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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
General Form For Registration of Securities
Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
CAPITAL DIMENSIONS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 52-1139951
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Appletree Square, Suite 335
Bloomington, Minnesota 55425
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (612) 854-3007
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
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(Title of class)
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ITEM 1. BUSINESS
GENERAL
The Company is a specialty finance company that invests in
minority-owned small businesses in a limited number of selected industries.
The Company believes that this market is under served by traditional
financing sources. The Company's investments are typically in the form of
secured debt securities with fixed interest rates, accompanied by warrants to
purchase equity interests for a nominal exercise price. The Company's
objectives are to achieve both (i) a high level of interest income from
secured debt securities, and (ii) long-term appreciation of its equity
interests in the companies it finances.
An important part of the Company's strategy for achieving its
objectives is to focus its investments in selected industries where there are
industry specific factors that limit the risk of the Company losing the
principal amount invested in debt securities, and where there is growth
potential in the value of the Company's equity interests. Based on this
strategy, the Company has concentrated its investments in the radio broadcast
industry, and to a lesser extent in the rural telephone industry and airport
food and beverage service industry. Within these industries the Company
seeks to invest in companies which it believes have significant potential for
growth, adequate collateral coverage, experienced management teams,
sophisticated outside equity investors and profitable operations. To date
the Company has found that it has been constrained by lack of capital rather
than lack of investment opportunities.
The Company seeks to enhance its investment return by borrowing a
portion of its investment capital at favorable rates from the U.S. Small
Business Administration ("SBA"). The Company is eligible for SBA funding as
a specialized small business investment company ("SSBIC") which is licensed
by the SBA. Because the Company is an SSBIC, acquiring ownership or control
of more than 10% of the Company's outstanding common stock requires prior SBA
approval of the stockholder.
The Company is based in Bloomington, Minnesota and invests
throughout the United States. It is structured as a closed-end investment
fund that is managed by a separate investment advisory firm, which is owned
and operated by the Company's officers. The Company is a business
development company ("BDC") for purposes of the Investment Company Act of
1940, as amended (the "1940 Act"). To date, the Company has been taxed as a
business corporation under Subchapter C of the tax code. Effective for its
fiscal year commencing July 1, 1997, the Company plans to seek to qualify for
"pass through" tax treatment as a regulated investment company ("RIC") under
Subchapter M of the tax code.
The Company plans to raise $20 million of additional capital
through a private placement of its common stock during the fiscal quarter
ending September 30, 1997. If completed, the proceeds of the offering will
be used to pay a dividend, which is currently estimated to be approximately
$3.0 to $5.0 million, to current stockholders in order to meet one of the
requirements for Subchapter M
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tax treatment. The remaining net proceeds will be used for making investments
in current and new portfolio companies.
The Company is the successor to an SSBIC which was organized in
1978 by Control Data Corporation. Under Control Data's ownership, the
Company principally made equity investments and did so in a wide variety of
industries. Following the Company's acquisition in 1987 by current senior
management and private investors, its strategy evolved over time to the
current strategy of making secured debt investments with equity
participations and focusing on a few selected industries.
The Company's office is located at Two Appletree Square, Suite 335,
Bloomington, Minnesota 55425 and its telephone number is (612) 854-3007.
OPERATING STRATEGY
FOCUS ON SELECTED INDUSTRIES. The Company's strategy has evolved
since the early 1990s to focus on a limited number of industries where
Company management can develop specific industry knowledge and where industry
conditions provide: (i) collateral of a type that allows the Company the
opportunity to recover its investment if the portfolio company fails; (ii)
growth potential for significant appreciation of the Company's equity
interests; (iii) a perceived shortage of investment capital on the general
terms offered by the Company; (iv) barriers to entry, such as licenses or
franchises, that limit competition; (v) active and sophisticated equity
investors who will refer pre-screened investment opportunities; and (vi)
other sources of complementary financing (equity capital, senior term debt,
lines of credit, etc.). It is unlikely that all of these factors will be
present in any industry in which the Company invests, and the Company may
invest in industries where only a few of these factors are present.
A substantial part of the Company's investments since the early
1990s have been in the radio broadcast industry, which comprised 70.1% of the
Company's investment portfolio as of March 31, 1997. The Company has also
invested in the rural telephone industry and the airport food and beverage
service industry, which comprised 14.9% and 8.8%, respectively, of the
Company's investment portfolio as of that date. The Company intends to
continue investing in these three industries, and to identify and develop new
investment opportunities in other selected industries where most of the
industry criteria referred to above are satisfied. To develop new investment
opportunities, the Company intends to expand its referral network of venture
capitalists, minority entrepreneurs, investment bankers, attorneys,
accountants, commercial bankers and business brokers.
INVESTMENT STRUCTURE. The Company's goal is to obtain on average
roughly half of its investment return from interest and fees and the other
half from equity appreciation. The Company typically structures its
investments as the purchase at face value of a debt security which is
accompanied by a warrant to acquire a portion of the portfolio company's
capital stock at a nominal exercise price. A typical investment by the
Company has been in the range of $500,000 to $3 million per portfolio
company, though the Company may make both smaller and larger investments.
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If the Company is able in the future to increase its capital for investment, it
is likely that the average investment size will increase.
The promissory notes which the Company purchases typically have a
five to seven year maturity, a fixed interest rate of approximately 12 to
14%, and generally require payment monthly of interest only, with all
principal due at maturity. These notes are typically collateralized by a
security interest in the assets of the portfolio company, and the
indebtedness and security interest may be either senior or subordinated to
indebtedness owed to other creditors. A personal guaranty by the major
stockholder(s) of the portfolio company or other collateral may also be
required. Generally there are no prepayment penalties and the notes may
provide that, in the event of a default, the applicable interest rate will
increase. The Company typically charges an origination and processing fee of
up to 3% of the amount of the note, which is paid by the portfolio company
from the proceeds invested by the Company.
SBA LEVERAGE TO ENHANCE INVESTMENT RETURN. Part of the Company's
strategy is to enhance the return on its investments by employing leverage in
the form of debt capital that has been obtained at favorable interest rates
from the SBA or in reliance on an SBA guaranty. As of March 31, 1997, the
Company had outstanding a total of $9.3 million in debt instruments held or
guaranteed by the SBA, consisting of (i) a promissory note with a principal
balance of $1.8 million which bears interest at 8.375% and matures on April
1, 2000, and (ii) two debentures with an aggregate principal balance of $7.5
million which each bear interest at 7.08% and mature in 2006. Subsequent to
March 31, 1997, the Company has applied to the SBA for an additional $3.0
million of debt financing, and the Company plans to apply for additional SBA
financing in the future. There is no assurance that this or any future SBA
financing will be available. Availability depends on annual Congressional
appropriations, the general discretion of the SBA, the Company's ability to
demonstrate its need for the financing, the demand for such financing from
SSBICs and small business investment companies ("SBICs") and the Company's
overall compliance with SBA regulations.
DESIRED CHARACTERISTICS OF PORTFOLIO COMPANIES
The Company's goal is to invest in companies in its selected
industries which meet most of the following criteria, although all the
criteria may not be met in every instance and their importance may vary
depending on the circumstances.
* GROWTH. In addition to generating sufficient cash flow to
service the prospective investment, the potential portfolio
company typically should have a projected annual growth rate
for operating income (income before interest, taxes,
depreciation and amortization) of at least 20%, or some other
factor (such as the prospect of upgrading a radio station
license) to increase its equity value. Since the Company's
strategy anticipates that approximately half of the Company's
total investment return will derive from the equity portion of
the investment, anticipated growth is a key factor in the
Company's assessment of an investment opportunity.
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* LIQUIDATION VALUE OF ASSETS. The expected liquidation value
of assets securing the debt to the Company is an important
component in the Company's investment decision. Liquidation
value includes both tangible assets, such as accounts
receivable, inventory, property, plant and equipment, and
intangible assets, such as customer lists, networks,
databases, government licenses and recurring revenue streams.
* SOPHISTICATED EQUITY INVESTORS. A potential portfolio company
should have sophisticated equity investors whose equity
position is subordinate to the Company's right of repayment.
These equity investors enhance the due diligence process and
the financial sophistication of the portfolio company and
provide increased controls and a potential source of follow-on
capital. The involvement of sophisticated equity investors
tends to increase the Company's confidence in a potential
portfolio company and its management team and the potential
long-term value of the portfolio company.
* EXPERIENCED MANAGEMENT TEAMS. The Company seeks potential
portfolio companies with experienced management teams who have
a significant ownership interest and the background necessary
to carry out the portfolio company's business plan.
* POSITIVE CASH FLOW. The Company generally focuses on
potential portfolio companies that either already have
positive cash flow from operations (income before interest,
taxes, depreciation and amortization) or appear to have strong
potential to achieve positive cash flow from operations within
one year. The Company typically will not invest in start-up
companies, except where the expected liquidation value of the
assets is sufficient to provide security for the Company's
debt investment and there are prospects for rapid growth.
* EXIT STRATEGY. Prior to making an investment, the Company
analyzes the capacity of the potential portfolio company to
repay the Company's debt investment and to experience a
liquidity event that would allow the Company to realize value
for its equity position. Liquidity events include a public
offering, a sale of the portfolio company or one or more of
its key assets, or a purchase by the portfolio company or
other equity holders of the Company's equity position. The
Company's investments are made with the expectation that the
debt investment will be repaid within five to seven years and
the equity portion of the investment will be liquidated for
cash within five to ten years.
THE COMPANY'S INVESTMENT PORTFOLIO
The Company's investment portfolio, as of March 31, 1997, consisted
of the following 18 portfolio companies:
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<TABLE>
<CAPTION>
ESTIMATED FAIR
INVESTMENT TYPE; VALUE AS OF
PORTFOLIO COMPANY DATE OF INITIAL INVESTMENT COST MARCH 31, 1997
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<S> <C> <C> <C>
RADIO BROADCASTING:
Citywide Communications, Inc. Secured Subordinated Debt $ 720,001 $ 720,001
650 Wooddale Boulevard with Warrants; 12/13/96
Baton Rouge, LA 70806
Davis Broadcasting, Inc. (1) Secured Senior Debt with 575,050 1,016,469
1115 Fourteenth Street Warrants; 6/29/92
Columbus, GA 31902
Davis Broadcasting of Charlotte, Inc.(1) Secured Senior Debt with 1,187,022 1,187,022
2303 West Morehead Street Warrants; 8/18/95
Charlotte, NC 28208
Eclectic Enterprises, Inc. Secured Senior Debt with 757,918 757,918
111 Marquette Avenue, Suite 100 Warrants; 7/18/95
Minneapolis, MN 55401
Progressive Media Group, Inc. Secured Senior Debt with 1,775,997 1,775,997
298 Commerce Circle Warrants; 2/10/94
Sacramento, CA 95815
Radio One, Inc. (2) Unsecured Senior Debt with 3,653,773 5,522,773
4001 Nebraska Avenue NW Warrants; 11/2/87
Washington, DC 20016
Seque Communications Corporation Secured Senior Debt with 1,969,740 1,969,740
32215 124th Street Warrants; 6/15/92
Princeton, MN 55371-3327
Z-Spanish Radio Network, Inc. Secured Subordinated Debt 3,200,458 3,200,458
4058 Flying C Road with Warrants; 9/5/96
Cameron Park, CA 95682 ------------ ------------
TOTAL RADIO BROADCASTING..... 13,839,959 16,150,378
RURAL TELEPHONE AND OTHER
COMMUNICATIONS:
First American Communications Secured Senior Debt with 2,261,698 2,661,698
Enterprise (1) Warrants; 10/24/95
2403 North Washington Avenue
Durant, OK 74701
KTEN Television Limited Partnership Secured Subordinated Debt 481,010 776,463
101 E. Main, Suite 300 with limited partnership
Box 1450 ("LP") Interest; 9/2/94
Denison, TX 75021 ------------ ------------
TOTAL RURAL TELEPHONE AND
OTHER COMMUNICATIONS....... 2,742,708 3,438,161
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AIRPORT FOOD AND BEVERAGE SERVICE:
F. Howell, Ltd. (1) Secured Senior Debt with 330,032 330,032
6805 Landover Hills Lane LP Interest; 10/01/96
Arlington, TX 76017
MultiRestaurants Concepts, Ltd. (1) Secured Subordinated Debt 1,694,409 1,694,409
8008 Cedar Springs Road with LP Interest; 12/22/94
LB 19, Terminal Bldg.
Dallas, TX 75235 ------------ ------------
TOTAL FOR AIRPORT FOOD AND
BEVERAGE SERVICE ............ 2,024,441 2,024,441
OTHER INDUSTRIES:
Applied Intelligent Systems, Inc. (3) Common Stock; 7/24/87 7,492 7,492
110 Parkland Plaza
Ann Arbor, MI 48103-6201
(Computer vision systems)
Cardinal Health Systems, Inc. (3) Secured Senior Debt with 741,447 445,738
4600 West 77th Street, Suite 150 Warrants and Common
Edina, MN 55435-4923 Stock; 10/01/85
(PC based education for MDs)
Micromedics, Inc. (3) Common Stock; 11/17/82 58,828 273,295
1285 Corporate Center Drive
Suite 150
Eagan, MN 55121-1256
(Micro Surgical Med. Equip.)
Quality Travel Services, Inc. Secured Senior Debt; 63,033 63,033
8891 Airport Road 2/02/96
Minneapolis, MN 55449
(Travel products)
RioStar II Corporation Secured Subordinated Debt; 433,097 433,097
2800 Routh Street, Suite 210 12/31/93
Dallas, TX 75201
(Restaurants)
Transportation Development LP Secured Senior Debt with 853,000 187,500
7000 57th Avenue North, Suite 123 LP Interest; 6/13/89
Crystal, MN 55428
(Taxi) ------------ ------------
TOTAL FOR OTHER INDUSTRIES.... 2,156,897 1,410,155
GRAND TOTAL.................... $20,764,005 $23,023,135
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________________________________
(1) Portfolio companies where a Company officer is a member of the Board of
Directors.
(2) On May 19, 1997 Radio One, Inc. raised $75 million in a public debt offering
and the Company converted its debt investment to preferred stock carrying a 15%
cumulative dividend.
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(3) Portfolio companies for which the Company's investment was made before 1987
by prior management.
FOCUS ON SELECTED INDUSTRIES
RADIO BROADCAST. The Company's portfolio currently is concentrated in the
radio broadcast industry, where as of March 31, 1997 the Company held
investments in eight companies that operate 48 radio stations in 20 geographic
markets. These companies comprised 70.1% of the estimated fair value of the
Company's portfolio as of March 31, 1997. The radio stations operated by these
companies include both AM and FM stations, large and small size listener
markets, and a wide variety of programming formats. The Company believes the
radio broadcast industry has an attractive investment profile because: (i) there
are multiple sources of equity financing for radio stations that develop and
pre-qualify potential investments; (ii) commercial radio licenses and broadcast
equipment have realizable value as collateral, even if the radio station is off
the air or otherwise not a going concern; (iii) the acquisition market for radio
stations is relatively well developed, with established brokers and potential
buyers; (iv) there are recognized valuation methods that apply on a nationwide
basis and a number of qualified companies that provide appraisals of radio
station properties; and (v) in management's experience, there has been a
shortage of investors who will provide $1 to $5 million of debt financing, which
includes the range of debt investments sought by the Company.
Recent liberalization of the laws governing ownership of multiple radio
stations has resulted in substantial consolidation of the radio station market.
This consolidation, together with record industry revenues, has driven values
for radio stations to historic highs. While this has substantially increased
the value of the Company's radio station equity investments, it has also made it
more difficult for the Company to find new investment opportunities on
attractive terms.
RURAL TELEPHONE. As of March 31, 1997, the Company had invested in a
business which owned one rural telephone company. Subsequent to March 31, 1997
the Company made an additional investment in this business in connection with
its acquisition of two additional rural telephone companies. The Company
considers the rural telephone industry to be attractive, and plans to seek
additional investments in this area. Rural telephone companies enjoy limited
competition, barriers to entry by potential competitors, a "franchise value,"
and the potential to increase profitability through the growth of related
businesses, such as cellular telephone and cable services.
AIRPORT FOOD AND BEVERAGE SERVICE. The Company has invested in two
companies that operate 22 food and beverage outlets (with an additional three
under construction ) and three retail outlets (with an additional two under
construction) in the Dallas/Ft. Worth, Dallas Love Field and Corpus Christi
airports. The Company considers this industry attractive, and is actively
seeking additional investment opportunities in the industry, because typically:
(i) there is limited and controlled competition within an airport; (ii) in the
event of a liquidation, the right to the premises in the airport has a value
beyond that normally associated with food service businesses; (iii) airports are
actively recruiting minority-owned vendors; (iv) the businesses in which the
Company invests
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are often franchisees of well-known and proven food service systems (e.g. Burger
King, Chili's, Pizza Hut and Taco Bell) that have national support
organizations; and (v) airports generally study sales patterns before choosing a
food service concept for a particular space, thus increasing the likelihood of
success.
OTHER INDUSTRIES. The Company intends to identify other industries for
potential investments to the extent management deems it appropriate in order to
maintain a large number of investment opportunities relative to the Company's
investment capital. To date, the Company has been limited in its efforts to
undertake new investments due to lack of investment capital, rather than a lack
of investment opportunities.
VALUATION OF INVESTMENTS
The Company's Board of Directors values the debt and equity securities in
the Company's portfolio at least semi-annually based on a variety of relevant
factors specified by the SBA. The Company adjusts its valuation of an
investment quarterly for material changes. Debt securities are generally valued
at the amount of the outstanding principal, unless management believes that the
prospect of collection is impaired. Equity securities are valued on the basis
of quotations in public or private markets (where available), appraisals, the
financial strength and profitability of the portfolio company, the level of
confidence in management and the business prospects of the portfolio company.
As an SSBIC, the Company is required by applicable SBA regulations to submit
such valuations to the SBA semi-annually. For further discussion of the
Company's valuation policies, see Note 1 to the Company's Financial Statements.
REALIZATION ON INVESTMENTS
The Company's investments in portfolio companies are made with the
expectation that the debt investment will be repaid within five to seven years
and that the equity portion of the investment will be liquidated for cash in
five to ten years. Typically, the Company realizes its return and exits its
investment in a portfolio company when the business is sold or refinanced by
others, the securities held by the Company are redeemed, the business is
liquidated or the portfolio company conducts a public offering.
DELINQUENCIES AND NON-ACCRUALS ON INVESTMENTS
From time to time, some of the Company's portfolio companies are delinquent
in their payment obligations to the Company. When such delinquencies occur, the
Company analyzes the reason it occurred, whether it can be cured, its likely
effect on both the portfolio company and the Company's investment, and the value
of any collateral securing the investment. From this assessment the Company
determines whether it will seek to waive, amend or restructure the terms of the
investment, attempt to cause a sale or liquidation of the portfolio company, or
take legal action. A waiver, amendment or restructure of the delinquent
obligation is often conditioned on the portfolio company agreeing to actions
such as increasing the size or improving the terms of the
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Company's equity interest, obtaining additional equity from other sources,
making management changes or selling assets.
A payment delinquency also causes management to reassess the valuation
and future accounting treatment for the Company's investment in the portfolio
company. If management believes that the value of the collateral securing
the debt investment (or other circumstances, such as a third party guaranty)
makes it likely that both principal and interest will be recovered, then the
Company will continue to accrue interest on the debt security as it comes
due, even though the interest is not actually paid at that time. However, if
management believes that interest owed on the debt instrument will not be
collected, then the debt investment is placed on non-accrual status, and any
further interest income is recognized only when cash is received. If
management believes that the prospect of recovering the principal of a debt
investment is impaired, then it records unrealized depreciation to reflect
the estimated fair value and thereafter payments of interest are treated as
reductions in the principal amount of the indebtedness.
As of March 31, 1997, two portfolio companies were materially delinquent in
making principal and interest payments owed to the Company. The Company carries
these investments at a fair value of approximately $2.2 million. In one of
these cases, the Company has continued to accrue interest on its investment (a
total of $576,000 of such interest accruals as of March 31, 1997) because, based
on the value of the collateral securing the investment, the Company believes
that it is probable that both principal and interest will be recovered, though
there is no assurance of this. The Company has brought suit against this
portfolio company and certain of its principals, as described in Item 8 below,
to foreclose on the Company's security interest. In the other material
delinquency case, the Company ceased accruals of interest in October 1996, and
the portfolio company has agreed to sell real estate it owns to repay its
indebtedness to the Company. The Company has not recorded any unrealized
depreciation because management believes that the carrying value on this
investment will be recovered.
In addition to the investment on non-accrual status referred to immediately
above, the Company has three other debt investments which have been restructured
and on which the Company was not accruing interest as of March 31, 1997. Each
of these three portfolio companies is in a work-out process, and under the
restructured terms the Company has agreed with each of them that payments are
due to the Company only when and as funds are received by the portfolio company.
One of these investments (approximately $430,000) is about to be liquidated with
full recovery of principal and all contractual interest, which will result in
recognition of approximately $44,000 of interest income. For the second
restructured investment (having a fair value of approximately $1.9 million),
management expects to recover all principal and may recover some or all
contractual interest. The third restructured investment has been depreciated to
a fair value of approximately $187,500 as of March 31, 1997.
The Company has experienced numerous defaults by portfolio companies that
do not involve delinquent payments, and the Company expects such non-monetary
defaults to occur from time to time in the future. Many of these defaults are
not material. As in the case with payment delinquencies, the Company attempts
to assess promptly the reason the default occurred, whether
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it can be cured, and its likely affect on both the portfolio company and the
Company's investment. The Company then determines what action is appropriate.
TEMPORARY INVESTMENTS
Pending investment in the types of securities described above, the Company
typically invests its funds principally in repurchase agreements with federally
insured financial institutions that are collateralized by securities issued or
guaranteed by the federal government. The Company may also temporarily invest
in securities issued or guaranteed by the federal government or a federal
government agency that mature in 15 months or less, or deposits in or
certificates of deposit issued by federally insured financial institutions
having a net worth of $50 million or more which mature in one year or less.
SBA REGULATION
As an SSBIC, the Company is subject to SBA regulations which cover many
aspects of its operations and ownership. These regulations generally apply
equally to both SSBICs and SBICs. The SBA's regulations include, without
limitation, the following requirements:
(i) The businesses in which the Company invests must at the time of
investment meet the SBA definition of "small" by having a net worth of $18
million or less or an average annual net income of $6 million or less, or by
meeting certain other industry-based criteria.
(ii) The businesses in which the Company invests must be at least 50%
owned by persons who are either socially or economically disadvantaged, as
defined by SBA regulations. These regulations define such a disadvantage to
exist on the basis of either (i) membership in one or more specified minority
groups (which includes Blacks, American Indians, Eskimos, and persons of
Mexican, Puerto Rican, Cuban, Filipino or Asian extraction), or (ii) individual
factors such as income, education, handicap, geographic location or service in
the Armed Forces during the Vietnam War era. This requirement is applicable to
SSBICs, but not to SBICs.
(iii) The maximum annual interest or financing cost charged to a
portfolio company (exclusive of an origination or processing fee of up to 3%)
generally may not exceed the greater of 14% for debt investments with an equity
participation, 19% for debt investments without an equity participation, or
specified higher limitations if the average cost of the Company's financing
provided by the SBA exceeds 8%.
(iv) Total financing and commitments to any single portfolio company
may not exceed 30% of an SSBICs, or 20% of an SBICs, regulatory capital. An
SSBIC may not provide investment funds for certain purposes, such as investment
outside of the United States and its territories.
(v) The maturity of debt financing generally may not be less than
four nor more than 20 years.
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(vi) Prior approval by the SBA is required for any proposed transfer
of control of an SSBIC or the acquisition of more than 10% of an SSBIC's
outstanding capital stock.
(vii) Prior approval by the SBA is required for an SSBIC to merge,
consolidate, or engage in a corporate reorganization.
(viii) Any management and advisory services provided by an SSBIC for a
fee must be in accordance with a written contract and must satisfy certain
record-keeping requirements.
(ix) There are restrictions on the ability of an SSBIC to repurchase
its capital stock, retire its debentures, or provide funding to its officers,
directors, employees or their affiliates.
(x) There are limitations on any officer, director or 10% or more
stockholder becoming an officer, director or 10% or more stockholder of another
SSBIC.
SBA FUNDING
As an SSBIC, the Company is eligible to receive a portion of its financing
from the SBA (often referred to as "leverage") at favorable rates to supplement
its investment capital obtained from non-governmental (i.e. "private") sources.
The terms of the SBA's programs for funding SBICs and SSBICs have varied over
the years. These programs were significantly modified, and the funding
distinctions between SBICs and SSBICs generally eliminated, by federal
legislation enacted on October 1, 1996. This legislation also terminated the
SBA's authority to issue new SSBIC licenses. Existing SSBICs such as the
Company have the right to remain as SSBICs or, with the approval of their
stockholders, remove the restriction requiring that their investments be in
minority-owned businesses.
Under current law, the SBA provides funding to both SBICs and SSBICs by
providing a government guarantee for fixed rate subordinated debentures or
participating preferred securities which are issued by the SBIC or SSBIC and
sold through the SBIC Funding Corp. The interest rate on these debentures is
based on the prevailing market rate and they typically have a ten year term.
There is a user fee of 3% of the principal amount of the debentures guaranteed
by the SBA, plus an annual fee of 1% of the principal amount. The maximum
amount of debenture financing which is available to an SSBIC is generally 300%
of its paid-in capital and surplus, but other eligibility requirements and the
availability of funds to the SBA can impose lower limitations in practice. The
Company understands that the fiscal 1998 budget which President Clinton
submitted to Congress proposes $376 million in SBA funding for debentures, a 25%
increase over the amount for fiscal 1997. There is no assurance that these
funds will actually be appropriated or, if appropriated, that any of these funds
would be made available to the Company.
As of March 31, 1997, the Company had outstanding a total of $9.3 million
in debt instruments held by the SBA, consisting of (i) a promissory note with a
principal balance of $1.8 million which bears interest at 8.375% and matures on
April 1, 2000, and (ii) two debentures with an aggregate principal balance of
$7.5 million which each bear interest at 7.08% and mature in 2006.
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The Company plans to seek additional SBA debenture financing in the future as it
is needed to make investments, but there is no assurance that it will be
obtained. Availability depends not only on appropriations by the Congress, but
also the general discretion of the SBA, the Company's ability to demonstrate its
need for the financing, and the Company maintaining overall compliance with SBA
regulations.
The Company is subject to a Repurchase Agreement dated March 31, 1993 with
the SBA (the "Repurchase Agreement") under which the Company redeemed at a
substantial discount all of the Company's then outstanding 3% Preferred Stock,
having a par value of $10.0 million, which had been issued to the SBA under a
funding program that was subsequently discontinued. The redemption price was
paid by the Company issuing to the SBA the promissory note referred to above,
which had an original face amount of $3.6 million and a remaining principal
balance of $1.8 million as of March 31, 1997. As a condition to the redemption
of the 3% Preferred Stock, the Company granted the SBA a liquidating interest in
a newly created restricted capital surplus account equal to the amount of the
repurchase discount of $6.4 million. This liquidating interest is being
amortized over an 84 month period on a straight line basis, and as of March 31,
1997 had been reduced to $2.8 million. Should the Company default under the
Repurchase Agreement at any time (there have been no defaults to date), the
liquidating interest will become fixed at the level immediately preceding the
event of default and will not decline further until the default is cured or
waived. The liquidating interest will expire on the later of (i) 60 months from
the date of the Repurchase Agreement (i.e. March 31, 1998), (ii) the date the
repurchase note is paid in full, or (iii) if an event of default has occurred
and the default has been cured or waived, the later date on which the
liquidating interest is fully amortized.
Should the Company voluntarily or involuntarily liquidate prior to the
expiration of the liquidating interest, any assets which are available, after
the payment of all debts of the Company, shall be distributed first to the SBA
until the amount of the then remaining liquidating interest has been distributed
to the SBA. That payment, if any, would be prior in right to any payments of
the Company's stockholders. For financial reporting purposes, the Company's
balance sheet shows a restricted capital account equal to the value of the SBA's
liquidating interest. As the liquidating interest declines, the restricted
capital account is reduced and additional paid-in capital is increased. The
Repurchase Agreement provides that the amount of the discount from the
repurchase of the 3% Preferred Stock may not be used for obtaining SBA leverage.
MARKETING FOR INVESTMENT OPPORTUNITIES
Almost all of the Company's investment opportunities have developed from
management's contacts with other investors in minority-owned businesses and with
existing investors in the industries in which the Company focuses its
investments. Management is continually seeking to broaden its contacts and
increase its visibility among minority-owned business investors and participants
in selected industries. This is done by attending industry trade shows,
cultivating relationships with existing investors in target industries,
identifying potential minority entrepreneurs, and studying target industry
periodicals and literature.
13
<PAGE>
COMPETITION
The Company's principal competitors include non-traditional lenders,
venture capital firms and financial institutions. Many of these entities have
greater financial and managerial resources than the Company. The Company
believes that it competes primarily on the basis of its reputation as an
investor in minority-owned businesses, its contacts among minority entrepreneurs
and other minority-owned business investors, its flexibility in structuring the
specific terms of investments, the reduced access to investment capital from
traditional sources which is faced by many minority-owned businesses, and
reduced competition from other financing sources for investments in the $1 to $3
million range.
EMPLOYEES
The Company currently has five full-time employees, all of whom are
officers of the Company. These individuals are also employed by Capital
Dimensions Management Corporation ("CDMC"), which since April 1, 1997 has
provided management services under an agreement with the Company. See "Item 5.
Directors and Executive Officers."
TAXATION AS A REGULATED INVESTMENT COMPANY
The Company's plan is to become eligible and elect to be taxed as a
regulated investment company ("RIC") under Subchapter M of the Internal Revenue
Code for its fiscal year beginning July 1, 1997. Under Subchapter M, if the
Company satisfies certain requirements as to the sources of its income, the
diversification of its assets, and the distribution to stockholders of its
pre-RIC earnings and profits (currently estimated to be approximately $3.0 to
$5.0 million), the Company generally will be eligible to be taxed as a pass
through entity which acts as a partial conduit of income to its stockholders.
In order to continue to be eligible for Subchapter M treatment, in each fiscal
year the Company must, in general, (i) derive at least 90% of its gross income
from dividends, interest and gains from the sale or disposition of securities,
(ii) derive less than 30% of its gross income from the sale or disposition of
securities held for less than three months, (iii) meet certain investment
diversification requirements, and (iv) distribute to stockholders at least 90%
of its net income (other than long-term capital gains). There can be no
assurance that the Company will be able to obtain and maintain eligibility for
Subchapter M tax treatment. SBA regulations may limit the Company's ability to
distribute to stockholders at least 90% of its net income.
THE COMPANY'S OPERATIONS AS A BDC
In order to meet one of the requirements for taxation under Subchapter M of
the Internal Revenue Code, the Company anticipates that shortly after this Form
10 is filed it will also file an election to be regulated as a business
development company ("BDC") under the 1940 Act. As a BDC, the Company may not
acquire any asset other than "Qualifying Assets" unless, at the time the
acquisition is made, Qualifying Assets represent at least 70% of the value of
the Company's total assets. The principal categories of Qualifying Assets
relevant to the Company's business are:
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<PAGE>
(i) securities purchased in private transactions from an "eligible
portfolio company," which is any issuer that (a) is organized and has its
principal place of business in the United States, (b) is not an investment
company, other than a SBIC wholly-owned by the BDC, and (c) does not have any
class of publicly-traded securities on which a broker may extend margin credit;
(ii) securities received in exchange for or distributed with respect
to securities described above, or pursuant to the exercise of options, warrants
or rights relating to such securities; and
(iii) cash, cash items, Government securities, or high quality debt
securities maturing in one year or less from the time of investment.
As a BDC the Company may not change the nature of its business so as to cease to
be, or withdraw its election as, a BDC unless authorized by vote of a majority
(as defined in the 1940 Act) of the Company's shares.
ITEM 2. SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The following tables set forth selected financial data of the Company,
which should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the Company's
Financial Statements and Notes thereto included elsewhere in this document. The
selected statement of operations and balance sheet data as of and for the year
ended June 30, 1996 have been derived from the financial statements of the
Company which have been audited by Deloitte & Touche LLP, independent auditors,
whose report is included elsewhere in this document. The selected statement of
operations and balance sheet data set forth below as of June 30, 1995 and for
the two years ended June 30, 1995 and 1994 have been derived from the financial
statements of the Company which have been audited by Lurie, Besikof, Lapidus &
Co., LLP, independent auditors, whose report is included elsewhere in this
document. The selected statement of operations and balance sheet data set forth
below as of June 30, 1994 and 1993, and December 31, 1992 and 1991 and for the
six months ended June 30, 1993 and the years ended December 31, 1992 and 1991
have been derived from audited financial statements not included in this
document. The selected statement of operations and balance sheet data set forth
below as of March 31, 1997 and for the nine months ended March 31, 1997 and 1996
have been derived from the Company's unaudited financial statements, which
reflect, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of financial
position and results of operations for those periods. The Company's operating
results for the nine months ended March 31, 1997 are not necessarily indicative
of the results that may be expected for the entire fiscal year ending June 30,
1997.
15
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended Nine Months
December 31, June 30,(1) Year Ended June 30, Ended March 31,
---------------- ---------- -------------------------- -----------------
1991 1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income (2) $ 1,042 $ 855 $ 460 $ 1,109 $ 1,304 $ 1,573 $ 1,151 $ 1,862
Operating expenses:
Interest expense 287 209 130 278 242 251 166 345
General and administrative expense 570 472 263 526 523 630 464 667
Other (income) expense (5) 26 67 90 48 51 43 71
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses 852 707 460 894 813 932 673 1,083
--------- --------- --------- --------- --------- --------- --------- ---------
Net operating income 190 148 0 215 491 641 478 779
Gains (losses) on investments in
small business concerns:
Realized 244 414 (4) 1,278 3,663 508 462 (95)
Unrealized (755) 782 647 (2,288) (1,153) 1,423 336 1,509
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
and other charges (321) 1,344 643 (795) 3,001 2,571 1,276 2,192
Income (loss) before income taxes (3) 71 1,704 643 (795) 3,001 2,571 1,276 2,192
Income taxes 2 533 372 220 893
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) 71 1,702 643 (795) 2,468 2,199 1,056 1,299
Dividends on preferred stock to SBA
paid or restricted 300 300 30 120 120 120 90 56
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) applicable to common stock (229) 1,402 613 (915) 2,348 2,079 966 1,243
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Earnings (loss) per common share (4) ($.13) $.78 $.31 $(.47) $1.19 $1.09 $.49 $.73
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Weighted average common and
common equivalent shares outstanding(4) 1,800,000 1,801,914 1,963,362 1,962,948 1,980,102 1,912,227 1,964,301 1,761,681
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
December 31, June 30,(1) June 30, March 31,
--------------- ----------- -------------------------- ---------
1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investments at cost $ 14,502 $ 15,474 $ 15,442 $ 16,083 $ 15,200 $ 17,513 $ 20,764
Unrealized appreciation (depreciation)
on investments 1,338 2,121 2,769 480 (672) 750 2,259
--------- --------- --------- --------- --------- --------- --------
Investments at estimated fair value 15,840 17,594 18,211 16,563 14,528 18,263 23,023
Cash and cash equivalents 1,461 1,145 1,254 1,667 5,975 3,878 3,027
Total assets 17,750 19,090 19,727 18,544 21,090 23,360 27,009
Debentures and notes payable to SBA 3,000 3,000 3,476 3,070 2,632 4,168 9,286
Total liabilities 4,073 4,067 3,508 3,120 3,197 4,563 9,947
Redeemable preferred stock 3,030 3,150 3,270 3,010
Total stockholders' equity (4) $ 13,317 $ 15,023 $ 13,189 $ 12,274 $ 14,623 $ 15,787 $ 17,062
<CAPTION>
Six Months
Year Ended Ended Nine Months
December 31, June 30,(1) Year Ended June 30, Ended March 31,
---------------- ---------- -------------------------- -----------------
1991 1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER SELECTED DATA:
Number of portfolio companies
at period end 28 29 27 22 18 17 18 18
Number of new portfolio companies 2 3 5 5 5 3
New advances to portfolio companies $ 1,257 $ 2,470 $ 286 $ 1,281 $ 1,000 $ 6,539 $ 5,121 $ 3,025
Proceeds from liquidation of investments 1,038 562 381 2,276 3,760 3,896 3,870 120
Estimated Fair value of investment
portfolio at period end 15,840 17,594 18,211 16,563 14,528 18,263 15,942 23,023
</TABLE>
_________________
(1) In 1993, the Company changed its fiscal year end from December 31 to
June 30, resulting in a six-month transition period.
(2) The year ended December 31, 1991 includes $69,000 of dividend income.
(3) During each of the years ended December 31, 1991 and 1992, the
Company had negative goodwill amortization of $392,268. This negative
goodwill related to the management buy out in 1987 and was fully
amortized by December 31, 1992.
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<PAGE>
(4) The Company's Board of Directors approved a 3-for-1 stock split
issued in the form of a 200% dividend effective May 31, 1997 to
shareholders of record on May 31, 1997. All share and per share
amounts have been restated to reflect this stock split.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the preceding "Selected
Historical Financial and Other Data," the Company's Financial Statements and
Notes thereto and the other financial data included elsewhere in this document.
The dollar amounts below have been rounded in order to simplify their
presentation. However, the ratios and percentages are calculated using the
detailed financial information contained in the Financial Statements and the
Notes thereto and the financial data included elsewhere in this document.
References to years are for the respective fiscal years ended June 30, unless
otherwise noted.
OVERVIEW
The Company's principal investment objectives are to achieve a high level
of income from both interest on loans and debt securities, generally referred to
as "debt investments" and long-term appreciation in the value of equity
interests in its portfolio companies. The Company's debt investments are
typically secured, have relatively high fixed interest rates, and are
accompanied by warrants to purchase equity securities of the borrower. In
addition to interest on debt investments, the Company also typically collects an
origination fee on each debt investment.
The Company's financial performance is composed of four primary elements.
The first is "income before gains (losses) in small business concerns," which is
the difference between the Company's income from interest and fees and its total
operating expenses, including interest expense. Interest income is earned on
debt investments and the temporary investment of funds available for investment
in portfolio companies, which are presented in the Company's balance sheets as
cash equivalents. The second element is "realized gains (losses) on
investments," which is the difference between the proceeds received from the
disposition of portfolio assets in the aggregate during the period and the cost
of such portfolio assets. The third element is the "change in unrealized
appreciation (depreciation) of investments," which is the net change in the
estimated fair values of the Company's portfolio assets at the end of the period
as compared with their estimated fair values at the beginning of the period or
the cost of the portfolio asset, if purchased during the period. Generally,
"realized gains (losses) on investments" and "changes in unrealized appreciation
(depreciation) of investments" are inversely related. When an appreciated asset
is sold to realize a gain, a decrease in unrealized appreciation occurs when the
gain associated with the asset is transferred from the "unrealized" category to
the "realized" category. Conversely, when a loss is realized by the sale or
other disposition of a depreciated portfolio asset, the reclassification of the
loss from "unrealized" to "realized" causes an increase in unrealized
appreciation and an increase in realized loss. The fourth element is "tax
expense". The Company is currently taxed as a "C" corporation. Following the
filing of this Form 10, the Company intends to qualify for taxation under
17
<PAGE>
Subchapter M. For a discussion of Subchapter M, see "Business--Taxation as a
Regulated Investment Company" in Item 1 of this Form 10.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
INTEREST INCOME. During the nine months ended March 31, 1997, the Company
earned interest on debt investments of $1.7 million, an 85% increase over the
$941,000 earned in the nine-month period ended March 31, 1996. This increase in
interest income resulted primarily from increases in the dollar amount of debt
investments outstanding during the applicable periods, as there were no material
changes in the average interest rate earned. The Company's debt investments (at
cost) increased to $19.6 million at March 31, 1997, an increase of 35% from
$14.5 million at March 31, 1996. During the nine months ended March 31, 1997,
the Company earned interest on funds available for investment of $126,000, a 40%
decrease from the $210,000 earned during the first nine months of 1996. This
decrease was the result of portfolio investing and the resultant lower balances
of funds available for investment during the nine months ended March 31, 1997.
INTEREST EXPENSE. The Company's interest expense, which related to the SBA
financing, was $345,000 for the first nine months of 1997, a 108% increase over
the $166,000 for the comparable period in 1996. The change in interest expense
is directly related to the level of borrowings from the SBA, which were $9.3
million as of March 31, 1997, and $4.2 million as of March 31, 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
totaled $667,000 for the first nine months of 1997, a 44% increase over the
$464,000 during the comparable period in 1996. The increase was due primarily
to increases in staffing and employee compensation. General and administrative
expenses as a percentage of total assets were 2.5% and 2.1% for these respective
periods.
OTHER EXPENSES. These expenses include legal, audit and trade association
expense.
REALIZED GAINS (LOSSES) ON INVESTMENTS. The Company's net realized loss on
investments was ($95,000) for the nine months ended March 31, 1997, compared to
a net realized gain of $462,000 for the nine months ended March 31, 1996. The
losses in 1997 resulted from the realization of previously recorded unrealized
depreciation on investments in two portfolio companies. The gain in 1996
resulted primarily from the sale of the Company's equity position in one
portfolio company.
INCOME TAXES. The Company incurred federal and state income tax expense of
$893,000 in the first nine months of 1997 (an effective rate of 40%), and
$220,000 in the first nine months of 1996 (an effective rate of 17%). The
effective rate for 1996 resulted from reversal of valuation allowances relating
to deferred tax assets, which had been established in prior periods. As of June
30, 1996, all such valuation allowances had been eliminated.
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<PAGE>
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS. For the
nine months ended March 31, 1997 and 1996, the Company recorded net unrealized
appreciation of investments of $1.5 million and $336,000, respectively. These
changes are the result of the Company's revaluation of its portfolio in
accordance with its valuation policy to reflect the change in estimated fair
value of each of its portfolio assets. The unrealized gains in the 1996 and
1997 periods resulted from valuation changes in several investments. The
unrealized gains in 1996 were partially offset by the realized gain discussed
above. A description of all of the Company's debt investments is presented
under the caption "Business--The Company's Investment Portfolio" in Item 1 of
this Form 10.
FISCAL YEARS ENDED JUNE 30, 1996, 1995, AND 1994
INTEREST INCOME. During the fiscal year ended June 30, 1996, the Company
earned interest on debt investments of $1.3 million , a 6.6% increase over the
$1.2 million earned in 1995, which was a 15.7% increase over the $1.1 million
earned during 1994. These increases in interest income resulted primarily from
increases in the dollar amount of debt investments outstanding during the
applicable periods, as there were no material changes in the average interest
rate earned on outstanding debt investments. The Company's debt investments (at
cost) increased to $16.1 million at June 30, 1996, an increase of 47% from $10.9
million at June 30, 1995, which in turn was a 5.2% decrease from $11.5 million
at June 30, 1994. During 1996, the Company earned interest on funds available
for investment of $266,000, a 237% increase over the $79,000 earned in 1995,
which was a 58% increase over the $50,000 earned in 1994. The increased income
in 1995 and 1996 was the result of the sale of an investment during the fourth
quarter of 1995, which resulted in unusually high fund balances during a portion
of 1995 and most of 1996. A substantial portion of these funds were committed
for investments that had not yet closed.
INTEREST EXPENSE. The Company's interest expense, which related to the SBA
financing, increased to $250,600 in 1996, a 3.2% increase over the $243,000 in
1995, which in turn was a 12.7% decrease from the $278,000 of interest expense
in 1994. These changes in interest expense are directly related to the level of
borrowings from the SBA, which were $4.2 million, $2.6 million and $3.1 million
on June 30, 1996, 1995, 1994, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and
administrative expenses totaled $630,000 in 1996, a 20.3% increase over the
$524,000 in 1995, which in turn was a .04% decrease from the $526,000 in 1994.
The increase from 1996 over 1995 was due primarily to increases in employee
compensation. Although the dollar amount of these expenses increased over the
three-year period, general and administrative expenses as a percentage of total
assets remained fairly constant at 2.7%, 2.5% and 2.8% for 1996, 1995 and 1994,
respectively.
OTHER EXPENSES. These expenses include legal, audit and trade association
expense. Other expenses in 1994 were unusually high because of bad debt expense
and legal fees.
19
<PAGE>
REALIZED GAINS (LOSSES) ON INVESTMENTS. The Company's net realized gains
on investments in 1996, 1995 and 1994 were $508,000, $3.7 million and $1.3
million, respectively, as a result of sales of the Company's equity position in
one portfolio company in each of those years.
INCOME TAXES. The Company incurred federal and state income tax expense of
$372,000 in 1996 (an effective rate of 14%), $532,000 in 1995 (an effective rate
of 18%), and did not incur income tax expense in 1994. During 1994, the Company
incurred pretax losses, but did not record the benefit of the associated net
operating loss carry forwards in the statement of operations because realization
of that benefit was uncertain. The effective tax rates for 1996 and 1995 are
substantially lower than the statutory rate as a result of the reversal of
valuation allowances which had been established against deferred tax benefits
recorded in prior periods.
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS. For the
year ended June 30, 1996, the Company recorded net unrealized appreciation of
investments of $1.4 million, and net unrealized depreciation of ($1.2 million)
and ($2.3 million) for the years ended June 30, 1995 and 1994, respectively.
The unrealized gains in 1996 resulted from changes in the valuations of several
portfolio investments in accordance with the Company's valuation policies. The
unrealized losses in 1995 and 1994 reflected the realized gain from the sale by
the Company of its equity position in one portfolio company in each of those
years and the reduction in market value of two publicly traded equity securities
in the Company's portfolio. A description of all of the Company's investments
is included under the caption "Business--The Company's Investment Portfolio" in
Item 1 of this Form 10.
Financial Condition, Liquidity and Capital Resources
At March 31, 1997, the Company had $3.0 million in cash and cash
equivalents. The Company's principal sources of capital to fund its portfolio
growth have been borrowings through the SBA sponsored SBIC debenture program,
principal payments on debt investments, and sales of the Company's equity
positions in certain portfolio companies. Principal payments made to the
Company on its debt investments were $767,000 and $946,000 for the first nine
months of 1997 and 1996, respectively, $1.2 million in 1996, $2.2 million in
1995, and $260,000 in 1994. For fiscal 1998, the scheduled principal payments
owed to the Company on existing debt investments are $606,000. Cash proceeds
from the sale of equity positions were $120,000 and $3.9 million for the first
nine months of 1997 and 1996, respectively, $3.9 million for 1996, $3.8 million
for 1995 and $2.3 million for 1994.
The Company's operations have been limited by the availability of capital,
rather than investment opportunities. As a result, the Company's ability to
make new portfolio investments has been limited to the redeployment of proceeds
from the realization of existing investments.
The Company borrowed $5.5 million from the SBA in December 1996 and $2.0
million in March 1996. Each of these borrowings was evidenced by a debenture.
The proceeds were, in part, used to repurchase at par $3.0 million of the
Company's preferred stock which had previously been
20
<PAGE>
issued to the SBA and to pay accrued dividends thereon. This brought total
indebtedness on SBA borrowings to $9.3 million at March 31, 1997. The two
debentures are non-amortizing, mature in 2006 and can be prepaid without penalty
after five years. The interest rate on these debentures is 7.08%, payable
quarterly. The remaining portion of the Company's SBA borrowings is evidenced
by a seven year, 8.375% interest, fully amortizing note that matures on April 1,
2000, and requires quarterly principal and interest payments of $169,872. The
balance on the note was $1.8 million as of March 31, 1997. The Company has
applied to receive an additional $3.0 million of SBA debt financing as part of
the SBA's third quarter debenture funding. There is no assurance that any
funding will be obtained. Based on the Company's current leverageable capital
(as defined by the SBA), it is eligible to borrow up to a total of $14.5 million
from the SBA.
The $3.0 million of debt investments made by the Company for the nine
months ended March 31, 1997 was a 31% decrease over the comparable period in
1996. The $6.5 million of debt investments made by the Company during 1996 was
a 600% increase over the $934,000 of investments made in 1995, which was a 27%
decrease from the $1.3 million invested in 1994.
As of March 31, 1997, the Company had outstanding commitments to provide
financing totaling $1.4 million. Although the Company continues to review new
investment requests, no additional commitments are anticipated until additional
capital is obtained or one or more existing investments are sold.
The Company does not currently have a line of credit or revolving credit
facility.
The Company expects to raise $20 million of additional capital through a
private placement of its common stock during the fiscal quarter ending September
30, 1997. If completed, the proceeds of the offering will be used to pay a
dividend, which is currently estimated to be approximately $3.0 to $5.0 million,
to current stockholders in order to meet one of the requirements for Subchapter
M tax treatment. The remaining net proceeds will be used for making investments
in current and new portfolio companies.
ITEM 3. PROPERTIES
The Company's operations are conducted from approximately 2,100 square feet
of leased office space in a suburb of Minneapolis, Minnesota. The lease expires
June 30, 1998. This facility is sufficient to meet the Company's current
requirements. As new employees are hired, the Company anticipates leasing
additional office space at or near the current location.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company's Articles of Incorporation authorize 9,000,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock. As of May 31, 1997, there
were 1,680,438 shares of Common Stock outstanding, which reflects a stock
dividend paid on May 31, 1997 of two shares for each share of Common Stock held
as of that date. All share information in this Form 10 gives effect to
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<PAGE>
that stock dividend. There are currently 70 record holders of Common Stock. No
shares of the Company's Preferred Stock are outstanding.
The following table sets forth certain ownership information as of May 31,
1997 with respect to the Common Stock for (i) those persons who directly or
indirectly own, control or hold with the power to vote 5% or more of the
outstanding Common Stock, (ii) each of the directors and named executive
officers of the Company, and (iii) all directors and officers as a group.
COMMON STOCK PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED (1) OUTSTANDING SHARES
- ----------------------- ---------------------- ------------------
Thomas F. Hunt, Jr. (2) 466,203 27.0%
555 East 215th
Jordan, MN 55352
Dean R. Pickerell 416,550 24.1
15120 Evelyn Lane
Minnetonka, MN 55345
Stephen A. Lewis 15,909 *
1550 E. 140th Street
Burnsville, MN 55337
Mervin Winston 0 *
2205 Holly Lane
Plymouth, MN 55447
Brenda L. Leonard 68,763 4.0
7277 Bren Lane
Eden Prairie, MN 55346
Martin J. Kanter 39,000 2.3
6624 Dovre Drive
Edina, MN 55436
Dale C. Showers (3) 33,000 1.9
6408 Parkwood Road
Edina, MN 55436
All Officers and Directors
as a Group (7) persons 1,039,425 56.8%
_______________
* Less than 1%.
(1) Includes the following number of shares of Common Stock which may be issued
pursuant to stock options that are exercisable within 60 days of the date
hereof: Mr. Hunt, 48,000; Mr. Pickerell, 48,000; Ms. Leonard, 24,000;
Mr. Showers, 21,000; Mr. Kanter, 9,000; and all directors and officers as a
group, 150,000 shares.
(2) Mr. Hunt disclaims beneficial ownership with respect to 8,000 shares of
Common Stock held in trust for Mrs. Hunt by her father.
(3) Mr. Showers disclaims beneficial ownership with respect to 1,000 shares of
Common Stock owned by his son Thomas Showers.
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<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Prior to March 31, 1997, the Company was a wholly owned subsidiary of
Capital Dimensions, Inc. ("CDI"). Effective March 31, 1997, CDI and the Company
were merged with the Company being the surviving entity (the "Merger"). Prior
to the Merger, management services were provided to the Company by CDI under a
Joint Investment Adviser Management Agreement (the "Management Agreement").
Under the terms of the Merger, CDI's interest in the Management Agreement was
assigned to Capital Dimensions Management Company, Inc. ("CDMC"). This
assignment was approved by CDI's stockholders. CDMC is owned and operated by
Messrs. Hunt, Pickerell, Lewis and Winston and Ms. Leonard; each of whom is also
employed by CDMC.
The monthly management fee paid to CDMC by the Company is one-fourth of one
percent (0.25%) of the Company's average monthly assets (the equivalent of 3%
per annum), less the amount of all payroll and payroll-related expenses paid by
the Company. Each of the employees of CDMC is also employed by the Company. It
is intended that all future employees of CDMC will also be employees of the
Company.
The executive officers and directors of the Company and their ages as of
June 13, 1997 are as follows:
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
Thomas F. Hunt, Jr.(1).... 48 President and Director
Dean R. Pickerell(1)...... 49 Executive Vice President and Director
Stephen A. Lewis.......... 49 Vice President
Mervin Winston............ 56 Vice President and Controller
Brenda L. Leonard......... 47 Vice President and Corporate Secretary
Martin J. Kanter(2)....... 51 Director
Dale C. Showers(3)........ 67 Director
________________________
(1) Term as director expires at the Annual Meeting of Stockholders in 1999.
(2) Term as director expires at the Annual Meeting of Stockholders in 1998.
(3) Term as director expires at the Annual Meeting of Stockholders in 1997.
The following is a brief summary of the business experience of each of the
executive officers and directors of the Company:
THOMAS F. HUNT, JR. Mr. Hunt is president of the Company, and was
president of Control Data Community Ventures Fund, Inc. ("CDCVFI"), the
Company's predecessor. He is also the president of CDMC. Mr. Hunt practiced
law at a law firm and was corporate counsel for two companies before joining the
legal staff at Control Data Corporation in January 1980. Mr. Hunt
23
<PAGE>
became legal counsel for Control Data's venture capital group in February 1981.
In February 1984, he became president of CDCVFI and a full-time venture
capitalist, while continuing to perform legal duties for Control Data as an
Assistant General Counsel. Mr. Hunt has been involved in over 100 venture
capital investments and has served on the Board of Directors of numerous private
and public companies, and is currently on the board of Ancor Communications,
Inc., a high-speed data switching company and Davis Broadcasting, Inc. and Davis
Broadcasting of Charlotte, Inc., both of which are radio station portfolio
investments of the Company. Mr. Hunt has authored a handbook on venture capital
investing and has given numerous speeches on venture capital investing before
civic groups. Mr. Hunt is co-founder and the largest stockholder in the
Company. He has undergraduate and law degrees from the University of Tulsa.
DEAN PICKERELL. Mr. Pickerell is executive vice president of the Company,
and was vice president of CDCVFI, the Company's predecessor. He also serves as
executive vice president of CDMC. Mr. Pickerell joined Control Data Corporation
in 1976, where he served in various controller and financial management
positions. From 1969 to 1976 he was with Honeywell's Aerospace and Defense
group in various accounting and audit positions. Mr. Pickerell has served on
the boards of directors of numerous private and public companies, and is
currently on the board of MultiRestaurants Management, Inc., a general partner
of MultiRestaurants Concepts, Ltd., an airport food and beverage vendor which is
one of the Company's portfolio investments, and the National Association of
Investment Companies, a trade association that represents the minority-focused
investment industry. Mr. Pickerell is co-founder and the second largest
stockholder in the Company. He has an undergraduate degree from Iowa State
University and completed the course work for an MBA degree from Mankato State
University.
STEPHEN A. LEWIS. Mr. Lewis joined the Company and CDMC as a vice
president in April 1997. From 1988 until joining the Company, he was the
President of Triad Management Company, which manages medical transportation and
engine-driven gas air conditioning businesses. Prior to 1988, he was a general
manager of technology-related marketing at Control Data Corporation. Mr. Lewis
holds an undergraduate and masters degrees in engineering from Ohio University.
MERVIN WINSTON. Mr. Winston is a certified public accountant and joined
the Company and CDMC as a Vice President and Controller in May 1997. From 1989
until joining the Company, he was President and Chief Executive Officer of
Mervin Winston, Ltd., a company providing business consulting and tax services.
Prior to 1989, he held the position of Vice President, Audit & Examination
Division with First Bank System. Mr. Winston has an undergraduate and masters
degrees in accounting from Ohio State University.
BRENDA L. LEONARD. Ms. Leonard is vice president of the Company and CDMC.
Prior to employment by the Company in 1987, Ms. Leonard was with Control Data
Corporation's venture capital operations in an administrative position. At the
Company, Ms. Leonard is responsible for regulatory compliance, accounting,
database management, and financial reporting. Ms. Leonard has a BA degree in
Business Administration from Metropolitan State University.
24
<PAGE>
MARTIN J. KANTER. Mr. Kanter is a CPA and has been a director of the
Company since July 1991. He has been a stockholder and Director of Tax Services
in the accounting firm of Schechter, Dokken, Kanter, Andrews & Selcer, Ltd.
since 1990. Prior to 1990, Mr. Kanter held a similar position with Laventhol &
Horwath. Mr. Kanter is a graduate of the University of Illinois and attended
DePaul University's Master of Science in Taxation program.
DALE C. SHOWERS. Mr. Showers has been a director of the Company since July
1991, and currently serves as Chairman of the Board of Ancor Communications,
Inc. Mr. Showers founded Ancor Communications, Inc. in 1986 and was its
President and Chief Executive Officer and continues to serve as Chairman of the
Board. Between 1980 and 1986, he was a Vice President at Control Data
Corporation. While at Control Data Corporation, Mr. Showers was Vice President
of OEM Marketing and President of the Small Business Equity Fund. Mr. Showers
is a graduate of Milton College with post graduate studies at the University of
Wisconsin.
One of the Company's independent directors died unexpectedly on May 29,
1997. The Company expects that its Board of Directors will appoint a
replacement within 30 days.
The Company's Articles of Incorporation divide the Board of Directors into
three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors are elected at each annual
meeting of stockholders. All directors hold office until their respective terms
expire and until their successors have been duly elected and qualified or until
such director's earlier resignation or removal. Officers serve at the
discretion of the Board of Directors.
ITEM 6. EXECUTIVE COMPENSATION.
COMPENSATION SUMMARY
The following table shows the compensation earned for services rendered in
all capacities to the Company by the President and the other most highly
compensated executive officer of the Company whose salary and bonuses exceeded
$100,000 for the year ended June 30, 1996 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 1996
ANNUAL COMPENSATION
-------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION COMPENSATION
------------------ ------ ----- ------------- ------------
Thomas F. Hunt, Jr. $122,750 $36,825 $7,724(1) $30,000(2)
President
Dean R. Pickerell 112,500 33,750 4,444(3) 30,000(2)
Vice President
__________________
25
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(1) Consists of $6,000 for automobile use and $1,724 for other miscellaneous
taxable benefits.
(2) Consists of $15,000 contributions each to the Company's Employees Profit
Sharing Plus Plan and Money Purchase Plan.
(3) Consists of $3,500 for automobile use and $944 for other miscellaneous
taxable benefits.
OPTION GRANTS
The Company made no option grants to the Named Executive Officers during
the fiscal year ended June 30, 1996.
AGGREGATED OPTION EXERCISES
AND JUNE 30, 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN
UNDERLYING UNEXERCISED THE-MONEY OPTIONS
SHARES OPTIONS AT 6/30/96 AT 6/30/96(1)
ACQUIRED VALUE --------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas F. Hunt, Jr. 0 0 97,719 0 $184,615 $0
Dean R. Pickerell 0 0 97,719 0 184,615 0
</TABLE>
___________________________
(1) The amounts set forth represent the difference between the estimated fair
value of $3.33 per share and the exercise price of the options, multiplied by
the applicable number of shares underlying the options. The estimated fair
value of $3.33 per share was established by the Board of Directors and used for
the redemption of 275,562 shares between February 1996 and June 1996.
EMPLOYMENT AGREEMENTS
None of the executive officers and directors of the Company are parties to
any employment or severance agreements. Although Messrs. Hunt and Pickerell are
employees of the Company, their primary compensation is currently paid by CDMC
out of the management fee it receives from the Company.
COMPENSATION OF DIRECTORS
The Company pays members of its Board of Directors who are not employees of
the Company an annual fee of $3,000. An additional $2,000 is paid to Mr. Kanter
for his service on the Company's Audit and Compensation Committee. On July 12,
1994, the Board of Directors approved the grant to each of three non-employee
directors then in office (including Messrs. Kanter and Showers) of a stock
option covering 15,000 shares of the Company's Common Stock at an exercise price
of $1.83 per share, exercisable as to 3,000 shares each year beginning June 30,
1995.
26
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee, which met twice during the last fiscal year, is
currently composed of Messrs. Kanter and Hunt. Mr. Kanter is not an employee of
the Company. At present, and during the year ended June 30, 1996, Mr. Hunt
served as a member of the Board of Directors and the Compensation and Audit
Committees of Ancor Communications, Inc. Dale Showers, a director of the
Company, also serves as a director of Ancor Communications, Inc. Mr. Showers
does not serve on the Compensation Committee of any business entity. Other than
Messrs. Hunt and Showers, no director or executive officer of the Company and no
member of the Compensation Committee is, or was during the year ended June 30,
1996, a director or compensation committee member of any other business entity
which had a director that sits on the Company's Board of Directors or
Compensation Committee.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
For fiscal 1996, all decisions on compensation of the Company's executives
were made by the full board on the basis of the recommendation of the
Compensation Committee consisting of Messrs. Kanter (Chairman) and Hunt. There
was no formal Compensation Committee Report for fiscal 1996.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
As discussed in Item 5 of this Form 10, comprehensive management services
are, since April 1, 1997, being provided to the Company by CDMC. Thomas F.
Hunt, Dean R. Pickerell, Stephen A. Lewis, Mervin Winston and Brenda Leonard are
stockholders of CDMC and serve as its President and Vice Presidents,
respectively. Under the terms of the Management Agreement, CDMC assists the
Company in the evaluation of potential investments; monitors its existing
portfolio; assists with the disposal of its assets, as directed; and provides
accounting and administrative services and such other assistance as the
Company's Board of Directors may direct. After the Company is registered as a
reporting company under the Securities Exchange Act of 1934, as amended, CDMC
will perform all tasks related to the preparation and filing of the Company's
periodic reports under that Act. Beginning April 1, 1997, CDMC receives from
the Company for its services a monthly management fee equal to one-fourth of one
percent (0.25%) of the Company's average monthly assets valued at fair value
(equivalent to 3% per annum) less the amount of the Company's payroll and
payroll-related expenses paid directly by the Company. For the period beginning
April 1, 1997 through June 30, 1997, the Company expects to pay approximately
$189,000 for the management services provided by CDMC.
On April 1, 1997, the Company transferred certain assets, consisting of
company vehicles, prepaid balances on employee insurance policies and prepaid
rent, to CDMC in exchange for CDMC's promissory note in the amount of $143,856,
which represents the book value of the assets
27
<PAGE>
on the date of transfer. The promissory note will be retired in accordance with
the useful life of these assets over a maximum of four years.
Currently, the Company is the only investment company or fund to which CDMC
provides services. In the future, however, CDMC may provide management and
consulting services to other investment funds. CDMC has agreed with the Company
that it would provide such services to others only with the prior approval of
the Company's Board of Directors.
ITEM 8. LEGAL PROCEEDINGS
On February 11, 1997, the Company brought suit in the Superior Court of
Sacramento County, California against Progressive Media Group, Inc.
("Progressive"), Ricky Tatum, Mary C. White, Lawrence D. Tanter, and Does 1
through 50, for the foreclosure of a security interest and enforcement of
certain personal guaranties with respect to a $1,200,000 promissory note
purchased from Progressive by the Company in February 1994. To date, the
Company has not received from Progressive or its guarantors any payment of
principal or interest. The Company is seeking damages in the sum of $1,910,850,
a late payment penalty on that sum at the rate of 18% per annum until the date
of judgment, an order directing public sale of the property, reasonable
attorney's fees and such other relief as the court may grant. On May 7, 1997,
Progressive filed an answer and counterclaim which alleges numerous grounds on
which Progressive asserts it has no liability to the Company and should be
awarded damages, punitive damages and exemplary damages against the Company in
unspecified amounts in excess of $350,000. These grounds alleged by Progressive
include estoppel, failure to mitigate damages, laches, unclean hands, setoff,
violations of the Federal communications law, failure to perfect the security
interest, violation of Federal and state securities laws, violation of the Small
Business Investment Act, breach of contract, accord and satisfaction, usury,
violation of the California Constitution and California statutes regulating
industrial loan companies and other legal theories. The Company believes that
Progressive's allegations are without merit.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
MARKET PRICE
There is no established public market for the Company's Common Stock.
Since February 20, 1996, the Company has redeemed an aggregate 275,562 shares of
its Common Stock at a purchase price established by the Board of Directors of
$3.33 per share.
HOLDERS
As of May 31, 1997, the Company had issued and outstanding 1,680,438 shares
of Common Stock held by 70 holders of record, which reflects a stock dividend of
two shares of Common Stock for each share held on May 31, 1997, the effective
date of the stock dividend. There are no shares of Preferred Stock outstanding.
28
<PAGE>
All of the 1,680,438 shares of Common Stock currently outstanding are
tradeable without restriction under the Securities Act of 1933, as amended,
unless held by "affiliates" of the Company as that term is defined in Rule 144
promulgated under that Act.
So long as the Company is a licensee of the SBA, no stockholder or group of
stockholders acting in concert may acquire or exercise voting rights as to ten
percent (10%) or more of any class of the Company's capital stock without prior
written approval by the SBA of the stockholder.
DIVIDENDS
Historically, the Company has never declared or paid any cash dividends on
its Common Stock. The Company intends to qualify for tax treatment under
Subchapter M of the Internal Revenue Code. Eligibility for Subchapter M
treatment requires that the Company pay out as a dividend an amount at least
equal to its earnings and profits prior to its becoming a regulated investment
company. To meet this requirement, the Company's Board of Directors expects to
declare a dividend in an amount sufficient to meet the Subchapter M requirement.
The amount of this dividend is currently estimated to be approximately $3.0 to
$5.0 million. The dividend will be contingent on the Company obtaining net
proceeds of at least $15 million from the sale of newly issued shares of Common
Stock.
If the Board of Directors concludes with respect to a given fiscal year
that the Company can meet the requirements of Subchapter M and that it is in the
best interests of the Company and its stockholders to do so, then to the extent
funds are legally available to do so the Board of Directors expects to declare
and pay to the Company's stockholders dividends in an amount not less than 90%
of the Company's net investment income (net interest income plus net realized
short-term capital gains) so as to meet one of the eligibility requirements of
Subchapter M. However, there can be no assurance that the Company will pay any
cash dividends on the Common Stock. Under some circumstances, SBA approval may
be required for payment of dividends that would be required to satisfy
Subchapter M requirements. There is no assurance that the SBA's approval will
be given.
29
<PAGE>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
During the three years ended March 31, 1997, the Company's only sales of
the Company's securities has been the issuance of 133,038 shares upon the
exercise of stock options under the Company's Stock Option Plan, as follows:
NO. OF SHARES OF EXERCISE PRICE
DATE OPTIONEE COMMON STOCK PER SHARE
---- -------- ------------ ---------
12/30/96 Thomas F. Hunt, Jr. 18,000 $.18
06/28/96 Thomas F. Hunt, Jr. 18,000 .18
03/31/97 Thomas F. Hunt, Jr. 13,719 .18
12/30/96 Dean R. Pickerell 24,000 .18
03/31/97 Dean R. Pickerell 25,719 .18
03/14/97 Brenda L. Leonard 24,000 .17
01/02/94 Martin J. Kanter 2,400 .17
01/25/95 Martin J. Kanter 2,400 .17
02/09/96 Martin J. Kanter 2,400 .17
01/23/97 Martin J. Kanter 2,400 .17
Each of the above transactions involved the offering of such securities
to a limited number of persons who took the securities as an investment for
his or her own account and not with a view to a distribution thereof. Based
in part on the foregoing, the Company has been advised by counsel that the
transactions enumerated above were exempt under Section 3(b) or 4(2) of the
Securities Act of 1933, as amended, from the registration and prospectus
delivery requirements of that Act.
ITEM 11. DESCRIPTION OF COMPANY'S SECURITIES TO BE REGISTERED.
The Company is authorized to issue 9,000,000 shares of Common Stock, no
par value per share, and 1,000,000 shares of Preferred Stock having a par
value fixed by the Board of Directors. As of May 31,1997, 1,680,438 shares of
Common Stock are outstanding. There are no shares of Preferred Stock
outstanding.
So long as the Company is a licensee of the SBA, no stockholder or group
of stockholders acting in concert may acquire or exercise voting rights as to
ten percent (10%) or more of any class of the Company's capital stock without
the prior written approval by the SBA of the stockholder.
COMMON STOCK
Each share of Common Stock is entitled to one vote on all matters
submitted to a vote of stockholders. The Common stock does not have
cumulative voting rights, which means that the holders of a majority of the
outstanding shares of Common Stock may elect all of the directors of the
Company. The Common Stock does not have any pre-emptive rights.
Upon liquidation, dissolution or winding up of the affairs of the
Company, its assets remaining after provision for payment of creditors,
holders of Preferred Stock and the SBA's liquidating interest would be
distributed pro rata among holders of the Common Stock.
Dividends may be paid in cash or stock to the holders of the Common Stock
when and if declared by the Board of Directors out of funds legally available
therefor, but only after the Company has paid any cumulative dividends then
in arrears on its Preferred Stock. In order to meet one of the requirements
for Subchapter M income tax treatment, the Company is required to distribute
annually as dividends at least 90% of its investment company taxable income,
to the extent earned.
Prior to a redemption or liquidation in whole or in part of any capital
stock of the Company not issued to the SBA, or any distribution of assets to
stockholders of the Company other than the SBA, the SBA is entitled to full
payment of all accrued and unpaid dividends on any outstanding shares of
Preferred Stock held by the SBA. There are currently no shares of the
Preferred Stock outstanding.
ANTI-TAKEOVER PROVISIONS OF MINNESOTA BUSINESS CORPORATION ACT
In addition to the restrictions on changes of control of an SSBIC under
the Small Business Act of 1958, as amended, the Company is subject to the
Minnesota Business Corporation Act (the "Minnesota Act"). Section 302A.671
of the Minnesota Act provides that, unless the acquisition of certain new
percentages of voting control of the Company (in excess of 20%, 33-1/3% or
50%) by an existing stockholder or other person is approved by a majority of
the disinterested stockholders of the Company, the shares acquired above such
new percentage level of voting control will not be entitled to voting rights.
The Company is required to hold a special stockholders' meeting to vote on
any such acquisition within 55 days after the delivery to the Company by the
acquiror of an information statement describing, among other things, the
acquiror and any plans of the acquiror to liquidate or dissolve the Company
and copies of definitive financing agreements for any financing of the
acquisition not to be provided by funds of the acquiror. If any acquiror
does not submit an information statement to the Company within ten days after
acquiring shares representing a new threshold percentage of voting control of
the Company, or if the disinterested stockholders vote not to approve such an
acquisition, the Company may redeem the shares so acquired by the acquiror at
their market value. Section 302A.671 generally does not apply to a cash
offer to purchase all shares of voting stock of the issuing corporation if
such offer has been approved by a majority vote of disinterested board
members of the issuing corporation.
Upon registration as a public company, Section 302A.673 of the Minnesota
Act restricts certain transactions between the Company and a stockholder who
becomes the beneficial holder of 10% or more of the Company's outstanding
voting stock (an "interested stockholder") unless a majority of the
disinterested directors of the Company have approved, prior to the date on
which the stockholder acquired a 10% interest, either the business
combination transaction suggested by such a stockholder or the acquisition of
shares that made such a stockholder a statutory interested stockholder. If
such prior approval is not obtained, the statute imposes a four-year
prohibition from the statutory interested stockholder's share acquisition
date on mergers, sales of substantial assets, loans, substantial issuances of
stock and various other transactions involving the Company and the statutory
interested stockholder or its affiliates.
These statutory provisions could have the effect in certain circumstances
of delaying or preventing a change in the control of the Company.
ITEM 12. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Articles of Incorporation and Bylaws require the Company to
indemnify any director, officer, employee or agent of the Company, to the full
extent permitted by the law of the State of Minnesota, who was or is a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, against certain liabilities and
expenses incurred in connection with the action, suit or proceeding, except
where such persons have not acted in good faith or did not reasonably believe
that the conduct was in the best interests of the Company.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplemental data required by this Item 13
follow the index of financial statements appearing at Item 15 of this Form 10.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
30
<PAGE>
The Company replaced its previous auditors, Lurie, Besikof, Lapidus &
Co., LLP, with Deloitte & Touche LLP in March 1997. The decision to change
accounting firms was approved by the Company's Board of Directors. During
the Company's three most recent fiscal years preceding the replacement of
Lurie, Besikof, Lapidus & Co., LLP, the reports of Lurie, Besikof, Lapidus &
Co. LLP on the financial statements of the Company contained no adverse
opinion or disclaimer of opinion and were not qualified or modified. There
were no disagreements between the Company and Lurie, Besikof, Lapidus & Co.,
LLP on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure which, if not resolved to the
satisfaction of such accountants, would have caused them to make reference to
the subject matter of the disagreements in connection with their reports.
Before engaging Deloitte & Touche LLP as its new independent auditors, the
Company did not previously consult with them regarding any matters related to
the application of accounting principles, the type of audit opinion that
might be rendered on the Company's financial statements or any other such
matters.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
The following Financial Statements are filed as part of this Form 10:
Independent Auditors' Report of Deloitte & Touche LLP
Independent Auditor's Report of Lurie, Besikof, Lapidus & Co., LLP
Balance Sheets as of June 30, 1995 and 1996 and March 31, 1997
(unaudited)
Statements of Operations for the years ended June 30, 1994, 1995 and
1996 and the nine months ended March 31, 1996 and 1997 (unaudited)
Statements of Changes in Stockholders' Equity for the years ended June
30, 1994, 1995 and 1996 and the nine months ended March 31, 1997
(unaudited)
Statements of Cash Flows for the years ended June 30, 1994, 1995 and
1996 and the nine months ended March 31, 1996 and 1997 (unaudited)
Notes to Financial Statements for the years ended June 30, 1994, 1995
and 1996 and the nine months ended March 31, 1996 and 1997 (unaudited)
31
<PAGE>
LISTING OF EXHIBITS
3.1 Amended and Restated Articles of Incorporation, as amended to
date
3.2 By-laws, as amended to date
3.3 1997 Stock Plan
4.1 Debenture of the Company dated March 14, 1996 issued to the U.S.
Small Business Administration in the principal amount of
$2,000,000
4.2 Debenture of the Company dated December 18, 1996 issued to the
U.S. Small Business Administration in the principal amount of
$5,500,000
4.3 Amortizing Note of the Company dated March 31, 1993 issued to the
U.S. Small Business Administration in the principal amount of
$3,571,578
10.1 Lease Agreement dated April 9, 1990 between the Company and
ATS II Associates Limited Partnership, as amended May 23, 1995
10.2 Joint Investment Advisor Management Contract dated February 10,
1997 between the Company and Capital Dimensions Management
Company, Inc.
10.3 Repurchase Agreement dated March 31, 1993 between the Company and
the U.S. Small Business Administration
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAPITAL DIMENSIONS, INC.
Dated: June 19, 1997 By /s/ Thomas F. Hunt, Jr.
--------------------- -------------------------------------
Its President
----------------------------------
32
<PAGE>
CAPITAL DIMENSIONS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT OF DELOITTE & TOUCHE LLP F-2
INDEPENDENT AUDITOR'S REPORT OF LURIE, BESIKOF, LAPIDUS & CO., LLP F-3
FINANCIAL STATEMENTS:
Balance Sheets as of June 30, 1995 and 1996 and March 31, 1997 (unaudited) F-4
Statements of Operations for the years ended June 30, 1994, 1995, and 1996 and
the nine months ended March 31, 1996 and 1997 (unaudited) F-5
Statements of Changes in Stockholders' Equity for the years ended June 30, 1994,
1995, and 1996 and the nine months ended March 31, 1997 (unaudited) F-6
Statements of Cash Flows for the years ended June 30, 1994, 1995, and 1996 and
the nine months ended March 31, 1996 and 1997 (unaudited) F-7
Notes to Financial Statements for the years ended June 30, 1994, 1995, and 1996 and
the nine months ended March 31, 1996 and 1997 (unaudited) F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Capital Dimensions, Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheet of Capital Dimensions, Inc. as of
June 30, 1996 and the related statements of operations, changes in stockholders'
equity, and cash flows for the year ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial position of Capital Dimensions, Inc. as
of June 30, 1996, and the results of its operations and its cash flows for the
year ended June 30, 1996 in conformity with generally accepted accounting
principles.
As explained in Note 2, the financial statements include investments securities
valued by the Board of Directors totaling $18,262,890 at June 30, 1996, none of
which have been valued based on public market quotations. We have reviewed the
procedures used by the Board of Directors in arriving at its estimate of value
of such investments and have inspected underlying documentation and, in the
circumstances, we believe the procedures are reasonable and the documentation
appropriate. However, because of the inherent uncertainty of the valuation of
investment securities, those estimated values may differ significantly from the
values that would have been used had a ready market for such investments
existed, and the differences could be material.
Minneapolis, Minnesota
April 29, 1997
(May 31, 1997 as to the effects of the
stock split described in Note 1)
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Capital Dimensions, Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheet of Capital Dimensions, Inc. as of
June 30, 1995, and the related statements of operations, changes in
stockholders' equity, and cash flows for the years ended June 30, 1995 and 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Dimensions, Inc. as
of June 30, 1995, and the results of its operations and its cash flows for
the years ended June 30, 1995 and 1994, in conformity with generally accepted
accounting principles.
As explained in Note 2, the financial statements include investments securities
valued by the Board of Directors totaling $14,528,143 at June 30, 1995, of which
$2,513,926 has been valued based on public market quotations. We have reviewed
the procedures used by the Board of Directors in arriving at its estimate of
value of such investments and have inspected underlying documentation and, in
the circumstances, we believe the procedures are reasonable and the
documentation appropriate. However, because of the inherent uncertainty of the
valuation of investment securities, those estimated values may differ
significantly from the values that would have been used had a ready market for
the investments existed, and the differences could be material.
Minneapolis, Minnesota
August 7, 1995
(May 31, 1997 as to the effects of the
stock split described in Note 1 and
March 18, 1997 as to the effects of the merger
described in Note 11)
F-3
<PAGE>
CAPITAL DIMENSIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
JUNE 30, MARCH 31,
-------------------------
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
INVESTMENTS IN SMALL BUSINESS
CONCERNS AT FAIR VALUE (Note 2):
Stocks (cost of $3,180,225, $757,645, and $758,707 at June 30, 1995 and 1996,
and March 31, 1997, respectively) $ 3,246,560 $ 2,373,003 $ 3,554,337
Debt securities (cost of $9,543,245, $14,033,704, and $15,703,156 at June 30, 1995
and 1996, and March 31, 1997, respectively) 9,028,984 13,892,384 15,703,156
Loans (cost of $1,395,032, $2,078,879, and $3,869,045 at June 30, 1995 and 1996,
and March 31, 1997, respectively) 1,255,837 1,527,646 3,332,545
Other investments (cost of $1,081,762, $642,193, and $433,097 at June 30, 1995
and 1996, and March 31, 1997, respectively) 996,762 469,857 433,097
----------- ----------- -----------
Total investments in small business concerns 14,528,143 18,262,890 23,023,135
Cash and cash equivalents 5,975,368 3,878,202 3,026,920
Restricted cash (Note 10) 300,000 410,000 410,000
Interest and dividends receivable 194,164 333,400 116,488
Other receivables 15,000 118,950 163,856
Equipment, net of accumulated depreciation of $48,063, $45,592, and
$58,126 at June 30, 1995 and 1996, and March 31, 1997, respectively 30,568 64,828
Deferred tax assets (Note 4) 191,222
Other assets 46,785 100,572 268,810
----------- ----------- -----------
Total assets $21,090,028 $23,360,064 $27,009,209
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 33,085 $ 54,398 $ 123,977
Income taxes payable 532,474 341,522 150,009
Small Business Administration Financing (Note 3) 2,631,737 4,167,505 9,286,160
Deferred tax liability 386,778
----------- ----------- -----------
3,197,296 4,563,425 9,946,924
Nonvoting 4% redeemable cumulative preferred stock, par value $500,
authorized 28,000 shares; issued and outstanding, 6,000, 6,000, and 0
shares at June 30, 1995 and 1996, and March 31, 1997, respectively (Note 3) 3,270,000 3,010,000
----------- ----------- -----------
Total liabilities 6,467,296 7,573,425 9,946,924
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDERS' EQUITY (Notes 5, 8 and 11):
Liquidating interest under repurchase agreement 4,362,150 3,443,802 2,755,041
Preferred Stock, Authorized 1,000,000 shares, none
issued or outstanding
Common stock, no par value. Authorized 9,000,000 shares; issued and
outstanding, 1,827,762, 1,572,600, and 1,680,438 shares at June 30, 1995
and 1996, and March 31, 1997, respectively (Note 1) 1,869,641 1,414,071 1,433,401
Additional paid-in capital 3,461,063 5,320,141 6,021,902
Retained earnings 4,929,878 5,608,625 6,851,941
----------- ----------- -----------
Total stockholders' equity 14,622,732 15,786,639 17,062,285
----------- ----------- -----------
Total liabilities and stockholders' equity $21,090,028 $23,360,064 $27,009,209
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
CAPITAL DIMENSIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------- -----------------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME:
Interest on investments in small business concerns $ 1,059,225 $ 1,225,290 $1,306,484 $ 941,358 $1,736,904
Interest on short-term investments 50,016 79,071 266,126 209,639 125,512
Management and consulting fees 24,579
---------- ---------- ---------- --------- ---------
1,133,820 1,304,361 1,572,610 1,150,997 1,862,416
EXPENSES:
Interest 278,140 242,734 250,618 166,015 345,408
General and administrative 525,758 523,825 630,159 463,584 666,733
Other 114,127 48,061 51,289 43,039 71,351
--------- ---------- ---------- --------- ---------
918,025 814,620 932,066 672,638 1,083,492
--------- ---------- ---------- --------- ---------
INCOME BEFORE GAINS (LOSSES) ON
INVESTMENTS IN SMALL BUSINESS
CONCERNS 215,795 489,741 640,544 478,359 778,924
GAINS (LOSSES) ON INVESTMENTS IN
SMALL BUSINESS CONCERNS:
Realized 1,277,412 3,663,410 507,937 461,816 (95,132)
Unrealized (2,288,233) (1,152,528) 1,422,592 336,302 1,508,661
---------- ---------- ---------- --------- ---------
(1,010,821) 2,510,882 1,930,529 798,118 1,413,529
---------- ---------- ---------- --------- ---------
(LOSS) INCOME BEFORE INCOME TAXES (795,026) 3,000,623 2,571,073 1,276,477 2,192,453
INCOME TAX EXPENSE 532,474 372,326 220,026 893,000
---------- ---------- ---------- --------- ---------
NET (LOSS) INCOME (795,026) 2,468,149 2,198,747 1,056,451 1,299,453
DIVIDENDS ON PREFERRED STOCK 120,000 120,000 120,000 90,000 56,137
---------- ---------- ---------- --------- ---------
NET (LOSS) INCOME ATTRIBUTABLE TO
COMMON SHARES $ (915,026) $2,348,149$ 2,078,747 $ 966,451 $1,243,316
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
NET (LOSS) INCOME PER COMMON
SHARE (Note 1) $ (0.47) $ 1.19 $ 1.09 $ 0.49 $ 0.71
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (Note 1) 1,824,162 1,983,852 1,912,227 1,964,301 1,761,681
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
CAPITAL DIMENSIONS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
LIQUIDATING
INTEREST
UNDER ADDITIONAL TOTAL
REPURCHASE COMMON STOCK PAID-IN RETAINED STOCKHOLDERS'
--------------------------
AGREEMENT SHARES AMOUNT CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1993 $6,198,846 1,822,962 $1,868,841 $1,324,367 $3,796,755 $13,188,809
Options exercised 2,400 400 400
Dividends on nonvoting 4% redeemable
preferred stock (120,000) (120,000)
Amortization of liquidating interest (918,348) 918,348
Net loss for the year ended
June 30, 1994 (795,026) (795,026)
---------- ---------- ---------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1994 5,280,498 1,825,362 1,869,241 2,242,715 2,881,729 12,274,183
Options exercised 2,400 400 400
Dividends on nonvoting 4% redeemable
preferred stock (120,000) (120,000)
Transfer 300,000 (300,000)
Amortization of liquidating interest (918,348) 918,348
Net income for the year ended
June 30, 1995 2,468,149 2,468,149
---------- ---------- ---------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1995 4,362,150 1,827,762 1,869,641 3,461,063 4,929,878 14,622,732
Common stock repurchased (275,562) (459,270) (459,270) (918,540)
Options exercised 20,400 3,700 3,700
Dividends on nonvoting 4%
redeemable preferred stock (120,000) (120,000)
Transfer 1,400,000 (1,400,000)
Amortization of liquidating interest (918,348) 918,348
Net income for the year ended
June 30, 1996 2,198,747 2,198,747
---------- ---------- ---------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1996 3,443,802 1,572,600 1,414,071 5,320,141 5,608,625 15,786,639
Options exercised (Unaudited) 107,838 19,330 19,330
Dividends on nonvoting 4%
redeemable preferred stock (Unaudited) (56,137) (56,137)
Stock compensation (Unaudited) 13,000 13,000
Amortization of liquidating interest
(unaudited) (688,761) 688,761
Net income for the nine months ended
March 31, 1997 (Unaudited) 1,299,453 1,299,453
---------- ---------- ---------- ----------- ----------- -----------
BALANCE AT MARCH 31, 1997
(Unaudited) $2,755,041 1,680,438 $1,433,401 $6,021,902 $6,851,941 $17,062,285
---------- ---------- ---------- ----------- ----------- -----------
---------- ---------- ---------- ----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
CAPITAL DIMENSIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------- ----------------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES:
Net (loss) income $ (795,026) $ 2,468,149 $ 2,198,747 $ 1,056,451 $ 1,299,453
Adjustments to reconcile net (loss) income to cash
(used in) provided by operations:
Provision for bad debts 44,373 89,108
Depreciation and amortization 12,555 12,401 16,738 11,231 21,456
Deferred taxes (191,222) 578,000
Realized (gains) losses on investments (1,277,412) (3,663,410) (507,937) (461,816) 95,132
Unrealized losses (gains) on investments 2,288,233 1,152,528 (1,422,592) (336,302) (1,508,661)
Interest receivable added to loans/notes (308,944) (437,729) (484,005) (306,413) (1,208,796)
Stock compensation 13,000
Changes in operating assets and liabilities:
Interest and dividends receivable (411,613) 46,240 (228,343) (60,010) 216,912
Other receivables 783 (15,000) 13,550 15,000 7,388
Other assets 1,479 (10,612) (3,037) (33,296) 22,215
Accounts payable 18,158 (16,317) 21,313 49,435 69,579
Income taxes payable 532,474 (190,952) (532,472) (191,513)
---------- ---------- ---------- ---------- ----------
Total cash (used in) provided by
operating activities (427,414) 68,724 (688,632) (598,192) (585,835)
CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES:
Proceeds from sales of investment 2,275,998 3,759,667 3,896,366 3,870,108 119,601
Investments in small business concerns (1,280,793) (933,969) (6,539,397) (5,121,158) (3,024,562)
Collections on debt securities and loans 259,765 2,157,874 1,205,318 946,490 767,041
Investment of restricted cash (110,000)
Proceeds from sale of equipment 10,109 10,109
Purchases of equipment (8,275) (5,899) (59,358) (59,358)
---------- ---------- ---------- ---------- ----------
Total cash provided by (used in) investing
activities 1,246,695 4,977,673 (1,596,962) (353,809) (2,137,920)
CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES:
Proceeds from SBA note payable 1,947,500 1,947,500 5,300,625
Payments on note payable to SBA (406,282) (438,467) (464,232) (417,830) (381,345)
Issuance of common stock 400 400 3,700 400 19,330
Redemption of stock (918,540) (816,000)
Dividends paid on SBA 4% redeemable
preferred stock (380,000) (310,000) (56,137)
Redemption of SBA 4% redeemable
preferred stock (3,010,000)
---------- ---------- ---------- ---------- ----------
Total cash (used in) provided by
financing activities (405,882) (438,067) 188,428 404,070 1,872,473
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 413,399 4,608,330 (2,097,166) (547,931) (851,282)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 953,639 1,367,038 5,975,368 5,975,368 3,878,202
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 1,367,038 $ 5,975,368 $ 3,878,202 $ 5,427,437 $ 3,026,920
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
F-7
<PAGE>
CAPITAL DIMENSIONS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------- ----------------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES:
Debt securities converted to loans $456,782
Interest receivable converted to debt or loans 308,944 $437,729 $484,005 $306,413 $1,208,796
Note received on sale of investments 1,600,000
Dividends accrued on 4% preferred stock 120,000 120,000 10,000 10,000
Investment sold recorded as a receivable 117,500
Debt issuance cost, deducted from $2,000,000
SBA note 52,500 52,500 199,375
Realized gain on the exchange of investments 387,912
Property converted to receivable 52,294
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -
Cash paid during the period for:
Interest 273,209 241,023 215,259 130,655 264,830
Income taxes 754,500 410,978 1,084,513
</TABLE>
See notes to financial statements.
F-8
<PAGE>
CAPITAL DIMENSIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995, AND 1996 AND
NINE MONTHS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Capital Dimensions, Inc. (the Company) is a Specialized Small Business
Investment Company (SSBIC) licensed under the Small Business Investment Act
of 1958. The Company provides equity capital, long-term loans, and
management assistance to small business concerns which are at least 50%
owned by persons who are socially or economically disadvantaged as defined
under SBA guidelines.
The following is a summary of significant accounting policies applied in
the preparation of the financial statements.
PRESENTATION OF FINANCIAL STATEMENTS - Prior to March 31, 1997, Capital
Dimensions Venture Fund, Inc. (CDVFI) was a wholly owned subsidiary of
Capital Dimensions, Inc. (CDI). Effective March 31, 1997, CDI and CDVFI
were merged with CDVFI as the surviving entity. Under the plan of merger;
(i) all of the previously outstanding shares of CDVFI were canceled, (ii)
each one share of previously outstanding CDI common stock was converted
into one share of the Company's common stock, and (iii) each one share of
previously outstanding CDI Series A preferred stock was converted into one
share of the Company's common stock. Subsequent to the merger, CDVFI
changed its name to Capital Dimensions, Inc. Also, effective with the
merger, all cumulated but unpaid and undeclared dividends related to the
Series A preferred stock lapsed.
The merger of CDI and CDVFI has been reflected in these financial
statements as a reorganization of entities under common control.
Accordingly, these financial statements have been restated to reflect the
merger as if it had occurred at the beginning of the earliest period
presented.
RECAPITIZATION - Effective May 31, 1997, the Company's Board of Directors
amended its Articles of Incorporation to effect a 3-for-1 stock split,
issued in the form of a 200% stock dividend effective May 31, 1997 to
stockholders of record on May 31, 1997; to increase the authorized number
of common stock to 9,000,000; and to authorize the issuance of up to
1,000,000 shares of preferred stock, the terms of which may be fixed by the
Company's Board of Directors without further shareholder approval. All
share and per share amounts included in these financial statements and
related notes have been restated to reflect this stock split.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates and assumptions.
NEW ACCOUNTING STANDARDS - In October 1995, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. The Company has elected to continue following the guidance
of Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES, for measurement and recognition of stock-based transactions
with
F-9
<PAGE>
employees. The Company will adopt the disclosure provisions, which are not
expected to be material, of SFAS No. 123 in fiscal year 1997.
In February 1997, the FASB issued SFAS No. 128, EARNINGS PER SHARE. SFAS
No. 128 supersedes APB No. 15 and replaces the presentation of primary
earnings per share with a presentation of basic earnings per share. The
Company will adopt the provisions of SFAS No. 128 in fiscal year 1998. On
a pro forma basis, had the Company adopted the provisions of SFAS No. 128,
basic earnings per share of $(.50), $1.29, $1.20, $.54, and $.78 for the
periods ended June 30, 1994, 1995, 1996, and March 31, 1996 and 1997,
respectively, would have been presented in the statement of operations. In
addition, diluted earnings per share amounts substantially equivalent to
the earnings per share amounts currently presented in the statement of
operations would have been shown.
EARNINGS PER COMMON SHARE - Earnings per common share are computed on
earnings reduced by dividend requirements on preferred stock and based upon
the weighted average number of common shares and common equivalent shares,
consisting of the dilutive effect of stock options outstanding during each
period. Earnings per common share assuming full dilution are substantially
the same.
VALUATION OF INVESTMENTS - The Company records its investments at estimated
fair value as determined by the Board of Directors. Realization of the
carrying value of investments is subject to future developments relating to
investee companies.
Among the factors considered by the Board of Directors in determining the
fair value of investments are the cost of the investment to the Company,
developments since the acquisition of the investment, the financial
condition and operating results of the investee, the long-term potential of
the business of the investee, the value of the underlying collateral, and
other factors generally pertinent to the valuation of investments. There
is no public market for the majority of the investments. The Board, in
making its evaluation, has relied on financial data of investees and, in
many instances, on estimates by the management of the Company and of the
investee companies as to the potential effect of future developments. Due
to the nature of the Company's investments, the valuations could differ
materially in the near term.
CASH EQUIVALENTS - The Company considers all highly liquid debt instruments
with a maturity at time of purchase of three months or less to be cash
equivalents.
EQUIPMENT - Equipment is stated at cost. Depreciation on equipment is
calculated on the straight-line method over the estimated useful lives of
the assets, generally five years.
INTEREST INCOME - Interest earned on investments in small business concerns
is recorded on the accrual basis. Loans and debt securities are reviewed
regularly by management and placed on nonaccrual status when the collection
of interest or principal is uncertain. Thereafter, no interest is
recognized as income unless received in cash or until such time the
borrower demonstrates the ability to pay interest and principal.
LOAN ORIGINATION FEES - Loan origination fees, net of direct costs, are
deferred and amortized to interest income, using the effective interest
method, over the term of the original promissory notes.
REALIZED GAINS (LOSSES) ON INVESTMENTS - Cost of investments sold is
reported on the basis of identified cost. Amounts reported as realized
gains (losses) are measured by the difference between the proceeds of sale,
if any, and the cost basis of the investment.
F-10
<PAGE>
Investments are also recorded as realized losses when, in the opinion of
the Board of Directors, there is little likelihood of recovery of the
investment cost. The determination is based on past performance, business
plans, and representations by management of the investee company.
INDUSTRY CONCENTRATION - The Company's portfolio is concentrated in the
radio broadcast industry, where the Company currently holds investments in
eight businesses that operate in California, the District of Columbia,
Georgia, Louisiana, Minnesota, and North Carolina. These investments
comprise 70.1% of the estimated fair market value of the Company's
portfolio at March 31, 1997. The radio stations operated by these
businesses include both large and small listener markets, both AM and FM
stations, and a variety of programming formats. The Company has also
invested in the rural telephone industry and the airport food and beverage
service industry which comprise 14.9% and 8.8%, respectively, of the
Company's investment portfolio as of March 31, 1997.
INTERIM FINANCIAL STATEMENTS - The information set forth in the financial
statements as of March 31, 1997 and for the nine months ended March 31,
1996 and 1997 is unaudited. The information reflects all adjustments,
consisting only of normal recurring entries, that in the opinion of
management, are necessary to present fairly the financial position, results
of operations and cash flows of the Company for the periods indicated.
Results of operations for an interim period are not necessarily indicative
of the results of operations for the full fiscal year.
RECLASSIFICATIONS - Certain prior-year amounts have been reclassified to
conform to the 1996 presentation. Such reclassifications had no impact on
net income and stockholders' equity as previously reported.
2. INVESTMENTS IN SMALL BUSINESS CONCERNS
Investments were valued at estimated fair value determined by the Board of
Directors at $14,528,143 at June 30, 1995, of which $2,513,926 was valued
based on public quotations, and $18,262,890 and $23,023,135 at June 30,
1996 and March 31, 1997, respectively, none of which was valued based on
public quotations.
The Company acquired the investments by direct purchases from the investees
and the Board of Directors valued the securities on the premise that in
most instances they may not be publicly re-sold without registration under
the Securities Act of 1933. The prices of securities purchased were
determined by direct negotiations between the Company and the investees.
Net unrealized appreciation (depreciation) is as follows:
June 30, March 31,
---------------------------
1995 1996 1997
Total unrealized appreciation $ 875,447 $ 2,040,067 $3,220,339
Total unrealized depreciation (1,547,568) (1,289,598) (961,209)
----------- ----------- ---------
Net unrealized (depreciation)
appreciation $ (672,121) $ 750,469 $2,259,130
----------- ----------- ---------
----------- ----------- ---------
Loans and debt securities with recorded fair values of $2,300,278,
$3,496,747, and $3,489,254 were in nonaccrual of interest status at June
30, 1995 and 1996 and March 31, 1997, respectively.
F-11
<PAGE>
3. SMALL BUSINESS ADMINISTRATION FINANCING
NOTES AND DEBENTURES PAYABLE - Notes payable to the Small Business
Administration (SBA) and debentures payable, guaranteed by the SBA, consist
of the following:
June 30, March 31,
---------------------------
1995 1996 1997
8.375% note payable, due in
quarterly principal and interest
installments of $169,872 through
April 1, 2000 $2,631,737 $2,167,505 $1,786,160
7.08% debenture payable, interest
only due semiannually, principal
due March 1, 2006 2,000,000 2,000,000
7.08% debenture payable, interest
only due semiannually, principal
due December 1, 2006 5,500,000
----------- ----------- ---------
$2,631,737 $4,167,505 $9,286,160
----------- ----------- ---------
----------- ----------- ---------
The note payable to the SBA is collateralized by substantially all the
Company's assets. The note and debentures are subject to the terms and
conditions of agreements with the SBA which, among other things, restrict
stock redemptions, disposition of assets, new indebtedness, dividends or
distributions, and changes in management, ownership, investment policy, or
operations. Annual maturities of the notes at June 30, 1996 are as
follows:
Years ending June 30:
1997 $381,345
1998 546,775
1999 594,025
2000 645,360
2006 2,000,000
----------
$4,167,505
----------
----------
4% REDEEMABLE CUMULATIVE PREFERRED STOCK - The Company has 28,000 shares
authorized of 4% nonvoting redeemable cumulative preferred stock with a par
value and liquidation value of $500 per share. At June 30, 1995 and 1996,
6,000 shares of the preferred stock had been issued. The stock was
redeemed according to its terms during the nine months ended March 31,
1997. Dividends accrued at June 30, 1995 and 1996 were $270,000 and
$10,000, respectively.
4. INCOME TAXES
The provision for income taxes consists of the following components:
Nine Months
Ended
Year Ended June 30, March 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
Current:
Federal $268,012 $427,240 $166,126 $1,110,658
State 264,462 136,308 53,900 360,342
-------- -------- -------- ----------
532,474 563,548 220,026 1,471,000
Deferred $ 143,000 324,407 257,471 290,000 (578,000)
Decrease in
valuation allowance (143,000) (324,407) (448,693) (290,000)
--------- -------- -------- -------- ----------
$- $532,474 $372,326 $220,026 $893,000
--------- -------- -------- -------- ----------
--------- -------- -------- -------- ----------
F-12
<PAGE>
A reconciliation between the U.S. federal statutory tax rate and the
effective tax rate is as follows:
Nine Months
Ended
Year Ended June 30, March 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
Statutory tax rate (34.0%) 35.0% 35.0% 35.0% 35.0%
State taxes, net of
federal effect (6.0) 6.0 6.0 6.0 5.7
Change in valuation
allowance 40.0 (23.3) (26.5) (23.8)
------- ------ ------ ------ ------
Effective tax rate - % 17.7% 14.5% 17.2% 40.7%
------- ------ ------ ------ ------
------- ------ ------ ------ ------
The significant components of deferred tax assets (liabilities) are as
follows:
June 30,
-------------- March 31,
1995 1996 1997
Unrealized loss (gain) on
investments in small
business concerns $ 448,693 $191,222 $(386,778)
Valuation allowance (448,693)
--------- -------- ----------
Net deferred tax asset (liability) $ - $191,222 $(386,778)
--------- -------- ----------
--------- -------- ----------
5. STOCKHOLDERS' EQUITY
The Company is subject to a Repurchase Agreement dated March 31, 1993 with
the SBA (the Repurchase Agreement) under which the Company redeemed at a
substantial discount all of the Company's then outstanding 3% preferred
stock, having a par value of $10,000,000, which had been issued to the SBA
under a funding program that was subsequently discontinued. The redemption
price was paid by the Company issuing to the SBA a seven-year amortizing
note for $3,571,578. As a condition to the redemption of the 3% preferred
stock, the Company granted the SBA a liquidating interest in a newly
created restricted capital surplus account equal to the amount of the
repurchase discount of $6,428,422. This liquidating interest is being
amortized over an 84-month period on a straight-line basis, and as of
June 30, 1995 and 1996 and March 31, 1997 had been reduced to $4,362,150,
$3,443,802, and $2,755,041, respectively. Should the Company default under
the Repurchase Agreement at any time, the liquidating interest will become
fixed at the level immediately preceding the event of default and will not
decline further until the default is cured or waived. The liquidating
interest will expire on the later of (i) 60 months from the date of the
Repurchase Agreement (i.e. March 31, 1998); (ii) the date the repurchase
note is paid in full; or (iii) if an event of default has occurred and the
default has been cured or waived, the later date on which the liquidating
interest is fully amortized.
Should the Company voluntarily or involuntarily liquidate prior to the
expiration of the liquidating interest, any assets which are available,
after the payment of all debts of the Company, shall be distributed first
to the SBA until the amount of the then remaining liquidating interest has
been distributed to the SBA. That payment, if any, would be prior in right
to any payments of the Company's stockholders. As the liquidating interest
declines, the restricted capital account is reduced and additional paid-in
capital is increased.
F-13
<PAGE>
The Company transferred $300,000 and $1,400,000 of retained earnings to
paid-in capital in 1995 and 1996, respectively, to increase its "private
capital" for SBA regulatory purposes. "Private capital" for SBA regulatory
purposes was $10,971,311, $12,064,163, $12,008,026 at June 30, 1995, 1996,
and March 31, 1997, respectively.
6. RETIREMENT PLANS
Effective December 1, 1988, the Company adopted a retirement plan
covering substantially all of its employees. Contributions to the plan
are discretionary and are determined by the Board of Directors. The
Company's contributions to this plan for the years ended June 30, 1994,
1995 and 1996 and for the nine months ended March 31, 1996 and 1997 were
$25,150, $49,637, $40,320, $23,760, and $29,813, respectively.
During 1996, the Company adopted an additional retirement plan covering
substantially all of its employees. Contributions to the plan are
mandatory at 10% of compensation. The Company's contribution to this plan
for the year ended June 30, 1996 was $36,880 and for the nine months ended
March 31, 1996 and 1997 was $21,240 and $27,375, respectively.
On April 1, 1997, in conjunction with the asset management agreement
discussed in Note 11, these retirement plans were assumed by the management
company.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities in Minnesota under a noncancelable
operating lease which expires on June 30, 1998. Under this operating
lease, future minimum lease payments of $31,740, $31,740 and $63,480 are
payable in the years ending June 30, 1997 and 1998 and in aggregate,
respectively.
Total rent expense was $32,872, $32,872, $33,914, $26,606, and $26,281 for
each of the years ended June 30, 1994, 1995, and 1996 and the nine months
ended March 31, 1996 and 1997, respectively.
The Company is involved in various lawsuits and claims arising out of the
normal course of business. In the opinion of the Company's management, the
resolution of these matters will not have a material adverse effect on the
financial position or operations of the Company.
8. STOCK OPTION PLAN
The Company adopted a Stock Option Plan on February 15, 1990. The Company
has reserved 480,000 shares of common stock for options which may be
granted under the stock option plan. Under the Plan, option exercise prices
are 100% of the market value, as determined by the Board of Directors, of
the common stock at the time of the grant. Options become exercisable over
a five-year period from the date of grant and expire five years from the
date of the grant.
F-14
<PAGE>
A summary of options granted under this plan is as follows:
OPTION PRICE
------------
Number of Per
Shares Share Total
Outstanding at June 30, 1993 157,038 $.17 - 2.75 $27,830
Granted 120,000 2.75 330,000
Exercised (2,400) .17 (400)
--------- ---------
Outstanding at June 30, 1994 274,638 .17 - 2.75 357,430
Granted 45,000 1.83 82,500
Exercised (2,400) .17 (400)
--------- ---------
Outstanding at June 30, 1995 317,238 .17 - 2.75 439,530
Exercised (20,400) .17 - .18 (3,700)
--------- ---------
Outstanding at June 30, 1996 296,838 .17 - 2.75 435,830
Granted 54,000 4.00 216,000
Exercised (107,838) .17 - .18 (19,330)
--------- ---------
Outstanding at March 31, 1997 243,000 .17 - 4.00 $632,500
--------- ---------
--------- ---------
At June 30, 1995 and 1996 and March 31, 1997, options for the purchase of
301,038, 262,638, and 216,000 shares, respectively, were exercisable.
Outstanding options expire November 2001 (179,838 shares), January 2004
(72,000 shares), and July 2004 (45,000 shares). The 27,000 shares which
are not exercisable as of March 31, 1997 vest at 3,000 shares each year
until July 1999.
9. CREDIT RISK
The Company maintains cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any
losses in such accounts. The Company does not believe it is exposed to any
significant risk on cash. In addition, the Company's idle funds are
invested in repurchase agreements which are backed by U.S. government
securities.
10. LETTERS OF CREDIT
The Company is the guarantor of two letters of credit aggregating $410,000
issued by a bank, on the behalf of two of the Company's portfolio
companies. Under the letters of credit the third-party beneficiaries may
draw on the letters of credit upon the occurrence of specified events.
Amounts drawn upon, if any, under these letters of credit will be added to
the loan amounts due from the portfolio companies to secure these letters
of credit. The Company has contractually restricted $410,000 of its cash.
11. SUBSEQUENT EVENTS
As discussed in Note 1, effective March 31, 1997, CDI and CDVFI were merged
to form the Company. In connection with that merger, a separate company
(the Management Company), owned by the officers of the Company, was formed
to manage the Company's assets. The Company has entered into a one-year
agreement with the Management Company whereby the
F-15
<PAGE>
Management Company will manage the Company's portfolio in exchange for
a monthly fee equal to .25% of the average balance of assets under
management during the month. In addition, the Company transferred certain
assets to the Management Company in exchange for a promissory note in the
amount of $143,856, representing the book value of the assets on the date
of transfer. The promissory note will be retired in accordance with the
useful life of these assets over a maximum of four years.
In connection with the merger, the Company adopted the Capital Dimensions
Venture Fund, Inc. 1997 Stock Plan (the Plan), all stock options
outstanding at the time of the merger were exchanged for identical shares
under the new plan, and all previous stock option plans were terminated.
The Company has reserved 450,000 shares of common stock for options which
may be granted under the Plan. Under the Plan, option exercise prices are
100% of market value of the common stock at the time of the grant. Options
become exercisable as determined by a committee of not less than two
nonemployee directors and expire no more than ten years from the date of
the grant.
12. POTENTIAL DIVIDEND
The Company intends to qualify for tax treatment under Subchapter M of the
Internal Revenue Code. Eligibility for Subchapter M treatment requires
that the Company pay out, as a dividend, an amount at least equal to its
cumulative earnings and profits from all prior periods. The Company's
Board of Directors expects to declare a dividend, to stockholders of record
on June 30, 1997, in an amount sufficient to meet this requirement. The
declaration of this dividend will be made contingent upon the Company
obtaining net proceeds of at least $15 million from the sale of newly
issued shares of common stock.
F-16
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CAPITAL DIMENSIONS VENTURE FUND, INC.
The undersigned incorporator, a natural person of full age, in order to
form a corporate entity under Minnesota Statutes, Chapter 302A, adopts the
following Articles of Incorporation:
ARTICLE I
The name of this corporation shall be Capital Dimensions Venture Fund, Inc.
(the "Corporation").
ARTICLE II
The registered office of the Corporation shall be Two Appletree Square,
Suite 335, Bloomington, Minnesota 55425-1637.
ARTICLE III
This Corporation is organized and chartered solely for the purpose of
performing the functions and conducting the activities contemplated under the
Small Business Investment Act of 1958, as amended from time to time.
ARTICLE IV
This Corporation is authorized to issue two classes of shares to be
designated respectively Preferred Stock ("Preferred Stock") and Common Stock
("Common Stock"). The total number of shares of capital stock that the
Corporation is authorized to issue is six million (6,000,000), consisting of one
million (1,000,000) shares of Preferred Stock, having a par value fixed by the
Board, and five million (5,000,000) shares of no par value Common Stock. So
long as the Corporation is a licensee of the U.S. Small Business Administration
("SBA"), no stockholder or group of stockholders acting in concert may own or
exercise voting rights with respect to ten percent (10%) or more of any class of
the Corporation's capital stock without prior written approval by the SBA.
The Preferred Stock shall be divided into series. The first series shall
consist of 28,000 shares of Non-Voting Redeemable Cumulative Preferred Stock,
par value $500 each (the "Non-Voting Redeemable Cumulative Preferred Stock").
As to the remaining 972,000 shares of Preferred Stock, the Board of Directors
shall have the power to designate the rights and
<PAGE>
preferences of these shares of Preferred Stock, PROVIDED, HOWEVER, that any
additional series of Preferred Stock shall not have rights senior to the
Non-Voting Redeemable Cumulative Preferred Stock so long as the Corporation is a
licensee under Section 301 of the Small Business Investment Act of 1958, as
amended from time to time.
NON-VOTING REDEEMABLE CUMULATIVE PREFERRED STOCK ("NON-VOTING REDEEMABLE
CUMULATIVE PREFERRED STOCK")
The rights, powers, preferences, and qualifications, limitations and
restrictions thereof, for shares of Non-Voting Redeemable Cumulative Preferred
Stock are as follows:
A. The Corporation shall issue shares of Non-Voting Redeemable Cumulative
Preferred Stock only to the SBA.
B. The rights attaching to shares of Non-Voting Redeemable Cumulative
Preferred Stock shall take precedence over the rights attaching to
shares of any other class of stock.
C. Subject to the sound discretion of the board of directors, the SBA
shall be paid from the retained earnings of the Corporation an annual
dividend of 4 percent of the par value of its shares of Non-Voting
Redeemable Cumulative Preferred Stock, payable from the date of
issuance.
Such dividends shall be payable on a preferred and cumulative basis so
that no amount shall be set aside or paid to any other class of stock
not held by SBA until the 4 percent dividend for that year has been
paid or, in the event SBA has received less than 4 percent in any
fiscal year, until the full amount of 4 percent per annum, which has
cumulated up to that time upon all of SBA's shares of Non-Voting
Redeemable Cumulative Preferred Stock has been paid to SBA.
Accumulation of dividend shall not bear interest.
D. Before any redemption of stock not purchased by SBA or liquidation in
whole or in part, or any distribution of assets to other stockholders,
SBA shall be entitled to the preferred payment in full of the amounts
stated in paragraph C and the par value of its preferred stock. Such
par value need not be paid to SBA before the distribution of ordinary
dividends from retained earnings to other shareholders.
E. The Corporation may, at its option, redeem the whole or any part of
SBA's outstanding preferred stock on any dividend payment date where
at least thirty days prior written notice has been given to SBA. The
Corporation shall pay to SBA the par value of the shares to be
redeemed ($50,000 minimum per transaction).
2
<PAGE>
F. The Non-Voting Redeemable Cumulative Preferred Stock plus accumulated
dividends held by the SBA will be redeemed fifteen (15) years after
the date of issue where at least thirty (30) days prior written notice
has been given to the Corporation. The Corporation shall pay SBA the
par value of the shares to be redeemed.
Paragraphs relating to Non-Voting Redeemable Cumulative Preferred Stock of
this Article IV shall not be amended without the prior written approval of SBA
so long as the Corporation is a licensee under Section 301 of the Small Business
Investment Act of 1958. Non-Voting Redeemable Cumulative Preferred Stock shall,
for all other purposes, be non-voting stock.
ARTICLE V
The name and mailing address of the incorporator is as follows:
NAME MAILING ADDRESS
Thomas F. Hunt, Jr. Two Appletree Square
Suite 335
Bloomington, Minnesota 55425-1637
ARTICLE VI
The Corporation is to have perpetual existence.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by Statute,
the Board of Directors is expressly authorized:
To make, alter or repeal the Bylaws of the Corporation.
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the Corporation.
To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose, to abolish any such
reserve in the manner in which it was created.
By a majority of the whole Board, to designate one or more committees, each
committee to consist of one or more of the directors of the Corporation.
The Board may designate one or more directors as alternate members of any
committee, and may replace any absent or disqualified member at any meeting
of the committee. The Bylaws may provide that in
3
<PAGE>
the absence or disqualification of a member of the committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors, or in the
Bylaws of the Corporation, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation
to be affixed to all papers which may require it.
When and as authorized by the stockholders in accordance with the statute,
to sell, lease or exchange all or substantially all of the property and
assets of the Corporation, including its goodwill and its corporate
franchises upon such terms and conditions and for such consideration, which
may consist in whole or in part of money or property including shares of
stock in and/or other securities of, any other corporation or corporations,
as its Board of Directors shall deem expedient or for the best interests of
the Corporation.
ARTICLE VIII
Meetings of the stockholders may be held within or without the State of
Minnesota, as the Bylaws may provide. The books of the Corporation may be kept,
subject to any provision contained in the statutes, outside the State of
Minnesota at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation. Elections of directors
need not be by written ballot unless the Bylaws of the Corporation shall so
provide.
ARTICLE IX
To the full extent permitted by the Minnesota Business Corporation Act,
Minnesota Statutes, Chapter 302A, as it exists on the date hereof or may
hereafter be amended, a director of this Corporation shall not be liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director. No amendment to or repeal of this Article shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal. The provisions of this Article
shall not be deemed to limit or preclude indemnification of a director by the
Corporation for any liability of a director which has not been eliminated by the
provisions of this Article.
ARTICLE X
The Corporation carries on its balance sheet a capital account designated
Restricted Contributed Capital Surplus. The Corporation has granted to the SBA
a Liquidating Interest in the Restricted Contributed Capital Surplus account
pursuant to the Preferred Stock Repurchase
4
<PAGE>
Agreement (the "Agreement"), dated March 31, 1993, between the SBA and Capital
Dimension Venture Fund, Inc. ("CDVFI"), a Delaware corporation, and a
predecessor to this Corporation.
The initial value of the Liquidating Interest shall be equal to $6,428,422
and shall decline on a straight-line basis at the end of each quarter by an
amount equal to 1/28th (3.571426%) of its original amount beginning June 30,
1993. Upon the occurrence of any Event of Default (as defined in the Agreement)
the value of the Liquidating Interest shall become fixed at the level
immediately preceding the Event of Default and shall not decline further until
such time as the default is cured or waived.
The Liquidating Interest shall expire on the later to occur of:
A. The date sixty (60) months from the date of this Agreement; or
B. The date that the Note shall be paid and satisfied in full; or
C. If an Event of Default has occurred and such default has been cured or
waived, such later date on which the Liquidating Interest is fully
amortized.
If, prior to the expiration of the Liquidating Interest as set forth above,
the Corporation's Board of Directors or its shareholders authorizes the
liquidation of the Corporation, or a judicial order is issued directing the
voluntary or involuntary liquidation of the Corporation, or SBA liquidates the
Corporation pursuant to the Small Business Investment Act of 1958 and the
regulations adopted thereunder, any assets which are available, after the
payment or the provision for the payment of all debts of the Corporation, shall
be distributed first to SBA, until the fair market value of such assets is equal
to the amount of the Liquidating Interest or all remaining assets have been
distributed to SBA.
The provisions of this Article shall not be amended or repealed without the
prior written approval of the SBA.
ARTICLE XI
Except where it is stated that SBA approval is required, the Corporation
reserves the right to amend, alter, change or repeal any provision contained in
these Articles of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
ARTICLE XII
No shareholder of the Corporation shall be entitled to any cumulative
voting rights or any statutory preemptive rights to subscribe for or acquire any
shares of the Corporation of any class or any obligations or other securities
convertible into or exchangeable for any such shares.
5
<PAGE>
ARTICLE XIII
Section 1. NUMBER AND TERM. The business and affairs of this
Corporation shall be managed by or under the direction of a Board of three or
more directors, as may be designated by the Board of Directors from time to
time. The directors shall be divided into three (3) classes, as nearly equal in
number as the then total number of directors constituting the whole Board
permits, with the term of office of one class expiring each year at the annual
meeting of shareholders. Except as otherwise provided in this Article XV, each
director shall be elected by the shareholders to hold office for a term of three
consecutive years. Each director shall serve until a successor shall have been
duly elected and qualified, or until the earlier death, resignation, removal, or
disqualification of the director.
Section 2. TRANSITIONAL BOARD. Upon the adoption of these Amended and
Restated Articles of Incorporation, one class of directors shall hold office for
a term expiring at the annual meeting of shareholders to be held after the end
of the Corporation's 1997 fiscal year, another class shall hold office for a
term expiring at the annual meeting of shareholders to be held after the end of
the Corporation's 1998 fiscal year and another class shall hold office for a
term expiring at the annual meeting of shareholders to be held after the end of
the Corporation's 1999 fiscal year. After the expiration of each term, the
provisions of Section 1 of this Article XIII shall control.
Section 3. VACANCIES. Any vacancies occurring in the Board of
Directors for any reason, and any newly created directorships resulting from an
increase in the number of directors, may be filled by a majority of the
directors then in office. Any directors so chosen shall hold office until the
next election of the class for which such directors shall have been chosen and
until their successors shall be elected and qualified subject, however, to prior
retirement, resignation, death or removal from office. Any newly created
directorships resulting from an increase in the authorized number of directors
shall be apportioned by the Board of Directors among the three classes of
directors so as to maintain such classes as nearly equal in number as possible.
Section 4. QUORUM. A majority of the members of the Board of Directors
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if less than such a majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice. The directors present at a duly organized meeting may
continue to transact business until adjournment notwithstanding that the
withdrawal of enough directors originally present leaves less than the number
otherwise required for a quorum.
Section 5. NOMINATION. Advance notice of nominations for the election
of directors, other than by the Board of Directors or a committee thereof, shall
be given within the time and in the manner provided in the Bylaws.
Section 6. WRITTEN ACTION BY DIRECTORS. Any action required or
permitted to be taken at a meeting of the Board of Directors, or a committee
thereof, may be taken by written action
6
<PAGE>
signed by all of the directors or, in cases where the action need not be
approved by the shareholders, by written action signed by the number of
directors that would be required to take the same action at a meeting of the
Board or a committee thereof at which all directors were present.
ARTICLE XIV
The provisions of 13 CFR section 107.1810(i) are hereby incorporated by
reference in these Amended and Restated Articles of Incorporation as if fully
set forth herein. This Corporation hereby consents to the exercise by the SBA
of all of the rights of SBA under 13 CFR section 107.1810(i), and agrees to take
all actions which SBA may require in accordance with such provisions.
---------------------------------------------
Thomas F. Hunt, Jr.
7
<PAGE>
EXHIBIT 3.2
-----------
BYLAWS
OF
CAPITAL DIMENSIONS VENTURE FUND, INC.
SHAREHOLDERS
SECTION 1.01 PLACE OF MEETINGS. Each meeting of the shareholders shall be
held at the principal executive office of the Corporation in the State of
Minnesota or at such other place within or without the State of Minnesota as may
be designated by the Board of Directors or the President; provided, however,
that any meeting called by or at the demand of a shareholder or shareholders
shall be held in the county where the principal executive office of the
Corporation is located.
SECTION 1.02 ANNUAL MEETINGS. Any regular meeting of the shareholders
shall be held at such time and on such date each year as may be designated by
the Board of Directors. At each regular meeting the shareholders shall elect
qualified successors for directors whose terms have expired or are due to expire
within six months after the date of the meeting and may transact any other
business; provided, however, that no business with respect to which special
notice is required by law shall be transacted unless such notice shall have been
given.
SECTION 1.03 SPECIAL MEETINGS. A special meeting of the shareholders may
be called for any purpose or purposes at any time by the President; by the
Treasurer; by the Board of Directors or any two or more members thereof; or by
one or more shareholders holding not less than three percent of the voting
shares of the Corporation, who shall demand the special meeting by written
notice given to the President or the Treasurer of the Corporation specifying the
purposes of such meeting. Within 30 days after receipt of a demand by the
President or the Treasurer from any shareholder(s) entitled to call a meeting of
the shareholders, it shall be the duty of the Board of Directors of the
Corporation to cause a special meeting of shareholders to be duly called and
held no later than 90 days after receipt of the demand. If the Board of
Directors fails to cause a special meeting to be called and held as required by
this Section, the shareholder(s) making the demand may call the meeting by
giving notice as provided in Section 1.05 at the expense of the Corporation.
SECTION 1.04 ADJOURNMENTS. Any meeting of the shareholders may be
adjourned to another date, time and place. If any meeting of the shareholders
is adjourned, no notice as to the adjourned meeting need be given other than by
announcement at the meeting at which the adjournment is taken of the date, time
and place at which the meeting will be reconvened.
SECTION 1.05 NOTICE OF MEETINGS. Except as otherwise specified in Section
1.04, written notice of each meeting of the shareholders, stating the date, time
and place and, in the case of a special meeting, the purpose or purposes, shall
be mailed at least ten days and not more than 60
<PAGE>
days prior to the meeting to every holder of voting shares to the shareholder's
address appearing on the books of the Corporation. The business transacted at a
special meeting of shareholders is limited to the purposes stated in the notice
of the meeting.
SECTION 1.06 WAIVER OF NOTICE. A shareholder may waive notice of the
time, place and purpose(s) of a meeting of shareholders. A waiver of notice by
a shareholder entitled to notice is effective whether given before, at, or after
the meeting, and whether given in writing, orally or by attendance. Attendance
by a shareholder at a meeting is a waiver of notice of that meeting, unless the
shareholder objects at the beginning of the meeting to the transaction of
business because the meeting is not lawfully called or convened, or objects
before a vote on an item of business because the item may not lawfully be
considered at that meeting and does not participate in the consideration of the
item at that meeting.
SECTION 1.07 QUORUM; ACTS OF SHAREHOLDERS. The holders of a majority of
the voting power of the shares entitled to vote at a shareholders' meeting
present in person or by proxy are a quorum for the transaction of business. If
a quorum is present when a duly called or held meeting is convened, the
shareholders present may continue to transact business until adjournment, even
though the withdrawal of a number of the shareholders originally present leaves
less than the proportion or number otherwise required for a quorum. Except as
otherwise required by law or specified in the Articles of Incorporation of this
Corporation, the shareholders shall take action by the affirmative vote of the
holders of a majority of the voting power of the shares present at a duly held
meeting of shareholders.
SECTION 1.08 VOTING RIGHTS.
SUBDIVISION 1. A shareholder shall have one vote for each voting share
held. Except as provided in Section 1.09, a holder of voting shares may vote
any portion of the shares in any way the shareholder chooses. If a shareholder
votes without designating the proportion or number of shares voted in a
particular way, the shareholder is deemed to have voted all of the shares in
that way.
SUBDIVISION 2. The Board may fix a date no more than 60 days before the
date of a meeting of shareholders as the date for the determination of the
holders of voting shares entitled to notice of and to vote at the meeting. When
a date is fixed, only shareholders on that date are entitled to notice of and
permitted to vote at that meeting of shareholders.
SUBDIVISION 3. A resolution approved by the affirmative vote of a majority
of the directors present at a duly held Board meeting may establish a procedure
whereby a shareholder may certify in writing to the Corporation that all or a
portion of the shares registered in the name of the shareholder are held for the
account of one or more beneficial owners. Upon receipt by the Corporation of
the writing, the persons specified as beneficial owners, rather than the actual
shareholders, are deemed the shareholders for the purposes specified in the
writing.
-2-
<PAGE>
SECTION 1.09 VOTING BY JOINT OWNERS, ORGANIZATIONS AND LEGAL
REPRESENTATIVES.
SUBDIVISION 1. Shares owned by two or more shareholders may be voted by
any one of them unless the Corporation receives written notice from any one of
them denying the authority of that person to vote those shares. A shareholder
whose shares are pledged may vote those shares until the shares are registered
in the name of the pledgee.
SUBDIVISION 2. Shares of the Corporation registered in the name of another
domestic or foreign corporation may be voted by the chief executive officer or
another legal representative of that corporation. Shares of the Corporation in
the name of or under the control of the Corporation or a subsidiary in a
fiduciary capacity are not entitled to vote on any matter, except to the extent
that the settlor or beneficial owner of the shares possesses and exercises a
right to vote or gives the Corporation binding instructions on how to vote the
shares. Except as provided in the preceding sentence, shares of the Corporation
registered in the name of a subsidiary are not entitled to vote on any matter.
SUBDIVISION 3. Shares of the Corporation under the control of a person in
a capacity as a personal representative, administrator, executor, guardian,
conservator or attorney-in-fact may be voted by the person, either in person or
by proxy, without registration of those shares in the name of the person.
Shares registered in the name of a trustee of a trust or in the name of a
custodian may be voted by the trustee or custodian, either in person or by
proxy, but a trustee of a trust or a custodian shall not vote shares unless they
are registered in the name of the trustee or custodian.
SUBDIVISION 4. Shares registered in the name of a trustee in bankruptcy or
a receiver may be voted by the trustee or receiver either in person or by proxy.
Shares under the control of a trustee in bankruptcy or a receiver may be voted
by the trustee or receiver without registering the shares in the name of the
trustee or receiver, if authority to do so is contained in an appropriate order
of the court by which the trustee or receiver was appointed.
SUBDIVISION 5. Shares registered in the name of an organization not
described above may be voted either in person or by proxy by the legal
representative of that organization.
SECTION 1.10 PROXIES.
SUBDIVISION 1. A shareholder may cast or authorize the casting of a vote
by filing a written appointment of a proxy with an officer of the Corporation at
or before the meeting at which the appointment is to be effective. An
appointment of a proxy for shares held jointly by two or more shareholders is
valid if signed by any one of them, unless the Corporation receives from any one
of those shareholders written notice either denying the authority of that person
to appoint a proxy or appointing a different proxy.
SUBDIVISION 2. An appointment of a proxy may be terminated at will, unless
the appointment is coupled with an interest, in which case it shall not be
terminated except in
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accordance with the terms of an agreement, if any, between the parties to the
appointment. Termination shall be made by filing written notice of the
termination of the appointment with an officer of the Corporation, or by filing
a new written appointment of a proxy with an officer of the Corporation.
Termination in either manner revokes all prior proxy appointments and is
effective when filed with an officer of the Corporation.
SUBDIVISION 3. The death or incapacity of a person appointing a proxy does
not revoke the authority of the proxy, unless written notice of the death or
incapacity is received by an officer of the Corporation before the proxy
exercises the authority under that appointment.
SUBDIVISION 4. Unless the appointment specifically provides otherwise, if
two or more persons are appointed as proxies for a shareholder: (a) any one of
them may vote the shares on each item of business in accordance with specific
instructions contained in the appointment; and (b) if no specific instructions
are contained in the appointment with respect to voting the shares on a
particular item of business, the shares shall be voted as a majority of the
proxies determines. If the proxies are equally divided, the shares shall not be
voted.
SUBDIVISION 5. Unless the appointment of a proxy contains a restriction,
limitation or specific reservation of authority, the Corporation may accept a
vote or action taken by a person named in the appointment. The vote of a proxy
is final, binding and not subject to challenge.
SECTION 1.11 ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at a meeting of the shareholders of the Corporation may be taken
without a meeting by written action signed by all of the shareholders entitled
to vote on that action. The written action is effective when it has been signed
by all of those shareholders, unless a different effective time is provided in
the written action.
DIRECTORS
SECTION 2.01 NUMBER; QUALIFICATIONS. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of three or
more directors. Directors shall be natural persons. The shareholders at a
regular meeting shall determine the number of directors to constitute the Board
until the next regular meeting, provided that thereafter the authorized number
of directors may be increased by the shareholders or the Board and decreased by
the shareholders. Directors need not be shareholders.
SECTION 2.02 TERM. Directors shall be elected at each regular meeting of
the shareholders, and each director shall be elected to hold office until the
next regular meeting and until his or her successor is elected and has qualified
or until his or her earlier death, resignation, removal or disqualification.
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SECTION 2.03 VACANCIES. Vacancies on the Board of Directors may be filled
by the affirmative vote of a majority of the remaining members of the Board,
though less than a quorum. Vacancies on the Board resulting from newly created
directorships may be filled by the affirmative vote of a majority of the
directors serving at the time the directorships are created. Each person so
elected shall be a director until a successor is elected by the shareholders
(who may make such election at their next regular meeting or at any special
meeting duly called for that purpose) and has qualified.
SECTION 2.04 PLACE OF MEETINGS. Each meeting of the Board of Directors
shall be held at the principal executive office of the Corporation in the State
of Minnesota or at any other place within or without the State of Minnesota as
may be designated by a majority of the members of the Board.
SECTION 2.05 ANNUAL MEETINGS. A regular meeting of the Board of Directors
for the election of officers and the transaction of any other business shall be
held in each year without notice at the place of and immediately after any
regular meeting of the shareholders.
SECTION 2.06 SPECIAL MEETINGS. A special meeting of the Board of
Directors may be called for any purpose or purposes at any time by the President
or by any member of the Board by giving not less than two nor more than ten
days' notice to all directors of the date, time and place of the meeting. The
notice need not state the purpose of the meeting.
SECTION 2.07 WAIVER OF NOTICE; PREVIOUSLY SCHEDULED MEETINGS.
SUBDIVISION 1. A director of the Corporation may waive notice of the date,
time and place of a meeting of the Board. A waiver of notice by a director
entitled to notice is effective whether given before, at or after the meeting,
and whether given in writing, orally or by attendance. Attendance by a director
at a meeting is a waiver of notice of that meeting, unless the director objects
at the beginning of the meeting to the transaction of business because the
meeting is not lawfully called or convened and thereafter does not participate
in the meeting.
SUBDIVISION 2. If the day or date, time and place of a Board meeting have
been provided herein or announced at a previous meeting of the Board, no notice
is required. Notice of an adjourned meeting need not be given other than by
announcement at the meeting at which adjournment is taken of the date, time and
place at which the meeting will be reconvened.
SECTION 2.08 QUORUM; ACTS OF BOARD. The presence in person of a majority
of the Board of Directors currently holding office shall be necessary to
constitute a quorum for the transaction of business. In the absence of a
quorum, a majority of the directors present may adjourn a meeting from time to
time without further notice until a quorum is present. Unless otherwise
specified in the Articles of Incorporation, the acts of a majority of the
directors present at a meeting at which a quorum is present shall be the acts of
the Board. If a quorum is present when a duly called or held meeting is
convened, the directors present may continue to transact
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business until adjournment, even though the withdrawal of a number of the
directors originally present leaves less than the proportion or number otherwise
required for a quorum.
SECTION 2.09 ELECTRONIC COMMUNICATIONS. A conference among directors by
any means of communication through which the directors may simultaneously hear
each other during the conference constitutes a Board meeting, if the same notice
is given of the conference as would be required for a meeting, and if the number
of directors participating in the conference would be sufficient to constitute a
quorum at a meeting. Participation in a meeting by that means constitutes
presence in person at the meeting. A director may participate in a Board
meeting not described above by any means of communication through which the
director, other directors so participating and all directors physically present
at the meeting may simultaneously hear each other during the meeting.
Participation in a meeting by that means also constitutes presence in person at
the meeting.
SECTION 2.10 ABSENT DIRECTORS. A director of the Corporation may give
advance written consent or opposition to a proposal to be acted on at a Board
meeting. If the director is not present at the meeting, consent or opposition
to a proposal does not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as a vote in
favor of or against the proposal and shall be entered in the minutes or other
record of action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the proposal to
which the director has consented or objected.
SECTION 2.11 ACTION WITHOUT A MEETING. An action required or permitted to
be taken at a Board meeting may be taken by written action signed by all of the
directors unless the action need not be approved by the shareholders, in which
case the action may be taken by written action signed by the number of directors
that would be required to take the same action at a meeting of the Board at
which all directors were present. The written action is effective when signed
by the required number of directors, unless a different effective time is
provided in the written action. When written action is permitted to be taken by
less than all directors, all directors shall be notified immediately of its text
and effective date.
SECTION 2.12 COMMITTEES.
SUBDIVISION 1. A resolution approved by the affirmative vote of a majority
of the Board may establish committees having the authority of the Board in the
management of the business of the Corporation to the extent provided in the
resolution. Committees shall be subject at all times to the direction and
control of the Board, except as provided in Section 2.13.
SUBDIVISION 2. A committee shall consist of one or more natural persons,
who need not be directors, appointed by affirmative vote of a majority of the
directors present at a duly called and held Board meeting.
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SUBDIVISION 3. A majority of the members of a committee appointed by the
Board is a quorum for the transaction of business, unless a larger or smaller
proportion or number is provided in a resolution approved by the affirmative
vote of a majority of the directors present at a duly called and held Board
meeting.
SUBDIVISION 4. Minutes, if any, of committee meetings shall be made
available upon request to members of the committee and to any director.
SECTION 2.1 COMMITTEE OF DISINTERESTED PERSONS. Pursuant to the procedure
set forth in Section 2.12, the Board may establish a committee composed of two
or more disinterested directors or other disinterested persons to determine
whether it is in the best interests of the Corporation to pursue a particular
legal right or remedy of the Corporation and whether to cause the dismissal or
discontinuance of a particular proceeding that seeks to assert a right or remedy
on behalf of the Corporation. The committee, once established, is not subject
to the direction or control of, or termination by, the Board. A vacancy on the
committee may be filled by a majority vote of the remaining committee members.
The good faith determinations of the committee are binding upon the Corporation
and its directors, officers and shareholders. The committee terminates when it
issues a written report of its determinations.
SECTION 2.14 COMPENSATION. Directors as such shall not receive a stated
salary for their services, but by resolution of the Board of Directors a fixed
sum and expenses of attendance, if any, may be allowed for attendance at each
meeting of the Board, provided, however, that nothing herein shall be construed
to preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
OFFICERS
SECTION 3.01 ELECTION; QUALIFICATIONS. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, who shall be elected annually
by the Board of Directors at the annual meeting of the Board, and such other
officers as may be designated from time to time by the Board. No officer need
be a director. All offices may be held by the same person except the President
and Secretary shall be two separate persons.
SECTION 3.02 PRESIDENT. The President shall be the chief executive
officer of the Corporation, shall have general and active management of the
business of the Corporation and supervision of the other officers of the
Corporation, shall see that all orders and resolutions of the Board of Directors
are carried into effect, and shall preside at all meetings of the shareholders
and all meetings of the Board of Directors.
SECTION 3.03 VICE PRESIDENTS. Any one or more Vice Presidents, if any,
may be designated by the Board of Directors as Executive Vice Presidents or
Senior Vice Presidents. During the absence or disability of the President, it
shall be the duty of the highest ranking
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Executive Vice President, and, in the absence of any such Vice President, it
shall be the duty of the highest ranking Senior Vice President or other Vice
President, who shall be present at the time and able to act, to perform the
duties of the President. The determination of who is the highest ranking of two
or more persons holding the same office shall, in the absence of specific
designation of order of rank by the Board of Directors, be made on the basis of
the earliest date of appointment or election, or, in the event of simultaneous
appointment or election, on the basis of the longest continuous employment by
the Corporation.
SECTION 3.04 SECRETARY. The Secretary shall attend all meetings of the
shareholders and all meetings of the Board of Directors and shall record or
cause to be recorded all proceedings thereof in a book to be kept for that
purpose. Except as otherwise required or permitted by law or by these Bylaws,
the Secretary shall give or cause to be given notice of all meetings of the
shareholders and all meetings of the Board of Directors.
SECTION 3.05 TREASURER. The Treasurer shall be the chief financial
officer of the Corporation and shall have the care and custody of the funds and
securities of the Corporation. The Treasurer shall keep or cause to be kept
full and accurate financial records of the Corporation and shall cause all
monies of the Corporation to be deposited in the name and to the credit of the
Corporation in such depositories as may be designated from time to time by the
Board of Directors. The Treasurer shall render to the President and to the
Board, when requested, an account of all his or her transactions as Treasurer
and of the financial condition of the Corporation. If required by the Board,
the Treasurer shall execute and deliver to the Corporation a bond in such
amount, with such sureties and upon such conditions as shall be approved by the
Board provided, however, that the Corporation shall pay the cost of such bond.
SECTION 3.06 AUTHORITY AND DUTIES. In addition to the foregoing authority
and duties, all officers of the Corporation shall respectively have such
authority and perform such duties in the management of the business of the
Corporation as may be designated from time to time by the Board of Directors.
Unless prohibited by a resolution approved by the affirmative vote of a majority
of the directors present, an officer elected or appointed by the Board may,
without the approval of the Board, delegate some or all of the duties and powers
of an office to other persons.
SECTION 3.07 TERM.
SUBDIVISION 1. All officers of the Corporation shall hold office until
their respective successors are chosen and have qualified or until their earlier
death, resignation, or removal.
SUBDIVISION 2. An officer may resign at any time by giving written notice
to the Corporation. The resignation is effective without acceptance when the
notice is given to the Corporation, unless a later effective date is specified
in the notice.
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SUBDIVISION 3. An officer may be removed at any time, with or without
cause, by a resolution approved by the affirmative vote of a majority of the
directors present at a duly held Board meeting.
SUBDIVISION 4. A vacancy in an office because of death, resignation,
removal, disqualification or other cause may, or in the case of a vacancy in the
offices of President or Treasurer shall, be filled for the unexpired portion of
the term by the Board at the first Board meeting following the inception of such
vacancy.
SECTION 3.08 SALARIES. The salaries of all officers of the Corporation
shall be fixed by the Board of Directors or by the President if authorized by
the Board.
INDEMNIFICATION
SECTION 4.01 INDEMNIFICATION. To the full extent permitted by Minnesota
Statutes, but as limited in the Corporation's Articles of Incorporation, each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed civil, criminal, administrative, arbitration or
investigative action, suit or proceeding, including a proceeding by or in the
right of the Corporation, wherever brought, by reason of the fact that (1) the
person is or was a director of the Corporation, (2) the person is or was a
member of a committee of the Board of Directors, officer, employee or agent of
the Corporation, or (3) the person is or was serving at the request of the
Corporation, or the person's duties as a director, committee member, officer,
employee or agent of the Corporation involve or involved service, as a director,
officer, partner, trustee, employee or agent of another corporation, employee
benefit plan or other organization or enterprise, shall be indemnified by the
Corporation against judgments, penalties, fines, including, without limitation,
excise taxes assessed against the person with respect to an employee benefit
plan, settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection with the action, suit or
proceeding, if, with respect to the acts or omissions of the person complained
of in the action, suit or proceeding, the person:
(a) has not been indemnified by another corporation, employee benefit
plan or other organization or enterprise for the same expenses with respect
to the same acts or omissions;
(b) acted in good faith;
(c) received no improper personal benefit and Minnesota Statues,
Section 302A.255 has been satisfied;
(d) in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful; and
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(e) with respect to a person acting in any capacity described in
clauses (1) and (2) above, reasonably believed the person's conduct was in
the best interests of the Corporation, or with respect to any person
serving in a capacity described in clause (3) above, reasonably believed
the person's conduct was not opposed to the best interests of the
Corporation.
The termination of an action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent does not, of
itself, establish that the person did not meet the criteria set forth above.
A director of the Corporation, including a person deemed to be a director
under applicable law, shall not be personally liable to the Corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except to the extent provided by applicable law for:
(a) liability based on a breach of the director's duty of loyalty to
the Corporation or its shareholders,
(b) liability for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law,
(c) liability under Sections 302A.559 or 80A.23 of the Minnesota
Statutes,
(d) liability for any transaction from which the director derived an
improper personal benefit, or
(e) liability for any act or omission occurring prior to the date
when this Article IV becomes effective.
Except as limited in the Corporation's Articles of Incorporation, if the
Minnesota Business Corporation Act hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation, in addition to the limitation and elimination on
personal liability provided herein, shall be eliminated or limited to the
fullest extent permitted by the Minnesota Business Corporation Act, as so
amended.
SECTION 4.02 ADVANCES. If a person described in clause (1), (2) or (3) of
Section 4.01 is made or threatened to be made a party to any proceeding, the
person shall be entitled, upon written request to the Corporation, to payment or
reimbursement by the Corporation of reasonable expenses, including attorneys'
fees and disbursements, incurred by the person in advance of the final
disposition of the proceeding:
(a) upon receipt by the Corporation of a written affirmation by the
person of a good faith belief that the criteria for indemnification set
forth in Section 4.01 have been satisfied and a written undertaking by the
person to repay all amounts so paid or
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reimbursed by the Corporation, if it is ultimately determined that the
criteria for indemnification have not been satisfied, and
(b) after a determination that the facts then known to those making
the determination under Section 4.03 would not preclude indemnification
under Section 4.01.
The written undertaking required by clause (a) shall be an unlimited general
obligation of the person making it, but, in the discretion of those making the
determination under Section 4.03, may, but need not, be secured and may, but
need not, be accepted without reference to the financial ability of the person
to make the repayment.
SECTION 4.03 DETERMINATION OF ELIGIBILITY. All determinations whether
indemnification of a person is required because the criteria set forth in
Section 4.01 have been satisfied and whether a person is entitled to payment or
reimbursement of expenses in advance of the final disposition of a proceeding as
provided in Section 4.02 shall be made:
(a) by the Board of Directors by a majority of a quorum. Directors
who are at the time parties to the proceeding shall not be counted for
determining either a majority or the presence of a quorum;
(b) if a quorum under clause (a) cannot be obtained, by a majority of
a committee of the Board, consisting solely of two or more directors not at
the time parties to the proceeding, duly designated to act in the matter by
a majority of the full Board, including directors who are parties;
(c) if a determination is not made under clause (a) or (b), by
special legal counsel who has not represented the Corporation, any related
corporation, or any director, officer, employee or agent whose
indemnification is in issue; such special legal counsel shall be selected
either by a majority of the Board or a committee by vote pursuant to clause
(a) or (b) or, if the requisite of the full Board cannot be obtained and
the committee cannot be established, by a majority of the full Board
including directors who are parties;
(d) if a determination is not made under clauses (a) through (c), by
the shareholders, excluding the votes of shares held by parties to the
proceeding; or
(e) if an adverse determination is made under clauses (a) through
(d), or if no determination is made under clauses (a) through (d) within 60
days after the termination of an action, suit or proceeding or after a
request for an advance of expenses, as the case may be, by a court in the
State of Minnesota, which may be the same court in which the proceeding
involving the person's liability took place, upon application of the person
and any notice the court requires.
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SECTION 4.04 REIMBURSEMENT TO WITNESSES. The Corporation may reimburse
any person for any expenses, including attorneys' fees and disbursements,
incurred by the person in connection with an appearance by such person as a
witness in any action, suit or proceeding concerning the Corporation at a time
when the person has not been made or threatened to be made a party to such
action, suit or proceeding.
SECTION 4.05 REPORT TO SHAREHOLDERS. If the Corporation indemnifies or
advances expenses to a person in accordance with Section 4.01 through 4.04 in
connection with an action, suit or proceeding by or on behalf of the
Corporation, the amount of the indemnification or advance and to whom and on
whose behalf it was paid shall be reported as part of the annual financial
statements furnished to shareholders covering the period when the
indemnification or advance was paid or accrued under the accounting method of
the Corporation reflected in the financial statements.
SECTION 4.06 INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person described in clause (1), (2) or (3) of Section
4.01 in the person's official capacity as described therein against any
liability asserted against and incurred by the person in or arising from that
capacity, whether or not the Corporation would otherwise be required to
indemnify the person against the liability.
SHARES
SECTION 5.01 CERTIFICATED AND UNCERTIFICATED SHARES.
SUBDIVISION 1. The shares of the Corporation shall be either certificated
shares or uncertificated shares. Each holder of duly issued certificated shares
is entitled to a certificate of shares.
SUBDIVISION 2. Each certificate of shares of the Corporation shall bear the
corporate seal, if any, and shall be signed by the President or Vice President
and the Secretary or Assistant Secretary, but when a certificate is signed by a
transfer agent or a registrar, the signature of any such officer and the
corporate seal upon the certificate may be facsimiles, engraved or printed. If
a person signs or has a facsimile signature placed upon a certificate while an
officer, transfer agent or registrar of the Corporation, the certificate may be
issued by the Corporation, even if the person has ceased to serve in that
capacity before the certificate is issued, with the same effect as if the person
had that capacity at the date of its issue.
SUBDIVISION 3. A certificate representing shares issued by the Corporation
shall set forth upon the face or back of the certificate, or shall state that
the Corporation will furnish to any shareholder upon request and without charge,
a full statement of the designations, preferences, limitations and relative
rights of the shares of each class or series authorized to be issued, so far as
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they have been determined, and the authority of the Board to determine the
relative rights and preferences of subsequent classes or series.
SUBDIVISION 4. A resolution approved by the affirmative vote of a majority
of the directors present at a duly called and held meeting of the Board may
provide that some or all of any or all classes and series of the shares of the
Corporation will be uncertificated shares. Any resolution shall not apply to
shares represented by a certificate until the certificate is surrendered to the
Corporation.
SECTION 5.02 DECLARATION OF DIVIDENDS. The Board of Directors shall have
the authority to declare dividends upon the shares of the Corporation to the
extent permitted by law, the Articles of Incorporation and any agreements with
the Small Business Administration.
SECTION 5.03 TRANSFER OF SHARES. Shares of the Corporation may be
transferred only on the books of the Corporation by the holder thereof, in
person or by his attorney. In the case of certificated shares, shares shall be
transferred only upon surrender and cancellation of certificates for a like
number of shares. The Board of Directors, however, may appoint one or more
transfer agents and registrars to maintain the share records of the Corporation
and to effect transfers of shares.
SECTION 5.04 RECORD DATE. The Board of Directors may fix a time, not
exceeding forty days preceding the date fixed for the payment of any dividend or
other distribution, as a record date for the determination of the shareholders
entitled to receive payment of such dividend or other distribution, and in such
case only shareholders of record on the date so fixed shall be entitled to
receive payment of dividend or other distribution, notwithstanding any transfer
of any shares on the books of the Corporation after any record date.
MISCELLANEOUS
SECTION 6.01 EXECUTION OF INSTRUMENTS. All deeds, mortgages, notes,
checks, contracts and other instruments pertaining to the business and affairs
of the Corporation shall be signed on behalf of the Corporation by the
President, a Vice President, if any, or by any other person(s) as may be
designated by the Board of Directors.
If a document must be executed by persons holding different offices or
functions and one person holds the offices or exercises the functions, that
person may execute the document in more than one capacity if the document
indicates each capacity.
SECTION 6.02 ADVANCES. The Corporation may, without a vote of the
directors, advance money to its directors, officers or employees to cover
expenses that can reasonably be anticipated to be incurred by them in the
performance of their duties and for which they would be entitled to
reimbursement in the absence of an advance.
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SECTION 6.03 CORPORATE SEAL. The seal of the Corporation, if any, shall
be a circular embossed seal having inscribed thereon the name of the Corporation
and the following words:
"Corporate Seal Minnesota"
SECTION 6.04 FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
SECTION 6.05 AMENDMENTS. The Board of Directors shall have authority to
make or alter the Bylaws of the Corporation, subject to the power of the
shareholders to change or repeal the same, provided, however, that the Board
shall not adopt, amend or repeal any Bylaw fixing a quorum for meetings of
shareholders, prescribing procedures for removing directors or filling vacancies
in the Board, or fixing the number of directors or their classifications,
qualifications or terms of office, but may adopt or amend a Bylaw that increases
the number of directors.
SECTION 6.06 MINNESOTA BUSINESS COMBINATION ACT. The Corporation elects
not to be subject to the provisions of the Minnesota Business Combination Act,
Minnesota Statutes 302A.673.
Adopted: March 31, 1993
/s/ Thomas F. Hunt, Jr.
-----------------------------------
Thomas F. Hunt, Jr.
Secretary
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EXHIBIT 3.3
CAPITAL DIMENSIONS VENTURE FUND, INC.
1997 STOCK PLAN
<PAGE>
SECTION CONTENTS PAGE
- ------- -------- ----
1. General Purpose of Plan; Definitions.................................1
2. Administration.......................................................3
3. Stock Subject to Plan................................................4
4. Eligibility..........................................................5
5. Stock Options........................................................5
6. Stock Appreciation Rights............................................8
7. Restricted Stock....................................................10
8. Deferred Stock Awards...............................................11
9. Transfer, Leave of Absence, etc.....................................12
10. Amendments and Termination..........................................13
11. Unfunded Status of Plan.............................................13
12. General Provisions..................................................13
<PAGE>
CAPITAL DIMENSIONS VENTURE FUND, INC.
1997 STOCK PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Capital Dimensions Venture Fund, Inc. 1997
Stock Plan (the "Plan"). The purpose of the Plan is to enable Capital
Dimensions Venture Fund, Inc. (the "Company") to retain and attract executives
and other employees, non-employee directors and consultants who contribute to
the Company's success by their ability, ingenuity and industry, and to enable
such individuals to participate in the long-term success and growth of the
Company by giving them a proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
a. "BOARD" means the Board of Directors of the Company as it may be
comprised from time to time.
b. "CAUSE" means a felony conviction of a participant or the failure of a
participant to contest prosecution for a felony, willful misconduct, dishonesty
or intentional violation of a statute, rule or regulation, any of which, in the
judgment of the Company, is harmful to the business or reputation of the
Company.
c. "CODE" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute.
d. "COMMITTEE" means the Committee referred to in Section 2 of the Plan.
If at any time no Committee shall be in office, then the functions of the
Committee specified in the Plan shall be exercised by the Board, unless the Plan
specifically states otherwise.
e. "CONSULTANT" means any person, including an advisor, engaged by the
Company or a Parent of the Subsidiary of the Company to render services and who
is compensated for such services and who is not an employee of the Company or
any Parent Corporation or Subsidiary of the Company. A Non-Employee Director
may serve as a Consultant.
f. "COMPANY" means Capital Dimensions Venture Fund, Inc., a corporation
organized under the laws of the State of Minnesota (or any successor
corporation).
g. "DEFERRED STOCK" means an award made pursuant to Section 8 below of
the right to receive stock at the end of a specified deferral period.
<PAGE>
h. "DISABILITY" means permanent and total disability as determined by the
Committee.
i. "EARLY RETIREMENT" means retirement, with consent of the Committee at
the time of retirement, from active employment with the Company and any
Subsidiary or Parent Corporation of the Company.
j. "FAIR MARKET VALUE" of Stock on any given date shall be determined by
the Committee as follows: (a) if the Stock is listed for trading on one of more
national securities exchanges, or is traded on the Nasdaq Stock Market, the last
reported sales price on the principal such exchange or the Nasdaq Stock Market
on the trading date immediately prior to the date in question, or if such Stock
shall not have been traded on such principal exchange on such date, the last
reported sales price on such principal exchange or the Nasdaq Stock Market on
the first day prior thereto on which such Stock was so traded; or (b) if the
Stock is not listed for trading on a national securities exchange or the Nasdaq
Stock Market, but is traded in the over-the-counter market, including the Nasdaq
Small Cap Market, the closing bid price for such Stock on the trading date
immediately prior to the date in question, or if there is no such bid price for
such Stock on such date, the closing bid price on the first day prior thereto on
which such price existed; or (c) if neither (a) or (b) is applicable, by any
means fair and reasonable by the Committee, which determination shall be final
and binding on all parties.
k. "INCENTIVE STOCK OPTION" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
l. "NON-EMPLOYEE DIRECTOR" means a "Non-Employee Director" within the
meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934.
m. "NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option, and is intended to be and is designated as a
"Non-Qualified Stock Option."
n. "NORMAL RETIREMENT" means retirement from active employment with the
Company and any Subsidiary or Parent Corporation of the Company on or after age
65.
o. "PARENT CORPORATION" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if each of the
corporations (other than the Company) owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.
p. "RESTRICTED STOCK" means an award of shares of Stock that are subject
to restrictions under Section 7 below.
q. "RETIREMENT" means Normal Retirement or Early Retirement.
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r. "STOCK" means the Common Stock of the Company.
s. "STOCK APPRECIATION RIGHT" means the right pursuant to an award
granted under Section 6 below to surrender to the Company all or a portion of a
Stock Option in exchange for an amount equal to the difference between (i) Fair
Market Value, as of the date such Stock Option or such portion thereof is
surrendered, of the shares of Stock covered by such Stock Option or such portion
thereof, and (ii) the aggregate exercise price of such Stock Option or such
portion thereof.
t. "STOCK OPTION" means any option to purchase shares of Stock granted
pursuant to Section 5 below.
u. "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Board of Directors or by a Committee
of not less than two Non-Employee Directors, who shall be appointed by the Board
of Directors of the Company and who shall serve at the pleasure of the Board.
Any or all of the functions of the Committee specified in the Plan may be
exercised by the Board, unless the Plan specifically states otherwise.
The Committee shall have the power and authority to grant to eligible
employees or Consultants, pursuant to the terms of the Plan: (i) Stock Options,
(ii) Stock Appreciation Rights, (iii) Restricted Stock, or (iv) Deferred Stock
awards.
In particular, the Committee shall have the authority:
(i) to select the officers and other employees of the Company and
its Subsidiaries and other eligible persons to whom Stock Options, Stock
Appreciation Rights, Restricted Stock and Deferred Stock awards may from
time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
Stock and Deferred Stock awards, or a combination of the foregoing, are to be
granted hereunder;
(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, any restriction on any Stock Option or other award and/or the
shares of Stock relating thereto), which authority
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shall be exclusively vested in the Committee (and not the Board) for
purposes of establishing performance criteria used with Restricted Stock and
Deferred Stock awards; provided, however, that in the event of a merger or
asset sale, the applicable provisions of Sections 5(c) and 7(c) of the Plan
shall govern the acceleration of the vesting of any Stock Option or awards;
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award under
this Plan shall be deferred either automatically or at the election of the
participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate to executive officers of the Company the authority to exercise the
powers specified in (i), (ii), (iii), (iv) and (v) above with respect to persons
who are not executive officers of the Company.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for distribution
under the Plan shall be 200,000. Such shares may consist, in whole or in part,
of authorized and unissued shares.
Subject to paragraph (b)(iv) of Section 6 below, if any shares that have
been optioned cease to be subject to Stock Options, or if any shares subject to
any Restricted Stock or Deferred Stock award granted hereunder are forfeited or
such award otherwise terminates without a payment being made to the participant,
such shares shall again be available for distribution in connection with future
awards under the Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
stock dividend, other change in corporate structure affecting the Stock, or
spin-off or other distribution of assets to shareholders, such substitution or
adjustment shall be made in the aggregate number of shares reserved for issuance
under the Plan, in the number and option price of shares subject to outstanding
options granted under the Plan, and in the number of shares subject to
Restricted Stock or Deferred Stock awards granted under the Plan as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any award shall always be a whole number.
Such adjusted option price shall also be used to determine the amount payable by
the Company upon the exercise of any Stock Appreciation Right associated with
any Option.
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SECTION 4. ELIGIBILITY.
Officers, other employees of the Company and Subsidiaries, members of the
Board of Directors, and Consultants who are responsible for or contribute to the
management, growth and profitability of the business of the Company and its
Subsidiaries are eligible to be granted Stock Options, Stock Appreciation
Rights, Restricted Stock or Deferred Stock awards under the Plan. The optionees
and participants under the Plan shall be selected from time to time by the
Committee, in its sole discretion, from among those eligible, and the Committee
shall determine, in its sole discretion, the number of shares covered by each
award.
SECTION 5. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock Options
shall be granted under the Plan after more than ten years after the date the
Plan is adopted by the Board of Directors.
The Committee shall have the authority to grant any optionee Incentive Stock
Options, Non-Qualified Stock Options, or both types of options (in each case
with or without Stock Appreciation Rights). To the extent that any option does
not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify either the Plan or any Incentive Stock Option under Section 422
of the Code. The preceding sentence shall not preclude any modification or
amendment to an outstanding Incentive Stock Option, whether or not such
modification or amendment results in disqualification of such Stock Option as an
Incentive Stock Option, provided the optionee consents in writing to the
modification or amendment.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) OPTION PRICE. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee at the time of grant. In no
event shall the option price per share of Stock purchasable under an Incentive
Stock Option be less than 100% of Fair Market Value on the date the option is
granted. If an employee owns or is deemed to own (by reason of the attribution
rules applicable under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any Parent Corporation or
Subsidiary and an
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Incentive Stock Option is granted to such employee, the option price shall be no
less than 110% of the Fair Market Value of the Stock on the date the option is
granted.
(b) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
(c) EXERCISABILITY. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant, subject to the
restrictions stated in Section 5(b) above. If the Committee provides, in its
discretion, that any option is exercisable only in installments, the Committee
may waive such installment exercise provisions at any time. Notwithstanding
anything contained in the Plan to the contrary, the Committee may, in its
discretion, extend or vary the term of any Stock Option or any installment
thereof, whether or not the optionee is then employed by the Company, if such
action is deemed to be in the best interests of the Company; provided, however,
that in the event of a merger or sale of assets, the provisions of this Section
5(c) shall govern vesting acceleration. Notwithstanding the foregoing, unless
the Stock Option provides otherwise, any Stock Option granted under this Plan
shall be exercisable in full, without regard to any installment exercise
provisions, for a period specified by the Committee, but not to exceed sixty
(60) days, prior to the occurrence of any of the following events: (i)
dissolution or liquidation of the Company other than in conjunction with a
bankruptcy of the Company or any similar occurrence, (ii) any merger,
consolidation, acquisition, separation, reorganization, or similar occurrence,
where the Company will not be the surviving entity or (iii) the transfer of
substantially all of the assets of the Company or 75% or more of the outstanding
Stock of the Company.
The grant of an option pursuant to the Plan shall not limit in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge,
exchange or consolidate or to dissolve, liquidate, sell or transfer all or any
part of its business or assets.
(d) METHOD OF EXERCISE. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Company specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, either by check,
or by any other form of legal consideration deemed sufficient by the Committee
and consistent with the Plan's purpose and applicable law, including promissory
notes or a properly executed exercise notice together with irrevocable
instructions to a broker acceptable to the Company to promptly deliver to the
Company the amount of sale or loan proceeds to pay the exercise price. As
determined by the Committee at the time of grant or exercise, in its sole
discretion, payment in full or in part may also be made in the form of Stock
already owned by the optionee (which in the case of Stock acquired upon exercise
of an option have been owned for more than six months on the date of surrender)
or, in the case of the exercise of a Non-Qualified Stock
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Option, Restricted Stock or Deferred Stock subject to an award hereunder (based,
in each case, on the Fair Market Value of the Stock on the date the option is
exercised, as determined by the Committee), provided, however, that, in the case
of an Incentive Stock Option, the right to make a payment in the form of already
owned shares may be authorized only at the time the option is granted, and
provided further that in the event payment is made in the form of shares of
Restricted Stock or a Deferred Stock award, the optionee will receive a portion
of the option shares in the form of, and in an amount equal to, the Restricted
Stock or Deferred Stock award tendered as payment by the optionee. If the terms
of an option so permit, an optionee may elect to pay all or part of the option
exercise price by having the Company withhold from the shares of Stock that
would otherwise be issued upon exercise that number of shares of Stock having a
Fair Market Value equal to the aggregate option exercise price for the shares
with respect to which such election is made. No shares of Stock shall be issued
until full payment therefor has been made. An optionee shall generally have the
rights to dividends and other rights of a shareholder with respect to shares
subject to the option when the optionee has given written notice of exercise,
has paid in full for such shares, and, if requested, has given the
representation described in paragraph (a) of Section 12.
(e) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee.
(f) TERMINATION BY DEATH. If an optionee's employment by the Company and
any Subsidiary or Parent Corporation terminates by reason of death, any
Incentive Stock Option may thereafter be immediately exercised, to the extent
then exercisable, by the legal representative of the estate or by the legatee of
the optionee under the will of the optionee, for a period of twelve months from
the date of such death or until the expiration of the stated term of the option,
whichever period is shorter. In the event of termination of employment by
reason of death, if any Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code, the option
will thereafter be treated as a Non-Qualified Stock Option.
(g) TERMINATION BY REASON OF DISABILITY. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Incentive Stock Option held by such optionee may thereafter be
exercised, to the extent it was exercisable at the time of termination due to
Disability, but may not be exercised after twelve months from the date of such
termination of employment or the expiration of the stated term of the option,
whichever period is the shorter. In the event of termination of employment by
reason of Disability, if any Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a Non-Qualified Stock Option.
(h) TERMINATION BY REASON OF RETIREMENT. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement and the terms of the Stock Option so provide, any Incentive Stock
Option held by such optionee may thereafter be exercised to the extent it was
exercisable at the time of such Retirement, but may not be exercised after
twelve months from the date of such termination of employment or the expiration
of the stated
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term of the option, whichever period is the shorter. In the event of
termination of employment by reason of Retirement, if any Stock Option is
exercised after the expiration of the exercise periods that apply for purposes
of Section 422 of the Code, the option will thereafter be treated as a
Non-Qualified Stock Option.
(i) OTHER TERMINATION. In the event an optionee's continuous status as an
employee or Consultant terminates (other than upon the optionee's death,
Disability or Retirement), the optionee may exercise his or her Stock Option,
but only within such period of time as is determined by the Committee, and only
to the extent that the optionee was entitled to exercise it at the date of
termination (but in no event later than the stated term of the Stock Option).
In the case of an Incentive Stock Option, the Committee shall determine such
period of time (in no event to exceed ninety (90) days from the date of
termination) when the Stock Option is granted. In the event an optionee's
employment with the Company is terminated for Cause, or under such other
circumstances as the Committee shall define in the option grant, all Stock
Options granted to such optionee shall immediately terminate.
(j) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate Fair Market
Value (determined as of the time the Stock Option is granted) of the Common
Stock with respect to which an Incentive Stock Option under this Plan or any
other plan of the Company and any Subsidiary or Parent Corporation is
exercisable for the first time by an optionee during any calendar year shall not
exceed $100,000.
(k) AUTOMATIC GRANT TO NON-EMPLOYEE DIRECTORS. Each individual who is
serving as a member of the Board and who is not an employee of the Company, any
Parent Corporation or any Subsidiary (a "Non-Employee Director") shall be
automatically awarded, on the date this Plan is approved by the Company's
stockholders, a Non-Qualified Stock Option, which shall be fully vested, to
purchase 1,000 shares of the Company's Common Stock at an exercise price equal
to 100% of the Fair Market Value of the Common Stock on such date and which
expires five years after the date of grant. An individual who is first elected
or appointed or who is re-elected as a Non-Employee Director at any time
hereafter shall receive a similar automatic grant, at the time of election or
appointment or re-election to the Board, of a Non-Qualified Stock Option, which
shall be fully vested, to purchase 1,000 shares of the Company's Common Stock at
an exercise price equal to 100% of the Fair Market Value of the Common Stock on
such date and which expires five years after the date of grant. The maximum
number of shares as to which Options may be granted to any individual director
under this Section 5(k) shall be 5,000 shares. The maximum aggregate number of
shares as to which Options may be granted under this Section 5(k) shall be
15,000 shares.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of the grant of the option.
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A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that a
Stock Appreciation Right granted with respect to less than the full number of
shares covered by a related Stock Option shall not be reduced until the exercise
or termination of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in accordance
with paragraph (b) of this Section 6, by surrendering the applicable portion of
the related Stock Option. Upon such exercise and surrender, the optionee shall
be entitled to receive an amount determined in the manner prescribed in
paragraph (b) of this Section 6. Stock Options which have been so surrendered,
in whole or in part, shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to which they relate
shall be exercisable in accordance with the provisions of Section 5 and this
Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive up to, but not more than, an amount in cash or
shares of Stock equal in value to the excess of the Fair Market Value of one
share of Stock over the option price per share specified in the related
option multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when
and to the extent that the underlying Stock Option would be transferable
under Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation Right is related
shall be deemed to have been exercised for the purpose of the limitation set
forth in Section 3 of the Plan on the number of shares of Stock to be issued
under the Plan, but only to the extent of the number of shares issued or
issuable under the Stock Appreciation Right at the time of exercise based on
the value of the Stock Appreciation Right at such time.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market price of
the Stock subject to the Incentive Stock Option exceeds the exercise price
of such Option.
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SECTION 7. RESTRICTED STOCK.
(a) ADMINISTRATION. Shares of Restricted Stock may be issued either alone
or in addition to other awards granted under the Plan. The Committee shall
determine the officers, key employees and Consultants of the Company and
Subsidiaries to whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares to be awarded, the time or times within which
such awards may be subject to forfeiture, and all other conditions of the
awards. The Committee may also condition the grant of Restricted Stock upon the
attainment of specified performance goals. The provisions of Restricted Stock
awards need not be the same with respect to each recipient.
(b) AWARDS AND CERTIFICATES. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate in
respect of shares of Restricted Stock awarded under the Plan. Such
certificate shall be registered in the name of the participant, and shall
bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Capital Dimensions Venture Fund, Inc. 1997 Stock
Plan and an Agreement entered into between the registered owner and
Capital Dimensions Venture Fund, Inc. Copies of such Plan and
Agreement are on file in the offices of Capital Dimensions Venture
Fund, Inc., Two Appletree Square, Suite 335, Bloomington, Minnesota
55425."
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock power,
endorsed in blank, relating to the Stock covered by such award.
(c) RESTRICTIONS AND CONDITIONS. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award agreement,
during a period set by the Committee commencing with the date of such award
(the "Restriction Period"), the participant shall not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock awarded under the
Plan. Within these limits, the Committee may provide for the lapse of such
restrictions in installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this Section 7, the
participant shall have, with respect to the shares of Restricted Stock, all
of the rights of a shareholder of the
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Company, including the right to vote the shares and the right to receive any
cash dividends. The Committee, in its sole discretion, may permit or
require the payment of cash dividends to be deferred and, if the Committee
so determines, reinvested in additional shares of Restricted Stock (to the
extent shares are available under Section 3 and subject to paragraph (f) of
Section 12). Certificates for shares of unrestricted Stock shall be
delivered to the grantee promptly after, and only after, the period of
forfeiture shall have expired without forfeiture in respect of such shares
of Restricted Stock.
(iii) Subject to the provisions of the award agreement and
paragraph (c)(iv) of this Section 7, upon termination of employment for any
reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a participant
whose employment is terminated (other than for Cause), including death,
Disability or Retirement, or in the event of an unforeseeable emergency of a
participant still in service, the Committee may, in its sole discretion,
when it finds that a waiver would be in the best interest of the Company,
waive in whole or in part any or all remaining restrictions with respect to
such participant's shares of Restricted Stock.
(v) Notwithstanding the foregoing, all restrictions with respect
to any participant's shares of Restricted Stock shall lapse, on the date
determined by the Committee, prior to, but in no event more than sixty (60)
days prior to, the occurrence of any of the following events: (i)
dissolution or liquidation of the Company, other than in conjunction with a
bankruptcy of the Company or any similar occurrence, (ii) any merger,
consolidation, acquisition, separation, reorganization, or similar
occurrence, where the Company will not be the surviving entity or (iii) the
transfer of substantially all of the assets of the Company or 75% or more of
the outstanding Stock of the Company.
SECTION 8. DEFERRED STOCK AWARDS.
(a) ADMINISTRATION. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers, key employees and Consultants of the Company and Subsidiaries to
whom and the time or times at which Deferred Stock shall be awarded, the number
of Shares of Deferred Stock to be awarded to any participant or group of
participants, the duration of the period (the "Deferral Period") during which,
and the conditions under which, receipt of the Stock will be deferred, and the
terms and conditions of the award in addition to those contained in paragraph
(b) of this Section 8. The Committee may also condition the grant of Deferred
Stock upon the attainment of specified performance goals. The provisions of
Deferred Stock awards need not be the same with respect to each recipient.
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(b) TERMS AND CONDITIONS.
(i) Subject to the provisions of this Plan and the award agreement,
Deferred Stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered during the Deferral Period. At the expiration of the
Deferral Period (or Elective Deferral Period, where applicable), share
certificates shall be delivered to the participant, or his legal
representative, in a number equal to the shares covered by the Deferred
Stock award.
(ii) Amounts equal to any dividends declared during the Deferral
Period with respect to the number of shares covered by a Deferred Stock
award will be paid to the participant currently or deferred and deemed to be
reinvested in additional Deferred Stock or otherwise reinvested, all as
determined at the time of the award by the Committee, in its sole
discretion.
(iii) Subject to the provisions of the award agreement and
paragraph (b)(iv) of this Section 8, upon termination of employment for any
reason during the Deferral Period for a given award, the Deferred Stock in
question shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause) including
death, Disability or Retirement, or in the event of an unforeseeable
emergency of a participant still in service, the Committee may, in its sole
discretion, when it finds that a waiver would be in the best interest of the
Company, waive in whole or in part any or all of the remaining deferral
limitations imposed hereunder with respect to any or all of the
participant's Deferred Stock.
(v) A participant may elect to further defer receipt of the award
for a specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such terms
as are determined by the Committee, all in its sole discretion. Subject to
any exceptions adopted by the Committee, such election must generally be
made prior to completion of one half of the Deferral Period for a Deferred
Stock award (or for an installment of such an award).
(vi) Each award shall be confirmed by, and subject to the terms
of, a Deferred Stock agreement executed by the Company and the participant.
SECTION 9. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation or
Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or from
one Subsidiary to another;
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(b) a leave of absence, approved in writing by the Committee, for military
service or sickness, or for any other purpose approved by the Company if the
period of such leave does not exceed ninety (90) days (or such longer period as
the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in writing
by the Committee, but only if the employee's right to reemployment is guaranteed
either by a statute or by contract, and provided that, in the case of any leave
of absence, the employee returns to work within 30 days after the end of such
leave.
SECTION 10. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option, Restricted Stock or other
Stock-based award theretofore granted, without the optionee's or participant's
consent, or (ii) which without the approval of the shareholders of the Company
would cause the Plan to no longer comply with Rule 16b-3 under the Securities
Exchange Act of 1934, Section 422 of the Code or any other regulatory
requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively to the extent such amendment is
consistent with the terms of this Plan, but no such amendment shall impair the
rights of any holder without his or her consent except to the extent authorized
under the Plan. The Committee may also substitute new Stock Options for
previously granted options, including previously granted options having higher
option prices.
SECTION 11. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize
the creation of trusts or other arrangements to meet the obligations created
under the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 12. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares pursuant to a
Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
13
<PAGE>
All certificates for shares of Stock delivered under the Plan pursuant to
any Restricted Stock, Deferred Stock or other Stock-based awards shall be
subject to such stock-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable Federal or state securities laws, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Subject to paragraph (d) below, recipients of Restricted Stock,
Deferred Stock and other Stock-based awards under the Plan (other than Stock
Options) are not required to make any payment or provide consideration other
than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any Subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(d) Each participant shall, no later than the date as of which any part of
the value of an award first becomes includible as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. With respect to
any award under the Plan, if the terms of such award so permit, a participant
may elect by written notice to the Company to satisfy part or all of the
withholding tax requirements associated with the award by (i) authorizing the
Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 12(d). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings.
(e) At the time of grant, the Committee may provide in connection with any
grant made under this Plan that the shares of Stock received as a result of such
grant shall be subject to a repurchase right in favor of the Company, pursuant
to which the participant shall be required to offer to the Company upon
termination of employment for any reason any shares that the participant
acquired under the Plan, with the price being the then Fair Market Value of the
Stock or, in the case of a termination for Cause, an amount equal to the cash
consideration paid for the Stock, subject to such other terms and conditions as
the Committee may specify at the time of grant. The Committee
14
<PAGE>
may, at the time of the grant of an award under the Plan, provide the Company
with the right to repurchase, or require the forfeiture of, shares of Stock
acquired pursuant to the Plan by any participant who, at any time within two
years after termination of employment with the Company, directly or indirectly
competes with, or is employed by a competitor of, the Company.
(f) The reinvestment of dividends in additional Restricted Stock (or in
Deferred Stock or other types of Plan awards) at the time of any dividend
payment shall only be permissible if the Committee (or the Company's chief
financial officer) certifies in writing that under Section 3 sufficient shares
are available for such reinvestment (taking into account then outstanding Stock
Options and other Plan awards).
(g) The Plan is expressly made subject to the approval by shareholders of
the Company. If the Plan is not so approved by the shareholders on or before
one year after this Plan's adoption by the Board of Directors, this Plan shall
not come into effect. The offering of the shares hereunder shall be also
subject to the effecting by the Company of any registration or qualification of
the shares under any federal or state law or the obtaining of the consent or
approval of any governmental regulatory body which the Company shall determine,
in its sole discretion, is necessary or desirable as a condition to or in
connection with, the offering or the issue or purchase of the shares covered
thereby.
15
<PAGE>
Page 1 of 3 EXHIBIT 4.2
-----------
SBIC License No. 05/05-5134 Loan No. 04645051-06
DEBENTURE
*********
$5,500,000 Date of Issuance: December 18, 1996
Capital Dimensions Venture Fund, Inc. (The "Company"), Two Appletree Square,
Suite 335, Minneapolis, MN 55425-1637.
For value received, the Company hereby promises to pay to the order of Chase
Manhattan Bank, as Trustee (the "Trustee") under that certain Amended and
Restated Trust Agreement dated as of February 1, 1995, as same may be amended
from time to time, by and among the Trustee, the U.S. Small Business
Administration ("SBA") and SBIC Funding Corporation, and as the Holder hereof
the principal sum of FIVE MILLION FIVE HUNDRED THOUSAND dollars ($5,500,000)
(the "Original Principal Amount") on December 1, 2006 (the "Maturity Date") at
such location as SBA, as guarantor of this debenture, may direct and to pay
interest semiannually on June 1st and December 1st (the "Payment Dates") of each
year, as herein provided, at the rate of 7.08% per annum (the "Stated Interest
Rate"), and to pay a 1% per annum fee to SBA on the above dates, on the basis of
a year of 365 days, for the actual number of days (including the first day but
excluding the last day) elapsed, on said principal sum from the date of the
issuance hereof until payment of such principal sum has been made or duly
provided for. The company shall deposit all payments with respect to this
debenture not later than 12:00 noon (Washington, D.C. time) on the applicable
Payment Date or the next business day if the Payment Date in not a business day,
all as directed by SBA.
This debenture is issued by the Company and guaranteed by SBA, pursuant and
subject to Section 303 of the Small Business Investment Act of 1958, as amended
(the "Act") (15 U.S.C. Section 683). This debenture is subject to all of the
regulations promulgated under the Act, as amended from time to time, provided,
however, that 13 C.F.R. Sections 107.1810 and 107.1830 through 107.1850 as in
effect on the date of this debenture are incorporated herein as if fully set
forth.
The Company may elect to prepay this debenture, as a whole and not in part, on
any Payment Date, in the manner and at the price as next described. The
prepayment price (the "Prepayment Price") shall be an amount equal to the
outstanding principal balance of this debenture, plus interest accrued and
unpaid thereon to the Payment Date selected for prepayment, plus a prepayment
premium (the "Prepayment Premium") . The Prepayment Premium amount is calculated
as a declining percentage (the "Applicable Percentage") multiplied by the
Original Principal Amount of this debenture in accordance with the following
table:
<PAGE>
Page 2 of 3 EXHIBIT 4.2
-----------
CONSECUTIVE PAYMENT DATES APPLICABLE PERCENTAGE
1ST OR 2ND 5%
3RD OR 4TH 4%
5TH OR 6TH 3%
7TH OR 8TH 2%
9TH OR (10TH - IF NOT ALSO MATURITY DATE) 1%
No Prepayment Premium is required to repay this debenture on its Maturity Date.
No Prepayment Premium is required when the prepayment occurs on a Payment Date
that is on or after the 11th consecutive Payment Date of this debenture, if this
debenture has a 20 consecutive Payment Date term.
The amount of the Prepayment Price shall be sent to SBA or such agent as SBA
shall direct, by wire payment in immediately available funds, not less than
three business days prior to the regular payment date. Until the Company is
notified otherwise in writing by SBA, any Prepayment Price shall be paid to the
account maintained by the Trustee, entitled the SBA Prepayment Subaccount and
shall include an identification of the Company by name and SBA-assigned license
number, the loan number appearing on the face hereof, and such other information
as SBA or its agent may specify.
This debenture shall be deemed issued in the District of Columbia as of the day,
month, and year first stated above. The terms and conditions of this debenture
shall be construed In accordance with, and its validity and enforcement governed
by, federal law.
The warranties, representations, or certifications made to SBA on the SBA Form
1022 or the Company's application letter for an SBA commitment related to this
debenture are incorporated herein as if fully set forth.
Should any provision of this debenture or any of the documents incorporated by
reference herein be declared illegal or unenforceable by a court of competent
jurisdiction, the remaining provisions shall remain in full force and effect and
this debenture shall be construed as if said provisions were not contained
herein.
All notices to Company which are required or may be given under this debenture
shall be sufficient in all respects if sent to the above-noted address of the
Company. For the purposes of this debenture, the Company may change this
address only upon written approval of SBA.
<PAGE>
Page 3 of 3 EXHIBIT 4.2
-----------
COMPANY ORGANIZED AS CORPORATION
IN WITNESS WHEREOF, the Company has caused this debenture to be signed by its
duly authorized officer and its corporate seal to be hereunto affixed and
attested by its Secretary or Assistant Secretary as of the date of issuance
stated above.
CORPORATE SEAL
NONE
CAPITAL DIMENSIONS VENTURE FUND, INC.
By: /s/ Dean Pickerell
--------------------------------------
Dean R. Pickerell, President
ATTEST:
/s/ Brenda L. Leonard
- -------------------------------
Brenda L. Leonard, Secretary
<PAGE>
EXHIBIT 4.3
-----------
Amortizing Note
Page 1 of 3
SBIC License No. 05 / 05-5134 Loan No. #1
------------
NOTE
****************
$3,571,578 Date of Issuance: March 31, 1993
Maturity Date: April 1, 2000
Capital Dimensions Venture Fund, Inc. (the "SSBIC"), Two Appletree Square,
Suite 335, Minneapolis, MN 55425-1637.
For value received, the SSBIC hereby promises to pay to the order of the U.S.
Small Business Administration ("SBA") the principal sum of Three Million Five
Hundred Seventy One Thousand Five Hundred Seventy Eight dollars ($3,571,578)
(the "Original Principal Amount") at such location as SBA may direct and to pay
principal and interest in the aggregate amount of $169,872.52 quarterly on July
1, 1993, October 1, 1993, January 1, 1994, April 1, 1994 and on each quarterly
date thereafter through and including April 1, 2000 (the "Payment Dates"), as
herein provided, at the rate of 8.375% per annum (the "Stated Interest Rate").
These payments constitute a direct reduction or level payment loan for 28
calendar quarters at an annual interest rate of 8.375%. To the extent that any
portion of the unpaid principal hereof shall not be paid when due (whether by
acceleration, in accordance with Section 5.6 of the Repurchase Agreement, or
otherwise), such overdue amount shall bear interest at a penalty interest rate
equal to the Stated Interest Rate plus 6% per annum, and such interest shall be
payable on demand. The SSBIC shall deposit all payments with respect to this
Note not later than 12:00 noon (Washington, D.C. time) on the applicable Payment
Date or the next business day if the Payment Date is not a business day, all as
directed by SBA.
This Note is issued by the SSBIC pursuant to the Specialized Small Business
Investment Company 3% Preferred Stock Repurchase Agreement (the "Repurchase
Agreement"), dated March 31, 1993, between the SSBIC and SBA and is subject to
the regulations, as amended from time to time (the "Regulations"), under the
Small Business Investment Act of 1958, as amended (15 U.S.C. Sections 661 ET.
SEQ.), provided, however, that any events of default or conditions provided in
the Regulations are incorporated herein as if fully set forth.
Upon the occurrence of an Event of Default under the Repurchase Agreement, the
entire outstanding principal balance of this Note plus accrued interest may be
declared immediately due and payable as provided in the Repurchase Agreement.
<PAGE>
Page 2 of 3
The SSBIC may elect to prepay this Note in whole or in part, without penalty, on
any July 1, October 1, January 1, or April 1 in the manner and at the price as
next described. For any prepayment in whole, the prepayment price shall be an
amount equal to the outstanding principal balance of this Note as of such
scheduled payment date. For any prepayment in part, the prepayment price may be
any amount. Partial prepayments shall be applied to the outstanding principal
balance of the loan as of the date of prepayment. In the event of a partial
prepayment, a new quarterly level payment amount will be determined, based on
the Stated Interest Rate, the number of quarterly payments remaining to the
original maturity date, and the balance of the loan following the partial
prepayment. All prepayments shall be sent to SBA or such agent as SBA shall
direct, in immediately available funds.
No portion of the principal sum of this Note or the interest thereon, or any
prepayment if the SSBIC elects to prepay this Note, may be derived, directly or
indirectly, from the issuance of preferred stock to SBA or from funds acquired
or borrowed from SBA after November 21, 1989. Payments made within 90 days of
such issuance of preferred stock or receipt of subsidized funds shall be
presumed to have been derived therefrom. It is explicitly recognized by SBA and
the SSBIC that the refinancing of $3,000,000 of the SBIC's Debentures by way of
the purchase by SBA of $3,000,000 of 4% Preferred Stock will not be deemed to be
funds acquired or borrowed from SBA with respect to the conditions and
limitations of this paragraph.
The outstanding principal amount of this Note shall be included in the aggregate
amount of debentures outstanding for purposes of determining the amount of
Leverage (as defined in 13 C.F.R. Section 107.3) available to the SSBIC.
The terms and conditions of this Note shall be construed in accordance with, and
its validity and enforcement governed by, applicable Federal law.
Should any provision of this Note or any of the Repurchase Documents (as defined
in the Repurchase Agreement) be declared illegal or unenforceable by a court of
competent jurisdiction, the remaining provisions shall remain in full force and
effect and this Note shall be construed as if said provisions were not contained
herein.
All notices to the SSBIC which are required or may be given under this Note
shall be sufficient in all respects if sent to the above-noted address of the
SSBIC. For the purposes of this Note, the SSBIC may change this address only
upon written approval of SBA.
<PAGE>
Page 3 of 3
IN WITNESS WHEREOF, the SSBIC has caused this Note to be signed by its duly
authorized officer and its corporate seal to be hereunto affixed and attested by
its Secretary or Assistant Secretary as of the date of issuance stated above.
CORPORATE SEAL
CAPITAL DIMENSIONS VENTURE FUND, INC.
By: /s/ Dean Pickerell
-------------------------------------------------
ATTEST: Dean Pickerell, President
/s/ Thomas F. Hunt, Jr.
- ---------------------------------
Secretary
<PAGE>
EXHIBIT 10.1
LEASE AGREEMENT
THIS IS A LEASE AGREEMENT made and entered into on April 19, 1990 by and
between ATS II Associates Limited Partnership, a Minnesota Limited Partnership,
having its principal offices in One Appletree Square, Bloomington, Minnesota,
hereinafter referred to as the "Landlord," and Capital Dimensions, Inc. whose
current principal offices are maintained at Two Appletree Square, Suite 244,
Bloomington, Minnesota 55425.
W I T N E S S E T H:
1. LEASED PREMISES. In consideration of the mutual covenants and
agreements set forth herein, Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord, for the rental and on the terms and conditions hereinafter
set forth, those certain premises outlined on the floor plan attached hereto as
"Exhibit A" and made a part hereof (the "Premises") and containing 2,116 square
feet of Rentable Area, as defined in paragraph 7, on the third floor in the
building known as Two Appletree Square (the "Building") located on land in
Bloomington, Minnesota, and legally described as Lots 4 and 6, Block 1,
Appletree Square Second Addition, according to the plat thereof on file and of
record in Hennepin County Recorder's Office and in the office of the Registrar
of Titles (the "Land").
2. TERM. Subject to and upon the terms and conditions set forth herein,
this Lease shall be in force for a Term of 60 months, beginning the 1st day of
July, 1990 ("Commencement Date") and expiring on the 30th day of June, 1995. In
the event that the Premises should not be ready for occupancy by the
Commencement Date for any reason, Landlord shall not be liable or responsible
for any claims, damages, or liabilities in connection therewith.
3. BASE RENTAL. Subject to the provisions for adjustment hereinafter set
forth, Tenant hereby agrees to pay, without deduction or offset, a base annual
rental ("Base Rental") in the amount of Thirty-Four Thousand Nine Hundred Twenty
and 00/100 Dollars ($34,920.00). Such base rental shall be due and payable in
twelve (12) equal monthly installments of Two Thousand Nine Hundred Ten and
00/100 ($2,910.00*)* each, in advance on the first day of each calendar month
during each year of the Term hereof. All payments of Rent shall be paid to the
Landlord in lawful money of the United States of America at the address of
Landlord shown herein, or to such other party or at such other place as Landlord
may designate from time to time in a written notice to Tenant. If the Lease
Term commences or terminates on any day other than the first or last day of a
calendar month, the Base Rental and any other sums due hereunder shall be
prorated for such fractional calendar month. All past due installments of Base
Rental and Additional Rental shall
- ----------------------
*except that no Annual Base Rent is due or payable for the first seven (7)
months of this Lease (July 1, 1990 through January 31, 1991).
<PAGE>
bear interest at the rate of interest equal to the lesser of: (i) three (3)
percentage points in excess of the prime rate of interest as established and
publicly announced by First National Bank of Saint Paul as such rate may change
from time to time, or (ii) the highest legal rate permitted by law, and shall
constitute Additional Rent hereunder due and payable with the next monthly
installment of Base Rent.
4. ADDITIONAL RENTAL. The Base Rental payable by Tenant during each
lease year shall be adjusted in accordance with this paragraph.
A. DEFINITIONS
1. The term "Taxes" shall mean all taxes, impositions, assessments, and
all other governmental charges, if any, which are levied, assessed, or imposed
upon or become due and payable in connection with, or a lien upon, the Land, the
Building, parking facility, or other facilities used in connection therewith, or
the operation thereof (excepting federal and state taxes on income), including
taxes levied by present or future taxing authorities and all taxes of whatsoever
nature in this definition of Taxes. For the purpose herein, the term "Base
Taxes" shall be deemed to be $3.10 per square foot of the total Rentable Area of
the Building.
2. The term "Operating Cost" shall mean all operating expenses of the
Land and Building which shall be computed on the cash basis and which shall
include all expenses, costs and disbursements of every kind and nature which
Landlord shall pay or become obligated to pay because of or in connection with
the ownership, operation or use of the Land and Building (which for purposes of
this Lease shall include by definition any costs incurred by the Landlord for
the use of additional parking facilities as required by the City of
Bloomington), including, but not limited to, the following:
a) Wages and salaries of all employees engaged in the operation and
maintenance of the Land and Building, including taxes, insurance, and
benefits relating thereto;
b) All supplies and materials used in the operation and maintenance
of the Building;
c) Cost of water, sewage, power, heating, lighting, air
conditioning, ventilating, and other utilities furnished in connection with
the operation of the Building (excluding any such cost billed to specific
tenants);
d) Costs of all maintenance and service agreements on equipment,
including, but not limited to, security services, alarm services, window
cleaning, janitorial service, and elevator and maintenance;
-2-
<PAGE>
e) Costs of casualty, rentals and liability insurance applicable to
the Building and Landlord's personal property used in connection therewith;
f) Costs of repair and general maintenance of the interior, parking
areas, and landscaping of the Land and Building, excluding repairs and
general maintenance paid by proceeds of insurance or by any tenant or other
third parties, and alterations attributable solely to tenants of the
Building other than Tenant;
g) Management fees; and,
h) A reasonable amortization charge on account of any capital
expenditures incurred to effect a reduction in operating expenses of the
Building.
Expressly excluded from the definition of the term Operating
Costs are:
i) Replacement of capital investment items;
ii) Leasing commissions and leasing advertising costs;
iii) Specific costs billed to and paid by specific tenants;
iv) Depreciation; and
v) Principal, interest, and other costs directly related to
financing.
For the purpose herein, the term "Base Operating Cost" shall be deemed
to be $3.54 per square foot of total Rentable Area of the Building.
3. The term "Tenant's Share" shall mean the increased cost per square
foot of Base Taxes and Base Operating Costs, multiplied by the number of square
feet of Rentable Area occupied by Tenant.
4. The term "Operating Year" shall mean any calendar year ending December
31st after the commencement of the Lease Term including the calendar year in
which the term of this Lease commences.
5. The term "Land" shall mean the real property where the Building, and
parking facilities, and any other improvements are constructed by the Landlord
in conjunction with the foregoing.
B. Within 120 days from the end of each Operating Year, Landlord
shall deliver to Tenant a statement setting forth Taxes and Operating Cost
for such year and comparing such cost with the Base Taxes and Base
Operating Cost defined herein. In the event Taxes and Operating Cost for
any Operating Year as reflected on the statement exceed the Base Taxes and
Base Operating Cost, Tenant shall pay to Landlord as Additional Rental
("Additional Rental") over and above the Base Rental, Tenant's share of
excess; payable as follows:
-3-
<PAGE>
1) Upon receipt of the statement, Tenant shall pay Landlord a
lump sum rent adjustment for the preceding Operating Year
equal to one-twelfth (1/12) of such Additional Rental for
each month that this Lease was in effect during said
preceding Operating Year, less any amount pais as Additional
Rent during such year under subparagraph (2) hereof; and
2) Tenant shall also pay Landlord, beginning on the first day
of January of the then current Operating Year, and on the
first day of each month thereafter during the Term,
one-twelfth (1/12) of such Additional Rental due for the
preceding Operating Year; and
3) Tenant shall pay to Landlord the Additional Rental due, as
disclosed by the statement furnished after the expiration or
earlier termination of this Lease, within 30 days of
Tenant's's receipt of such operating statement.
C. Anything herein to the contrary notwithstanding, in no event
shall Base Rental provided herein ever be reduced.
6. Except as hereinafter provided, Landlord shall deliver possession of
the Premises in the condition required by this Lease on or before the
Commencement Date, but delivery of possession prior to such Commencement Date
shall not affect the expiration date of this Lease. Failure of Landlord, due to
a holding over by a prior tenant or time required for construction delays due to
strikes, Acts of God, or any other causes beyond Landlord's control, to deliver
possession of the Premises by the date hereinabove provided, shall automatically
postpone the Commencement Date of the Term of this Lease and shall extend the
Termination Date hereinabove specified for commencement of the Term hereof and
the date on which possession of the Premises is delivered to the Tenant. The
Rent herein reserved shall commence on the first day of the Term, provided,
however, in the event of any occupancy by Tenant prior to the beginning of the
Term, such occupancy shall in all respects be the same as that of a Tenant under
this Lease Agreement, and the rent shall commence as of the date that Tenant
enters into such occupancy of the Premises. Neither Landlord nor any agent or
employee of Landlord has made any representations or promises with respect to
the Premises or the Building except as herein expressly set forth, and no
rights, privileges, easements or licenses are acquired by Tenant except as
herein expressly set forth. The Tenant, by taking possession of the Premises,
shall accept the same "as is", and such taking of possession shall be conclusive
evidence that the Premises and the Building are in good and satisfactory
condition at the time of the taking of possession.
7. METHOD OF MEASUREMENT. the term "Rentable Area," as used herein,
shall refer to the area or areas of space within the Building determined as
follows:
-4-
<PAGE>
A Rental Area on a single-tenancy floor is determined by measuring
from the extended plane of the inside surface of the outer glass to the
extended plane of the inside surface of the opposite outer glass bounded by
the intersections of such planes, and shall include all areas within such
planes excluding vertical penetrations such as building stairs, fire
towers, elevator shafts, flues, vents, stacks, pipe shafts, and vertical
ducts. Vertical penetrations which are for the specific use of Tenant,
such a special stairs or elevators, shall be included as Rentable Area; and
B. Rental Area for a partial floor shall include all space within
the demising walls (measured from the mid-point of demising walls, and, in
the case of exterior walls, measured as defined in 7.A above), plus 13.31%,
which is Tenant's proportionate share of the Common Areas, such as elevator
lobbies, corridors, toilet and mechanical rooms, telephone and electrical
closets and service areas within the Building.
No deductions from Rentable Area shall be made for columns or projections
necessary to the Building. The Rentable Area in the Premises has been
calculated on the basis of the foregoing definition and is hereby stipulated for
all purposes hereof to be 2,116 square feet, whether the same should be more or
less as a result of minor variations resulting from actual construction and
completion of the Premises for occupancy, so long as such work is done in
accordance with the terms and provisions hereof.
8. Tenant shall use the Premises for the purpose of General Offices and
for no other purpose whatsoever. Tenant shall not overload, damage, or deface
the Premises or do any act which may make void or voidable any insurance on the
Premises or the Building or which may render an increased or extra premium
payable for insurance.
9. IMPROVEMENTS.
A. Landlord and Tenant have both reviewed and approved the attached
plan layout ("Exhibit A-1"), together with the attached schedule of
Building Standards ("Exhibit B").
B. All work involved in completing the Premises in accordance with
Tenant's Plans (including the purchase of the required materials and
equipment) shall be carried out by Landlord's contractor under the sole
direction of Landlord. Tenant shall cooperate with Landlord and its
contractor upon request to promote the efficient and expeditious completion
of such work. Tenant shall be responsible and pay for any work in the
Premises which is in excess of the limits as outlined in Exhibit B.
C. In the event the Premises are not ready for occupancy within five
(5) days after the Commencement Date of this Lease due to (i) a delay
caused by Tenant's failure to timely deliver Tenant's Plans, (ii) Tenant's
request for work in excess of Building Standards, or (iii) any changes in
Tenant's Plans requested by Tenant; then the term of this
-5-
<PAGE>
Lease shall be deemed to have commenced from the Commencement Date
stipulated herein.
10. ALTERATIONS. No alterations, additions, or improvements to the
Premises shall be made without first having the consent in writing of the
Landlord; nor shall such alterations, additions, or improvements interfere with
or damage the mechanical or electrical systems or the structure of the Building.
Any improvements, additions, or alterations made by Tenant after such consent
shall have been given, including any and all fixtures installed, excepting trade
fixtures, shall at the Landlord's option, unless otherwise agreed in writing,
remain on the Premises as the property of the Landlord, without compensation to
the Tenant, or shall be removed therefrom and the Premises restored to their
original condition at the sole expense of the Tenant at the expiration or sooner
termination of the Lease. Tenant agrees to save harmless Landlord on account of
claim for mechanic's, materialmen's or other liens in connection with any
alterations, additions, or improvements to which Landlord may give its consent.
11. MAINTENANCE AND REPAIRS.
A. Landlord shall provide for the cleaning and maintenance of the
Building, including painting and landscaping surrounding the Building, in
keeping with the usual standard for first class office buildings. Landlord
shall not be required to maintain or repair any non-building standard or
special tenant improvements in or about the Premises; and there will be an
additional charge to Tenant for the cleaning of such items as carpet,
blinds, drapes, wall coverings, etc. by Landlord.
B. The first installation of building standard electric light lamps
will be made by the Landlord. Thereafter, the Tenant shall pay promptly to
Landlord the installed cost of all electric lamps, starters, and ballasts
used on the Premises.
C. Tenant shall keep and maintain the Premises in good repair and
condition, reasonable wear and tear excepted. Tenant shall not commit or
allow any waste or damage to be committed on any portion of the Premises or
the Building. Tenant shall pay to landlord the full cost to repair or
replace any damage or injury done to the Building or any part thereof
caused by Tenant, its agent, employees, invitees, or visitors.
12. SERVICES TO BE PROVIDED BY LANDLORD. Landlord agrees to furnish
Tenant with electricity for general office uses only (not to include duplicating
and data processing machines, and air conditioning costs therefore, large
business machines, special lighting in excess of Building Standard, and any
other equipment requiring high electrical consumption), elevator service,
security service, and janitorial service on a five day week basis. An
additional charge for cleaning special tenant improvements will be billed
separately to Tenant as Additional Rent. During normal business hours (8:00
a.m. to 6:00 p.m. Monday through Friday; Saturdays, Sundays, and holidays not
included), Landlord agrees to furnish Tenant with hot, cold, and refrigerated
water at those points of supply provided for general use of other tenants in the
Building; heated and
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refrigerated air conditioning in season, at temperatures considered standard for
first class office buildings or as determined by governmental edict. Such
services beyond the normal periods and hours will be provided upon written
request from Tenant at an hourly rate to be billed to Tenant. Landlord shall
not be liable in damages or otherwise for failure, stoppage, or interruption of
any such service, nor shall the same be construed as an eviction of Tenant, work
an abatement of rent, or relieve Tenant from any covenant herein. In the event
of any failure, stoppage, or interruption thereof, Landlord shall use reasonable
diligence to resume services promptly.
B. Design capabilities of the heating, cooling and electrical
systems are based upon and limited to the following:
1. The Tenant's occupancy does not exceed one (1) person for
each 150 square feet of Rentable Area.
2. The total connected electrical load does not exceed four (4)
watts per square foot of area within the Premises for all purposes
including lighting and power.
3. The proper use of blinds to control sunload.
C. Landlord shall have sole control over the parking of automobiles
and other vehicles and shall designate parking areas and building
service areas.
13. RULES AND REGULATIONS OF BUILDING. Tenant shall comply with the Rules
and Regulations of the Building with respect to safety, care, cleanliness,
parking, and preservation of good order in the Building that Landlord may
establish from time to time for tenants of the Building. Landlord shall not be
liable to Tenant for any failure of any other tenants of the Building to comply
with such Rules and Regulations, attached hereto as "Exhibit C".
14. LAWFUL USE. Tenant shall comply with all federal, state and municipal
laws and ordinances relating to the use, condition, or occupancy of the
Premises. Tenant shall not occupy or use the Premises for any business or
purpose which is unlawful, disreputable, or deemed to be hazardous on account of
fire, or permit anything to be done which will in any way increase the rate of
fire insurance coverage on the Building and/or its contents.
15. EXTRAORDINARY EQUIPMENT. Without the prior written consent of
Landlord and Tenant's written agreement to pay additional costs, Tenant shall
not install or maintain any apparatus or devices which will increase the usage
of electrical power, water, or gas for the Premises to an amount grater than
would be required for normal general office use for space of comparable size.
16. LANDLORD'S ACCESS. Landlord and Landlord's mortgages(s) shall have
the right at all reasonable times during the Term to enter the Premises to
inspect the condition thereof, to
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show the Premises to prospective new tenants, to determine if Tenant is
performing its obligations under this Lease, and to perform the services or to
make the repairs and restoration that Landlord is obligated or elects to perform
or furnish under this Lease, to make repairs to adjoining space, to cure any
defaults of Tenant hereunder that Landlord elects to cure, and to remove from
the Premises any improvements thereto or property placed therein in violation of
this Lease.
17. INSURANCE. Landlord shall maintain during the Term of this Lease fire
and extended coverage insurance insuring the Building and Premises against
damage or loss from fire or other casualty normally insured against under the
terms of standard policies of fire and extended coverage insurance. Landlord
may, at its option, preserve and maintain such other insurance coverages as it
may require in its discretion.
Tenant shall be responsible for providing, at Tenant's own expense:
A. Liability insurance with companies and in form satisfactory to
Landlord naming Landlord and Landlord's mortgagee(s) as additional insured
thereunder as their interest may appear and providing coverage of at least
$1,000,000.00 single limit coverage and $1,000,000.00 aggregate coverage
for any single incident; and
B. Contents insurance for fire, water damage, or other casualty and
theft covering all of the Tenant's stock in trade, fixtures, furnishings,
floor coverings, or any improvements in excess of the limits as outlined in
Exhibit B, equipment and the like in an amount equal to replacement value.
Tenant will furnish Landlord evidence of coverage and payment of premium at
all times.
18. FIRE OR OTHER CASUALTY. If the Building is damaged or destroyed by
fire or other casualty, the Landlord shall have the right to terminate this
Lease, provided it gives written notice thereof to the Tenant within ninety (90)
days after such damage or destruction. If a portion of the Premises is damaged
by fire or other casualty, and this Lease is not thereby terminated, the
Landlord shall, at its expense, restore the Premises, exclusive of any
improvements or other changes made to the Premises by the Tenant, to as near the
condition which existed immediately prior to such damage or destruction, as
reasonably possible, and rent shall abate during such period of time as the
Premises are untenantable, in the proportion that the untenantable portion of
the Premises bears to the entire Premises. The Landlord shall not be
responsible to the Tenant for damage to, or destruction of, any furniture,
equipment, improvements, or other changes made by the Tenant in, on, or about
the Premises regardless of the cause of the damage or destruction.
19. WAIVER OF SUBROGATION. Notwithstanding any other provision in this
Lease to the contrary, each of Landlord and Tenant hereby releases the other
from any and all liability or responsibility (to the other or anyone claiming
through or under them by way of subrogation or otherwise) for any loss or damage
to property caused by fire or any of the extended coverage casualties, to the
extent of insurance proceeds realized by the Landlord as a result of such loss
or damage, even if such fire or other casualty shall have been caused by the
fault or negligence of the
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<PAGE>
other party, or anyone for whom such party may be responsible. Each of Landlord
and Tenant agrees that its policies will include such a clause or endorsement.
In no event shall any such release be applicable if doing so would work in
contravention of any requirement in an applicable policy of insurance to the
effect that if the insured waives subrogation, coverage is or may be void.
20. EMINENT DOMAIN. If the entire Building is taken by eminent domain,
this Lease shall automatically terminate as of the date of taking. If a portion
of the Building is taken by eminent domain, Landlord shall have the right to
terminate this Lease by giving written notice thereof to Tenant within ninety
(90) days after the date of taking. If a portion of the Premises is taken by
eminent domain, and the Landlord does not terminate this Lease, the Landlord
shall restore Premises, exclusive of any improvements or other changes to the
Premises by Tenant, to as near the condition which existed immediately prior to
the date of taking as reasonably possible, and rent shall abate during such
period of time as the Premises are untenantable, in the proportion that the
untenantable portion of the Premises bears to the entire Premises. Landlord
shall, in any event, be entitled to receive and to retain as its own, any award
resulting from such taking of all or any part of the Land, Building, Parking
Facility, or appurtenant areas. Tenant disclaims any right to participate in
such award or to make a claim against the condemning authority for loss of its
trade fixtures and moving expenses if such claim will reduce the award payable
to the Landlord.
21. LIGHT AND AIR. Tenant has no right to light or air over any premises
adjoining the Building.
22. LIENS. Tenant shall not permit any mechanic's, materialmen's, or
other liens fixed against the Premises, the Building, or the Land and agrees
immediately to discharge (either by payment or by filing of the necessary bond,
or otherwise) any mechanic's, materialmen's, or other lien which is allegedly
fixed or placed against any of the foregoing.
23. INDEMNITY. Tenant shall indemnify and hold harmless Landlord and
Landlord's agents, directors, officers, employees, invitees, and contractors,
from all claims, losses, costs, damages, or expenses (including, but not limited
to, attorney's fees) resulting from or arising from any and all injuries or
death of any person or damage to any property caused by any act, omission, or
neglect of Tenant or Tenant's directors, officers, employees, agents, invitees,
or guests, or any parties contracting with Tenant relating to the Premises.
Landlord shall not be liable for any damage of any kind or for any damage to
property, death, or injury to persons from any cause whatsoever by reason of the
use and occupancy of the Premises by Tenant.
24. WAIVER OF COVENANTS. Failure of Landlord to insist, in any one or
more instances, upon strict performance of any term, covenant, or condition of
the Lease, or to exercise any option herein obtained, shall not be construed as
a waiver, or a relinquishment for the future, or such term, covenant, condition,
or option, but the same shall continue and remain in full force and effect. The
receipt by Landlord of rents with knowledge of a breach in any of the terms,
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<PAGE>
covenants, or conditions of this Lease to be kept or performed by Tenant shall
not be deemed a waiver of such breach, and Landlord shall not be deemed to have
waived any provision of this Lease unless expressed in writing and signed by
Landlord.
25. RELOCATION. Landlord shall have the right to relocate Tenant to
comparable quarters within the Building with at least thirty (30) days prior
written notice to Tenant. Any reasonable costs incurred by Tenant in the event
of such relocation, and which have been agreed to in writing prior to the move,
shall be paid by the Landlord.
26. LEASE TO SUBORDINATE. Landlord may cause this Lease to be made
subject and subordinate to all ground or underlying leases, mortgages, deeds of
trust, and restrictions which may now or hereafter affect the Building, and to
all renewals, modifications, consolidations and extensions thereof. For
confirmation of such subordination, Tenant shall execute promptly any
subordination agreement requested by Landlord. Tenant hereby irrevocably
constitutes and appoints Landlord as Tenant's agent to execute any such
subordination agreement or agreements for and on behalf of Tenant. This
authority is hereby declared to be coupled with an interest and irrevocable. So
long as Tenant shall faithfully discharge the obligations on its part to be
kept, this Lease shall not be affected by any default under such mortgage, deed
of trust, or underlying lease, and in the event of foreclosure or enforcement
thereof, the rights of Tenant hereunder shall survive, and if requested to do so
by such mortgagee, ground lessor, or trustor, Tenant shall attorn to such prior
holder, its successors and assigns, and this Lease shall in all respects
continue in full force and effect; provided, however, that Tenant fully performs
all of its obligations hereunder, and provided further that Tenant shall not
have prepaid any rent, except as the same becomes due under the terms of this
Lease.
27. TENANT TO SURRENDER PREMISES IN GOOD CONDITION. Upon the expiration
or termination of the Lease Term, Tenant shall, at its expense:
A. Remove Tenant's goods and effects and those of all persons
claiming under Tenant;
B. Quit and deliver the Premises to Landlord, peaceably and quietly,
in as good order and condition as the same were in on the date the Lease
Term commenced or were thereafter placed in by Landlord, reasonable wear
and tear excepted; and
C. At Landlord's request, restore the Premises to general building
standards adopted by Landlord for general application throughout the
Building.
Any property left in the Premises after the expiration or
termination of the Lease Term shall be deemed to have been abandoned
and the property of Landlord to dispose of as Landlord deems
expedient. Tenant shall pay to Landlord on demand all costs incurred
in disposing of Tenant's abandoned property.
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<PAGE>
28. HOLDING OVER. If with Landlord's written consent Tenant remains in
possession of the Premises after the expiration or other termination of the
Term, Tenant shall be deemed to be occupying the Premises on a month-to-month
tenancy at a rental rate as stated in the written consent. Such month-to-month
tenancy may be terminated by Landlord or Tenant on the last day of any calendar
month by delivery of at least thirty (30) days advance notice of termination to
the other. If without Landlord's written consent Tenant remains in possession
of the Premises after the expiration or other termination of the Term, Tenant
shall be deemed to be occupying the Premises upon a tenancy at sufferance at
monthly rental equal to three (3) times the Rent determined in accordance with
Paragraphs 3, 4, and 5.
29. DEFAULT. If Tenant shall default in the payment of any installment of
Base Rental or Additional Rental, or in the observance or performance of any of
Tenant's other covenants, agreements, or obligations hereunder, or if any
proceeding is commenced by or against Tenant for the purpose of subjecting the
assets of Tenant to any law relating to bankruptcy or insolvency or for any
appointment of a receiver of Tenant or of any of Tenant's assets, or if Tenant
makes a general assignment of Tenant's assets for the benefit of creditors,
then, in any such event, Landlord may, without process, re-enter immediately
into Premises and remove all persons and property therefrom, and at its option,
annul and cancel this Lease as to all future rights of Tenant and have, regain,
repossess, and enjoy the Premises after re-entry or after judgment for
possession thereof. If Landlord elects to terminate this Lease, all obligations
herein contained on the part of Landlord to be done and performed shall cease,
but without prejudice to the right of Landlord to recover from Tenant all past
or future rentals and damages. Should this Lease be terminated before the
expiration of the term of this Lease by reason of Tenant's default as
hereinabove provided, or if Tenant shall abandon or vacate the Premises before
the expiration or termination of the term of this Lease, Landlord may accelerate
Tenant's entire rental obligation hereunder, including Base Rent and Additional
Rent, and upon notice thereof the entire rent due for the balance of the term
hereof shall immediately become due and payable. The Premises may be relet by
Landlord for such rent and upon such terms as Landlord in its sole discretion
may determine and Tenant shall be liable for all damages sustained by Landlord,
including, without limitation, deficiency in rent, reasonable attorney's fees,
and expenses of placing the Premises in first class rentable condition and
expenses of renting same including, but not limited to, the payment of brokerage
fees, tenant allowances or by any other tenant inducement. The provisions
contained in this Paragraph shall be in addition to and shall not prevent the
enforcement of any claim Landlord may have against Tenant for anticipatory
breach of the unexpired term of this Lease. Any and all attorneys' fees and
costs of collection incurred by Landlord in the enforcement of the terms or
provisions of this Lease shall be payable by Tenant in the event of any default,
and the amount of such costs shall be deemed Additional Rental and shall, upon
notice by Landlord given at any time prior to and including the service of
notice of any legal action, be immediately due hereunder. In the event Landlord
shall commence legal action, or any unlawful detainer proceeding or other
summary proceeding for collection of rent due hereunder, said Additional Rent
shall be deemed a past due obligation to pay rent in connection with said
proceeding. Tenant hereby waives any right of offset, counter-claim or any
other claim in any such proceeding. Landlord shall have a right to commence one
or more actions to enforce the terms of this Paragraph and the
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<PAGE>
commencement and prosecution of one action shall not be deemed a waiver of an
estoppel from commencing one or more actions from time to time in the future.
All rights and remedies of Landlord under this Lease shall be cumulative and
shall not be exclusive of any other rights and remedies provided to Landlord
under applicable law.
30. LANDLORD'S RIGHT TO CURE DEFAULTS. If Tenant default in the
observance or performance of any of Tenant's covenants, agreements, or
obligations hereunder wherein the default can be cured by the expenditure of
money, Landlord may, but without obligation, and without limiting any other
remedies which it may have by reason of such default, cure the default, charge
the cost thereof to Tenant, and Tenant shall pay the same forthwith upon demand,
as Additional Rent, together with interest thereon at the rate set forth in the
last sentence of Paragraph 3 of this Lease.
In case the Landlord or Tenant prevails in any suit or defend or prosecute
under the terms of this Lease, there shall be allowed by the prevailing party,
to be included in any judgment recovered, reasonable attorney's fees and other
costs to be fixed by the court.
31. NOTICES. Each notice required or permitted to be given hereunder by
one party to the other shall be in writing with a statement therein to the
effect that notice is given pursuant to this Lease and the same shall be given
and shall be deemed to have been delivered, served, and given if delivered in
person or placed in the United States Mail, postage prepaid, by United States
registered or certified mail, addressed to such party at the address provided
for such party herein. Any notices to Landlord shall be addressed and given to
Landlord as follows:
APPLETREE PROPERTIES, INC.
One Appletree Square
Bloomington, MN 55425
Prior to the Commencement Date, the address for notices to Tenant shall be
the address set forth for Tenant on the signature page of this Lease; after the
Commencement Date, the address for Tenant shall be the Premises. The addresses
stated above shall be effective for all notices to the respective parties until
written notice of a change in address is given.
32. NOTICE TO MORTGAGEE. Tenant agrees to give any Mortgagee and/or Trust
Deed Holders by registered mail, a copy of any Notice to Default served upon the
Landlord, provided that prior to such notice, Tenant has been notified, in
writing (by way of Notice of Assignment of Rents and Leases, or otherwise), of
the address of such Mortgagees and/or Trust Deed Holders. Tenant further agrees
that if Landlord shall have failed to cure such default within the time provided
for in this Lease, then the Mortgagees and/or Trust Deed Holders shall have an
additional thirty (30) days within which to cure such default; or if such
default cannot be cured within that time, then such additional time as may be
necessary to cure such default shall be granted if within such thirty (30) days,
any Mortgagee and/or Trust Deed Holder has commenced and is diligently pursuing
the remedies necessary to cure such default (including, but not limited
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to, commencement of foreclosure proceedings, if necessary to effect such cure),
in which event this Lease shall not be terminated while such remedies are being
so diligently pursued.
33. MISCELLANEOUS. There are no understandings or agreements not
incorporated in this Lease. This is a Minnesota contact and shall be construed
according to the laws of Minnesota. The captions in the Lease are for
convenience only and are not a part of this Lease. The covenants and agreements
hereof shall as fully and completely bind the heirs, executors, administrators,
legal representatives, successors, and assigns of the parties hereof as if they
had been specifically mentioned in each of said covenants and agreements. Any
rider or exhibit attached to this Lease shall become a part of this Lease with
the same force and effect and in the same manner as if all the provisions
therein mentioned were actually included herein.
34. ASSIGNMENT AND SUBLETTING. Tenant shall not have the right to assign
this Lease or sublet all or any part of the Premises without the express written
consent of the Landlord.* No assignment or subletting permitted by the
Landlord shall relieve the Tenant of liability hereunder.
35. COMMISSIONS. Tenant represents and warrants that there are no claims
for brokerage commission or finder's fees in connection with the execution of
this Lease, and Tenant agrees to indemnify the Landlord against and hold it
harmless from all liabilities.
36. QUIET POSSESSION. Landlord agrees that the Tenant, upon payment of
the Base Rental and Additional Rental and observing and keeping the covenants of
this Lease on its part to be kept, shall lawfully, peaceably, and quietly hold,
convey and enjoy said Premises, during said Term, without hindrance or
molestation by said Landlord or any person or persons lawfully claiming under
said Landlord.
37. ESTOPPEL CERTIFICATES. Tenant agrees, at anytime and from time to
time, upon not less than five days prior written notice by Landlord, to execute,
acknowledge and deliver to Landlord or a party designated by Landlord a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect or if there have been modifications, that the Lease is in full
force and effect as modified and stating modifications, (ii) stating the dates
to which the rent and other charges hereunder have been paid by Tenant, (iii)
stating whether or not Landlord is in default in the performance of any
covenant, agreement or condition contained in this Lease, and if so, specifying
each such default of which Tenant may have knowledge, and (iv) stating the
address to which notices to Tenant should be sent, (v) agreeing that Tenant
shall not encumber or assign or sublease any portion of the Premises without the
written consent of any mortgagee, and (vi) agreeing that Tenant and Landlord
will not thereafter modify the Lease without the approval of any mortgagee, and
(vii) agreeing that Tenant shall not prepay any rent more than thirty (30) days
in advance. Any such statement delivered pursuant hereto may be relied upon by
any owner
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*Which consent shall not be unreasonably witheld or delayed, but shall be
subject to Landlord's normal leasing criteria.
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<PAGE>
of the Building, any prospective purchaser of the Building or of Landlord's
interest, or any prospective assignee of any such mortgagee.
IN WITNESS WHEREOF, the undersigned Landlord and Tenant have executed this
instrument this 25th day of April, 1990.
LANDLORD ATS II Associates Limited
Partnership, a Minnesota
Limited Partnership
AGENT APPLETREE PROPERTIES, INC.
/s/ Daryl G. D.
-------------------------
/S/ Shelley L. Unruk President
- ------------------------- ---------------------------
TENANT CAPITAL DIMENSIONS, INC.
/S/ THOMAS F. HUNT, JR.
----------------------------
/s/ BrendA L. Leonard By President
- ------------------------ ----------------------------
----------------------------
----------------------------
Tenant's Address Prior to Occupancy
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[Drawing Depicting 3rd Floor]
EXHIBIT A
To be attached to and form a part of Lease dated April 19,
1990 by and between ATS II Associates Limited Partnership
and Capital Dimensions, Inc.
<PAGE>
[Drawing Depicting Office Space]
EXHIBIT A-1
To be attached to and form a part of Lease dated April 19,
1990 by and between ATS II Associates Limited Partnership
and Capital Dimensions, Inc.
Landlord to provide the following leasehold improvements:
1. Building Standard carpeting and base throughout.
2. Building Standard paint and wallcovering throughout.
3. Building Standard electrical throughout.
4. Sink, plastic laminate countertop and 4' lower cabinet in
storage room.
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. Security
Landlord may from time to time adopt appropriate systems and procedures for
the security or safety of the Building, any persons occupying, using, or
entering the same, or any equipment, finishings, or contents thereof and
Tenant shall comply with Landlord's reasonable requirements relative
thereto.
2. Locks
Tenant shall not add to or change existing locking mechanisms on any door
in or to the Premises without Landlord's prior written consent. No locks
incompatible with Building's master locking system shall be installed
without prior written consent of the Landlord. If, with Landlord's
consent, Tenant installs lock(s) incompatible with the Building's master
locking system:
a. Landlord, without abatement or Rent, shall be relieved of any
obligation under the Lease to provide any service to the affected
areas which require access thereto; and
b. Tenant shall indemnify Landlord against any expense as a result of
forced entry thereto which may be required in an emergency; and
c. Tenant shall at the end of the Lease Term and at Landlord's request,
remove such lock(s) at Tenant's expense.
3. Return of Keys
At the end of the Lease Term, Tenant shall promptly return to Landlord all
keys for the Building and Premises which are in possession of Tenant.
4 Windows
Tenant shall observe Landlord's rules with respect to maintaining uniform
window coverings at all windows in the Premises so that the Building
presents a uniform exterior appearance, and shall not install any window
shades, screens, drapes, covers, or other materials on or at any window in
the Premises without Landlord's prior written consent.
<PAGE>
5. Repair, Maintenance, Alterations, and Improvements
No person or contractor not employed by Landlord shall be used to perform
window washing, cleaning, decorating, construction, repair or other work in
the Premises.
6. Water Fixtures
Tenant shall not use water fixtures for any purpose for which they are not
intended, nor shall water be wasted by tampering with such fixtures. Any
cost or damage resulting from such misuse by Tenant shall be paid by
Tenant.
7. Personal Use of Premises
The Premises shall not be used or permitted to be used for residential,
lodging, or sleeping purposes, or for the storage of personal effects or
property, not required for business purposes.
8. Heavy Articles
All safes, merchandise, furniture, equipment and other bulky articles shall
be carried up to or into the Premises at such times and in such manner as
shall be specified by Landlord. Tenant shall not place in or move about
the Premises without Landlord's prior written consent any such article
which in the Landlord's reasonable opinion may damage the Building, and
Landlord may designate the location of any heavy articles in the Premises.
9. Chair Mats
In those portions of the Premises where carpet has been installed, Tenant
shall at its own expense install and maintain chair mats to protect the
carpet under all furniture having casters.
10. Bicycles, Animals
Tenant shall not bring any animals or birds into the Building, and shall
not permit bicycles or other vehicles inside or on the sidewalks outside
the Building, except in areas designated from time to time by Landlord for
such purposes.
11. Deliveries
Tenant shall ensure that deliveries of materials and supplies to the
Premises are made through such entrances, elevators, and corridors and at
such times as may from time to time be designated by Landlord, and shall
promptly pay or cause to be paid by Landlord the cost of repairing any
damage in the Building caused by any person making such
<PAGE>
deliveries. All deliveries must use the freight elevator, which must be
locked off by Landlord for Tenant's use. All deliveries must be
accompanied by a person.
All parcels must be removed from the loading dock within 24 hours after
delivery.
12. Moving of Furniture and Equipment
Tenant shall ensure that furniture and equipment being moved into or out of
the Premises is moved through such entrances, elevators, and corridors and
at such times as may from time to time be designated by Landlord, and by
movers or a moving company approved by Landlord, and shall promptly pay or
cause to be paid to Landlord the cost of repairing any damage in the
Building caused thereby. Moving shall be conducted only in the freight
elevator and only between the hours of 9:00 a.m. and 11:15 a.m., and 1:00
p.m. and 4:15 p.m., Monday through Friday, or at another time as approved
by Landlord.
13. Solicitations
Landlord reserves the right to restrict or prohibit canvassing, soliciting
or peddling in the Building.
14. Food and Beverage
Only persons approved from time to time by Landlord may prepare, solicit
orders for, sell, serve, or distribute foods or beverages in the Building,
or use the elevators, corridors, or common areas for any such purposes.
Except with Landlord's prior written consent and in accordance with
arrangement approved by Landlord, Tenant shall not permit on the Premises
the use of equipment for dispensing food or beverages or for the
preparation, solicitation or orders for sale, serving, or distribution of
food or beverages.
Tenant shall not cook in the Building.
15. Refuse
Tenant shall place all refuse in proper receptacles provided by Tenant at
its expense in the Premises or in receptacles (if any) provided by Landlord
for the Building, and shall keep sidewalks and driveways outside the
Building, and lobbies, corridors, stairwells, ducts and shafts of the
Building, free of all refuse.
16. Obstructions
Tenant shall not obstruct or place anything in or on the sidewalks or
driveways outside the Building, or in the lobbies, corridors, stairwells,
or other common areas of the Building, or use such locations for any
purpose except access to and exit from the Premises without
<PAGE>
Landlord's prior written consent. Landlord may remove at Tenant's expense
any such obstruction or thing (unauthorized by Landlord) without notice or
obligation to Tenant.
17. Dangerous or Illegal Activities
Tenant shall not make any use of the Premises which involves the danger of
injury to any person, nor shall the same be used for any illegal purpose.
18. Proper Conduct
Tenant shall not conduct itself in any manner which is inconsistent with
the character of the Building as a first-quality building, or which will
impair the comfort and convenience of other tenants in the Building.
19. Firearms
Absolutely no loaded firearms or armed personnel, including armed security
personnel, will be permitted in any of the common areas at any time.
20. Parking
Tenant shall park in the designated areas only and shall not park in the
fire lanes or in any reserved parking stall reserved for any other tenant.
Parking in the loading dock areas is for pick-up and delivery only.
Parking in the temporary parking areas shall be limited to fifteen (15)
minutes.
21. Electrical System
Tenant shall not overload the existing electrical system within the
Premises or cause to overload the electrical system of the Building.
Should Tenant require power in excess of the standard 100V 20 Amps per
circuit provided, new wiring and other necessary electrical equipment shall
be installed at Tenant's expense, and Tenant shall be assessed an
additional monthly charge to cover the cost of the excess electrical demand
and usage.
22. Advertising
In advertising or other publicity, without Landlord's prior written
consent, Tenant shall use neither the name of the Building, except as the
address of its business, nor use pictures or photographs of the Building.
<PAGE>
23. Quiet Enjoyment
Tenant shall not make noises, cause disturbances or vibrations, or use or
operate any electrical or mechanical devices or other devices that omit
sound or other waves or disturbances, or create odors, any of which may be
offensive to other tenants and occupants of the Building, or that would
interfere with the operation of any device or equipment or radio or
television broadcasting or reception from or within the Building or
elsewhere, and shall not place or install any projections, antennae,
aerials, or similar devices inside or outside of the Premises.
24. Dangerous Commodities
In no event shall any person bring into the Building flammables such as
gasoline, kerosene, naptha, and benzine, or explosives or any other article
of intrinsically dangerous nature. If by reason of the failure of Tenant
to comply with the provision of this paragraph, any insurance premiums
payable to Landlord for all or any part of the Building shall at any time
be increased above normal insurance premiums for insurance not covering the
items aforesaid, Landlord shall have the option to either terminate this
Lease or to require to make immediate payment for the whole of the
increased insurance problems.
25. Signs
Landlord will provide and maintain a directory for all tenants of the
Building. No signs, advertisements, or notices visible to the general
public or to other tenants shall be permitted within the Building unless
first approved in writing by Landlord.
<PAGE>
EXHIBIT C
BUILDING STANDARDS
OFFICE SPACE
A. GENERAL CONDITIONS
1. Standard Allowances
The standard allowances as outlined below are maximum limits to be
provided at no cost to Tenant.
All references to square footage allowances contained herein are based
on the rentable area.
B. STANDARD WORK PROVIDED BY LANDLORD AT LANDLORD'S COST
1. Partitions
Office partitions will be constructed of 5/8" gypsum wallboard, taped
and spackled with no visible joints, over 3-5/8" steel studs from
floor slab to underside of finished ceiling.
Standard allowance is one linear foot of partition for each 7 square
feet of rentable area as measured through door openings.
Interior partitions, corridor partitions, and of demising partitions
will be charged against partition allowance.
2. Floor Load
Floors are designed for normal office loading. Landlord must be
notified of Tenant's requirement of heavy load concentration for such
items as library shelving, vaults, computers, heavy files, etc.
3. Doors and Hardware
One single solid core "stain grade" 3'0" x 8'0" entrance door with
hollow metal frame and wire glass side light, in accordance with
prevailing Fire Code, will be provided at each suite. Double entry
door will be installed at Tenant's expense.
Building Standard lockset and closer on entrance door.
<PAGE>
Interior doors will be flush solid core "stain grade" 3'0" x 8'0"
doors, installed in hollow metal door frames, on the basis of one door
for each 250 square feet of rentable area. If more than this
allowance is used, the Tenant will be charged for the additional
doors, hardware and closers, it closers are required.
Building Standard latchset for all interior doors.
4. Ceiling
Ceilings will be exposed "T" bar lay-in acoustical ceiling panels on a
30" x 60" grid, installed to building standard ceiling height of 8'0".
5. Lighting and Switches
Landlord will provide one recess-mounted fluorescent 4-tube "energy
miser" fixture per 75 square feet of rentable area. If Tenant's space
plan extensively subdivides Leased Premises, Tenant will be
responsible for additional lighting to maintain the above standards.
Landlord will provide one light switch for each 200 square feet of
rentable area.
6. Heating, Ventilating, Air Conditioning (HVAC) System
Landlord will provide Tenant HVAC so that the temperature in the
Leased Premises does not exceed 78 degrees F with 55% relative
humidity in the summer and is not lower than 65 degrees F in the
winter during normal business hours. If Tenant's space plan
extensively subdivides Leased Premises or if special Tenant equipment
requires modification of HVAC capacities, Tenant will be responsible
for additional HVAC to maintain the above standards. Landlord will
provide a minimum of one thermostat for each 500 square feet of
rentable area.
7. Power and Telephone Outlets.
Landlord will provide one 110-volt electric duplex outlet located in
interior partitioning for each 75 square feet of rentable area. The
Building shall contain wires, risers, conduits, feeders and
switchboards necessary to furnish any area with electrical energy.
Any special outlet or special circuit which Tenant requires shall be
located in drywall partition and installed at Tenant's expense.
If the prevailing Building Code requires that telephone lines be run
in conduit, Landlord will provide one telephone outlet located in
interior partitioning for each 200 square feet of rentable area.
No plumbing in Tenant suite will be provided by the Landlord.
<PAGE>
8. Wall Finishes
Landlord will provide paint and vinyl wall covering for such walls,
partitions, columns, doors, door frames and metal trim as are building
standard. Such painting shall consist of necessary preparation, one
prime and one finish coat from color selections provided by Landlord.
Standard allowance is one color per suite. Vinyl wall surfaces shall
consist of the necessary preparation and vinyl application from a
color and quality selection provided by Landlord. Twenty-five percent
of the Tenant's office wall area shall be vinyl covered. All interior
building perimeter wall surfaces and storage utility rooms shall be
painted. All hollow metal door frames shall be painted to match
building standard.
9. Floor Finishes
Landlord will furnish and install broadloom carpeting of a commercial
quality. Colors will be selected by Tenant from Landlord's sample
display and limited to one color per suite. Four-inch base will be
provided in building standard color.
10. Window Covering
Narrow slat venetian blinds will be permitted at Tenant's expense.
Blinds will be a Building Standard color.
11. Suite Signage
Entrances will be signed by Landlord with Building Standard typeface
and mounting height. Entrance sign and building directory shall
contain name as shown on Lease.
C. TENANT WORK ABOVE BUILDING STANDARDS
If the drawing approved by Tenant includes items of work above the building
standard allowances as outlined above, such drawings will be submitted by
Landlord to the General Contractor for the determination of cost of such
items of work.
After the approval by Tenant of such above building standard costs, Tenant
will pay as follows:
1/3 at time of approval of cost
1/3 when work is 50% completed
1/3 upon occupancy
If there are any changes requested by Tenant, after completion of Tenant's
plan, Tenant will be responsible for all architectural and engineering
costs and related design expenses
<PAGE>
resulting from such changes. No such changes will be made without prior
written approval of Landlord. Landlord will respond within 15 days.
Landlord will not be responsible for delay in occupancy by Tenant because
of changes to plans after approval and sign-off by Tenant.
D. DESIGN SERVICES
Tenant has the option of engaging his own designer, or Tenant may utilize
the services of Landlord's designer for the preparation of the necessary
Tenant layout and working drawings. If Tenant engages his own designer,
Tenant is required to coordinate layout and working drawings with Landlord
within 30 days of Lease execution.
<PAGE>
AMENDMENT TO LEASE
May 23, 1995
The terms of a certain Lease dated April 19, 1990 by and between ATS II
Associates Limited Partnership and Capital Dimensions, Inc. for offices at Suite
335, Two Appletree Square, Bloomington, Minnesota, is hereby amended by mutual
consent upon the same terms and conditions except that effective July 1, 1995:
* The Term of the Lease shall be extended through and including June 30,
1998.
* The Base Rental shall be Thirty-One Thousand Seven Hundred Forty and 00/100
Dollars ($31,740.00) payable in equal monthly installments of Two Thousand
Six Hundred Forty Five and 00/100 Dollars ($2,645.00).
* Landlord, at its cost, shall install new building standard carpet in four
(4) private offices.
Witness our hands and seals this 24th day of May, 1995.
In presence of: ATS II ASSOCIATES LIMITED PARTNERSHIP
APPLETREE PROPERTIES, INC., Agent
/S/ Beth A. Barci By: /S/ Daryl G. D.
------------------------ --------------------------
Its: President
--------------------------
TENANT CAPITAL DIMENSIONS, INC.
/S/ Brenda L. Leonard By: /S/ Dean Pickerell
------------------------- ---------------------------
Its: Vice President
---------------------------
By: /S/ Thomas F. Hunt, Jr.
----------------------------
Its: President
---------------------------
<PAGE>
EXHIBIT 10.2
JOINT INVESTMENT ADVISOR MANAGEMENT AGREEMENT
THIS AGREEMENT is made between CAPITAL DIMENSIONS MANAGEMENT COMPANY, INC.
("CDMC"), a Minnesota corporation, and CAPITAL DIMENSIONS VENTURE FUND, INC.
("CDVFI"), a licensee under the Small Business Investment Act of 1958.
RECITALS
A. CDMC has substantial ongoing experience in the management of investments
and is staffed by highly experienced managers.
B. CDVFI wishes to enter into a joint agreement with CDMC to provide
investment advice and management services.
THE PARTIES AGREE AS FOLLOWS:
ARTICLE ONE
SERVICES
1.1 SERVICES
CDMC agrees to provide the following services to CDVFI (the "Licensee") as
directed by Licensee's management and the Licensee's Board of Directors:
a) Assist the Licensee in the evaluation of potential investments;
b) Monitor the Licensee's existing portfolio of investments;
c) Assist with disposal of the Licensee's assets as directed from time to
time by the Licensee;
d) Provide accounting and administrative services to the Licensee; and
e) Such other actions and duties as the Licensee's Board of Directors may
direct from time to time.
ARTICLE TWO
COMPENSATION
2.1 COMPENSATION
Compensation to CDMC will be 3% of CDVFI's average assets.
2.2 PAYMENT
Compensation will be paid by the Licensee to CDMC on a monthly basis upon
receipt of an appropriate invoice from CDMC.
<PAGE>
ARTICLE THREE
TERM
3.1 EFFECTIVE DATE
The Effective Date of this Agreement shall be deemed to be April 1, 1997.
3.2 TERM, RENEWAL
The term of this Agreement shall be one year, commencing on the Approval
Date. This Agreement shall be renewable for additional one-year terms only
with the approval of the Licensee's Board of Directors and the Small
Business Administration (the "SBA").
3.3 TERMINATION
The Licensee may terminate this Agreement, without penalty, upon 30 days'
written notice.
ARTICLE FOUR
SBA REPORTING
4.1 FINANCIALS
CDMC shall assist the Licensee in preparing and filing with the SBA annual
audited financial statements of the Licensee's operations.
4.2 OFFICERS AND MANAGERS
Each officer of CDMC who performs services for the Licensee shall file a
Statement of Personal History (SBA Form 415A) with the SBA.
4.3 SBA COMPLIANCE
CDMC shall fully comply with all applicable laws and SBA regulations.
ARTICLE FIVE
MISCELLANEOUS
5.1 SEVERABILITY
Each provision of this Agreement is intended to be severable. In the event
that any one or more of the provisions contained in this Agreement shall
for any reason be held to be invalid, illegal, or unenforceable, the same
shall not affect any other provision of this Agreement.
5.2 ASSIGNMENT
This Agreement will terminate automatically upon assignment by CDMC to any
other entity, unless such assignment is approved in advance by the
Licensee's Board of Directors and the SBA.
2
<PAGE>
5.3 FULL DISCLOSURE
Full disclosure, pursuant to the SBA's regulations, will be provided by
CDMC if it performs services directly for any portfolio companies of the
Licensee.
5.4 SEPARATE RECORDS
Separate books, records, and financials shall be maintained by CDMC and
CDVFI. Funds, portfolio securities, or other securities of the Licensee
shall not be commingled.
5.5 BUSINESS ADDRESS
The principal places of business of the parties are:
Capital Dimensions Management Company Inc.
Suite 335
Two Appletree Square
Minneapolis, Minnesota 55425-1637
Capital Dimensions Venture Fund, Inc.
Suite 335
Two Appletree Square
Minneapolis, Minnesota 55425-1637
5.6 AMENDMENT
No amendment to any material term of this Agreement shall be effective
unless it is reduced to writing, signed by all parties and approved in
advance by the SBA and the Licensee's Board of Directors. Any question as
to the materiality of an amendment shall be submitted to the SBA for
determination of materiality.
The parties have duly executed this Agreement.
CAPITAL DIMENSIONS MANAGEMENT COMPANY, INC.
By /s/ Thomas F. Hunt, JR.
--------------------------------------------------
Title: President Date 2/10/97
-----------------------
CAPITAL DIMENSIONS VENTURE FUND, INC.
By /s/ Dean Pickerell
--------------------------------------------------
Title: President Date 2/10/97
-----------------------
3
<PAGE>
EXHIBIT 10.3
------------
SPECIALIZED SMALL BUSINESS INVESTMENT COMPANY
3% PREFERRED STOCK REPURCHASE AGREEMENT
BETWEEN
Capital Dimensions Venture Fund, Inc. (the "SSBIC"), BUYER,
and
U.S. Small Business Administration, ("SBA"), SELLER
Dated March 31, 1993
<PAGE>
2
TABLE OF CONTENTS
Article 1 Definitions . . . . . . . . . . . . . . . . . . .
Article 2 Repurchase and Sale of Shares . . . . . . . . . .
Article 3 Preferential Liquidating Interest . . . . . . . .
Article 4 Conditions Precedent. . . . . . . . . . . . . . .
Article 5 Covenants, Representations and Warranties
of the SSBIC. . . . . . . . . . . . . . . . . . .
Article 6 Expenses. . . . . . . . . . . . . . . . . . . . .
Article 7 Events of Default and Remedies. . . . . . . . . .
Article 8 Termination . . . . . . . . . . . . . . . . . . .
Article 9 Miscellaneous . . . . . . . . . . . . . . . . . .
<PAGE>
3
SPECIALIZED SMALL BUSINESS INVESTMENT COMPANY
3% PREFERRED STOCK REPURCHASE AGREEMENT
This Repurchase Agreement ("Agreement") , dated March 31, 1993, by and between
Capital Dimensions Venture Fund, Inc. (the "SSBIC"), a small business investment
company licensed under Section 301(d) of the Small Business Investment Act of
1958, as amended (15 U.S.C. Sections 661 ET. SEQ.) (the "Act"), having an office
at Two Appletree Square, Suite 335, Bloomington, MN 55425-1637 and the U.S.
Small Business Administration ("SBA"), an agency of the United States and its
successors and assigns, having an office at 409 Third Street, S.W., Washington,
D.C. 20416.
W I T N E S S E T H:
WHEREAS, pursuant to Public Law 101-162 (November 21, 1989), SBA is authorized
to allow the issuer of any 3% preferred stock sold to SBA to redeem or
repurchase such stock upon the payment to SBA of an amount less than the par
value of the stock;
WHEREAS, SBA is the owner of 20,000 shares of $500.00 par value per share three
percent (3%) preferred stock (the "Preferred Stock"), of which the SSBIC is the
issuer, of which 20,000 shares (the "Shares") are being repurchased by the SSBIC
from SBA pursuant to this Agreement;
WHEREAS, the SSBIC has completed an "Application for Repurchase of 3% Preferred
Stock held by the Small Business Administration pursuant to Public Law 101-162,
November 21, 1989," dated August 25, 1992 (the "Application"), which is hereby
incorporated herein by reference, pursuant to which the SSBIC has applied to SBA
for the repurchase of the Shares; and
<PAGE>
4
WHEREAS, the SSBIC desires to repurchase from SBA, and SBA desires to sell to
the SSBIC, the Shares upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the value received and the covenants
contained herein, the parties hereto hereby represent and agree as follows:
ARTICLE 1. DEFINITIONS
For the purposes of the Repurchase Documents (as defined below), the following
terms shall have the meanings assigned to them in this Article 1; all other
capitalized terms shall have the meanings assigned to them in Part 107 of Title
13 of the Code of Federal Regulations:
"APPLICATION" shall mean the Application dated August 25, 1992 for the
Repurchase of 3% Preferred Stock Held By the U.S. Small Business Administration
Pursuant to Public Law 101-162, November 21, 1989.
"ASSETS" shall mean all of the SSBIC's real or personal property (tangible or
intangible) of whatever nature and wherever located, whether now owned or
hereafter acquired, including but not limited to, all fixed assets, fixtures,
cash, inventory, notes receivable, accounts receivable, contract rights, choses
in action, causes of action, instruments, documents, electronic business
records, licenses, warranties, rights to indemnification, leasehold and
subleasehold interests in real or personal property, security interests held by
or granted to the SSBIC, tax refunds, tax refund claims, partnership and joint
venture interests, goodwill, general intangibles, all securities including
common stock, preferred stock, stock options, warrants, rights to purchase
securities,
<PAGE>
5
and debentures, and all rights to payment of money, together with all additions
and accessions thereto, all replacements and substitutions thereof, all proceeds
thereof, and all assets created therefrom.
"COLLATERAL" shall have the meaning set forth in the Security Agreement as
defined below.
"CORPORATE OFFICIAL" shall mean those officer(s) of the corporation authorized
in the name and on the behalf of the SSBIC to prepare, file, and execute all
documentation and instruments required by SBA in connection with the
Application.
"DISCOUNT" shall mean the amount by which the aggregate par value of the 3%
preferred stock being repurchased exceeds the Purchase Price.
"ESCROW AGENT" shall mean Legal and Security Services, Inc., or any successor
thereto, as agent of SBA, which agency is created pursuant to the Escrow
Agreement.
"ESCROW AGREEMENT" shall mean the Escrow Agreement, dated the date hereof, among
SBA, the SSBIC and the Escrow Agent, in the form set forth in Exhibit 1 hereto.
"INDEBTEDNESS" shall mean (a) all indebtedness for borrowed money, and (b) all
obligations evidenced by bonds, debentures, notes or other similar instruments,
other than indebtedness held or guaranteed by SBA.
"LIQUIDATING INTEREST" shall mean a preferential limited ownership interest in
the Restricted Contributed Capital surplus account granted to SBA by the SSBIC
as of the date of this Agreement. The initial value of the Liquidating Interest
shall equal the amount of the Discount.
"NOTE" shall have the meaning set forth in Section 2.2 hereof.
"PURCHASE PRICE" shall have the meaning set forth in Section 2.2 hereof.
<PAGE>
6
"REPURCHASE DOCUMENTS" shall mean this Agreement, the Note, the Security
Agreement, the Application, the Escrow Agreement, and any and all ancillary
documents and statements executed, delivered or filed in connection therewith,
as they may be amended from time to time.
"RESTRICTED CONTRIBUTED CAPITAL SURPLUS" shall have the meaning set forth in
Section 3.1 hereof.
"SBA REGULATIONS" shall mean Title 13 of the Code of Federal Regulations Part
107, as amended.
"SECURITY AGREEMENT" shall mean the Security Agreement, dated of even date
herewith, by the SSBIC in favor of SBA, in the form set forth in Exhibit 2
hereto.
"SHARES" shall mean the aggregate number of shares of 3% preferred stock being
repurchased, as set forth in the recitals hereto.
ARTICLE 2. REPURCHASE AND SALE OF SHARES
2.1 REPURCHASE AND SALE. On the terms and subject to the conditions
hereinafter set forth, the SSBIC hereby agrees to repurchase from SBA,
and SBA agrees to sell, convey, transfer and assign to the SSBIC the
Shares, including the right to any unpaid dividends accrued thereon.
2.2 PRICE TO BE PAID. The purchase price to be paid by the SSBIC to SBA
for the Shares is $178.5789 per share, or $3,571,578 (the "Purchase
Price"), to be paid as follows: $3,571,578 by promissory note of the
SSBIC payable to SBA, in the form set forth in Exhibit 3 hereto (the
"Note").
<PAGE>
7
ARTICLE 3. PREFERENTIAL LIQUIDATING INTEREST AND SECURITY INTEREST
3.1 GRANT OF LIQUIDATING INTEREST. In consideration for the approval and
sale of the Shares at the Purchase Price,
(a) the SSBIC has established a new capital account designated
RESTRICTED CONTRIBUTED CAPITAL SURPLUS which, pursuant to Section
5.17 hereof, the SSBIC agrees to credit in an amount equal to the
Discount, and
(b) the SSBIC hereby grants to SBA the Liquidating Interest in the
Restricted Contributed Capital Surplus Account.
The initial value of the Liquidating Interest shall be equal to the
amount of the Discount and shall decline on a straight-line basis at
the end of each quarter by an amount equal to 1/28th (3.571426%) of
its original amount. In the event the Note is paid in full subsequent
to the date sixty (60) months from the date of this Agreement, the
Liquidating Interest shall be extinguished. In the event the Note is
paid in full prior to sixty (60) months from the date of this
Agreement, then the balance of the Liquidating Interest as of such
date shall thereafter decline at the end of each month by an amount
equal to the remaining amount of the Liquidating Interest divided by
the difference between sixty (60) months and the number of months
expired since the date of this Agreement. Upon written notification
by SBA of the occurrence of any Event of Default (as hereinafter
defined), the value of the Liquidating Interest shall become fixed at
the level immediately preceding the Event of Default and shall not
decline further until such time as the default is
<PAGE>
8
cured or waived. Subsequent to the cure or waiver of the default, the
Liquidating Interest shall continue to decline at the rate set forth
in this Section 3.1.
3.2 EXPIRATION OF THE LIQUIDATING INTEREST. The Liquidating Interest
shall expire on the latest to occur of (i) the date sixty (60) months
from the date of this Agreement, (ii) the date that the Note shall be
paid and satisfied in full, or (iii) if an Event of Default has
occurred and such default has been cured or waived, such later date on
which the Liquidating Interest is fully amortized.
3.3 EFFECT OF LIQUIDATION. The SSBIC agrees that if, prior to the
expiration of the Liquidating Interest as set forth above, its Board
of Directors or its shareholders authorizes the liquidation of the
SSBIC, or a judicial order is issued directing the voluntary or
involuntary liquidation of the SSBIC, or SBA initiates receivership or
liquidation proceedings, any assets which are available after the
payment or the provision for the payment of all debts of the SSBIC
shall be distributed first to SBA, until the fair market value of such
assets is equal to the amount of the Liquidating Interest or all
remaining assets have been distributed to SBA.
3.4 SECURITY INTEREST. The SSBIC will grant SBA a security interest in
the Collateral. The nature and terms of this security interest are
contained in the Security Agreement of even date herewith. With
respect to any securities which are now or hereafter become publicly
traded, the SSBIC will allow SBA to perfect such security interest by
conveying all such securities to the Escrow Agent in accordance with
the Escrow Agreement, also of even date herewith.
<PAGE>
9
ARTICLE 4. CONDITIONS PRECEDENT
The agreement of SBA to sell the Shares to the SSBIC on the terms set forth
herein is subject to the satisfaction of the following conditions
precedent:
4.1 EXECUTION OF THIS AGREEMENT. SBA shall have received one or more
originals of this Agreement, executed and delivered by the Corporate
Official of the SSBIC.
4.2 NOTE. SBA shall have received the Note, conforming to the
requirements hereof and executed and delivered by the Corporate
Official of the SSBIC.
4.3 CORPORATE PROCEEDINGS. SBA shall have received a copy of the
resolutions, in form and substance satisfactory to SBA, of the Board
of Directors of the SSBIC authorizing:
(i) the execution, delivery and performance of the Repurchase
Documents,
(ii) the grant of the Liquidating Interest to SBA; and
(iii) the grant of a security interest in the Collateral pursuant
to the Security Agreement.
in each case certified by the Secretary of the SSBIC as of the date
hereof, with such certificate stating that the resolutions have not
been amended, modified, revoked or rescinded as of the date of such
certificate.
4.4 CHARTER AMENDMENT AND NEW CAPITAL ACCOUNT. SBA shall have received
evidence satisfactory to it that the SSBIC has amended its charter or
Articles of Incorporation to provide for the Liquidating Interest and
has established the Restricted Contributed Capital Surplus Account in
its system of accounts.
<PAGE>
10
4.5 REVISED CAPITAL ACCOUNTS. SBA shall have received revised financial
statements on SBA Form 468 which reflect adjustments to the SSBIC's
capital accounts as required by Section 5.18 of this Agreement.
4.6 SECURITY AGREEMENT. SBA shall have received the Security Agreement,
conforming to the requirements hereof and duly executed and delivered
by the SSBIC.
4.7 SECURITIES AND NEGOTIABLE INSTRUMENTS. SBA, or the Escrow Agent,
shall have received the securities and instruments in which SBA is
perfecting a security interest under the Security Agreement,
accompanied by an undated blank stock power or assignment for each
such item as is appropriate for such item, duly executed with the
signature guaranteed and delivered by the Corporate Official of the
SSBIC.
4.8 PERFECTION OF SBA SECURITY INTEREST. SBA shall have received evidence
satisfactory to it that the SSBIC has signed all documentation, taken
all actions, made all arrangements, and paid all fees necessary to
perfect the security interest granted by the Security Agreement.
4.9 OPINION OF COUNSEL. SBA shall have received an opinion of counsel, in
the form attached hereto as Exhibit 4, from independent counsel
satisfactory to SBA.
4.10 ESCROW AGREEMENT.. SBA shall have received the Escrow Agreement,
conforming to the requirements hereof and duly executed and delivered
by the SSBIC and the Escrow Agent.
<PAGE>
11
4.11 ADDITIONAL MATTERS. All proceedings and all documents, instruments
and other legal matters in connection with the repurchase and sale
contemplated herein shall be satisfactory in form and substance to
SBA.
ARTICLE 5. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE SSBIC
In order to induce SBA to enter into this Agreement and to allow the SSBIC
to repurchase its 3% preferred stock at the Purchase Price, the SSBIC
hereby represents and warrants to and agrees with SBA that:
5.1 ORGANIZATION AND GOOD STANDING. The SSBIC is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. The SSBIC is duly licensed as a small
business investment company under Section 301(d) of the Act.
5.2 AUTHORITY. The SSBIC has the power, authority and legal right to
execute, deliver and perform the Repurchase Documents and the SSBIC
has taken all necessary action to authorize the execution, delivery
and performance of the Repurchase Documents. No consent of any other
person or entity is required in connection with the execution,
delivery, performance, validity or enforceability of the Repurchase
Documents by or against the SSBIC. The Repurchase Documents have been
executed and delivered by the Corporate Official of the SSBIC and the
Repurchase Documents constitute the legal, valid and binding
obligations of the SSBIC enforceable against the SSBIC in accordance
with their respective terms
<PAGE>
12
except as enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting creditors'
rights generally and except as enforceability may be limited by
general principles of equity.
5.3 NO VIOLATIONS. The SSBIC is not in violation of its charter or
by-laws, or its small business investment company license, or any
material provision of the Act or the SBA Regulations except as
previously disclosed to SBA in writing. The execution, delivery and
performance of the Repurchase Documents will not violate any provision
of any existing law and will not result in any violation of the
charter or by-laws of the SSBIC and will not constitute a default
under or a violation of any agreement to which the SSBIC is a party,
and will not result in the imposition of any lien (other than under
the Security Agreement) on any of the SSBIC's assets.
5.4 MANAGEMENT AND OWNERSHIP. There has been no change in the officers,
directors, beneficial owners of 10 percent or more of the securities
of SSBIC, or the control (as defined in SBA Regulations) of the SSBIC,
since the issuance of its small business investment company license,
except as indicated by post-licensing amendment(s) heretofore filed
with and approved by SBA. The SSBIC will not change any of its
officers, directors, managers or investment advisers, and will not
allow any change in the beneficial owners of 10 percent or more of its
securities, without the prior written approval of SBA granted
subsequent to the date hereof.
<PAGE>
13
5.5 INVESTMENT POLICY, OPERATIONS AND CAPITAL. There has been no change
in the investment policy or operations, and no decrease in the
capital, of the SSBIC since the issuance of its small business
investment company license, except as indicated by post-licensing
amendment(s) and financial reports heretofore filed with and approved
by SBA. The SSBIC will not change its investment policy or operations
and will not decrease capital without the prior written approval of
SBA granted subsequent to the date hereto.
5.6 PROCEEDS FROM INELIGIBLE INVESTMENTS. The SSBIC agrees to liquidate
its holdings of publicly traded ineligible investments (as defined in
Section 5.19 hereof) within two years of the date of this Agreement.
With respect to non-publicly traded ineligible investments, the SSBIC
will submit a plan within 3 months of the date hereof, acceptable to
SBA, for the orderly liquidation of these investments. Upon the sale
of any ineligible investment, the SSBIC shall, at its option, use the
proceeds for any of the following four purposes:
(i) for investment in eligible small concerns,
(ii) to prepay principal installments of the Note, in inverse
order of maturity,
(iii) to pay operating expenses of the SSBIC incurred in the
normal course of business, or
(iv) to be held in an escrow account for the benefit of SBA.
5.7 MATERIAL ADVERSE CHANGE. There has been no material adverse change in
the financial condition of the SSBIC since the filing of its last
fiscal year-end audited
<PAGE>
14
Financial Report (SBA Form 468), dated December 31, 1991 (the "Audited
Financial Report"), except as indicated by the unaudited interim
Financial Report, dated June 30, 1992 filed with the Application (the
"Application Financial Report").
5.8 FINANCIAL CONDITION. The Audited Financial Report and the Application
Financial Report present fairly the financial condition of the SSBIC
as of their respective dates, and were prepared in accordance with SBA
Regulations. The SSBIC has no contingent assets in the form of claims
or contingent liabilities not provided for or disclosed in the Audited
Financial Report or the Application Financial Report.
5.9 NO LITIGATION. There is no claim, action, suit or proceeding pending
or, to the knowledge of the SSBIC, threatened against or relating to
the SSBIC or any of its affiliates before any court or governmental
authority (including without limitation any proceeding or action for
the assessment or collection of additional taxes) which might have a
material adverse effect on the business, assets or financial condition
of the SSBIC.
5.10 NO LIENS, ETC. The SSBIC has good and marketable title to all its
Assets, subject to no liens except the lien created under the Security
Agreement and other liens as set forth in Schedule I hereto. The
SSBIC has not contracted with any person or entity the result of which
is the attachment or perfection of any security interest in any of the
SSBIC's Assets or contingent claims, nor has the SSBIC pledged,
<PAGE>
15
hypothecated, or assigned any of its Assets or contingent claims,
except as reported in the Application.
5.11 INSIDER FINANCING. The SSBIC has no outstanding loans, investments
in, or advances to or from any officer, director, stockholder, or
other Associate (as defined in 13 CFR Section 107.3) of the SSBIC rot
heretofore disclosed to SBA and, if required, approved in writing by
SBA; nor has the SSBIC made or received any loan, investment, or
advance to or from any of its Associates or, knowingly, to or from any
Associate of another licensed specialized or regular small business
investment company, without disclosure to SBA or, if required, SBA's
prior written approval.
5.12 NO REDEMPTION. Notwithstanding the provisions of Section 107.802 of
SBA Regulations, as long as this Agreement is in effect, the SSBIC
will not purchase, redeem, retire or otherwise acquire directly or
indirectly any shareholder's interest in the SSBIC now or hereafter
outstanding, or set aside any sum for such purpose, without the prior
written consent of SBA granted subsequent to the date hereof.
5.13 NO DISPOSITION OF ASSETS. Without the prior written consent of SBA
granted subsequent to the date hereof, the SSBIC will not, other than
in the ordinary course of business, sell, contract to sell, lease,
assign, mortgage, dispose of or otherwise transfer any of its Assets,
or any part thereof or interest therein, whether now owned or
hereafter acquired, either permanently, temporarily, finally or
contingently. The SSBIC will notify SBA of each proposed disposal of
an asset in
<PAGE>
16
which SBA has a security interest except those disposed of in the
ordinary course of business.
5.14 INDEBTEDNESS. As long as this Agreement is in effect, the SSBIC will
not, without the prior written consent of SBA granted subsequent to
the date hereof, create, incur, assume or suffer to exist any
Indebtedness, except for:
(a) Indebtedness in respect of the Note; and
(b) Indebtedness existing on the date hereof set forth on Schedule II
hereof, and any Indebtedness resulting from the refinancing of
any such Indebtedness, PROVIDED that the principal amount of any
such refinancing Indebtedness (as determined as of the date of
the incurrence of such refinancing Indebtedness) does not exceed
the principal amount of the Indebtedness refinanced thereby.
5.15 NO SUBSIDIZED FUNDS. No portion of the Purchase Price, including any
and all payments made under the Note, shall be derived, either
directly or indirectly, from the issuance of preferred stock to SBA or
from funds acquired or borrowed from SBA after November 21, 1989.
Payments made within 90 days of such issuance of preferred stock or
receipt of subsidized funds shall be presumed to have been derived
therefrom. It is explicitly recognized by SBA and the SSBIC that the
refinancing of $3,000,000 of the SSBIC's Debentures by way of the
purchase by SBA of $3,000,000 of 4% Preferred Stock will not be deemed
to be funds
<PAGE>
17
acquired or borrowed from SBA with respect to the conditions and
limitations of this paragraph.
5.16 CANCELLATION OF STOCK. The SSBIC will take any and all action
necessary to cancel the Shares immediately upon the repurchase and
receipt thereof from SBA.
5.17 RESTRICTED CONTRIBUTED CAPITAL SURPLUS ACCOUNT. The SSBIC hereby
agrees that the Restricted Contributed Capital Surplus Account will be
used solely for the purpose of recording the Discount on the accounts
of the SSBIC. The SSBIC further agrees that, within 30 days of the
consummation of the purchase of the Shares, the appropriate series of
accounting entries will be made, in accordance with generally accepted
accounting principles, to reflect the purchase transaction and to
credit the Restricted Contributed Capital Surplus Account in a dollar
amount equal to the Discount.
5.18 REGULATORY TREATMENT. Notwithstanding anything contained in SBA
Regulations to the contrary, the balance in the Restricted Contributed
Capital Surplus Account shall:
(a) be included in the definition of Private Capital set forth in 13
CFR 107.3, DEFINITIONS,
(i) for the purpose of calculating the OVERLINE LIMITATION
pursuant to 13 CFR 107.303; and
(ii) for the purpose of calculating CAPITAL IMPAIRMENT pursuant
to SBA Regulations;
<PAGE>
18
(b) not be included in the definition of Private Capital set forth in
13 CFR 107.3, DEFINITIONS,
(i) for the purpose of reaching the MINIMUM CAPITAL requirement
pursuant o 13 CFR 107.101(d);
(ii) as the base for calculating leverage eligibility pursuant to
SBA Regulations; and
(iii)for any other purpose not set forth above;
and
(c) not be considered assets, income or gain for any purpose
whatsoever, including the determination of compensation for any
officer or employee of the SSBIC; and
(d) not be used for any other purpose not set forth above.
5.19 ADJUSTED REGULATORY CAPITAL. Contemporaneously with the adjustments
required in Section 5.17, the SSBIC will restate its capital accounts
as follows (all capitalized terms used in this Section 5.19 refer to
line items on SBA Form 468 and the conventions and requirements with
respect thereto):
(a) Any Unrealized Depreciation will be eliminated by writing down
the value of securities which have unrealized depreciation.
Valuations shall be as of March 31, 1993 in the case of publicly
traded and marketable securities, and December 31, 1992 in the
case of all other securities. The effect of
<PAGE>
19
this will be to increase the cumulative Net Realized Loss through
the date of the adjustment.
(b) Unrealized Appreciation will be eliminated by writing up the
value of securities to which the appreciation pertains, but only
for publicly traded and marketable securities. Valuations shall
be as of March 31, 1993. Where appropriate, values shall be
reduced for lack of liquidity, restrictions on sale, and other
conditions which would limit the ability to realize the current
market price.
(c) Following the adjustments in (a) and (b) above, the SSBIC will
eliminate the Undistributed Realized Deficit by simultaneously
reducing Paid-In Surplus.
(d) In addition, the SSBIC acknowledges that it has held and, as of
the date of this Agreement, continues to hold investments which
do not qualify as eligible investments for an SSBIC ("ineligible
investments"). A list of all such investments is set forth on
Schedule III hereto. In the determination of Private Capital for
leverage purposes, the SSBIC's capital accounts have been and
will continue to be reduced by the cost basis of these ineligible
investments. Conversion of ineligible investments into cash will
result in a dollar for dollar increase in Private Capital for all
SBIC program purposes, including leverage.
<PAGE>
20
(e) Paid-In Capital Stock and Surplus, as revised pursuant to
Paragraph (c) of this Section 5.19 and as set forth on Schedule
IV hereto, shall be the amount of the SSBIC'S Private Capital for
all purposes, including leverage eligibility and regulatory
compliance; PROVIDED, HOWEVER, that any adjustments required by
this Section 5.19 shall not give rise to an Event of Default for
failure to maintain minimum regulatory capital or for violation
of the OVERLINE LIMITATION pursuant to 13 CFR 107.303.
(f) All adjustments required by Section 5.19 will be reflected in the
financial statements immediately following the completion of the
repurchase transaction, and will form the basis of continuing
financial reporting to SBA. These adjustments will also be
subject to subsequent annual external audit for SBA purposes and
examination by the Office of SBIC Examinations.
5.20 ADDITIONAL PRIVATE CAPITAL. The SSBIC is currently exploring the
feasibility of issuing additional equity securities. In keeping with
one of the stated purposes of the repurchase program, the SSBIC will
use its best efforts to increase its Private Capital by $10,000,000
during the next five years.
5.21 LEVERAGE.
(a) The outstanding principal amount of the Note shall be included in
the aggregate amount of debentures outstanding for purposes of
determining the amount of leverage (as defined in 13 CFR 107.3)
available to the
<PAGE>
21
SSBIC. The balance in the Restricted Contributed Capital Surplus
Account shall not be considered leverage outstanding for purposes
of SBA Regulations.
(b) Contemporaneously with the consummation of this repurchase
transaction, SBA will refinance $3,000,000 of the SSBIC's
debentures currently on demand via the purchase by SBA of
$3,000,000 par value of the SSBIC's 4% Preferred Stock.
Following the conversion of the $3 million of demand debentures
and the execution and delivery of the Note, the SSBIC will be
ineligible for additional leverage until the SSBIC increases its
Private Capital by $3,600,000. For this purpose, Private Capital
can be increased by any one or combination of the following: (i)
the sale of new shares of common stock for cash, (ii)
capitalization of retained earnings available for capitalization
in accordance with SBA accounting guidelines, or (iii) conversion
of ineligible investments into cash. The SSBIC will be
prohibited from paying or accruing dividends or other similar
distributions to non-SBA stockholders until Private Capital has
been increased by $3,600,000.
5.22 MISREPRESENTATION. None of the Repurchase Documents, or any
statement, financial statement, or certification furnished to SBA by
or on behalf of the SSBIC in connection therewith, contains an untrue
statement of a material fact, or omits to state a material fact
necessary to make the statements contained therein not
<PAGE>
22
misleading or, insofar as the SSBIC can now foresee, may in the future
materially adversely affect the Collateral or the financial condition
of the SSBIC. All statements, representations and warranties made in
this Agreement and the other Repurchase Documents are true and
complete and are made for the purpose of inducing SBA to enter into
this Agreement and the other Repurchase Documents and consummate the
transactions contemplated hereunder and thereunder, and are made with
the full knowledge of the provisions of 15 U.S.C. 645, 15 U.S.C. 1001,
and 18 U.S.C. 1006, which provide certain criminal penalties for
making false statements or representations.
ARTICLE 6. EXPENSES
The SSBIC agrees to pay all fees of the Escrow Agent and all reasonable
expenses incurred by the SSBIC and SBA which are directly related to the
negotiation and preparation of this Agreement and the other Repurchase
Documents or to the consummation of the transactions provided for herein
and therein. Such expenses include but are not limited to legal fees,
accounting fees, consultant fees, filing and documentary fees,
administrative fees, and any user fee SBA may deem appropriate to recover
the costs and provide for the administration of the transactions
contemplated herein and in the other Repurchase Documents. SBA represents
that the $5,000 paid in conjunction with the Repurchase Application and
related transactions will cover the SBA expenses incurred with respect to
this transaction.
<PAGE>
23
ARTICLE 7. EVENTS OF DEFAULT AND REMEDIES
7.1 EVENTS OF DEFAULT. The occurrence of one or more of the events listed
below ("Events of Default") shall constitute an Event of Default:
(a) PAYMENT. The SSBIC shall fail to pay any principal of, or
interest on, the Note within five days of the date on which any
payment of principal or interest is due; or fail to pay any of
the expenses referred to in Article 6 hereof within 15 days of
their due date; or
(b) COVENANTS AND AGREEMENTS. The SSBIC shall default in the
observance or performance of any covenant or agreement contained
in this Agreement or the other Repurchase Documents and such
default shall be material and shall continue un-remedied for a
period of 30 days after the SSBIC knew or should have known of
its existence, or such longer period as may be agreed to by SBA;
or
(c) REPRESENTATIONS AND WARRANTIES. The SSBIC shall have knowingly
made a false or materially incorrect representation or warranty
in any of the Repurchase Documents on or as of the date when made
or deemed to have been made, or any of the Repurchase Documents
shall prove to have been incomplete, incorrect, false or
misleading in any material respect on or as of the date thereof;
or
(d) SECURITY AGREEMENT EFFECTIVENESS. On or after the date of
execution and delivery thereof, if for any reason (other than any
act on the part of the
<PAGE>
24
Escrow Agent or SBA and other than by mutual agreement between
the SSBIC, the Escrow Agent and SBA) the Security Agreement
ceases to be in full force and effect, or any of the security
interests intended to be created by the Security Agreement ceases
to be or is not a valid security interest having the priority
contemplated thereby, or any of the perfected security interests
intended to be created by the Security Agreement and the Escrow
Agreement ceases to be or is not a perfected security interest
having the priority contemplated thereby; or
(e) BANKRUPTCY OR REORGANIZATION.
(i) The SSBIC shall commence any case, proceeding or other
action:
(a) under any existing or future law of any jurisdiction
relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it
a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect
to it or its debts, or
(b) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any
substantial part of its assets, or the SSBIC shall make
a general assignment for the benefit of creditors,
<PAGE>
25
(ii) there shall be commenced against the SSBIC any case,
proceeding or other action of a nature referred to in clause
(i) above which results in the entry of an order for relief
or any such adjudication or appointment or remains
undismissed, undischarged or unbonded for a period of 90
days,
(iii)there shall be commenced against the SSBIC any case,
proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against
all or any substantial part of its Assets which results in
the entry of an order for such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal
within 90 days from the entry thereof,
(iv) the SSBIC shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescent in,
any of the acts set forth in this Section 7.1, or
(v) the SSBIC shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as
they become due; or
(f) PRESERVATION OF SBA LIQUIDATING INTEREST. The SSBIC or any of
its Associates, without SBA's prior written approval granted
subsequent to the date hereof, enters into any transaction, or
permits any transaction the financial, legal, or economic effect
of which creates a significant
<PAGE>
26
deterioration in the value of SBA s Liquidating Interest prior to
the expiration date thereof as set forth in this Agreement; or
(g) ENCUMBRANCE OR RESTRICTION ON ASSETS. The SSBIC or any of its
Associates, without SBA's prior written approval granted
subsequent to the date hereof, creates, incurs, assumes or
suffers to exist any mortgage, deed of trust, security interest,
pledge, hypothecation, assignment, deposit arrangement, set-off
right, purchase option, encumbrance, lien (statutory or other) or
other security agreement or preferential arrangement of any kind
or nature whatsoever upon any of the SSBIC's property or Assets,
whether now owned or hereafter acquired, except for:
(i) liens for taxes not yet due or which are being contested in
good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of
the SSBIC in accordance with generally accepted accounting
principles; and
(ii) liens in favor of SBA; or
(h) DIVIDENDS, DISTRIBUTIONS, BENEFITS, PAYMENTS. Until the SSBIC
has complied with Section 5.21(b) hereof, the SSBIC, without the
prior written consent of SBA granted subsequent to the date
hereof, declares, grants, contracts for, or pays any benefit,
dividend or distribution in cash or in kind (including any stock
dividend or transfer to surplus or retained earnings) to or for
the benefit of any of its Associates, directly or indirectly; or
makes
<PAGE>
27
any payment, whether due or in advance of any due date, on any
obligation or debt due to any Associate (except for payments to
the SSBIC's parent company or the SSBIC's directors in the
ordinary course of business), or to any other regular or
specialized small business investment company or any Associate
thereof; or
(i) REMUNERATION, FEES, SALARIES, BENEFITS, EMOLUMENTS. The SSBIC,
without SBA's prior written approval granted subsequent to the
date hereof, increases the remuneration, fees salaries, benefits
or emoluments of any Associate; or
(j) JUDGMENTS AND DECREES. One or more judgments or decrees shall be
entered against the SSBIC involving in the aggregate a liability
(not paid or not fully covered by insurance as to which the
insurer has not disclaimed liability) of $500,000 or more and all
such judgments or decrees shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or
(k) VIOLATION OF GOVERNMENT REGULATIONS; CROSS-DEFAULT. The SSBIC
violates, knowingly or intentionally, any of the provisions of
the Act or SBA Regulations; or violates any provision of any
agreement with SBA; or is in default on any obligation to SBA
including the provisions of any Debenture or Preferred Stock
issued to SBA in connection with leverage (as defined in 13 CFR
107.3).
<PAGE>
28
7.2 REMEDIES. Upon the occurrence of any Event of Default, SBA, directly
or through its duly appointed representative, shall be entitled to any
and all remedies available to it under the Repurchase Documents, the
Act, SBA Regulations, other applicable law and regulation and any
other agreement or instrument arising out of the repurchase of the
Shares, including but not limited to, declaring the Note to be
immediately due and payable, whereupon all unpaid principal of and
interest on the Note and other amounts declared or that automatically
become due and payable shall be and become immediately due and payable
without presentment, demand, protest or notice of any kind.
ARTICLE 8. TERMINATION
This Agreement shall be in all respects a continuing agreement and
shall remain in full force and affect until such time as the Note and
all other obligations under this Agreement and the other Repurchase
Documents shall be paid and satisfied in full and the Liquidating
Interest shall have expired.
ARTICLE 9. MISCELLANEOUS
9.1 NOTICES. All notices, consents, requests and demands to or upon the
respective parties hereto to be effective shall be in writing, and
shall be deemed to have been duly given or made when delivered by hand
or when deposited in the mail, certified mail, return receipt
requested, postage or delivery prepaid, to the address
<PAGE>
29
appearing on the first page hereof or to such other address as may be
hereafter designated by any of the parties hereto.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made hereunder and in any document, certificate or
statement delivered pursuant hereto or in connection herewith,
including without limitation, the other Repurchase Documents and the
Application, shall survive the execution and delivery of this
Agreement.
9.3 NO WAIVER. SBA shall not by any act, delay, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have
acquiesced in any default or in any breach of any of the terms and
conditions hereof. The rights and remedies herein provided are not
exclusive of any rights or remedies provided by law.
9.4 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
9.5 PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are
for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the
interpretation hereof.
<PAGE>
30
9.6 COUNTERPARTS. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts and
each such counterpart shall be deemed to be an original, and all such
counterparts taken together shall be deemed to constitute one and the
same instrument.
9.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the SSBIC and SBA and their respective
successors and assigns, except that the SSBIC may not assign or
transfer any of its respective rights or obligations under this
Agreement without the prior written consent of SBA.
9.8 GOVERNING LAW. This Agreement and the other Repurchase Documents and
the rights and obligations of the parties under this Agreement and the
other Repurchase Documents, shall be governed by, and construed and
interpreted in accordance with, applicable Federal law.
<PAGE>
31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
Capital Dimensions Venture Fund, Inc.
By: /s/ Dean Pickerell
----------------------------------------------
Dean R. Pickerell
President
U. S. Small Business Administration
By: /s/ Wayne S. Foren
----------------------------------------------
Wayne S. Foren
Associate Administrator for Investment
<PAGE>
32
Schedule I
Liens
None
<PAGE>
33
Schedule II
Indebtedness
None
<PAGE>
34
Schedule III
Non Qualified SSBIC Investments
Post Reorganization
as of March 31, 1993
Cost
----
American Star Software $75,776
BI, Inc. 1,362,233
Cardinal Health Systems, Inc 741,446
Concourse Corporation 8,397
Micromedics 50,000
------
Total $2,237,852
