As filed with the Securities and Exchange Commission on November 14, 1997
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
EQUUS II INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 76-0345915
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
2929 ALLEN PARKWAY, SUITE 2500
HOUSTON, TEXAS 77019
(Address of principal executive offices)
1997 STOCK INCENTIVE PLAN
(Full title of the plan)
NOLAN LEHMANN
EQUUS II INCORPORATED
2929 ALLEN PARKWAY, SUITE 2500
HOUSTON, TEXAS 77019
(713) 529-0900
(Name, address and telephone number of agent for service)
Copies to:
JOHN T. UNGER
SNELL & SMITH, A PROFESSIONAL CORPORATION
1000 LOUISIANA, SUITE 1200
HOUSTON, TEXAS 77002
--------------------
CALCULATION OF REGISTRATION FEE
================================================================================
PROPOSED PROPOSED
TITLE OF MAXIMUM MAXIMUM
SECURITIES AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE TO BE PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- --------------------------------------------------------------------------------
COMMON STOCK,
$.001 PAR VALUE 952,131 SHARES $24.125 $22,970,160 $6,960.65
================ ================ =============== ================ =============
(1) PLUS AN INDETERMINATE NUMBER OF SHARES THAT MAY BE ISSUED TO PREVENT
DILUTION RESULTING FROM STOCK SPLITS, STOCK DIVIDENDS, AND SIMILAR
TRANSACTIONS.
(2) CALCULATED IN ACCORDANCE WITH RULE 457(c) ON THE BASIS OF THE CLOSING PRICE
FOR COMMON STOCK ON THE AMERICAN STOCK EXCHANGE ON NOVEMBER 10, 1997.
<PAGE>
<TABLE>
<CAPTION>
EQUUS II INCORPORATED
CROSS REFERENCE SHEET
ITEM
NO. ITEM CAPTION LOCATION IN PROSPECTUS
REOFFER PROSPECTUS
S-3
<S> <C> <C>
1 Forepart of the Registration Forepart of the Registration
Statement and Outside Front Statement and Outside Front Cover Page
Cover Page of Prospectus of Reoffer Prospectus
2 Inside Front and Outside Back Inside Front and Outside Back
Pages of Prospectus of Reoffer Prospectus
3 Summary Information, Risk Factors Prospectus Summary; Selected Financial
and Ratio of Earnings to Fixed Data; Risk Factors and Special
Charges Considerations
4 Use of Proceeds Use of Proceeds
5 Determination of Offering Price Plan of Distribution
6 Dilution Not Applicable
7 Selling Security Holders Selling Shareholders
8 Plan of Distribution Plan of Distribution
9 Description of Securities to be Description of Capital Stock
Registered
10 Interest of Names Experts Legal Matters; Experts
and Counsel
11 Material Changes Not Applicable
12 Incorporation of Certain Incorporation of Certain Information
Documents by Reference by Reference
13 Disclosure of Commission Position Description of Securities - Indemnification
on Indemnification for Securities of Officers and Directors
Act Liabilities
</TABLE>
<PAGE>
REOFFER PROSPECTUS
952,131 Shares
EQUUS II INCORPORATED
Common Stock
$.001 par value
This Prospectus relates to reoffers and resales of up to 952,131 shares of
the Common Stock, $.001 par value ("Common Stock"), of Equus II Incorporated, a
Delaware corporation (the "Company") acquired or that may be acquired by certain
officers and directors of the Company upon the exercise of stock options granted
or that may be granted to such persons pursuant to the Company's 1997 Stock
Incentive Plan. See "Selling Shareholders."
Resales of the shares may be made on the American Stock Exchange (the
"Amex"), in the over-the-counter market, or in private transactions, at market
prices prevailing at the time of sale or at negotiated prices. The Shares will
be offered for sale on terms to be determined when the agreement to sell is made
or at the time of sale, as the case may be. Shares of Common Stock may be sold
in transactions involving broker-dealers, who may act solely as agent and/or may
acquire shares as principal. Broker-dealers participating in such transactions
as agent may receive commissions from the selling shareholder (and, if they act
as agent for the purchaser of such shares, from such purchaser), such
commissions to be computed in appropriate cases in accordance with the
applicable rules of the Amex, which commissions may be at negotiated rates where
permissible under such rules. The selling officers and directors may be deemed
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Act"), and the excess of the price at which their shares are sold over the
price at which they were acquired may be deemed to be underwriting discounts or
commissions. See "Plan of Distribution."
There presently are no arrangements or understandings, formal or informal,
pertaining to the distribution of any shares. The Company will not receive any
of the proceeds from the sale of these shares, but has agreed to bear all
expenses (other than underwriting discounts and selling commissions, and fees
and expenses of counsel and other advisers to the selling shareholders) in
connection with the registration of the shares.
The Company is a closed-end management investment company that has elected
to be a business development company. The Company's primary investment objective
is to achieve capital appreciation by making investments in equity and
equity-oriented securities issued by privately-owned companies in transactions
negotiated directly with such companies. The Company seeks to invest primarily
in companies that intend to acquire other businesses including through leveraged
buyouts.
The Common Stock is listed on the Amex under the symbol "EQS." On November
10, 1997, the closing price of the Common Stock on the Amex was $24.125.
This Prospectus sets forth concisely certain information about the Company
that investors should know before investing and it should be read and retained
for further reference.
SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS" ON PAGE 7 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 13, 1997.
1
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
Available Information ..................................................... 2
Incorporation of Certain Information by Reference ......................... 3
Prospectus Summary ........................................................ 4
Selected Financial Data.................................................... 6
Risk Factors and Special Considerations.................................... 7
Use of Proceeds ........................................................... 12
Description of Capital Stock .............................................. 12
Selling Shareholders ...................................................... 14
Plan of Distribution ...................................................... 14
Legal Matters ............................................................. 16
Experts ................................................................... 16
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements, and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements, and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Regional Offices of the Commission in Chicago, Illinois at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago Illinois 60661-2511 and in
New York, New York at 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington D.C. 20549 at
prescribed rates. The Commission maintains an Internet web site that contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the Commission (http://www.sec.gov).
The Company's Common Stock is listed on the Amex where reports, proxy
statements, and other information concerning the Company may also be inspected
at the Amex at 86 Trinity Place, New York, New York 10006-1881.
This Prospectus constitutes part of a Registration Statement on Form S-8
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company with the Commission under the Act. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement for
further information with respect to the Company and the Common Stock offered
hereby. Any statements contained herein concerning the provisions of any
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission are not necessarily complete, and in each instance reference
is made to the copy of such document as filed. Each such statement is qualified
in its entirety by such reference. The Registration Statement, including
exhibits and schedules thereto, may be inspected without charge at the offices
of the Commission, and copies of such materials may be obtained therefrom at
prescribed rates.
2
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission under the
1934 Act are incorporated by reference in this Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996;
(2) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, June 30, and September 30, 1997;
(3) The Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders dated April 25, 1997; and
(4) The Company's Proxy Statement for a Special Meeting of
Shareholders dated February 24, 1997, as supplemented on March
20, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14, or
15(d) of the 1934 Act subsequent to the date of filing of the Company's Annual
Report on Form 10-K referred to above and prior to the termination of the
offering of the Shares described herein shall be deemed to be incorporated by
reference and to be a part of this Prospectus from the date of filing of such
documents.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Prospectus, or in any other subsequently filed
document which is also incorporated by reference, modifies or replaces such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on written or oral request of such person, a copy
(without exhibits) of any and all information incorporated by reference in this
Prospectus. Requests for such copies should be directed to Nolan Lehmann,
President, Equus II Incorporated, (i) if by telephone to (713) 529-0900 and (ii)
if by mail to 2929 Allen Parkway, Suite 2500, Houston, Texas 77019.
3
<PAGE>
PROSPECTUS SUMMARY
THE INFORMATION IN THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE.
Securities Offered by Selling This Prospectus relates to the
Shareholders re-offer and resale of 952,131 shares
of Common Stock acquired or that may
be acquired by certain officers and
directors of the Company pursuant to
the Company's 1997 Stock Incentive
Plan. See "Selling Shareholders."
Amex Symbol EQS
The Company The Company is a closed-end management
investment company that has elected to
be a business development company,
incorporated in the State of Delaware
as a corporation in 1991. Its
investment advisor is Equus Capital
Management Corporation, a Delaware
corporation (the "Management
Company"). The Company's outstanding
Common Stock is listed and traded on
the Amex under the symbol "EQS." As of
September 30, 1997, the net assets of
the Company were approximately $155
million.
Investment Objective The Company's primary investment
objective is to achieve capital
appreciation by making investments in
equity and equity-oriented securities
issued by privately-owned companies in
transactions negotiated directly with
such companies. The Company seeks to
invest primarily in medium-sized
companies that intend to acquire other
businesses including through leveraged
buyouts.
Investment Considerations Private equity and leveraged buyout
investments involve a high degree of
business and financial risk and can
result in substantial losses. See
"Risk Factors and Special
Considerations."
4
<PAGE>
FEE TABLE
The following table sets forth certain fees and expenses of the Company.
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load (as a percentage of offering price).. 0%
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS):
Management Fees ................................ 2.00%
Interest Payments on Borrowed Funds............. 0.50%
Other Expenses.................................. 0.90%
Total Annual Expenses........................... 3.40%
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
You would pay the following expenses
on a $1,000 investment assuming
a 5% annual return $34.00 $103.64 $175.53 $365.55
- -------------
The purpose of the foregoing table and example is to assist the investor in
understanding the various costs and expenses that an investor in the Company
bears, directly or indirectly, but should not be considered a representation of
past or future expenses or rate of return. The actual expenses of the Company
may be greater or less than those shown. The figures provided under Other
Expenses are based upon estimated amounts for the current fiscal year. Investors
who purchase shares through a broker may be charged a commission by such broker.
5
<PAGE>
SELECTED FINANCIAL DATA
Following is a summary of selected financial data and per share data of
the Company and its predecessors for the five years ended December 31, 1996.
Information for the year ended December 31, 1992, has been restated to reflect
the merger of Equus Investments Incorporated with and into the Company.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total investment income ............... $ 2,590 $ 3,075 $ 1,921 $ 1,552 $ 1,796
Net investment income(loss) .......... $ (8,267) $ (668) $ 518 $ (2,813) $ (1,403)
Realized gain (loss) on sale
of portfolio securities, net ........ $ 4,037 $ 7,669 $ (350) $ (2,458) $ 10,744
Increase (decrease) in
unrealized appreciation
of portfolio securities, net ........ $ 33,696 $ (1,281) $ (2,563) $ 11,178 $ (6,034)
Total increase (decrease) in
net assets from operations .......... $ 29,467 $ 5,720 $ (2,395) $ 5,907 $ 3,307
Dividends ............................. $ 3,180 $ 5,815 $ 763 $ 2,049 $ 3,228
Total assets at end of year ........... $ 181,166 $ 132,450 $ 109,941 $ 114,411 $ 105,614
Net assets at end of year ............. $ 103,223 $ 61,853 $ 60,880 $ 64,679 $ 59,436
Net cash used
by operating activities ............. $ (2,494) $ (403) $ (186) $ (1,962) $ (325)
Shares outstanding at end of year ..... 4,301 3,139 3,053 3,099 3,013
Average shares outstanding during year 3,819 2,968 3,084 3,013 2,880
</TABLE>
PER SHARE DATA:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net investment income (loss) ........ $ (2.16) $ (0.22) $ 0.17 $ (0.93) $ (0.49)
Realized gain (loss) on sale
of portfolio securities, net ..... $ 1.06 $ 2.58 $ (0.12) $ (0.82) $ 3.73
Increase (decrease) in
unrealized appreciation of
portfolio securities, net ......... $ 8.82 $ (0.43) $ (0.83) $ 3.71 $ (2.10)
Dividends ........................... $ 0.76 $ 2.00 $ 0.25 $ 0.68 $ 1.12
Net asset value (including
unrealized appreciation),
end of year ....................... $ 24.00 $ 19.71 $ 19.94 $ 20.87 $ 19.72
</TABLE>
6
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
INVESTORS SHOULD CONSIDER THE FOLLOWING RISK FACTORS AND SPECIAL
CONSIDERATIONS ASSOCIATED WITH AN INVESTMENT IN THE COMPANY.
Long-Term Objective
The Company is intended for investors seeking long-term capital growth. The
Company is not meant to provide a vehicle for those who wish to play short-term
swings in the stock market. The portfolio securities acquired by the Company
generally require four to seven years to reach maturity and generally are
illiquid. An investment in shares of the Company should not be considered a
complete investment program. Each prospective purchaser should take into account
his investment objectives as well as his other investments when considering the
purchase of shares of the Company.
Non-Diversified Status
The Company is classified as a "non-diversified" investment company under the
Act, which means the Company is not limited by the Act in the proportion of its
assets that may be invested in the securities of a single issuer. However, the
Company has in the past conducted and intends to continue to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Code, which will relieve the Company of any liability for federal income tax
to the extent its earnings are distributed to stockholders. To so qualify, among
other requirements, the Company will limit its investments so that, at the close
of each quarter of the taxable year, (i) not more than 25% of the market value
of the Company's total assets will be invested in the securities of a single
issuer, and (ii) with respect to 50% of the market value of its total assets,
not more than 5% of the market value of its total assets will be invested in the
securities of a single issuer and the Company will not own more than 10% of the
outstanding voting securities of a single issuer. The Company's investments in
cash, cash equivalents, and U.S. Government Securities are not subject to these
limitations. To the extent the Company takes large positions in the securities
of a small number of issuers, the Company's net asset value and the market price
of its Common Stock may fluctuate as a result of changes in the financial
condition or in the market's assessment of such issuers to a greater extent than
that of a diversified investment company.
Number of Investments; Industry Concentration
The Company is limited in the amount of its assets it may invest in any one
portfolio company. Generally, the Company does not intend to initially invest
more than 15% of the value of its assets in a single portfolio company. However,
follow-on investments may result in greater than 15% of the Company's assets
being invested in a single portfolio company. While these restrictions limit the
exposure of the capital of the Company in any single investment, the Company's
capital will be invested in a limited number of portfolio companies and
financial difficulty on the part of any single portfolio company will expose it
to a greater risk of loss than would be the case if it were a "diversified"
company holding numerous investments. The Company currently has investments in
27 portfolio companies, of which four exceed 10% of the value of its net assets.
The Company intends to spread its investments among several industries.
Although Management does not intend to invest more than 25% of the Company's
assets in portfolio companies in a particular industry or to otherwise
concentrate in any one or a few industries, if the most attractive investments
available to Management and the Company are concentrated in a small number of
industries, the Company's portfolio may become concentrated in those industries.
In such event, the Company would be exposed to the risk of adverse developments
in or affecting any single industry to a greater extent than if its investments
were dispersed over a greater variety of industries.
7
<PAGE>
Leveraged Portfolio Investments
While leveraged buyout investments and investments in highly leveraged
companies offer the opportunity for significant capital gains and current
income, such investments involve a high degree of business and financial risk
and can result in substantial losses. The Company's portfolio companies incur
substantial indebtedness in connection with leveraged buyout or other highly
leveraged transactions. Such indebtedness generally represents from 66% to 90%
of the capitalization of a portfolio company. In the event a portfolio company
cannot generate adequate cash flow to meet the principal and interest payments
on such indebtedness, the Company's equity investment could be reduced or
eliminated through foreclosure on the portfolio company's assets or the
portfolio company's reorganization or bankruptcy.
A substantial portion of the indebtedness incurred by portfolio companies may
bear interest at rates that will fluctuate in accordance with a stated interest
rate index or the prime lending rate. The cash flow of a portfolio company may
not be sufficient to meet increases in interest payments on its indebtedness.
Accordingly, the profitability of the Company's portfolio companies, as well as
appreciation of the in vestments in such companies, will depend in a significant
part upon prevailing interest rates.
Lack of Liquidity of Portfolio Investments
The portfolio investments of the Company consist principally of securities
that are subject to restrictions on sale because they were acquired from the
issuer in "private placement" transactions or because the Company is deemed to
be an affiliate of the issuer. Generally, the Company will not be able to sell
these securities publicly without the expense and time required to register the
securities under the Securities Act, and applicable state securities law or
unless an exemption from such registration requirements is available. The
securities acquired by the Company generally will not qualify for sale under
Rule 144 under the Securities Act, which permits limited sales under specified
conditions. When restricted securities are sold to the public, the Company may
be deemed an "underwriter" or possibly a controlling person with respect thereto
for the purpose of the Securities Act and may be subject to liability as such
under the Securities Act.
In addition, contractual or practical limitations may restrict the Company's
ability to liquidate its securities in portfolio companies since in most cases
the securities of such companies will be privately held and the Company may own
a relatively large percentage of the issuer's outstanding securities. Sales may
also be limited by securities market conditions, which may be unfavorable for
sales of securities of particular issuers or issuers in particular industries.
Furthermore, since many or all of the Company's investments will be unrated,
certain potential buyers who are restricted to making investments in rated
securities may not be available to purchase any such investment. The above
limitations on liquidity of the Company's securities could preclude or delay any
disposition of such securities or reduce the amount of proceeds that might
otherwise be realized.
Need for Follow-on Investments
After its initial investment in a portfolio company, the Company may be
called upon from time to time to provide additional funds to such company or
have the opportunity to increase its investment in a successful situation, e.g.,
the exercise of a warrant to purchase common stock. There is no assurance that
the Company will make, or have sufficient funds to make, follow-on investments.
Any decision by the Company not to make a follow-on investment or any inability
on its part to make such an investment may have a negative impact on a portfolio
company in need of such an investment or may result in a missed opportunity for
the Company to increase its participation in a successful operation and may
dilute the Company's equity interest in or reduce the expected yield on its
investment.
Competition for Investments
The Company encounters competition from other persons or entities with
similar investment objectives. These competitors include leveraged buyout
partnerships, other business development companies, investment partnerships and
corporations, small business investment companies, large industrial and finan
cial companies investing directly or through affiliates, foreign investors of
various types and individuals, and
8
<PAGE>
may include Management or their affiliates. Some of these competitors may have
greater financial resources and more personnel than the Company and/or the
Investment Adviser and may be subject to different and frequently less stringent
regulation.
Borrowing
The Company may borrow funds to make new or follow-on investments, to
maintain its pass-through tax status as a regulated investment company under
Subchapter M of the Code or to pay contingencies and expenses. The Company is
permitted under the 1940 Act to borrow funds if, immediately after the
borrowing, it will have an asset coverage (as defined in the 1940 Act) of at
least 200%. That is, the Company may borrow funds in an amount up to 50% of the
value of its assets (including investments made with borrowed funds). The amount
and nature of any borrowings by the Company will depend upon a number of factors
over which neither the Board of Directors nor the Investment Adviser has
control, including general economic conditions, conditions in the financial
markets and the impact of the financing on the tax treatment of the
stockholders.
The use of leverage, even on a short-term basis, could have the effect of
magnifying increases or decreases in the Company's net asset value. While the
"spread" between the current yield on the Company's investments and the cost of
any loan would augment the stockholders' return from the Company, if the spread
narrows (because of an increase in the cost of debt or insufficient income on
the Company's investments), distributions to the stockholders would be adversely
affected. If the spread were reversed, the Company might be unable to meet its
obligations to its lenders, which might then seek to cause the Company to liqui
date some or all of its investments. There can be no assurance that the Company
would realize full value for its investments or recoup all of its capital if its
portfolio investments were involuntarily liquidated.
The costs of borrowing money may exceed the income from the portfolio
securities purchased by the Company with the borrowed money. The Company will
suffer a decline in net asset value if the investment performance of the
additional securities purchased with borrowed money fails to cover their cost to
the Company (including any interest paid on the money borrowed). A decline in
net asset value could affect the ability of the Company to make distributions on
the Common Stock. Failure by the Company to distribute a sufficient portion of
its net investment income and net realized capital gains could result in a loss
of pass-through tax status or subject the Company to a 4% excise tax. If the
asset coverage for debt securities issued by the Company declines to less than
200 percent (as a result of market fluctuations or otherwise), the Company may
be required to sell a portion of its investments when it may be disadvantageous
to do so.
Because of the nature and size of its portfolio investments, the Company
borrows money from time to time to make qualifying investments to maintain its
tax status under the Code. There can be no assurance that debt financing will be
available on terms that the Board of Directors considers to be acceptable and in
the best interests of the Company. If borrowing is unavailable, the Company may
be required to make an untimely disposition of an investment or lose its
pass-through tax status.
Loss of Conduit Tax Treatment
The Company may cease to qualify for conduit tax treatment if it is unable to
comply with the diversification requirements contained in Subchapter M of the
Code. Subchapter M requires that at the end of each quarter (i) at least 50% of
the value of the Company's assets must consist of cash, government securities
and other securities of any one issuer that do not represent more than 5% of the
value of the Company's total assets and 10% of the outstanding voting securities
of such issuer, and (ii) no more than 25% of the value of the Company's assets
may be invested in the securities of any one issuer (other than United States
government securities), or of two or more issuers that are controlled by the
Company and are engaged in the same or similar or related trades or businesses.
The Company will borrow funds if necessary to make qualifying investments to
satisfy the foregoing diversification requirements. If the Company fails to
satisfy such diversification requirements and ceases to qualify for conduit tax
treatment, the Company will be subject to income tax on its income and gains and
stockholders will be subject to income tax on distributions.
9
<PAGE>
The Company may also cease to qualify for conduit tax treatment, or be
subject to a 4% excise tax, if it fails to distribute a sufficient portion of
its net investment income and net realized capital gains. Under the 1940 Act,
the Company will not be permitted to make distributions to stockholders unless
it meets certain asset coverage requirements.
Market Value and Net Asset Value
The shares of Common Stock are listed on the Amex. Shares of closed-end
investment companies frequently trade at a discount from net asset value. This
characteristic of shares of a closed-end fund is a risk separate and distinct
from the risk that the Company's net asset value will decrease. The risk of
purchasing shares of a closed-end fund that might trade at a discount is more
pronounced for investors who wish to sell their shares in a relatively short
period of time because for those investors, realization of a gain or loss on
their investments is likely to be more dependent upon the existence of a premium
or discount than upon portfolio performance. Since the commencement of the
Company's operations, the Company's shares have generally traded in the market
at a discount to net asset value. The Company's shares are not subject to
redemption. Investors desiring liquidity may, subject to applicable securities
laws, trade their shares in the Company on any exchange where such shares are
then trading at current market value, which may differ from the then current net
asset value.
The Company may attempt from time to time to reduce or eliminate a market
value discount from the net asset value of its shares by repurchasing shares on
the open market when it can do so at prices below the then current net asset
value or by making a tender offer at net asset value. The Company may incur debt
to finance these transactions. During 1994 and 1995, the Company purchased
191,700 shares of Common Stock on the open market. There can be no assurance
that the prospect of repurchases of shares through open market purchases or
tender offers will cause the Company's shares to trade at a price equal to their
net asset value.
Valuation of Investments
Portfolio investments are carried at fair value with the net change in
unrealized appreciation or depreciation included in the determination of net
assets. Investments in companies whose securities are publicly traded are valued
at their quoted market price, less a discount to reflect the estimated effects
of restrictions on the sale of such securities, if applicable. Cost is used to
approximate fair value of other investments until significant developments
affecting an investment provide a basis for use of an appraisal valuation.
Thereafter, portfolio investments are carried at appraised values as determined
quarterly by the Management Company, subject to the approval of the Board of
Directors. Because of the inherent uncertainty of the valuation of portfolio
securities which do not have readily ascertainable market values, the Management
Company's estimate of fair value may significantly differ from the fair value
that would have been used had a ready market existed for the securities.
Repurchase Agreements
For cash management purposes, the Company may engage in repurchase agreement
transactions involving money market instruments with banks, registered
broker-dealers and government securities dealers approved by the Company's Board
of Directors. The Company will not enter into repurchase agreements with the
Investment Adviser or any of its affiliates. Under the terms of a typical
repurchase agreement, the Company would acquire any underlying debt obligation
for a relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Company to resell, the
obligation at an agreed price and time, thereby determining the yield during the
Company's holding period. Thus, repurchase agreements may be seen to be loans by
the Company collateralized by the underlying debt obligation. This arrangement
results in a fixed rate of return that is not subject to market fluctuations
during the Company's holding period. The value of the underlying securities will
be at least equal at all times to the total amount of the repurchase obligation,
including interest. The Company bears a risk of loss in the event that the other
party to a repurchase agreement defaults on its obligations and the Company is
delayed in or prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period in which the Company seeks to assert
these
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rights. The Investment Adviser, acting under the supervision of the Company's
Board of Directors, reviews the creditworthiness of those banks and dealers with
which the Company enters into repurchase agreements to evaluate these risks and
monitors on an ongoing basis the value of the securities subject to repurchase
agreements to ensure that the value is maintained at the required level.
Possible Volatility of Stock Price
The market price of the Company's Common Stock could be subject to
significant fluctuations in response to variations in the net asset value of the
Company, its quarterly operating results, and other factors. The market price of
the Common Stock may be significantly affected by such factors as the
announcement of new or follow-on investments in portfolio companies, the sale or
proposed sale of a portfolio investment, the results of operations or
fluctuations in the market prices or appraised value of one or more of the
Company's portfolio companies, changes in earnings estimates by market analysts,
speculation in the press or analyst community, and general market conditions or
market conditions specific to particular industries. From time to time in recent
years, the securities markets have experienced significant price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of particular companies. These broad fluctuations may adversely
affect the market price of the Common Stock. In addition, the Company is subject
to the risk of the securities markets in which the portfolio securities of the
Company are traded. Securities markets are cyclical and the prices of the
securities traded in such markets rise and fall at various times. These cyclical
periods may extend over significant periods of time.
Regulation
The Company has elected to be treated as a business development company under
the 1940 Act. The 1940 Act imposes numerous restrictions on the activities of
the Company, including restrictions on the nature of their investments, their
use of borrowed funds for Company purposes and their issuance of securities,
options, warrants or rights, and requires that a majority of the Directors be
individuals who are not "interested persons" of the Company as defined under the
1940 Act. Such restrictions may prohibit the purchase of certain investments by
the Company that would otherwise be suitable for investment by the Company or
render such purchases inadvisable.
Because there are no judicial and few administrative interpretations of the
provisions of the 1940 Act pertaining to business development companies, there
is no assurance that such provisions will be interpreted or administratively
implemented in a manner consistent with the Company's investment objectives and
intended manner of operation. In the event that the Board of Directors of the
Company determines that the Company cannot economically pursue its investment
objective under the 1940 Act, they may at some future date decide to withdraw
the Company's election to be treated as a business development company and
convert the Company into a management investment company or an operating company
not subject to regulation under the 1940 Act, or cause the Company to liquidate.
These changes may not be effected without the approval of a majority of the
shares of the Company.
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USE OF PROCEEDS
This Prospectus relates to an aggregate of 952,131 shares of Common Stock
that are being offered for the account of the certain officers and directors of
the Company. All proceeds from the sale of such shares will go to the selling
shareholders.
The Company could receive up to approximately $16,271,000 upon exercise of
the stock options underlying the shares of Common Stock that may be sold by the
selling shareholders. The proceeds received by the Company will be used for
general corporate purposes.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company is ten million (10,000,000)
shares of common stock, par value of $.001 (the "Common Stock") and five million
(5,000,000) shares of preferred stock, par value of $.001. All shares of Common
Stock have equal rights as to earnings, assets, dividends and voting privileges
and, when issued, will be fully paid and nonassessable. Shares of Common Stock
have no preemptive, conversion or redemption rights and are freely transferable.
In the event of liquidation, each share of Common Stock is entitled to its
proportion of the Company's assets after debts and expenses. Stockholders are
entitled to one vote per share of Common Stock and do not have cumulative voting
rights, which means that holders of a majority of the shares of Common Stock, if
they so choose, could elect all of the Directors, and holders of less than a
majority of the shares would, in that case, be unable to elect any Director.
The issued and outstanding shares of Common Stock are freely
transferrable and are listed for trading on the Amex.
Pursuant to the Restated Certificate of Incorporation of the Company,
the following are the authorized classes of securities of the Company as of
September 30, 1997:
(3) (4)
Amount Held by Amount Outstanding
(1) (2) Company or for its Exclusive of Amount
Title of Class Amount Authorized Account Shown Under(3)
-------------- ----------------- ------------------ -------------------
Common Stock 10,000,000 0 4,760,655
Preferred Stock 5,000,000 0 0
ANTI-TAKEOVER PROVISIONS IN CERTIFICATE OF INCORPORATION
The Company's Restated Certificate of Incorporation includes provisions
that could have the effect of limiting the ability of other entities or persons
to acquire control of the Company and could have the effect of depriving
stockholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging a third party from seeking to obtain control of
the Company.
Reference should be made to the Restated Certificate of Incorporation on
file with the Commission (as an exhibit to the Registration Statement of which
this Prospectus is a part) for the full text of these provisions.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation and the By-Laws of the Company
provide that the Company, subject to the limitations of the Investment Company
Act, will indemnify its directors, officers, employees, or agents against
liabilities and expenses incurred in connection with litigation in which they
may be involved because of their offices with the Company, to the fullest extent
permitted by law, except that such
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indemnity shall not protect any such person against any liability to the Company
or its stockholders to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, negligence, or breach of fiduciary duty in the
performance of his duty to the Company. In addition, the Restated Certificate of
Incorporation of the Company provides that the Company's Directors will not be
liable to the Company and its stockholders for money damages, except in limited
instances. However, nothing in the Restated Certificate of Incorporation or the
By-Laws protects or indemnifies a director, officer, employee, or agent of the
Company against any liability to which such person would otherwise be subject
for any breach of the director's duty of loyalty to the Company or its
stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, or for any transaction
from which the director derived an improper personal benefit. In addition,
indemnification is not permitted for any act or omission committed in bad faith
and opposed to the best interests of the Company or, with respect to any
criminal proceeding, if the person had reasonable cause to believe that the act
or omission was unlawful.
The Company has entered into Indemnification Agreements with each of its
directors and executive officers. Such Indemnification Agreements provide that
such persons (the "Indemnitees") will be indemnified and held harmless from all
expenses, including (without limitation) reasonable fees and expenses of
counsel, and all liabilities, including (without limitation) the amount of any
judgments, fines, penalties, excise taxes and amounts paid in settlement,
actually incurred by an Indemnitee with respect to any threatened, pending or
completed claim, action (including any action by or in the right of the
Company), suit or proceeding (whether formal or informal, or civil, criminal,
administrative, legislative, arbitrative or investigative) in respect of which
such Indemnitee is, was or at any time becomes, or is threatened to be made, a
party, witness, subject or target, by reason of the fact that such Indemnitee is
or was a director, officer, agent or fiduciary of the Company or serving at the
request of the Company as a director, officer, employee, fiduciary or
representative of another enterprise . Such Indemnification Agreements also
provide that the Company, if requested to do so by an Indemnitee, will advance
to such Indemnitee, prior to final disposition of any proceeding, the expenses
actually incurred by the Indemnitee subject to the obligation of the Indemnitee
to refund if it is ultimately determined that such Indemnitee was not entitled
to indemnification.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company,
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
TRANSFER AND DISBURSING AGENT
The Company has employed ChaseMellon Shareholder Services ("ChaseMellon")
as its transfer agent to record transfers of the shares of Common Stock,
maintain proxy records, and to process distributions. The principal business
office of ChaseMellon is 2323 Bryan Street, Suite 2300, Dallas, Texas
75201-2656.
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SELLING SHAREHOLDERS
This Prospectus relates to the reoffer and resale of an aggregate of 952,131
shares of Common Stock acquired or to be acquired by Sam P. Douglass, Nolan
Lehmann, Gary L. Forbes, Randall B. Hale, Patrick M. Cahill, Tracy H. Cohen,
Gregory J. Flanagan, Robert L. Knauss, Gary R. Petersen, John W. Storms, Francis
D. Tuggle, and Edward E. Williams (each of whom may be considered to be an
affiliate of the Company pursuant to Rule 405 of the Commission) upon the
exercise of options granted to such persons pursuant to the Company's 1997 Stock
Incentive Plan.
As of November 5, 1997, such officers and directors of the Company have been
granted options or acquired shares under the 1997 Stock Incentive Plan, as
follows:
Options Shares
Name and Position Granted Acquired
----------------- ------- --------
Sam P. Douglass, Chairman
of the Board and Chief Executive Officer ................ 260,168 0
Nolan Lehmann, President, Director,
and Chief Operating Officer ............................. 233,254 0
Gary L. Forbes, Vice President ............................. 163,726 0
Randall B. Hale, Vice President ............................ 163,726 0
Patrick M. Cahill, Vice President and Treasurer ............ 49,342 0
Tracy H. Cohen, Vice President and Secretary ............... 26,915 0
Gregory J. Flanagan, Director .............................. 5,000 0
Robert L. Knauss, Director ................................. 5,000 0
Gary R. Petersen, Director ................................. 5,000 0
John W. Storms, Director ................................... 5,000 0
Francis D. Tuggle, Director ................................ 5,000 0
Edward E. Williams, Director ............................... 5,000 0
PLAN OF DISTRIBUTION
Resales of the shares by the selling shareholders may be made on the American
Stock Exchange, in the over-the-counter market or in private transactions. The
shares will be offered for sale on terms to be determined when the agreement to
sell is made or at the time of sale, as the case may be. The selling
shareholders may sell some or all of the shares in transactions involving
broker-dealers who may act solely as agent and/or may acquire shares as
principal. Broker-dealers participating in such transactions as agent may
receive commissions from the selling shareholder (and, if they act as agent for
the purchaser of such shares, from such purchaser), such commissions computed in
appropriate cases in accordance with the applicable rules of the American Stock
Exchange, which commissions may be at negotiated rates where permissible under
such rules. Participating broker-dealers may agree with the selling shareholder
to sell a
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<PAGE>
specified number of shares at a stipulated price per share and, to the extent
such broker-dealer is unable to do so acting as agent for the selling
shareholder to purchase as principal any unsold shares at the price required to
fulfill the broker-dealer's commitment to the selling shareholder or pledgees.
Any such sales may be by block trade.
In addition or alternatively, shares may be sold by the selling shareholders,
and/or by or through other broker-dealers in special offerings, exchange
distributions or secondary distributions pursuant to and in compliance with the
governing rules of the American Stock Exchange, and in connection therewith
commissions in excess of the customary commission prescribed by the rules of
such securities exchange may be paid to participating broker-dealers, or, in the
case of certain secondary distributions, a discount or concession from the
offering price may be allowed to participating broker-dealers in excess of such
customary commission. Broker-dealers who acquire shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve cross and block transactions and which may involve sales to and through
other broker-dealers, including transactions of the nature described in the
preceding two sentences) on the American Stock Exchange, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales may pay to or receive
commissions from the purchasers of such shares.
Upon the Company's being notified by a selling shareholder that a particular
offer to sell the shares is made, a material arrangement has been entered into
with a broker-dealer for the sale of shares through a block trade, special
offering, exchange distribution or secondary distribution, or any block trade
has taken place, if required, a supplement to this Prospectus will be delivered
together with this Prospectus and filed pursuant to Rule 424(c) under the
Securities Act setting forth with respect to such offer or trade the terms of
the offer or trade; including the number of shares involved, and any brokers,
dealers, agents or member firm involved, any discounts, commissions and other
items paid as compensation from, and the resulting net proceeds to, the selling
shareholder, that such broker-dealers did not conduct any investigation to
verify the information set out in this Prospectus; and other facts material to
the transaction.
Shares may be sold directly by a selling shareholder or through agents
designated by the selling shareholder from time to time. Any agent involved in
the offer or sale of the shares in respect of which this Prospectus is delivered
will be named, and any commissions payable by the selling shareholder to such
agent will be set forth in the Prospectus Supplement. Unless otherwise indicated
in the Prospectus Supplement, any such agent will be acting on a best efforts
basis for the period of its appointment.
The selling shareholders and any brokers, dealers, agents, member firm or
others that participate with the selling shareholder in the distribution of the
shares may be deemed to be "underwriters" within the meaning of the Securities
Act, and any commissions or fees received by such persons and any profit on the
resale of the Shares purchased by such person may be deemed to be underwriting
commissions or discounts under the Securities Act.
The selling shareholders will be subject to the applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including without limitation Rules 10b-2, 10b-6, and 10b-7, which
provisions may limit the timing of purchases and sales of any of the Common
Stock by the selling shareholder. All of the foregoing may affect the
marketability of the Common Stock.
The Company will pay substantially all the expenses incident to this offering
of the Common Stock by the selling shareholders to the public other than
commissions and discounts of underwriters, dealers or agents.
In order to comply with certain states' securities laws, if applicable, the
Common Stock will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the
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Common Stock may not be sold unless the Common Stock has been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.
LEGAL MATTERS
Certain legal matters in connection with the Shares have been passed upon for
the Company by Snell & Smith, A Professional Corporation, Houston, Texas.
EXPERTS
The financial statements of the Company included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, incorporated by
reference herein, have been audited by Arthur Andersen LLP, independent public
accountants, to the extent and for the periods indicated in their reports
incorporated by reference herein, in reliance upon their report with respect
thereto and given on the authority of said firm as experts in accounting and
auditing in giving said report.
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No dealer, salesman, or any other 952,131 Shares
person has been authorized to give any
information or to make any EQUUS II INCORPORATED
representations other than those
contained in this Prospectus and in COMMON STOCK
the documents incorporated herein by
reference in connection with the PROSPECTUS
offering contained herein, and, if
given or made, such information or November __, 1997
representations must not be relied
upon as having been authorized by the
Company or the selling shareholders.
This Prospectus does not constitute an
offer to sell or a solicitation of an
offer to buy any of the securities
offered hereby in any jurisdiction to
any person to whom it is unlawful to
make such offer or solicitation.
Neither the delivery of this
Prospectus nor any sale hereunder
shall, under any circumstances, create
any implication that there has been no
change in the affairs of the Company
since the date hereof. See, however,
"Incorporation of Certain Information
by Reference."
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PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated by reference in the registration
statement:
(a) The registrant's latest annual report on Form 10-K, or, if the financial
statements therein are more current, the registrant's latest prospectus, other
than the prospectus of which this document is a part, filed pursuant to rule
424(b) or (c) of the Securities Exchange Commission under the Securities Act of
1933.
(b) All other reports filed by the registrant pursuant to Sections 13(a) or
15(d) of the Securities Exchange Act of 1934 since the end of the fiscal year
covered by the annual report or the prospectus referred to in (a) above.
(c) The descriptions of the registrant's Common Stock which are contained in
the registrant's registration statement filed under Section 12 of the Securities
Exchange Act of 1934, including any amendment or reports filed for the purpose
of updating such descriptions.
All documents subsequently filed by the registrant pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, prior to the
filing of a post-effective amendment to the registration statement which
indicates that all of the shares of common stock offered have been sold or which
deregisters all of such shares then remaining unsold, shall be deemed to be
incorporated by reference in the registration statement and to be a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this registration statement to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this registration statement.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware provides
as follows:
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was
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serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in
good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and except
that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the Court of Chancery or such other
court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b), or in
defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) (unless ordered by a
court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b). Such
determination shall be made (1) by the board of directors by a majority vote
of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative, or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this Section. Such expenses
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<PAGE>
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f)The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this section.
(h) For purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence
had continued.
(i)For purposes of this Section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the corporation" shall include
any service as a director, officer, employee or agent of the corporation
which imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the corporation" as
referred to in this Section.
(j)The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Article Eleventh of the Registrant's Certificate of Incorporation filed as
Exhibit 1 provides as follows:
ELEVENTH: A. Subject to any limitation imposed pursuant to the 1940 Act,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a dir-
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<PAGE>
ector, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or pro ceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful,
except that (i) no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be
liable for bad faith, negligence, willful misconduct or breach of fiduciary
duty in the performance of his duty to the Corporation unless and only to
the extent the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper, and (ii) no such
person shall be entitled to indemnification in connection with any lawsuit
in which the violation of any federal or state securities laws is alleged
unless (a) if such person is successful in defending against such lawsuit, a
court approves indemnification for the costs of such defense or (b) if the
lawsuit is set tled, a court approves the settlement and finds that
indemnification for the settlement costs and expenses related to the lawsuit
should be made. The satisfaction of any indemnification hereunder shall be
limited to Corporation assets. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
B. Subject to any limitation imposed by the 1940 Act, the Corporation
shall indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for bad faith, negligence, willful
misconduct or breach of fiduciary duty in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the Court of Chancery or such other
court shall deem proper.
C. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections A and B, or in defense
of any claim, issue or matter therein, he shall be indemnified against
expenses (includ ing attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
D. Any indemnification under subsection A and B (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the
II-4
<PAGE>
officer, director, employee or agent, is proper in the circumstances because
he has met the applicable standard of conduct set forth in subsections A and
B. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (2) if such quorum is not obtainable, or
even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (3) by the stockholders.
E. Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount
unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in Section 145 of The General
Corporation Law of Delaware provided that at least one of the following
conditions precedent has occurred in the specific case: (1) the officer or
director has provided security for his undertaking; (2) the Corporation is
insured against losses arising by reason of any lawful advances; or (3) a
majority of a quorum of the disinterested non-party directors of the
Corporation or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts, that there is
reason to believe that such officer or director ultimately will be found
entitled to indemnification. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board
of Directors deems appropriate.
F. The indemnification and advancement of expenses provided by this
Article shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person. The Corporation shall be permitted to enter into contracts directly
with its officers and directors providing the maximum indemnity and relief
from liability permitted under Delaware law.
G. The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article;
provided, however, that the Corporation may not purchase and maintain
insurance that will protect or purport to protect any person against any
liability for willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.
H. For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan;
and references to "serving at the request of the Corporation" shall include
any service as a director, officer, employee or agent of the Corporation
which imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit
II-5
<PAGE>
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article.
I. No provision of this Certificate of Incorporation shall be effective to
protect or purport to protect any director or officer of the Corporation
against any liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith,
negligence or reckless disregard of the duties involved in the conduct of
his office.
Sections 8 and 9 of the Management Agreement between the Registrant and
Equus Capital Management Corporation provide as follows:
8. LIABILITY OF THE MANAGEMENT COMPANY. The Management Company, its
officers, directors, employees, agents and affiliates (collectively,
"Affiliates") shall not be liable to the Fund, or any stockholder of the
Fund, for any error of judgment or mistake of law or any loss or damage with
respect to any investment of the Fund or arising from any act or omission of
the Management Company or any of the Affiliates in the performance of its
obligations hereunder, unless such loss or damage is the result of bad
faith, negligence, misconduct or any breach of fiduciary duty, disregard of
any duties or obligations owed to the Fund by the Management Company or such
Affiliates by reason of this Agreement or any relation created hereby.
9. INDEMNIFICATION OF THE MANAGEMENT COMPANY. The Fund shall indemnify and
hold harmless, to the extent permitted by law, the Management Company and
any of its affiliates, who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding
whether civil, criminal, administrative or investigative (including any
action by or in the right of the Fund), by reason of any acts or omissions
or alleged acts or omissions arising out of the activities of such person,
if such activities were performed in good faith either on behalf of the Fund
or in furtherance of the interest of the Fund, and in a manner reasonably
believed by such person to be within the scope of the authority conferred by
this Agreement or by law against losses, damages or expenses for which such
person has not otherwise been reimbursed (including, but not limited to,
accountants' and attorneys' fees, judgments, fines and amounts paid in
settlement) actually and reasonably incurred by such person in connection
with such action, suit or proceeding, so long as such conduct did not
constitute bad faith, negligence, misconduct or any other breach of
fiduciary duty with respect to such acts or omissions and, with respect to
any criminal action or proceedings, had no reasonable cause to believe his
conduct was unlawful. The satisfaction of any indemnification and any
holding harmless hereunder shall be from and limited to Fund assets.
Notwithstanding the foregoing, absent a court determination that the person
seeking indemnification was not liable by reason of "disabling conduct"
within the meaning of Section 17(h) of the Act, the decision by the Fund to
indemnify such person shall be based upon the reasonable determination,
after review of the facts, of the non-party Directors of the Fund, or of
independent legal counsel in a written opinion that such person was not
liable by reason of such disabling conduct.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to Directors, officers and
controlling persons of the Fund, pursuant to the foregoing provisions or
otherwise, the Fund has been advised that in the opinion of the Securities and
Exchange Commission (the "Commission") such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Fund of expenses incurred or paid by a Director, officer or
controlling person of the Fund
II-6
<PAGE>
in the successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Fund will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The registrant has entered into Indemnification Agreements with each of its
directors and executive officers. Such Indemnification Agreements provide that
such persons (the "Indemnitees") will be indemnified and held harmless from all
expenses, including (without limitation) reasonable fees and expenses of
counsel, and all liabilities, including (without limitation) the amount of any
judgments, fines, penalties, excise taxes and amounts paid in settlement,
actually incurred by an Indemnitee with respect to any threatened, pending or
completed claim, action (including any action by or in the right of the
registrant), suit or proceeding (whether formal or informal, or civil, criminal,
administrative, legislative, arbitrative or investigative) in respect of which
such Indemnitee is, was or at any time becomes, or is threatened to be made, a
party, witness, subject or target, by reason of the fact that such Indemnitee is
or was a director, officer, agent or fiduciary of the registrant or serving at
the request of the registrant as a director, officer, employee, fiduciary or
representative of another enterprise . Such Indemnification Agreements also
provide that the registrant, if requested to do so by an Indemnitee, will
advance to such Indemnitee, prior to final disposition of any proceeding, the
expenses actually incurred by the Indemnitee subject to the obligation of the
Indemnitee to refund if it is ultimately determined that such Indemnitee was not
entitled to indemnification.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable.
ITEM 8. EXHIBITS.
4.1 Restated Certificate of Incorporation [Incorporated by reference to
Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991].
4.2 Amended and Restated Bylaws [Incorporated by reference to Exhibit
3(c) of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995].
4.3 Specimen Stock Certificate [Incorporated by reference to Exhibit 3.2
of the Registrant's Registration Statement on Form 8-A, File No.
0-17034, Reference No. 88-15-2847].
4.4 Equus II Incorporated 1997 Stock Incentive Plan.
5.1 Opinion of Snell & Smith, A Professional Corporation.
23.1 Consent of Snell & Smith, A Professional Corporation (Contained in
Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24 Powers of Attorney (Included on Page II-10).
II-7
<PAGE>
ITEM 9. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement.
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
PROVIDED, HOWEVER, that paragraph (a)(1)(i) and (a)(1)(ii) shall
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference and furnished pursuant to and meeting the requirements of Rule 14a-3
or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of Regulation S-X is
not set forth in the prospectus, to deliver, or cause
II-8
<PAGE>
to be delivered to each person to whom the prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, un enforceable. In the event that a
claim or indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this registration
statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in Houston, State of Texas on November __, 1997.
EQUUS II INCORPORATED
By: ___________________________________
Nolan Lehmann, President
II-9
<PAGE>
POWER OF ATTORNEY
We, the undersigned officers and director of Equus II Incorporated, hereby
severally constitute Nolan Lehmann or Patrick M. Cahill, and each of them
singly, our true and lawful attorneys with full power to them, and each of them
singly, to sign for us and in our names, in the capacities indicated below, the
Registration Statement on Form S-8 filed herewith and any amendments to said
Registration Statement, and generally to do all such things in our name and
1behalf in our capacities as officers and directors to enable Equus II
Incorporated to comply with the provisions of the Securities Act of 1933 as
amended, and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said Registration Statement and any and all
amendments thereto.
Witness our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment thereto has been signed by the following
persons in the capacities on October 30, 1997.
SIGNATURE TITLE
_______________________
Sam P. Douglass Chairman of the Board and Chief
Executive Officer
_______________________
Nolan Lehmann President and director (Chief
Financial and Accounting
Officer)
_______________________
Gregory J. Flanagan Director
_______________________
Robert L. Knauss Director
_______________________
Gary R. Petersen Director
_______________________
John W. Storms Director
_______________________
Francis D. Tuggle Director
_______________________
Edward E. Williams Director
II-10
<PAGE>
November 10, 1997
Equus II Incorporated
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Gentlemen:
We have acted as counsel for Equus II Incorporated, a Delaware corporation
(the "Fund"), in connection with the filing of the Registration Statement on
Form S-8 with respect to the registration of 952,131 shares (the "Shares") of
the Common Stock, $.001 par value (the "Common Stock"), of the Fund.
We have made such inquiries and examined such documents as we have
considered necessary or appropriate for purposes of giving the opinions
hereinafter set forth, including the examination of executed or conformed
counterparts, or copies certified or otherwise proved to our satisfaction, of
the following:
(a) the Amended and Restated Certificate of Incorporation of the Fund as
filed with the Secretary of State of Delaware on March 4, 1992;
(b) the Amended and Restated By-laws of the Fund; and
(c) the Registration Statement on Form S-8 of the Fund, including the
related prospectus and other attachments, filed with the Securities and Exchange
Commission to register the Shares under the Securities Act of 1933 (the
"Registration Statement").
We have assumed the genuineness and authenticity of all signatures on all
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies and the due authorization, execution, delivery or recordation of all
documents where due authorization, execution or recordation or prerequisites to
the effectiveness thereof.
<PAGE>
Based upon the foregoing, and having regard for such legal considerations
as we deem relevant, we are of the opinion that:
(i) the Fund is a corporation duly organized, validly existing and in good
standing under the laws of the States of Delaware;
(ii) the authorized capital of the Fund consists of 10,000,000 shares of
Common Stock, of which, as of September 30, 1997, 4,760,655 shares are issued
and outstanding, and 5,000,000 shares of Preferred Stock, $.001 par value, of
which, as of September 30, 1997, no shares are issued and outstanding; and
(iii) the Shares registered under the Registration Statement are duly
authorized, and if and when issued by the Fund, will be legally issued, fully
paid, and non-assessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
Statements made regarding our Firm and to the use of our name under the heading
"Legal Matters" in the prospectus constituting a part of the Registration
Statement.
Very truly yours,
SNELL & SMITH, A Professional Corporation
EQUUS II INCORPORATED
1997 STOCK INCENTIVE PLAN
MAY 9, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. GENERAL................................................ 1
Section 1.1. PURPOSE................................................ 1
Section 1.2. ADMINISTRATION......................................... 1
Section 1.3. ELIGIBILITY FOR PARTICIPATION.......................... 2
Section 1.4. TYPES OF AWARDS UNDER PLAN............................. 2
Section 1.5. AGGREGATE LIMITATION ON AWARDS......................... 3
Section 1.6. EFFECTIVE DATE AND TERM OF PLAN........................ 4
ARTICLE II. STOCK OPTIONS.......................................... 4
Section 2.1. AWARD OF STOCK OPTIONS................................. 4
Section 2.2. STOCK OPTION AGREEMENTS................................ 4
Section 2.3. STOCK OPTION PRICE..................................... 4
Section 2.4. TERM AND EXERCISE...................................... 4
Section 2.5. MANNER OF PAYMENT...................................... 4
Section 2.6. DELIVERY OF SHARES..................................... 5
Section 2.7. DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT OF
OPTIONEE............................................ 5
Section 2.8. TAX ELECTION........................................... 5
Section 2.9. EFFECT OF EXERCISE..................................... 6
ARTICLE III. INCENTIVE STOCK OPTIONS ............................... 6
Section 3.1. AWARD OF INCENTIVE STOCK OPTIONS....................... 6
Section 3.2. INCENTIVE STOCK OPTION AGREEMENTS...................... 6
Section 3.3. INCENTIVE STOCK OPTION PRICE........................... 6
Section 3.4. TERM AND EXERCISE...................................... 7
Section 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT......... 7
Section 3.6. DEATH OF OPTIONEE...................................... 7
Section 3.7 RETIREMENT OR DISABILITY
Section 3.8. TERMINATION WITHOUT CAUSE.............................. 7
Section 3.9. TERMINATION FOR OTHER REASONS.......................... 7
Section 3.10. APPLICABILITY OF STOCK OPTIONS SECTIONS................ 7
ARTICLE IV. ALTERNATE APPRECIATION RIGHTS ......................... 8
Section 4.1. AWARD OF ALTERNATE APPRECIATION RIGHTS.................. 8
Section 4.2. ALTERNATE APPRECIATION RIGHTS AGREEMENT................. 8
Section 4.3. EXERCISE................................................ 8
Section 4.4. AMOUNT OF PAYMENT....................................... 8
Section 4.5. FORM OF PAYMENT......................................... 8
Section 4.6. EFFECT OF EXERCISE...................................... 8
Section 4.7. TERMINATION OF EMPLOYMENT, RETIREMENT, DEATH OR
DISABILITY........................................... 9
ARTICLE V. LIMITED RIGHTS ......................................... 9
Section 5.1. AWARD OF LIMITED RIGHTS................................. 9
Section 5.2. LIMITED RIGHTS AGREEMENT................................ 9
Section 5.3. EXERCISE PERIOD......................................... 9
<PAGE>
Section 5.4. AMOUNT OF PAYMENT...................................... 10
Section 5.5. FORM OF PAYMENT........................................ 10
Section 5.6. EFFECT OF EXERCISE..................................... 10
Section 5.7. RETIREMENT OR DISABILITY............................... 10
Section 5.8. DEATH OF OPTIONEE OR TERMINATION FOR OTHER REASONS..... 10
Section 5.9. TERMINATION RELATED TO A CHANGE IN CONTROL............. 11
ARTICLE VI. AUTOMATIC OPTION GRANT
Section 6.1. GRANT.................................................. 11
Section 6.2. OPTION AWARD AGREEMENTS................................ 11
Section 6.3. DEATH, RETIREMENT AND TERMINATION OF
DIRECTORSHIP OF OPTIONEE............................ 11
Section 6.4. APPLICABILITY OF STOCK OPTION SECTIONS................. 12
ARTICLE VII. MISCELLANEOUS ......................................... 12
Section 7.1. GENERAL RESTRICTION.................................... 12
Section 7.2. NON-ASSIGNABILITY...................................... 12
Section 7.3. WITHHOLDING TAXES...................................... 12
Section 7.4. RIGHT TO TERMINATE EMPLOYMENT.......................... 12
Section 7.5. NON-UNIFORM DETERMINATIONS............................. 13
Section 7.6. RIGHTS AS A STOCKHOLDER................................ 13
Section 7.7. DEFINITIONS............................................ 13
Section 7.8. LEAVES OF ABSENCE...................................... 13
Section 7.9. NEWLY ELIGIBLE EMPLOYEES............................... 14
Section 7.10. ADJUSTMENTS............................................ 14
Section 7.11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE............. 14
Section 7.12. AMENDMENT OF THE PLAN.................................. 16
<PAGE>
EQUUS II INCORPORATED
1997 STOCK INCENTIVE PLAN
ARTICLE I. GENERAL
Section 1.1. PURPOSE. The purposes of this Stock Incentive Plan (the
"Plan") are to: (1) closely associate the interests of the management of Equus
II Incorporated (the "Company") with the stockholders of the Company to generate
an increased incentive to contribute to the Company's future success and
prosperity, thus enhancing the value of the Company for the benefit of its
stockholders; (2) provide management with a proprietary ownership interest in
the Company commensurate with Company performance, as reflected in increased
stockholder value; (3) maintain competitive compensation levels thereby
attracting and retaining highly competent and talented directors, officers, and
employees; and (4) provide an incentive to management for continuous employment
with the Company.
Section 1.2. ADMINISTRATION.
(a) The Plan shall be administered by a Committee of disinterested
persons appointed by the Board of Directors of the Company (the
"Committee"), as constituted from time to time. The Committee shall
consist of at least two members of the Board of Directors. During the one
year prior to commencement of service on the Committee, the Committee
members will not have participated in, and while serving and for one year
after serving on the Committee, such members shall not be eligible for
selection as, persons to whom stock may be allocated or to whom stock
options or stock appreciation rights may be granted under the Plan or any
other discretionary plan of the Company under which participants are
entitled to acquire stock, stock options, or stock appreciation rights of
the Company, other than Automatic Awards.
(b) The Committee shall have the authority, in its sole discretion
and from time to time to:
(i) designate the directors, officers, and employees or
classes of employees of the Company eligible to participate in the
Plan;
(ii) grant awards ("Awards") provided in the Plan in such form
and amount as the Committee shall determine;
(iii) impose such limitations, restrictions, and conditions,
not inconsistent with this Plan, upon any such Award as the
Committee shall deem appropriate; and
(iv) interpret the Plan and any agreement, instrument, or
other document executed in connection with the Plan; adopt, amend,
and rescind rules and regulations relating to the Plan; and make all
other determinations and take all other action necessary or
advisable for the implementation and administration of the Plan.
(c) Decisions and determinations of the Committee on all matters
relating to the Plan shall be in its sole discretion and shall be final,
conclusive, and binding upon all persons, including the Company, any
participant, any stockholder of the Company, and any employee. A majority
of the members of the Committee may determine its actions and fix the time
and place of its meetings. No member of the Committee shall be liable for
any action taken or decision made in good faith relating to the Plan or
any Award thereunder.
1
<PAGE>
Section 1.3. ELIGIBILITY FOR PARTICIPATION. Participants in the Plan
("Participants") shall be selected by the Committee from the directors,
officers, and employees of the Company who are responsible for or contribute to
the management, growth, success and, profitability of the Company. In making
this selection and in determining the form and amount of Awards, the Committee
shall consider any factors deemed relevant, including the individual's
functions, responsibilities, value of services to the Company, and past and
potential contributions to the Company's profitability and growth.
Section 1.4. TYPES OF AWARDS UNDER PLAN. Awards under the Plan may be in
the form of any or more of the following:
(i) Stock Options, as described in Article II;
(ii) Incentive Stock Options, as described in Article III;
(iii) Alternate Appreciation Rights, as described in Article IV;
(iv) Limited Rights, as described in Article V; and
(v) Automatic Awards, as described in Article VI.
Awards under the Plan shall be evidenced by an Award Agreement between the
Company and the recipient of the Award, in form and substance satisfactory to
the Committee, and not inconsistent with this Plan.
Section 1.5. AGGREGATE LIMITATION ON AWARDS.
(a) Shares of stock which may be issued under the Plan shall be
authorized and unissued or treasury shares of Common Stock, $.001 par
value, of the Company ("Common Stock"). The maximum number of shares of
Common Stock which may be issued under the Plan initially shall be 860,316
shares. Commencing on July 1, 1997, and continuing each calendar quarter
thereafter, the number of shares of Common Stock available for issuance
under the Plan shall be the greater of 860,316 shares or an amount equal
to 20% of the issued and outstanding shares of Common Stock of the Company
on the last day of the preceding calendar quarter.
(b) For purposes of calculating the maximum number of shares of
Common Stock that may be issued under the Plan:
(i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when
cash is used as full payment for shares issued upon exercise of a
Stock Option, Incentive Stock Option, or Automatic Award;
(ii) only the shares issued (including the shares, if any,
withheld for tax withholding requirements) as a result of an
exercise of Alternate Appreciation Rights shall be counted; and
(iii) only the net shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when
shares of Common Stock are withheld as full or partial payment for
shares issued upon exercise of a Stock Option, Incentive Stock
Option, or Automatic Award.
2
<PAGE>
(c) In addition to shares of Common Stock actually issued pursuant
to the exercise of Stock Options, Incentive Stock Options, Alternate
Appreciation Rights, or Automatic Awards there shall be deemed to have
been issued a number of shares equal to the number of shares of Common
Stock in respect of which Limited Rights (as described in Article VI)
shall have been exercised.
(d) Any shares of Common Stock subject to a Stock Option, Incentive
Stock Option, or Automatic Award that for any reason is terminated
unexercised or expires shall again be available for issuance under the
Plan, but shares subject to a Stock Option, Incentive Stock Option, or
Automatic Award that are not issued as a result of the exercise of Limited
Rights shall not again be available for issuance under the Plan. Any
shares of Common Stock withheld as payment for shares issued or
withholding taxes required to be paid upon exercise of a Stock Option,
Incentive Stock Option, or Automatic Awards shall be available for
issuance under the Plan.
(e) No officer or director shall be granted in any fiscal year of
the Company Stock Options, Incentive Stock Options, Alternative
Appreciation Rights, or Limited Rights to acquire in the aggregate more
than 500,000 shares of Common Stock.
Section 1.6. EFFECTIVE DATE AND TERM OF PLAN.
(a) The Plan shall become effective on the later of the date (i)
approved by the holders of a majority of the shares of Common Stock
present in person or by proxy and entitled to vote at the 1997 Special
Meeting of Stockholders of the Company and (ii) an order approving the
Plan is issued by the Securities and Exchange Commission.
(b) Article VI shall become effective on the later of the date (i)
approved by the holders of a majority of the shares of Common Stock
present in person or by proxy and entitled to vote at the 1997 Special
Meeting of Stockholders of the Company and (ii) an order approving the
Plan is issued by the Securities and Exchange Commission.
(c) The Plan and all Awards made under the Plan shall remain in
effect until such Awards have been satisfied or terminated in accordance
with the Plan and the terms of such Awards.
ARTICLE II. STOCK OPTIONS
Section 2.1. AWARD OF STOCK OPTIONS. The Committee may from time to time,
and subject to the provisions of the Plan and such other terms and conditions as
the Committee may prescribe, grant to any participant in the Plan one or more
options to purchase the number of shares of Common Stock ("Stock Options")
allotted by the Committee. The date a Stock Option is granted shall mean the
date selected by the Committee as of which the Committee allots a specific
number of shares to a participant pursuant to the Plan.
Section 2.2. STOCK OPTION AGREEMENTS. The grant of a Stock Option shall be
evidenced by a written Award Agreement, executed by the Company and the holder
of a Stock Option (the "Optionee"), stating the number of shares of Common Stock
subject to the Stock Option evidenced thereby, any vesting requirements, and
such other matters as the Committee may from time to time determine.
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Section 2.3. STOCK OPTION PRICE. The option price per share of Common
Stock deliverable upon the exercise of a Stock Option shall be an amount
selected by the Committee and shall not be less than 100% of the fair market
value of a share of Common Stock on the date the Stock Option is granted.
Section 2.4. TERM AND EXERCISE. A Stock Option shall not be exercisable
prior to six months from the date of its grant and unless a shorter period is
provided by the Committee or by another Section of this Plan, may be exercised
during a period of ten years from the date of grant thereof (the "Option Term").
No Stock Option shall be exercisable after the expiration of its Option Term.
Section 2.5. MANNER OF PAYMENT. Each Award Agreement providing for Stock
Options shall set forth the procedure governing the exercise of the Stock Option
granted thereunder, and shall provide that, upon such exercise in respect of any
shares of Common Stock subject thereto, the Optionee shall pay to the Company,
in full, the option price for such shares with cash, or at the discretion of the
Committee, in whole or in part with, the surrender of another Award under the
Plan, the withholding of shares of Common Stock issuable upon exercise of such
Stock Option (based on the fair market value of such Common Stock on the date
the Stock Option is exercised as determined by the Committee).
Section 2.6. DELIVERY OF SHARES. As soon as practicable after receipt of
payment, the Company shall deliver to the Optionee a certificate or certificates
for such shares of Common Stock. The Optionee shall become a stockholder of the
Company with respect to Common Stock represented by share certificates so issued
and as such shall be fully entitled to receive dividends, to vote and to
exercise all other rights of a stockholder.
Section 2.7. DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT OF OPTIONEE.
Unless otherwise provided in an Award Agreement or otherwise agreed to by the
Committee:
(a) Upon the death of the Optionee, any rights to the extent
exercisable on the date of death may be exercised by the Optionee's
estate, or by a person who acquires the right to exercise such Stock
Option by bequest or inheritance or by reason of the death of the
Optionee, provided that such exercise occurs within both the remaining
effective term of the Stock Option and one year after the Optionee's
death. The provisions of this Section shall apply notwithstanding the fact
that the Optionee's employment may have terminated prior to death, but
only to the extent of any rights exercisable on the date of death.
(b) Upon termination of the Optionee's employment by reason of
retirement or permanent disability (as each is determined by the
Committee), the Optionee may, within 36 months from the date of
termination, exercise any Stock Options to the extent such options are
exercisable during such 36-month period.
(c) Upon termination of the Optionee's employment by the Company
without cause, the Optionee may, within 60 months from the date of
termination, exercise any Stock Options to the extent such options are
exercisable during such 60-month period.
(d) Except as provided in Subsections (a), (b), or (c) of this
Section 2.7, or except as otherwise determined by the Committee, all Stock
Options shall terminate three months after the date of the termination of
the Optionee's employment.
Section 2.8. TAX ELECTION. Recipients of Stock Options who are directors
or executive officers of the Company or who own more than 10% of the Common
Stock of the Company ("Section 16(a) Option
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Holders") at the time of exercise of a Stock Option may elect, in lieu of paying
to the Company an amount required to be withheld under applicable tax laws in
connection with the exercise of a Stock Option in whole or in part, to have the
Company withhold shares of Common Stock having a fair market value equal to the
amount required to be withheld. Such election may not be made prior to six
months following the grant of the Stock Option, except in the event of a Section
16(a) Option Holder's death or disability. The election may be made at the time
the Stock Option is exercised by notifying the Company of the election,
specifying the amount of such withholding and the date on which the number of
shares to be withheld is to be determined ("Tax Date"), which shall be either
(i) the date the Stock Option is exercised or (ii) a date six months after the
Stock Option was granted, if later. The number of shares of Common Stock to be
withheld to satisfy the tax obligation shall be the amount of such tax liability
divided by the fair market value of the Common Stock on the Tax Date (or if not
a business day, on the next closest business day). If the Tax Date is not the
exercise date, the Company may issue the full number of shares of Common Stock
to which the Section 16(a) Option Holder is entitled, and such option holder
shall be obligated to tender to the Company on the Tax Date a number of such
shares necessary to satisfy the withholding obligation. Certificates
representing such shares of Common Stock shall bear a legend describing such
Section 16(a) Option Holders obligation hereunder.
Section 2.9. EFFECT OF EXERCISE. The exercise of any Stock Option shall
cancel that number of related Alternate Appreciation Rights and/or Limited
Rights, if any, that is equal to the number of shares of Common Stock purchased
pursuant to said option unless otherwise agreed by the Committee in an Award
Agreement or otherwise.
ARTICLE III. INCENTIVE STOCK OPTIONS
Section 3.1. AWARD OF INCENTIVE STOCK OPTIONS. The Committee may, from
time to time and subject to the provisions of the Plan and such other terms and
conditions as the Committee may prescribe, grant to any participant in the Plan
one or more "incentive stock options" (intended to qualify as such under the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") ("Incentive Stock Options") to purchase the number of shares of Common
Stock allotted by the Committee. The date an Incentive Stock Option is granted
shall mean the date selected by the Committee as of which the Committee allots a
specific number of shares to a participant pursuant to the Plan.
Section 3.2. INCENTIVE STOCK OPTION AGREEMENTS. The grant of an Incentive
Stock Option shall be evidenced by a written Award Agreement, executed by the
Company and the holder of an Incentive Stock Option (the "Optionee"), stating
the number of shares of Common Stock subject to the Incentive Stock Option
evidenced thereby, any vesting requirements, and such other matters as the
Committee may from time to time determine.
Section 3.3. INCENTIVE STOCK OPTION PRICE. The option price per share of
Common Stock deliverable upon the exercise of an Incentive Stock Option shall be
at least 100% of the fair market value of a share of Common Stock on the date
the Incentive Stock Option is granted; provided, however, the option price per
share of Common Stock deliverable upon the exercise of an Incentive Stock Option
granted to any owner of 10% or more of the total combined voting power of all
classes of stock of the Company and its subsidiaries shall be at least 110% of
the fair market value of a share of Common Stock on the date the Incentive Stock
Option is granted.
Section 3.4. TERM AND EXERCISE. Each Incentive Stock Option shall not be
exercisable prior to six months from the date of its grant and unless a shorter
period is provided by the Committee or another Section of this Plan, may be
exercised during a period of ten years from the date of grant thereof (the
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"Option Term"). No Incentive Stock Option shall be exercisable after the
expiration of its Option Term. No Incentive Stock Option shall be made under the
Plan after the tenth anniversary of the effective date of the Plan.
Section 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT. The aggregate
fair market value (determined on the date the option is granted) of Common Stock
subject to an Incentive Stock Option granted to an Optionee by the Committee and
vesting in any calendar year shall not exceed $100,000.
Section 3.6. DEATH OF OPTIONEE.
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's estate
or by a person who acquires the right to exercise such Incentive Stock
Option by bequest or inheritance or by reason of the death of the
Optionee, provided that such exercise occurs within both the remaining
option term of the Incentive Stock Option and one year after the
Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the
fact that the Optionee's employment may have terminated prior to death,
but only to the extent of any Incentive Stock Options exercisable on the
date of death.
Section 3.7. RETIREMENT OR DISABILITY. Upon the termination of the
Optionee's employment by reason of permanent disability or retirement (as each
is determined by the Committee), the Optionee may, within 36 months from the
date of such termination of employment, exercise any Incentive Stock Options to
the extent such Incentive Stock Options become exercisable during the 36-month
period. Notwithstanding the foregoing, the tax treatment available pursuant to
Section 422A of the Code upon the exercise of an Incentive Stock Option will not
be available to an Optionee who exercises any Incentive Stock Options more than
(i) 12 months after the date of termination of employment due to permanent
disability or (ii) three months after the date of termination of employment due
to retirement.
Section 3.8. TERMINATION WITHOUT CAUSE. Upon the termination of the
Optionee's employment by the Company without cause (as determined by the
Committee), the Optionee may, within 60 months from the date of such termination
of employment, exercise any Incentive Stock Options to the extent such Incentive
Stock Options become exercisable during such 60-month period. Notwithstanding
the foregoing, the tax treatment available pursuant to Section 422A of the Code
upon the exercise of an Incentive Stock Option will not be available to an
Optionee who exercises any Incentive Stock Options more than (i) 12 months after
the date of termination of employment due to permanent disability or (ii) three
months after the date of termination of employment due to retirement.
Section 3.9. TERMINATION FOR OTHER REASONS. Except as provided in Sections
3.6, 3.7, and 3.8 or except as otherwise determined by the Committee, all
Incentive Stock Options shall terminate three months after the date of the
termination of the Optionee's employment.
Section 3.10. APPLICABILITY OF STOCK OPTIONS SECTIONS. Sections 2.5,
Manner of Payment; 2.6, Delivery of Shares; 2.8, Tax Elections and 2.9, Effect
of Exercise, applicable to Stock Options, shall apply equally to Incentive Stock
Options. Such Sections are incorporated by reference in this Article III as
though fully set forth herein.
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ARTICLE IV. ALTERNATE APPRECIATION RIGHTS
Section 4.1. AWARD OF ALTERNATE APPRECIATION RIGHTS. Concurrently with or
subsequent to the award of any Stock Option or Incentive Stock Option the
Committee may, subject to the provisions of the Plan and such other terms and
conditions as the Committee may prescribe, award to the Optionee with respect to
each share of Common Stock covered by an Option, a related alternate
appreciation right permitting the Optionee to be paid the appreciation on the
Option in lieu of exercising the Option ("Alternate Appreciation Right").
Section 4.2. ALTERNATE APPRECIATION RIGHTS AGREEMENT. Alternate
Appreciation Rights shall be evidenced by written Award Agreements in such form
as the Committee may from time to time determine.
Section 4.3. EXERCISE. An Optionee who has been granted Alternate
Appreciation Rights may, from time to time, in lieu of the exercise of an equal
number of Options, elect to exercise one or more Alternate Appreciation Rights
and thereby become entitled to receive from the Company payment in Common Stock
of the number of shares determined pursuant to Sections 4.4 and 4.5; provided,
however, that an Optionee may exercise an Alternate Appreciation Right only in
and to the extent that such exercise would not result in a greater dilution of
the interests of existing stockholders of the Company than would result if,
instead of the Alternate Appreciation Right, the Options to which they relate
were exercised. Alternate Appreciation Rights shall be exercisable only to the
same extent and subject to the same conditions as the Options related thereto
are exercisable, as provided in this Plan. The Committee may, in its discretion,
prescribe additional conditions to the exercise of any Alternate Appreciation
Rights.
Section 4.4. AMOUNT OF PAYMENT. The amount of payment to which an Optionee
shall be entitled upon the exercise of each Alternate Appreciation Right shall
be equal to 100% of the amount, if any, by which the fair market value of a
share of Common Stock on the exercise date exceeds the option price per share on
the Option related to such Alternate Appreciation Right. A Section 16(a) Option
Holder may elect to withhold shares of Common Stock issued under this Section to
pay taxes as described in Section 2.8.
Section 4.5. FORM OF PAYMENT. The number of shares to be paid shall be
determined by dividing the amount of payment determined pursuant to Section 4.4
by the fair market value of a share of Common Stock on the exercise date of such
Alternate Appreciation Rights. As soon as practicable after exercise, the
Company shall deliver to the Optionee a certificate or certificates for such
shares of Common Stock.
Section 4.6. EFFECT OF EXERCISE. Unless otherwise provided in an Award
Agreement or agreed to by the Committee, the exercise of any Alternate
Appreciation Rights shall cancel an equal number of Stock Options, Incentive
Stock Options, and Limited Rights, if any, related to said Alternate
Appreciation Rights.
Section 4.7. TERMINATION OF EMPLOYMENT, RETIREMENT, DEATH OR DISABILITY.
Unless otherwise provided in an Award Agreement or agreed to by the Committee:
(a) Upon termination of the Optionee's employment by reason of
permanent disability or retirement (as each is determined by the
Committee), the Optionee may, within six months from the date of such
termination, exercise any Alternate Appreciation Rights to the extent such
Alternate Appreciation Rights are exercisable during such six-month
period.
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(b) Except as provided in Section 4.7(a), all Alternate Appreciation
Rights shall terminate three months after the date of the termination of
the Optionee's employment or upon the death of the Optionee.
ARTICLE V. LIMITED RIGHTS
Section 5.1. AWARD OF LIMITED RIGHTS. Concurrently with or subsequent to
the award of any Stock Option or Incentive Stock Option the Committee may,
subject to the provisions of the Plan and such other terms and conditions as the
Committee may prescribe, award to the Optionee with respect to each share of
Common Stock covered by an Option, a related limited right permitting the
Optionee, during a specified limited time period, to be paid the appreciation on
the option in lieu of exercising the option ("Limited Right").
Section 5.2. LIMITED RIGHTS AGREEMENT. Limited Rights granted under the
Plan shall be evidenced by written Award Agreements in such form as the
Committee may from time to time determine.
Section 5.3. EXERCISE PERIOD. Limited Rights are exercisable in full for a
period of seven months following the date of a Change in Control of the Company
(the "Exercise Period"); provided, however, that Limited Rights may not be
exercised under any circumstances until the expiration of the six-month period
following the date of grant; and ; provided, however, that an Optionee may
exercise a Limited Right only in and to the extent that such exercise would not
result in a greater dilution of the interests of existing stockholders of the
Company than would result if, instead of the Limited Right, the Options to which
they relate were exercised.
As used in the Plan, a "Change in Control" shall be deemed to have
occurred if
(a) individuals who were directors of the Company immediately prior
to a Control Transaction shall cease, within one year of such Control
Transaction, to constitute a majority of the Board of Directors of the
Company (or of the Board of Directors of any successor to the Company or
to all or substantially all of its assets),
(b) any entity, person, or Group other than the Company, a
Subsidiary of the Company or the current directors or executive officers
of the Company acquires shares of the Company in a transaction or series
of transactions that result in such entity, person or Group directly or
indirectly owning beneficially 51% or more of the outstanding shares, or
(c) Equus Capital Management Company, a Delaware corporation ceases
to be the investment adviser to the Company.
As used herein, "Control Transaction" shall be (i) any tender offer for or
acquisition of capital stock of the Company, (ii) any merger, consolidation, or
sale of all or substantially all of the assets of the Company which has been
approved by the stockholders, (iii) any contested election of directors of the
Company, or (iv) any combination of the foregoing which results in a change in
voting power sufficient to elect a majority of the Board of Directors of the
Company As used herein, "Group" shall mean persons who act in concert as
described in Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of
1934, as amended.
Section 5.4. AMOUNT OF PAYMENT. The amount of payment to which an Optionee
shall be entitled upon the exercise of each Limited Right shall be equal to 100%
of the amount, if any, which is equal to
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the difference between the option price per share of Common Stock covered by the
related option and the Market Price of a share of such Common Stock. "Market
Price" is defined to be the greater of (i) the highest price per share of the
Company's Common Stock paid in connection with any Change in Control and (ii)
the highest price per share of the Company's Common Stock reflected in the
consolidated trading tables of THE WALL STREET JOURNAL (presently the American
Stock Exchange - Composite Transactions) during the 60-day period prior to the
Change in Control.
Section 5.5. FORM OF PAYMENT. Payment of the amount to which an Optionee
is entitled upon the exercise of Limited Rights, as determined pursuant to
Section 5.4, shall be made solely in cash.
Section 5.6. EFFECT OF EXERCISE. If Limited Rights are exercised, the
Stock Options, Incentive Stock Options, and Alternate Appreciation Rights, if
any, related to such Limited Rights shall cease to be exercisable to the extent
of the number of shares with respect to which the Limited Rights were exercised.
Upon the exercise or termination of the Stock Options, Incentive Stock Options,
and Alternate Appreciation Rights, if any, related to such Limited Rights, the
Limited Rights granted with respect thereto terminate to the extent of the
number of shares as to which the related options and Alternate Appreciation
Rights were exercised or terminated.
Section 5.7. RETIREMENT OR DISABILITY. Upon termination of the Optionee's
employment by reason of permanent disability or retirement (as each is
determined by the Committee), the Optionee may, within six months from the date
of termination, exercise any Limited Right to the extent such Limited Right is
exercisable during such six-month period.
Section 5.8. DEATH OF OPTIONEE OR TERMINATION FOR OTHER REASONS. Except as
provided in Sections 5.7 and 5.9, or except as otherwise determined by the
Committee, all Limited Rights granted under the Plan shall terminate upon the
termination of the Optionee's employment or upon the death of the Optionee.
Section 5.9. TERMINATION RELATED TO A CHANGE IN CONTROL. The requirement
that an Optionee be terminated by reason of retirement or permanent disability
or be employed by the Company at the time of exercise pursuant to Sections 5.7
and 5.8 respectively, is waived during the Exercise Period as to an Optionee who
(i) was employed by the Company at the time of the Change in Control and (ii) is
subsequently terminated by the Company other than for just cause or who
voluntarily terminates if such termination was the result of a good faith
determination by the Optionee that as a result of the Change in Control he is
unable to effectively discharge his present duties or the duties of the position
which he occupied just prior to the Change in Control. As used herein "just
cause" shall mean willful misconduct or dishonesty or conviction of or failure
to contest prosecution for a felony, or excessive absenteeism unrelated to
illness.
ARTICLE VI. AUTOMATIC OPTION AWARDS
Section 6.1.GRANT. Each current non-officer director shall, on the first
business day following the later of (i) the day the Plan is approved by the
stockholders of the Company or (ii) the day an order approving the Plan is
issued by the Securities and Exchange Commission, and each other Person who
first becomes a non-officer director after this Plan is adopted shall, on the
first business day following his or her initial election to the Board of
Directors of the Company, be granted an Incentive Stock Option to purchase 5,000
shares of Common Stock. Such Incentive Stock Options shall vest as to 50% of the
shares on the date six months subsequent to the date of grant and as to the
remaining shares, 16-2/3% on the first, second, and third anniversaries of the
date of grant. In addition, beginning with the 1998 annual meeting
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of stockholders of the Company, each individual elected as a non-officer
director shall, on the first business day following the annual stockholders
meeting of the Company, be granted an Incentive Stock Option to purchase 2,000
shares of Common Stock ("Automatic Awards"). If the amount of shares that may be
granted to a non-officer director as Incentive Stock Options is limited by
Section 3.5, the non-officer director shall be granted Incentive Stock Options
up to the maximum amount permitted and shall be issued Stock Options for the
balance of the shares provided in this Section 6.1.
Section 6.2 OPTION AWARD AGREEMENTS. The grant of an Automatic Award shall
be evidenced by a written Award Agreement executed by the Company and the
recipient of an Automatic Award in such form as the Committee may from time to
time determine providing for the terms of such grant, including any vesting
schedule, restrictions on the transfer of such Common Stock or other matters.
Section 6.3. DEATH, RETIREMENT AND TERMINATION OF DIRECTORSHIP OF
OPTIONEE. Unless otherwise provided in an Award Agreement or otherwise agreed to
by the Committee:
(a) Upon the death, permanent disability, or retirement, the vesting
of any unvested Automatic Awards shall accelerate and such options may be
exercised in full by the Optionee or, if the Optionee is not living, by
the Optionee's estate, or by a person who acquires the right to exercise
such Automatic Award by bequest or inheritance or by reason of the death
of the Optionee, provided that such exercise occurs within both the
remaining effective term of the Automatic Award and one year after the
Optionee's death, permanent disability, or retirement.
(b) Except as provided in Subsections (a) of this Section 6.3, or
except as otherwise determined by the Committee, all Automatic Awards
shall terminate three months after the date the Optionee ceases to be a
director of the Company.
Section 6.4.APPLICABILITY OF STOCK OPTION SECTIONS. Sections 3.3,
Incentive Stock Option Price; 3.4, Term and Exercise; 3.5, Maximum Amount of
Incentive Stock Option Grant; 2.5, Manner of Payment; 2.6, Delivery of Shares;
2.8, Tax Election; and 2.9, Effect of Exercise, applicable to Stock Options,
shall apply equally to Automatic Awards. Such Sections are incorporated by
reference in this Article III as though fully set forth herein.
ARTICLE VIII. MISCELLANEOUS
Section 7.1. GENERAL RESTRICTION. Each Award under the Plan shall be
subject to the requirement that, if at any time the Committee shall determine
that (i) the listing, registration, or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or Federal law, or (ii) the consent or approval of the Securities and Exchange
Commission or any other government regulatory body, or (iii) an agreement by the
grantee of an Award with respect to the disposition of shares of Common Stock,
is necessary or desirable as a condition of, or in connection with, the granting
of such Award or the issue or purchase of shares of Common Stock thereunder,
such Award may not be consummated in whole or in part unless such listing,
registration, qualification, consent, approval or agreement shall have been
effected or obtained free of any conditions not acceptable to the Committee.
Section 7.2. NON-ASSIGNABILITY. Except with respect to federal income tax
withholding, Awards under the Plan shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, sequestration, execution or levy, or other legal,
equitable, or other process of any kind, either voluntary or involuntary,
including any such liability that is for alimony
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or other payments for the support of a spouse or former spouse or for any other
relative of a Participant, prior to exercise and delivery of shares, except by
will or by the laws of descent and distribution; and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose
of any rights to Awards granted hereunder, shall be void. During the life of the
recipient, Awards shall be exercisable only by such person or by such person's
guardian or legal representative.
Section 7.3. WITHHOLDING TAXES. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Company
shall have the right to require the grantee to remit to the Company an amount
sufficient to satisfy any Federal, state, and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. Alternatively, the Company may issue or transfer such shares of the
Company net of the number of shares sufficient to satisfy the withholding tax
requirements. For withholding tax purposes, the shares of Common Stock shall be
valued on the date the withholding obligation is incurred.
Section 7.4. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any participant
the right to continue in the employment of the Company or affect any right which
the Company may have to terminate the employment of such participant.
Section 7.5. NON-UNIFORM DETERMINATIONS. The Committee's determinations
under the Plan (including without limitation determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, awards under the Plan, whether or not such persons are
similarly situated.
Section 7.6. RIGHTS AS A STOCKHOLDER. The recipient of any Award under the
Plan shall have no rights as a stockholder with respect thereto unless and until
certificates for shares of Common Stock are issued to him.
Section 7.7. DEFINITIONS. In this Plan the following definitions shall
apply:
(a) "Fair market value" as of any date and in respect or any share
of Common Stock means the closing price on such date or on the next
business day, if such date is not a business day, of a share of Common
Stock reflected in the consolidated trading tables of THE WALL STREET
JOURNAL (presently the American Stock Exchange - Composite Transactions)
or any other publication selected by the Committee, provided that, if
shares of Common Stock shall not have been quoted on the American Stock
Exchange for more than 10 days immediately preceding such date or if
deemed appropriate by the Committee for any other reason, the fair market
value of shares of Common Stock shall be as determined by the Committee in
such other manner as it may deem appropriate; provided that, if there is
no market for the Common Stock, the fair market value shall not be less
than the current net asset value of a share of Common Stock. In no event
shall the fair market value of any share of Common Stock be less than its
par value.
(b) "Option" means a Stock Option, Incentive Stock Option, or
Automatic Award.
(c) "Option Price" means the purchase price per share of Common
Stock deliverable upon the exercise of a Stock Option, Incentive Stock
Option, or Automatic Award.
(d) "Employee" shall include officers of the Company.
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Section 7.8. LEAVES OF ABSENCE. The Committee shall be entitled to make
such rules, regulations, and determinations as it deems appropriate under the
Plan in respect of any leave of absence taken by the recipient of any Award.
Without limiting the generality of the foregoing, the Committee shall be
entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of the Plan and (ii)
the impact, if any, of any such leave of absence on Awards under the Plan
theretofore made to any recipient who takes such leave of absence.
Section 7.9. NEWLY ELIGIBLE EMPLOYEES. The Committee shall be entitled to
make such rules, regulations, determinations and awards as it deems appropriate
in respect of any employee who becomes eligible to participate in the Plan or
any portion thereof after the commencement of an award or incentive period.
Section 7.10. ADJUSTMENTS. In any event of any change in the outstanding
Common Stock by reason of a stock dividend or distribution, recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the like,
the Committee may appropriately adjust the number of shares of Common Stock that
may be issued under the Plan, the number of shares of Common Stock subject to
Options theretofore granted under the Plan, and any and all other matters deemed
appropriate by the Committee.
Section 7.11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
(a) The existence of outstanding Options, Alternative Appreciation
Rights, or Limited Rights shall not affect in any way the right or power
of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations, or other changes in the
Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or
otherwise.
(b) If, while there are outstanding Options, the Company shall
effect a subdivision or consolidation of shares or other increase or
reduction of the number of shares of the Common Stock outstanding without
receiving compensation therefor in money, services or property, then (a)
in the event of an increase in the number of such shares outstanding, the
number of shares of Common Stock then subject to Options hereunder shall
be proportionately increased and the option price shall be appropriately
decreased; and (b) in the event of a decrease in the number of such shares
outstanding the number of shares then available for Option hereunder shall
be proportionately decreased and the option price shall be appropriately
increased.
(c) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations in which
the Company shall be the surviving corporation, each holder of an
outstanding Option shall, at no additional cost, be entitled upon exercise
of such Option to receive (subject to any required action by stockholders)
in lieu of the number of shares as to which such Option shall then be so
exercisable, the number and class of shares of stock or other securities
to which such holder would have been entitled to receive pursuant to the
terms of the agreement of merger or consolidation if, immediately prior to
such merger or consolidation, such holder had been the holder of record of
a number of shares of the Company equal to the number of shares as to
which such Option had been exercisable.
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(d) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the Company is not
the surviving corporation, or if the Company sells or otherwise disposes
of substantially all of its assets to another corporation or other entity
while unexercised Options remain outstanding, then the Committee may
direct that any of the following shall occur:
(i) If the successor entity is willing to assume the
obligation to deliver shares of stock or other securities
after the effective date of the merger, consolidation or sale
of assets, as the case may be, each holder of an outstanding
Option shall be entitled to receive, upon the exercise of such
Option and payment of the option price, in lieu of shares of
Common Stock, such shares of stock or other securities as the
holder of such Option would have been entitled to receive had
such Option been exercised immediately prior to the
consummation of such merger, consolidation or sale, and any
related Alternate Appreciation Right and Limited Right
associated with such Option shall apply as nearly as
practicable to the shares of stock or other securities
purchasable upon exercise of the Option following such merger,
consolidation or sale of assets.
(ii) The Committee may waive any limitations set forth
in or imposed pursuant to this Plan or any Award Agreement
with respect to such Option and any related Alternate
Appreciation Right or Limited Option such that such Option and
related Alternate Appreciation Right and Limited Right shall
become exercisable prior to the record or effective date of
such merger, consolidation or sale of assets.
(iii) The Committee may cancel all outstanding Options
and Alternate Appreciation Rights (but not Limited Rights) as
of the effective date of any such merger, consolidation, or
sale of assets provided that prior notice of such cancellation
shall be given to each holder of an Option at least 30 days
prior to the effective date of such merger, consolidation, or
sale of assets, and each holder of an Option shall have the
right to exercise such Option and any related Alternate
Appreciation Right in full during a period of not less than 30
days prior to the effective date of such merger,
consolidation, or sale of assets. No action taken by the
Committee under this subsection shall have the effect of
terminating, and nothing in this subsection shall permit the
Committee to terminate, any Limited Right held by an Optionee.
(e) Notwithstanding the foregoing provisions of this Section 7.11,
if (i) 50% or more of the outstanding voting securities of the Company
becomes beneficially owned (as defined in Rule 14d-3 promulgated by the
Securities and Exchange Commission) by a person (as defined in Section
2(2) of the Securities Act of 1933, as amended, and in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) in a transaction or
series of transactions expressly disapproved by the Board of Directors or
(ii) Equus Capital Management Corporation, a Delaware corporation, ceases
to be the investment advisor to the Company, then all outstanding Awards
shall become immediately exercisable with no further act or action
required by the Board of Directors or the Committee.
(f) Except as herein provided, the issuance by the Company of Common
Stock or any other shares of capital stock or securities convertible into
shares of capital stock, for cash, property, labor done or other
consideration, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
then subject to outstanding Options.
13
<PAGE>
Section 7.12. AMENDMENT OF THE PLAN.
(a) The Committee may, without further action by the stockholders
and without receiving further consideration from the participants, amend
this Plan or condition or modify Awards under this Plan in response to
changes required by the Securities and Exchange Commission or changes in
securities or other laws or rules, regulations or regulatory interpreta
tions thereof applicable to this Plan or to comply with stock exchange
rules or requirements.
(b) The Committee may at any time and from time to time terminate or
modify or amend the Plan in any respect, except that without stockholder
approval the Committee may not (i) increase the maximum number of shares
of Common Stock which may be issued under the Plan (other than increases
pursuant to Section 7.10), (ii) extend the period during which any Award
may be granted or exercised, or (iii) extend the term of the Plan. The
termination or any modification or amendment of the Plan, except as
provided in subsection (a), shall not, without the consent of a
participant, affect his or her rights under an Award previously granted to
him or her.
(c) Notwithstanding Sections 7.12(a) and (b), the provisions of
Article VI of the Plan may not be amended more than once every six months,
other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, or the rules thereunder.
14
November 13, 1997
Equus II Incorporated
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Gentlemen:
We have acted as counsel for Equus II Incorporated, a Delaware corporation
(the "Fund"), in connection with the filing of the Registration Statement on
Form S-8 with respect to the registration of 952,131 shares (the "Shares") of
the Common Stock, $.001 par value (the "Common Stock"), of the Fund.
We have made such inquiries and examined such documents as we have
considered necessary or appropriate for purposes of giving the opinions
hereinafter set forth, including the examination of executed or conformed
counterparts, or copies certified or otherwise proved to our satisfaction, of
the following:
(a) the Amended and Restated Certificate of Incorporation of the Fund as
filed with the Secretary of State of Delaware on March 4, 1992;
(b) the Amended and Restated By-laws of the Fund; and
(c) the Registration Statement on Form S-8 of the Fund, including the
related prospectus and other attachments, filed with the Securities and Exchange
Commission to register the Shares under the Securities Act of 1933 (the
"Registration Statement").
We have assumed the genuineness and authenticity of all signatures on all
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies and the due authorization, execution, delivery or recordation of all
documents where due authorization, execution or recordation or prerequisites to
the effectiveness thereof.
<PAGE>
Equus II Incorporated
Page 2
November 13, 1997
Based upon the foregoing, and having regard for such legal considerations
as we deem relevant, we are of the opinion that:
(i) the Fund is a corporation duly organized, validly existing and in good
standing under the laws of the States of Delaware;
(ii) the authorized capital of the Fund consists of 10,000,000 shares of
Common Stock, of which, as of September 30, 1997, 4,760,655 shares are issued
and outstanding, and 5,000,000 shares of Preferred Stock, $.001 par value, of
which, as of September 30, 1997, no shares are issued and outstanding; and
(iii) the Shares registered under the Registration Statement are duly
authorized, and if and when issued by the Fund, will be legally issued, fully
paid, and non-assessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
Statements made regarding our Firm and to the use of our name under the heading
"Legal Matters" in the prospectus constituting a part of the Registration
Statement.
Very truly yours,
SNELL & SMITH, A Professional Corporation
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-8 of our report dated
February 14, 1997, included in Equus II Incorporated's Form 10-K for the year
ended December 31, 1996, and to all references to our Firm included in or made a
part of this Registration Statement.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
November 13, 1997
