<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1996
1933 Act File No. 33-96108
1940 Act File No. 814-180
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
AMENDMENT NO. 3 TO
FORM N-2
/ / REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/ Pre-Effective Amendment No. 3
/ / Post-Effective Amendment No.
/ / REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/ Amendment No. 3
SHERRY LANE GROWTH FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
320 SOUTH BOSTON
SUITE 1000
TULSA, OKLAHOMA 74103-3703
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (918) 584-7272)
BARRY M. DAVIS
SHERRY LANE CAPITAL ADVISORS, INC.
320 SOUTH BOSTON, SUITE 1000
TULSA, OKLAHOMA 74103-3703
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
William G. Lee Richard Marlin
Vinson & Elkins L.L.P. Kramer, Levin, Naftalis & Frankel
2300 First City Tower 919 Third Avenue
1001 Fannin Street New York, New York 10022
Houston, Texas 77002-6760
___________________
Approximate date of proposed public offering: As soon as possible after
this registration statement becomes effective.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. /X/
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed
Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Aggregate Amount of
Being Registered Registered Per Share (1) Offering Price (1) Registration Fee
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share.......................................... 5,000,000 $10.00 $50,000,000 $18,242
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SHERRY LANE GROWTH FUND, INC.
FORM N-2
CROSS-REFERENCE SHEET
PART A
ITEM NUMBER CAPTION PROSPECTUS CAPTION
- ----------- ------- ------------------
1 Outside Front Cover Outside Front Cover of Prospectus
2 Inside Front and Outside Inside Front Cover and Outside
Back Cover Page Back Cover Page of Prospectus
3 Fee Table and Synopsis Fee Table
4 Financial Highlights Not Applicable
5 Plan of Distribution Outside Front Cover; Plan of
Distribution
6 Selling Shareholders Not Applicable
7 Use of Proceeds Use of Proceeds; Investment
Objectives and Policies
8 General Description of The Company; Investment
Registrant Objectives and Policies
9 Management Management; The Investment Adviser
10 Capital Stock, Long Term Description of Capital Stock
Debt and Other Securities
11 Defaults and Arrears on Not Applicable
Senior Securities
12 Legal Proceedings Not Applicable
13 Table of Contents of the Not Applicable
Statement of Additional
Information
PART B
ITEM NUMBER CAPTION PROSPECTUS CAPTION
- ----------- ------- ------------------
14 Cover Page Cover Page
15 Table of Contents Outside Back Cover
16 General Information and The Company
History
17 Investment Objectives and Investment Objectives and
Policies Policies
18 Management Management; The Investment Adviser
19 Control Persons and Principal The Company
Holders of Securities
20 Investment Advisory and Other The Investment Adviser; The
Services Investment Advisory Agreement
21 Brokerage Allocation and Other The Company
Practices
22 Tax Status Federal Income Tax Matters
23 Financial Statements Financial Statements
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 16, 1996
PROSPECTUS 5,000,000 SHARES
SHERRY LANE GROWTH FUND, INC.
COMMON STOCK
All of the 5,000,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby are being offered by Sherry Lane Growth Fund,
Inc., a newly organized Delaware corporation (the "Company"). The Company is a
closed-end, non-diversified investment company which has elected to be treated
as a business development company (a "Business Development Company") under the
Investment Company Act of 1940 (the "Investment Company Act"). Sherry Lane
Capital Advisors, Inc. (the "Investment Adviser"), a registered investment
advisor under the Investment Advisers Act of 1940 (the "Advisers Act"), will act
as administrator and adviser to the Company.
The Company's principal objective is the realization of long-term capital
appreciation on its investments in portfolio companies. In addition, the
Company will seek to structure its investments to provide an element of current
income through interest, dividends and fees whenever feasible in light of market
conditions and the cash flow characteristics of its portfolio companies. The
Company will distribute 90% of its investment company taxable income (net
investment income from interest and dividends and net short-term capital gains)
to stockholders on a quarterly basis. The Company may choose to distribute long
term capital gains, or to retain such gains, net of applicable taxes, to
supplement equity capital and to support growth in its portfolio. See "Federal
Income Tax Matters".
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. RISK FACTORS
INCLUDE THE COMPANY'S LACK OF PRIOR OPERATING HISTORY, THE RISKY NATURE OF THE
COMPANY'S INVESTMENTS, RISKS ASSOCIATED WITH BORROWING BY THE COMPANY, LIMITED
LIQUIDITY OF THE COMPANY'S INVESTMENTS, AND UNCERTAINTY REGARDING THE VALUE OF
THE COMPANY'S INVESTMENTS. SHARES OF CLOSED-END INVESTMENT COMPANIES HAVE IN
THE PAST FREQUENTLY TRADED AT DISCOUNTS FROM THEIR NET ASSET VALUES AND INITIAL
OFFERING PRICES. THE RISK OF LOSS ASSOCIATED WITH THIS CHARACTERISTIC OF
CLOSED-END INVESTMENT COMPANIES MAY BE GREATER FOR INVESTORS EXPECTING TO SELL
SHARES OF COMMON STOCK PURCHASED IN THIS OFFERING SOON AFTER THE COMPLETION OF
THIS OFFERING. SEE "RISK FACTORS" ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF COMMON STOCK.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK, AND THERE CAN BE NO ASSURANCE THAT ANY SUCH MARKET WILL DEVELOP.
TRANSFERS WILL BE RESTRICTED DURING AND FOR SIX MONTHS FOLLOWING THE FIRST SALE
OF COMMON STOCK IN THIS OFFERING.
This Prospectus sets forth concisely the information about the Company that
a prospective investor ought to know before investing. This Prospectus should
be retained for future reference. Additional information has been filed with
the Securities and Exchange Commission and is available upon written or oral
request and without charge. See "Additional Information."
__________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Proceeds to
Public (1) Sales Load Company (1)(2)
<S> <C> <C> <C>
Per Share................... $ 10.00 $ .725 $ 9.275
Total Minimum(1)............ $15,000,000 $1,087,500 $13,912,500
Total Maximum............... $50,000,000 $3,625,000 $46,375,000
</TABLE>
(1) The shares are offered on a best efforts basis. The Price to Public
per share will be $9.85 for each investor who purchases a minimum of
50,000 shares in the offering. The offering terminates on August 31,
1996, provided the Company and the Principal Underwriter may agree to
extend the offering until December 31, 1996. Subscriptions will be
placed in escrow with Continental Stock Transfer & Trust Company, New
York, New York, pending attainment of the minimum offering. See
"Plan of Distribution."
(2) The Sales Load will be $.575 for sales to each investor who purchases a
minimum of 50,000 shares in the offering. Before deducting organizational
and other expenses of the offering estimated to be $450,000.
The Common Stock is offered by Marion Bass Securities Corporation (the
"Principal Underwriter") and by other members of the NASD authorized as selling
agents (collectively, the "Broker/Dealers"). The Common Stock is offered when,
as and if delivered to and accepted by the Principal Underwriter and subject to
the approval of certain legal matters by counsel and to certain other
conditions. The Principal Underwriter reserves the right to withdraw, cancel or
modify the offering and to reject any order in whole or in part. If the minimum
number of shares is not subscribed for, all funds deposited by investors will be
returned, together with accrued interest and without the deduction of any
expenses. Share certificates will be delivered on or about 30 days after
subscription acceptance and upon release of escrow funds. The Company has
agreed to indemnify the Principal Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933. For information
regarding these matters see "Plan of Distribution."
MARION BASS SECURITIES CORPORATION
_____________, 1996
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form N-2 (the "Registration
Statement") under the Securities Act of 1933 (the "Securities Act"), and the
Investment Company Act with respect to the shares of Common Stock offered by
this Prospectus. This Prospectus, which is a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement or the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock, reference is made to the
Registration Statement, including the exhibits and schedules thereto. The
Company intends to file with the Commission a registration statement on Form 8-A
under the Securities Exchange Act of 1934 (the "Exchange Act"). Each document
filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the shares of Common Stock pursuant hereto shall
be deemed to be incorporated herein by reference and to be a part hereof from
the date of filing of such document. Any statement contained herein or in a
document all or a portion of which is incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any 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 a copy of this Prospectus is delivered, upon the
request of any such person, a copy of any or all of the foregoing documents
incorporated herein by reference other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference into the documents that
this Prospectus incorporates). Written or telephone requests for such copies
should be directed to the Company at its principal executive offices, 320 South
Boston, Suite 1000, Tulsa, Oklahoma 74103-3703 (telephone: (918) 584-7272). The
Registration Statement and the exhibits and schedules thereto filed with the
Commission may be inspected, without charge, at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located
at Seven World Trade Center, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company will furnish to its stockholders annual reports containing
audited financial statements, quarterly unaudited statements and such other
periodic reports as it may determine to furnish or as may be required by law.
IN CONNECTION WITH THIS OFFERING, THE PRINCIPAL UNDERWRITER MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ALL ARIZONA INVESTORS MUST HAVE EITHER A (I) MINIMUM ANNUAL INCOME OF
$60,000 AND MINIMUM NET WORTH OF $150,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS
AND AUTOMOBILES); OR (II) NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND AUTOMOBILES).
ALL CALIFORNIA INVESTORS MUST HAVE EITHER A (I) MINIMUM OF $65,000 ANNUAL
GROSS INCOME AND $250,000 OF NET WORTH (EXCLUSIVE OF HOME, HOME FURNISHINGS AND
AUTOMOBILES); OR (II) MINIMUM NET WORTH (EXCLUSIVE OF HOME, HOME FURNISHINGS AND
AUTOMOBILES) OF $500,000.
ALL MISSOURI INVESTORS MUST HAVE EITHER (I) A NET WORTH OF AT LEAST $45,000
(EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) AND AN ANNUAL GROSS INCOME
OF AT LEAST $45,000; OR (II) A NET WORTH OF AT LEAST $150,000 (EXCLUSIVE OF
HOME, HOME FURNISHINGS AND AUTOMOBILES).
ALL NORTH CAROLINA INVESTORS MUST HAVE EITHER (I) A NET WORTH OF AT LEAST
$60,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) AND AN ANNUAL
GROSS INCOME OF AT LEAST $60,000; OR (II) A NET WORTH OF AT LEAST $225,000
(EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES).
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
APPEARING ELSEWHERE HEREIN. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS
PROSPECTUS IN ITS ENTIRETY.
THE COMPANY
Sherry Lane Growth Fund, Inc. (the "Company") is a closed-end,
non-diversified investment company which has been formed primarily to invest in
the equity and equity-linked debt securities of small to medium-sized companies.
It is expected that the securities in which the Company invests will include
common stock, preferred stock, convertible debt securities, warrants and
options. It is expected that most of the Company's investments will be in small
to medium-sized companies with total assets and annual sales under $100,000,000.
It is contemplated that most of these companies will be privately owned and may
have very limited operating history. It is anticipated that investments will be
made mainly in enterprises located in the southwestern and south central United
States, provided, however, that the Company will participate in selected
opportunities outside this region. The Company's principal objective is the
realization of long-term capital appreciation on its investments in portfolio
companies. In addition, the Company will seek to structure its investments to
provide an element of current income through interest, dividends and other fees
whenever feasible in light of market conditions and the cash flow
characteristics of its portfolio companies. The Company will locate investment
opportunities primarily through referrals from finance and other professionals,
business executives and entrepreneurs known to the Company's management from
prior business, investment and professional relationships. The Company will
offer managerial assistance to its portfolio companies. See "The Company."
The Company's main criterion for the selection of portfolio companies is
the potential for above average long-term growth in sales, earnings and
enterprise value. The Company will consider a number of factors in evaluating
prospective investments in portfolio companies including, among others, the
quality, depth and experience of management; the existence of potentially large
unfulfilled markets for the portfolio companies' products and services; the
nature of the portfolio companies' products and services, with a strong
preference for proprietary characteristics that create barriers to competition;
and the structure, price and terms of investments in the portfolio companies.
The Company will focus particular attention on industries that it considers to
be good candidates for successful consolidation. The Company will also favor
investments in companies that it believes can achieve the necessary size,
profitability and management depth and sophistication to become public
companies. See "Investment Objectives and Policies."
The Company has elected to be treated as a Business Development Company
under the Investment Company Act. As such, the Company must distribute 90% of
its investment company taxable income (net investment income from interest and
dividends and net short-term capital gains) to stockholders on a quarterly
basis. The Company may choose to distribute long-term capital gains, or to
retain such gains, net of applicable taxes, to supplement equity capital and to
support growth in its portfolio. See "Federal Income Tax Matters."
Sherry Lane Capital Advisors, Inc., based in Tulsa, Oklahoma, with a branch
office in Houston, Texas, will serve as the Investment Adviser. It will be
responsible, on a day-to-day basis, for the selection and supervision of
portfolio investments and for management of the Company's records and financial
reporting requirements. The Company will pay the Investment Adviser an annual
management fee of 2.0% of the Company's net asset value, payable quarterly. In
addition, the Company will pay the Investment Adviser an incentive fee of 20% of
net realized capital gains after adjusting for any net unrealized depreciation.
See "Management," "The Investment Adviser," and "The Investment Advisory
Agreement."
The Company was incorporated in Delaware on July 24, 1995. Its principal
office is located at 320 South Boston, Suite 1000, Tulsa, Oklahoma 74103-3703
and its telephone number is (918) 584-7272.
3
<PAGE>
THE OFFERING
COMMON STOCK OFFERED BY THE COMPANY......... 5,000,000 shares
INVESTMENT PER INVESTOR..................... Minimum of 500 shares (200 shares
in the case of an individual
retirement account) and larger
purchases in 100 share increments.
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING.......................... 5,002,000 shares. See
"Description of Capital Stock."
USE OF PROCEEDS............................. To make investments in accordance
with the Company's investment
policies and objectives. See "Use
of Proceeds."
OFFERING TERMINATION........................ The offering will terminate on
August 31, 1996, provided that the
Company and the Principal
Underwriter may agree to extend
the offering from time to time
until December 31, 1996. See
"Plan of Distribution."
DISTRIBUTIONS............................... The Company intends to distribute
quarterly to its stockholders 90%
of its investment company taxable
income (net investment income from
interest and dividends and net
short-term capital gains). See
"Federal Income Tax Matters."
REINVESTMENT PLAN........................... All cash distributions to
stockholders will be reinvested
automatically under the Company's
Dividend Reinvestment and Cash
Purchase Plan (the "Reinvestment
Plan") in additional whole and
fractional shares of Common Stock
unless a stockholder or its
representative elects to receive
cash. See "Dividend Reinvestment
Plan" and "Federal Income Tax
Matters."
LEVERAGE AND BORROWING...................... The Company does not intend to use
borrowed funds to make
investments. However, the Company
may borrow on a short term basis
against maturities of other
investments for purposes of
meeting short term cash needs.
Also, it may borrow funds from
time to time and at quarter end
solely in order to maintain
sufficient cash assets necessary
to meet the requirements for
qualification as a Business
Development Company and the
diversification requirements to
qualify as a regulated investment
company for federal income tax
purposes. See "Investment and
Objectives Policies."
RISK FACTORS................................ The securities offered hereby
involve a high degree of risk
including, but not limited to, the
Company's lack of prior operating
history; the risky nature of the
Company's investments; risks
associated with borrowing by the
Company; limited liquidity of the
Company's portfolio investments;
competition for investments; and
risks relating to regulation,
conflicts of interest and a
limited public market for Common
Stock of the Company. See "Risk
Factors."
4
<PAGE>
FEES AND EXPENSES
The purpose of the following table is to assist the investor in
understanding the various costs and expenses that an investor in the Company
will bear directly or indirectly.
SALES LOAD (AS A PERCENTAGE OF OFFERING PRICE)(1)
Underwriting Commission......................................... 6.75%
Principal Underwriter non-accountable expense allowance(2)...... 0.50%
-----
Total....................................................... 7.25%
-----
-----
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSET VALUE)
Management fees(3)............................................ 2.00%
Other expenses(4)............................................. 0.50%
-----
Total..................................................... 2.50%
-----
-----
- ----------------------------------
(1) Not including the organizational and other expenses of this offering, which
are estimated to be $450,000. The underwriting commission will be 5.25%
for sales to each investor who purchases a minimum of 50,000 shares in the
offering, resulting in total stockholder transaction expenses of 5.75% for
sales to each such investor.
(2) Up to 50% of which shall be repaid to the Company to reimburse it for
marketing expenses previously advanced by the Company.
(3) Management fees represent the Investment Adviser's operating expenses and
consist primarily of compensation and employee benefits, travel and
marketing expenses, rent and other similar expenses. See "The Company --
Expenses of the Company."
(4) Includes estimated accounting, legal, stockholder relations, transfer
agent, stock record and custodian expenses and directors' fees and assumes
that 5,000,000 shares of Common Stock are sold in this offering. Not
including the Investment Adviser's 20% management incentive fee on net
realized capital gains. See "The Investment Advisory Agreement," "The
Company -- Expenses of the Company" and "Management."
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Company. These amounts assume no additional
leverage and are based upon payment by an investor of a 7.25% sales load and
payment by the Company of operating expenses at the levels set forth in the
table above.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses, cumulatively,
on a $1,000 investment, assuming a 5.0% annual
return.............................................. $106 $175 $248 $412
</TABLE>
This example should not be considered a representation of the future
expenses of the Company, and actual expenses may be greater or less than those
shown. Moreover, while the example assumes (as required by the Commission) a
5.0% annual return, the Company's performance will vary and may result in a
return greater or less than 5.0%. In addition, while the example assumes
reinvestment of all dividends and distributions at net asset value, participants
in the Reinvestment Plan may receive shares purchased by the Reinvestment Plan
administrator at the market price in effect at the time, which may be at, above
or below net asset value. See "Dividend Reinvestment Plan."
5
<PAGE>
RISK FACTORS
THE PURCHASE OF THE SHARES OFFERED BY THIS PROSPECTUS INVOLVES A NUMBER OF
SIGNIFICANT RISKS. AS A RESULT, THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL
ACHIEVE ITS INVESTMENT OBJECTIVES. IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CAREFULLY
CONSIDERED IN EVALUATING AN INVESTMENT IN THE COMMON STOCK.
LACK OF OPERATING HISTORY; DEPENDENCE UPON INVESTMENT ADVISER
The Company has recently been organized to make investments in portfolio
companies selected by the Investment Adviser. While Barry M. Davis, Chairman
and Chief Executive Officer, and Philip A. Tuttle, President of the Investment
Adviser, have a prior record of making and managing investments similar to those
to be made by the Company, the Company itself has no operating history. The
Company is dependent for the selection, structuring, closing and monitoring of
its investments upon the diligence and skill of the Investment Adviser and
Mr. Davis and Mr. Tuttle, the loss of whose services could have a material
adverse effect on the operations of the Company. See "Management."
UNSPECIFIED USE OF PROCEEDS
The Company has not identified the particular uses for the net proceeds
from this offering other than to make future unspecified investments.
Therefore, prospective investors must rely on the ability of the Investment
Adviser to identify and make portfolio investments consistent with the Company's
investment objectives. Investors will not have the opportunity to evaluate
personally the relevant economic, financial and other information which will be
utilized by the Investment Adviser in deciding whether to make a particular
investment or to dispose of any investment.
INVESTMENTS IN SMALL PRIVATELY-OWNED COMPANIES
The portfolio of the Company is expected to consist primarily of
investments in small businesses, many privately owned. There is generally no
publicly available information about such companies, and the Company must rely
on the diligence of its Investment Adviser to obtain information in connection
with the Company's investment decisions. Typically, small businesses depend for
their success on the management talents and efforts of one person or a small
group of persons, and the death, disability or resignation of one or more of
these persons could have a material adverse impact on their company. Moreover,
small businesses frequently have smaller product lines and market shares than
their competition. Small companies may be more vulnerable to economic downturns
and often need substantial additional capital to expand or compete. Such
companies may also experience substantial variations in operating results.
Therefore, investment in small businesses involves a high degree of business and
financial risk, which can result in substantial losses. See "Investment
Objectives and Policies."
RISKS OF VENTURE CAPITAL INVESTING
Venture capital investments of the type to be made by the Company generally
take several years, perhaps as long as ten years, to achieve the favorable
return originally anticipated at the time the investment was made. On the other
hand, a venture capital investment which does not achieve the favorable return
expected often encounters trouble fairly quickly. Accordingly, there is
substantial risk that the shares of Common Stock will have a market value of
less than their original cost during the first several years of operation of the
Company as investments which are not going to be successful may result in losses
at an early stage and it may be several years before any value is realized from
successful investments.
USE OF LEVERAGE
Although the Company does not intend to borrow for investment purposes, the
Company may borrow on a short term basis against maturities of other investments
for purposes of meeting short term cash needs. Also, the Company may borrow
funds from time to time and at quarter end solely in order to maintain
sufficient cash assets necessary to satisfy the requirements for qualification
as a Business Development Company and the diversification requirements to
qualify as a regulated investment company for federal income tax purposes. See
"Regulation" and
6
<PAGE>
"Federal Income Tax Matters." Any such borrowing by the Company will be
subject to the requirements of Section 18 of the Investment Company Act, as
modified by Section 61 of the Investment Company Act, including the requirement
that any amount borrowed must have asset coverage of at least 200 percent of
the amount borrowed. Such borrowing by the Company could increase the
investment risk and the volatility of the price of the Company's shares of
Common Stock because (i) leverage exaggerates any increase or decrease in the
value of the Company's portfolio, (ii) the costs of borrowing may exceed the
income from the portfolio assets mortgaged or pledged to secure the borrowing,
(iii) a decline in net asset value results if the investment performance of the
portfolio assets mortgaged or pledged to secure the borrowing fails to cover
the repayment of the borrowing together with interest and other costs
associated with the borrowing, (iv) a decline in net asset value could affect
the ability of the Company to make Common Stock dividend payments, (v) a
failure to pay dividends or make distributions could affect the ability of the
Company to qualify as a regulated investment company under the Internal Revenue
Code, and (vi) if the asset coverage for the debt securities issued to effect
the borrowing declines to less than two hundred 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. The officers and
directors of the Company will seek to manage the Company's borrowings in such a
manner to mitigate or avoid these risks, but there is no assurance that they
will be successful in this regard.
ILLIQUIDITY OF PORTFOLIO INVESTMENTS
Many of the investments of the Company will be securities acquired directly
from small, privately owned companies. The Company's portfolio securities will
usually be subject to restrictions on resale or otherwise have no established
trading market. The illiquidity of most of the Company's portfolio securities
may adversely affect the ability of the Company to dispose of such securities in
a timely manner and at a fair price at times when the Company deems it necessary
or advantageous.
CONFLICTS OF INTEREST
Two of the officers of the Company are officers, directors and shareholders
of Alliance Business Investment Company which is also engaged in venture capital
investing, but is currently in the process of liquidating its portfolio and has
no plans for further investment. Barry M. Davis, Chairman and Chief Executive
Officer, and Philip A. Tuttle, President of the Investment Adviser, serve as
general partners of the general partners of two venture capital investment
partnerships and, as such, may encounter conflicts of interest regarding the
selection of investment opportunities and the allocation of management time.
One of these, Davis Venture Partners, L.P., which was formed in 1986, is in the
process of liquidating its portfolio and will not make any further investments.
The other, Davis Venture Partners II, L.P., was formed in October 1995 with
capital commitments of approximately $11,000,000 and is currently raising
additional funds, and has investment objectives substantially similar to those
of the Company. The Company and the Investment Adviser have submitted an
application to the Commission for exemptive relief to permit the Company and
Davis Venture Partners II, L.P. to invest together in the same portfolio
companies where such is consistent with investment objectives, investment
positions, investment policies, investment strategies, investment restrictions,
regulatory requirements and other pertinent factors. Although the principals of
the Investment Adviser intend to select investments for the Company and for
Davis Venture Partners II, L.P. separately considering in each case only the
investment objectives, investment position, available funds and other pertinent
factors of the particular investment fund, it is expected that if the
application for exemptive relief is granted, the Company and Davis Venture
Partners II, L.P. may frequently invest in the same portfolio companies, with
each of the Company and Davis Venture Partners II, L.P. taking a position in the
portfolio company. Before a co-investment transaction is effected, the
Investment Adviser will make a written investment presentation regarding the
proposed co-investment to the independent directors of the Company and the
independent directors of the Company will review the Investment Adviser's
recommendation. Prior to committing to a co-investment, a majority of the
independent directors of the Company will conclude that (i) the terms of the
proposed transaction are reasonable and fair to the Company and its stockholders
and do not involve overreaching of the Company and its stockholders on the part
of any person concerned; (ii) the transaction is consistent with the interests
of the stockholders of the Company and is consistent with the investment
objective and policies of the Company; and (iii) the investment by the
affiliated co-investor would not disadvantage the Company in making its
investment, maintaining its investment position, or disposing of such investment
and that participation by the Company would not be on a basis different from or
less advantageous than that of the affiliated co-investor. See "Management" and
"Regulation."
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VALUATION OF PORTFOLIO
There is typically no public market for the securities of small, privately
owned companies. As a result, the valuation of such securities in the Company s
portfolio is subject to the good faith determination of the Company's Board of
Directors. The value of portfolio securities may be very difficult to
ascertain. Valuation of portfolio securities by the Board of Directors is, by
necessity, subjective and may bear no relationship to the price at which such
securities could be sold. The net asset value, as determined by the Board of
Directors, may not be reflective of the price at which an investor could sell
his shares in the open market. See "Valuation of Portfolio Securities." There
can be no assurance that the values so determined reflect the amounts that will
ultimately be realized on these investments.
COMPETITIVE MARKET FOR INVESTMENT OPPORTUNITIES
A large number of entities and individuals compete for the types of
investments to be made by the Company. Many of these entities and individuals
have greater financial resources than the Company. As a result of this
competition, the Company may from time to time be precluded from entering into
attractive transactions. There can be no assurance that the Company will be able
to identify and complete investments that satisfy the Company's investment
objectives or that it will be able to invest fully its available capital.
DEPENDENCE ON PUBLIC OFFERING MARKET OR AVAILABILITY OF STRATEGIC BUYERS
The success of the investment strategy of the Company will be affected in
large part by the state of the securities markets in general and the market for
public financings in particular. Changes in the securities markets and general
economic conditions, including economic downturns, fluctuations in interest
rates, the availability of credit, inflation and other factors, may affect the
value of the Company's investments. The market for initial public offerings is
cyclical in nature and, accordingly, there can be no assurance that the
securities markets will be receptive to initial public offerings, particularly
those of emerging growth companies. Any adverse change in the market for public
offerings could have a material adverse effect on the Company and could severely
limit the Company's ability to realize its investment objectives. The
availability of strategic buyers for the companies in which the Company invests
may also fluctuate from time to time. Such availability will also be affected
by the state of the securities markets and general economic conditions.
LACK OF DIVERSIFICATION
Based on the amount of funds to be realized from this offering, it is
unlikely that the Company will be able to commit its funds to the acquisition of
securities of a large number of companies or to direct its investments to
diverse areas. Although the Company intends to elect Subchapter M status under
the Internal Revenue Code of 1986, as amended (the "Code"), and will, therefore,
be required to meet certain diversification requirements thereunder, the Company
intends to operate as a non-diversified investment company within the meaning of
the Investment Company Act and, therefore, the Company's investments may not be
substantially diversified. In any event, the Company will not be able to
achieve the same level of diversification as much larger entities engaged in
similar activities.
POSSIBLE LOSS OF PASS-THROUGH TAX TREATMENT
The Company intends to qualify for and elect to be treated as a regulated
investment company under Subchapter M of the Code. To qualify, the Company must
meet certain income distribution and diversification requirements. In any year
in which the Company so qualifies, it generally will not be subjected to federal
income tax on net investment income and net short-term capital gains distributed
to its stockholders. If the Company were to fail to qualify under Subchapter M
and its income became fully taxable, a substantial reduction in the amount of
income available for distribution to the Company's stockholders could result.
See "Federal Income Tax Matters" and "Regulation."
LIMITED PUBLIC MARKET FOR COMMON STOCK; TRADING BELOW NET ASSET VALUE
There has been no prior trading market for the Common Stock and there can
be no assurance that a regular trading market will develop, or that, if
developed, it will be sustained. The Company may seek to have the Common
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Stock listed on a national stock exchange or quoted on The Nasdaq Stock Market.
The Company will not seek such listing or quotation until, at the earliest,
six months following the first sale of Common Stock in this offering. No
assurances can be given that the Company will seek such listing or quotation or
that a stock exchange or The Nasdaq Stock Market will agree to list or quote
the Common Stock. In addition, shares of closed-end investment companies, such
as the Company, often trade below their net asset value.
RESTRICTION ON TRANSFER OF COMMON STOCK
No shares of Common Stock may be transferred by any investor during and for
the first six months following the first sale of Common Stock in this offering.
SALE OF SMALL NUMBER OF SHARES
This offering may be consummated by the Company with the sale of as few as
1,500,000 shares of Common Stock. In the event that only a small portion of the
maximum offering amount of 5,000,000 shares of Common Stock is sold by the
Company, the performance of individual portfolio companies will have a greater
effect on the ability of the Company to realize long-term appreciation on its
investments. In addition, certain of the Company's expenses will not vary in
proportion with the amount of capital of the Company and will be relatively
higher if only a small portion of the shares are sold than if a large portion of
the shares are sold. See "The Company--Expenses of the Company" and "Plan of
Distribution."
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation provides for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. Under Delaware law, in the case of a corporation having a
classified board, stockholders may remove a director only for cause. As a
result, the stockholders will be unable in the absence of having cause to remove
the incumbent directors and simultaneously gain control of the Board of
Directors by filling the vacancies created by such removal with new nominees.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be approximately $13,462,500 if 1,500,000 shares of
Common Stock are sold in this offering and $45,925,000 if 5,000,000 shares of
Common Stock are sold in this offering. No portion of the net proceeds of the
offering has been allocated to any particular investment. The proceeds will be
used to invest in portfolio companies and for working capital and general
corporate purposes. Pending such uses, such proceeds will be invested, in
compliance with the Investment Company Act, in U.S. government securities or
deposited in federally insured accounts of banks or in money market accounts of
other financial institutions.
The Company intends to invest at least one-half of its total assets in
portfolio companies within the earlier of (i) two years after the completion of
this offering or (ii) two and one-half years after the effective date of this
Prospectus.
DISTRIBUTIONS
The Company intends to make quarterly distributions to its stockholders of
90% of its investment company taxable income (net investment income from
interest and dividends and net short-term capital gains) and to declare the
first distribution during the period ending December 31, 1996, which shall be
payable shortly thereafter. Net realized long-term capital gains will be
retained to supplement the Company's equity capital and support growth in its
portfolio, unless the Company's Board of Directors determines in certain cases
to make a distribution. Pursuant to the Company's Dividend Reinvestment Plan, a
stockholder whose shares are registered in his own name will have all
distributions reinvested automatically in additional shares of Common Stock by
the Company's transfer agent, Continental Stock Transfer & Trust Company, New
York, New York, as administrator of the Dividend Reinvestment Plan (the
"Reinvestment Plan Administrator"), unless the stockholder elects, by letter to
the Company received prior to the
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corresponding record date, to receive cash. No assurances can be given that the
Company will achieve investment results that will permit any specified level of
cash distributions. See "Regulation" and "Federal Income Tax Matters."
THE COMPANY
GENERAL
The Company is a newly organized, closed-end, non-diversified investment
company which has elected to be treated as a Business Development Company under
the Investment Company Act. The Company intends to invest primarily in the
equity and equity-linked debt securities, including common stock, preferred
stock, convertible debt securities, warrants, and options, of companies that the
Investment Adviser believes to have significant potential for growth in sales,
earnings and enterprise value. As a Business Development Company, the Company
will distribute 90% of its net investment income (net investment income from
interest and dividends plus net short term capital gains) to stockholders on a
quarterly basis. The Company may choose to distribute long term capital gains,
or to retain such gains, net of applicable taxes, to supplement equity capital
and to support growth in its portfolio.
The Company's principal objective is the realization of long-term capital
appreciation on its net investments in portfolio companies. In addition, the
Company will seek to structure its investments to provide an element of current
income through interest, dividends and other fees whenever feasible in light of
market conditions and the cash flow characteristics of portfolio companies at
the time of investment. The Company seeks to enable its stockholders to
participate in investments not typically available to the public due to the
private nature of the portfolio companies, the size of the financial commitment
required in order to participate in the investment, or the experience, skill and
time commitment required to identify and take advantage of the investment
opportunity. See "Investment Objectives and Policies."
INVESTMENT ADVISER
Sherry Lane Capital Advisors, Inc., based in Tulsa, Oklahoma with a branch
office in Houston, Texas, will serve as the Investment Adviser to the Company.
It will be responsible, on a day-to-day basis, for the selection and supervision
of portfolio investments and for management of the Company's records and
financial reporting requirements. The Company will pay the Investment Adviser
an annual management fee of 2.0% of net asset value, payable quarterly. In
addition, the Company will pay the Investment Adviser an incentive fee of 20.0%
of net realized capital gains from portfolio investments after adjusting for any
net unrealized depreciation. See "The Investment Advisory Agreement."
Barry M. Davis, Chairman and Chief Executive Officer, and Philip A. Tuttle,
President of the Investment Adviser, have substantial experience in identifying,
evaluating, selecting, negotiating and closing investments similar to those
being sought by the Company. See "Management," "The Investment Adviser," and
"The Investment Advisory Agreement."
NATURE OF INVESTMENTS IN PORTFOLIO COMPANIES
The Company's investments in portfolio companies may be styled as debt or
equity, or some combination, but will always include some equity feature through
which the Company can participate in the growth in the value of the underlying
business. The Company's investment in a given portfolio company may consist of
common stock, preferred stock (which may or may not be convertible into common
stock), debentures (which may or may not be convertible into common stock and
may or may not be subordinated), warrants to purchase common stock, or some
combination thereof. The Company's investments in preferred stock and
debentures will, whenever practical in light of competitive considerations and
the cash-flow capabilities of the portfolio companies, be structured to provide
an element of current income to the Company. The Company's investments in
portfolio companies will generally be structured with the intention of having
the initial investment capital repaid within five years and the equity feature
of the investments realized in cash within five to ten years. Although the
Company expects to dispose of investments after a certain limited time,
situations may arise in which it may hold equity securities for a longer period.
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TEMPORARY INVESTMENTS
Pending investments in the types of securities described above, the Company
will invest its cash in (i) federal government or agency issued or guaranteed
securities that mature in 15 months or less; (ii) repurchase agreements with
banks whose deposits are insured by the Federal Deposit Insurance Corporation
(an "insured bank"), with maturities of seven days or less, the underlying
instruments of which are securities issued or guaranteed by the federal
government; (iii) certificates of deposit in an insured bank with maturities of
one year or less, up to the amount of the deposit insurance; (iv) deposit
accounts in an insured bank subject to withdrawal restrictions of one year or
less, up to the amount of deposit insurance; and (v) certificates of deposit or
deposit accounts in an insured bank in amounts in excess of the insured amount
if the insured bank is deemed "well-capitalized" by the Federal Deposit
Insurance Corporation.
OPERATIONS
The Investment Adviser will locate potential investment opportunities
primarily by making use of an extensive network of investment bankers,
commercial bankers, accountants and other finance professionals; venture
capitalists and other investment professionals; attorneys; business executives;
and entrepreneurs.
The investment process includes the identification, evaluation,
negotiation, documentation and closing of the investment. The Investment
Adviser has extensive experience in all phases of the investment process. The
evaluation of a potential investment includes due diligence, which usually
involves on-site visits; review of historical and prospective financial
information; interviews with management, employees, customers and vendors of the
potential portfolio company; and background checks and research relating to its
management, markets, products and services.
Upon the completion of due diligence and a decision to proceed with an
investment, the Investment Adviser will create an investment memorandum
containing information pertinent to the investment for presentation to the
Company's Board of Directors, which must approve the investment. Additional due
diligence may be conducted by the Company's attorneys and independent
accountants prior to the closing of the investment.
SELECTION OF INVESTMENTS
The Company's main criterion for the selection of investments in portfolio
companies is the potential for substantial growth in sales, earnings and
enterprise value. The Company will seek to identify companies which have
extraordinary opportunities in the markets they serve or that have devised
innovative products, services or ways of doing business that afford them a
distinct competitive advantage. Such companies might achieve growth either
internally or by acquisition. In addition, the Company intends to invest in
companies seeking to consolidate fragmented industries. Often, such
consolidations can improve performance by bringing extraordinary management
talent, economies of scale and greater capital resources to bear on businesses
that might have lacked such talent, economies and resources in the past.
In evaluating potential portfolio companies, the Company will pay
particular attention to the following characteristics:
MANAGEMENT. The Company will favor investments in companies whose
management teams consist of talented individuals of high integrity with
significant experience. The Company intends to pay particular attention to the
depth of the management team and the extent to which key managers have an
ownership interest in the company.
MARKET. The Company will favor investments in companies that are
addressing a large, unfulfilled market demand with long-term high-growth
prospects and that can reasonably expect to achieve and maintain a significant
market share through proprietary products and services. The Company will also
favor investments in companies that deliver products and services with
significant performance and cost advantages and for which there exist
significant barriers to effective competition by others.
ABILITY TO ACHIEVE SIZE AND BECOME PUBLIC. The Company will favor
investments in companies that can achieve the necessary size, profitability and
management depth and sophistication to become public companies.
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In selecting investments, the Company will consider the potential and
likely means for achieving the liquidity that would ultimately enable the
Company to achieve cash value for its equity investments. Possible ways of
achieving liquidity include an initial public offering, a sale of the portfolio
company or a purchase by the portfolio company of the Company's equity interest
in the portfolio company.
ELIGIBLE PORTFOLIO COMPANIES
The Company, as a Business Development Company, will be required by statute
to invest at least 70% of its total assets in securities of companies that
qualify as "Eligible Portfolio Companies" as defined under the Investment
Company Act. An Eligible Portfolio Company generally is any United States
company that is not an investment company, provided that it does not have a
class of securities listed on a securities exchange or included in the Federal
Reserve Board's over-the-counter margin list. The Company will be required by
statute to make available significant managerial assistance to each of the
Eligible Portfolio Companies in which it invests.
The Company may invest up to 30% of its assets in other portfolio
investments. The Company intends to retain maximum flexibility in connection
with its investments and, therefore, does not have a policy as to the minimum
percentage of its assets that will be so invested. Such investments, if made,
would be primarily in securities of companies that are regularly traded on a
recognized exchange or in the over-the-counter market and which the Investment
Adviser believes have significant potential for appreciation in value.
COMPETITION
The Company's primary competitors include financial institutions, venture
capital firms and other non-traditional investors. Many of these entities have
greater financial and managerial resources than the Company. The Company
believes that it will compete with such entities primarily on the basis of the
quality of its services, its reputation, the timely investment analysis and
decision-making processes it will follow, and, to a significantly lesser degree,
on the investment terms it offers on the securities to be issued by its
portfolio companies.
EMPLOYEES
The Company currently has six employees. The Company believes that its
relations with its employees are excellent. The Company will maintain a
relatively low overhead as a result of outsourcing of certain job functions not
directly related to the evaluation, selection, negotiation or management of
portfolio company investments or the executive management of the Company.
EXPENSES OF THE COMPANY
In addition to the fees paid to the Investment Adviser, the Company will
pay all of its own expenses, including directors' fees; taxes; fees and expenses
of the Company's legal counsel, independent accountants and transfer agent;
expenses of printing and mailing share certificates, stockholder reports,
notices to stockholders and proxy statements; reports to governmental offices;
brokerage and other expenses in connection with the execution, recording and
settlement of portfolio security transactions; expenses of stockholders'
meetings; Commission and state blue sky registration fees; and the Company's
other business and operating expenses not covered in the Advisory Agreement.
See "The Investment Advisory Agreement."
On the basis of the anticipated size of the Company immediately following
the closing of the offering, and assuming sale of the maximum amount of shares
of Common Stock being offered hereby, it is estimated that the Company's annual
operating expenses, including the Management Fee paid to the Investment Adviser,
will be approximately $1,148,125 (approximately 2.50% of the net proceeds of
this offering). While the foregoing estimates have been made in good faith,
there can be no assurance that actual annual expenses will not be substantially
greater than such estimates as a result of increases in the cost of transfer
agent activities and professional and similar services that cannot be predicted
and are beyond the control of the Company.
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Organizational and other expenses of the offering are estimated to be
approximately $450,000 and will be paid by the Company. Offering expenses,
excluding the underwriting discounts and commissions and non-accountable
expense allowance, will be charged to capital at the time of issuance of such
shares.
TRANSFER AGENT
Continental Stock Transfer & Trust Company, New York, New York, will
serve as Transfer Agent for the Common Stock.
INVESTMENT OBJECTIVES AND POLICIES
The Company's principal objective is the realization of long-term
capital appreciation on its net investments in portfolio companies. In
addition, the Company will seek to structure its investments to provide an
element of current income through interest, dividends and fees whenever
feasible in light of market conditions and the cash flow characteristics of
the portfolio companies. The planned investment strategy of the Company will
be to invest in a diversified portfolio of companies which have the potential
for rapid growth in sales, earnings and enterprise value. It is expected
that the Company, after completion of the initial investment phase, will
maintain a portfolio of investments in 10 to 20 companies in diverse
industries. Most of the portfolio companies, at the time of investment, will
be private, although some may be very small capitalization public companies.
The Company will focus its investment activity on private companies, in most
cases not technology intensive, which in the judgment of the Investment
Adviser can provide superior investment returns, either because they are
presented with extraordinary opportunities to which they are especially well
suited to respond, or because they have devised innovative products,
services, or ways of doing business which afford them distinct, defensible,
competitive advantages. It is expected that investments will be made mainly
in enterprises located in the southwestern and south central United States,
provided, however, that the Company will participate in selected
opportunities outside this region.
In addition to the growth investment opportunities described above, the
Company will look for investments in companies seeking to consolidate
fragmented industries. In many instances, such consolidations can improve
performance by bringing excellent, professional management, economics of
scale, and adequate capital resources, to bear on businesses which have
lacked these resources. Also, in industry consolidations, often a company can
be built through a series of acquisitions at a relatively low multiple of
earnings, then sold or taken public at a higher price-earnings ratio.
Although technology is not an area of emphasis for the Company, the
Company will consider investments in companies having innovative,
technology-based products which satisfy large, unfulfilled market needs. The
Company will also consider investments in "classic" leveraged acquisitions of
companies which can be acquired for attractive prices, although this will not
be an area of emphasis for the Company. The Company has chosen not to
emphasize this area because of the large amount of investment funds already
devoted to leveraged buyouts and because the Company believes that the talent
of its management can be more effectively employed in building companies than
in financial engineering.
The Investment Adviser believes that maintaining a high level of
involvement and influence in portfolio companies is an important factor in
achieving the desired result. In the past, the executive officers of the
Investment Adviser have been most successful as a substantial, preferably
lead, investor with a high degree of control over the investment management
and the Company building process. This control is accomplished through a
significant ownership position, presence on the board of directors, and close
working relationships with portfolio company management. The Company will
focus on being a partner in building companies rather than being merely a
financial participant. It is expected that the Company's representatives
will play a role in setting corporate strategy for portfolio companies, and
will advise such companies regarding important decisions affecting their
business, including acquisitions for such companies, recruiting key managers,
and securing equity and debt financing. Except for the fundamental policies
described below, the Company's investment objectives and investment
strategies may be changed by a majority vote of its Board of Directors.
In making investments and managing its portfolio, the Company will
adhere to the following fundamental policies, which policies may not be
changed without the approval of the holders of a majority, as defined in the
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Investment Company Act, of the outstanding shares of Common Stock. The
percentage restrictions set forth below, as well as those contained elsewhere
in this Prospectus, apply at the time a transaction is effected, and a
subsequent change in a percentage resulting from market fluctuations or any
other cause other than an action by the Company will not require the Company
to dispose of portfolio securities or to take other action to satisfy the
percentage restriction.
The Company will at all times conduct its business so as to retain its
status as a Business Development Company. In order to retain that status,
the Company may not acquire any assets (other than non-investment assets
necessary and appropriate to its operations as a Business Development
Company) if, after giving effect to such acquisition, the value of its
"qualifying assets" amounts to less than 70% of the value of its total
assets. For a summary definition of "qualifying assets," see "Regulation."
The Company believes that the securities it proposes to acquire, as well as
temporary investments that it will make with its idle funds, will generally
be qualifying assets. Securities of public companies, on the other hand, are
generally not qualifying assets unless they were acquired in a distribution
in exchange for, or upon the exercise of, a right relating to securities that
were qualifying assets.
The Company will not concentrate its investments in any particular
industry or particular group of industries. Therefore, the Company will not
acquire any securities (except upon the exercise of a right related to
previously acquired securities) if, as a result, 30% or more of the value of
its total assets consists of securities of companies in the same industry.
The Company will not (i) act as an underwriter of securities of other
issuers (except to the extent that it may be deemed an "underwriter" of
securities purchased by it that subsequently must be registered under the
Securities Act before they may be offered or sold to the public), (ii)
purchase or sell real estate or interests in real estate or real estate
investment trusts (except that the Company may purchase and sell real estate
or interests in real estate in connection with the orderly liquidation of
investments or the foreclosure of mortgages held by the Company), (iii) sell
securities short, (iv) purchase securities on margin, (v) write or buy put or
call options (except to the extent of warrants or conversion privileges
obtained in connection with its investments, and rights to require the
issuers of such investments or their affiliates to repurchase such securities
under certain circumstances), (vi) engage in the purchase or sale of
commodities or commodity contracts, including futures contracts (except where
necessary in working out distressed loan or investment situations), (vii)
purchase interests in oil and gas exploration, development or production,
except as they may be acquired as a small part of a merger, consolidation or
acquisition of assets, and only if they are to be immediately sold or
disposed of as part of the transaction, (viii) invest in other financial
derivative instruments or securities other than such instruments and
securities issued by portfolio companies, or (ix) acquire the voting stock
of, or invest in any securities issued by, any other investment company,
except as they may be acquired as part of a merger, consolidation or
acquisition of assets.
The Company may make selective bridge loans to public and, to a lesser
extent, private companies. These bridge loans may be either secured or
unsecured and convertible into common stock of the issuer or issued together
with warrants for equity participation, or both. These loans will generally
be designed to carry the portfolio company to a private placement, an initial
or secondary public offering, a merger and acquisition transaction, or other
financing within three years from the date of investment. Bridge loans carry
the risk that the event which the loan is intended to bridge to may not
occur. It is intended that every effort will be made to minimize such risk,
but it will be present. In addition to equity participation, the Company may
receive fees in connection with providing bridge financings.
The Company may invest as "other portfolio investments" in marketable
securities of public companies which the Company's management believes have
significant potential for price appreciation. Investments in such other
portfolio companies may be made in the form of common stock, preferred stock
or securities convertible into or exchangeable for common stock or preferred
stock.
The Company does not intend to borrow for investment purposes. However,
the Company may borrow on a short term basis against maturities of other
investments for purposes of meeting short term cash needs. Normally, such
investments will have a maturity of less than one year. Also, it may borrow
funds from time to time and at quarter end solely in order to maintain
sufficient cash assets necessary to meet the requirements for qualification
as a Business Development Company and the diversification requirements to
qualify as a regulated investment company for federal income tax purposes.
See "Regulation" and "Federal Income Tax Matters." Additionally, the Company
may enter into
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standby agreements or agree to subordinate its investments in a portfolio
company to other lenders to such company. Other than pursuant to such
borrowing, the Company will not issue senior securities.
MANAGEMENT
The business and affairs of the Company are managed under the direction
of its Board of Directors. All of the Company's directors are subject to
election at each annual meeting of stockholders. The Board of Directors
elects the Company's officers who serve at the pleasure of the Board of
Directors.
DIRECTORS AND OFFICERS
The following table sets forth certain information regarding the
directors and officers of the Company.
NAME AGE POSITION
---- --- --------
Barry M. Davis(1) 55 Chairman of the Board, Chief Executive
Officer and Director
Philip A. Tuttle(1) 54 President and Director
James A. O'Donnell(2) 42 Director
David L. Daniel(2) 49 Director
Terry K. Dorsey(2) 48 Director
Elmer C. Wilkening 70 Vice President, Secretary and Treasurer
______________________
(1) "Interested Person" as defined in Section 2(a)(19) of the Investment
Company Act.
(2) independent director for purposes of the Investment Company Act.
BARRY M. DAVIS is Chairman of the Board and Chief Executive Officer of
Sherry Lane Capital Advisors, Inc. Since 1975 he has served as President and
a director of Alliance Business Investment Company, a privately owned small
business investment company organized in 1959 which has made venture capital
investments similar to the investments to be made by the Company. Since 1986
Mr. Davis has also been the managing general partner in Davis Venture Group,
which is the general partner of Davis Venture Partners, L.P. ("Davis Venture
Partners I"), a Delaware limited partnership formed in 1986 to make venture
capital investments similar to the investments to be made by the Company.
Mr. Davis is also the managing general partner of Davis Venture Group II,
L.P., a Delaware limited partnership which is the general partner of Davis
Venture Partners II, L.P. ("Davis Venture Partners II"), a Delaware limited
partnership formed in October 1995 to make venture capital investments
similar to the investments to be made by the Company. In addition to his
roles with the entities described above, Mr. Davis is a partner in the Davis
Companies energy/natural resource group with primary activities in the
southwest. Mr. Davis has served on the board of directors of four portfolio
companies in which Davis Venture Partners I has invested: Coleman Natural
Products, Inc.; LMS Holding Company; Numar Corporation; and Wallace and
Tiernan Group Inc. Mr. Davis has over 25 years of experience in making
venture capital investments and currently serves on the board of directors of
the National Venture Capital Association. In 1980, Mr. Davis was elected
Chairman of the Board of Governors of the National Association of Small
Business Investment Companies, a venture capital industry trade association,
and he has served as president of the organization's Southwest Regional
Association. In 1975, he received the National Achievement Award in the
venture capital industry for his efforts in founding the Venture Capital
Management Institute, the formal training program for a significant portion
of the venture capital managers in the United States. In addition, Mr. Davis
lectures at public forums and universities about venture capital and
strategies for emerging growth companies and was a founder of the Oklahoma
Private Enterprise Forum. He has served on numerous boards of civic
organizations and is past Chairman of the Board of Hillcrest Healthcare
Corporation as well as a current trustee of the University of Tulsa. He is a
graduate of the University of Oklahoma with a B.B.A. degree in corporate
finance.
15
<PAGE>
PHILIP A. TUTTLE is President of Sherry Lane Capital Advisors, Inc.
From August 1987 to June 1989, Mr. Tuttle was Chief Executive Officer of OMNA
Corporation, a home healthcare provider. From 1982 to August 1987 Mr. Tuttle
served as the President of Allied Bancshares Capital Corporation, a bank
owned, federally licensed small business investment company which grew from
$5 million to $40 million in capital during his tenure. He has since June
1989, been a general partner of Davis Venture Group, the general partner of
Davis Venture Partners I, a private investment partnership which raised $32
million from institutional investors to invest primarily in business located
in the southwestern and south central United States. He is also a general
partner in Davis Venture Group II, L.P. the general partner of Davis Venture
Partners II. Mr. Tuttle has served on the board of directors of four
portfolio companies in which Davis Venture Partners I has invested: Drypers
Holding Corp., Quality Tubing, Inc., Taylor Medical, Inc. and WCC Holding
Corp. Mr. Tuttle currently serves on the board of directors of Medical
Innovations, Inc., a publicly traded company listed on NASDAQ that provides
home intravenous therapies, specialized home nursing care and other
outpatient health care services, the board of directors of Zydeco Energy,
Inc., a publicly traded company listed on NASDAQ engaged in acquiring oil and
gas leases, drilling and producing reserves utilizing focused geologic
concepts and advanced 3D seismic and computer aided exploration technology,
and the board of directors of Drypers Holding Corp., a publicly traded
company listed on NASDAQ that manufactures and distributes disposable
diapers. Mr. Tuttle is a founder and was formerly a President of the Houston
Venture Capital Association and was President and is currently a Director of
The Houston Chapter of the Association for Corporate Growth. He has served
as Chairman of the Accounting Council at Rice University-Jones Graduate
School of Administration and as a member of the Board of Governors of the
National Association of Small Business Investment Companies. He currently
serves as a member of the Board of Trustees of Child Advocates Endowment,
Inc. Mr. Tuttle earned a B.A. degree from Rice University and an M.B.A.
degree from Northwestern University. He is a certified Public Accountant and
Fellow of the Institute of Directors, London, England.
JAMES A. O'DONNELL is currently a general partner of CGW Southeast
Partners III, L.P., a partnership being formed to engage in management buy
outs. He is a Chartered Financial Analyst with more than 15 years of
experience in investing in emerging companies. Since 1989, Mr. O'Donnell has
been a general partner of O'Donnell & Masur, L.P., a private equity
partnership. He is also a general partner of Sherry Lane Partners, L.P., a
private equity partnership formed in 1991. From 1983 through 1988, he was
President and Chief Executive Officer of First Republic Venture Group and its
predecessor, InterFirst Venture Corp., a venture capital firm with assets
valued at approximately $100 million in 1988. From 1981 through 1982, Mr.
O'Donnell was Senior Vice President and Manager of the Corporate Finance
Department for InterFirst Bank, Dallas, then the largest bank in Texas.
Previously, Mr. O'Donnell worked for The Equitable Life Assurance Society of
the U.S. as a Regional Investment Manager for the Southeastern United States.
Mr. O'Donnell serves as a director of several public and private companies,
including Bestway Rental, Inc. (a rental company), Gardiner Communications
Corp. (a developer and manufacturer of telecommunications equipment and
software), MBS Holdings (a wholesaler of building supplies), Chatwins Group,
Inc. (a diversified manufacturer of industrial products) and RailTex, Inc. (a
short-line railroad company). Mr. O'Donnell graduated with distinction from
Rhodes College with a B.A. and received his M.B.A. from the Wharton Graduate
Division of the University of Pennsylvania. Mr. O'Donnell currently has no
interest in the Investment Adviser or the Company.
DAVID L. DANIEL has served, since 1992, as the President and Chief
Executive Officer of Quality Tubing, Inc., a manufacturer of steel coil
tubing for the Energy Services Industry. For the seven years prior thereto,
he was employed by Baker Hughes Inc., a New York Stock Exchange-listed
company engaged in the Energy Services Industry, most recently as President
of its tubular services subsidiary. Mr. Daniel also served from 1975 to 1983
in numerous executive positions with NL Industries, a company engaged in the
Energy Services Industry. Mr. Daniel earned a B.S. degree in Mathematics
from Southern Methodist University and an M.B.A. degree from Harvard Business
School.
TERRY K. DORSEY, PH.D. has served since July 1987 as the Chief Executive
Officer of TVA, Inc. a firm which provides financial advisory and management
services. From November 1984 to June 1987, Dr. Dorsey served as President of
United Capital Ventures, Inc. a venture capital company. From April 1983
until November 1984, Dr. Dorsey served as an investment director of Churchill
International, an international venture capital fund. Dr. Dorsey earned a
B.B.A. degree and an M.B.A. degree from Texas Tech University and Ph.D. from
the University of Texas at Austin.
ELMER C. WILKENING is Vice President, Secretary and Treasurer of Sherry
Lane Capital Advisors, Inc. Since 1959 he has been Secretary-Treasurer and a
director of Alliance Business Investment Company. In 1986 he became
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a general partner in Davis Venture Group, the general partner of Davis
Venture Partners I. He is also a general partner in Davis Venture Group II,
L.P., the general partner of Davis Venture Partners II. He has served as a
director of two portfolio companies of Davis Venture Partners I:
Photometrics, Ltd. and LMS Holding Company. Mr. Wilkening holds a B.S.
degree in accounting from the University of Illinois and is a Certified
Public Accountant.
The Company's Certificate of Incorporation provides, among other things,
for a Board of Directors divided into three classes, designated Class I,
Class II and Class III. Directors serve for staggered terms of three years
each, except that initially the Class I director will serve until the
Company's 1996 annual meeting of stockholders, the Class II director until
the 1997 meeting and the Class III director until the 1998 meeting. The
Class I director is Mr. Daniel, the Class II directors are Mr. O'Donnell and
Mr. Tuttle and the Class III directors are Mr. Davis and Dr. Dorsey.
It is currently anticipated that the officers of the Company will be
compensated solely by the Investment Adviser. Non-management directors will
each receive a monthly fee of $500 for serving on the Board of Directors and
will receive an additional $1,000 for each meeting of the Board of Directors
or a committee thereof that he attends.
It is estimated that the amounts which would be paid by the Company
during its first fiscal year of operations to its officers and directors
would be as follows:
<TABLE>
<CAPTION>
PENSION OR ESTIMATED TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ANNUAL BENEFITS FROM COMPANY AND
NAME OF COMPENSATION ACCRUED AS PART OF UPON COMPANY COMPLEX
PERSON, POSITION FROM COMPANY COMPANY EXPENSES RETIREMENT PAID TO DIRECTORS
- ---------------- ------------ ------------------- --------------- ------------------
<S> <C> <C> <C> <C>
Barry M. Davis,
Chairman of the Board,
Chief Executive Officer None None None None
and Director
Philip A. Tuttle,
President and Director None None None None
Elmer C. Wilkening,
Vice President, Secretary
and Treasurer None None None None
James A. O'Donnell,
Director $10,000 None None $10,000
David L. Daniel,
Director $10,000 None None $10,000
Terry K. Dorsey,
Director $10,000 None None $10,000
</TABLE>
INDEMNITY AGREEMENTS
The Company intends to enter into indemnity agreements with each of its
directors and officers upon the closing of this offering. Pursuant to these
agreements, the Company will, to the extent permitted under applicable law,
indemnify these persons against all expenses, judgments, fines and penalties
incurred in connection with the defense or settlement of any actions brought
against them by reason of the fact that they are or were directors or
officers of the Company or that they assumed certain responsibilities at the
direction of the Company. In addition, the Company's Certificate of
Incorporation and Bylaws provide for certain limitations on director
liability.
17
<PAGE>
PRIOR EXPERIENCE OF PRINCIPALS OF
THE INVESTMENT ADVISER
As indicated above, Barry M. Davis, Philip A. Tuttle and Elmer C.
Wilkening have substantial experience managing partnerships which have made
investments substantially similar to the investments which will be made by
the Company. The most recent activity of this type in which these persons
have been engaged is Davis Venture Partners I ("DVP I"), an investment
partnership formed in 1986 with committed capital of approximately $32
million from thirteen corporate and public pension funds. Messrs. Davis,
Tuttle and Wilkening are general partners of the general partner of DVP I, as
well as of the general partner of Davis Venture Partners II, a new investment
partnership similar to DVP I.
Since 1975, Mr. Davis has served as President of Alliance Business
Investment Company ("ABIC"), a small business investment company ("SBIC") he
joined in 1966. ABIC, based in Tulsa, Oklahoma, is one of the oldest
privately held SBIC's in the United States. Between 1974 and 1990, ABIC made
27 investments in either early stage financings, expansion financings or
acquisition or buy-out financings. Mr. Davis has been responsible for the
selection of investments by ABIC since 1974.
From 1982 to 1987, Mr. Tuttle served as President of Allied Bancshares
Capital Corporation ("Allied"), another SBIC. During this time, Mr. Tuttle
was responsible for selecting investments for Allied. During Mr. Tuttle's
tenure, Allied made 24 investments in early stage financings, expansion
financings, acquisition or buy-out financings or special situations.
The DVP I portfolio, which has geographic focus and investments
substantially similar to the Company's, typically reflects a five to ten year
investment cycle. The following DVP I investments were selected by Messrs.
Davis and Tuttle:
- Numar Corporation, headquartered outside of Philadelphia, but with
primary operations in Houston, is the creator and developer of a new
application of nuclear magnetic resonance to a proprietary
$400,000,000 market segment within the petroleum industry, a sector
that is open to rapid penetration and nearly exclusive possession.
- Taylor Medical, Inc. ("Taylor"), of Beaumont, Texas, is a national
distributor of medical supplies and equipment to the physician and
alternate site health care market. The investment was made in July
1989 and in August 1995, Taylor was merged into Physician's Sales &
Service, Inc., a leading national health care company.
- Coleman Natural Meats, Inc. ("Coleman"), headquartered in Denver,
Colorado, is the largest natural beef producer and marketer in the
United States, delivering residue-free lowfat meats into a Coleman
dominated market niche that targets food safety and environmental
concerns.
- Wallace & Tiernan Group, Inc., located in Belleville, New Jersey, at
the time of the investment exit was an environmental company
manufacturing water and waste-water treatment equipment and
instrumentation with annual gross sales of $120,000,000 with
facilities in the United Kingdom, Germany, and four other countries.
- WCC Capital Holding Corporation ("WCC"), headquartered in Dallas,
Texas, was the largest national distributor of bicycles and bicycle
accessories in the United States. WCC's concept eliminated the
wholesaler in the distribution chain from factory to retail outlet.
WCC has now been liquidated.
- Drypers Corporation, of Houston, Texas, is the third largest national
branded line of disposable diapers. It has recently expanded
production into Latin America and has achieved distribution in the
Pacific Rim.
- Quality Tubing, Inc. uses proprietary technology to manufacture and
market premium grade coil steel tubing to customers world wide. The
majority of its products are sold to the oilwell services industry for
use in downhole applications.
- LMS Holding Company ("LMS"), of Tulsa, Oklahoma, was a regional
service company operating a chain of 7-11 convenience stores under a
license from Southland Corporation. This license has terminated and
LMS is no longer operating.
18
<PAGE>
Like DVP I, ABIC and Allied, the Company, through its strategically
placed offices in Tulsa and Houston, will primarily aim to provide venture
capital for businesses in the following states: Oklahoma, Texas, Colorado,
Kansas, Missouri, Arkansas, Louisiana, New Mexico, and Arizona. Also like
DVP I, ABIC and Allied, the Company will focus on emerging and expanding
businesses with strong positions in basic industries, especially those
capitalizing on advanced technologies for production or marketing
superiority, and will seek ventures with experienced management teams who can
expand their companies into global markets. Like DVP I, ABIC and Allied, the
Company will also participate nationally in selected, attractive investment
opportunities. Accordingly, the investment policies and objectives of DVP I,
ABIC and Allied are essentially the same as those of the Company.
During the period from 1974 to the present, Messrs. Davis and Tuttle, on
behalf of these entities, managed investments in a total of 59 companies, 47
of which were located in the southwest/south central region targeted by the
Company. Also, 46 of the total investments were in companies engaged in
basic industries and technologies.
The following table provides information about the stage of development
and number of portfolio companies in which Messrs. Davis and Tuttle invested
during the periods described above:(1)
<TABLE>
<CAPTION>
DVP I DVP I
(DAVIS) ABIC (TUTTLE) ALLIED TOTAL
------- ---- -------- ------ -----
<S> <C> <C> <C> <C> <C>
Stage of Enterprise Development:
Early Stage Financings(2).............. 1 10 0 11 22
Expansion Financings(3)................ 2 12 3 4 21
Acquisition/Buy-Out Financings(4)...... 1 5 1 7 14
Special Situations..................... 0 0 0 2 2
</TABLE>
The Company's investment strategy will build on the investment
philosophy and valuation methods, as well as the network of business and
professional relationships and the successful track record developed by
Messrs. Davis and Tuttle in the management of DVP I, ABIC and Allied. Of
course, investors in the Company are not acquiring an interest in DVP I, ABIC
or Allied or any other entity in which Messrs. Davis and Tuttle are involved.
The past performance of DVP I, ABIC or Allied or of Messrs. Davis and Tuttle
is no guaranty of future performance.
___________________________
(1)As Messrs. Davis and Tuttle were primarily responsible for selecting
the portfolio investments, a record of Mr. Wilkening, who is principally a
financial manager, as opposed to an investment manager, has not been
presented. Also, this table does not reflect the investment records of
certain individuals who were responsible for selecting certain early
investments of DVP I, but who have since resigned or are not involved with
the Investment Adviser.
(2)These companies are at an early stage of product and market
development, but are run by qualified management. Accordingly, the highest
priority will be given to companies with management teams with established
records of technical and managerial achievements in closely related fields.
Such firms will have launched operations or will have assembled key
management, prepared a business plan, have a product ready for market,
effected market studies, and be generally well set to do
business.
(3)These companies have already created a product or service they are
marketing with some success. They need further funds to finance the growth
of their businesses and to achieve profitability. In addition, companies in
this category may be established and profitable, but still need expansion
capital to fuel further growth.
(4)Acquisition financing provides funds to a company to finance its
acquisition of another enterprise. Buyout financing usually comprises two
categories: (a) large divisions or subsidiaries of diversified corporations
being divested because of a poor strategic fit; or (b) privately owned
companies available because the owner desires liquidity for various reasons,
including estate planning. In both cases members of existing management will
participate in the company's ownership and ongoing operation. These are
usually mature enterprises with stable earnings history and a positive cash
flow.
19
<PAGE>
THE INVESTMENT ADVISORY AGREEMENT
Pursuant to the Investment Advisory Agreement dated September 21, 1995,
Sherry Lane Capital Advisors, Inc. serves as investment adviser to the
Company. The Investment Adviser will, subject to the overall supervision of
the Company's Board of Directors, administer the Company's business affairs
and furnish the Company with office facilities and clerical, bookkeeping and
record keeping services at such facilities. See "Management."
The Investment Adviser will be responsible for the financial records
required to be maintained by the Company and will prepare financial
information for reports to stockholders and reports filed with the
Commission. In addition, the Investment Adviser will assist the Company in
determining and publishing the Company's net asset value, oversee both the
preparation and filing of the Company's tax returns, the printing and
dissemination of stockholder reports, and generally oversee the payment of
the Company's expenses and the performance of administrative and professional
services rendered to the Company by others.
In return for its services, the Company will pay to the Investment
Adviser an annual management fee of two percent of the Company's net assets,
determined and payable quarterly, throughout the term of the Investment
Advisory Agreement and a management incentive fee of 20% of net realized
capital gains after adjusting for any net unrealized depreciation.
The Investment Adviser will be responsible for the salaries and expenses
of its own personnel, any costs of office space, local telephone and
administrative support to be provided to the Company by the Investment
Adviser, expenses relating to calculating and publishing the Company's net
asset value and all other expenses incurred by either the Investment Adviser
or the Company in connection with administering the ordinary course of the
Company's business, other than the organizational expenses described above,
and direct costs such as printing, mail, long distance telephone, staff,
independent accountants and outside legal costs.
The Investment Advisory Agreement was approved by the Board of Directors
on September 21, 1995 and is effective until it is terminated by either party
upon at least 60 days' notice to the other, provided that its continuance is
approved annually by the Company's Board of Directors or the holders of the
Common Stock, including, in either case, approval by the directors of the
Company who are not interested persons.
REGULATION
After filing its election to be treated as a Business Development
Company under the Investment Company Act, a company may not withdraw its
election without first obtaining the approval of holders of a majority of its
outstanding voting securities (as defined under the Investment Company Act).
The following is a brief description of the Investment Company Act and is
qualified in its entirety by reference to the full text of the Investment
Company Act and the rules thereunder.
Generally, to be eligible to elect Business Development Company status,
a company must engage in the business of furnishing capital and offering
significant managerial assistance to companies that do not have ready access
to capital through conventional financial channels. Such portfolio companies
are termed "eligible portfolio companies." More specifically, in order to
qualify as a Business Development Company, a company must (i) be a domestic
company; (ii); have registered a class of its securities or have filed a
registration statement with the Commission pursuant to Section 12 of the
Exchange Act; (iii) operate for the purpose of investing in the securities of
certain types of eligible portfolio companies, namely less seasoned or
emerging companies and businesses suffering or just recovering from financial
distress; (iv) offer to extend significant managerial assistance to such
eligible portfolio companies; (v) have a majority of directors who are not
"interested persons" (as defined in the Investment Company Act); and (vi)
file (or under certain circumstances, intend to file) a proper notice of
election with the Commission.
An eligible portfolio company generally is a United States company that
is not an investment company and that (i) does not have a class of securities
registered on an exchange or included in the Federal Reserve Board's
over-the-counter margin list; or (ii) is actively controlled by a Business
Development Company and has an affiliate of a Business Development Company on
its board of directors; or (iii) meets such other criteria as may be
established by the
20
<PAGE>
Commission. Control under the Investment Company Act is presumed to exist
where a Business Development Company owns more than 25% of the outstanding
voting securities of the eligible portfolio company.
Making available significant managerial assistance by a business
development company means any arrangement whereby a business development
company, through its directors, officers or employees, offers to provide,
and, if accepted, does so provide, significant guidance and counsel
concerning the management, operations, or business objectives and policies of
a portfolio company. It is expected that one of Barry M. Davis, Philip A.
Tuttle or Elmer C. Wilkening will offer to serve on the board of directors of
each portfolio company in which the Company invests and, if such offer is not
accepted, will offer to enter into a consulting contract with the management
of each portfolio company. In such capacity, such person will offer his
substantial experience in strategic management and, if requested, will lend
his assistance in arranging financings, managing relationships with financing
sources, recruiting management personnel, and evaluating acquisition and
divestiture opportunities. Such person will be able to call on the
experience of the others, as well, if needed.
The Investment Company Act prohibits or restricts companies subject to
the Investment Company Act from investing in other investment companies.
Moreover, the Investment Company Act limits the type of assets that Business
Development Companies may acquire to certain prescribed qualifying assets and
certain assets necessary for its operations (such as office furniture,
equipment and facilities) if, at the time of acquisition, less than 70% of
the value of the Business Development Company's assets consist of qualifying
assets. Qualifying assets include (i) privately acquired securities of
companies that were eligible portfolio companies at the time the Business
Development Company acquired the securities; (ii) securities of bankrupt or
insolvent companies; (iii) securities of eligible portfolio companies
controlled by a Business Development Company; (iv) securities received in
exchange for or distributed in or with respect to any of the foregoing; and
(v) cash items, government securities and high-quality short term debt. The
Investment Company Act also places restrictions on the nature of the
transactions in which, and the persons from whom, securities can be purchased
in order for the securities to be considered qualifying assets. Such
restrictions include limiting purchases to transactions not involving a
public offering and the requirement that securities be acquired directly from
either the portfolio company or its officers, directors or affiliates.
Many of the transactions involving a company and its affiliates (as well
as affiliates of those affiliates) which were prohibited without the prior
approval of the Commission under the Investment Company Act prior to its
amendment in 1980 are permissible for Business Development Companies.
However, certain transactions involving certain persons related to the
Company, including its directors, officers and employees, may still require
the prior approval of the Commission. In general, (i) any person who owns,
controls or holds power to vote more than 5% of the Company's outstanding
Common Stock; (ii) any director, executive officer or general partner of that
person; and (iii) any person who directly or indirectly controls, is
controlled by, or is under common control with, that person, must obtain the
prior approval of a majority of the Company's disinterested directors and, in
some situations, the prior approval of the Commission, before engaging in
certain transactions involving the Company or any company controlled by the
Company. The Investment Company Act generally does not restrict transactions
between the Company and its eligible portfolio companies.
While a Business Development Company may change the nature of its
business so as to cease being a Business Development Company (and in
connection therewith withdraw its election to be treated as a Business
Development Company) only if authorized to do so by a majority vote (as
defined in the Investment Company Act) of its outstanding voting securities,
changes in other fundamental investment policies of a Business Development
Company do not require stockholder approval (in contrast to the general
Investment Company Act requirement which requires stockholder approval for a
change in any fundamental investment policy). The Company is entitled to
change its non-diversification status without stockholder approval. The
Company may, in the future, seek to become exempt from Investment Company Act
regulation.
The Investment Company Act prohibits an investment company such as the
Company from knowingly participating in a joint transaction with an affiliate
of any director or investment adviser to the investment company.
Accordingly, the Company may not, without exemptive relief, participate in a
joint transaction with DVP II or any other entity managed by the persons who
are the principals of the Investment Adviser. The Investment Adviser
believes that it will be advantageous for the Company to co-invest with DVP
II where such is consistent with investment objectives, investment positions,
investment policies, investment strategies, investment restrictions,
regulatory requirements and other pertinent factors. The Investment Adviser
believes that co-investment by the Company and DVP II will afford
21
<PAGE>
the Company the ability to achieve greater diversification and, together with
DVP II, the opportunity to exercise greater influence on the portfolio
companies in which the Company and DVP II invest together. Accordingly, the
Company and the Investment Adviser have submitted an application to the
Commission for exemptive relief to permit the Company and DVP II to invest
together in the same portfolio companies where such is consistent with
investment objectives, investment positions, investment policies, investment
strategies, investment restrictions, regulatory requirements and other
pertinent factors. Although the principals of the Investment Adviser intend
to select investments for the Company and for DVP II separately considering
in each case only the investment objectives, investment position, available
funds and other pertinent factors of the particular investment fund, it is
expected that if the application for exemptive relief is granted, the Company
and DVP II may frequently invest in the same portfolio companies, with each
of the Company and DVP II taking a position in the portfolio company. If the
application is granted, it is expected that the Company and DVP II will
invest together in proportion to their respective amounts of capital
available for investment where such is consistent with their respective
investment objectives, investment positions, investment policies, investment
strategies, investment restrictions, regulatory requirements and other
pertinent factors. There is no assurance, however, that any such joint
investments will in fact be in proportion to their respective amounts of
capital available for investment. It is expected that the application for
exemptive relief will be granted only upon the conditions, among others, that
before a co-investment transaction is effected, the Investment Adviser will
make a written investment presentation regarding the proposed co-investment
to the independent directors of the Company and the independent directors of
the Company will review the Investment Adviser's recommendation. It is
expected that prior to committing to a co-investment, a "required majority"
(as defined in Section 57(o) of the Investment Company Act) of the
independent directors of the Company will conclude that (i) the terms of the
proposed transaction are reasonable and fair to the Company and its
stockholders and do not involve overreaching of the Company and its
stockholders on the part of any person concerned; (ii) the transaction is
consistent with the interests of the stockholders of the Company and is
consistent with the investment objective and policies of the Company; and
(iii) the investment by the affiliated co-investor would not disadvantage the
Company in making its investment, maintaining its investment position, or
disposing of such investment and that participation by the Company would not
be on a basis different from or less advantageous than that of the affiliated
co-investor. There is no assurance that the application for exemptive relief
will be granted. Accordingly, there is no assurance that the Company will be
permitted to co-invest with DVP II.
VALUATION OF PORTFOLIO SECURITIES
On a quarterly basis, and at such other times as deemed appropriate
under the circumstances, the Company's Board of Directors will prepare a
valuation of the assets of the Company. Valuations of portfolio securities
will be done in accordance with generally accepted accounting principles and
the financial reporting policies of the Commission. The applicable methods
prescribed by such principles are described below.
As a general principle, the current "fair value" of an investment being
valued by the Company's Board of Directors would be the amount which the
Company might reasonably expect to receive for it upon its current sale.
There is a range of values that are reasonable for such investments at any
particular time. Generally, pursuant to procedures established by the
Company's Board of Directors, the fair value of each such investment will be
initially based primarily upon its original cost to the Company. Cost will be
the primary factor used to determine fair value until significant
developments or other factors affecting the portfolio company (such as
results of operations, changes in general market conditions or the
availability of market quotations) provide a basis for value other than a
cost valuation.
The Company anticipates that many future investments made in securities
for which a public market exists will be "restricted securities" by virtue of
the Securities Act. Generally, in such instances, the Company will negotiate
for securities registration rights necessary for a public offering thereof on
specified terms whenever deemed to be reasonably feasible by management. The
value for restricted stock investments for which no public market exists
cannot be precisely determined. Generally, such investments will be valued
on a "going concern" basis without giving effect to any disposition costs.
There is a range of values that is reasonable for such investments at any
particular time.
Portfolio investments for which market quotations are readily available
and which are freely transferable will be valued as follows: (i) securities
traded on a securities exchange or NASDAQ will be valued at the closing price
on the last trading day prior to the date of valuation; and (ii) securities
traded in the over-the-counter market (pink sheets) will be valued at the
average of the closing bid and asked prices for the last trading day prior to
the date of valuation. Securities for which market quotations are readily
available but are restricted from free trading in the public securities
markets (such as Rule 144 stock) will be valued by discounting the closing
price or the closing bid and asked prices,
22
<PAGE>
as the case may be, for the last trading day prior to the date of valuation
to reflect the illiquidity caused by such restrictions, but taking into
consideration the existence, or lack thereof, of any contractual right to
have the securities registered and freed from such trading restrictions. For
this purpose, an investment that is convertible into a security for which
market quotations are readily available or otherwise contains the right to
acquire such a security will be deemed to be an investment for which market
quotations are readily available.
Debt securities with maturities of 60 days or less remaining will be
valued under the amortized cost method. The amount to be amortized will be
the value on the 61st day if the security was obtained with more than 60 days
remaining to maturity. Securities with maturities of more than 60 days
remaining will be valued at the most recent bid price or yield equivalent as
obtained from dealers that make markets in such securities. Certificates of
deposit purchased by the Company generally will be valued at their face
value, plus interest accrued to the date of valuation.
The fair value of investments for which no market exists will be
determined on the basis of appraisal procedures established in good faith by
the Company's Board of Directors. Appraisal valuations will be based upon
such factors as the portfolio company's earnings and net worth, the market
prices for similar securities of comparable companies and an assessment of
the company's future financial prospects. In the case of unsuccessful
operations, the appraisal may be based upon liquidation value. Appraisal
valuations are necessarily subjective.
The Company may also use, when available, third-party transactions in a
portfolio company's securities as the basis of valuation (the "private market
method"). The private market method will be used only with respect to
completed transactions or firm offers made by sophisticated, independent
investors. Securities with legal, contractual or practical restrictions on
transfer may be valued at a discount from their value determined by the
foregoing methods to reflect such restrictions.
The Company's Board of Directors will review the Company's valuation
policies from time to time to determine their appropriateness. The Company's
Board of Directors may also hire independent firms to review the Investment
Adviser's methodology of valuation or to conduct a valuation, which shall be
binding and conclusive.
In order to determine the net asset value per share of the Common Stock,
(i) the value of the assets of the Company, including its portfolio
securities, will be determined by the Company's Board of Directors; (ii) the
Company's liabilities, if any, will be subtracted therefrom; and (iii) the
difference will be divided by the number of outstanding shares of Common
Stock. However, there can be no assurance that such value will represent the
return that might ultimately be realized by the Company from the investments
or that stockholders might ultimately realize on their stockholdings.
The value of portfolio securities may be very difficult to ascertain.
Valuation of portfolio securities by the Board of Directors is, by necessity,
subjective and may bear no relationship to the price at which such securities
could be sold. The net asset value, as determined by the Board of Directors,
may not be reflective of the price at which an investor could sell his shares
in the open market.
FEDERAL INCOME TAX MATTERS
THE FOLLOWING DISCUSSION IS A GENERAL SUMMARY OF THE MATERIAL UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO THE COMPANY AND TO AN
INVESTMENT IN THE COMMON STOCK AND DOES NOT PURPORT TO BE A COMPLETE
DESCRIPTION OF THE TAX CONSIDERATIONS APPLICABLE TO SUCH AN INVESTMENT.
PROSPECTIVE STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE TAX CONSIDERATIONS WHICH PERTAIN TO THEIR PURCHASE OF THE COMMON
STOCK. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION
RELEVANT TO HOLDERS OF THE COMPANY'S COMMON STOCK IN LIGHT OF THEIR PERSONAL
CIRCUMSTANCES, OR TO CERTAIN TYPES OF HOLDERS SUBJECT TO SPECIAL TREATMENT
UNDER FEDERAL INCOME TAX LAWS, INCLUDING FOREIGN TAXPAYERS. THIS SUMMARY
DOES NOT DISCUSS ANY ASPECTS OF FOREIGN, STATE OR LOCAL TAX LAWS.
The Company intends to qualify for treatment as a "regulated investment
company" under Subchapter M of the Code. If the Company qualifies as a
regulated investment company and distributes to stockholders each year in a
timely manner at least 90% of its "investment company taxable income" as
defined in the Code (i.e., net investment income from interest and dividends
and net short-term capital gains), it will not be subject to federal income
tax on the portion of its taxable income and gains it distributes to
stockholders. In addition, if the Company distributes in a timely
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<PAGE>
manner (or treats as "deemed distributed" as described below) 98% of its
capital gain net income for each one year period ending on October 31 (or
December 31, if so elected by the Company), and distributes 98% of its
ordinary income for each calendar year (as well as any income not distributed
in prior years), it will not be subject to the 4% nondeductible federal
excise tax on certain undistributed income of regulated investment companies.
The Company would be subject to regular corporate income tax (currently at
rates up to 35%) on any undistributed net investment income and any
undistributed net capital gain. The Company would also be subject to
alternative minimum tax, but any tax preference items would be apportioned
between the Company and its stockholders in the same proportion that
dividends (other than capital gain dividends) paid to each stockholder bear
to the taxable income of the Company determined without regard to the
dividends paid deduction.
In order to qualify as a regulated investment company for federal income
tax purposes, the Company must elect to be treated as a regulated investment
company and, among other things, (a) derive in each taxable year at least 90%
of its gross income from dividends, interest, payments with respect to
securities, loans, gains from the sale or other disposition of stock or
securities or other income derived with respect to its business of investing
in such stock or securities; (b) derive in each taxable year less than 30% of
its gross income from the sale of stock or securities held for less than
three months; (c) diversify its holdings so that at the end of each quarter
of the taxable year (i) at least 50% of the value of the Company's assets
consists of cash, cash items, government securities, the securities of other
regulated investment companies and other securities if such other securities
of any one issuer do not represent more than 5% of the Company's total assets
and 10% of the outstanding voting securities of the issuer and (ii) no more
than 25% of the value of the Company's total assets are invested in the
securities of one issuer (other than U.S. government securities or the
securities of other regulated investment companies), 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; and (d) distribute at least 90% of
its investment company taxable income each taxable year.
If the Company acquires debt obligations that were originally issued at
a discount, or that bear interest rates that are not fixed (or certain
"qualified variable rates") or payable at regular intervals over the life of
the obligation, it will be required to include in taxable income each year a
portion of the "original issue discount" that accrues over the life of the
obligation, regardless of whether the income is received by the Company, and
may be required to make distributions in order to continue to qualify as a
regulated investment company or to avoid the 4% excise tax on certain
undistributed income. In this event, the Company may borrow funds or sell
temporary investments or other assets to meet the distribution requirements.
See "Investment Objectives and Policies."
For any period during which the Company qualifies as a regulated
investment company for federal income tax purposes, distributions to
stockholders attributable to the Company's ordinary income (including
dividends, interest and original issue discount) and net short-term capital
gains generally will be taxable as ordinary income to stockholders to the
extent of the Company's current or accumulated earnings and profits.
Distributions in excess of the Company's earnings and profits will first be
treated as a return of capital which reduces the stockholder's adjusted basis
in his Common Stock and then as gain from the sale of Common Stock.
Distributions of the Company's net long-term capital gains (designated by the
Company as capital gain dividends) will be taxable to stockholders as
long-term capital gains regardless of the stockholder's holding period in his
shares. Corporate stockholders are generally eligible for the 70% dividends
received deduction with respect to ordinary income (but not capital gain)
dividends to the extent such amount designated by the Company does not exceed
the dividends received by the Company from domestic corporations. Any
dividend declared by the Company in October, November or December of any
calendar year, payable to stockholders of record on a specified date in such
a month and actually paid during January of the following year, will be
treated as if it were paid by the Company and received by the stockholders on
December 31 of the previous year. In addition, the Company may elect to
relate a dividend back to the prior taxable year for the purposes of (i)
determining whether the 90% distribution requirement is satisfied, (ii)
computing investment company taxable income and (iii) determining the amount
of capital gain dividends paid during the prior taxable year if the Company
makes such election prior to filing its return for the taxable year and
distributes the amount in the 12 month period following the close of the
taxable year. Any such election will not alter the general rule that a
stockholder will be treated as receiving a dividend in the taxable year in
which the distribution is made.
To the extent that the Company retains any capital gains, it may
designate them as "deemed distributions" and pay a tax thereon for the
benefit of its stockholders. In that event, the stockholders report their
share of retained realized capital gains on their individual tax returns as
if it had been received, and report a credit for the tax paid thereon by the
Company. The amount of the deemed distribution net of such tax is then added
to the stockholder's cost basis for his
24
<PAGE>
shares. Since the Company expects to pay tax on capital gains at the regular
corporate tax rate of 34% and the maximum rate payable by individuals on such
gains is 28%, the amount of credit that individual stockholders may report
will exceed the amount of tax that they would be required to pay on capital
gains. Stockholders who are not subject to federal income tax or tax on
capital gains should be able to file a return on the appropriate form or a
claim for refund that allows them to recover the taxes paid on their behalf.
The Budget Reconciliation Act of 1993 added Section 1202 to the Code
which permits the exclusion, for federal income tax purposes, of 50% of any
gain (subject to certain limitations) realized upon the sale or exchange of
"qualified small business stock" held for more than five years. Generally,
qualified small business stock is stock of a small business corporation
acquired directly from the issuing corporation, which must at the time of
issuance and immediately thereafter have assets of not more than $50 million
and be actively engaged in the conduct of a trade or business not excluded by
law. If the Company acquires "qualified small business stock," holds such
stock for five years and disposes of such stock at a profit, a stockholder
who held his shares in the Company at the time the Company purchased the
qualified small business stock and at all times thereafter until disposition
of the stock by the Company would be entitled to exclude from his taxable
income 50% of such stockholder's share of such gain. One half of any amount
so excluded would be treated as a preference item for alternative minimum tax
purposes.
If at least 50% of the value of the total assets of a regulated
investment company at the close of each quarter of the taxable year consists
of tax exempt obligations, the regulated investment company may designate all
or a portion of any dividend (other than a capital gain dividend) as an
exempt interest dividend to the extent of the regulated investment company's
net income from tax exempt obligations. An exempt interest dividend would be
treated by the stockholder as excludable from gross income under Section
103(a) of the Code, but would also be treated as a preference item by the
stockholder for alternative minimum tax purposes.
A stockholder may recognize taxable gain or loss if the stockholder
sells or exchanges his shares of Common Stock. Any gain arising from the
sale or exchange of shares generally will be treated as a capital gain or
loss except in the case of a dealer or a financial institution, and will be
treated as a long-term capital gain or loss if the stockholder has held his
shares for more than one year. However any capital loss arising from the a
sale or exchange of shares held for six months or less will be treated as a
long-term capital loss to the extent of the amount of capital gain dividends
(or undistributed capital gain) received with respect to such shares.
The Company may be required to withhold U.S. federal income tax at the
rate of 31% of all taxable distributions payable to stockholders who fail to
provide the Company with their correct taxpayer identification number or a
certificate that he is exempt from backup withholding, or the Internal
Revenue Service notifies the Company that the stockholder is subject to
backup withholding. Any amounts withheld may be credited against a
stockholder's U.S. federal income tax liability.
Federal withholding taxes at a 30% rate (or a lesser treaty rate) may
apply to distributions to stockholders that are nonresident aliens or foreign
partnerships, trusts or corporations. Foreign stockholders should consult
their tax advisors with respect to the possible U.S. federal, state and local
and foreign tax consequences of an investment in the Company.
If the offering is consummated at or close to the minimum level of
shares of Common Stock that may be sold, the Company may have difficulty
structuring its investments in a manner to cause the Company to qualify as a
Business Development Company under the Investment Company Act, while at the
same time satisfying the diversification requirements necessary to be treated
as a regulated investment company under Subchapter M of the Code. If the
Company were unable to meet the regulated investment company diversification
requirements, it would be subject to tax on its ordinary income and capital
gains (including gains realized on the distribution of appreciated property)
at regular corporate rates. Distributions to stockholders would not be
deductible by the Company, nor would they be required to be made.
Distributions would be taxable to the stockholders as ordinary dividend
income to the extent of the Company's current and accumulated earnings and
profits. Subject to certain limitations under the Code, corporate
distributees would be eligible for the dividends received deduction.
Distributions in excess of current and accumulated earnings and profits would
be treated first as a return of capital to the extent of the shareholder's
tax basis, and any remaining distributions would be treated as a gain
realized from the sale or exchange of property.
25
<PAGE>
The Company will mail to each stockholder, as promptly as possible after
the end of each fiscal year, a notice detailing, on a per distribution basis,
the amounts includable in such stockholder's taxable income for such year as
net investment income, as net realized capital gains (if applicable), as
"deemed" distributions of capital gains and as taxes paid by the Company with
respect thereto. In addition, the federal tax status of each year's
distributions will be reported to the Internal Revenue Service.
Distributions may also be subject to additional state, local and foreign
taxes depending on each stockholder's particular situation. Stockholders
should consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Company.
Under the Company's Dividend Reinvestment Plan, all cash distributions
to stockholders will be automatically reinvested in additional whole and
fractional shares of Common Stock unless a stockholder or its representative
elects to receive cash. Such distributions that are invested in additional
shares of Common Stock are considered to be constructively received by the
stockholder for federal income tax purposes and are included in his income to
the extent such constructive distribution otherwise represents a taxable
dividend for the year in which such distribution is credited to his account.
The amount of the distribution is the value of the shares acquired through
the Dividend Reinvestment Plan. See "Dividend Reinvestment Plan."
DIVIDEND REINVESTMENT PLAN
Pursuant to the Company's Dividend Reinvestment Plan, any stockholders
whose shares of Common Stock are registered in their own names will be deemed
to have elected to have all cash dividends and cash distributions
automatically reinvested by Continental Stock Transfer & Trust Company, New
York, New York (the "Plan Agent") in shares of Common Stock pursuant to the
Dividend Reinvestment Plan unless and except for each such stockholder who
individually elects to receive such on a current basis in lieu of
reinvestment. In the case of stockholders such as banks, brokers or nominees
that hold shares for others who are beneficial owners ("Nominee
Stockholders"), the Plan Agent will administer the Dividend Reinvestment Plan
on the basis of the number of shares certified by such Nominee Stockholders
as registered for stockholders that have not elected to receive dividends and
distributions in cash. Investors that own shares registered in the name of a
Nominee Stockholder should consult with such nominee as to participation or
withdrawal from the Dividend Reinvestment Plan.
The Plan Agent serves as agent for the stockholders in administering the
Dividend Reinvestment Plan. When the Company declares a dividend or
distribution payable in cash or in Common Stock, the non-participants will
receive cash and the participants will receive Common Stock to be issued by
the Company or purchased by the Plan Agent in the open market. If the market
value per share on the valuation date equals or exceeds the net asset value
per share on that date, the Company will issue new shares at the net asset
value. If the net asset value exceeds the market price, the Plan Agent will,
as agent for the participant, buy Common Stock in the open market or in
private transactions as soon as practicable after such date. If before the
Plan Agent has completed the purchases the market price exceeds the net asset
value, the Plan Agent may suspend purchasing in the market and the Company
will issue new shares at net asset value to fulfill the purchase requirements.
Participants also have the option commencing on January 1st of each
year, of making additional annual cash payments to the Dividend Reinvestment
Plan in any amount of $l,000 or more up to $10,000. Larger amounts may be
accepted with the prior approval of the Plan Agent. The Plan Agent will use
all funds received from participants to purchase shares of Common Stock to be
issued by the Company or purchased in the open market on or about February
28. Any voluntary funds must be received no later than ten days prior to
such date and any prior deposit may be withdrawn if written request for
withdrawal is received by the Plan Agent no later than ten days prior to such
date.
The Plan Agent will maintain all stockholder accounts in the Dividend
Reinvestment Plan and furnish written confirmation of all transactions in an
account. Shares in the Dividend Reinvestment Plan will be held in the name
of the participant and each stockholder's proxy will include any Dividend
Reinvestment Plan holdings.
There is no charge to the participants for reinvesting dividends and
distributions or for voluntary cash payments. The Plan Agent's fees will be
paid by the Company. There will be no brokerage charges with respect to
shares issued directly by the Company for participants in the Dividend
Reinvestment Plan. However, each participant will pay a pro rata share of
brokerage charges for shares purchased in the market.
26
<PAGE>
The Company and the Plan Agent reserve the right to terminate the
Dividend Reinvestment Plan. Further, the Dividend Reinvestment Plan may be
amended by agreement between the Company and the Plan Agent upon 30 days
notice to participants. A participant may withdraw from the Dividend
Reinvestment Plan upon written request to the Plan Agent, in which event, no
further share purchases will be made for such withdrawing participant and all
shares and funds held for such participant will be forwarded to the
participant or to his order. All communications regarding the Dividend
Reinvestment Plan should be directed to Continental Stock Transfer & Trust
Company, New York, New York.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock,
par value $.01 per share. The holders of Common Stock are entitled to one
vote per share on all matters submitted for action by the stockholders.
There is no provision for cumulative voting rights with respect to the
election of directors. Accordingly, the holders of more than 50% of the
shares of Common Stock can, if they choose to do so, elect all of the
directors. In such event, the holders of the remaining shares will not be
able to elect any directors. The holders of shares of Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining available for
distribution to them after payment of liabilities and after provision has
been made for each class of stock, if any, having preference over the Common
Stock. Holders of shares of Common Stock, as such, have no conversion,
preemptive or other subscription rights, and there are no redemption
provisions applicable to the Common Stock. All of the outstanding shares of
Common Stock are, and the shares of Common Stock offered hereby, when issued
against the consideration set forth in this Prospectus, will be, fully-paid
and non-assessable.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation provides for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. Under Delaware law, in the case of a corporation having a
classified board, stockholders may remove a director only for cause. As a
result, the stockholders will be unable in the absence of having cause to
remove incumbent directors and simultaneously gain control of the Board of
Directors by filling the vacancies created by such removal with new nominees
without cause. See "Management."
These provisions have been included in the Certificate of Incorporation
to provide greater likelihood of continuity of management for the Company
since the nature of the Company's investments is such that continuity of
management for a substantial period may be necessary to realize the full
value of the investments made by the Company. Although the presence of
these provisions may reduce the likelihood that stockholders would be able to
sell their shares at a premium in a takeover situation, the directors of the
Company believe that such is unlikely for a Business Development Company such
as the Company and the positive benefit of continuity of management outweighs
the possible detriment of these provisions. Any removal of the directors of
the Company would be in accordance with the law of the state of Delaware
pertaining to the removal of directors who are serving on a classified
board.
ANNUAL MEETINGS
The Company will hold annual meetings of stockholders for the election
of directors and other matters if required to do so under applicable laws or
rules of exchanges or other applicable regulatory agencies.
TRANSFER AND DIVIDEND PAYING AGENT
Continental Stock Transfer & Trust Company, New York, New York, will act
as the Company's transfer and dividend paying agent and registrar.
27
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PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby are being offered on a best
efforts basis by the Principal Underwriter, whose office is at 4000 Park
Road, Charlotte, North Carolina 28209.
The Principal Underwriter has agreed, subject to the terms and
conditions contained in the Underwriting Agreement, to offer up to 5,000,000
shares of Common Stock to the public at the offering prices set forth on the
cover page of this Prospectus. The purchase price must be paid upon
subscription. All payments shall be forwarded to the Escrow Agent by noon of
the next business day after receipt pending attainment of the minimum
offering and thereafter until acceptance by the Company. Interest on
escrowed funds will be paid to the Company. If the minimum offering of
1,500,000 shares of Common Stock is not attained by August 31, 1996, all
funds will be returned to investors and accrued interest will be paid to the
investors pro rata to the date of their subscription. In the event the
minimum offering is not achieved, any offering expenses incurred must be
borne by the promoters. The Principal Underwriter may enter into selling
agreements with certain Broker/Dealers who are members of the NASD for sale
of the shares and will pay a 5.5% sales commission (or, if a sale is made to
a purchaser of at least 50,000 shares, a 4.0% sales commission) to such
Broker/Dealers.
Each investor must purchase a minimum of 500 shares of Common Stock in
this offering (except that an individual retirement account must purchase a
minimum of 200 shares of Common Stock in this offering). Any larger number
of shares must be purchased in 100 share increments.
The Company has agreed to pay to the Principal Underwriter a
non-accountable expense allowance of one half percent of the gross proceeds
of this offering. The Company has also agreed to pay all expenses in
connection with qualifying the shares of Common Stock offered hereby for sale
under the laws of such states as the Principal Underwriter may designate,
including expenses of counsel retained for such purposes by the Principal
Underwriter.
The Company anticipates that the selling Broker/Dealers or their
affiliates may, from time to time, subject to the regulations set forth in
the Investment Company Act, act as brokers or dealers in connection with the
execution of the Company's investments after the Principal Underwriter ceases
to be the underwriter.
The Company has agreed to indemnify the Principal Underwriter against
certain civil liabilities, including liabilities under the federal securities
laws. However, such indemnification is subject to the provisions of Section
17(1) of the Investment Company Act which provides, in part, that no
agreement shall contain a provision which protects or purports to protect an
underwriter of an investment company or Business Development Company against
any liability to such company or its security holders to which it would
otherwise be subject due to its misfeasance, bad faith or gross negligence in
the performance of its duties, or reckless disregard of its obligations and
duties under such agreement.
The Principal Underwriter may act as a market maker with respect to the
Common Stock. The Principal Underwriter and the Company have agreed that no
transfers of shares will be allowed during the offering period and until six
months following the termination of the offering except in accordance with
laws of descent and in certain non-public transactions.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Vinson & Elkins L.L.P., Houston, Texas. Certain
matters will be passed upon for the Principal Underwriter by Kramer, Levin,
Naftalis & Frankel, New York, New York.
EXPERTS
The Statement of Assets and Liabilities of the Company as of July 26,
1995 has been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of the same
firm as experts in auditing and accounting.
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INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report................................................F-2
Statement of Assets and Liabilities as of July 26, 1995.....................F-3
Notes to Statement of Assets and Liabilities as of July 26, 1995............F-4
Statement of Assets and Liabilities as of April 30, 1996....................F-5
Notes to Statement of Assets and Liabilities as of April 30, 1996...........F-6
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Sherry Lane Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Sherry Lane Growth Fund, Inc. (the Company) as of July 26, 1995. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of assets and
liabilities is free of material misstatement. An audit of a statement of
assets and liabilities includes examining, on a test basis, evidence
supporting the amounts and disclosures in that financial statement. An audit
of a statement of assets and liabilities also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit of the statement of assets and liabilities provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Sherry
Lane Growth Fund, Inc. as of July 26, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Fort Worth, Texas
July 31, 1995
F-2
<PAGE>
SHERRY LANE GROWTH FUND, INC.
Statement of Assets and Liabilities
July 26, 1995
ASSETS
Cash $ 20,000
Organization expenses (note 2) 22,441
--------
42,441
LIABILITIES
Liabilities:
Accrued organization expenses (note 2) 22,441
--------
Net Assets (20,000,000 shares of $.01 par value shares of common
stock authorized; 2,000 shares issued and outstanding) $ 20,000
--------
--------
Net asset value per share $ 10.00
--------
--------
See accompanying notes to statement of assets and liabilities.
F-3
<PAGE>
SHERRY LANE GROWTH FUND, INC.
Notes to Statement of Assets and Liabilities
July 26, 1995
(1) ORGANIZATION AND BUSINESS PURPOSE
Sherry Lane Growth Fund, Inc. (the Company), a Delaware corporation, was
incorporated on July 21, 1995, and has had no operations to date other than
matters relating to its organization and registration as a closed-end
nondiversified investment company organized as a business development
company under the Investment Company Act of 1940, and the sale and issuance
to Sherry Lane Capital Advisors, Inc. (the Investment Adviser) of 2,000
shares of common stock for an aggregate purchase price of $20,000. The
registration and offering of the Company's common stock is for a maximum of
5,000,000 shares at a proposed maximum offering price per share of $10.
(2) ORGANIZATION EXPENSES
Organization expenses relating to the Company incurred and to be incurred
by the Investment Adviser will be reimbursed by the Company. Such expenses
will be deferred and amortized on a straight-line basis for a five-year
period beginning at the commencement of operations of the Company.
Offering costs, estimated at $250,000, will be paid from the proceeds of
the offering and charged to capital at the time of the issuance of such
shares.
(3) INVESTMENT ADVISORY AGREEMENT
The Company will enter into an investment advisory agreement with the
Investment Adviser pursuant to which the Investment Adviser will, among
other things, provide investment advisory services to the Company and will
be responsible for the management of the Company's portfolio in accordance
with the Company's investment policies and for making decisions to buy,
sell, or hold particular securities.
The Company will pay the Investment Adviser an annual fee for its
management services at an annual rate of 2.0% of the Company's net assets,
determined and paid quarterly, and an incentive management fee of 20% of
net realized capital gains after adjusted for any net unrealized
depreciation unrealized losses (defined in the investment advisory
agreement).
F-4
<PAGE>
SHERRY LANE GROWTH FUND, INC.
Statement of Assets and Liabilities
Unaudited
April 30, 1996
ASSETS
Cash $ 20,000
Organization expenses (note 2) 222,831
---------
Total Assets 242,831
---------
---------
LIABILITIES
Liabilities:
Accrued organization expenses (note 2) $ 222,831
Net Assets (20,000,000 shares of $.01 par value shares of common
stock authorized; 2,000 shares issued and outstanding) 20,000
---------
Total Liabilities and Net Equity $ 242,831
---------
---------
Net asset value per share $ 10.00
---------
---------
See accompanying notes to statement of assets and liabilities.
F-5
<PAGE>
SHERRY LANE GROWTH FUND, INC.
Notes to Statement of Assets and Liabilities
Unaudited
April 30, 1996
(1) ORGANIZATION AND BUSINESS PURPOSE
Sherry Lane Growth Fund, Inc. (the Company), a Delaware corporation, was
incorporated on July 21, 1995, and has had no operations to date other than
matters relating to its organization and registration as a closed-end
nondiversified investment company organized as a business development
company under the Investment Company Act of 1940, and the sale and issuance
of 2,000 shares of common stock for an aggregate purchase price of $20,000.
The registration and offering of the Company's common stock is for a
maximum of 5,000,000 shares at a proposed maximum offering price per share
of $10.
(2) ORGANIZATION EXPENSES
Organization expenses relating to the Company incurred and to be incurred
by the Investment Adviser will be reimbursed by the Company. Such expenses
will be deferred and amortized on a straight-line basis for a five-year
period beginning at the commencement of operations of the Company.
Offering costs, estimated at $450,000, will be paid from the proceeds of
the offering and charged to capital at the time of the issuance of such
shares.
(3) INVESTMENT ADVISORY AGREEMENT
The Company will enter into an investment advisory agreement with the
Investment Adviser pursuant to which the Investment Adviser will, among
other things, provide investment advisory services to the Company and will
be responsible for the management of the Company's portfolio in accordance
with the Company's investment policies and for making decisions to buy,
sell, or hold particular securities.
The Company will pay the Investment Adviser an annual fee for its
management services at an annual rate of 2.0% of the Company's net assets,
determined and paid quarterly, and an incentive management fee of 20% of
net realized capital gains after adjusted for any net unrealized
depreciation unrealized losses (defined in the investment advisory
agreement).
F-6
<PAGE>
SUBSCRIPTION AND TAX QUALIFICATION PAGE
SHERRY LANE GROWTH FUND, INC.
Investments must be made through a participating NASD Broker/Dealer by
confirmation or by subscription utilizing this application. By signature
below, the undersigned investor subscribes for and agrees to purchase shares
of Common Stock, par value $.01 per share ("Common Stock"), of the Company as
provided below at a price of Ten Dollars ($10) per share ($9.85 for investors
who purchase at least 50,000 shares of Common Stock), such subscription being
tendered pursuant to the prospectus to which this page is attached (the
"Prospectus"). This subscription is subject to the terms and conditions
discussed in the Prospectus and on the reverse side hereof.
ESCROW
Payments pursuant hereto shall be placed in an escrow account at
Continental Stock Transfer & Trust Company, New York, New York, to be
returned to the investor with interest and without deduction for any expense
if (i) this subscription has not been accepted or is subsequently rejected by
the Company or (ii) less than 1,500,000 shares of Common Stock are subscribed
by the date of closing of the subscription period as specified in the
Prospectus or as extended pursuant thereto. Costs of escrow and any interest
on escrowed funds will accrue to the Company. At such time as the minimum
subscription and all other requirements are met, whether by the closing date
or before, all subscription funds tendered, along with interest thereon,
shall be released to the general account of the Company in accordance with
the terms of the offering of the Common Stock contemplated by the Prospectus.
If the investor is allocated less than the full amount of shares subscribed,
any overpayment of funds shall be promptly refunded, without interest.
TERMS AND CONDITIONS OF SUBSCRIPTION AGREEMENT
ACCEPTANCE OR REJECTION
The Company, in its sole discretion and for any reason, shall have the
right to accept or reject this subscription in whole or in part. The
investor hereby agrees that the investor is not entitled to cancel, terminate
or revoke this subscription except as otherwise required under applicable
law, and that such subscription and agreement shall survive the death or
disability of the investor.
OFFERING INFORMATION
The investor acknowledges the investor's receipt and review of the
Prospectus; that the offering was made only through direct communication
between the investor and a duly authorized representative of the Company;
that the investor has been offered and has obtained all further information
desired to verify or supplement the information contained in the Prospectus;
and that the investor has been advised by the Company that a purchaser of the
shares of Common Stock must be prepared to bear the risk of such investment
for an indefinite time because, among other things, of the possible
illiquidity of the offering and the lack of a prior market. The investor
also acknowledges that no person except the officers of the Company and its
duly authorized selling agents have been authorized to make any
representations on behalf of the Company relating to this offering other
than as set forth in the Prospectus and, if given or made, such
representations must not be relied upon.
SUITABILITY REQUIREMENTS
The investor represents that the shares of Common Stock are being
purchased solely for investment purposes and that the investor has read the
risk factors discussed in the Prospectus. The investor (if an individual) is
of majority age and under no disability with respect to entering into in the
Subscription Agreement. In addition, the investor understands that no
federal or state agency has made any finding or determination as to the
fairness of an investment in the shares of Common Stock by the public at
large or any recommendations or endorsement of such shares. The investor, if
acting herein in a fiduciary capacity, represents that the representations
and warranties herein contained are true and correct as to the investor's
principals, that the investor has full and complete authority to execute this
Agreement on behalf of all parties whom it purports to represent and to bind
them to the terms hereof. If the investor is acting on
<PAGE>
behalf of an entity, such entity was not organized for the specific purpose
of acquiring the shares of Common Stock. The investor agrees, to the fullest
extent permitted by law, to indemnify and hold the Company and the officers,
directors, agents and representatives of the Company harmless from all loss,
damage, liability, cost or expense (including attorneys' fees and court
costs) arising out of any misrepresentation or warranty of the investor
contained herein.
ALL ARIZONA INVESTORS MUST HAVE EITHER A (I) MINIMUM ANNUAL INCOME OF
$60,000 AND MINIMUM NET WORTH OF $150,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND AUTOMOBILES); OR (II) NET WORTH OF $250,000 (EXCLUSIVE OF
HOME, HOME FURNISHINGS AND AUTOMOBILES).
ALL CALIFORNIA INVESTORS MUST HAVE EITHER A (I) MINIMUM OF $65,000
ANNUAL GROSS INCOME AND $250,000 OF NET WORTH (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND AUTOMOBILES); OR (II) MINIMUM NET WORTH (EXCLUSIVE OF HOME,
HOME FURNISHINGS AND AUTOMOBILES) OF $500,000.
ALL MISSOURI INVESTORS MUST HAVE EITHER (I) A NET WORTH OF AT LEAST
$45,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) AND AN ANNUAL
GROSS INCOME OF AT LEAST $45,000; OR (II) A NET WORTH OF AT LEAST $150,000
(EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES).
ALL NORTH CAROLINA INVESTORS MUST HAVE EITHER (I) A NET WORTH OF AT
LEAST $60,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) AND AN
ANNUAL GROSS INCOME OF AT LEAST $60,000; OR (II) A NET WORTH OF AT LEAST
$225,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES).
ALL TEXAS INVESTORS MUST COMPLETE AND EXECUTE A SEPARATE TEXAS INVESTOR
CERTIFICATE IN ADDITION TO THIS SUBSCRIPTION AGREEMENT.
- ----------------------------------------------------------------------------
The investor authorizes the Company to pay all commissions and fees due
hereunder to the named Broker/Dealer.
- ----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
The investor authorizes the Company to pay all dividends and distributions to
Continental Stock Transfer & Trust Company pursuant to the Dividend
Reinvestment Plan unless and until the Company is notified by the investor of
the investor's election to not participate in such plan.
- -----------------------------------------------------------------------------
TEXAS LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF TEXAS.
<PAGE>
Number of Shares purchased hereby (MINIMUM PURCHASE OF 500 SHARES (EXCEPT
THAT THE MINIMUM PURCHASE FOR AN INDIVIDUAL RETIREMENT ACCOUNT IS 200 SHARES)
AND GREATER PURCHASES IN 100 SHARE INCREMENTS ONLY)
Purchase price for Shares (AT $10 PER SHARE ($9.85 FOR INVESTORS WHO PURCHASE
AT LEAST 50,000 SHARES OF COMMON STOCK) included herewith $
MAKE CHECK PAYABLE TO:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
AS ESCROW AGENT FOR SHERRY LANE GROWTH FUND, INC.
FORWARD CHECK AND THIS SIGNED TAX QUALIFICATION AND SUBSCRIPTION PAGE TO
Continental Stock Transfer & Trust Company
2 Broadway, 19th Floor
New York, New York 10004
INDICATE MANNER OF OWNERSHIP
Individual [_____] Separate Property [_____] Joint Tenants [_____]
Community [_____] Partnership [_____] Corporation [_____]
"S" Corp. [_____] Trust [_____] Other [_____] (describe):
ENTER
Social Security Number ___ ____ ____ or Tax Identification Number ___ _________
PRINT NAMES IN WHICH SHARES OF COMMON STOCK ARE TO BE REGISTERED
- -------------------------------------------------------------------------------
First Name M.I. Last Name
- -------------------------------------------------------------------------------
For Individual(s),
Print Names here
- -------------------------------------------------------------------------------
For Trust, Print Trust Name here
- -------------------------------------------------------------------------------
For Corporation or Other
Business, Print Name here
- -------------------------------------------------------------------------------
<PAGE>
ADDITIONAL SUBSCRIPTION INFORMATION - PLEASE PRINT
REGISTERED STOCKHOLDER'S ADDRESS
- -------------------------------------------------------------------------------
Residency Address
- -------------------------------------------------------------------------------
City State Zip
- -------------------------------------------------------------------------------
ADDITIONAL ADDRESS FOR STOCKHOLDER COMMUNICATIONS
- -------------------------------------------------------------------------------
Mail Address
- -------------------------------------------------------------------------------
City State Zip
- -------------------------------------------------------------------------------
Office Phone (___) Home Phone (___) Fax (___)
- -------------------------------------------------------------------------------
ADVISOR'S ADDRESS (CPA, ATTORNEY, CFP, RIA)
- -------------------------------------------------------------------------------
Name and Firm
- -------------------------------------------------------------------------------
Mail Address
- -------------------------------------------------------------------------------
City State Zip
- -------------------------------------------------------------------------------
Office Phone (___) Home Phone (___) Fax (___)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INFORMATION TO BE COMPLETED BY ACCOUNT EXECUTIVE - PLEASE PRINT
- -------------------------------------------------------------------------------
Broker Dealer Firm
- -------------------------------------------------------------------------------
Branch Office Name
- -------------------------------------------------------------------------------
ACCOUNT EXECUTIVE
Name Signature
- -------------------------------------------------------------------------------
OFFICE ADDRESS
Street Address City State Zip
- -------------------------------------------------------------------------------
Office Phone (___) Home Phone (___) Fax (___)
- -------------------------------------------------------------------------------
SIGNATURE
I certify that (1) the Taxpayer ID number is correct as shown and (2) I
am not subject to backup withholding as a result of failure to report all
interest or dividends, or the Internal Revenue Service has notified me I am
no longer subject to withholding under Section 3406(a)(1)(C) of the Internal
Revenue Code of 1986, as amended.
Dated _______________________________ Signature ______________________________
Dated _______________________________ Signature ______________________________
<PAGE>
TEXAS INVESTOR CERTIFICATE
The undersigned Investor hereby certifies that he is an "accredited
investor" as that term is defined in Regulation D adopted pursuant to the
Securities Act of 1933. The specific category(s) of accredited investor
applicable to the undersigned is checked below.
______ a. an individual whose individual net worth, or joint net worth with
that individual's spouse, exceeds $1,000,000;
______ b. an individual who had an individual income in excess of $200,000 in
1994 and 1995 or who had joint income with that individual's spouse in
excess of $300,000 in each of those years and who reasonably expects
to have that income level in 1996;
______ c. a bank as defined in Section 3(a)(2) of the Securities Act of 1933, as
amended (the "Act"), or a savings and loan association or other
institution as defined in section 3(a)(5)(A) of the Act whether acting
in its individual or fiduciary capacity; a broker or dealer registered
pursuant to section 15 of the Securities Exchange Act of 1934; an
insurance company as defined in Section 2(13) of the Act; an
investment company registered under the Investment Company Act of 1940
(the "1940 Act") or a business development company as defined in
Section 2(a)(48) of the 1940 Act; a Small Business Investment Company
licensed by the U.S. Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958; any plan
established and maintained by a State, its political subdivisions, or
any agency or instrumentality of a State or its political subdivisions
for the benefit of its employees, if such plan has total assets in
excess of $5,000,000; or an employee benefit plan within the meaning
of Title I of the Employee Retirement Income Security Act of 1974
("ERISA"), if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of ERISA, which is either a bank, savings and
loan association, insurance company or registered investment adviser,
or if the employee benefit plan has total assets in excess of
$5,000,000; or, if a self-directed plan, with investment decisions
made solely by persons that are accredited investors;
______ d. a private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
______ e. an organization described in Section 501(c)(3) of the Internal Revenue
Code, a corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000;
______ f. a trust with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase
is directed by a sophisticated person as described in Rule
506(b)(2)(ii) under the Act;
______ g. an individual who is a director or executive officer of Sherry Lane
Growth Fund, Inc.; or
______ h. an entity in which all of the equity owners are accredited investors.
IN WITNESS WHEREOF, the undersigned has executed this Accredited Investor
Certificate this _____ day of ______, 1996.
______________________________
Signature
______________________________
Printed Name
<PAGE>
SHERRY LANE GROWTH FUND, INC.
DIVIDEND REINVESTMENT PLAN
The Company has adopted a Dividend Reinvestment Plan (the "Plan").
Please be aware that all dividends and distributions will be
automatically reinvested in shares of Common Stock, par value $.01 per share,
of the Company ("Common Stock") at no cost to the stockholder.
Stockholders may make additional cash purchases of shares of Common
Stock in accordance with the Plan. Acquisitions of shares of Common Stock
for reinvestment or cash purchases of Common Stock will be made by the
Company from shares selling at a discount to the Company's Net Asset Value
("NAV") or through the issuance of new shares by the Company at NAV.
Reinvested dividends and distributions will be used by the Company for
general investment and operating purposes, including additional investments
in portfolio companies.
Shares of Common Stock acquired by the Company in accordance with the
Plan will be held in the name of the Company in unissued form by the
Company's transfer agent and investors will receive a quarterly statement
reflecting the number of shares of Common Stock owned in the Plan. These
shares can be issued to the individual investor, or can be liquidated upon
written instructions of the registered investor.
IF YOU WISH TO HAVE YOUR DIVIDENDS SENT TO YOU INSTEAD OF HELD FOR
REINVESTMENT, PLEASE COMPLETE AND EXECUTE THE FOLLOWING SECTION.
ELECTION TO RECEIVE DIVIDENDS AND NOT PARTICIPATE IN THE PLAN
The undersigned elects not to participate in the Dividend Reinvestment
Plan and requests all dividends and distributions to be forwarded to the
following address:
Name of Stockholder __________________________________________________________
Address for Dividend Mailing__________________City ______ State _____ Zip ___
Phone (___) ___ ____ Fax (___) ___ ____
Account Number for Deposit ___________________________________________________
Bank or Custodial Name _______________________________________________________
Date_______________________ Signature of Registered Holder __________________
______________________________________________________________________________
RETURN THIS ELECTION TO THE FUND
AT
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
AS AGENT FOR SHERRY LANE GROWTH FUND, INC.
2 BROADWAY, 19TH FLOOR
NEW YORK, NEW YORK 10004
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus in connection with the offer
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company or by any Underwriter. This Prospectus does not constitute an offer
of any securities other than those to which it relates or an offer to sell,
or a solicitation of an offer to buy, to any person in any jurisdiction where
such an offer or solicitation would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall under any circumstances
create an implication that there has been no change in the affairs of the
Company since the date hereof.
____________________
TABLE OF CONTENTS
PAGE
Additional Information................................................ 2
Prospectus Summary.................................................... 3
Risk Factors.......................................................... 6
Use of Proceeds....................................................... 9
Distributions......................................................... 9
The Company........................................................... 10
Investment Objectives and Policies..................................... 13
Management............................................................. 15
Prior Experience of Principals of The Investment Adviser............... 18
The Investment Advisory Agreement...................................... 20
Regulation............................................................. 20
Valuation of Portfolio Securities...................................... 22
Federal Income Tax Matters............................................. 23
Dividend Reinvestment Plan............................................. 26
Description of Capital Stock........................................... 27
Plan of Distribution................................................... 28
Legal Matters.......................................................... 28
Experts................................................................ 28
Index to Financial Statements..........................................F-1
_____________
Until _____________ 1996, (25 days after the date of this Prospectus),
all dealers effecting transactions in the Common Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
5,000,000 SHARES
SHERRY LANE
GROWTH FUND, INC.
COMMON STOCK
____________________
PROSPECTUS
, 1996
____________________
MARION BASS SECURITIES CORPORATION
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and exhibits are filed as part of the
registration statement.
1. Financial Statements
Statement of Assets and Liabilities of the Company as of July 26, 1995.
Statement of Assets and Liabilities of the Company as of April 30, 1996.
2. Exhibits
(a) Certificate of Incorporation of the Company.
(b) Bylaws of the Company.
(c) Form of Dividend Reinvestment and Cash Purchase Plan.*
(g) Form of Investment Advisory Agreement between the Company and the
Investment Adviser.*
(h) Form of Underwriting Agreement with Selected Dealers Agreement
relating to the offering of the shares.*
(i) Form of Escrow Agreement among the Registrant, Marion Bass
Securities Corporation and Continental Stock Transfer & Trust
Company.*
(l) Opinion of Vinson & Elkins L.L.P.*
(m) (1) Consent of Vinson & Elkins L.L.P. (contained in Exhibit (l)).*
(m) (2) Consent of KPMG Peat Marwick LLP.
(n) Form of Indemnification Agreement for directors and officers.*
* Filed with Amendment No. 3 to the Registration Statement
ITEM 25. MARKETING ARRANGEMENTS
The Company will enter into an agreement with an investment banking firm
(the "Principal Underwriter") for the organization and management of a
syndication of Broker/Dealers to serve as selling agents for the Company.
The Company and the Principal Underwriter will agree that, during the period
of the offering and for six months following the termination of the offering,
all trading in the securities of the Company shall be suspended.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities covered by this Registration
Statement.
Securities and Exchange Commission $ 18,242
National Association of Securities Dealers, Inc. 18,000
Blue Sky fees and expenses 50,000
Printing Expenses 8,000
Legal fees and expenses 235,000
Accounting fees and expenses 11,000
Travel, lodging and miscellaneous 109,758
--------
Total $450,000
C-1
<PAGE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
The outstanding capital stock of Sherry Lane Growth Fund, Inc., a
Delaware corporation (the "Registrant"), is owned by Barry M. Davis, Philip
A. Tuttle, Elmer C. Wilkening and certain relatives of Barry M. Davis. The
investment adviser for the Registrant is Sherry Lane Capital Advisors, Inc.,
a Texas corporation, a majority of the outstanding capital stock of which is
owned by Barry M. Davis, Philip A. Tuttle and Elmer C. Wilkening. Barry M.
Davis, Philip A. Tuttle and Elmer C. Wilkening are general partners in Davis
Venture Group, the general partner of Davis Venture Partners, L.P., a
Delaware limited partnership, and are also general partners in Davis Venture
Group II, L.P., a Delaware limited partnership, which is the general partner
of Davis Venture Partners II, L.P. Sherry Lane Capital Advisors, Inc. serves
as administrator and adviser to the Registrant in accordance with the
Advisory Agreement described in the Prospectus contained herein and filed as
an exhibit to this Registration Statement. James A. O'Donnell, David L.
Daniel and Terry K. Dorsey serve as the independent directors of the
Registrant. See "Management" in the Prospectus contained herein.
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<PAGE>
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Common Stock 1
ITEM 29. INDEMNIFICATION
Article VI of the Bylaws of the Company provides that the Company shall
indemnify its officers and directors to the maximum extent allowed by the
Delaware General Corporation Law. Pursuant to Section 145 of the Delaware
General Corporation Law, the Company generally has the power to indemnify its
present and former directors and officers against expenses and liabilities
incurred by them in connection with any suit to which they are, or are
threatened to be made, party by reason of their serving in those positions so
long as they acted in good faith and in a manner they reasonably believed to
be in, or not opposed to, the best interests of the Company, and with respect
to any criminal action, so long as they had no reasonable cause to believe
their conduct was unlawful. With respect to suits by or in the right of the
Company, however, indemnification is generally limited to attorneys' fees and
other expenses and is not available if the person is adjudged to be liable to
the Company, unless the court determines that indemnification is appropriate.
The statute expressly provides that the power to indemnify authorized
thereby is not exclusive of any rights granted under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Company
also has the power to purchase and maintain insurance for its directors and
officers.
The preceding discussion of the Company's Bylaws and Section 145 of the
Delaware General Corporation Law is not intended to be exhaustive and is
qualified in its entirety by the Company's Bylaws and Section 145 of the
Delaware General Corporation Law.
The Company intends to enter into indemnity agreements with the
Company's directors and officers. Pursuant to such agreements, the Company
will, to the extent permitted by applicable law, indemnify such persons
against all expenses, judgments, fines and penalties incurred in connection
with the defense or settlement of any actions brought against them by reason
of the fact they were directors or officers of the Company or assumed certain
responsibilities at the direction of the Company.
The form of Principal Underwriter Agreement included herein as Exhibit
(a) provides for indemnification of the Company, the Principal Underwriter,
and certain controlling persons under certain circumstances, including
indemnification for liabilities under the Securities Act of 1933, as amended
(the "Securities Act").
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Barry M. Davis, Philip A. Tuttle and Elmer C. Wilkening, respectively,
own 27%, 27% and 9.5% of the outstanding capital stock of Sherry Lane Capital
Advisors, Inc. The remainder of the outstanding capital stock of Sherry Lane
Capital Advisors, Inc. is owned by certain relatives of Barry M. Davis.
BARRY M. DAVIS is Chairman of the Board and Chief Executive Officer of
Sherry Lane Capital Advisors, Inc. Since 1975 he has served as President and
a director of Alliance Business Investment Company, a privately owned small
business investment company organized in 1959 which has made venture capital
investments similar to the investments to be made by the Company. Since 1986
Mr. Davis has also been the managing general partner in Davis Venture Group,
which is the general partner of Davis Venture Partners, L.P. ("Davis Venture
Partners I"), a Delaware limited partnership formed in 1986 to make venture
capital investments similar to the investments to be made by the Company.
Mr. Davis is also the managing general partner of Davis Venture Group II,
L.P., a Delaware limited partnership which is the general partner of Davis
Venture Partners II, L.P. ("Davis Venture Partners II"), a Delaware limited
partnership formed in October 1995 to make venture capital investments
similar to the investments to be made by the Company. In addition to his
roles with the entities described above, Mr. Davis is a partner in the Davis
Companies energy/natural resource group with primary activities in the
southwest. Mr. Davis has served on the board of directors of four portfolio
companies in which Davis Venture Partners I has invested: Coleman Natural
Products, Inc.; LMS Holding Company; Numar Corporation; and Wallace and
Tiernan Group Inc. Mr. Davis has over 25 years of experience in making
venture capital investments and currently serves on the board of directors of
the National Venture Capital Association. In 1980, Mr. Davis was elected
Chairman of the Board of Governors of the National Association of Small
Business Investment Companies, a venture capital industry trade association,
and he has served as president of the organization's Southwest Regional
Association. In 1975, he received the National Achievement Award in the
venture capital industry for his efforts in founding the Venture Capital
Management Institute, the formal training program for a significant portion
of the venture capital managers in the United States. In addition, Mr. Davis
lectures at public forums and universities about venture capital and
strategies for emerging growth companies and was a founder of the Oklahoma
Private Enterprise
C-3
<PAGE>
Forum. He has served on numerous boards of civic organizations and is past
Chairman of the Board of Hillcrest Healthcare Corporation as well as a
current trustee of the University of Tulsa. He is a graduate of the
University of Oklahoma with a B.B.A. degree in corporate finance.
PHILIP A. TUTTLE is President of Sherry Lane Capital Advisors, Inc.
From August 1987 to June 1989, Mr. Tuttle was Chief Executive Officer of OMNA
Corporation, a home healthcare provider. From 1982 to August 1987 Mr. Tuttle
served as the President of Allied Bancshares Capital Corporation, a federally
licensed small business investment company which grew from $5 million to $40
million in capital during his tenure. He has since June 1989, been a general
partner of Davis Venture Group, the general partner of Davis Venture Partners
I, a private investment partnership which raised $32 million from
institutional investors to invest primarily in business located in the
southwestern and south central United States. He is also a general partner
in Davis Venture Group II, L.P. the general partner of Davis Venture
Partners II. Mr. Tuttle has served on the board of directors of four
portfolio companies in which Davis Venture Partners I has invested: Drypers
Holding Corp., Quality Tubing, Inc., Taylor Medical, Inc. and WCC Holding
Corp. Mr. Tuttle currently serves on the board of directors of Medical
Innovations, Inc., a publicly traded company listed on NASDAQ that provides
home intravenous therapies, specialized home nursing care and other
outpatient health care services, the board of directors of Zydeco Energy,
Inc., a publicly traded company listed on NASDAQ engaged in acquiring oil and
gas leases, drilling and producing reserves utilizing focused geologic
concepts and advanced 3D seismic and computer aided exploration technology,
and the board of directors of Drypers Holding Corp., a publicly traded
company listed on NASDAQ that manufactures and distributes disposable
diapers. Mr. Tuttle is a founder and was formerly a President of the Houston
Venture Capital Association and was President and is currently a Director of
The Houston Chapter of the Association for Corporate Growth. He has served
as Chairman of the Accounting Council at Rice University-Jones Graduate
School of Administration and as a member of the Board of Governors of the
National Association of Small Business Investment Companies. He currently
serves as a member of the Board of Trustees of Child Advocates Endowment,
Inc. Mr. Tuttle earned a B.A. degree from Rice University and an M.B.A.
degree from Northwestern University. He is a certified Public Accountant and
Fellow of the Institute of Directors, London, England.
ELMER C. WILKENING is Vice President, Secretary and Treasurer of Sherry
Lane Capital Advisors, Inc. Since 1959 he has been Secretary-Treasurer and a
director of Alliance Business Investment Company. In 1986 he became a
general partner in Davis Venture Group, the general partner of Davis Venture
Partners I. He is also a general partner in Davis Venture Group II, L.P., the
general partner of Davis Venture Partners II. He has served as a director of
two portfolio companies of Davis Venture Partners I: Photometrics, Ltd. and
LMS Holding Company. Mr. Wilkening holds a B.S. degree in accounting from
the University of Illinois and is a Certified Public Accountant.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The books of account, securities and other documents and records of the
Registrant are maintained by the Investment Adviser at its offices at 320
South Boston, Suite 1000, Tulsa, Oklahoma 74103-3703.
ITEM 32. MANAGEMENT SERVICES
None other than as described in the prospectus contained herein (the
"Prospectus").
ITEM 33. UNDERTAKINGS
The Company undertakes to suspend the offering of its shares of Common
Stock until it amends the Prospectus if (i) subsequent to the effective date
of this Registration Statement, the net asset value declines more than ten
percent from its net asset value as of the effective date of this
Registration Statement or (ii) the net asset value increases to an amount
greater than its net proceeds as stated in the Prospectus.
The Company undertakes to file a post-effective amendment with certified
financial statements showing the initial capital received before accepting
subscriptions from more than 25 persons, if the Company proposes to raise its
initial capital under Section 14(a)(3) of the Investment Company Act.
The Company undertakes:
(a) 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, (ii) to
reflect in the Prospectus any facts or events arising after the effective
date of this Registration Statement (or the most recent post-effective
amendment thereof) that, individually or in the aggregate, represent a
fundamental change in the information
C-4
<PAGE>
set forth in this Registration Statement and (iii) to include any material
information with respect to the plan of distribution not previously disclosed
in this Registration Statement or any material change to such information in
this Registration Statement;
(b) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered herein, and the
offering of those securities at that time shall be deemed to be the initial
bona fide offering thereof; and
(c) to remove from registration by means of a post-effective amendment
any of the securities that remain unsold at the termination of the offering.
The Company undertakes that, for purposes of determining any liability
under the Securities Act:
(a) the information omitted from the Prospectus in reliance upon Rule
430A of the Securities Act and contained in the form of Prospectus filed by
the Company pursuant to Rule 497(h) under the 1933 Securities Act, shall be
deemed to be part of this Registration Statement as of the time it was
declared effective; and
(b) each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered hereby and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of
Texas, on the 13th day of May, 1996.
SHERRY LANE GROWTH FUND, INC.
By: /S/ PHILIP A. TUTTLE
-------------------------------------
Philip A. Tuttle, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby appoints Philip A. Tuttle as his
attorney-in-fact to sign on his behalf, individually and in the capacities
stated below, and to file any and all amendments and post-effective
amendments to this Registration Statement, which amendment or amendments may
make such changes and additions as such attorney in fact may deem necessary
or appropriate.
Signature Title Date
--------- ----- ----
/s/ Barry M. Davis Chairman of the Board, Chief Executive May 13, 1996
- ---------------------- Officer and Director (principal executive
Barry M. Davis officer)
/s/ Elmer C. Wilkening Vice President, Secretary and Treasurer May 13, 1996
- ---------------------- (principal financial and accounting
Elmer C. Wilkening officer)
/s/ James A. O'Donnell Director May 13, 1996
- ----------------------
James A. O'Donnell
/s/ Philip A. Tuttle Director May 13, 1996
- ----------------------
Philip A. Tuttle
/s/ Terry K. Dorsey Director May 13, 1996
- ----------------------
Terry K. Dorsey
/s/ David L. Daniel Director May 13, 1996
- ----------------------
David L. Daniel
<PAGE>
EXHIBIT (c)
DIVIDEND REINVESTMENT PLAN
SHERRY LANE GROWTH FUND, INC.
1. Each stockholder ("Stockholder" or "Participant") holding shares of
Common Stock ("Shares") of Sherry Lane Growth Fund, Inc. (the "Fund") will
automatically be a participant in this Dividend Reinvestment Plan (the "Plan")
unless Continental Stock Transfer & Trust Company (the "Plan Agent") is
otherwise instructed by the Stockholder, in writing, to have all distributions,
net of any applicable U.S. withholding tax, paid in cash. A Stockholder who
does not wish to participate in the Plan will receive all distributions in cash
and will be paid by check in U.S. dollars mailed directly to such Stockholder.
The Plan Agent will act as agent for individual Stockholders and will open an
account for each Stockholder under the Plan in the same name as the
Stockholder's other Shares are registered.
2. Whenever the directors of the Fund declare a capital gains
distribution or an income dividend payable in Shares or cash, participating
Stockholders will take such distribution or dividend entirely in Shares to be
issued by the Fund and the Plan Agent shall automatically receive such Shares,
including fractions, for the Stockholder's account, except in the circumstances
described in paragraph 3 below.
3. Participants also have the option, commencing on January 1st of each
year, of making additional annual cash payments to the Plan in any amount of
$l,000 or more up to $10,000. Larger amounts may be accepted with the prior
approval of the Plan Agent. The Plan Agent will use all funds received from
participants to purchase Shares to be issued by the Company or purchased in the
open market on or about February 28. Any voluntary funds must be received no
later than ten days prior to such date and any prior deposit may be withdrawn if
written request for withdrawal is received by the Plan Agent no later than ten
days prior to such date.
4. The Plan Agent shall have two methods to acquire Shares. First,
whenever the Market Price (as defined in paragraph 6) per Share equals or
exceeds the Net Asset Value (as defined in paragraph 6) per Share at the time
the Shares are valued for the purpose of determining the number of Shares
equivalent to the dividend or distribution (the "Valuation Date"), the Fund will
issue, in consideration for the dividend or distribution payable to each
Participant, Shares at NAV. Second, if on the Valuation Date the Shares are
trading below NAV, the Plan Agent, as agent for each participant, will receive
the divided or distribution on each Participant's Shares and apply the same
(less such Participant's pro rata share of brokerage commissions incurred) to
purchase in the open market Shares for the Participant's account. Such
purchases will be made on or shortly after the payment date for such dividend or
distribution, and in no event more than 45 days after such date except where
temporary curtailment or suspension of purchase is necessary to comply with
applicable provisions of federal securities law (in which case, Shares shall be
issued at 95% of NAV on the Valuation Date). All dividends, distributions and
other payments (whether made in cash or in Shares) shall be made net of any
applicable withholding tax. If such open market purchases cause the price of
Shares to increase to NAV, the Plan Agent shall utilize the first method
described above to acquire the Shares. In either case, for purposes of the
above investment, the Plan Agent may commingle Participant's funds, and the
price for such acquired Shares shall be the average price (including brokerage
commissions) of all Shares acquired (including newly issued Shares) by the Plan
Agent for such quarterly dividend or distribution.
5. The open-market purchases provided for above may be made on any
securities exchange on which the Shares are traded, in the over-the-counter
market or in negotiated transactions and may be on such terms as the Plan Agent
shall determine. Funds held by the Plan Agent will not bear interest. In
addition, it is understood that the Plan Agent shall have no liability (other
than as provided in paragraph 12 hereof) in connection with any inability to
purchase Shares within 45 days after the payment date of any dividend or
distribution as herein provided or in connection with the timing of any
purchases. The Plan Agent shall have no responsibility as to the value of the
Shares acquired for any Stockholder's account.
6. For all purposes of the Plan, (a) the Market Price (herein so called)
of Shares on a particular date shall be the last sales price on the close of the
previous trading day or, if there is no sale on that date, then the mean
<PAGE>
between the closing bid and asked quotations for such stock on such date, and
(b) Net Asset Value ("NAV") per Share on a particular date shall be as
determined by or on behalf of the Fund.
7. The Plan Agent will hold Shares acquired pursuant to the Plan in
non-certificated form in the name of the Stockholder for whom such Shares are
being held. The Plan Agent will forward to each Stockholder participating in
the Plan any proxy solicitation material received by it and will vote any
Shares so held for any such Stockholder only in accordance with the proxy
returned by the Stockholder to the Fund. In the case of Stockholders, such
as banks, brokers or nominees, that hold Shares for others who are beneficial
owners thereof, the Plan Agent will administer the Plan on the basis of the
number of shares certified from time to time by such Stockholders as
representing the total amount registered in the names of such Stockholders
and held for the account of beneficial owners who participate in the Plan.
Upon a Stockholder's written request, the Plan Agent will deliver to the
Stockholder, without charge, a certificate or certificates representing all
full Shares held by the Plan Agent pursuant to the Plan for the benefit of
such Stockholder.
8. The Plan Agent will confirm in writing each acquisition made for the
account of a Stockholder as soon as practicable but in any event not later than
60 days after the date of such acquisition. Although a Stockholder may from
time to time have an undivided fractional interest (computed to three decimal
places) in a Share, no certificates for fractional Shares will be issued.
However, dividends and distributions on fractional Shares will be credited to
each Stockholder's account. In the event of termination of a Stockholder's
account under the Plan, the Plan Agent will pay a cash adjustment for any such
undivided fractional interest at the Market Price of the Shares on the date of
termination.
9. Any dividends payable in Shares or Shares issued in a stock split or
similar transaction distributed by the Fund on Shares held by the Plan Agent for
a Stockholder will be credited to the Stockholder's account. In the event that
the Fund makes available to Stockholders rights to purchase additional Shares or
other securities, the Plan Agent will sell such rights and apply the proceeds of
the sale to the purchase of additional Shares.
10. A Stockholder may terminate the Stockholder's participation in the
Plan by notifying the Plan Agent in writing. Such termination will be effective
immediately if notice is received by the Plan Agent not less than ten days prior
to any dividend or distribution, and, if received thereafter but prior to or on
the day of such dividend or distribution, on the first trading day after such
dividend or distribution shall have been credited to such Stockholder's account.
11. These terms and conditions may be amended or supplemented by the Plan
Agent or the Fund at any time or times but, except when necessary or appropriate
to comply with applicable law or the rules or policies of the Securities and
Exchange Commission or any other regulatory authority, only by mailing to the
Stockholders appropriate written notice at least 30 days prior to the effective
date thereof. The amendment or supplement shall be deemed to be accepted by the
Stockholders unless, prior to the effective date thereof, the Plan Agent
receives written notice of the termination of a Stockholder's account under the
Plan. Any such amendment may include an appointment by the Plan Agent in its
place and stead of a successor Plan Agent under these terms and conditions, with
full power and authority to perform all or any of the acts to be performed by
the Plan Agent under these terms and conditions. Upon any such appointment of a
successor Plan Agent for the purpose of receiving dividends and distributions,
the Fund will be authorized to pay to such successor Plan Agent, for the
Stockholders' accounts, all dividends and distributions payable on the Shares
held in the Stockholders' name or under the Plan for retention or application by
such successor Plan Agent as provided in these terms and conditions.
12. The Plan Agent will use its best efforts to have the Shares issued
pursuant to the Plan be registered and freely tradable as soon as practicable.
13. The Plan Agent shall at all times act in good faith and use its best
efforts within reasonable limits to ensure the accuracy of all services
performed under this Plan and to comply with applicable law, but assumes no
responsibility and shall not be liable for loss or damage due to error unless
such error is caused by its negligence, bad faith or willful misconduct.
2
<PAGE>
14. This Agreement shall be construed and enforced in accordance with and
governed by the laws and regulations of the State of New York and the securities
laws of the United States.
This Plan is dated as of the _______ day of _____________ 1996.
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By:_______________________________________
Title:____________________________________
SHERRY LANE GROWTH FUND, INC.
By:_______________________________________
Title:____________________________________
3
<PAGE>
EXHIBIT (g)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT (this "Agreement") is made as of
September 21, 1995, by and between Sherry Lane Growth Fund, Inc., a Delaware
corporation (the "Company"), and Sherry Lane Capital Advisors, Inc., a Texas
corporation (the "Advisor").
W I T N E S S E T H:
WHEREAS, the Company proposes to engage as a Business Development Company
under the Investment Company Act of 1940, as amended (the "Act"), in the
business of (i) making investments in the equity and equity-linked debt
securities of small to medium-sized companies ("Portfolio Investments") and (ii)
making short-term investments for its own account ("Temporary Investments" and,
collectively with Portfolio Investments, "Investments");
WHEREAS, the Advisor is engaged in the business of rendering management,
administrative and investment advisory services with respect to the Investments;
and
WHEREAS, the Company deems it advisable to retain the Advisor to render
certain management, administrative and investment advisory services to the
Company, and the Advisor desires to provide such services to the Company, on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the Company and the Advisor hereby agree as follows:
1. ENGAGEMENT. Commencing on the date hereof, the Company engages and
retains the Advisor to provide, or to make arrangements with suitable third
parties to provide, the management, administrative and investment advisory
services described below, subject to the supervision of the independent outside
directors (as defined in the Act) of the Company, for the period and on the
terms and conditions set forth in this Agreement. The Advisor hereby accepts
such engagement and agrees during the terms of this Agreement, at its own
expense (except as provided herein), to provide, or to make satisfactory
arrangements for the provision of, such services and to assume the obligations
herein set forth for the compensation provided herein.
2. TERM. Subject to the provisions of Section 11, the initial term of
this Agreement will be for the period commencing on the date of this Agreement
and expiring two years from such date. Thereafter, this Agreement shall
automatically be extended for successive one-year terms until terminated by
either party hereto in accordance with the provisions of Section 11.
3. PROVISION OF INVESTMENT ADVISORY SERVICES. The Advisor shall, within
a reasonable period of time after any request by the Company, provide the
Company with such investment research and advice as the Company may request with
respect to any existing or proposed Investment consistent with the investment
objectives and policies of the Company as set forth in the Company's Prospectus
as filed with the Securities and Exchange Commission. The Advisor agrees to
comply with all provisions of the Act and all rules and regulations promulgated
thereunder in providing the services to the Company described herein. The
Advisor's investment services shall include identifying, evaluating,
structuring, acquiring, monitoring, holding, managing and arranging for the
disposition of Investments for the Company.
4. PROVISION OF MANAGEMENT AND ADMINISTRATIVE SERVICES. The Advisor
shall provide, or arrange for suitable third parties to provide, any and all
management and administrative services reasonably necessary for the
<PAGE>
operation of the Company and the conduct of its business. Such management
and administrative services shall include, but not be limited to, the
following:
(a) providing the Company with such office space, equipment,
facilities and supplies, and the services of such clerical and other personnel
of the Advisor, as may be necessary or required for the reasonable conduct of
the business of the Company;
(b) keeping and maintaining the books and records of the Company and
handling communications and correspondence with stockholders of the Company;
(c) preparing such accounting, management and other reports and
documents as may be necessary or appropriate for the reasonable conduct of the
business of the Company;
(d) making such arrangements and handling such communications with
accountants, attorneys, banks, transfer agents, custodians, underwriters,
insurance companies, depositories and other persons as may from time to time be
requested by the Company or may be reasonably necessary to perform any of the
other services to be rendered by the Advisor under this Agreement;
(e) providing such other managerial and administrative services as
may be reasonably requested by the Company to identify, evaluate, structure,
monitor and dispose of Investments;
(f) providing such other advice and recommendations with respect to
the business and affairs of the Company as the Advisor shall deem desirable or
appropriate; and
(g) providing, as may be appropriate or necessary from time to time,
a director, designee or advisory director to portfolio companies of the Company
and making arrangements for the provision, at such costs as are reasonable and
appropriate, of such other management assistance as may be appropriate or
necessary pursuant to the requirements of a Business Development Company under
the Act.
5. SUPERVISION. The performance by the Advisor of its duties and
obligations hereunder shall be subject to the control and supervision of the
officers and directors of the Company, and the Advisor's determination of what
services are necessary or required for the operation of the business of the
Company shall be subject to review by such officers and directors. The Advisor
shall provide periodic reports to the Company of the performance of its
obligations hereunder as may be requested by the Company. The Advisor shall for
all purposes herein be deemed to be an independent contractor and shall, unless
expressly provided or authorized, have no authority to act for or represent the
Company in any way or otherwise be deemed an agent of the Company.
6. ALLOCATION OF COSTS AND EXPENSES.
(a) COSTS AND EXPENSES OF THE ADVISOR. Except as set forth below,
the Advisor shall bear the costs and expenses incurred or paid by the Advisor in
providing the services to the Company under Section 3 hereof that are not
directly allocable and identifiable to the Company or its business or its
Investments or proposed Investments. Included in the costs that the Advisor
will bear are the cost of office space, equipment and supplies utilized by the
Company's personnel and all wages, salaries and benefits of the Advisor's staff
and personnel. Notwithstanding the foregoing, the Advisor shall not be
responsible for the cost of services provided by any custodian, transfer agent,
accountant, consultant or counsel required by the Company.
(b) EXPENSES OF THE COMPANY. Except as provided in Section 6(a), the
Company shall bear (and shall reimburse the Advisor for) all costs and expenses
directly allocable and identifiable to the Company or its business or its
Investments, including, but not limited to, all out-of-pocket expenses with
respect to proposed or actual Investments or dispositions thereof, expenses of
registering shares of stock under federal and state securities laws,
2
<PAGE>
costs of printing proxies and other expenses related to meetings of
stockholders, litigation expenses, costs of third party evaluations or
appraisals of the Company (or its assets) or its proposed or actual
Investments, legal fees, fees of independent public accountants, independent
outside director fees, expenses of printing or distributing reports to
stockholders and regulatory bodies, federal, state and local taxes, and other
costs and expenses directly allocable and identifiable to the Company or its
business or Investments.
(c) REGISTRATION EXPENSES. Organizational and offering expenses,
including accounting, legal and printing expenses and registration fees,
incurred by the Advisor and its affiliates in connection with the initial public
offering of the Company will be reimbursed to the Advisor and Affiliates (as
hereinafter defined) by the Company, subject to the limitations set forth in the
Prospectus.
7. FEES.
(a) DESCRIPTION OF THE MANAGEMENT FEE. In consideration of the
services to be provided by the Advisor to the Company under this Agreement,
the Company agrees to pay to the Advisor a quarterly fee (the "Management
Fee") as follows:
(1) commencing from the date of the initial closing (the
"Initial Closing") of the sale of shares of the Company's common stock, par
value $.01 per share ("Shares"), to the first end of a calendar quarter
following the Initial Closing, a fee equal to .50% of the Net Assets (as
computed in accordance with Section 7(b) hereof) of the Company prorated
for the number of days in the quarter in which such assets are available
for investment; and
(2) following the first end of a calendar quarter following the
Initial Closing, for all subsequent quarters, at a quarterly rate of .50%
of the Net Assets of the Company, as determined as of the end of each such
quarter;
each such payment to be due as of the 30th day following the last day of each
such calendar quarter (a "Payment Date").
(b) DETERMINATION OF NET ASSETS. For purposes of determining the Net
Assets of the Company, the following shall be applicable:
(1) Investment assets shall be valued at the value ascribed
thereto at the end of each quarter pursuant to a Directors' Valuation
Report to be prepared by the Company's Board of Directors.
(2) Assets other than Investment assets shall be valued at the
book value thereof at the end of each quarter as determined by the
Company's Board of Directors in accordance with generally accepted
accounting principles then in effect.
(3) Net Assets as calculated for purposes of determining fees
due hereunder shall be net of the amount of any then outstanding
liabilities as determined by the Company's Board of Directors in accordance
with generally accepted accounting principles then in effect.
(c) COMPUTATION OF MANAGEMENT FEE. On or prior to a Payment Date,
the Advisor shall prepare a computation showing the Management Fee due for the
preceding quarter. Such computation shall be submitted to the independent
outside directors of the Company who shall promptly review it. If the
independent outside directors approve of such computation, the fee reflected
thereon shall be paid to the Advisor by the Company. If the independent outside
directors do not approve such computation, the Company shall pay the Advisor the
Management Fee computed by the independent outside directors, or, if they shall
not have computed the Management Fee, then the Management Fee originally
submitted by the Advisor. Thereafter, the Net Assets of the Company as
3
<PAGE>
of the end of such quarter shall be determined by such independent public
accountants as the Advisor and the Company shall agree. If the dispute is
submitted to such accountants, their determination shall be determinative of
the Management Fee payable for such quarter, and, upon such determination,
the Advisor shall be paid or shall refund to the Company any portion of the
Management Fee determined to be underpaid or overpaid, as the case may be.
The cost of such determination of the Management Fee by such independent
public accountants shall be paid by the Company, unless the Management Fee
determination of the Advisor exceeds by ten percent or more the Management
Fee determination finally made, in which case the Advisor shall pay the cost
of such determination.
(d) EXPENSE LIMITATIONS. In the event the operating expenses of the
Company, including amounts payable to the Advisor pursuant to subsection (a)
hereof, for any fiscal year ending on a date during which this Agreement is in
effect exceed any expense limitations applicable to the Company imposed by
applicable state securities laws or regulations promulgated thereunder, as such
limitations may be raised or lowered from time to time, the Advisor shall reduce
the Management Fee by the extent of such excess and, if required pursuant to any
such laws or regulations, will reimburse the Company in the amount of such
excess; provided, however, to the extent permitted by law, there shall be
excluded from such expenses the amount of any interest, taxes, portfolio
transaction costs and extraordinary expenses (including but not limited to legal
claims and liabilities and litigation costs and any indemnification related
thereto) paid or payable by the Company. Whenever the expenses of the Company
exceed a pro rata portion of the applicable annual expense limitations, if any,
the estimated amount of reimbursement under such limitations shall be applicable
as an offset against the quarterly payment of the Management Fee due to the
Advisor. Should two or more such expense limitations be applicable as at the
end of the last business day of the quarter, the expense limitation which
results in the largest reduction in the Management Fee shall be applicable.
(e) MANAGEMENT INCENTIVE FEE. The Company agrees to pay the
Advisor annually and at the final dissolution or liquidation of the Company,
as additional compensation for the services to be provided under this
Agreement, an incentive fee (the "Management Incentive Fee") in an amount
(the "Payment Amount") equal to twenty percent of any net realized capital
gains of the Company after allowance for any unrealized capital depreciation
of the Company, calculated on an annual basis. The Management Incentive Fee
shall be paid to the Advisor in cash (or in the event of a distribution of
securities, in kind concurrent with distributions to the Company's
stockholders). Any portion of the Management Incentive Fee not paid in any
year because of regulatory restrictions shall accumulate and be paid at such
time as such restriction is no longer applicable. Notwithstanding the
foregoing, no payment shall be made of the Management Incentive Fee which is
not permitted by the Act or other applicable law. In the event that a
payment of the Management Incentive Fee is determined to have been made in
excess of that permitted by the Act, other applicable law or herein, such
excess Management Incentive Fee payments shall be repaid to Company, and
repayment will be due, in cash (or in the event of a distribution of
securities, at the option of the Advisor, in kind) on or before 30 days of
the receipt of notice by the Advisor from the Company that such over-payment
has occurred.
(f) EFFECT OF TERMINATION. If this Agreement is terminated as of any
date that is not the last day of a calendar quarter, in the case of the
Management Fee, or the last day of the Company's fiscal year, in the case of the
Management Incentive Fee, such fees shall be calculated as of the effective date
of termination and shall be paid as soon as possible after such date of
determination. All unrealized capital gains at the date of termination of this
Agreement shall be deemed realized on such date and shall be valued and paid in
accordance with Sections 12 and 13.
8. LIABILITY OF THE ADVISOR. The Advisor and its officers, directors,
employees, agents and affiliates (collectively, "Affiliates") shall not be
liable to the Company or any stockholder of the Company for any error of
judgment or mistake of law or any loss or damage with respect to any Investment
of the Company or arising from any act or omission of the Advisor or any of the
Affiliates in the performance of its obligations hereunder, unless such loss or
damage is the result of bad faith, gross negligence or any breach of any
contractual duty arising under this Agreement.
4
<PAGE>
9. INDEMNIFICATION OF THE ADVISOR. The Company shall indemnify and hold
harmless, to the maximum extent permitted by law, the Advisor and its Affiliates
who were or are a party or are 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
Company), by reason of any acts or omissions or alleged acts or omissions
arising out of the activities of the Advisor or any of its Affiliates, against
losses, accountants' and attorneys' fees, judgments, fines and amounts paid in
settlement actually incurred by the Advisor or any of its Affiliates in
connection with such action, suit or proceeding, so long as the Advisor or
Affiliate to be indemnified was not guilty of bad faith, gross negligence, or
breach of its or his obligations and duties under this Agreement, and, with
respect to any criminal action or proceedings, had no reasonable cause to
believe its or his conduct was unlawful. Notwithstanding the foregoing, absent
a court determination that the entity or 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 Company to indemnify such entity or person shall
be based upon the reasonable determination, after review of the facts, of the
non-party directors of the Company, or of independent legal counsel in a written
opinion that such person was not liable by reason of such disabling conduct.
10. OBLIGATIONS OF THE ADVISOR NOT EXCLUSIVE. The obligations of the
Advisor to the Company are not exclusive. The Advisor may, in its discretion,
render the same or similar services to any person or persons whose business may
be in direct or indirect competition with the business of the Company and may be
in direct competition with the Company for particular investments.
Additionally, it is contemplated that from time to time one or more Affiliates
of the Advisor may serve as directors, officers or employees of the Company or
the portfolio companies of the Company or otherwise have an interest or
affiliation with the Company or such portfolio companies or have the same or
similar relationships with competitors of the Company and their portfolio
companies. Neither the Advisor nor any of its Affiliates shall in any manner be
liable to the Company by reason of the aforedescribed activities of the Advisor
or such Affiliates.
11. APPROVAL, TERMINATION AND CONTINUATION. The Company shall use its
best efforts to cause this Agreement to be approved by a majority of the
outstanding voting securities of the Company. This Agreement may be terminated
at any time, without the payment of any penalty, by the Company, by the
affirmative consent of a majority of the outstanding voting securities of the
Company, or by the Advisor on 60 days' written notice to the other party. This
Agreement shall continue in effect for a period of more than two years from the
date of its execution by the parties hereto only so long as such continuance is
specifically approved at least annually by (i) a vote of the directors of the
Company or (ii) a vote of a majority of the outstanding voting securities of the
Company, including in either case the approval of such continuance by a vote of
the directors of the Company who are not "interested" parties within the meaning
of Section 2(a)(19) of the Act.
12. VALUATION UPON TERMINATION. Upon termination of this Agreement, if
the exemptive order described in Section 13 has been granted, the Investments
held by the Company on the date of termination shall be appraised by two
independent appraisers, one selected by the Company (and approved by the
independent outside directors of the Company or by the vote of a majority of
the outstanding voting securities of the Company) and one selected by the
Advisor. In the event that such appraisers are unable to agree on the value
of the Company's Investment portfolio, they shall jointly appoint a third
appraiser whose determination shall be final and binding. The cost of such
appraisals shall be borne equally by the Company and the Advisor. All
unrealized gains and unrealized losses of the Company shall be deemed
realized on the date of such termination and shall be determined in
accordance with the foregoing appraisals. In the event such appraisals
reflect a net capital gain on the date of termination, the Company shall
deliver a promissory note of the Company to the Advisor in a principal amount
equal to the amount of the Management Incentive Fee consequently owed to the
Advisor on the date of termination, bearing interest at a rate per annum
equal to the prime rate of interest as stated in the WALL STREET JOURNAL on
the date of termination with interest payable annually; and principal payable
annually, if at all, only from 20% of the sum of net investment income and
gain on the sale of portfolio securities after the creation of reasonable
reserves for expenses and contingencies before distributions to any
stockholders of the Company.
5
<PAGE>
13. EXEMPTIVE ORDER. The Company shall file an application for, and use
its best efforts to obtain, an exemptive order of the Securities and Exchange
Commission concerning the proposed procedures for calculating the Management
Incentive Fee upon termination of this Agreement as described in Section 12.
14. USE OF NAME. The Advisor reserves the right to grant the use of the
name "Sherry Lane" or similar names to another investment company, business
development company or business enterprise. The Advisor also reserves the right
to withdraw from the Company the right to use the name "Sherry Lane" upon
termination of this Agreement or at any other time, provided that, if the right
to withdraw the name "Sherry Lane" is exercised by the Advisor, the directors of
the Company will submit the question of terminating this Agreement to a vote of
the stockholders of the Company.
15. NOTICES. All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be deemed to have been
delivered on the date personally delivered, as evidenced by an executed receipt,
or on the date received if mailed, postage prepaid, by certified mail, return
receipt requested, or upon the date of transmission if telegraphed or faxed and
confirmed the same day, if addressed to the respective parties as follows:
If to the Company: Sherry Lane Growth Fund, Inc.
12 Greenway Plaza
Suite 600
Houston, Texas 77046
Attention: President
If to the Advisor: Sherry Lane Capital Advisors, Inc.
12 Greenway Plaza
Suite 600
Houston, Texas 77046
Attention: President
16. DEFINITIONS. The terms "assignment" and "majority of the outstanding
voting securities" shall have the meanings given to them by Sections 2(a)(4) and
2(a)(42), respectively, of the Act.
17. ASSIGNMENT. This Agreement may not be assigned by either party
hereto. Any assignment in violation of the foregoing shall be null and void.
18. AMENDMENT. This Agreement may be amended only by an instrument in
writing executed by both parties thereto; provided, however, that this Agreement
may be amended by the parties only if such amendment is specifically approved by
(i) the independent outside directors of the Company and (ii) ratified or
approved by the vote of a majority of the outstanding voting securities of the
Company.
19. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Texas and the
applicable provisions of the Act.
20. FORM ADV. The Company acknowledges that it has received a copy of
Part II of Form ADV of the Advisor at least 48 hours in advance of the execution
of this Agreement.
21. PRIOR AGREEMENTS. This Agreement supersedes any prior Investment
Advisory Agreements between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
6
<PAGE>
SHERRY LANE GROWTH FUND, INC.
By:-------------------------------------
Name: Philip A. Tuttle
Title: President
SHERRY LANE CAPITAL ADVISORS, INC.
By:-------------------------------------
Name: Philip A. Tuttle
Title: President
7
<PAGE>
EXHIBIT (H)
5,000,000
SHARES OF COMMON STOCK
SHERRY LANE GROWTH FUND, INC.
UNDERWRITING AGREEMENT
Tulsa, Oklahoma
__________ ___, 1996
Marion Bass Securities Corporation
4000 Park Road
Charlotte, North Carolina 28209
Ladies and Gentlemen:
Sherry Lane Growth Fund, Inc., a Delaware corporation (the "Company"),
proposes to offer and sell to the public up to 5,000,000 shares of the Company's
common stock, $.01 par value per share (the "Shares"), subject to the terms and
conditions herein stated. The Shares are more fully described in the
Registration Statement and the Prospectus referred to below. The Company hereby
appoints Marion Bass Securities Corporation (the "Underwriter") as its exclusive
agent, on a best efforts basis, to sell the Shares, on behalf of the Company
subject to the terms and conditions herein stated.
Sherry Lane Capital Advisors, Inc., a Delaware corporation (the "Adviser"),
will act as investment adviser for the Company pursuant to an investment
advisory agreement (the "Investment Advisory Agreement"), dated September 21,
1995, between the Company and the Adviser.
1. REPRESENTATIONS AND WARRANTIES. (a) The Company and the Adviser each,
jointly and severally, represent and warrant to, and agree with, the
Underwriter, as of the date hereof, and as of the Closing Date (hereinafter
defined), as follows:
(i) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form N-2 (No. 33-96108), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Shares under the Securities Act of 1933,
<PAGE>
as amended, and the Investment Company Act of 1940, as amended (collectively,
the "Acts"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Acts, and
the Rules and Regulations of the Commission thereunder. The Company will
promptly file a further amendment to said registration statement in the form
heretofore delivered to the Underwriter and will not file any other amendment
thereto to which the Underwriter shall have objected in writing after having
been furnished with a copy thereof. Except as the context may otherwise
require, such registration statement, as amended, on file with the Commission
at the time the registration statement becomes effective (including the
prospectus, financial statements, schedules, exhibits and all other documents
filed as a part thereof or incorporated therein (including, but not limited to
those documents or information incorporated by reference therein) and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the rules and regulations), is hereinafter called the
"Registration Statement", and the form of prospectus in the form first filed
with the Commission pursuant to Rule 497 of the rules and regulations, is
hereinafter called the "Prospectus." For purposes hereof, "Rules and
Regulations" mean the rules and regulations adopted by the Commission under
either the Securities Act of 1933, as amended (the "Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Investment Company
Act of 1940, as amended (the "1940 Act") or the Investment Advisers Act of
1940, as amended (the "Advisers Act"), as applicable.
(ii) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Acts and the Rules and Regulations, and none of the Preliminary Prospectus,
the Registration Statement or Prospectus at the time of filing thereof contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein and necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus. The Company and the Adviser acknowledge that the only such
information so furnished by the Underwriter is the paragraph relating to
stabilization on the inside front cover page of the Prospectus and the
statements under the caption "Plan of Distribution" in the Prospectus.
(iii) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date and during such longer period as
the Prospectus may be required to be delivered in connection with sales by the
Underwriter or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Acts and the Rules and Regulations, and will conform to
-2-
<PAGE>
the requirements of the Acts and the Rules and Regulations; neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, PROVIDED, HOWEVER, that this representation and warranty does
not apply to statements made or statements omitted in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of the Underwriter (as set forth in paragraph 1(a)(ii) hereof) expressly for
use in the Preliminary Prospectus, Registration Statement or Prospectus or any
amendment thereof or supplement thereto.
(iv) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company does not own an interest in any corporation, partnership, trust, joint
venture or other business entity. The Company is not qualified as a foreign
corporation in any jurisdiction, there being no jurisdiction in which failure to
so qualify would have a material adverse effect upon the Company. The Company
has all requisite power and authority (corporate and other), and on the Closing
Date will have obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), materially necessary to own
or lease its properties and conduct its business as described in the Prospectus;
the Company is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all federal, state, local and foreign laws, rules and regulations,
except where the failure to so comply does not and will not have a material
adverse effect on the Company; and the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company. The disclosures
in the Registration Statement concerning the effects of federal, state, local,
and foreign laws, rules and regulations on the Company's business as currently
conducted and as contemplated are correct in all material respects and do not
omit to state a material fact necessary to make the statements contained therein
not misleading in light of the circumstances in which they were made.
(v) The Company has 20,000,000 shares of common stock authorized,
issued and outstanding as of the date hereof, and the Company is not a party to
or bound by any instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other securities, except
for this Agreement and as described in the Prospectus. Shares conform or, when
issued and paid for, will conform, in all respects to all statements with
respect thereto contained in the Registration Statement and the Prospectus. All
issued and outstanding securities of the Company have been duly authorized and
validly issued and are fully paid and non-assessable and the holders thereof
have no rights of rescission with respect thereto, and are not subject to
personal liability under the laws of the State of Delaware
-3-
<PAGE>
as currently in effect by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company. The Shares are not and will not be subject to any preemptive or other
similar rights of any stockholder, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms hereof, will be validly
issued, fully paid and non-assessable and will conform to the description
thereof contained in the Prospectus; the holders thereof will not be subject to
any liability under the laws of the State of Delaware as currently in effect
solely as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Shares has been duly and validly taken;
and the certificates representing the Shares will be in due and proper form.
Upon the issuance and delivery pursuant to the terms hereof of the Shares to be
sold by the Company hereunder or the Underwriter, as the case may be, the
purchasers of the Shares will acquire good and marketable title to such Shares
free and clear of any lien, charge, claim, encumbrance, pledge, security
interest defect or other restriction or equity of any kind whatsoever (except
those arising out of acts of or claims against the Underwriter or such
purchasers).
(vi) The financial statements of the Company together with the related
notes and schedules thereto, included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present the financial position,
changes in cash flow, changes in stockholders' equity and the results of
operations of the Company at the respective dates and for the respective periods
to which they apply and such financial statements have been prepared in
conformity with generally accepted accounting principles and the Rules and
Regulations, consistently applied throughout the periods involved. There has
been no material adverse change or development involving a material prospective
change in the condition, financial or otherwise, or net assets of the Company or
in the management, capital stock, investment objectives, investment policies,
earnings, liabilities, business affairs or business prospects of the Company
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus.
(vii) The Company (A) has paid all federal, state, local, and foreign
taxes for which it is liable, including, but not limited to, withholding taxes
and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986, as amended (the "Code"), and has furnished all information returns it is
required to furnish pursuant to the Code, (B) has established adequate reserves
for such taxes which are not due and payable, and (C) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(viii) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of the Company
which (A) questions the validity of the capital stock of the Company, this
Agreement, the Investment Advisory Agreement (as defined herein), or of any
action taken or to be taken by the Company pursuant to or in connection with
this Agreement or the Investment Advisory Agreement, (B) is required to be
disclosed in the Registration Statement
-4-
<PAGE>
which is not so disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all material respects),
or (C) if adversely determined, might materially and adversely affect the
condition, financial or otherwise, or the business affairs or business
prospects, earnings, liabilities, prospects, stockholders' equity, value,
properties, business or assets of the Company.
(ix) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Shares, enter into this Agreement and the
Investment Advisory Agreement and to consummate the transactions provided for
in such agreements; and this Agreement and the Investment Advisory Agreement
have each been duly and properly authorized, executed and delivered by the
Company. Each of this Agreement and the Investment Advisory Agreement
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, and none of the Company's
issue and sale of the Shares, execution or delivery of this Agreement and the
Investment Advisory Agreement, its performance hereunder and thereunder, its
consummation of the transactions contemplated herein and therein, or the conduct
of its business as described in the Registration Statement, the Prospectus, and
any amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company pursuant to
the terms of, (A) the certificate of incorporation or by-laws of the Company,
(B) any license, contract, indenture, mortgage, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company is a party or by which it is or may
be bound or to which its properties or assets (tangible or intangible) is or may
be subject, or any indebtedness, or (C) any statute, judgment, decree, order,
rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Company or
any of its activities or properties, in each case except for conflicts,
breaches, violations, defaults, creations or impositions which do not and would
not have a material adverse effect on the Company.
(x) Except as described in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court, regulatory body,
government agency or other body, domestic or foreign, is required for the
issuance of the Shares pursuant to the Prospectus and the Registration
Statement, and the transactions contemplated hereby and thereby, including
without limitation, any waiver of any preemptive, first refusal or other rights
that any entity or person may have for the issue and/or sale of any of the
Shares, except such as have been or may be obtained under the Acts or may be
required under state securities or Blue Sky laws in connection with the
Underwriter's purchase and distribution of the Shares, to be sold by the Company
hereunder.
-5-
<PAGE>
(xi) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective terms, subject, as to
enforcement, to applicable bankruptcy, fraudulent transfer, moratorium,
reorganization, insolvency or other similar laws relating to or affecting
creditors' rights generally and to general equitable principles except, with
respect to this Agreement, as rights to indemnity and contribution thereunder
may be limited by U.S. federal or state securities laws. The descriptions in
the Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form N-2, and there are no contracts or other documents which are
required by the Acts to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct copies
of the documents of which they purport to be copies.
(xii) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not (A) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money, (B) entered into any transaction other than in the ordinary
course of business, or (C) declared or paid any dividend or made any other
distribution on or in respect of its capital stock of any class, and there has
not been any change in the capital stock, or any change in the debt (long or
short term) or liabilities or material adverse change in or affecting the
business affairs or prospects, management, stockholders' equity, properties,
business or assets of the Company.
(xiii) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, partnership agreement, note, loan or credit agreement,
purchase order, or any other material agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
the property or assets (tangible or intangible) of the Company is subject or
affected, which default would have a material adverse effect on the Company.
(xiv) Neither the Company, the Adviser, nor any of their respective
employees, directors, stockholders, partners, or affiliates (within the meaning
of the Rules and Regulations) of any of the foregoing has taken or will take,
directly or indirectly, any action designed to or which has constituted or which
might be expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares or otherwise.
-6-
<PAGE>
(xv) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus, to be owned or leased by it free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects, or other
restrictions or equities of any kind whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable.
(xvi) KPMG Peat Marwick LLP, whose report is filed with the Commission
as a part of the Registration Statement, are independent certified public
accountants as required by the Acts and the Rules and Regulations.
(xvii) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Shares hereunder or
any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors, stockholders,
partners, employees or affiliates that may affect the Underwriter's
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(xviii) Neither the Company, nor any of its officers, employees, agents
or any other person acting on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (A) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (B) if
not given in the past, might have had a materially adverse effect on the assets,
business or operations of the Company, or (C) if not continued in the future,
might adversely affect the assets, business, operations or prospects of the
Company.
(xix) Except as set forth in the Prospectus, no officer, director, or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any of
the foregoing persons or entities has or has had, either directly or indirectly,
(A) an interest in any person or entity which (1) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (2) purchases from or sells or furnishes to the Company any
goods or services, or (B) a beneficiary interest in any contract or agreement to
which the Company is a party or by which it may be bound or affected. Except as
set forth in the Prospectus under "The Investment Adviser," there are no
existing agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions between or among the
Company, and any officer or director of the Company, or any partner, affiliate
or associate of any of the foregoing persons or entities.
-7-
<PAGE>
(xx) Any written certificate signed by any officer of the Company and
delivered to the Underwriter or to Underwriter's Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriter
as to the matters covered thereby.
(xxi) The minute books of the Company have been made available to the
Underwriter and contain a complete summary of all meetings and actions of the
directors and stockholders of the Company, since the time of its incorporation,
and reflect all transactions referred to in such minutes accurately in all
material respects.
(xxii) Except and to the extent described in the Prospectus, no holders
of any securities of the Company have the right to include any securities issued
by the Company in the Registration Statement or any registration statement to be
filed by the Company or to require the Company to file a registration statement
under the Acts and no person or entity holds any anti-dilution rights with
respect to any securities of the Company.
(xxiii) The Company has entered into the Investment Advisory Agreement
substantially in the form filed as Exhibit (g) to the Registration Statement
with the Adviser (the "Investment Advisory Agreement"). The Investment Advisory
Agreement has been duly and validly authorized by the Company and, assuming due
execution by the parties thereto other than the Company, constitutes a valid and
legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject, as to enforcement, to applicable bankruptcy,
fraudulent transfer, moratorium, reorganization, insolvency or other similar
laws relating to or affecting creditors' rights generally and to general
equitable principles except, with respect to this Agreement, as rights to
indemnity and contribution thereunder may be limited by U.S. federal or state
securities laws.
(xxiv) The Company is registered with the Commission under the 1940 Act
as a closed-end, non-diversified investment company. The Company is, and at all
times through the Closing Date, as hereinafter defined, will be, in compliance
with the terms and provisions of the Acts in all material respects. No person
is serving or acting as an officer or director of, or investment adviser to, the
Company except in accordance with the provisions of the 1940 Act, the Advisers
Act, and the Rules and Regulations thereunder.
(b) The Adviser represents to the Underwriter as follows:
(i) The Adviser (A) is duly registered as an investment adviser under
the Advisers Act and (B) is not prohibited by the Advisers Act, the 1940 Act, or
the Rules and Regulations thereunder from acting as investment adviser for the
Company as contemplated under the Investment Advisory Agreement.
(ii) The Adviser has been duly organized and is validly existing as a
corporation in good standing under the laws of Texas, with full power and
authority, to own or lease all assets owned or leased by it and to conduct its
business as described in the Registration
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<PAGE>
Statement and Prospectus, and is duly licensed or qualified as a foreign entity
and in good standing in each other jurisdiction in which its ownership of
property or the conduct of its business requires such qualification or license
and owns, possesses, or on the Closing Date will have obtained and will be
currently maintaining all material governmental licenses, permits, consents,
orders, approvals and authorizations (collectively, the "Authorizations"),
whether foreign or domestic, necessary to carry on its business as contemplated
in the Prospectus, except where the failure to be so licensed or qualified or
obtaining such Authorizations would not have a material adverse effect on the
Adviser.
(iii) Each of this Agreement and the Investment Advisory Agreement has
been duly and validly authorized, executed and delivered by the Adviser and the
Investment Advisory Agreement complies with the all applicable provisions of the
1940 Act, the Advisers Act, and the Rules and Regulations thereunder, as the
case may be, and, assuming due authorization, execution and delivery by the
other parties thereto, each of this Agreement and the Investment Advisory
Agreement constitutes a legal, valid and binding obligation of the Adviser,
enforceable in accordance with its terms, subject, as to enforcement, to
applicable bankruptcy, fraudulent transfer, moratorium, reorganization,
insolvency or other similar laws relating to or affecting creditors' rights
generally and to general equitable principles, except, with respect to this
Agreement, as rights to indemnity and contribution thereunder may be limited by
U.S. federal or state securities laws.
(iv) No consent, approval, authorization or order (each, a "Consent"),
of any court or governmental agency or body or securities exchange or securities
association having jurisdiction over the Adviser, whether foreign or domestic,
is required to be obtained by the Adviser for the consummation by the Adviser of
the transactions contemplated in, or the performance by the Adviser of its
obligations under, this Agreement or the Financial Advisory, Agreement, except
(A) for any consent required pursuant to state or foreign securities or "blue
sky" laws and (B) such as have been obtained under the 1940 Act, the Advisers
Act, and the Rules and Regulations thereunder.
(v) Neither the execution and delivery by the Adviser of this
Agreement or the Investment Advisory Agreement, nor the performance after the
Closing Date by the Adviser of its obligations under such agreements or the
consummation by the Adviser of the transactions contemplated by such agreements,
conflicts or will conflict with, or results or will result in any breach or
violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Adviser pursuant to the terms of, (A) the
articles of incorporation or by-laws of the Adviser, (B) any license, contract,
indenture, mortgage, deed of trust, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or instrument
to which the Adviser is a party or by which it is or may be bound or to which
its properties or assets (tangible or intangible) is or may be subject, or any
indebtedness, or (C) any statute, judgment, decree, order, rule or regulation
applicable to the Adviser of any arbitrator, court, regulatory body or
administrative agency or
-9-
<PAGE>
other governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
having jurisdiction over the Adviser or any of its activities or properties, in
each case except for conflicts, breaches, violations, defaults, creations or
impositions which do not and would not have a material adverse effect on the
Adviser.
(vi) The description of the Adviser in the Registration Statement and
the Prospectus complies with the requirements of the Acts and the Rules and
Regulations and does not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(vii) There is no action, suit or proceeding before or by any court or
governmental agency or body, foreign or domestic, now pending or, to the
knowledge of the Adviser, threatened against the Adviser of a nature required to
be disclosed in the Registration Statement or the Prospectus (other than as may
be disclosed therein) that might result in any material adverse change in the
condition, financial or otherwise, or business affairs of the Adviser or the
ability of the Adviser to perform its obligations hereunder or under the
Investment Advisory Agreement, as the case may be.
(viii) The information with respect to the prior performance of Davis
Venture Partners I, Alliance Business Investment Company, and Allied Bancshares
Capital Corporation, included in the Registration Statement and the Prospectus,
presents fairly and accurately the information set forth therein for the periods
specified and complies as to form and content in all material respects with the
requirements of the Acts and the Rules and Regulations.
(ix) Any written certificate signed by any officer of the Adviser and
delivered to the Underwriter or to Underwriter's counsel (as defined herein)
shall be deemed a representation and warranty by the Adviser to the Underwriter
as to the matters covered thereby.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES. (a) The Company and the
Underwriter hereby mutually agree as follows:
(i) The Company hereby appoints the Underwriter as its exclusive agent
("Agent") to sell for its account up to 5,000,000 Shares ; PROVIDED, that the
Company reserves the right to reject any prospective purchaser. The Underwriter
hereby agrees to use its best efforts as such Agent, promptly following the
receipt of notice (thereafter confirmed in writing) of the effective date of the
Registration Statement, to sell the Shares, for the account and risk of the
Company, subject to the terms, provisions, and conditions set forth herein and
in the Prospectus and the Registration Statement. The retention of the Agent
hereunder shall terminate on the Closing Date (as hereinafter defined);
provided, however, that if the Underwriter does not sell a minimum of 1,500,000
Shares by the close of its business on
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<PAGE>
August 31, 1996, the retention hereunder shall terminate at the close of
business on August 31, 1996 unless the Company and the Underwriter agree in
writing to an extension of such date. If 1,500,000 Shares have been subscribed
for on August 31, 1996, the Company and the Underwriter, by mutual consent may
extend the retention of the Agent until December 31, 1996. The period of
retention of the Agent is referred to herein as the "Effective Period". In
such event, the parties shall proceed to close on the Closing Date the sale of
all Shares subscribed for on August 31, 1996 and shall have additional closings
on each successive day which is sixty days after the date of the preceding
closing at which the Company shall sell the Shares which have been subscribed
for as of the end of business on the last business day of the preceding month,
with the last such closing being on the first day following December 31, 1996
so determined (such dates of closing being herein referred to as the "Option
Closing Dates"). On the Option Closing Dates, the parties shall deliver
documents in form and substance satisfactory to their respective legal counsel
to the effect that the conditions precedent for the original closing have not
changed in any material adverse way, which delivery shall be a condition
precedent to each such closing.
(ii) The Underwriter may use the services of other brokers or dealers who
are members in good standing of the National Association of Securities Dealers,
Inc. and who are registered or qualified under all applicable blue-sky laws in
connection with the offer and sale of the Shares (hereinafter referred to as
"Selected Dealer"). The Underwriter's agreement with any Selected Dealer shall
be subject to the Company's approval, which approval will not be unreasonably
withheld, and shall be substantially in the form of the Selected Dealer's
Agreement attached hereto as Exhibit A. The Underwriter shall have the right to
allow such brokers or dealers, if any, such concessions out of the commissions
to be received by the Underwriter as the Underwriter may determine.
(iii) In the event that a minimum of 1,500,000 Shares shall not be
subscribed for by August 31, 1996, the Company and the Underwriter shall cause
Continental Stock Transfer & Trust Company (the "Escrow Agent"), under the form
of Escrow Agreement attached hereto as Exhibit B, to refund, to all persons who
have subscribed for any of the Shares the full amount, together with each such
person's part of any accrued interest, but without any deduction for commissions
and expenses, which may have been received from such subscribers by the Escrow
Agent or by the Underwriter and deposited by it with the Escrow Agent.
Appropriate arrangements for placing the funds received with respect to
subscriptions for the Shares in escrow shall be made prior to the commencement
of the offering hereunder, with provision for refund to the purchasers as set
forth in this Subsection 2(a)(iii), and for delivery on the Closing Date to the
Company if a minimum of 1,500,000 (or a larger number of) Shares are sold.
Except as provided in this Subsection 2(a)(iii) , and in Sections 7, 8, and 10
hereof, the Company will not be under any liability to the Underwriter and the
Underwriter will not be under any liability to the Company in the event that the
Underwriter does not sell a minimum of 1,500,000 Shares within the Effective
Period.
(iv) The Company will pay the Underwriter, as compensation for its services
hereunder, a commission of $.675 per share with respect to all Shares sold and
for which
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<PAGE>
payment is actually received by the Company, which compensation the Underwriter
shall be entitled to deduct and retain from the proceeds of the sale for such
Shares concurrently with transmittal of payment to the Company by the Escrow
Agent, except that the commission to the Underwriter will be $.525 per share
with respect to sales to each investor who purchases a minimum of 50,000 Shares.
(b) Payment of the purchase price for, and delivery of certificates
evidencing the Shares subscribed for shall be made at the offices of Kramer,
Levin, Naftalis & Frankel at 919 Third Avenue, New York, New York 10022, or at
such other place as shall be agreed upon by the Underwriter and the Company.
Such delivery and payment shall be made at 10:00 a.m. (New York City time) on
such business day as shall be agreed upon by the Underwriter and the Company,
but not less than three (3) nor more than ten (10) full business days after the
subscription for a minimum of 1,500,000 Shares (such time and date of payment
and delivery being herein called "Closing Date"). Delivery of the certificates
for the Shares shall be made to the Underwriter against payment by the
Underwriter of the purchase price for the Shares to the order of the Company by
New York Clearing House Funds. Certificates for the Shares shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Underwriter may
request in writing at least two (2) business days prior to Closing Date. The
certificates for the Shares shall be made available to the Underwriter at such
office or such other place as the Underwriter may designate for inspection,
checking and packaging no later than 9:30 a.m. on the last business day prior to
Closing Date. The same procedures for payment of the purchase price for and
delivery of certificates evidencing the Shares subscribed for shall be followed
for each Option Closing Date.
3. PUBLIC OFFERING OF THE SHARES. As soon after the Registration
Statement becomes effective as the Underwriter deems advisable, the Underwriter
shall make a public offering of the Shares (other than to residents of or in any
jurisdiction in which qualification of the Shares is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Underwriter may from time to time increase or decrease the public offering
price after distribution of the Shares has been completed to such extent as the
Underwriter, in its sole discretion deems advisable. The Underwriter may enter
into one of more agreements as the Underwriter, in its sole discretion, deems
advisable with one or more broker-dealers who shall act as dealers in connection
with such public offering.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and
agrees with the Underwriter as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Acts or Exchange
Act before termination of the offering of the Shares by the Underwriter of which
the Underwriter shall not previously have been advised and furnished
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<PAGE>
with a copy, or to which the Underwriter shall have objected or which is not in
compliance with the Acts, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Underwriter and confirm the notice in writing, (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 497 promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 497 and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Shares for offering or sale in any
jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission authority shall enter a
stop order or suspend such qualification at any time, the Company will make
every effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
497 not later than the Commission's close of business on the earlier of (i) the
second business day following the execution and delivery of this Agreement and
(ii) the third business day after the effective date of the Registration
Statement.
(d) The Company will give the Underwriter notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriter in connection with the offering of the Shares which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 497 of the Rules and Regulations), and will furnish
the Underwriter with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file any such prospectus to which the Underwriter or Kramer, Levin,
Naftalis & Frankel ("Underwriter's Counsel"), shall reasonably object.
(e) The Company shall endeavor in good faith, in cooperation with the
Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Shares for offering and sale under the securities laws
of such jurisdictions as the Underwriter may designate to permit the continuance
of sales and dealings therein for as long
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<PAGE>
as may be necessary to complete the distribution, and shall make such
applications, file such documents and furnish such information as may be
required for such purpose; PROVIDED, HOWEVER, the Company shall not be required
to qualify as a foreign corporation or file a general or limited consent to
service of process in any such jurisdiction. In each jurisdiction where such
qualification shall be effected, the Company will, unless the Underwriter
agrees that such action is not at the time necessary or advisable, use all
reasonable efforts to file and make such statements or reports at such times as
are or may reasonably be required by the laws of such jurisdiction to continue
such qualification.
(f) During the time when a prospectus is required to be delivered
under the Acts, the Company shall comply with all requirements imposed upon it
by the Acts and the Exchange Act, as now and hereafter amended and by the Rules
and Regulations, as from time to time in force, so far as necessary to permit
the continuance of sales of or dealings in the Shares in accordance with the
provisions hereof and the Prospectus, or any amendments or supplements thereto.
If at any time when a prospectus relating to the Shares is required to be
delivered under the Acts, any event shall have occurred as a result of which, in
the reasonable opinion of counsel for the Company or Underwriter's Counsel, the
Prospectus, as then amended or supplemented, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Acts and the Rules and Regulations, the
Company will notify the Underwriter promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriter's Counsel, and the Company will furnish to the Underwriter copies of
such amendment or supplement as soon as available and in such quantities as the
Underwriter may request.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriter, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the effective date of
the Registration Statement.
(h) During a period of five years after the date hereof, the Company
will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Underwriter:
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(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the form
furnished to the Company's stockholders and certified by the Company's principal
financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity, and
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(v) every press release and every material news item or article
of interest to the financial community in respect of the Company or its affairs
which was released or prepared by or on behalf of the Company; and
(vi) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which the Underwriter
may reasonably request.
(i) The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which may
be the same entity as the Transfer Agent) for its Common Stock.
(j) The Company will furnish to the Underwriter, without charge, at
such place as the Underwriter may designate, copies of each Preliminary
Prospectus, the Registration Statement and any pre-effective or post-effective
amendments thereto (two of which copies will be signed and will include all
financial statements and exhibits), the Prospectus, and all amendments and
supplements thereto, including any Prospectus prepared after the effective date
of the Registration Statement, in each case as soon as available and in such
quantities as the Underwriter may reasonably request.
(k) Neither the Company, the Adviser, nor any of their respective
officers, directors, stockholders or affiliates (within the meaning of the Rules
and Regulations) will take, directly or indirectly, any action designed to, or
which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the Company.
(l) The Company shall apply the net proceeds from the sale of the
Shares in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus.
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<PAGE>
No portion of the net proceeds will be used, directly or indirectly, to acquire
any securities issued by the Company.
(m) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, the 1940 Act, the Advisers Act and the Rules and Regulations,
and all such reports, forms and documents filed will comply as to form and
substance with the applicable requirements under the Act, the Exchange Act, the
Advisers Act, the 1940 Act, and the Rules and Regulations.
(n) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Section 6(j) hereof.
(o) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Underwriter at the Underwriter's reasonable request and at
the Company's sole expense, (i) daily consolidated transfer sheets relating to
the Shares, (ii) the list of holders of all of the Company's securities and
(iii) a Blue Sky "Trading Survey" for secondary sales of the Company's
securities prepared by counsel to the Company.
(p) As soon as practicable, (i) but in no event more than five
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Shares and (ii) but in no event more than 30 days from the effective
date of the Registration Statement, take all necessary and appropriate actions
to be included in Standard and Poor's Corporation Descriptions and Moody's
Manual and to use its best efforts to continue such inclusion for a period of
not less than seven (7) years.
(q) Until the completion of the distribution of the Shares, the
Company shall not without the prior written consent of the Underwriter and
Underwriter's Counsel, issue, directly or indirectly any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(r) After the Closing Date, the Company will apply for listing of the
Shares on a national stock exchange or the NASDAQ - National Market promptly
following the twelve month anniversary of the Closing Date, or earlier at the
direction of the Underwriter.
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<PAGE>
(s) The Company agrees that transfers of the Shares will be restricted
during and for six months following the Closing Date.
5. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay on the Closing Date all expenses
and fees (other than fees of Underwriter's Counsel, except as provided in (iv)
below) incident to the performance of the obligations of the Company under this
Agreement, including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing (including mailing and
handling charges), filing, delivery and mailing (including the payment of
postage with respect thereto) of the Registration Statement and the Prospectus
and any amendments and supplements thereto and the printing, mailing (including
the payment of postage with respect thereto) and delivery of this Agreement, the
Selected Dealer Agreements, and related documents, including the cost of all
copies thereof and of the Preliminary Prospectuses and of the Prospectus and any
amendments thereof or supplements thereto supplied to the Underwriter and such
dealers as the Underwriter may request, in quantities as hereinabove stated,
(iii) the printing, engraving, issuance and delivery of the Shares, (iv) the
qualification of the Shares under state or foreign securities or "Blue Sky" laws
and determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith,
(v) advertising costs and expenses, including but not limited to costs and
expenses in connection with the "road show," information meetings and
presentations, bound volumes and prospectus memorabilia and "tomb-stone"
advertisement expenses, (vi) costs and expenses in connection with Company
counsel's due diligence investigations, including but not limited to the fees of
any independent counsel or consultant retained, (vii) fees and expenses of the
transfer agent and registrar, and (viii) the fees payable to the Commission and
the NASD.
(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of SECTION 6 or SECTION 11, the Company shall reimburse and
indemnify the Underwriter for all of its actual out-of-pocket expenses,
including the fees and disbursements of Underwriter's Counsel.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this SECTION 5, it will pay to the
Underwriter on the Closing Date by certified or bank cashier's check to, at the
election of the Underwriter, by deduction from the proceeds of the offering
contemplated herein a non-accountable expense allowance equal to one-half of one
percent (0.5%) of the gross proceeds received by the Company from the sale of
the Shares, up to 50% of which shall be repaid to the Company to reimburse it
for marketing expenses previously advanced by the Company. The balance shall be
retained by the Underwriter.
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<PAGE>
6. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date, as if they had been made on and as of the Closing Date;
the accuracy on and as of the Closing Date of the statements of the officers of
the Company made pursuant to the provisions hereof; and the performance by the
Company on and as of the Closing Date of its covenants and obligations hereunder
and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 p.m., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Underwriter and, at the
Closing Date, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or shall be pending or contemplated by the Commission and any
request on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Underwriter's Counsel.
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriter's opinion, is material, or omits to state a
fact which, in the Underwriter's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Underwriter's opinion, is material, or omits to state a fact
which, in the Underwriter's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall have
received from Underwriter's Counsel, such opinion or opinions with respect to
the organization of the Company, the validity of the Shares, the Registration
Statement, the Prospectus and other related matters as the Underwriter may
request and Underwriter's Counsel shall have received such papers and
information as they request to enable them to pass upon such matters.
(d) At Closing Date, the Underwriter shall have received the
favorable opinion of Vinson & Elkins L.L.P., counsel to the Company, dated the
Closing Date, addressed to the Underwriter and in form and substance
satisfactory to Underwriter's Counsel, to the effect that:
(i) the Company (A) has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, and (B) has all requisite corporate power and authority, and has
obtained any and all authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), materially necessary to own or lease its
properties and conduct its business as described in the Prospectus; the Company
is qualified as a foreign
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corporation in the State of Texas (to such counsel's knowledge, such being the
only jurisdiction in which failure to so qualify would have a material adverse
effect on the Company); to such counsel's knowledge, the Company has not
received any notice of proceedings relating to the revocation or modification
of any such authorization, approval, order, license, certificate, franchise, or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding would materially adversely affect the business,
operations, condition, financial or otherwise, or the earnings, business
affairs or prospects, properties, business or assets of the Company.
(ii) to such counsel's knowledge, the Company does not own an
interest in any other corporation, partnership, joint venture, trust or other
business entity;
(iii) the Company has 20,000,000 shares of common stock authorized
and, to such counsel's knowledge, the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement
and as described in the Prospectus. The Shares, and all other securities issued
or issuable by the Company, conform in all material respects to all statements
with respect thereto contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been duly authorized
and validly issued and are fully paid and non-assessable; the holders thereof
have no rights of rescission with respect thereto, and are not subject to
personal liability under the laws of the State of Delaware as currently in
effect by reason of being such holders; and none of such securities were issued
in violation of the preemptive rights of any holders of any security of the
Company. The Shares to be sold by the Company hereunder are not and will not be
subject to any preemptive or other similar rights of any stockholder, have been
duly authorized and, when issued, paid for and delivered in accordance with the
terms hereof, will be validly issued, fully paid and non-assessable and conform
in all material respects to the description thereof contained in the Prospectus;
the holders thereof will not be subject to any liability under the laws of the
State of Delaware as currently in effect solely as such holders; all corporate
action required to be taken for the authorization, issue and sale of the Shares
has been duly and validly taken; and the certificates representing the Shares
are in due and proper form. Upon the issuance and delivery pursuant to this
Agreement of the Shares to be sold by the Company, the purchasers thereof will
acquire good and marketable title to the Shares free and clear of any lien,
charge, claim, encumbrance, pledge, security interest, or other restriction or
equity of any kind whatsoever (except those arising out of acts or claims
against the Underwriter or such purchasers).
(iv) the Registration Statement has become effective under the
Acts, and, to such counsel's knowledge, (A) no stop order suspending the use of
the Preliminary Prospectus, the Registration Statement or Prospectus or any part
of any thereof or suspending the effectiveness of the Registration Statement has
been issued and (B) no proceedings for that purpose have been instituted or are
pending or threatened or contemplated under the Acts;
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(v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto (other
than the financial statements and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Acts and the Rules and
Regulations.
(vi) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Acts to be described in
the Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
(or required to be filed under the Exchange Act if upon such filing they would
be incorporated, in whole or in part, by reference therein) and the Prospectus
and filed as exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be copies; (B) the
descriptions in the Registration Statement and the Prospectus and any supplement
or amendment thereto of contracts and other documents to which the Company is a
party or by which it is bound, including any document to which the Company is a
party or by which it is bound, incorporated by reference into the Prospectus and
any supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form N-2; (C) there is
not pending or threatened against the Company any action, arbitration, suit,
proceeding, inquiry, investigation, litigation, governmental or other proceeding
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the properties or
business of the Company which (1) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
respects), (2) questions the validity of the capital stock of the Company or
this Agreement or the Investment Advisory Agreement, or of any action taken or
to be taken by the Company pursuant to or in connection with any of the
foregoing, and (D) no statute or regulation or legal or governmental proceeding
required to be described in the Prospectus is not described as required;
(vii) the Company has full legal right, power and authority to
enter into each of this Agreement and the Investment Advisory Agreement, and to
consummate the transactions provided for therein; and each of this Agreement and
the Investment Advisory Agreement has been duly authorized, executed and
delivered by the Company. Each of this Agreement and the Investment Advisory
Agreement, assuming due authorization, execution and delivery by each other
party thereto constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, fraudulent transfer,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights generally and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable law),
and none of the Company's execution or delivery of this Agreement or the
Investment Advisory Agreement, its performance hereunder or thereunder, its
consummation of the transactions contemplated herein or therein, or the conduct
of its business as described
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in the Registration Statement, the Prospectus, and any amendments or
supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company pursuant to the terms of, (A)
the certificate of incorporation or by-laws of the Company, (B) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement
or instrument to which the Company is a party or by which it is or may be bound
or to which any of its properties or assets (tangible or intangible) is or may
be subject, or any indebtedness, or (C) any statute, judgment, decree, order,
rule or regulation (other than federal or state securities laws, other
anti-fraud laws or fraudulent transfer laws) applicable to the Company of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
having jurisdiction over the Company or any of its activities or properties,
except for conflicts, breaches, violations, defaults, creations or impositions
which do not and would not have a material adverse effect on the Company;
(viii) except as described in the Prospectus, no consent, approval,
authorization or order, and no filing with, any federal or Texas court,
regulatory body, government agency or other body (other than such as may be
required under state securities or Blue Sky laws, as to which no opinion need be
rendered) is required in connection with the issuance of the Shares pursuant to
the Prospectus and the Registration Statement, the performance by the Company of
this Agreement and the Investment Advisory Agreement and the transactions
contemplated hereby and thereby;
(ix) to such counsel's knowledge, the properties and business of
the Company conform to the description thereof contained in the Registration
Statement and the Prospectus;
(x) to such counsel's knowledge, the Company is not in breach
of, or in default under, any term or provision of any license, contract,
indenture, mortgage, installment sale agreement, deed of trust, lease, voting
trust agreement, stockholders' agreement, partnership agreement, note, loan or
credit agreement or any other agreement or instrument evidencing an obligation
for borrowed money, or any other agreement or instrument to which the Company is
a party or by which any of the Company may be bound or to which the property or
assets (tangible or intangible) of any of the Company is subject or affected,
which could materially adversely affect the Company;
(xi) the statements in the Prospectus under "INVESTMENT
OBJECTIVES AND POLICIES," "REGULATION," "MANAGEMENT," "FEDERAL INCOME TAX
MATTERS," and "DESCRIPTION OF CAPITAL STOCK," have been reviewed by such
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counsel, and insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are correct in
all material respects;
(xii) to such counsel's knowledge, except as described in the
Prospectus, no person, corporation, trust, partnership, association or other
entity has the right to include and/or register any securities of the Company in
the Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration statement;
(xiii) to such counsel's knowledge, except as described in the
Prospectus, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Shares hereunder or any other arrangements,
agreements, understandings, payments or issuances that may affect the
Underwriter's compensation, as determined by the NASD;
(xiv) the Company is duly registered with the Commission under the
1940 Act as a closed-end non-diversified investment company electing to be
treated as a business development company, and all corporate action under the
Acts necessary to make the public offering and consummate the sale of the Shares
as provided in this Agreement has been taken by the Company. The provisions of
the Certificate of Incorporation and Bylaws of the Company comply as to form in
all material respects with the Acts and the Rules and Regulations; and
(xv) the statements set forth under the heading "Federal Income
Tax Matters" in the Prospectus, insofar as such statements describe or summarize
United States tax laws, doctrines or practices, fairly summarize the matters
described therein in all material respects as of the date of the Prospectus.
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company and representatives of
the independent public accountants for the Company, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
such counsel to believe that either the Registration Statement or any amendment
thereto, at the time such Registration Statement or amendment became effective
or the Preliminary Prospectus or Prospectus or amendment or supplement thereto
as of the date of such opinion contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading (it being understood that such
counsel need not comment with respect to the financial statements and schedules
and other financial and statistical data included in the Preliminary Prospectus,
the Registration Statement or Prospectus).
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In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States, the
State of Texas and the General Corporation Law of the State of Delaware, to the
extent such counsel deems proper and to the extent specified in such opinion, if
at all, upon an opinion or opinions (in form and substance satisfactory to
Underwriter's Counsel) of other counsel acceptable to Underwriter's Counsel,
familiar with the applicable laws; (B) as to matters of fact, to the extent they
deem proper, on certificates and written statements of responsible officers of
the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company, provided that copies of any
such statements or certificates shall be delivered to Underwriter's Counsel if
requested. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel and
that the Underwriter and they are justified in relying thereon.
(e) At Closing Date, the Underwriter shall have received the favorable
opinion of Vinson & Elkins L.L.P., counsel to the Adviser, dated the Closing
Date, addressed to the Underwriter and in form and substance satisfactory to
Underwriter's Counsel, to the effect that
(i) The Adviser is duly registered as an investment adviser
under the Advisers Act, and is not prohibited by the Advisers Act, the 1940 Act,
or the Rules and Regulations thereunder from acting as contemplated by the
Prospectus.
(ii) The Adviser has been duly incorporated and is validly
existing as a corporation under the laws of the State of Texas and is duly
qualified as a foreign entity and in good standing in each other jurisdiction in
which its ownership of property or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the Adviser, and the Adviser has full power and
authority necessary to own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus.
(iii) The Adviser owns, possesses or has obtained and currently
maintains all material governmental licenses, permits, consents, orders,
approvals and other authorizations (collectively, the "Authorizations") as is
necessary for the Adviser to carry on its business as Adviser to the Fund as set
forth in and contemplated by the Registration Statement and Prospectus, except
where the failure to own, possess or obtain such Authorizations would not have a
material adverse effect on the Adviser.
(iv) The Adviser has full corporate power to enter into this
Agreement and the Investment Advisory Agreement, and to carry out all the terms
and provisions thereof to be carried out by it.
(v) Each of this Agreement and the Investment Advisory Agreement
has been duly and validly authorized, executed and delivered by the Adviser; the
Advisory Agreement complies in all material respects with all applicable
provisions of the 1940 Act, the
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Advisers Act, and the Rules and Regulations thereunder, as the case may be;
and, assuming due authorization, execution and delivery by the other parties
thereto, each of this Agreement and the Investment Advisory Agreement
constitutes a legal, valid and binding obligation of the Adviser enforceable in
accordance with its terms subject, as to enforcement, to applicable bankruptcy,
fraudulent transfer, moratorium, reorganization, insolvency or other laws of
general application relating to or affecting creditors' rights generally and to
general equitable principles and except, with respect to this Agreement, as
rights to indemnity and contribution thereunder may be limited by United States
federal or state securities laws.
(vi) No consent, approval, authorization or order of any federal
or Texas court, governmental agency or body or securities exchange or securities
association having jurisdiction over the Adviser, under the laws of the United
States or the State of Texas is required to be obtained by the Adviser for the
performance by the Adviser of its obligations under this Agreement or the
Investment Advisory Agreement, except such as have been obtained.
(vii) Neither the execution and delivery of this Agreement or the
Investment Advisory Agreement nor the performance by the Adviser of in
obligations under such agreements, conflicts with, or results in a breach of,
the Articles of Incorporation or By-laws of the Adviser or, to such counsel's
knowledge, any material agreement or instrument to which the Adviser is a party
or by which the Adviser is bound which would have a material adverse effect on
the ability of the Adviser to carry out its obligations under such agreements,
or any law, rule or regulation (including without limitation, the 1940 Act, the
Advisers Act and the Rules and Regulations), or order of which such counsel is
aware, applicable to the Adviser of any federal or Texas court, governmental
instrumentality, stock exchange or association or arbitrator, material to the
business of the Adviser.
(viii) The description of the Adviser and its business in the
Prospectus complies as to form with the requirements of the Acts and the Rules
and Regulations.
(ix) To the best of such counsel's knowledge, there is no action,
suit or proceeding before or by any court or governmental agency or body, now
pending or threatened against the Adviser that is required to be disclosed in
the Prospectus or the Registration Statement (other than as disclosed therein)
that might result in any material adverse change in the condition, financial or
otherwise, or business affairs of the Adviser of the ability of the Adviser to
perform its obligations under this Agreement or the Investment Advisory
Agreement.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States, the
State of Texas and the General Corporation Law of the State of Delaware, to the
extent such counsel deems proper and to the extent specified in such opinion, if
at all, upon an opinion or opinions (in form and substance satisfactory to
Underwriter's Counsel or other counsel acceptable to Underwriter's Counsel,
familiar with the applicable laws; (B) as to matters of fact, to the extent they
deem proper on
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certificates and written statements of responsible officers of the Company and
certificates or other written statements of responsible officers of departments
of various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company, provided that copies of any such
statements or certificates shall be delivered to Underwriter's Counsel if
requested. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel and
that the Underwriter and they are justified in relying thereon.
(f) On or prior to the Closing Date, Underwriter's Counsel shall have
been furnished such documents, certificates and opinions as they may reasonably
require for the purpose of enabling them to review or pass upon the matters
referred to in subsection (c) of this Section 6, or in order to evidence the
accuracy, completeness or satisfaction of any of the representations, warranties
or conditions of the Company, or herein contained.
(g) Prior to the Closing Date: (i) there shall have been no material
adverse change nor development involving a prospective material adverse change
in the condition, financial or otherwise, prospects, stockholders' equity or the
business activities of the Company or the Adviser, whether or not in the
ordinary course of business, from the latest dates as of which such condition is
set forth in the Registration Statement and Prospectus; (ii) there shall have
been no transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is adverse to
the Company; (iii) the Company shall not be in default under any provision of
any instrument relating to any outstanding indebtedness; (iv) the Company shall
not have issued any securities (other than the Shares) or declared or paid any
dividend or made any distribution in respect of its capital stock of any class
and there shall not have been any change in the authorized capital stock or any
material adverse change in the debt (long or short term) or liabilities or
obligations of the Company (contingent or otherwise), except for changes
contemplated by the Registration Statement and Prospectus; (v) no material
amount of the assets of the Company shall have been pledged or mortgaged, except
as set forth in the Registration Statement and Prospectus; (vi) no action, suit
or proceeding, at law or in equity, shall have been pending or threatened (or
circumstances giving rise to same) against the Company or the Adviser, or
affecting any of their respective properties or business before or by any court
or federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding may adversely affect the
business, operations, management prospects or financial condition or assets of
the Company or the ability of the Adviser to fulfill its obligations under this
Agreement or the Investment Advisory Agreement, except as set forth in the
Registration Statement and Prospectus; and (vii) no stop order shall have been
issued under the Acts and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(h) At the Closing Date, the Underwriter shall have received a
certificate of the principal executive officer and the chief financial or chief
accounting officer of each of the Company and the Adviser, dated the Closing
Date, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
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(i) The representations and warranties in this Agreement of the
Company (with respect to certificates from Company officers) and of the Adviser
(with respect to the certificates from Adviser officers) are true and correct,
as if made on and as of the Closing Date, and the Company (with respect to
certificates from Company officers) and the Adviser (with respect to
certificates from Adviser officers) has complied with all agreements and
covenants and satisfied all conditions contained in this Agreement on its part
to be performed or satisfied at or prior to the Closing Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no proceedings
for that purpose have been instituted or are pending or, to the best of each of
such person's knowledge, after due inquiry are contemplated or threatened under
the Acts;
(iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and neither the Preliminary Prospectus nor any supplement thereto included any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and
(iv) Since the dates as of which information is given in the
Registration Statement and the Prospectus, (A) there has been any material
adverse change in the Shares or liabilities of the Company except as set forth
in or contemplated by the Prospectus; (B) there has not been any material
adverse change in the general affairs, management, business, financial condition
or results of operations of the Company or (with respect to the certificate of
Adviser officers) the Adviser, whether or not arising from transactions in the
ordinary course of business, as set forth in or contemplated by the Prospectus;
(C) the Company has not sustained any material loss or interference with its
business from any court or from legislative or other governmental action, order
or decree, whether foreign or domestic, or from any other occurrence, not
described in the Registration Statement and Prospectus; and (D) there has not
occurred any event that makes untrue or incorrect in any material respect any
statement or information contained in the Registration Statement or Prospectus
or that is not reflected in the Registration Statement or Prospectus but should
be reflected therein in order to make the statements or information therein, in
light of the circumstances in which they were made, not misleading in any
material respect.
References to the Registration Statement and the Prospectus in this subsection
(h) are to such documents as amended and supplemented at the date of such
certificate.
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(i) By the Closing Date, the Underwriter will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriter shall
have received a letter, dated such date, addressed to the Underwriter in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriter and Underwriter' Counsel, from KPMG Peat Marwick LLP:
(i) confirming that they are independent accountants with respect
to the Company within the meaning of the Acts and the applicable Rules and
Regulations;
(ii) stating that it is their opinion that the audited financial
statements and supporting schedules of the Company included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Acts and the Rules and Regulations thereunder and
that the Underwriter may rely upon the opinion of KPMG Peat Marwick LLP with
respect to the audited financial statements and supporting schedules included in
the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the boards of directors of the Company, consultations with
officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their attention which would lead them to believe that (A) the unaudited
financial statements and supporting schedules of the Company included in the
Registration Statement do not comply as to form in all material respects with
the applicable accounting requirements of the Acts and the Rules and Regulations
or are not fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the audited
financial statements of the Company included in the Registration Statement, or
(B) at a specified date not more than five (5) days prior to the effective date
of the Registration Statement, there has been any change in the capital stock or
long-term debt of the Company, or any decrease in the stockholders' equity or
net current assets or net assets of the Company as compared with amounts shown
in the July 26, 1995 balance sheet included in the Registration Statement, other
than as set forth in or contemplated by the Registration Statement, or, if there
was any change or decrease, setting forth the amount of such change or decrease;
(iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general
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accounting records, including work sheets, of the Company and excluding any
questions requiring an interpretation by legal counsel, with the results
obtained from the application of specified readings, inquiries and other
appropriate procedures (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in the letter
and found them to be in agreement;
(v) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may request.
(k) On the Closing Date there shall have been duly tendered to the
Underwriter the appropriate number of Shares.
(l) No order suspending the sale of the Shares in any jurisdiction
designated by the Underwriter pursuant to subsection (e) of Section 4 hereof
shall have been issued on the Closing Date, and no proceedings for that purpose
shall have been instituted or shall be contemplated.
(m) On or before the Closing Date, the Company shall have executed
the Investment Advisory Agreement, substantially in the form filed as
Exhibit (g) to the Registration Statement, in final form and substance
satisfactory to the Underwriter.
If any condition to the Underwriter's obligations hereunder to be fulfilled
prior to or at the Closing Date, is not so fulfilled, the Underwriter may
terminate this Agreement or, if the Underwriter so elects, it may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. INDEMNIFICATION.
(a) Each of the Company and the Adviser, jointly and severally, will
indemnify and hold harmless the Underwriter (for purposes of this SECTION 7
"Underwriter" shall include the officers, directors, partners, employees, agents
and counsel of the Underwriter), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which the Underwriter or such controlling person may become subject
under the Acts, the Exchange Act, the Advisers Act or any other statute or at
common law or otherwise or under the laws of foreign countries, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained (i) in any Preliminary Prospectus, the Registration Statement or
the Prospectus (as from time to time amended and supplemented); (ii) in any
post-effective amendment or amendments or any new registration statement and
prospectus in which is included the Shares; or (iii) in any application or other
document or written communication (in this SECTION 7
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collectively called "Application") executed by the Company or based upon
written information furnished by the Company or the Adviser in any jurisdiction
in order to qualify the Shares under the securities laws thereof or filed with
the Commission, any securities commission or agency, or any securities
exchange; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading (in the case of the Prospectus, in the light of the circumstances
under which they were made), unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, or in any
Application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, the Adviser, each of their respective directors, each of the Company's
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company or the Adviser within the meaning of the Act, to
the same extent as the foregoing indemnity from the Company and the Adviser to
the Underwriter but only with respect to statements or omissions, if any, made
in any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any Application made in reliance
upon, and in strict conformity with, written information furnished to the
Company with respect to the Underwriter by the Underwriter expressly for use in
such Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any such Application, provided
that such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or Prospectus directly
relating to the transactions effected by the Underwriter in connection with this
offering. The Company and the Adviser each acknowledges that the statements
with respect to the public offering of the Shares set forth under the heading
"Plan of Distribution" and the stabilization legend in the Prospectus have been
furnished by the Underwriter expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriter for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this SECTION 7
of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against
one or more indemnifying parties under this SECTION 7, notify each party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure so to notify an indemnifying party shall not relieve
it from any liability which it may have under this SECTION 7 except to the
extent that it has been prejudiced in any material respect by such failure or
from any liability which it may have otherwise). In case any such action is
brought against any indemnified party, and it notifies an indemnifying party or
parties of the commencement thereof, the indemnifying party or parties will be
entitled to participate therein, and to the extent it may elect by written
notice delivered
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to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this SECTION 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; PROVIDED, HOWEVER,
that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this SECTION 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this SECTION 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Shares or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company
or the Adviser is a contributing party and the Underwriter is the indemnified
party, the relative benefits received by the Company or the Adviser on the one
hand, and the Underwriter, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares (before
deducting expenses) bear to the total underwriting discounts received by the
Underwriter
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hereunder, in each case as set forth in the table on the Cover Page of the
Prospectus. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Adviser, or by the Underwriter,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (d) the Underwriter shall
not be required to contribute any amount in excess of the underwriting
discount applicable to the Shares sold by the Underwriter hereunder. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this
SECTION 7, each person, if any, who controls the Company within the meaning
of the Act, each officer of the Company who has signed the Registration
Statement, and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to this subparagraph (d).
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect
to which a claim for contribution may be made against another party or
parties under this subparagraph (d), notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or
parties shall not relieve the party or parties from whom contribution may be
sought from any obligation it or they may have hereunder or otherwise than
under this subparagraph (d), or to the extent that such party or parties were
not adversely affected by such omission. The contribution agreement set
forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained in this Agreement or
contained in written certificates of officers of the Company or the Adviser
submitted pursuant hereto, shall be deemed to be representations, warranties and
agreements at the Closing Date, and such representations, warranties and
agreements of the Company and the respective indemnity agreements contained in
SECTION 7 hereof, shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Underwriter, the Company, the
Adviser, any controlling person of the Underwriter, the Company or the Adviser,
and shall survive termination of this Agreement or the issuance and delivery of
the Shares to the Underwriter.
9. EFFECTIVE DATE. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Underwriter, in its sole discretion, shall release the Shares for the sale to
the public; PROVIDED, HOWEVER, that the provisions of SECTIONS 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this SECTION 9,
the Shares to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Underwriter of telegrams to securities
dealers releasing such
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shares for offering or the release by the Underwriter for
publication of the first newspaper advertisement which is subsequently published
relating to the Shares.
10. TERMINATION.
(a) Subject to subsection (b) of this SECTION 10, the Underwriter
shall have the right to terminate this Agreement, (i) if any domestic or
international event or act or occurrence has disrupted, or in the
Underwriter's opinion will in the immediate future disrupt the financial
markets; or (ii) any material adverse change in the financial markets shall
have occurred; or (iii) if trading on the New York Stock Exchange, the
American Stock Exchange, or in the over-the-counter market shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any
other government authority having jurisdiction; or (iv) if the United States
shall have become involved in a war or major hostilities, or if there shall
have been an escalation in an existing war or major hostilities or a national
emergency shall have been declared in the United States; or (v) if a banking
moratorium has been declared by a state or federal authority; or (vi) if a
moratorium in foreign exchange trading has been declared; or (vii) if the
Company shall have sustained a loss material or substantial to the Company by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other
calamity or malicious act which, whether or not such loss shall have been
insured, will, in the Underwriter's opinion, make it inadvisable to proceed
with the delivery of the Shares; or (viii) if there shall have been such a
material adverse change in the condition (financial or otherwise), business
affairs or prospects of the Company or the Adviser, whether or not arising in
the ordinary course of business, which would render, in the Underwriter's
judgment, either of such parties unable to perform satisfactorily its
respective obligations as by this Agreement, the Investment Advisory
Agreement or the Registration Statement, or such material adverse change in
the general market, political or economic conditions, in the United States or
elsewhere as in the Underwriter's judgment would make it inadvisable to
proceed with the offering, sale and/or delivery of the Shares.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 10(a), the Company and the Adviser
shall promptly reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses, including the fees and disbursements of counsel for
the Underwriter (less amounts previously paid pursuant to Section 5(c)
above). Notwithstanding any contrary provision contained in this Agreement,
if this Agreement shall not be carried out within the time specified herein,
or any extension thereof granted to the Underwriter, by reason of any failure
on the part of the Company or the Adviser to perform any undertaking or
satisfy any condition of this Agreement by it to be performed or satisfied
(including, without limitation, pursuant to SECTION 6 or SECTION 12) then,
the Company and the Adviser shall promptly reimburse and indemnify the
Underwriter for all of its actual out-of-pocket expenses, including the fees
and disbursements of counsel for the Underwriter (less amounts previously
paid pursuant to SECTION 5 above). In addition, the Company shall remain
liable for all Blue Sky counsel fees and expenses and Blue Sky filing fees.
Notwithstanding any contrary provision contained in this Agreement, any
election
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<PAGE>
hereunder or any termination of this Agreement (including, without
limitation, pursuant to SECTIONS 6, 10 and 11 hereof), and whether or not
this Agreement is otherwise carried out, the provisions of SECTION 5 and
SECTION 7 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing
Date to deliver the number of Shares which it is obligated to deliver
hereunder on such date, then this Agreement shall terminate without any
liability on the part of the Underwriter, other than pursuant to SECTION 5,
SECTION 7 and SECTION 10 hereof. No action taken pursuant to this Section
shall relieve the Company from liability, if any, in respect of such default.
12. NOTICES. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form
of telecommunication.
Notices to the Underwriter shall be directed to the Underwriter at:
Marion Bass Securities Corporation
4000 Park Road
Charlotte, North Carolina 28209
Attention: Mr. Tom Walker
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10019
Attention: Richard Marlin, Esq.
Notices to the Company shall be directed to the Company at:
Sherry Lane Growth Fund, Inc.
320 South Boston, Suite 1000
Tulsa, Oklahoma 74103-3703
Attention: Mr. Barry M. Davis
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<PAGE>
with a copy to:
Vinson & Elkins, L.L.P.
1001 Fannin Street, Suite 2300
Houston, Texas 77002-6760
Attention: William G. Lee, Esq.
Notices to the Adviser shall be directed to the Adviser at:
Sherry Lane Capital Advisors, Inc.
320 South Boston, Suite 1000
Tulsa, Oklahoma 74103-3703
Attention: Mr. Barry M. Davis
13. PARTIES. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriter, the Company, the Adviser and the
controlling persons, directors and officers referred to in SECTION 7 hereof, and
their respective successors, legal representatives and assigns and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provisions
herein contained. No purchaser of Shares from the Underwriter shall be deemed
to be a successor by reason merely of such purchase.
14. CONSTRUCTION. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
16. ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes the entire
agreement of the parties hereto and supersedes all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing, signed by the
Underwriter, the Adviser and the Company.
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<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
SHERRY LANE GROWTH FUND, INC.
By:______________________________________
Name: Barry M. Davis
Title: Chairman and Chief Executive Officer
SHERRY LANE CAPITAL ADVISORS, INC.
By:______________________________________
Name: Barry M. Davis
Title: Chairman and Chief Executive Officer
Confirmed and accepted as of
the date first above written
MARION BASS SECURITIES CORPORATION
By:__________________________________
Name:
Title:
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<PAGE>
KL DRAFT 5/13/96
SHERRY LANE GROWTH FUND, INC.
5,000,000 SHARES
COMMON STOCK
PAR VALUE $.01 PER SHARE
SELECTED DEALERS AGREEMENT
Date:
-----------------
Dear Sirs:
Marion Bass Securities Corporation, 4000 Park Road, Charlotte,
North Carolina 28209 ("Underwriter"), as Underwriter for the Sherry Lane
Growth Fund, Inc. ("Company"), invites your participation as a Selected
Dealer ("Selected Dealer") in a best efforts offering of not less than
1,500,000, nor greater than 5,000,000, shares of Common Stock of the Company,
$.01 par value per share ("Shares"), to be offered to the public at $10.00
per share ($9.85 per share for investors purchasing a minimum of 50,000
shares). The Shares and the terms upon which they are to be offered for sale
are more fully described in the enclosed Prospectus of the Company (the
"Prospectus").
This invitation to participate in the distribution of the Shares is
made on the terms and conditions stated herein and in the Prospectus.
1. ACCEPTANCE OF ORDERS. Orders received from a Selected Dealer
will be accepted only at the price, in the amounts, and on the terms which
are set forth in the Prospectus.
2. SELLING CONCESSION. As a Selected Dealer, you will be allowed
on all Shares sold by you a concession of 5.5% of the total sales price
(4.0%, in the case of sales to investors purchasing greater than 50,000
shares).
3. STATUS OF DEALER. The Selected Dealer agrees to purchase the
Shares for its customers only through the Underwriter, and all such purchases
shall be made only upon orders already received by the Selected Dealer from
its customers. In all sales of the Shares to the public, the Selected Dealer
shall confirm as agent for its customer.
4. DELIVERY OF FUNDS. By noon of the next business day after the
receipt of any funds from purchasers of the Shares, the Selected Dealer
agrees to transmit to the Escrow Agent all such funds and a confirmation or a
record of each sale which will set forth the name and address of each
purchase, the number of Shares purchased, and, if there is more than one
registered owner, whether the certificate or certificates evidencing the
Shares purchased are to be issued to the purchasers in joint tenancy or
otherwise. Also, each Selected Dealer shall report, in writing, to the
Underwriter the number of the Company's Shares which have been
<PAGE>
sold in each state and the number of persons in each such state who purchased
Shares from the Selected Dealer. Each sale may be rejected by the
Underwriter or the Company, and if rejected, the Escrow Agent will return to
you all funds paid by the purchaser which have been received by the Escrow
Agent. In such event, the Selected Dealer will return to the purchaser within
five business days after actual receipt from the Escrow Agent the full
purchase price paid by the purchaser.
5. ESCROW OF PROCEEDS. All proceeds from the sale of the
Company's Shares will be deposited with Continental Stock Transfer & Trust
Company, New York, New York, as Escrow Agent, pursuant to a certain Escrow
Agreement dated as of ___________ ___, 1996 between the Company and the
Escrow Agent. The Underwriting Agreement provides that if a minimum of
1,500,000 Shares are not sold by August 31, 1996 (which period may be
extended for an additional period of up to six months upon the mutual consent
of the Company and the Underwriter) (the "Effective Period"), the
Underwriting Agreement shall terminate and the full proceeds from the sale of
such Shares as may have been sold, without any deduction whatsoever, shall be
returned by the Escrow Agent forthwith to the subscribers without interest.
No certificates evidencing the Shares will be issued unless and until at
least a minimum of 1,500,000 Shares have been sold, the full proceeds from
the sale of such minimum or greater number of Shares as may have been sold
have been deposited with the Escrow Agent and such funds have been released
and the net proceeds thereof delivered to the Company on such date as will
be mutually agreed upon the by the Underwriter and the Company (the "Closing
Date") (in no event later than ten full business days after the expiration of
the Effective Period). The Closing Date may occur prior to the expiration of
the Effective Period if at least a minimum of 1,500,000 Shares have been sold
and the Company and the Underwriter mutually agree to cease the selling
effort. If a minimum of 1,500,000 Shares are sold within the Effective
Period and the proceeds from such Shares are deposited with the Escrow Agent,
all amounts so deposited will be delivered to the Company, except that the
Underwriter may deduct its underwriting commissions from the proceeds of the
sale of the Shares concurrently with the delivery of such proceeds to the
Company by the Escrow Agent on the Closing Date. No commissions will be paid
by the Company or concessions allowed by the Underwriter to any Selected
Dealer unless and until at least a minimum of 1,500,000 Shares have been
sold, the proceeds from the sales of such minimum or greater number of Shares
as may have been sold or deposited with the Escrow Agent and such funds have
been released and the net proceeds thereof delivered to the Company on the
Closing Date. Accordingly, you hereby agree that if a minimum of 1,500,000
Shares shall not be sold as aforesaid, the Escrow Agent shall return the full
proceeds of sales directly to the subscribers without any deduction
whatsoever and without any responsibility on the part of anyone to you for
selling commissions or concessions.
6. PAYMENT AND DELIVERY OF SHARES. Payment for the Company's
Shares shall accompany all confirmations and applications and shall be made
by a certified or bank cashier's check payable to the order of Continental
Stock Transfer & Trust Company, Escrow Agent for the Company, in New York
Clearing House Funds. Shares sold by the Selected Dealers shall be available
for delivery at the office of the Company's transfer agent on the Closing
Date, unless other arrangements are made with the Underwriter for delivery.
2
<PAGE>
7. OFFER AND SALE OF THE SHARES. Selected Dealers may, upon
return to us of a signed copy of this Agreement, offer Shares for sale and
take orders therefor, subject to confirmation and allotment. We, in turn,
are prepared to receive orders subject to confirmation and allotment by you.
The Underwriter and the Company reserve the right to reject any order in
whole or in part or to allot less than the number of the Shares applied for.
Orders transmitted by telephone should be confirmed promptly by you by letter
or facsimile.
No Selected Dealer nor any other person is authorized to make any
representation or to give any information concerning the Shares other than
those contained in the enclosed Prospectus, or to act as agent for the
Underwriter or the Company. The Selected Dealer will not sell the Shares
pursuant to this Agreement unless a copy of the Company's current Prospectus
is furnished to the purchaser at least 48 hours prior to the mailing of the
confirmation of sale, or is sent to such person under such circumstances that
it would be received by him 48 hours prior to his receipt of a confirmation
of sales. The Selected Dealer agrees not to use any supplemental sales
literature of any kind without prior written approval of the Underwriter
unless it is furnished by the Underwriter for such purpose. In offering and
selling the Shares, the Selected Dealer will rely solely on the
representations contained in the Company's Prospectus. Additional copies of
the Company's current Prospectus will be supplied by the Underwriter in
reasonable quantities upon request.
The Selected Dealer understands that for a period of ninety (90)
days from the effective date of the Company's Registration Statement, all
dealers effecting transactions in the Company's Shares are required to
deliver the Company's current Prospectus to any purchasers thereof prior to
or concurrent with the receipt of the confirmation of sales. Additional
copies of the then current Prospectus will be supplied by the Underwriter in
reasonable quantities upon request.
8. CONDITIONS OF THE OFFERING. All sales will be subject to
delivery by the Company of certificates evidencing the Shares.
9. REPRESENTATIONS AND AGREEMENTS OF SELECTED DEALER. By
accepting this Agreement, the Selected Dealer represents that: (1) it is
registered as a Broker-Dealer under the Securities Exchange Act of 1934, as
amended, (2) it is qualified to act as a Dealer in the states or other
jurisdictions in which it offers the Shares; (3) it is a member in good
standing of the National Association of Securities Dealers, Inc.; and (4) it
will maintain such registrations, qualifications, and memberships throughout
the term of this Agreement. Further, the Selected Dealer agrees to comply
with all applicable federal laws, the laws of the states or other
jurisdictions concerned, and the Rules and Regulations of the National
Association of Securities Dealers, Inc., including, but without limitation,
Article III, Section 1 of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and the Interpretations of said
Section promulgated by the Board of Governors of such Association, including
a "Statement of Clarification on Certain Aspects of 'Free-Riding'
Examinations and Compliant Actions." Further, the Selected Dealer agrees
that it will not offer or sell the Company's Shares in any state or
jurisdiction except where the Shares are qualified for sale. The Selected
Dealer shall not be entitled to any compensation in respect of transactions
transpiring during
3
<PAGE>
any period in which it has been suspended or expelled from membership in the
National Association of Securities Dealers, Inc.
10. SELECTED DEALER'S EMPLOYEES. By accepting this Agreement,
the Selected Dealer has assumed full responsibility for thorough and proper
training of its representatives concerning the selling method to be used in
connection with the offer and sale of the Shares, giving special emphasis to
the principles of full and fair disclosure to prospective investors and the
prohibitions against "Free-Riding and Withholding."
11. BLUE SKY MATTERS. Upon application, you will be informed as
to the states in which the Shares have been qualified for sale or are exempt
from registration under applicable securities laws; and you agree not to
offer or sell the Shares in any state or jurisdiction except where the Shares
are so qualified or exempted from registration. We assume no responsibility
or obligation, by reason or providing said Blue Sky information or otherwise,
as to the right of the Company or any Selected Dealers to offer to sell the
Shares in any state. You authorize us as Underwriter and as Representative
of the Selected Dealers to cause to be filed on your behalf a Further State
Notice in respect of the offering and sale of the Shares in the State of New
York in the form required by and pursuant to the provisions of Article 23-A
of the General Business Law of the State of New York.
12. SELECTED DEALER'S INDEMNIFICATION. The Selected Dealer
hereby agrees to indemnify and to hold harmless the Underwriter and the
Company, each person who signed the Registration Statement of which the
enclosed Prospectus is a part, each director of the Company and each person,
if any, who controls the Underwriter or the Company within the meaning of
Section 15 of the Securities Act of 1933, as amended, from and against any
and all losses, claims, damages, liabilities, or expenses whatsoever
resulting from a violation or alleged violation on the part of the Selected
Dealer or any federal or state law or any term or provision of this
Agreement, including, but not limited to, a failure on the part of the
Selected Dealer to send or give a copy of the Company's then current
prospectus to every prospective purchaser and to each associated person of
such Selected Dealer as required by the Securities Act of 1933 and Rule
15c2-8 of the General Rules and Regulations promulgated under the Securities
Exchange Act of 1934, or resulting from a misrepresentation or omission to
state or an alleged misrepresentation or omission to state a material fact in
connection with a statement made by the Selected Dealer or the Selected
Dealer's salesmen orally or by other means; and the Selected Dealer will
reimburse the Company and the Underwriter for any legal or other expenses
reasonably incurred in connection with the investigation of or the defending
of any such action or claim. The Underwriter shall, after receiving the
first summons or other legal process disclosing the nature of the action
being served upon it or the Company, in any proceeding in respect of which
indemnity may be sought by the Company or the Underwriter hereunder, promptly
notify the Selected Dealer in writing of the commencement thereof. In case
any such litigation be brought against the Company or the Underwriter, or
both, the Underwriter shall notify the Selected Dealer of the commencement
thereof and the Selected Dealer shall be entitled to participate in (and, to
the extent the Selected Dealer shall wish, to direct) the defense thereof at
the Selected Dealer's own expense, but such defense shall be conducted by
counsel satisfactory to the Company or the Underwriter, or both, as the case
may
4
<PAGE>
be. If the Selected Dealer shall fail to provide such defense, the
Company or the Underwriter, or both, as the case may
be, may defend such action at the Selected Dealer's cost and expense. The
Selected Dealer's obligation under this Paragraph 12 shall survive the
termination of this Agreement.
13. AUTHORITY. Nothing contained herein or otherwise shall
constitute Selected Dealers as an association or other separate entity or
partners or joint venturers with the Underwriter, the company or with one
another, but you will be responsible for your shares of any liability or
expense based on any claim to the contrary.
14. EXPENSES. No expenses will be charged to Selected Dealers. A
single transfer tax, if any, on the sales of the Shares by the Selected
Dealer to its customers will be paid when such Shares are delivered to the
Selected Dealer for delivery to its customers. However, the Selected Dealer
will pay its proportionate share of any transfer tax or any other tax (other
than the single transfer tax described above) if any such tax shall be from
time to time assessed against the Underwriter and other Selected Dealers.
15. COMMUNICATIONS. All communications to the Underwriter should
be sent the address shown in the opening paragraph of this Agreement. Any
notice to the Selected Dealer shall be properly given if mailed or telephoned
to the Selected Dealer below.
16. GOVERNING LAW. This Agreement shall be construed according
to the internal laws of the State of New York, without regard to the laws
pertaining to the conflict of laws.
17. ASSIGNMENT AND TERMINATION. This Agreement may not be
assigned by the Selected Dealer without the Underwriter's prior written
consent. Except as otherwise herein provided, this Agreement will terminate
upon the Closing Date, except that either party may terminate this Agreement
at any time by giving written notice to the other.
18. THIRD PARTY BENEFICIARY. The provisions of this Agreement
shall inure to the benefit of the Company and the Company shall be a third
party beneficiary of such provision.
If you desire to become a Selected Dealer in connection with the
offering of the Shares, please sign and return to us the enclosed copy of
this letter.
Very truly yours,
MARION BASS SECURITIES
CORPORATION
By:_________________________________
5
<PAGE>
We agree to become a Selected Dealer with respect to the offering
of the Shares on the terms specified above and acknowledge receipt of the
Prospectus. We have relied solely on such Prospectus and on no other
statements, written or oral.
We confirm that we are members of the National Association of
Securities Dealers, Inc.
Dated:_____________ ___, 1996
___________________________________
(Name of Selected Dealer)
By:________________________________
(Authorized Signature)
Address:____________________________
___________________________________
Telephone No.:_______________________
6
<PAGE>
EXHIBIT (i)
ESCROW AGREEMENT
(PUBLIC OFFERING)
AGREEMENT made this _______ day of May, 1996 by and among the Issuer and
the Underwriter whose names and addresses appear on the Information Sheet (as
defined herein) attached to this Agreement and Continental Stock Transfer &
Trust Company (the "Escrow Agent").
W I T N E S S E T H :
WHEREAS, the Issuer has filed with the Securities and Exchange Commission
(the "Commission") a registration statement (the "Registration Statement")
covering a proposed public offering of its securities as described on the
Information Sheet;
WHEREAS, the Underwriter proposes to offer the Securities, as agent for the
Issuer, for sale to the public on a "best efforts, all or none" basis with
respect to the Minimum Securities Amount and Minimum Dollar Amount and at the
price per share or other unit all as set forth on the Information Sheet;
WHEREAS, the Issuer and the Underwriter propose to establish an escrow
account (the "Escrow Account"), to which subscription monies which are received
by the Escrow Agent from the Underwriter in connection with such public offering
are to be credited, and the Escrow Agent is willing to establish the Escrow
Account on the terms and subject to the conditions hereinafter set forth; and
WHEREAS, the Escrow Agent has an agreement with Chase Manhattan Bank (the
"Bank") to establish a special account (the "Bank Account") with respect to the
Bank's U.S. government backed securities fund or its equivalent providing for
the payment of interest on balances deposited therein into which the
subscription monies, which are received by the Escrow Agent from the Underwriter
and credited to the Escrow Account, are to be deposited;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. INFORMATION SHEET. Each capitalized term not otherwise defined in
this Agreement shall have the meaning set forth for such term on the information
sheet which is attached to this Agreement and is incorporated by reference
herein and made a part hereof (the "Information Sheet").
2. ESTABLISHMENT OF THE BANK ACCOUNT.
2.1 The Escrow Agent shall establish the Bank Account at the branch
of the Bank selected by the Escrow Agent, and bearing the designation set forth
on the Information Sheet (heretofore defined as the "Bank Account"). The
purpose of the Bank Account is for (a) the deposit of all subscription monies
(checks, cash or wire transfers) which are received by the Underwriter from
prospective purchasers of the Securities and are delivered by the Underwriter to
the Escrow Agent, (b) the holding of amounts of subscription moneys which are
collected through the banking
<PAGE>
system, (c) the receipt of interest on subscription moneys being held and the
holding of such interest, and (d) the disbursement of collected funds, all as
described herein.
2.2 On or before the date of the initial deposit in the Bank Account
pursuant to this Agreement, the Underwriter shall notify the Escrow Agent in
writing of the effective date of the Registration Statement (the "Effective
Date"), and the Escrow Agent shall not be required to accept any amounts for
credit to the Escrow Account or for deposit in the Bank Account prior to its
receipt of such notification.
2.3 The Offering Period, which shall be deemed to commence on the
Effective Date, shall consist of the number of calendar days or business days
set forth on the Information Sheet. The Offering Period shall be extended by an
Extension Period only if the Escrow Agent shall have received written notice
thereof at least five (5) business days prior to the expiration of the Offering
Period. The Extension Period, which shall be deemed to commence on the next
calendar day following the expiration of the Offering Period, shall consist of
the number of calendar days or business days set forth on the Information Sheet.
The last day of the Offering Period, or the last day of the Extension Period (if
the Escrow Agent has received written notice thereof as hereinabove provided),
is referred to herein as the "Termination Date." Except as provided in Section
4.3 hereof, after the Termination Date the Underwriter shall not deposit, and
the Escrow Agent shall not accept, any additional amounts representing payments
by prospective purchasers.
3. DEPOSITS TO THE BANK ACCOUNT.
3.1 The Underwriter shall promptly deliver to the Escrow Agent all
monies which it receives from prospective purchasers of the Securities, which
monies shall be in the form of checks, cash or wire transfers. Upon the Escrow
Agent's receipt of such monies, they shall be credited to the Escrow Account.
All checks delivered to the Escrow Agent shall be made payable to "Continental
Stock Transfer & Trust Company, as Escrow Agent for [the Issuer]." Any check
payable other than to the Escrow Agent as required hereby shall be returned to
the prospective purchaser, or if the Escrow Agent has insufficient information
to do so, then to the Underwriter (together with any Subscription Information,
as defined below, or other documents delivered therewith) by noon of the next
business day following receipt of such check by the Escrow Agent, and such check
shall be deemed not to have been delivered to the Escrow Agent pursuant to the
terms of this Agreement.
3.2 Promptly after receiving subscription monies as described in
Section 3.1, the Escrow Agent shall deposit the same into the Bank Account.
Amounts of monies so deposited are hereinafter referred to as "Escrow Amounts."
The Escrow Agent shall cause Chase Manhattan Bank to process all Escrow Amounts
for collection through the banking system. Simultaneously with each deposit to
the Escrow Account, the Underwriter (or the Issuer, if such deposit is made by
the Issuer) shall inform the Escrow Agent in writing of the name and address of
the prospective purchaser, the amount of Securities subscribed for by such
purchaser, and the aggregate dollar amount of such subscription (collectively,
the "Subscription Information").
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<PAGE>
3.3 The Escrow Agent shall not be required to accept for credit to
the Escrow Account or for deposit into the Bank Account checks which are not
accompanied by the appropriate Subscription Information. Wire transfers and
cash representing payments by prospective purchasers shall not be deemed
deposited in the Escrow Account until the Escrow Agent has received in writing
the Subscription Information required with respect to such payments.
3.4 The Escrow Agent shall not be required to accept in the Escrow
Account any amounts representing payment by prospective purchasers, whether by
check, cash or wire transfer, except during the Escrow Agent's regular business
hours.
3.5 Only those Escrow Amounts which have been deposited in the Bank
Account and which have cleared the banking system and have been collected by the
Escrow Agent are herein referred to as the "Fund."
3.6 If the proposed offering is terminated before the Termination
Date, the Escrow Agent shall refund any portion of the Fund prior to
disbursement of the Fund in accordance with Article 4 hereof upon instructions
in writing signed by both the Issuer and the Underwriter.
4. DISBURSEMENT FROM THE BANK ACCOUNT.
4.1 Subject to Section 4.3 below, if by the close of regular banking
hours on the Termination Date the Escrow Agent determines that the amount in the
Fund is less than the Minimum Dollar Amount or the Minimum Securities Amount, as
indicated by the Subscription Information submitted to the Escrow Agent, then in
either such case, the Escrow Agent shall promptly refund to each prospective
purchaser the amount of payment received from such purchaser which is then held
in the Fund or which thereafter clears the banking system, with the interest
thereon, if any, paid with respect to the Bank Account, without deduction
therefrom, by drawing checks on the Bank Account for the amounts of such
payments and transmitting them to the purchasers. In such event, the Escrow
Agent shall promptly notify the Issuer and the Underwriter of its distribution
of the Fund.
4.2 Subject to Section 4.3 below, if at any time up to the close of
regular banking hours on the Termination Date the Escrow Agent determines that
the amount in the Fund is at least equal to the Minimum Dollar Amount and
represents the sale of not less than the Minimum Securities Amount, the Escrow
Agent shall promptly notify the Issuer and the Underwriter of such fact in
writing. The Escrow Agent shall promptly disburse the Fund, including any
interest paid with respect to the Bank Account, by drawing checks on the Bank
Account in accordance with instructions in writing signed by both the Issuer and
the Underwriter as to the disbursement of the Fund, promptly after it receives
such instructions.
4.3 [THIS PROVISION APPLIES ONLY IF A COLLECTION PERIOD HAS BEEN
PROVIDED FOR BY THE APPROPRIATE INDICATION ON THE INFORMATION SHEET.] If the
Escrow Agent or the Underwriter has on hand at the close of business on the
Termination Date any uncollected amounts which when added to the Fund would
raise the amount in the Fund to the Minimum Dollar Amount, and result in the
Fund representing the sale of the Minimum Securities Amount, the Collection
Period
-3-
<PAGE>
(consisting of the number of business days set forth on the Information Sheet)
shall be utilized to allow such uncollected amounts to clear the banking
system. During the Collection Period, the Underwriter (and the Issuer) shall
not deposit, and the Escrow Agent shall not accept, any additional amounts;
PROVIDED, HOWEVER, that such amounts as were received by the Underwriter (or
the Issuer) by the close of business on the Termination Date may be deposited
with the Escrow Agent by noon of the next business day following the
Termination Date. If at the close of business on the last day of the
Collection Period an amount sufficient to raise the amount in the Fund to the
Minimum Dollar Amount and which would result in the Fund representing the sale
of the Minimum Securities Amount shall not have cleared the banking system, the
Escrow Agent shall promptly notify the Issuer and the Underwriter in writing of
such fact and shall promptly return all amounts then in the Fund, and any
amounts which thereafter clear the banking system, to the prospective
purchasers as provided in Section 4.2 hereof.
4.4 If the Fund is disbursed as provided in Section 4.2 above, and
the Issuer and the Underwriter together request in writing that the Escrow Agent
continue to accept in the Escrow Account any additional amounts representing
payment by prospective purchasers which may be received by the Escrow Agent on
or prior to December 31, 1996, the Escrow Agent agrees to act as Escrow Agent in
accordance with the provisions of this Agreement for the purpose of accepting
such additional amounts and disbursing same at subsequent closings in accordance
with written instructions received from the Issuer and the Underwriter, provided
that the Escrow Agent shall be compensated for each subsequent closing in the
amount of $500.
4.5 Upon disbursement of the Fund pursuant to the terms of this
Article 4, the Escrow Agent shall be relieved of all further obligations and
released from all liability under this Agreement. It is expressly agreed and
understood that in no event shall the aggregate amount of payments made by the
Escrow Agent exceed the amount of the Fund.
5. RIGHTS, DUTIES AND RESPONSIBILITIES OF ESCROW AGENT. It is understood
and agreed that the duties of the Escrow Agent are purely ministerial in nature,
and that:
5.1 The Escrow Agent shall notify the Underwriter, on a daily basis,
of the Escrow Amounts which have been deposited in the Bank Account and of the
amounts, constituting the Fund, which have cleared the banking system and have
been collected by the Escrow Agent.
5.2 The Escrow Agent shall not be responsible for or be required to
enforce any of the terms or conditions of the underwriting agreement or any
other agreement between the Underwriter and the Issuer nor shall the Escrow
Agent be responsible for the performance by the Underwriter or the Issuer of
their respective obligations under this Agreement.
5.3 The Escrow Agent shall not be required to accept from the
Underwriter (or the Issuer) any Subscription Information pertaining to
prospective purchasers unless such Subscription Information is accompanied by
checks, cash or wire transfers meeting the requirements of Section 3.1, nor
shall the Escrow Agent be required to keep records of any information with
respect to payments deposited by the Underwriter (or the Issuer) except as to
the amount of such payments; however, the Escrow Agent shall notify the
Underwriter within a reasonable time of any
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<PAGE>
discrepancy between the amount set forth in any Subscription Information and
the amount delivered to the Escrow Agent therewith. Such amount need not be
accepted for deposit in the Escrow Account until such discrepancy has been
resolved.
5.4 The Escrow Agent shall be under no duty or responsibility to
enforce collection of any check delivered to it hereunder. The Escrow Agent,
within a reasonable time, shall return to the Underwriter any check received
which is dishonored, together with the Subscription Information, if any, which
accompanied such check.
5.5 The Escrow Agent shall be entitled to rely upon the accuracy, act
in reliance upon the contents, and assume the genuineness of any notice,
instruction, certificate, signature, instrument or other document which is given
to the Escrow Agent pursuant to this Agreement without the necessity of the
Escrow Agent verifying the truth or accuracy thereof. The Escrow Agent shall
not be obligated to make any inquiry as to the authority, capacity, existence or
identity of any person purporting to give any such notice or instructions or to
execute any such certificate, instrument or other document.
5.6 If the Escrow Agent is uncertain as to its duties or rights
hereunder or shall receive instructions with respect to the Bank Account, the
Escrow Amounts or the Fund which, in its sole determination, are in conflict
either with other instructions received by it or with any provision of this
Agreement, it shall be entitled to hold the Escrow Amounts, the Fund, or a
portion thereof, in the Bank Account pending the resolution of such uncertainty
to the Escrow Agent's sole satisfaction, by final judgment of a court or courts
of competent jurisdiction or otherwise; or the Escrow Agent, at its sole option,
may deposit the Fund (and any other Escrow Amounts that thereafter become part
of the Fund) with the Clerk of a court of competent jurisdiction in a proceeding
to which all parties in interest are joined. Upon the deposit by the Escrow
Agent of the Fund with the Clerk of any court, the Escrow Agent shall be
relieved of all further obligations and released from all liability hereunder.
5.7 The Escrow Agent shall not be liable for any action taken or
omitted hereunder, or for the misconduct of any employee, agent or attorney
appointed by it, except in the case of willful misconduct or gross negligence.
The Escrow Agent shall be entitled to consult with counsel of its own choosing
and shall not be liable for any action taken, suffered or omitted by it in
accordance with the advice of such counsel.
5.8 The Escrow Agent shall have no responsibility at any time to
ascertain whether or not any security interest exists in the Escrow Amounts, the
Fund or any part thereof or to file any financing statement under the Uniform
Commercial Code with respect to the Fund or any part thereof.
6. AMENDMENT; RESIGNATION. This Agreement may be altered or amended only
with the written consent of the Issuer, the Underwriter and the Escrow Agent.
The Escrow Agent may resign for any reason upon three (3) business days' written
notice to the Issuer and the Underwriter. Should the Escrow Agent resign as
herein provided, it shall not be required to accept any deposit, make any
disbursement or otherwise dispose of the Escrow Amounts or the Fund, but its
only duty
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<PAGE>
shall be to hold the Escrow Amounts until they clear the banking system and the
Fund for a period of not more than five (5) business days following the
effective date of such resignation, at which time (a) if a successor escrow
agent shall have been appointed and written notice thereof (including the name
and address of such successor escrow agent) shall have been given to the
resigning Escrow Agent by the Issuer, the Underwriter and such successor escrow
agent, then the resigning Escrow Agent shall pay over to the successor escrow
agent the Fund, less any portion thereof previously paid out in accordance with
this Agreement; or (b) if the resigning Escrow Agent shall not have received
written notice signed by the Issuer, the Underwriter and a successor escrow
agent, then the resigning Escrow Agent shall promptly refund the amount in the
Fund to each prospective purchaser, with the interest thereon, if any, paid
with respect to the Bank Account, without deduction therefrom, and the
resigning Escrow Agent shall promptly notify the Issuer and the Underwriter in
writing of its liquidation and distribution of the Fund; whereupon, in either
case, the Escrow Agent shall be relieved of all further obligations and
released from all liability under this Agreement. Without limiting the
provisions of Section 8 hereof, the resigning Escrow Agent shall be entitled to
be reimbursed by the Issuer and the Underwriter for any expenses incurred in
connection with its resignation, transfer of the Fund to a successor escrow
agent or distribution of the Fund pursuant to this Section 6.
7. REPRESENTATIONS AND WARRANTIES. The Issuer and the Underwriter hereby
jointly and severally represent and warrant to the Escrow Agent that:
7.1 No party other than the parties hereto and the prospective
purchasers have, or shall have, any lien, claim or security interest in the
Escrow Amounts or the Fund or any part thereof.
7.2 No financing statement under the Uniform Commercial Code is on
file in any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Escrow Amounts or the Fund or any part thereof.
7.3 The Subscription Information submitted with each deposit shall,
at the time of submission and at the time of the disbursement of the Fund, be
deemed a representation and warranty that such deposit represents a bona fide
payment by the purchaser described therein for the amount of Securities set
forth in such Subscription Information.
7.4 All of the information contained in the Information Sheet is, as
of the date hereof, and will be, at the time of any disbursement of the Fund,
true and correct.
8. FEES AND EXPENSES. The Escrow Agent shall be entitled to the Escrow
Agent Fees set forth on the Information Sheet, payable as and when stated
therein. In addition, the Issuer and the Underwriter jointly and severally
agree to reimburse the Escrow Agent for any reasonable expenses incurred in
connection with this Agreement, including, but not limited to, reasonable
counsel fees. Upon receipt of the Minimum Dollar Amount, the Escrow Agent shall
have a lien upon the Fund to the extent of its fees for services as Escrow
Agent.
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<PAGE>
9. INDEMNIFICATION AND CONTRIBUTION.
9.1 The Issuer and the Underwriter (collectively referred to as the
"Indemnitors") jointly and severally agree to indemnify the Escrow Agent and its
officers, directors, employees, agents and shareholders (collectively referred
to as the "Indemnitees") against, and hold them harmless of and from, any and
all loss, liability, cost, damage and expense, including without limitation,
reasonable counsel fees, which the Indemnitees may suffer or incur by reason of
any action, claim or proceeding brought against the Indemnitees arising out of
or relating in any way to this Agreement or any transaction to which this
Agreement relates, unless such action, claim or proceeding is the result of the
willful misconduct or gross negligence of the Indemnitees.
9.2 If the indemnification provided for in Section 9.1 is applicable,
but for any reason is held to be unavailable, the Indemnitors shall contribute
such amounts as are just and equitable to pay, or to reimburse the Indemnitees
for, the aggregate of any and all losses, liabilities, costs, damages and
expenses, including counsel fees, actually incurred by the Indemnitees as a
result of or in connection with, and any amount paid in settlement of, any
action, claim or proceeding arising out of or relating in any way to any actions
or omissions of the Indemnitors.
9.3 The provisions of this Article 9 shall survive any termination of
this Agreement, whether by disbursement of the Fund, resignation of the Escrow
Agent or otherwise.
10. GOVERNING LAW AND ASSIGNMENT. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York and shall be
binding upon the parties hereto and their respective successors and assigns;
PROVIDED, HOWEVER, that any assignment or transfer by any party of its rights
under this Agreement or with respect to the Escrow Amounts or the Fund shall be
void as against the Escrow Agent unless (a) written notice thereof shall be
given to the Escrow Agent; and (b) the Escrow Agent shall have consented in
writing to such assignment or transfer.
11. NOTICES. All notices required to be given in connection with this
Agreement shall be sent by registered or certified mail, return receipt
requested, or by hand delivery with receipt acknowledged, or by the Express Mail
service offered by the United States Post Office, and addressed, if to the
Issuer or the Underwriter, at their respective addresses set forth on the
Information Sheet, and if to the Escrow Agent, at its address set forth above,
to the attention of the Trust Department.
12. SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance shall be determined to be invalid or
unenforceable, the remaining provisions of this Agreement or the application of
such provision to persons or circumstances other than those to which it is held
invalid or unenforceable shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law.
13. EXECUTION IN SEVERAL COUNTERPARTS. This Agreement may be executed in
several counterparts or by separate instruments, and all of such counterparts
and instruments shall constitute one agreement, binding on all of the parties
hereto.
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<PAGE>
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings (written or oral) of the
parties in connection therewith.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
THE ISSUER:
SHERRY LANE GROWTH FUND, INC.
By: _____________________________________________
Name:
Title:
THE UNDERWRITER:
MARION BASS SECURITIES CORPORATION
By: _____________________________________________
Name:
Title:
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
By: _____________________________________________
Name:
Title:
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<PAGE>
ESCROW AGREEMENT INFORMATION SHEET
1. THE ISSUER
Name: SHERRY LANE GROWTH FUND, INC.
Address: 320 SOUTH BOSTON, SUITE 1000, TULSA, OKLAHOMA 74103-3703
State of incorporation of organization: DELAWARE
2. THE UNDERWRITER
Name: MARION BASS SECURITIES CORPORATION
Address: 4000 PARK ROAD, CHARLOTTE, NORTH CAROLINA 28209
State of incorporation of organization:
3. THE SECURITIES
Description of the Securities to be offered (E.G., shares of or warrants
for common stock, debentures, units consisting of shares and warrants,
etc.): SHARES OF COMMON STOCK
Par value, if any: $.01
Offering price per share/unit/other: $10.00*
*$9.85 for each investor who purchases a minimum of 50,000 shares
4. MINIMUM AMOUNTS REQUIRED FOR DISBURSEMENT OF THE ESCROW ACCOUNT
Aggregate dollar amount which must be collected before the Escrow
Account may be disbursed to the issuer ("Minimum Dollar
Amount"): $15,000,000*
------------
Total amount of securities which must be subscribed for before the
Escrow Account may be disbursed to the issuer ("Minimum
Securities Amount"): 1,500,000
---------
*to be reduced by $.15 for each share sold at $9.85 per share.
5. PLAN OF DISTRIBUTION OF THE SECURITIES
Offering Period: ALL calendar/business days through August
31, 1996.
Extension Period, if any: ALL calendar/business days through
date specified in written notice of Extension Period.
Collection Period, if any: FIFTEEN (15) business days.
6. TITLE OF ESCROW ACCOUNT
Continental Stock Transfer & Trust Company, Escrow Agent for the offering
by SHERRY LANE GROWTH FUND, INC.
7. ESCROW AGENT FEES
Amount due on execution of the Escrow Agreement: $750.00
and upon completion of the escrow: $750.00
Fee for each check disbursed pursuant to the terms of the Escrow Agreement:
$_______________
Fee for each check returned pursuant to the terms of the Escrow Agreement:
$_______________
<PAGE>
Exhibit l
VINSON & ELKINS LETTERHEAD
May 13, 1996
Sherry Lane Growth Fund, Inc.
320 South Boston, Suite 1000
Tulsa, Oklahoma 74103-3703
Gentlemen:
We have acted as counsel for Sherry Lane Growth Fund, Inc. (the
"Company") in connection with the preparation of its Registration Statement
(File No. 33-96108) on Form N-2 (the "Registration Statement") relating to
the offering by the Company of an aggregate of 5,000,000 shares of its Common
Stock, par value $.01 (the "Shares"). In connection therewith, we have
examined, among other things, the Certificate of Incorporation and Bylaws of
the Company, the corporate proceedings taken to date with respect to the
authorization, issuance and sale of the Shares, and the Underwriting
Agreement to be executed between the Company and Marion Bass Securities
Corporation (the "Underwriting Agreement").
Based on the foregoing, we advise you that in our opinion:
(1) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware.
(2) The Shares have been validly authorized for issuance, and
(subject to the Registration Statement becoming effective, and any
applicable Blue Sky laws being complied with) upon the issuance and
delivery thereof in accordance with the terms of the Underwriting Agreement
and as set forth in the Registration Statement and upon the receipt by the
Company of the purchase price thereof, the Shares will be validly issued,
fully paid and nonassessable shares of Common Stock, par value $.01, of the
Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under "Legal
Matters" in the Prospectus included in the Registration Statement. By giving
such consent we do not admit that we are experts with respect to any part of
the Registration Statement, including this exhibit, within the meaning of the
term "expert" as used
<PAGE>
Sherry Lane Growth Fund, Inc.
Page 2
May 13, 1996
in the Securities Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission issued thereunder.
Very truly yours,
/s/ Vinson & Elkins L.L.P.
VINSON & ELKINS L.L.P.
<PAGE>
EXHIBIT (n)
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into as
of this ___ day of ___________, 1996, by and between Sherry Lane Growth Fund,
Inc., a Delaware corporation (the "Company"), and _____________________, a
resident of the State of ___________ ("Indemnitee").
RECITALS:
A. Competent and experienced persons are reluctant to serve or to continue
to serve corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or indemnification (or
both) against claims and actions against them arising out of their service to
and activities on behalf of those corporations.
B. The current uncertainties relating to the availability of adequate
insurance for directors and officers have increased the difficulty for
corporations to attract and retain competent and experienced persons.
C. The Board of Directors of the Company has determined that the
continuation of present trends in litigation will make it more difficult to
attract and retain competent and experienced persons, that this situation is
detrimental to the best interests of the Company's stockholders, and that the
Company should act to assure its directors and officers that there will be
increased certainty of adequate protection in the future.
D. The Bylaws of the Company require the Company to indemnify its directors
and officers to the fullest extent permitted by law.
E. It is reasonable, prudent, and necessary for the Company to obligate
itself contractually to indemnify its directors and officers to the fullest
extent permitted by applicable law in order to induce them to serve or
continue to serve the Company.
F. Indemnitee is willing to serve, continue to serve, and to take on
additional service for or on behalf of the Company on the condition that he
be indemnified to the fullest extent permitted by law.
G. Concurrently with the execution of this Agreement, Indemnitee is agreeing
to serve or to continue to serve as a director or officer of the Company.
<PAGE>
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing premises, Indemnitee's
agreement to serve or continue to serve as a director or officer of the
Company, and the covenants contained in this Agreement, the Company and
Indemnitee hereby covenant and agree as follows:
1. CERTAIN DEFINITIONS:
(a) ACQUIRING PERSON: shall mean any Person other than (i) the Company,
(ii) any of the Company's Subsidiaries, (iii) any employee benefit plan of
the Company or of a Subsidiary of the Company or of a corporation owned
directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, or (iv) any
trustee or other fiduciary holding securities under an employee benefit plan
of the Company or of a Subsidiary of the Company or of a corporation owned
directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company.
(b) CHANGE IN CONTROL: shall be deemed to have occurred if:
(i) any Acquiring Person is or becomes the "beneficial owner"
(as defined in Rule l3d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), directly or indirectly, of
securities of the Company representing twenty percent or more of
the combined voting power of the then outstanding Voting Securities
of the Company; or
(ii) members of the Incumbent Board cease for any reason to
constitute at least a majority of the Board of Directors of the
Company; or
(iii) after the Company has become a reporting company under the
Exchange Act, a public announcement is made of a tender or exchange
offer by any Acquiring Person for fifty percent or more of the
outstanding Voting Securities of the Company, and the Board of
Directors of the Company approves or fails to oppose that tender or
exchange offer in its statements in Schedule 14D-9 under the
Exchange Act; or
(iv) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or
partnership (or, if no such approval is required, the consummation
of such a merger or consolidation of the Company), other than a
merger or consolidation that would result in the Voting Securities
of the Company outstanding immediately prior to the consummation
thereof continuing to represent (either by remaining outstanding or
by being converted into Voting Securities of the surviving entity
or of a parent of the surviving entity) a majority of the combined
voting power of the Voting Securities of the surviving entity (or
its parent) outstanding immediately after that merger or
consolidation; or
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<PAGE>
(v) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the
Company's assets (or, if no such approval is required, the
consummation of such a liquidation, sale, or disposition in one
transaction or series of related transactions) other than a
liquidation, sale, or disposition of all or substantially all the
Company's assets in one transaction or a series of related
transactions to a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions
as their ownership of stock of the Company.
(c) CLAIM: any threatened, pending, or completed action, suit, or
proceeding (including, without limitation, securities laws actions, suits,
and proceedings), or any inquiry or investigation (including discovery),
whether conducted by the Company or any other party, that Indemnitee in good
faith believes might lead to the institution of any action, suit, or
proceeding, whether civil, criminal, administrative, investigative, or other.
(d) EXPENSES: all costs, expenses (including attorneys' and expert
witnesses' fees), and obligations paid or incurred in connection with
investigating, defending (including affirmative defenses and counterclaims),
being a witness in, or participating in (including on appeal), or preparing
to defend, be a witness in, or participate in, any Claim relating to any
Indemnifiable Event.
(e) INCUMBENT BOARD: individuals who, as of the date hereof, constitute
the Board of Directors of the Company and any other individual who becomes a
director of the Company after that date and whose election or appointment by
the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board.
(f) INDEMNIFIABLE EVENT: any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent, or fiduciary of
the Company, or is or was serving at the request of the Company as a
director, officer, employee, trustee, agent, or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust, or
other enterprise, or by reason of any thing done or not done by Indemnitee in
any such capacity. For purposes of this Agreement, the Company agrees that
Indemnitee's service on behalf of or with respect to any corporation,
partnership, joint venture, employee benefit plan, trust, or other enterprise
in which the Company owns any security (whether debt or equity) shall be
deemed to be at the request of the Company.
(g) PERSON: shall mean any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a trust, or other entity. A Person, together with that Person's
Affiliates and Associates (as those terms are defined in Rule 12b-2 under the
Exchange Act), and any Persons acting as a partnership, limited partnership,
joint venture, association, syndicate, or other group (whether or not
formally organized), or otherwise acting jointly or in concert or in a
coordinated or consciously parallel manner (whether or not pursuant to any
express agreement), for the purpose of acquiring, holding,
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<PAGE>
voting, or disposing of securities of the Company with such Person, shall be
deemed a single "Person."
(h) POTENTIAL CHANGE IN CONTROL: shall be deemed to have occurred if (i)
the Company enters into an agreement, the consummation of which would result
in the occurrence of a Change in Control; (ii) any Person (including the
Company) publicly announces an intention to take or to consider taking
actions that, if consummated, would constitute a Change in Control; (iii)
after the Company has become a reporting company under the Exchange Act, any
Acquiring Person who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the then outstanding Voting Securities of the
Company increases his beneficial ownership of such securities by 5% or more
over the percentage so owned by that Person on the earlier of the date the
Company becomes such a reporting company and the date such Person first
becomes the owner of such 10% or more interest; or (iv) the Board of
Directors of the Company adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change in Control has occurred.
(i) REVIEWING PARTY: any appropriate person or body consisting of a member
or members of the Company's Board of Directors or any other person or body
appointed by the Board (including Special Counsel referred to in Section 3)
who is not a party to the particular Claim for which Indemnitee is seeking
indemnification.
(j) SPECIAL COUNSEL: special, independent counsel selected by Indemnitee
and approved by the Company (which approval shall not be unreasonably
withheld), and who has not otherwise performed services for the Company or
for Indemnitee within the last three years (other than as Special Counsel
under this Agreement or similar agreements).
(k) SUBSIDIARY: with respect to any Person, any corporation or other
entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by that
Person.
(l) VOTING SECURITIES: any securities that vote generally in the election
of directors or in the selection of any other similar governing body.
2. BASIC INDEMNIFICATION AND EXPENSE REIMBURSEMENT ARRANGEMENT.
(a) In the event Indemnitee was, is, or becomes a party to or witness or
other participant in, or is threatened to be made a party to or witness or
other participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
30 days after written demand is presented to the Company, against any and all
Expenses, judgments, fines, penalties, and amounts paid in settlement
(including all interest, assessments, and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties,
or amounts paid in settlement) of or with respect to that Claim.
Notwithstanding the foregoing, the obligations of the Company under this
Section 2(a) shall be subject to the condition that the Reviewing Party shall
not have determined (in a written opinion, in any case
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<PAGE>
in which Special Counsel referred to in Section 3 hereof is involved) that
Indemnitee would not be permitted to be indemnified under applicable law.
Nothing contained in this Agreement shall require any determination under
this Section 2(a) to made by the Reviewing Party prior to the disposition or
conclusion of the Claim against the Indemnitee; provided, however, that
Expense Advances shall continue to be made by the Company pursuant to and to
the extent required by the provisions of Section 2(b).
(b) If so requested by Indemnitee, the Company shall pay any and all
Expenses incurred by Indemnitee (or, if applicable, reimburse Indemnitee for
any and all Expenses incurred by Indemnitee and previously paid by
Indemnitee) within two business days after such request (an "Expense
Advance"). The Company shall be obligated to make or pay an Expense Advance
in advance of final disposition or conclusion of any Claim. In connection with
any request for an Expense Advance, if requested by the Company, Indemnitee
or Indemnitee's counsel shall submit an affidavit stating that the Expenses
incurred were reasonable. Any dispute as to the reasonableness of any Expense
shall not delay an Expense Advance by the Company, and the Company agrees
that any such dispute shall be resolved only upon the disposition or
conclusion of the underlying Claim against the Indemnitee. If, when, and to
the extent that the Reviewing Party determines that Indemnitee would not be
permitted to be indemnified with respect to a Claim under applicable law, the
Company shall be entitled to be reimbursed by Indemnitee and Indemnitee hereby
agrees to reimburse the Company without interest (which agreement shall be an
unsecured obligation of Indemnitee) for all related Expense Advances
theretofore made or paid by the Company; provided, however, that if
Indemnitee has commenced legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance, and the Company shall be obligated to
continue to make Expense Advances, until a final judicial determination is
made with respect thereto (as to which all rights of appeal therefrom have
been exhausted or lapsed). If there has not been a Change of Control, the
Reviewing Party shall be selected by the Board of Directors of the Company.
If there has been a Change of Control, the Reviewing Party shall be advised
by or shall be Special Counsel referred to in Section 3 hereof, if and as
Indemnitee so requests. If there has been no determination by the Reviewing
Party or if the Reviewing Party determines that Indemnitee substantively
would not be permitted to be indemnified in whole or in part under applicable
law, Indemnitee shall have the right to commence litigation in any court in
the states of Delaware or Texas having subject matter jurisdiction thereof and
in which venue if proper seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, and the Company hereby consents to service of process and to
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
3. CHANGE IN CONTROL. The Company agrees that, if there is a Change in
Control and if Indemnitee requests in writing that Special Counsel advise the
Reviewing Party or be the Reviewing Party, then the Company shall not deny
any indemnification payments (and Expense Advances shall continue to be paid
by the Company pursuant to Section 2(b)) that Indemnitee requests or demands
under this Agreement or any other agreement or law now or hereafter in
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<PAGE>
effect relating to Claims for Indemnifiable Events. The Company further
agrees not to request or seek reimbursement from Indemnitee of any related
Expense Advances unless, with respect to a denied indemnification payment,
Special Counsel has rendered its written opinion to the Company and
Indemnitee that the Company would not be permitted under applicable law to
pay Indemnitee such indemnification payment. The Company agrees to pay the
reasonable fees of Special Counsel referred to in this Section 3 and to
indemnify fully Special Counsel against any and all expenses (including
attorneys' fees), claims, liabilities, and damages arising out of or relating
to this Agreement or Special Counsel's engagement pursuant hereto.
4. ESTABLISHMENT OF TRUST. In the event of a Potential Change of Control,
the Company shall, upon written request by Indemnitee, create a trust for
the benefit of Indemnitee (the "Trust") and from time to time upon written
request of Indemnitee shall fund the Trust in an amount sufficient to satisfy
any and all Expenses reasonably anticipated at the time of each such request to
be incurred in connection with investigation, preparing for, and defending
any Claim relating to an Indemnifiable Event, and any and all judgements,
fines, penalties, and settlement amounts (including all interest,
assessments, and other charges paid or payable in connection with or in
respect of such expenses, judgments, fines, penalties, and settlement
amounts) of any and all Claims relating to an Indemnifiable Event from time
to time actually paid or claimed, reasonably anticipated, or proposed to be
paid. The amount or amounts to be deposited in the Trust pursuant to the
foregoing funding obligation shall be determined by the Reviewing Party, in
any situation in which Special Counsel referred to in Section 3 is involved.
The terms of the Trust shall provide that, upon a Change in Control, (i) the
Trust shall not be revoked or the principal thereof invaded, without the
written consent of Indemnitee; (ii) the trustee of the Trust shall advance,
within two business days of a request by Indemnitee, any and all Expenses to
Indemnitee (and Indemnitee hereby agrees to reimburse the Trust under the
circumstances in which Indemnitee would be required to reimburse the Company
for Expense Advances under Section 2(b) of this Agreement); (iii) the Trust
shall continue to be funded by the Company in accordance with the funding
obligation set forth above; (iv) the trustee of the Trust shall promptly pay
to Indemnitee all amounts from which Indemnitee shall be entitled to
indemnification pursuant to this Agreement or otherwise; and (v) all
unexpended funds in that Trust shall revert to the Company upon a final
determination by the Reviewing Party or a court of competent jurisdiction, as
the case may be, that Indemnitee has been fully indemnified under the terms
of this Agreement. The trustee of the Trust shall be chosen by Indemnitee.
Nothing in this Section 4 shall relieve the Company of any of its obligations
under this Agreement.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all costs and expenses (including attorneys' and
expert witnesses' fees) and, if requested by Indemnitee, shall (within two
business days of that request) advance those costs and expenses to
Indemnitee, that are incurred by Indemnitee in connection with any claim
asserted against or action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Company under this Agreement or any other
agreement or provision of the Company's Certificate of Incorporation or
By-laws now or hereafter in effect relating to Claims for Indemnifiable
Events or (ii) recovery under any directors' and officers' liability
insurance policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined
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to be entitled to that indemnification, advance expense payment, or insurance
recovery, as the case may be.
6. PARTIAL INDEMNITY. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties, and amounts paid in settlement of a
Claim but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise in defense of any or all Claims relating in whole or in
part to an Indemnifiable Event or in defense of any issue or matter therein,
including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
7. CONTRIBUTION.
(a) CONTRIBUTION PAYMENT. To the extent the indemnification provided for
under any provision of this Agreement is determined (in the manner
hereinabove provided) not to be permitted under applicable law, then in the
event Indemnitee was, is, or becomes a party to or witness or other
participant in, or is threatened to be made a party to or witness or other
participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company, in lieu of indemnifying Indemnitee, shall
contribute to the amount of any and all Expenses, judgments, fines, or
penalties assessed against or incurred or paid by Indemnitee on account of
that Claim and any and all amounts paid in settlement of that Claim
(including all interest, assessments, and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties,
or amounts paid in settlement) for which such indemnification is not
permitted ("Contribution Amounts"), in such proportion as is appropriate to
reflect the relative fault with respect to the Indemnifiable Event giving
rise to the Contribution Amounts of Indemnitee, on the one hand, and of the
Company and any and all other parties (including officers and directors of
the Company other than Indemnitee) who may be at fault with respect to such
Indemnifiable Event (collectively, including the Company, the "Third
Parties") on the other hand.
(b) RELATIVE FAULT. The relative fault of the Third Parties and the
Indemnitee shall be determined (i) by reference to the relative fault of
Indemnitee as determined by the court or other governmental agency assessing
the Contribution Amounts or (ii) to the extent such court or other
governmental agency does not apportion relative fault, by the Reviewing Party
(which shall include Special Counsel) after giving effect to, among other
things, the relative intent, knowledge, access to information, and
opportunity to prevent or correct the applicable Indemnifiable Event and
other relevant equitable considerations of each party. The Company and
Indemnitee agree that it would not be just and equitable if contribution
pursuant to this Section 7 were determined by pro rata allocation or by any
other method of allocation which does take account of the equitable
considerations referred to in this Section 7(b).
8. BURDEN OF PROOF. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
under any provision of this
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Agreement or to receive contribution pursuant to Section 7 of this Agreement,
the burden of proof shall be on the Company to establish that Indemnitee is
not so entitled.
9. NO PRESUMPTION. For purposes of this Agreement, the termination of any
claim, action, suit, or proceeding, by judgment, order, settlement (whether
with or without court approval), or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief
or that a court has determined that indemnification is not permitted by
applicable law.
10. ACTION OF OTHERS. The knowledge and/or actions, or failure to act, of
any director, officer, agent, or employee of the Company shall not be imputed
to the Indemnitee for purposes of determining the right to indemnification
under this Agreement.
11. INDEMNITEE'S INDIVIDUAL CAPACITY. The Company acknowledges that the
Indemnitee is undertaking to act as a director of the Company at the request
of the Company and solely in the Indemnitee's individual capacity and not in
any capacity as a director, officer, member, partner, employee, trustee, or
other representative of any other corporation, partnership, association,
business trust, trust, or similar organization or entity. The Company
covenants and agrees to indemnify any such organization or entity from and
against any and all judgments, fines, or penalties assessed against or
incurred or paid by such organization or entity and any and all amounts paid
in settlement (including all interest, attorneys' and expert witnesses' fees,
and other charges paid or payable in connection with such judgments, fines,
penalties, or amounts paid in settlement) with respect to any action or
inaction taken in the course of the Indemnitee's duties as a director of the
Company.
12. NON-EXCLUSIVITY. The rights of Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the Company's By-laws
or Certificate of Incorporation or the Delaware General Corporation Law or
otherwise. To the extent that a change in the Delaware General Corporation
Law (whether by statute or judicial decision) permits greater indemnification
by agreement than would be afforded currently under the Company's By-laws or
Certificate of Incorporation and this Agreement, it is the intent of the
parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by that change.
13. LIABILITY INSURANCE. Except as otherwise agreed to by the Company and
Indemnitee in a written agreement, to the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by that policy or those policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Company director or officer.
14. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause of
action shall be asserted by or on behalf of the Company or any affiliate of
the Company against Indemnitee or Indemnitee's spouse, heirs, executors, or
personal or legal representatives after the expiration of three years from
the date of accrual of that cause of action, and any claim or cause of action
of the Company or its affiliate shall be extinguished and deemed released
unless asserted by the
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<PAGE>
timely filing of a legal action within that three-year period; provided,
however, that, if any shorter period of limitations is otherwise applicable
to any such cause of action, the shorter period shall govern.
15. AMENDMENTS. No supplement, modification, or amendment of this Agreement
shall be binding unless executed in writing by both of the parties hereto.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof (whether or not similar)
nor shall that waiver constitute a continuing waiver.
16. SUBROGATION. In the event of payment under this Agreement, the Company
shall, subject to the conflicting rights of an insurer pursuant to any policy
contemplated by Section 13 hereof, be subrogated to the extent of that
payment to all of the rights of recovery of Indemnitee, who shall execute all
papers required and shall do everything that may be necessary to secure those
rights, including the execution of the documents necessary to enable the
Company effectively to bring suit to enforce those rights.
17. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation or By-laws, or otherwise) of the amounts otherwise
indemnifiable hereunder.
18. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors, assigns (including any direct or indirect successor by purchase,
merger, consolidation, or otherwise to all or substantially all of the
business or assets of the Company), spouses, heirs, and personal and legal
representatives. This Agreement shall continue in effect regardless of
whether Indemnitee continues to serve as an officer or director of the
Company or another enterprise at the Company's request.
19. SEVERABILITY. If any provision of this Agreement is held to be illegal,
invalid, or unenforceable under present or future laws effective during the
term hereof, that provision shall be fully severable; this Agreement shall be
construed and enforced as if that illegal, invalid, or unenforceable
provision had never comprised a part hereof; and the remaining provisions
shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of that illegal, invalid, or unenforceable
provision, there shall be added automatically as a part of this Agreement a
provision as similar in terms to the illegal, invalid, or unenforceable
provision as may be possible and be legal, valid, and enforceable.
20. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in that state without giving effect to the
principles of conflicts of laws.
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21. HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement.
22. NOTICES. Whenever this Agreement requires or permits notice to be given
by one party to the other, such notice must be in writing to be effective and
shall be deemed delivered and received by the party to whom it is sent upon
actual receipt (by any means) of such notice. Receipt of a notice by any
officer of the Company shall be deemed receipt of such notice by the Company.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but in making proof
hereof it shall not be necessary to produce or account for more than one such
counterpart.
EXECUTED as of the date first written above.
SHERRY LANE GROWTH FUND, INC.
By: ___________________________________
_______________________________________
___________________________, Indemnitee
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