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EXHIBIT (c)(3)
OFFERING AGREEMENT
OFFERING AGREEMENT dated October 31, 1996 by and between ▇▇▇ ▇▇▇▇▇▇
AMERICAN CAPITAL PRIME RATE INCOME TRUST (the "Fund"), a Massachusetts business
trust, and ▇▇▇ ▇▇▇▇▇▇ AMERICAN CAPITAL DISTRIBUTORS, INC., a Delaware
corporation (the "Principal Underwriter").
1. Appointment of Principal Underwriter. The Fund appoints the Principal
Underwriter as a principal underwriter and exclusive distributor of shares of
the Fund (the "Shares"), effective as of the date upon which the continuous
public offering of the Fund's Shares, as described in the Fund's then current
Prospectus, shall commence. The Fund reserves the right, however, to refuse at
any time or times to sell Shares hereunder for any reason deemed adequate by
the Board of Trustees of the Fund.
The Principal Underwriter will use its best efforts to sell through its
organization and through other dealers and agents the Shares which the
Principal Underwriter has the right to purchase under Section 2 hereof, but the
Principal Underwriter does not undertake to sell any specific number of Shares.
The Principal Underwriter agrees that it will not take any long or short
positions in the Shares, except for long positions in those Shares purchased by
the Principal Underwriter in accordance with any systematic sales plan
described in the then current Prospectus of the Fund and except as permitted by
Section 2 hereof, and that so far as it can control the situation, it will
prevent any of its trustees, officers or shareholders from taking any long or
short positions in the Shares, except for legitimate investment purposes.
2. Sale of Shares to Principal Underwriter; Early Withdrawal Charge. The
Fund hereby grants to the Principal Underwriter the exclusive right, except as
herein otherwise provided, to purchase Shares upon the terms herein set forth.
Such exclusive right hereby granted shall not apply to Shares issued or
transferred or sold as net asset value: (a) in connection with the merger or
consolidation of the Fund with any other investment company or the acquisition
by the Fund of all or substantially all of the assets or of the outstanding
Shares of any investment company; (b) in connection with a pro rata
distribution directly to the holders of Fund Shares in the nature of a stock
dividend or stock split or in connection with any other recapitalization
approved by the Board of Trustees; (c) upon the exercise of purchase or
subscription rights granted to the holders of Fund Shares on a pro rata basis;
or (d) in connection with the automatic reinvestment of dividends and
distributions from the Fund.
The Principal Underwriter shall have the right to buy from the Fund the
Shares needed, but not more than the Shares needed (except for reasonable
allowances for clerical errors, delays and errors of transmission and
cancellation of orders) to fill unconditional orders for Shares received by the
Principal Underwriter from dealers, agents and investors during each period
when a particular net asset value and public offering price are in effect as
provided in Section 3 hereof; and the price which the Principal Underwriter
shall pay for the Shares so purchased shall be the net asset value used in
determining the public offering price on which such orders were based. The
Principal Underwriter shall notify the Fund at the end of each such period, or
as soon thereafter on that business day as the orders received in such period
have been compiled, of the number of Shares which the Principal Underwriter
elects to purchase hereunder.
The Fund shall impose an early withdrawal charge, payable to the Principal
Underwriter, on most shares accepted for tender by the Fund which have been
held for less than five years, as set forth in the current Fund Prospectus.
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3. Public Offering Price. The public offering price per Share shall be
determined in accordance with the then current Prospectus of the Fund. In no
event shall the public offering price exceed the net asset value per Share. The
net asset value per Share shall be determined in the manner provided in the
Declaration of Trust and By-Laws of the Fund as then amended and in accordance
with the then current Prospectus of the Fund. The Fund will cause immediate
notice to be given to the Principal Underwriter of each change in net asset
value as soon as it is determined. Compensation from the Principal Underwriter
to dealers purchasing Shares from the Principal Underwriter for resale and to
brokers and other eligible agents making sales to investors shall be set the
forms of agreement between the Principal Underwriter and such dealers or
agents, respectively, as from time to time amended, and, if such compensation
from the Principal Underwriter is described in the then current Prospectus for
the Fund, shall be as so set forth.
4. Compliance with NASD Rules, etc. In selling Fund Shares, the Principal
Underwriter will in all respects duly conform with all state and Federal laws
relating to the sale of such securities and with all applicable rules and
regulations of all regulatory bodies, including without limitation, the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. and
all applicable rules and regulations of the Securities and Exchange Commission
under the 1940 Act, and will indemnify and save the Fund harmless from any
damage or expense on account of any unlawful act by the Principal Underwriter
or its agents or employees. The Principal Underwriter is not, however, to be
responsible for the acts of other dealers or agents except as and to the extent
that they shall be acting for the Principal Underwriter or under its direction
or authority. None of the Principal Underwriter, any dealer, any agent or any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the Registration Statement or
Prospectus heretofore or hereafter filed with the Securities and Exchange
Commission under the Securities Act of 1933 (the "1933 Act"), as amended (as
any such Registration Statement and Prospectus may have been or may be amended
from time to time), covering the Shares, and in any supplemental information to
any such Prospectus approved by the Fund in connection with the offer or sale
of Shares. None of the Principal Underwriter, any dealer, any broker or any
other person is authorized to act as agent for the Fund in connection with the
offering or sale of Shares to the public or otherwise. All such sales shall be
made by the Principal Underwriter as principal for its own account.
5. Expenses.
(a) The Fund will pay or cause to be paid:
(i) all expenses in connection with the registration of Fund
Shares under the Federal securities laws, and the Fund will exercise
its best efforts to obtain said registration and qualifications;
(ii) all expenses in connection with the printing of any
notices of shareholders' meetings, proxy and proxy statements and
enclosures therewith, as well as any other notice or communication sent
to shareholders in connection with any meeting of the shareholders or
otherwise, any annual, semi-annual or other report or communications sent
to the shareholders, and the expense of sending prospectuses relating to
the Shares to existing shareholders;
(iii) all expenses of any Federal or state original issue tax or
transfer tax payable upon the issuance, transfer or delivery of Shares
from the Fund to the Principal Underwriter;
(iv) the cost of preparing and issuing any Share certificates
which may be issued to represent Shares.
(b) The Principal Underwriter will pay the costs and expenses of
qualifying and maintaining qualifications of the shares for sale under
the securities laws of the various states. The Principal Underwriter will
also permit its officers and employees to serve without compensation as
trustees and officers of the Fund if duly elected to such positions.
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6. No Secondary Market Activity. It is understood that Shares of the Fund
will not be repurchased by either the Fund or the Principal Underwriter, and
that no secondary market for the Fund shares exists currently, or is expected
to develop. While the Board of Trustees of the Fund intends to consider
tendering for all or a portion of the Fund's shares on a quarterly basis, there
is no assurance that the Fund will tender for shares at any time or, following
such a tender offer, that shares so tendered will be repurchased by the Fund.
Accordingly investment in the Fund's shares would be considered illiquid.
ANY REPRESENTATION AS TO A TENDER OFFER BY THE FUND, OTHER THAN THAT WHICH
IS SET FORTH IN THE FUND'S THEN CURRENT PROSPECTUS IS EXPRESSLY PROHIBITED.
The Principal Underwriter hereby covenants that it (i) will not make a
secondary market in any shares of the Fund, (ii) will not purchase or hold such
shares in inventory for the purpose of resale in the open market, (iii) will
not repurchase shares in the open market, and (iv) will require every bank,
broker or dealer participating in the continuous offering of the shares to make
the covenants contained in clauses (i), (ii) and (iii) of this Section 6 as a
condition precedent to their participation in such offering.
7. Indemnification. The Fund agrees to indemnify and hold harmless the
Principal Underwriter and each of its trustees and officers and each person, if
any, who controls the Principal Underwriter within the meaning of Section 15 of
the 1933 Act against any loss, liability, claim, damages or expenses (including
the reasonable cost of investigating or defending any alleged loss, liability,
claim, damages, or expense and reasonable counsel fees incurred in connection
therewith), arising by reason of any person acquiring any Shares, based upon
the ground that the registration statement, Prospectus, shareholder reports or
other information filed or made public by the Fund (as from time to time
amended), included an untrue statement of a material fact or omitted to state a
material fact required to be stated or necessary in order to make the
statements not misleading under the 1933 Act, or any other statute or the
common law. However, the Fund does not agree to indemnify the Principal
Underwriter or hold it harmless to the extent that the statement or omission
was made in reliance upon, and in conformity with, information furnished by the
Fund by or on behalf of the Principal Underwriter. In no case (i) is the
indemnity of the Fund in favor of the Principal Underwriter or any person
indemnified to be deemed to protect the Principal Underwriter or any person
against any liability to the Fund or its security holders to which the
Principal Underwriter or such person would otherwise by subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
under this Agreement, or (ii) is the Fund to be liable under its indemnity
agreement contained in this section with respect to any claim made against the
Principal Underwriter or any other person shall have notified the Fund in
writing of the claim within a reasonable time after the summons or other first
written notification giving information of the nature of the claim shall have
been served upon the Principal Underwriter or any person (or after the
Principal Underwriter or the person shall have received notice of service on
any designated agent). However, failure to notify the Fund of any claim shall
not relieve the Fund from any liability which it may have to the Principal
Underwriter or any person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. The Fund shall
be entitled to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any such brought to enforce any claims, but if
the Fund elects to assume the defense, the defense shall be conducted by
counsel chosen by it and satisfactory to the Principal Underwriter or officers
or trustees or controlling person or persons, defendant or defendants in the
suit. In the event the Fund elects to assume the defense of any suit and retain
counsel, the Principal Underwriter, officers or trustees or controlling person
or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them. If the Fund does not elect
to assume the defense of any suit, it will reimburse the Principal Underwriter,
officers or trustees or controlling person or persons, defendant or defendants
in the suit, for the reasonable fees and expenses of any counsel retained by
them. The Fund agrees to notify the Principal Underwriter promptly of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of any of the Shares.
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The Principal Underwriter also covenants and agrees that it will indemnify
and hold harmless the Fund and each of its trustees and officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act, against any loss, liability, damages, claim or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
damages, claim or expense and reasonable counsel fees incurred in connection
therewith) arising by reason of any person acquiring any Shares, based upon the
1933 Act or any other statute or common law, alleging any wrongful act of the
Principal Underwriter or any of its employees or alleging that the registration
statement, Prospectus, shareholder reports or other information filed or made
public by the Fund (as from time to time amended), included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements not misleading, insofar as the
statement or omission was made in reliance upon, and in conformity with
information furnished to the Fund by or on behalf of the Principal Underwriter.
In no case (i) is the indemnity of the Principal Underwriter in favor of the
Fund or any person indemnified to be deemed to protect the Fund or any person
against any liability to which the Fund or such person would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Principal
Underwriter to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Fund or any person
indemnified unless the Fund or person, as the case may be, shall have notified
the Principal Underwriter in writing of the claim within a reasonable time
after the summons or other first written notification giving information of the
nature of the claim shall have been served upon the Fund or person (or after
the Fund or such person shall have received notice of service on any designated
agent). However, failure to notify the Principal Underwriter of any claim shall
not relieve the Principal Underwriter from any liability which it may have to
the Fund or any person against whom the action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. In the case of
any notice to the Principal Underwriter, it shall be entitled to participate,
at its own expense, in the defense or, if it so elects, to assume the defense
of any suit brought to enforce the claim, but if the Principal Underwriter
elects to assume the defense the defense shall be conducted by counsel chosen
by it and satisfactory to the Fund, to its officers and trustees and to any
controlling person or persons, defendant or defendants in the suit. In the
event that the Principal Underwriter elects to assume the defense of any suit
and retain counsel, the Fund or controlling persons, defendants in the suit,
shall bear the fees and expenses of any additional counsel retained by them. If
the Principal Underwriter does not elect to assume the defense of any suit, it
will reimburse the Fund, officers and trustees or controlling person or
persons, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Principal Underwriter agrees to
notify the Fund promptly of the commencement of any litigation or proceedings
against it in connection with the issue and sale of any of the Shares.
8. Continuation, Amendment or Termination of the Agreement. This
Agreement shall become effective on the Effective Date and thereafter shall
continue in full force and effect from year to year so long as such continuance
is approved at least annually (i) by the Board of Trustees of the Fund or by a
vote of a majority of the outstanding voting securities of the Fund, and (ii)
by vote of a majority of the Trustees who are not parties to this Agreement or
interested persons in any such party (the "Disinterested Trustees") cast in
person at a meeting called for the purpose of voting on such approval,
provided, however, that (a) this Agreement may at any time be terminated
without the payment of any penalty either by vote of a majority of the
Disinterested Trustees, or by vote of a majority of the outstanding voting
securities of the Fund, on written notice to the Principal Underwriter; (b)
this Agreement shall immediately terminate in the event of its assignment; and
(c) this Agreement may be terminated by the Principal Underwriter on ninety
(90) days' written notice to the Fund. Upon termination of this Agreement, the
obligations of the parties hereunder shall cease and terminate as of the date
of such termination, except for any obligation to respond for a breach of this
Agreement committed prior to such termination and except with respect to any
rights and obligations of indemnification arising out of any action or inaction
occurring prior to such termination.
This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved (i) by the Board of Trustees of the Fund, or by a vote of the majority
of the outstanding voting securities of the Fund, and (ii) by vote of a
majority
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of the Disinterested Trustees cast in person at a meeting called for
the purpose of voting on such amendment.
For purposes of this section, the terms "vote of a majority of the
outstanding voting securities", "interested persons" and "assignment" shall
have the meanings defined in the 1940 Act, as amended.
9. Disclaimer Liability. Notwithstanding anything to the contrary
contained in this Agreement, you acknowledge and agree that, as provided by
Section 5.5 of the Declaration of Trust of the Fund, the shareholders,
trustees, officers, employees and other agents of the Fund shall not personally
be bound by or liable hereunder, nor shall any resort to their personal
property be had for the satisfaction of any obligation or claim hereunder.
10. Notice. Any notice given under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, to the other party at any
office of such party or at such other address as such party shall have
designated in writing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
executed on their behalf on the day and year first above written.
▇▇▇ ▇▇▇▇▇▇ AMERICAN CAPITAL PRIME RATE INCOME TRUST
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
President
▇▇▇ ▇▇▇▇▇▇ AMERICAN CAPITAL DISTRIBUTORS, INC.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President
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