fund's Investment Objective, increasing the geographic region within which it
conducts its investment activities from the Rocky Mountain region of the
United States to the entire geographic region of the United States, the Fund's
ability to actively participate in the management of those Portfolio Companies
located outside the Rocky Mountain region is greatly reduced. As a
consequence, the Fund must rely upon the expertise and abilities of existing
management teams, which, in many instances, are smaller and lack hands on
management experience.
5. WITHDRAWAL OF BUSINESS DEVELOPMENT COMPANY ELECTION
The Board of Directors of the Company has proposed and approved, and
recommends that the Shareholders consider and approve, a withdrawal of the
Company's election to be regulated as a Business Development Company under the
1940 Act (the "Election Withdrawal"). The purpose of the Election Withdrawal
is to have the Company cease to be subject to regulation under the 1940 Act
altogether, as described below.
By having elected to be treated as a Business Development Company ("BDC"),
the Company was exempt from having to register as an investment company under
the 1940 Act and was and is also relieved form compliance with many of the
provisions of the 1940 Act applicable to investment companies. However, as
BDC, the Fund suffers under greater restrictions on permitted types of
investments than registered investment companies.
Subject to the approval of the Fund's Shareholders, if the Fund withdraws
its election to be treated as a BDC but still would be an "investment company"
within the meaning of the 1940 Act, the Fund would have to register as an
investment company unless it could rely upon an exemption from the
registration requirements of the 1940 Act. Inasmuch as the Fund believes that
it can rely upon the exemption contained in Section 3(c)(1) of the 1940 Act by
virtue of it having fewer than one hundred shareholders, the Fund is
recommending that the shareholders approve its withdrawal of its election to
be treated as a BDC.
A. Reasons for Election Withdrawal
-------------------------------
Since its inception, the Fund has been a BDC and has pursued a policy of
investing in small business concerns in conformity with the requirements
imposed upon BDC's. If the Company had not made an election to be treated as
a BDC, the Company would qualify as an "investment company" subject to
regulation under the 1940, which establishes a comprehensive regulatory
framework governing numerous aspects of the operation of investment companies
and their affiliates. The Company is also a "closed-end" investment company
in that it does not redeem its shares at the election of a shareholder and
does not continuously offer its shares for sale to the public.
Management has experienced certain disadvantages operating the Fund in
compliance with the 1940 Act. Among other disadvantages, the Fund's ability
to operate effectively and grow has been hindered by the provisions of the
1940 Act which restrict the ability of the Fund to enter into transactions
with "affiliates." In the Fund's industry, an advantageous method of
investing in a portfolio company is for the Fund to participate in the
investment with other investors. The Fund is less able to aid the portfolio
company in finding additional equity and debt investors, participate in larger
investments than it would otherwise be able to make on its own, and diversity
its investments by not having to invest as much as the portfolio company
needs. However, absent an exemptive order from the Commission, which may be
difficult and time-consuming to obtain, a company subject to the 1940 Act may
not utilize this method of raising capital with its affiliates due to the
restrictions in the 1940 Act on an investment company entering into a
transaction in which it is a joint participant with an affiliate. The Fund
believes that these restrictions have adversely affected the Fund's ability to
compete in the small business investment industry by hindering its investments
to raise equity capital, participate in larger investments and diversity its
investments. The restrictions of the 1940 Act on transactions with affiliates
also prohibit, absent an exemptive order from the Commission, transactions
between portfolio companies. Such restrictions prevent portfolio companies
controlled by the Fund from entering into business relationships among
themselves that could be advantageous to one or more of such portfolio
companies.
In addition, the limitations of the 1940 Act restrict the manner in which
the Fund can provide key executives with long-term capital gain compensation
arrangements that are typical in private, unregulated small business
investment firms which account for the majority of the small business
investment industry.
Moreover, the Fund must incur significant general and administrative costs
in order to comply with the regulations imposed by the 1940 Act. Management
devotes considerable time to issues relating to compliance with the 1940 Act
and the Fund incurs substantial legal and accounting fees with respect to such
matters. The Board of Directors believes that resources now being expended on
1940 Act compliance matters could be utilized more productively if devoted to
the operation of the Fund's business. The Board of Directors has determined
that the costs of compliance with the 19840 Act are substantial, especially
when compared to the Company's net income, and that it would therefore be in
the financial interests of shareholders to cease to be regulated under the
1940 Act altogether.
The Board of Directors of the Company has determined that the most
efficacious way to reduce these costs and eliminate the competitive
disadvantages the Company experiences due to the requirements of the 1940 Act
would be to withdraw its election to be treated as a BDC. As the Fund
otherwise qualifies as a "investment company" within the meaning of the 1940
Act, upon the withdrawal of its BDC election, the Fund would be required to
register as an investment Company under the 1940 Act unless it is exempt from
those registration requirements.
The Fund currently has fewer than one hundred beneficial owners of its
common stock. Section 3(c)(1) of the 1940 Act excludes from the definition of
an investment company:
"Any issuer whose outstanding securities . . . are beneficially
owned by not more than one hundred persons and which is not
making and does not presently propose to make a public offering
of its securities."
In reliance upon the foregoing provision, the Fund believes that upon
withdrawal of its election as a BDC and the implementation of its election to
cease to be a reporting company under Section 13 of the Exchange Act, the Fund
will be excluded from the definition of an "investment company." As a result,
the fund will be able to operate as a private investment fund without
regulation under the 1940 Act.
B. Risks of Election Withdrawal
----------------------------
The 1940 Act regulates the form, content and frequency of financial reports
to shareholders; requires that the Fund file periodic reports with the SEC,
reports which are designed to disclose compliance with the 1940 Act and to
present other financial information; prohibits the Fund from changing the
nature of its business or fundamental investment policies without the prior
approval of its shareholders; regulates the composition of the Board of
Directors by preventing investment bankers and securities brokers from
constituting more than a minority of the directors of the Fund; limits the
number of "interested persons" of the Fund who may be directors of the Fund
and prevents officers, directors or employees of any one bank from
constituting more than a minority of the Fund's directors; requires any
investment management contract to be submitted to the shareholders for their
approval; prohibits certain transactions between the Fund and affiliated
persons, including directors and officers of the Fund and affiliated
companies, unless such transactions are exempt by the Commission; regulates
the capital structure of the Fund by restricting certain issuances of senior
equity and debt securities and restricts the issuance of stock options, rights
and warrants; prohibits pyramiding investment companies and the cross-
ownership of securities; provides for the custody of securities and bonding of
certain employees; prohibits voting trusts; and requires shareholder
ratification of the selection of accountants.
Upon implementation of the Election Withdrawal and the Company ceasing
to be a reporting company under the Exchange Act, the Fund will no longer be
subject to the foregoing regulations, all of which are designed to protect the
interests of shareholders. Rather, as a private investment fund, the Fund
would be managed at the discretion of its Board of Directors and executive
officers, all of whom will be subject to customary principles of fiduciary
duty and duty of loyalty but no longer subject to the protective regulations
of the 1940 Act.
C. Voting Requirement
------------------
Approval of the proposal that the Fund withdraw its election to be
treated as a BDC requires the affirmative vote of a majority of the Fund's
outstanding voting securities as defined in the 1940 Act (the lesser of (i)
67% of the shares represented at the meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares). Mr. Stephen Calandrella and representatives of D. A. Davidson & Co.,
the Fund's two largest shareholders, exercise voting power with respect to
74.3% of the Fund's outstanding shares of common stock and have indicated that
they intend to vote their shares in favor of the proposal. As a result, the
proposal is assured of approval by the Fund's Shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
FUND'S WITHDRAWAL OF ITS ELECTION TO BE TREATED AS A BUSINESS DEVELOPMENT
COMPANY.
6. AN ELECTION TO CEASE TO BE A REPORTING COMPANY.
An integral part of the Fund's efforts to cease to be regulated under the
1940 Act requires that the Fund cease to be a reporting company under Section
13 of the Exchange Act and, as a result, there cease to exist a public trading
market for the Fund's common stock. If the public trading market for the
Fund's common stock were to continue, the Fund could not be assured that it
would continue to be excluded from the registration requirements of the 1940
Act in reliance upon it having fewer than one hundred shareholders. As a
result, it will be necessary for the Fund to elect to cease to file reports
with the Commission and otherwise cease making publicly available current
information regarding the Fund in order to assure that trading activity in the
Fund's securities in the over-the-counter market is precluded.
A. Voting Requirement
------------------
Approval of the proposal that the Fund cease to be a reporting company
under Section 13 of the Exchange Act requires the affirmative vote of a
majority of the Fund's outstanding voting securities as defined in the 1940
Act (the lesser of (i) 67% of the shares represented at the meeting at which
more than 50% of the outstanding shares are represented or (ii) more than 50%
of the outstanding shares). Mr. Stephen Calandrella and representatives of D.
A. Davidson & Co., the Fund's two largest shareholders, exercise voting power
with respect to 74.3% of the Fund's outstanding shares of common stock and
have indicated that they intend to vote their shares in favor of the proposal.
As a result, the proposal is assured of approval by the Fund's Shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL THAT
THE FUND CEASE TO BE A REPORTING COMPANY UNDER
SECTION 13 OF THE EXCHANGE ACT.
7. REPURCHASE PROGRAM
The Board of Directors has also determined that from time to time in the
future it may become necessary or desirable to engage in a program to
repurchase a portion of its outstanding securities. As a BDC, the Fund has
been precluded from repurchasing any of its securities in buy-back programs
instituted by its Board of Directors as is commonly done by other public
entities. However, once the Fund has withdrawn its election to be treated as
a BDC and is no longer subject to regulation under the 1940 Act, it will have
the ability to implement one or more repurchase programs at such times and in
such amounts as the Board of Directors may determine.
Moreover, the Board of Directors anticipates that in order to be assured
that it maintains fewer than one hundred shareholders, it may from time to
time be required to redeem one or more shareholder positions in the event the
number of shareholders of the Fund increases as a result of private
transactions in the Fund's common stock or distributions resulting from the
death or dissolution of a shareholder.
While authorization of a stock repurchase program is customarily within the
strict purview of a Board of Directors, the Fund has determined that in the
interest of full and fair disclosure to its shareholders it will present the
stock repurchase program to its shareholders for their approval.
A. Voting Requirement
------------------
Approval of the proposal that the Fund engage in a program to repurchase a
portion of its outstanding requires the affirmative vote of a majority of the
Fund's outstanding voting securities as defined in the 1940 Act (the lesser of
(i) 67% of the shares represented at the meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares). Mr. Stephen Calandrella and representatives of D. A. Davidson & Co.,
the Fund's two largest shareholders, exercise voting power with respect to
74.3% of the Fund's outstanding shares of common stock and have indicated that
they intend to vote their shares in favor of the proposal. As a result, the
proposal is assured of approval by the Fund's Shareholders.
OTHER MATTERS
The Board of Directors knows of no business to be brought before the
Meeting other than as set forth above. If, however, any other matters
properly come before the Meeting, it is the intention of the person's named in
the enclosed proxy form to vote such proxies on such matters in accordance
with their best judgment.
Whether or not you expect to be present at the meeting, please sign and
return the enclosed proxy promptly. Your vote is important. If you wish to
attend the Meeting and wish to vote in person, you may withdraw your proxy.
THE ROCKIES FUND, INC.
----------------------------------
Gina Garcia-Shaw, Secretary
Shareholder Proposals For The 2000 Annual Meeting
If any shareholder wishes to present a proposal for inclusion in the
proxy materials to be mailed by the Fund with respect to the 2000 Annual
Meeting of Shareholders, the proposal must be presented to the Fund's
management prior to January 31, 2000, along with proof of common stock
ownership in the Fund.
