<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
REDWOOD MICROCAP 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>
REDWOOD MICROCAP FUND, INC.
11 Sundial Circle, #17
Carefree, Arizona 85377
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished to the Shareholders of Redwood MicroCap
Fund, Inc. (respectively the "Shareholders" and the "Fund") in connection with
the solicitation by the Company of proxies to be used at the Annual Meeting of
Shareholders on ____________________, 2000 (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 STOCKMAN KAST RYAN
& SCRUGGS, a Professional Corporation, as the Fund's independent certified
public accountant for the fiscal years ending March 31, 1998, 1999, 2000 and
2001, FOR the proposal of the Fund's Board of Directors to change the Fund's
state of incorporation from Colorado to Delaware 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 ____________________, 2000, to
Shareholders eligible to vote at the Meeting. A copy of the Company's Annual
Report to Shareholders, including financial statements for the year ended
March 31, 2000, was mailed to Shareholders prior to the mailing of this Proxy
Statement. The Company will furnish, without charge, a copy of the Annual
Report and the most recent Semi-Annual Report succeeding the Annual Report to
a shareholder upon request made by mail or by collect telephone call directed
to R. Stanley Pittman, 6180 Lehman Drive, Suite 103, Colorado Springs,
Colorado 80918, Telephone (719) 593-2111.
The Company 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 Company. The Company
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 Company 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
______________, 2000 (the "Record Date"), will be entitled to vote at the
Meeting. Representation of a majority of the Company'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 Company had
outstanding 2,412,000 shares of common stock ("shares").
<PAGE>
<PAGE>
SUMMARY OF PROPOSALS TO BE DECIDED AT THE 2000 ANNUAL MEETING
The following summary of the proposals to be voted upon at the 2000
Annual Meeting is qualified in its entirety by the more detailed information
appearing elsewhere in this Proxy Statement.
1. Proposal No. 1 - Election of Directors.
--------------------------------------
The Directors of the Fund have voted to nominate three (3) Directors
for election to hold office until the next Annual Meeting of the Shareholders
and until their successors are elected and qualified. The persons named in
the accompanying form of Proxy intend, in the absence of contrary
instructions, to vote all proxies FOR the election of the following nominees:
1. John C. Power,
2. Joseph O. Smith, and
3. J. Andrew Moorer
All nominees have consented to stand for election and to serve if
elected. If any such nominees should be unable to serve, an event not now
anticipated, the proxies will be voted for such person, if any, as shall be
designated by the Board of Directors to replace any such nominee. (See
"Proposal No. 1.")
2. Proposal No. 2 - Selection of Independent Public Accountants for the
Fund.
----------------------------------------------------------------
The Board of Directors of the Fund has approved the selection of the
firm of Stockman Kast Ryan & Scruggs, PC ("SKR&S") as independent accountants
for the Fund for the fiscal year ending March 31, 1998, 1999, 2000 and 2001.
SKR&S has examined and reported on the Annual Report to Shareholders for the
past four (4) fiscal years as well as provided services related to filings
made with the Securities and Exchange Commission. The selection of SKR&S is
hereby being submitted to the Shareholders for ratification at the Annual
Meeting. (See "Proposal No. 2.")
3. Proposal No. 3 - Approval or Disapproval of a Change in the Fund's
State of Incorporation From Colorado to Delaware.
--------------------------------------------------------------
The Board of Directors of the Fund believe that certain tax and
other legal advantages can be obtained by changing the Fund's state of
incorporation from Colorado to Delaware. (See Proposal No. 3)
<PAGE>
THE COMPANY
1. Background
----------
The Fund is currently a diversified, close-end management investment
company which was incorporated under the laws of the State of Colorado on
January 24, 1984. Initially, the Fund was operated as an "investment company"
because it was engaged in the business of investing, reinvesting, owning,
holding and trading in securities, and owned securities having a value
exceeding 40% of the value of the Fund's total assets. The Fund was also
deemed to be a "diversified" investment company because at least seventy-five
percent (75%) of the value of the Fund's assets were represented by cash and
cash items and securities of issuers which did not constitute more than five
percent (5%) of the value of the total assets of the Fund, or more than ten
percent (10%) of the voting securities of the issuer in question. As a
result, the Fund was registered with the Securities and Exchange Commission as
a diversified, closed-end management investment company subject to regulation
under the Investment Company Act of 1940, as amended (the "Act") and rules and
regulations promulgated thereunder.
At the Fund's Annual Meeting of Shareholders held August 10, 1992
(the "1992 Annual Meeting"), the Fund's Board of Directors proposed, and the
Fund's shareholders approved, a change in the nature of the Fund's business so
that the Fund would cease to be an investment company. Specifically, among
other things, the Fund's shareholders approved certain revisions of the Fund's
then existing investment policies and regulations, which eliminated the 75%
Asset Requirement and, upon implementation, authorized the Fund to concentrate
the Fund's assets in one or several operating businesses. The Fund has been
engages in a strategy to convert from an investment company to an operating
company.
2. Investment Objectives and Policies Following the 1992 Annual Meeting
------------------------------------------------------------
a. Investment Objectives.
The investment objective of the Fund following the 1992 Annual
Meeting is long-term capital appreciation resulting from concentration of the
Fund's assets in several operating businesses that are familiar to the Fund's
management, and the participation of the Fund's management in the operation of
these businesses. Following the 1992 Annual Meeting, and consistent with its
investment objective, the Fund's Board of Directors redirected its assets into
the acquisition and development of wholly-owned and majority-owned operating
companies and subsidiaries. Those efforts have consisted of certain real
estate related activities; the construction, acquisition and/or operation of
nine radio stations in California: and which is engaged in the acquisition and
operation of TDP Energy Company (herein after "TDP"), in the operation and
management of numerous oil and gas properties.
b. Fundamental Policies.
The Fund may not issue equity securities, which grant the
holders preferential rights over the holders of the common stock as to payment
of dividends or the distribution of assets upon the liquidation of the Fund.
The Fund may not purchase or sell commodities or commodity
contracts.
The Fund may invest in "restricted securities" which generally
may not be sold without registration under the Securities Act of 1933, as
amended. In addition, the Fund does not underwrite securities of issuers,
except that the Fund may acquire portfolio securities under circumstances
where, if the securities are later publicly offered or sold by the Fund, it
might be deemed to be an underwriter for purposes of the Securities Act of
1933.
The Fund may not purchase call options or sell puts except to
hedge a long position.
Except as set forth above and/or as prohibited by the 1940 Act,
since the shareholder action at the 1992 Annual Meeting, the Fund may make any
investment, acquisition or series of investments and/or acquisitions that the
Board of Directors believes to be in the Fund's best interest, including
investments undertaken for the purpose of obtaining management and/or control
of the issuer. The Fund is also authorized to make such loans as the Board of
Directors, in its sole discretion, deems beneficial to the Fund, including
short-term "bridge" loans. A "bridge" loan is a loan made to an issuer
preparing to register and market an issue of securities, generally for the
first time. Bridge loans are commonly considered extremely risky because
there can be no assurance that the borrower will successfully register or
market its securities, and consequently the borrower may not be able to repay
the bridge loan. On the other hand, such bridge loans may often be made at
attractive rates of interest to the Fund, and may enable the Fund to negotiate
for the purchase of securities of the borrower at favorable prices. In
addition to the foregoing, the Fund is also authorized to purchase, sell,
operate and manage all types of real estate, borrow money and pledge Fund
assets, all in the discretion of the Board of Directors of the Fund.
3. Investment Advisory and Other Services
--------------------------------------
The Fund currently operates on a self-directed basis, without the
counsel and advise of an investment advisor, as permitted by the 1940 Act.
Operating on a self-directed basis, the Fund no longer utilizes the services
of an investment advisor. Instead, the Board of Directors of the Fund,
through the Fund's Advisory Committee and Investment Committee, currently
manages the investment operations of the Fund, and otherwise provides the
services typically performed by an investment advisor. (See generally
"Proposal No. 1 Meetings and Committees of the Board of Directors - Appraisal
Committee and Investment Committee.")
4. Current Brokerage Allocation and Other Practices
------------------------------------------------
To the extent the Fund continues to invest in the securities of
issuers that are not wholly or majority-owned subsidiaries of the Fund, the
policy of the Fund is to obtain the best security price available. In so
doing, the Fund will assign portfolio executions and negotiate commission
rates in accordance with the reliability and quality of a broker/dealer's
services. Where commissions paid reflect services furnished in addition to
execution, the Fund can demonstrate that such services were bona fide rendered
for the benefit of the Fund. The selection of broker/dealers by the Fund will
depend on some or all of the following practice: (i) the broker/dealer's
research capabilities, including monthly newsletters, reports, evaluations of
securities in which the broker/dealer makes a market and evaluations of other
issuers; (ii) the broker/dealer's history of bringing new issues to market;
(iii) the broker/dealer's subsequent support of new issues which it has
brought to the market; (iv) broker/dealers which indicate an interest in
giving the Fund the best bid and best asked prices on other securities
transactions; and (v) the broker/dealer's general business reputation and
"back office" efficiency. Notwithstanding the foregoing however, persons
acting on behalf of the Fund are not authorized to pay one broker/dealer more
than another because of brokerage or research services provided by the
broker/dealer. The Fund has not directed any brokerage transactions through
any broker/dealer because of research services offered by a broker/dealer.
Research services furnished by a broker/dealer through which the Fund affects
the securities transactions may be used by the Fund in servicing all of its
accounts.
5. Custodian, Transfer Agent and Dividend-Paying Agent
---------------------------------------------------
U.S. Bank acts as the Fund's custodian for assets of the Fund.
American Securities Transfer acts as the Fund's dividend-paying agent,
transfer agent and registrar.
6. Security Ownership of Certain Beneficial Owners and Management
---------------------------------------------------------------
The following table sets forth as of May 1, 2000, certain
information with respect to the ownership of the Fund's common stock by (i)
each of the Fund's directors, (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 of the Fund 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.
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned Percent of Class
Name and Address As of May 1, 2000 Beneficially Owned
---------------- ---------------------- ------------------
<S> <C> <C> <C>
John C. Power 1,025,331 42.5%
11 Sundial Circle, #17
Carefree, Arizona 85377
J. Andrew Moorer -0- 0%
11 Sundial Circle, #17
Carefree, Arizona 85377
Joseph O. Smith 8,000 nil
16915 John Telfer Drive
Morgan Hill, CA 95037
Directors and Officers
as a group (3 persons) 1,033,331 42.8%
</TABLE>
7. Voting Intentions of Certain Beneficial Owners and Management
-------------------------------------------------------------
To be ratified by the Shareholders, Proposal No. 1, Proposal No. 2,
and Proposal No. 3 require 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). Ratification of Proposal No. 4 requires the affirmative vote of
2/3rd of the shares entitled to vote thereon. Mr. John C. Power and the
Fund's directors and officers have advised the Fund that they will vote the
shares owned or controlled by them FOR each of the Proposals in this Proxy
Statement. These shares total 1,033,331 shares and represent 42.8% of the
outstanding common stock of the Fund.
8. Additional Information
----------------------
The Fund is subject to the informational requirements of the 1934
Act and in accordance therewith files reports and other information with the
SEC. Reports, proxy statements and other information concerning the Company
can be inspected and copied (at prescribed rates) at the Commission's Public
Reference Rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information regarding
the Public Reference Rooms. You can also obtain copies of our Commission
filings by going to the Commission's website at http://www.sec.gov.
<PAGE>
<PAGE>
PROPOSAL NO. 1: ELECTION OF DIRECTORS
It is the recommendation of management that the Board of Directors
for the coming year and, until their successors have been duly elected and
qualified, consists of three members. Cumulative voting in the election of
Directors is not authorized by the Articles of Incorporation. The persons
named in the accompanying form of proxy intend, in the absence of contrary
instructions, to vote all proxies FOR the election of the three nominees
listed below as directors of the Fund to serve until the next Annual Meeting
of Shareholders and until their successors are duly elected and qualified.
All nominees have consented to stand for election and to serve if elected. If
any such nominees should be unable to serve, an event not now anticipated, the
proxies will be voted for such person, if any, as shall be designated by the
Board of Directors to replace any such nominee.
1. Information Concerning Nominees
-------------------------------
The following table sets forth certain information about the
nominees for election as directors:
<TABLE>
<CAPTION>
Principal Occupation Shares Beneficially
Name, Age and During Past Five Years Owned As Of
Office With Fund and Current Affiliations May 1, 2000
- ----------------------- ------------------------ ------------------
<S> <C> <C>
John C. Power, 37, Mr. Power has served as 1,025,331 shares
Director since May, a Director of the Fund since 42.5%
1989, President since May, 1989 and as 1989
February 28, 1992 President and Chief
Executive Officer of the
Fund since February, 1992.
In addition, Mr. Power
serves as President of TDP
Energy Company, a minority-
owned subsidiary of the
Fund, President of Four
Rivers Broadcasting, Inc., a
wholly-owned subsidiary of
the Fund, a Director of Palo
Verde Group, Inc., a wholly-
owned subsidiary of the
Fund, President of Alta
California Broadcasting,
Inc., a majority-owned
subsidiary of the Fund, and
is Managing Member of
Wyoming Resorts, LLC, a
limited liability company
controlled by the Fund. He
is also a Director of
Redwood Energy, Ltd., an
energy company that trades
on the Vancouver Stock
Exchange under the symbol
"RWD." In addition, he was
a Director of Guardian
Technologies International,
Inc. from 1997 to 1999 and
has served since 1998 as
Managing Member of Sea Ranch
California, LLC, a
California limited liability
company which owns and
operates a resort in Sonoma
County, California. From
June, 1995 until December
31, 1998, Mr. Power has also
served as President, Chief
Executive Officer and
Chairman of the Board of
Redwood Broadcasting, Inc.
("RBI"), a publicly traded
company involved in radio
broadcasting. Since
November 1996, Mr. Power has
been the Managing Member of
Northern Lights
Broadcasting, L.L.C., a
limited liability company
engaged in the development
of radio stations in Montana
and North Dakota. From
November 1996 until June 5,
1998, Mr. Power was
President of Power Surge,
Inc. Mr. Power has also
served as President of Power
Curve, Inc., a private
investment and consulting
firm since 1986, and as an
officer and director of
Signature Wines of Napa
Valley, Inc. from September,
1995 to June 1996.
Signature Wines is engaged
in the resale and marketing
of wines through a private
label program. From March,
1994 to September, 1995, Mr.
Power served as a general
partner of Signature Wines,
a California general
partnership, a predecessor
entity of Signature Wines of
Napa Valley, Inc. He was a
director of AirSoft
Corporation, a manufacturer
of network communications
software and systems, from
1993 to June 1996. Mr.
Power received his formal
education at Occidental
College and at the
University of California at
Davis.
J. Andrew Moorer, 37, Mr. Moorer has served as a 0 Shares
Director since Decem- Director of the Fund since 0%
ber, 1993, Chief December, 1993, and was Chief
Financial Officer since Financial Officer of the Fund
July, 1994 from July, 1994 until
February, 1999. Mr. Moorer
also serves as President and
a Director of Guardian
Technologies International,
Inc. (Nasdaq: GRDN), a
manufacturer of soft armor
products and structural
steel manufacturing. Mr.
Moorer has also served as
RBI's Chief Financial
Officer, Secretary,
Treasurer, and as a member
of the RBI's Board of
Directors from June, 1995
until December 31, 1998.
From May, 1990 to May 1994,
Mr. Moorer held the position
of Chief Financial Officer
of Applied Research
Corporation, a large,
publicly traded, scientific
research and development
company based in Landover,
Maryland. From March, 1987
to May, 1990, Mr. Moorer was
employed as a business
analyst with Compudyne
Corporation, a defense
electronics manufacturer
located in Annapolis,
Maryland. Prior to
accepting employment with
Compudyne, Mr. Moorer was
employed as a Certified
Public Accountant with the
international accounting
firm of Coopers & Lybrand
where he worked in the Audit
and Emerging Business
Services Group from January,
1985 to March, 1987. Mr.
Moorer received his formal
education at Loyola College,
Baltimore, Maryland.
Joseph O. Smith, 57, Mr. Smith has served as a 8,000 Shares
since May, 1985 Director of the Fund since nil %
May, 1985. Mr. Smith also
served as a Director of
Combined Penny Stock Fund,
Inc. from May 1985 to
February 28, 1992, and has
been an Engineering Manager
with National SemiConductor
(manufacturer) since August
1985.
</TABLE>
2. Meetings and Committees of the Board of Directors
-------------------------------------------------
a. Meetings of the Board of Directors
The Board of Directors met four times during the fiscal year
ended March 31, 2000. Each incumbent director attended each meeting of the
Board of Directors, either in person or by telephone conference.
b. Appraisal Committee
The Board has established an Appraisal Committee which reviews
all transactions with respect to execution price and brokerage commissions, to
determine if the Fund is receiving "the best execution." The Appraisal
Committee also proposes to the Board 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 Fund's Board of Directors. During the year ended March 31,
2000, the Appraisal Committee consisted of John C. Power and J. Andrew Moorer.
The Appraisal Committee meets immediately following the close of each month.
During the fiscal year ended March 31, 2000, the Appraisal Committee met
twelve times. All members of the Appraisal Committee attended each meeting
either in person or by telephone conference.
c. Investment Committee
The Board has established an Investment Committee to approve
all stock transactions considered by the Fund. During the fiscal year ended
March 31, 2000, the Investment Committee members were John C. Power and J.
Andrew Moorer.
d. Other Committees
There are no standing audit, compensation or nominating
committees of the Board. The foregoing notwithstanding, J. Andrew Moorer, the
Fund's Chief Financial Officer, has been charged with the responsibility of
maintaining all journals and ledgers which the Act, and the rules and
regulations promulgated thereunder, require the Fund to maintain.
<PAGE>
<PAGE>
3. Remuneration 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 $100,000.00.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
COMPENSATION TABLE
---------------------------------------------------------------------------
Name of Aggregate Pension or Estimated Total
Person, Compensation Retirement Annual Compensation
Position Benefits Benefits Upon From Fund
Accrued Retirement and Fund
As Part Complex
of Fund Paid to
Expenses Director
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John C. Power, $92,000 -0- -0- $92,000
President, CEO
and Director
J. Andrew Moorer, $2,000 -0- -0- $2,000
CFO and Director
Joseph O. Smith, $3,000 -0- -0- $3,000
Director
---------------------------------------------------------------------------
</TABLE>
No other executive officer of the Fund received compensation during
the fiscal year ended March 31, 2000 in excess of $100,000.
All officers and employees of the Company are eligible to
participate in the Company's group health and dental insurance 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.
4. Pending Legal Proceedings
-------------------------
During 1994, 1995 and 1996, the Fund and John C. Power, a Director
and President of the Fund, received several requests from the Securities and
Exchange Commission (the "Commission") to produce documents covering numerous
transactions involving Mr. Power, the Fund and other parties. In September,
1996, Mr. Power was notified by Commission's staff that it intends to request
that the Commission commence an administrative proceeding against Mr. Power
and others based upon certain transactions in securities of issuers other than
the Fund. The Fund did not receive any such notification. Mr. Power has
responded to the Commission with a written submission which sets forth why
there exists no basis in fact or law for such a proceeding. In September,
1998, the Commission brought an administrative action against Mr. Power and
other third parties. The matter went to administrative hearing in November,
1998; and to date, no ruling has been rendered by the Commission on the
matter. It is impossible to predict whether the staff will recommend a
proceeding against Mr. Power, and if such a recommendation is made, whether
the Commission will authorize the institution of a proceeding. If a
proceeding is instituted against Mr. Power, there can be no assurance that
such a proceeding will not have an adverse impact upon Mr. Power and,
indirectly, an adverse impact upon the Fund's financial condition or operating
results.
In 1999, the Fund was audited by the Commission and as a result of
the audit received a deficiency notification. The deficiency notification
outlined various areas in which the Commission claims the Fund either deviated
from applicable regulatory requirements or otherwise violated federal
securities laws. The Fund has responded to the deficiency letter and is
awaiting notification of what, if any, additional action the Commission may
take in the matter.
Other than the foregoing, during the last five (5) years no director
or officer of the Company has:
(1) 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;
(2) been convicted in a criminal proceeding or subject to a
pending criminal proceeding;
(3) 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
(4) 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.
5. Certain Relationships and Related Transactions
----------------------------------------------
During fiscal 2000, the Fund made advances to several affiliated
companies. At March 31, 2000, the Fund had outstanding advances receivable
from affiliates of $953,000 including an advance receivable from Wyoming
Resorts, LLC of $915,000; although for accounting purposes the receivable was
reduced by a valuation allowance of $220,000, and as a result is reflected on
the accompanying financial statements at $733,000. The advances have no
repayment terms and bear interest of eight percent (8%) per annum.
The Fund has unsecured advances with several affiliates which are
non-interest bearing and payable on demand. It has advances payable to TDP
Energy Company and California Progressions, Inc. in the amounts of $145,037
and $80,407, respectively.
The Fund has provided a corporate guarantee of a commercial loan
obtained by Wyoming Resorts, LLC with a commercial lender. The loan had an
outstanding balance of $985,000 at March 31, 2000. In addition, the Fund has
guaranteed a commercial loan obtained by Palo Verde Group, Inc. , a wholly-
owned subsidiary, with a commercial lender. The outstanding balance on this
indebtedness at March 31, 2000 was $113,000.
In addition, the Fund has guaranteed a commercial loan obtained by
Kapell Valley Vineyard, LLC, an affiliate of Wyoming Resorts, LLC, a limited
liability company controlled by the Fund. The amount outstanding at March 31,
2000 on this commercial loan was $1,500,000.
The Fund has provided a working line of credit to Wyoming Resorts,
LLC in the amount of $800,000. The borrowing limit on that line of credit was
increased to $1,000,000 after the end of fiscal 2000. The amount outstanding
under this line of credit at March 31, 2000 was $915,000.
6. 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. 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 Fund, all
of these filing requirements were satisfied by its Officers and Directors and
ten percent holders as of March 31, 2000.
7. 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
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
PROPOSAL NO. 2: SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FUND
The Board of Directors of the Fund approved the selection of the
firm of Stockman Kast Ryan & Scruggs, P.C. ("SKR&S") as independent
accountants for the Fund for the fiscal year ending March 31, 1998, 1999, 2000
and 2001. Said selection is hereby being submitted to the Shareholders for
ratification at the Annual Meeting.
The professional services of SKR&S to the Fund have included
examination of and reporting on the Annual Report to Shareholders for the past
four (4) fiscal years and services related to filings made with the Securities
and Exchange Commission.
Approval of the selection of the firm of SKR&S requires the
affirmative vote of a majority of the Fund's outstanding voting securities
which mean the lesser of (i) 67% of the shares represented at a meeting at
which more than 50% of the outstanding shares are present or (ii) more than
50% of the outstanding shares.
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 SKR & S, and new
independent certified public accountants would have to be appointed and the
appointment submitted to shareholders for approval.
A representative of SKR&S is not expected to be present at the
Annual Meeting. However, should a representative of SKR&S attend the Annual
Meeting, the representative may make a statement if desired and will be given
an opportunity to respond to appropriate questions. The firm of SKR&S does
not have any direct or indirect financial interest in the Fund.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE RATIFICATION OF THE SELECTION OF STOCKMAN KAST RYAN & SCRUGGS, P.C.
AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FUND
FOR THE YEAR ENDING MARCH 31, 1998, 1999, 2000 AND 2001
PROPOSAL NO. 3: APPROVAL OF A CHANGE OF THE FUND'S STATE OF INCORPORATION
FROM COLORADO TO DELAWARE
The Board of Directors of the Fund is recommending the Fund's state of
incorporation be changed from Colorado to Delaware. As a Colorado
corporation, the Fund's net income is subject to state income tax now that its
net operating loss carry forward has been entirely utilized. As the Fund's
executive officer, residing in the state of Arizona, there is no longer any
logical nexus with the state of Colorado and only the disadvantage of
subjecting the Fund's net income to state taxation. The state of Delaware
imposes no corporate income tax. Accordingly, a change of the Fund's state of
domestication to Delaware will eliminate the burden of future state income
taxation.
DELAWARE REDOMESTICATION
For reasons set forth below, the Board of Directors of the Company has
determined that it is in the best interest of the Company and its shareholders
that the Company redomesticate under the laws of the State of Delaware
("Redomestication"). If the Redomestication is approved by the Company's
shareholders at the annual meeting and subsequently consummated by the
Company, the Company will become a corporation chartered under the Delaware
General Corporation Law ("DGCL"), rather than the Colorado Business
Corporations Act ("CBCA"). All other rights, properties, privileges and
franchises of the Company will continue unaltered and the rights of security
holders in the Company will only be altered insofar as differences between the
DGCL and CBCA discussed below. Furthermore, the Company will continue to be a
fully reporting company under Section 12(g) of the Securities Exchange Act of
1934, as amended, (the "Exchange Act") and the Company's securities will
continue to be traded in the manner theretofore traded on the over-the-counter
market and quoted on the OTC Electronic Bulletin Board.
Background and Mechanics of Redomestication
If approved by the Company's shareholders and subsequently consummated,
the Redomestication will be accomplished by merging the present company (for
purposes of this discussion referred to as "Redwood - Colorado") into a newly
formed Delaware corporation ("Redwood - Delaware"), with Redwood - Delaware to
be the surviving corporation. The statutory merger will be accomplished
pursuant to applicable provisions of the DGCL and CBCA.
In order to consummate the Redomestication the Company will form and
organize Redwood - Delaware which will be a wholly owned subsidiary of
Redwood - Colorado. As a result of the merger affecting the Redomestication,
Redwood - Colorado will merge with and into Redwood - Delaware and thereafter
cease to exist, the current outstanding shares of Common Stock of Redwood -
Delaware will be canceled and all outstanding securities of Redwood - Delaware
immediately prior to the effective time of the merger (the "Effective Time")
will be deemed automatically converted into an equal number of identical
securities of Redwood - Delaware.
Closing; Effective Time
The closing of the transactions contemplated by the Redomestication will
take place as soon as practicable (but in no event later than two business
days) after all conditions to the Redomestication under the terms of the
Merger Agreement have been satisfied or waived. Upon the satisfaction or
waiver of such conditions, a Certificate of Merger for the DGCL and Articles
of Merger will be filed with the Secretary of State of Colorado under the
CBCA.
Exchange of Certificates
From and after the Effective Time, all securities issued by Redwood -
Colorado shall be deemed automatically converted into an equal number of
identical securities of Redwood - Delaware. Except for shares of the
Company's Common Stock which are traded on the over-the-counter market, all
other certificated securities of Redwood - Colorado should be retained by the
holders thereof and need not be exchanged for certificates representing the
securities of Redwood - Delaware into which they have been converted.
With respect to outstanding shares of Common Stock of Redwood - Colorado,
the Company will engage the services of an exchange agent which will mail
transmittal instructions and a form of letter of transmittal to each holder of
Redwood - Colorado Common Stock immediately prior to the Effective Time. The
transmittal instructions will describe the procedures for surrendering
certificates that, prior to their Redomestication, represented Redwood -
Colorado Common Stock, in exchange for certificates evidencing Redwood -
Delaware Common Stock. The form of letter of transmittal will specify that
delivery will be effected only upon actual delivery of the Redwood - Colorado
certificates to the exchange agent. Upon surrender of the Redwood - Colorado
certificates for cancellation to the exchange agent, together with a duly
executed letter of transmittal and such other documents as the exchange agent
may reasonably require, such Redwood - Colorado certificates will be canceled
and the holder will receive a Redwood - Delaware certificate representing an
equal number of shares of Common Stock of Redwood - Delaware.
Neither the exchange agent nor any party to the Redomestication will be
liable to any Redwood - Colorado stockholder who fails to transmit for
cancellation their certificate representing shares of Common Stock of Redwood -
Colorado in exchange for a new certificate representing an identical number
of shares of Common Stock of Redwood - Delaware.
Certificate of Incorporation
On the Effective Time of the Redomestication, the Certificate of
Incorporation of Redwood - Delaware immediately prior to the Effective Time
shall continue to be operative without amendment or modification. Similarly,
the Bylaws of Redwood - Delaware in effect immediately prior to the Effective
Time shall continue in full force and effect thereafter without amendment or
modification.
Except for matters controlled exclusively by the provisions of the DGCL,
the only substantive difference between the operative provisions of the
Articles of Incorporation of Redwood - Colorado, as amended and existing
immediately prior to the Effective Time, and the operative provisions of the
Certificate of Incorporation of Redwood - Delaware, provides, inter alia, that
the authorized capital of that corporation shall consist of 150,000,000 shares
of Common Stock, $.001 par value, and 50,000,000 shares of Preferred Stock,
$.001 par value. The authorized capital of Redwood - Colorado consists of
150,000,000 shares of Common Stock, $.001 par value, and 50,000,000 shares of
Preferred Stock, $.01 par value. The change in authorized capitalization for
Redwood - Delaware was undertaken in order to mitigate the impact of the
corporation's authorized capitalization on its annual liability to pay
Delaware franchise tax. However, the increase in authorized number of shares
of Preferred Stock could be used by the Company's Board of Directors, without
further Shareholder approval, to issue one or more additional series of
Preferred Stock granting to the holders thereof greater voting rights or other
privileges senior to the rights of holders of the Company's Common Stock which
could be used as a deterrent to hostile takeover attempts or otherwise thwart
efforts to effect a change of control of the Company.
Directors and Executive Officers
Immediately after the Effective Time, the Directors and Executive
Officers of Redwood - Delaware shall be the same persons holding the same
positions as held with Redwood - Colorado immediately prior to the Effective
Time.
Redwood - Colorado Common Stock Options
At the Effective Time, Redwood - Colorado has and will have no
outstanding exercisable Common Stock Options.
Option Plans
At the Effective Time, Redwood - Colorado does not have and will not have
adopted any Equity Incentive Plan or other stock option plan.
Redwood - Colorado Warrants
At the Effective Time, Redwood - Colorado will not have outstanding any
exercisable warrants to purchase shares of Common Stock.
Redwood - Colorado Convertible Preferred Stock
At the Effective Time, Redwood - Colorado will have issued and
outstanding no shares of Preferred Stock of any series or class.
Conditions to the Redomestication
Consummation of the merger and the Redomestication are subject to the
satisfaction of various conditions, including, without limitation: (i) the
approval and adoption of the Merger Agreement and the Redomestication of the
by the requisite vote of the stockholders of Redwood - Colorado, (ii) the
absence of any temporary restraining order, preliminary or permanent
injunction or other legal restraints preventing consummation of the merger,
(iii) the approval for quotation on the OTC Electronic Bulletin Board of the
shares of Common Stock of Redwood - Delaware immediately upon the Effective
Time, (iv) no Redwood - Colorado security holders shall have exercised
appraisal rights in accordance with the CBCA, or, at the discretion of the
Board of Directors, Redwood - Colorado shall have been able to resolve the
claims of any Redwood - Colorado security holder who shall have exercised such
appraisal rights in accordance with applicable legal requirements; and (v) no
event shall have occurred that has or would result in the triggering of any
right or entitlement of any security holder of Redwood - Colorado that would
not have been triggered absent the consummation of the Merger and
Redomestication.
Termination
The Merger and Redomestication may be terminated and abandoned prior to
the Effective Time by action of the Board of Directors of Redwood - Colorado
for any reason whatsoever, whether or not the Merger and Redomestication have
been approved by the requisite vote of the security holders of Redwood -
Colorado prior to such termination.
Listing of New Shares of Redwood - Delaware Common Stock on the OTC Electronic
Bulletin Board
Consummation of the Merger and the Redomestication of Redwood - Colorado
under the DGCL will result in Redwood - Delaware being deemed a"successor
issuer" within the meaning of Rule 12(g)-3 under the Exchange Act. As the
result, the shares of Common Stock of Redwood - Delaware shall be deemed
automatically registered securities under Section 12(g) of the Exchange Act
without the necessity of filing any additional registration statements
covering those shares of Common Stock. Pursuant to the requirements of Rule
12(g)-3 under the Exchange Act, immediately following the Effective Time of
the Merger, the Company will prepare and file a current report on Form 8-K
disclosing the completion of the Merger and the creation of Redwood - Delaware
as the successor issuer. As the result, the shares of Common Stock of Redwood
- - Delaware following the Merger will be deemed automatically qualified for
secondary trading on the OTC Electronic Bulletin Board.
Appraisal Rights
If the Merger becomes effective, a holder of Redwood - Colorado Common
Stock who does not vote in favor of the Merger and who follows the procedures
prescribed under Colorado law may require Redwood - Delaware as the surviving
corporation to pay the "fair value", determined as provided under the CBCA,
for the shares held by such stockholder. The following is a summary of
certain features of the relevant sections of the CBCA, the provisions of which
are set forth in full in Annex I hereto, and such summary is subject to and
qualified in its entirety by reference to such law. In order to exercise such
statutory appraisal rights, strict adherence to the statutory provisions is
required, and each stockholder who may desire to exercise such rights should
carefully review and adhere to such provisions. Any holder of Redwood -
Colorado Common Stock who votes in favor of the Merger, or is deemed to vote
in favor of the Merger (by, for example, returning a signed proxy card without
specifying a vote on the Merger) will waive their appraisal rights.
A holder of Redwood - Colorado Common Stock who desires to pursue the
appraisal rights available to such stockholder must: (i) file a written
objection to the Merger with Redwood - Colorado pursuant to Section 7-113-202
of the CBCA before the taking of the stockholders' vote on the Merger
Agreement, stating the intention of such stockholder to demand payment for
shares owned by such stockholder if the Merger is approved and the Merger is
consummated; (ii) refrain from voting in favor of the Merger; (iii) make
written demand (the "Demand") to Redwood - Delaware, as the surviving
corporation in the Merger, for payment for said stockholder's shares on or
before the time set within the notice sent by Redwood - Delaware to objecting
stockholders (which time must be at least 30 days after the giving of such
notice); and (iv) deposit the stockholder's share certificates with Redwood -
Delaware. Such written objection and written demand should be delivered to
Redwood - Delaware, 11 Sundial Circle, #17, Carefree, Arizona 85377,
Attention: John C. Power, President, and it is recommended that such objection
and demand be sent by registered or certified mail, return receipt requested.
The Merger Agreement is subject to the condition that no holders of the
outstanding shares of Redwood - Colorado Common Stock shall have filed written
objections to the Merger pursuant to Section 7-113-202 of the CBCA (such
shares held by a holder who has exercised appraisal rights in accordance with
the CBCA, the "Dissenting Shares"). If any holders of the outstanding shares
have filed such objections, the parties shall have the right to (i) waive this
condition and close, or (ii) terminate the Merger Agreement.
A stockholder who files the required written objection with Redwood -
Colorado prior to the stockholder vote need not vote against the Merger, but a
vote in favor of the Merger will constitute a waiver of such stockholder's
statutory appraisal rights. If a stockholder returns a proxy which is signed
but on which no vote is specified as to the proposal on the Merger Agreement,
and thereafter does not revoke such proxy, it will be voted in favor of the
Merger, and the stockholder will be deemed to have waived his or her appraisal
rights. In addition, a vote against the Merger does not, alone, constitute a
written objection.
The value of the Redwood - Colorado Common Stock will be determined
initially by Redwood - Delaware as the surviving corporation and the
dissenting stockholder. Upon the later of the effective date of the Merger
and the date upon which Redwood - Delaware receives a valid Demand, Redwood -
Delaware shall pay a dissenting stockholder who complies with the above the
fair value of the stockholder's shares, plus accrued interest, if any. Such
payment shall be accompanied by (i) Redwood - Delaware's balance sheet as of
the end of its most recent fiscal year, (ii) a statement of Redwood -
Delaware's estimate of the fair value of the shares, (iii) an explanation of
how interest was calculated, (iv) a statement of the dissenter's right to
demand greater payment if the dissenter believes that Redwood - Delaware's
payment does not accurately reflect the fair value of the shares, and (v) a
copy of Article 7 of the CBCA. If the dissenter believes that Redwood -
Delaware's payment does not accurately reflect the fair value of the shares,
or if Redwood - Delaware fails to make its payment within 60 days of receipt
of the Demand, the dissenter may give written notice to Redwood - Delaware of
the dissenter's estimate of the fair value of the shares and the interest
thereon, and demand payment of such amount, less any amount previously
received from Redwood - Delaware on account of the shares. The dissenter
shall waive any right to propose a fair value for the shares if written notice
is not given to Redwood - Delaware within 30 days of the dissenter's receipt
of payment from Redwood - Delaware.
If a demand from a dissenter for greater payment than that offered by
Redwood - Delaware remains unresolved, Redwood - Delaware may, within 60 days
of receiving such demand, commence a judicial proceeding to determine the fair
value of the shares. If Redwood - Delaware does not commence a judicial
proceeding within 60 days of receiving such demand, it shall pay the amount
demanded by the dissenting stockholder. Each dissenting stockholder whose
demands remain unresolved shall be made parties to such action. Upon a
judicial determination of the fair value of the shares, each dissenter shall
be entitled to the amount, if any, by which the value found through the
judicial proceeding exceeds the payment made by Redwood - Delaware, plus
interest. The court costs of such a proceeding shall be borne by Redwood -
Delaware, except to the extent that the court finds that dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment beyond
that offered by Redwood - Delaware. The court may also assess counsel fees
and expenses upon the respective parties, to the extent that the court finds
such assessment fair and equitable.
The "fair value" of the Redwood - Colorado Common Stock could be more
than, the same as or less than the consideration to be received by the Redwood
- - Colorado stockholders in the Merger. For appraisal proceeding purposes,
value is determined as of the day before the approval of the Merger Agreement
by stockholders, excluding any element of value arising from the expectation
or accomplishment of the Merger.
The enforcement by a stockholder of his or her request to receive payment
for shares of Redwood - Colorado Common Stock as provided under the applicable
statutory provisions shall be an exclusive remedy except that such remedy
shall not exclude the right of a stockholder to bring or maintain an
appropriate proceeding to obtain relief on the ground that said corporate
action will be or is illegal or fraudulent as to said stockholder.
A final judgment by the court or an appraiser appointed by the court
determining the fair value of the Redwood - Colorado Common Stock would be
binding on and enforceable by Redwood - Colorado stockholders who have
perfected their statutory appraisal rights, even if such fair value were
determined to be less than the consideration to be received by the Redwood -
Colorado stockholders in the Merger. A stockholder who perfects his rights as
a dissenting stockholder will not, after the Effective Date, be entitled to
notices of meetings, to vote, or to receive dividends.
Each share of Redwood - Colorado Common Stock held by stockholders who
seek to exercise appraisal rights and, after the Effective Time, fail to
perfect or lose any such right to appraisal, shall be treated as a share that
had been converted as of the Effective Time into the right to receive Redwood -
Delaware Common Stock as provided in the Merger Agreement.
Comparison of Rights of Holders of Redwood - Colorado Common Stock and Redwood
- - Delaware Common Stock
After consummation of the Merger, the holders of Redwood - Colorado
Common Stock who receive Redwood - Delaware Common Stock in the Merger will
become stockholders of Redwood - Delaware. As stockholders of Redwood -
Colorado, their rights are presently governed by the CBCA and by Redwood -
Colorado's Articles of Incorporation (the "Redwood - Colorado Charter") and
By-laws. As stockholders of Redwood - Delaware, their rights will be governed
by the DGCL and by Redwood - Delaware's Certificate of Incorporation (the
"Redwood - Delaware Charter") and By-laws. The following discussion
summarizes the material differences between the rights of holders of Redwood -
Delaware capital stock and holders of Redwood - Colorado capital stock and
differences between the Redwood - Delaware Charter and Redwood - Delaware
By-laws and the Redwood - Colorado Charter and Redwood - Colorado By-laws.
This summary does not purport to be complete and is qualified in its entirety
by reference to the Redwood - Delaware Charter and By-laws, the Redwood -
Colorado Charter and By-laws and the relevant provisions of the DGCL and the
CBCA.
SPECIAL MEETING OF STOCKHOLDERS. The DGCL provides that special meetings
of stockholders may be called by the directors or by any other person as may
be authorized by the corporation's certificate of incorporation or by-laws.
The CBCA provides that special meetings of stockholders of a corporation may
be called by the directors or by any other person authorized by the
corporation's by-laws or by resolution of the directors. The CBCA also
provides that a special meeting shall be called if the corporation receives
one or more written demands for a meeting, stating the purpose or purposes for
which the meeting is to be held, signed and dated by stockholders representing
at least ten percent of all votes entitled to be cast on any issue proposed to
be considered at the special meeting. The By-laws of Redwood - Colorado
provide that special meetings may be called at any time by the President or
any two directors of the corporation, or by the holders of at least ten
percent of all of the shares entitled to vote at the special meeting.
INSPECTION RIGHTS. Under the DGCL, stockholders, upon the demonstration
of a proper purpose, have the right to inspect a corporation's stock ledger,
stockholder list, and other books and records. Under the CBCA, a
corporation's stockholders have the right to inspect, during regular business
hours, the corporation's articles of incorporation, by-laws, records of all
meetings of stockholders, records of actions taken by stockholders without a
meeting within the prior three years, all written communications within the
prior three years to all stockholders as a group or to holders of any class or
series of stock as a group, a list of the names and business addresses of the
corporation's current officers and directors, the most recent corporate report
delivered to the Colorado Secretary of State, and all financial statements
prepared for periods ending during the prior three years, upon written demand
given at least five business days before the date upon which such stockholder
wishes to inspect and copy such records. Pursuant to the CBCA, stockholders
also may, upon written demand at least five days prior to such inspection and
during regular business hours, inspect excerpts from minutes of any directors'
meeting or action of directors taken without a meeting, records of any action
taken by stockholders without a meeting, excerpts of any action taken by a
committee of the directors while such committee was acting in place of the
directors, waivers of notices of any meeting of stockholders, directors, or a
committee of directors, accounting records of the corporation and the records
of stockholders, provided that the stockholder meets the following conditions:
(i) the demand for such inspection is made in good faith for a proper purpose,
(ii) the stockholder has been a stockholder of the corporation for at least
three months immediately proceeding the demand, or holds at least five percent
of all outstanding shares of any class of stock, (iii) the purpose and the
records which the stockholder wishes to inspect are described with reasonable
particularity, and (iv) the records to be inspected are directly connected
with the described purpose.
ACTION BY CONSENT OF STOCKHOLDERS. Under the DGCL, unless the
certificate of incorporation provides otherwise, any action to be taken by
stockholders may be taken without a meeting, without prior notice, and without
a vote, if the stockholders having the number of votes that would be necessary
to take such action at a meeting at which all stockholders were present and
voted consent to the action in writing. Under the CBCA, unless the Articles
of Incorporation require that such action be taken at a stockholder meeting,
any action to be taken by stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing.
CUMULATIVE VOTING AND ELECTION OF DIRECTORS. Under the DGCL, a
corporation may provide in its certificate of incorporation for cumulative
voting by stockholders in elections of directors (i.e., each stockholder casts
as many votes for directors as he has shares of stock multiplied by the number
of directors to be elected). The CBCA provides that there shall be cumulative
voting by stockholders in elections of directors unless the articles of
incorporation expressly state otherwise. The Redwood - Colorado and Redwood -
Delaware Charters expressly state that there shall be no cumulative voting by
stockholders for the election of directors, or for any other purpose.
In the absence of cumulative voting, the CBCA provides that, unless
otherwise provided in the corporation's articles of incorporation or by-laws,
the number of candidates equaling the number of directors to be elected,
having the highest number of votes cast in their favor, are elected to be
directors. The DGCL provides that, in the absence of cumulative voting,
directors shall be elected by the majority vote of holders of shares entitled
to vote thereon, unless otherwise specified within the corporation's
certificate of incorporation. The Redwood - Delaware Charter does not specify
a greater requirement for the election of directors.
DIVIDENDS AND REPURCHASES OF STOCK. Under the DGCL, a corporation
generally is permitted to declare and pay dividends out of any surplus or out
of net profits for the current and/or preceding fiscal year, provided that
such dividends will not reduce capital below the amount of capital represented
by all classes of stock having a preference upon the distribution of assets.
Also under the DGCL, a corporation may generally redeem or repurchase shares
of its stock if such redemption or repurchase will not impair the capital of
the corporation. Under the CBCA, the payment of distributions, including the
repurchase of stock, is generally permissible unless after giving effect to
the dividend or distribution, the corporation would be unable to pay its debts
as they became due in the usual course of business, or if the total assets of
the corporation would be less than the sum of its total liabilities plus the
amount that would be needed, if the corporation were dissolved at the time the
dividend was paid, to satisfy the preferential rights of stockholders whose
preferential rights upon dissolution of the corporation are greater than those
of the stockholders receiving the dividend.
CLASSIFICATION OF THE BOARD OF DIRECTORS. The DGCL permits (but does not
require) classifications of a corporation's board of directors into one, two
or three classes. The CBCA also permits, but does not require, classification
of a corporation's board of directors into one, two, or three classes, with
each class composed of as equal a number of directors as is possible. In the
event of multiple classes of directors, the CBCA provides for staggered terms
of two years if there are two classes of directors or three years if there are
three classes of directors. The Redwood - Delaware Charter does not provide
for multiple classes of directors.
REMOVAL OF DIRECTORS. Under the DGCL, although stockholders may
generally remove directors with or without cause by a majority vote,
stockholders may remove members of classified boards only for cause unless the
certificate of incorporation provides otherwise. Neither the DGCL nor the
CBCA permits directors to remove other directors. Under the CBCA,
stockholders may remove one or more directors with or without cause by a
majority vote of the stockholders entitled to elect such director(s), unless
the articles provide that directors may only be removed for cause. The CBCA
permits the removal of a director by stockholders only at a meeting called for
that purpose, upon notice of the meeting which states that the purpose or one
of the purposes thereof is the removal of the director.
VACANCIES ON THE BOARD OF DIRECTORS. Under the DGCL, unless otherwise
provided in the certificate of incorporation or by-laws, vacancies on the
board of directors and newly created directorships resulting from any increase
in the authorized number of directors may be filled by the remaining
directors. The CBCA provides that, unless otherwise provided in the
corporation's articles of incorporation, vacancies on the board of directors
and newly created directorships resulting from an increase in the authorized
number of directors may be filled either by the directors or the stockholders.
Under the CBCA, directors may fill a vacancy by majority vote, even if the
directors remaining in office constitute less than a quorum. The CBCA also
specifically provides that, unless otherwise provided in the corporation's
articles of incorporation, if a vacant office was held by a director elected
by holders of a specific class or series of stock, only such stockholders or
directors also elected by holders of that class or series of stock, may fill
the vacancy.
EXCULPATION OF DIRECTORS. The DGCL and the CBCA have substantially
similar provisions relating to exculpation of directors. Each state's law
permits that no director shall be personally liable to Redwood - Delaware and
Redwood - Colorado, respectively, or their respective stockholders for
monetary damages for breaches of fiduciary duty except where such exculpation
is expressly prohibited by law. The circumstances under which exculpation is
prohibited are substantially similar in Delaware and Colorado, except that in
the CBCA, a director may not be exculpated from liability for dealings
relating to unauthorized distributions or from any transaction from which the
director directly or indirectly received an improper personal benefit, while
in Delaware, a director may not be exculpated from liability arising from
transactions relating to unlawful payments of dividends, any unlawful stock
purchases or redemptions.
The Redwood - Delaware Charter also contains certain enumerated
circumstances in which exculpation is not permissible. The Redwood - Delaware
Charter does not eliminate the liability of directors to the extent that such
liability is provided by applicable law, (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of Title 8 of the Delaware
Code, or (iv) for any transaction from which the director derived an improper
personal benefit. The Redwood - Colorado Charter exculpates directors from
all monetary damages for breach of fiduciary duty as a director, except to the
extent prohibited by the CBCA.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS. Both Delaware and the
CBCA generally permit indemnification of directors and officers for expenses
incurred by them by reason of their position with the corporation, if the
director or officer has acted in good faith and with the reasonable belief
that his conduct was in the best interests of the corporation. Both Delaware
and the CBCA mandate that directors shall be indemnified for their reasonable
expenses in the event that a director is successful in the defense of any
proceeding in which the director was a party due to his status as director.
Both the DGCL and the CBCA do not permit a corporation to indemnify persons
against judgments in actions brought by or in the right of the corporation
(although the DGCL does permit indemnification in such situations if approved
by the Delaware Court of Chancery, and both permit indemnification for
expenses of such actions). Unlike the DGCL, the CBCA also permits
indemnification of an officer, employee, fiduciary, or agent who is not a
director, to any greater extent than the indemnification of a director, if not
inconsistent with public policy, and if provided for in the by-laws, by action
of the board of directors or by contract. The Redwood - Delaware Charter
provides for indemnification to the maximum extent legally permissible of its
officers and directors. The Redwood - Colorado Charter provides that all
directors, officers, employees, and agents of Redwood - Colorado shall be
indemnified to the maximum extent permissible under the CBCA. The Redwood -
Colorado By-laws provide that officers may be indemnified to a greater extent
than directors, if consistent with applicable law and if provided for in a
resolution of stockholders or directors or if provided for within a contract.
INTERESTED DIRECTOR TRANSACTIONS. Both the DGCL and the CBCA provide
that no transaction between a corporation and one or more of its directors or
officers or any entity in which one or more of its directors or officers are
directors or officers or have a financial interest, shall be void or voidable
solely for that reason. In addition, no such transaction shall be void or
voidable solely because the director or officer is present at, participates
in, or votes at the meeting of the board of directors or committee which
authorizes the transaction. In order that such a transaction not be found
void or voidable, it must, after disclosure of material facts, be approved by
the disinterested directors, a committee of disinterested directors, or the
stockholders, or the transaction must be fair as to the corporation. The
Redwood - Colorado By-laws closely resemble the Delaware and Colorado
statutory provisions.
SALES, LEASE OR EXCHANGE OF ASSETS AND MERGERS. The DGCL requires the
approval of the directors and the vote of the holders of a majority of the
outstanding stock entitled to vote thereon for the sale, lease, or exchange of
all or substantially all of a corporation's property and assets or a merger or
consolidation of the corporation into any other corporation, although the
certificate of incorporation may require a higher stockholder vote. The CBCA
provides that the sale, lease, or exchange of all or any portion of a
corporation's assets in the corporation's usual and regular course of business
may be authorized by the corporation's directors, without approval of the
corporation's stockholders. Sale, lease, or exchange of all or substantially
all of a corporation's assets other than in the usual and regular course of
the corporation's business, or a merger or consolidation of the corporation
into any other corporation, requires approval of the directors and the vote of
the holders of two-thirds of each class of outstanding stock entitled to vote
thereon, although the corporation's articles of incorporation or by-laws may
require a higher vote.
AMENDMENTS TO CHARTER. Under the DGCL, charter amendments require the
approval of the directors and the vote of the holders of a majority of the
outstanding stock and a majority of each class of stock outstanding and
entitled to vote thereon as a class, unless the certificate of incorporation
requires a greater proportion. In addition, the DGCL requires a class vote
when, among other things, an amendment will adversely affect the powers,
preferences or special rights of a class of stock. Under the CBCA, charter
amendments other than ministerial amendments, which may be authorized by the
directors without stockholder action, require the approval of the directors
and the vote of the holders of a majority of the outstanding stock of each
voting group entitled to vote thereon as a class, unless the articles of
incorporation or by-laws require a different proportion.
AMENDMENTS TO BYLAWS. The DGCL provides that stockholders may amend the
by-laws and, if provided in its certificate of incorporation, the board of
directors also has this power. Under the DGCL, the power to adopt, amend or
repeal by-laws lies in stockholders entitled to vote; provided, however, that
any corporation may, in its certificate of incorporation, confer the power to
adopt, amend or repeal by-laws upon the directors. The Redwood - Delaware
Charter gives the board of directors the power to make, alter, amend or repeal
by-laws. Under the CBCA, stockholders may amend the by-laws. Unless
otherwise specified in the corporation's articles of incorporation, directors
are also permitted to amend the by-laws, other than by-laws establishing
greater quorums or voting requirements for stockholders or directors, unless
the by-laws prohibit the directors from doing so. Directors may not amend the
by-laws to change the quorum or voting requirements for stockholders, and
directors may amend the by-laws to change the quorum or voting requirements
for directors only if such provision was originally adopted by the directors
or if such provision specifies that it may be amended by the directors.
APPRAISAL RIGHTS. Dissenting stockholders have the right to obtain the
fair value of their shares (so-called "appraisal rights") in more
circumstances under the CBCA than under the DGCL. Under the DGCL, appraisal
rights are available in connection with a statutory merger or consolidation in
certain specified situations. Appraisal rights are not available when a
corporation is to be the surviving corporation and no vote of its stockholders
is required to approve the merger. Appraisal rights are not available under
the DGCL in the event of the sale, lease, or exchange of all or substantially
all of a corporation's assets or the adoption of an amendment to its
certificate of incorporation, unless such rights are granted in the
corporation's certificate of incorporation. The Redwood - Delaware Charter
does not grant such rights.
Under the CBCA, a properly dissenting stockholder is entitled to receive
the appraised value of the shares owned by the stockholder when the
corporation votes (i) to sell, lease, or exchange all or substantially all of
its property and assets other than in the regular course of the corporation's
business, (ii) to merge or consolidate with another corporation, or (iii) to
conduct a reverse split of the corporation's stock which would result in a
reduction of the number of shares owned by the stockholder to a fraction of a
share, if such fraction of a share is to be acquired for cash. A right to
dissent and receive the appraised value of a stockholder's shares may also be
granted within the by-laws of the corporation or by a resolution of the
directors.
Both Delaware and the CBCA provide that, unless otherwise provided in the
corporation's charter, no appraisal rights are available to holders of shares
of any class of stock which is either: (a) listed on a national securities
exchange or designated as a national market system security on an inter-dealer
quotation system by the National Association of Securities Dealers, Inc. or
(b) held of record by more than 2,000 stockholders. The above limitations do
not apply if the stockholders are required by the terms of the merger to
accept anything other than: (i) shares of stock of the surviving corporation;
(ii) shares of stock of another corporation which are or will be so listed on
a national securities exchange or designated as a national market system
security on an inter-dealer quotation system by Nasdaq or held of record by
more than 2,000 stockholders; (iii) cash in lieu of fractional shares of such
stock; or (iv) any combination thereof.
BUSINESS COMBINATION STATUTE. The DGCL has a "business combination"
statute which provides that, if a person acquires 15% or more of the stock of
a Delaware corporation without the approval of the board of directors of that
corporation (an "interested stockholder"), he may not engage in certain
transactions with the corporation for a period of three years. The DGCL
includes certain exceptions to this prohibition; for example, if the board of
directors approves the acquisition of stock or the transaction prior to the
time that the person became an interested stockholder, or if the interested
stockholder acquires 85% of the voting stock of the corporation (excluding
voting stock owned by directors who are also officers and certain employee
stock plans) in one transaction, or if the transaction is approved by the
board of directors and by the affirmative vote of two-thirds of the
outstanding voting stock which is not owned by the interested stockholder.
There is no similar provision limiting business combinations with interested
stockholders in the CBCA, but the CBCA requires the vote of a majority of the
outstanding shares of each class of shares entitled to vote thereon to approve
any merger or the sale, lease, exchange, or other disposition of all, or
substantially all, of the assets of the corporation, unless the articles of
incorporation contain a provision establishing a different proportion.
STOCKHOLDER PREEMPTIVE RIGHTS. Unlike Colorado, the DGCL does not
specifically authorize the granting to stockholders of a preemptive right to
acquire proportional amounts of unissued shares of stock which are offered for
sale by the corporation. The CBCA provides that, except to the extent the
articles of incorporation limit or deny preemptive rights, shareholders have a
preemptive right to acquire unissued shares or securities convertible into
such shares, except that preemptive rights do not exist (i) to acquire any
shares issued to directors, officers, or employees pursuant to approval by the
affirmative vote of the holders of a majority of the shares entitled to vote
thereon or when authorized by and not inconsistent with a plan theretofore
approved by such a vote of the stockholders; or (ii) to acquire any shares
sold otherwise than for cash. The Redwood - Colorado and Redwood - Delaware
Charters provide that, unless otherwise determined by the directors or agreed
to in writing by the corporation, there shall be no preemptive rights for
stock.
CONSIDERATION OF SOCIETAL FACTORS. The Delaware Supreme Court has held
that, in discharging their responsibilities, directors may consider
constituencies other than stockholders, such as creditors, customers,
employees and perhaps even the community in general, as long as there are
rationally related benefits accruing to stockholders as well. The Delaware
Supreme Court has held, however, the concern for non-stockholder interests is
inappropriate when a sale of the company is inevitable and an auction among
active bidders is in progress. The Redwood - Delaware Charter and Redwood -
Delaware By-laws do not directly discuss consideration of societal factors.
Approval of this Proposal No. 3 requires the affirmative vote of the holders
of two-thirds of voting securities.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
A CHANGE OF THE FUND'S STATE OF INCORPORATION
FROM COLORADO TO DELAWARE
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 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.
REDWOOD MICROCAP FUND, INC.
----------------------------------
R. Stanley Pittman, Secretary
Shareholder Proposals For The 2001 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 2001 Annual
Meeting of Shareholders, the proposal must be presented to the Fund's
management prior to _____________, 2000, along with proof of common stock
ownership in the Fund.
<PAGE>
<PAGE>
REDWOOD MICROCAP FUND, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ________________, 2000
The Annual Meeting of Shareholders of Redwood MicroCap Fund, Inc. ("the Fund"
or the "Company") will be held at 11 Sundial Circle, #17, Carefree, Arizona
85377 on ________________, 2000 at 10:00 o'clock a.m. Mountain Standard Time
for the purpose of considering and voting upon the following:
1. To elect three (3) Directors to serve until the next Annual Meeting
of Shareholders or until their successors have been duly elected and
qualified.
2. To ratify and approve the selection by the Board of Directors of the
firm of Stockman, Kast, Ryan & Scruggs, a Professional Corporation,
as the independent certified public accountant for the Fund for the
fiscal years ending December 31, 1998, 1999, 2000 and 2001.
3. To ratify and approve the proposal of the Board of Directors to
change the Fund's State of Incorporation from Colorado to Delaware.
4. Any other matters properly brought before said meeting or any
adjournment thereof.
Information relating to the above matters is set forth in the accompanying
Proxy Statement. Only holders of outstanding shares of the Company's common
stock of record at the close of business on __________, 2000 will be entitled
to vote at the meeting or any adjournment thereof.
A copy of the Company's Annual Report to Shareholders, including financial
statements for the year ended March 31, 2000, has previously been mailed to
shareholders concurrently with the mailing of the Proxy Statement.
Shareholders are cordially invited to attend the meeting in person.
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, IT WOULD BE
APPRECIATED IF YOU WOULD PROMPTLY FILL IN, SIGN AND DATE THE ENCLOSED PROXY
STATEMENT AND RETURN IT IN THE ENCLOSED STAMPED ENVELOPE. Any proxy may be
revoked at any time before it is voted by written notice mailed or delivered
to the Secretary, by receipt or 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 your instruction on
the proxy form.
REDWOOD MICROCAP FUND, INC.
--------------------------------
R. Stanley Pittman, Secretary
<PAGE>
<PAGE>
REDWOOD MICROCAP FUND, INC.
PROXY SOLICITED ON BEHALF OF THE COMPANY
The undersigned hereby constitutes and appoints John C. Power or R.
Stanley Pittman ____________________________(SEE NOTE BELOW) or either of
them acting in the absence of the other, with full power of substitution
the true and lawful attorneys or attorney and proxies of the undersigned to
attend the Annual Meeting of the Shareholders of Redwood MicroCap Fund, Inc
(the "Fund") to be held at the principal offices of the Fund, 11 Sundial
Circle, #17, Carefree, Arizona 85377, on _______________, 2000 at 10:00
o'clock a.m. Mountain Standard Time, or any adjournment or adjournments
thereof, and vote all the shares of the Fund standing in the name of the
undersigned with all the powers the undersigned would possess if present at
said meeting.
(1) FOR WITHHOLD AUTHORITY
------------ -----------
To elect all of the nominees listed below:
John C. Power, Joseph O. Smith and J. Andrew Moorer
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name below)
-----------------------------------------------
(2) FOR AGAINST ABSTAIN
----------- ----------- ---------
The approval of the selection by the Board of
Directors of the firm of Stockman Kast Ryan & Scruggs,
a Professional Corporation, as independent accountants
for the Fund for the fiscal years ending March 31,
1998, 1999, 2000 and 2001.
(3) FOR AGAINST ABSTAIN
----------- ------------- ---------
The proposal and recommendation of the Board of
Directors to change the Fund's State of Incorporation
from Colorado to Delaware.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR ITEM 1, ITEM 2 AND
ITEM 3 AND IN THE DISCRETION OF THE PERSON HOLDING THE PROXY FOR ANY OTHER
BUSINESS.
(NOTE: Should you desire to appoint a proxy other than the management
designees named above, strike out the names of management designees and
insert the name of your proxy in the space provided above. Should you do
this, give this proxy card to the person you appoint instead of returning
the proxy card to the Company.)
(PLEASE DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED
ENVELOPE.)
Receipt is acknowledged of Notice of Annual Meeting and Proxy Statement for
the meeting.
Date , 2000
------------------------------------
-------------------------------------------
Name (please type or print)
-------------------------------------------
Signature
-------------------------------------------
Signature, if held jointly
Please sign exactly as name appears to the
left. When shares are held by joint tenants,
both should sign. When signing as executor,
administrator, attorney, trustee, or
guardian, please give full title as such. If
a corporation, please sign in full
corporation name by President or other
authorized officer. If a partnership, please
sign in partnership name by authorized
person.
