TABLE OF CONTENTS
Table of Contents
SCHEDULE 14A INFORMATION REQUIRED IN PROXY STATEMENT Proxy Statement Pursuant to Section 14(a) of the Securities
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Exchange Act of 1934
Filed by the
Registrant  |
Filed by a Party other than the Registrant  |
|
| Check the appropriate box: |
| Preliminary Proxy Statement |
Confidential, for Use of the |
|
| Commission Only (as permitted by | ||
| Rule 14a-6(e)(2)). |
| Definitive Proxy Statement. |
|
| Definitive Additional Materials. |
|
|
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12. |
Brantley Capital Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| No fee required. |
| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11. |
| (1) Title of each class of securities to which transaction applies: |
| (2) Aggregate number of securities to which transaction applies: |
| (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): |
| (4) Proposed maximum aggregate value of transaction: |
| (5) Total fee paid: |
| Fee paid previously with preliminary materials. |
| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing. |
| (1) Amount previously paid: |
| (2) Form, schedule or registration statement no.: |
| (3) Filing party: |
| (4) Date filed: |
Table of Contents
|
PRESENTATION PACKAGE 8/26/02 This presentation should be read in conjunction with our definitive proxy statement dated July 30, 2002 and our Annual and Quarterly Reports filed on Form 10-K and Form 10-Q. |
Table of Contents
|
Brantley Capital Who We Are Our Current Investment Strategy Our Performance Record Our Business Plan |
Table of Contents
|
Snapshot: Brantley Capital Provides equity and long-term debt financing to growing companies in a variety of industries throughout the United States. $68 million of assets under management. $30 million invested in 11 companies since 1997 along with certain public company investments. Portfolio companies with combined revenue of over $1.5 billion in 2001 and approximately 4,700 employees. |
Table of Contents
|
Our Management Team Robert P. Pinkas - Chairman and CEO Active in private equity investing since 1981. Founding Partner of four private limited partnership funds. Former McKinsey consultant Michael J. Finn - President Active in private equity since 1976 Former VP of private equity at Sears Investment Management Company and Director of Alternative Assets for Michigan Department of Treasury Paul H. Cascio - Vice President Active in corporate finance from 1983 - 1995 Former Managing Director at Dean Witter Reynolds Corporate finance at EF Hutton Shawn W. Wynne - Vice President Active in mezzanine/private equity since 1985 Former Director at Stonehenge Partners Lending experience at Bank One / Bank of Nova Scotia Tab A. Keplinger - Chief Financial Officer 20 years' experience in financial accounting Former CFO at Victoria Financial Corp. (VICF) Certified Public Accountant 100 years collective experience in private equity and mezzanine investments over three decades |
Table of Contents
|
BBDC's Board - Experienced, Independent, Committed to Value Our Board: ^ Is comprised of 8 experienced Directors - 50% of whom are independent ^ Has held 12 meetings over the last 12 months ^ Has carefully considered a full range of strategic alternatives on how best to enhance shareholder value ^ Has evaluated the strategic value of its plan with its highly experienced management team, and reviewed this with a team of top-tier, independent advisors ^ Is committed to enhancing BBDC shareholder value |
Table of Contents
|
BBDC's Corporate Governance Structure BBDC Review and approve long-range strategy and one-year operating plans ^ Required to have a majority of disinterested directors ^ Required to have a code of ethics ^ Ensure that the Audit Committee is composed entirely of independent directors ^ Ban interlocking directorships ^ Performs an independent review of investment valuations quarterly ^ Performs an independent review of new investments prior to funding ^ Required to have an independent third party custody arrangement for securities owned ^ Required to have a fidelity bond ^ |
Table of Contents
|
Our Business Model We operate as a business development company or ("BDC") 70% of our assets must be invested in small, private businesses, which are primarily illiquid We provide significant managerial assistance to portfolio companies As a BDC, we are a "1934 Act" registrant We are a Regulated Investment Company ("RIC") for tax purposes We are required to pay out at least 90% of our taxable income to stockholders We generally pay no corporate level income tax |
Table of Contents
|
Our Portfolio Companies Portfolio Company Name Industry Disposable Products Company, LLC Paper and non-woven materials Fitness Quest, Inc. Fitness and consumer products Flight Options International, Inc. Fractional jet ownership Health Care Solutions, Inc. Home health care The Holland Group, Inc. Temporary staffing National Rehab Partners, Inc. Outsourced rehabilitation management Pediatric Physicians Alliance, Inc. Pediatric physician and medical office management Petroleum Partners, Inc. Petroleum - outsourced services Prime Office Products, Inc. Office products Streamline Foods, Inc. Food processing sugar containing products Value Creation Partners, Inc. Baked goods products |
Table of Contents
|
Brantley Criteria: Target Companies Focus on companies With revenues greater than $25 million Operating in stable industries With favorable financial performance for at least five years With experienced management team In a growing industry Targets are generated through both top-down and bottom-up analysis, not dependent on auctions Originating/lead investor |
Table of Contents
|
Brantley Criteria: Target Industries Greater than $5 billion of industry revenues Fragmented - large number of industry participants Limited capital intensity Strong internal growth dynamics augmented by growth through selective acquisitions Superior operating margins |
Table of Contents
|
Equity Transaction Structure Attractive initial pricing 8% to 10% dividend yield that accumulates and is paid upon a liquidity event Includes participating preferred with control of corporate governance issues Multiple exit alternatives (IPO, strategic sale, financial sale) |
Table of Contents
|
Sample Portfolio Company: Flight Options International, Inc. Company Description - Flight Options International, Inc., formerly Corporate Wings, Inc., headquartered in Cleveland, Ohio, provides complete private air travel service through the sale of fractional interests in new and pre-owned jet aircraft. Initial investment of $2.1 million in 1997. Subsequent investment total approximately $2.5 million. Since 1997, annual revenues have grown from approximately $35 million to a current run rate of over $900 million. In December 2001, Company merged with Raytheon Travel Air. Combined, the Company will employ more than 1,500 individuals including 900 pilots with an owner base of more than 1,600 and a fleet of 200 aircrafts. Meeting the Investment Template Experienced management team Strong internal growth Large, growing industry |
Table of Contents
|
Sample Portfolio Company: Fitness Quest, Inc. Company Description - Fitness Quest, Inc., headquartered in Canton, Ohio, is a leading domestic marketer and distributor of a broad range of fitness and consumer products. Initial investment of $1.35 million in 1997. Subsequent investment total approximately $1.97 million. Since 1996, annual revenues have grown from approximately $61 million to a current run rate in excess of $140 million. In 2002, Company hired an investment banking firm to evaluate strategic alternatives for Fitness Quest, which is expected to lead to near-term liquidity event at a multiple of our cost basis. Meeting the Investment Template Experienced management team Low capital intensity/cyclicality Large, growing industry |
Table of Contents
|
Sample Portfolio Company: Prime Office Products, Inc. Company Description - Prime Office Products, Inc., headquartered in Nashville, Tennessee, is an office products marketing and distribution company focused on commercial customers with 20 to 200 seated employees. Initial investment of $1.02 million in 1999. Subsequent investment total approximately $400,000. Since 1999, annual revenues have grown from approximately $29 million to a current run rate of in excess of $80 million. Meeting the Investment Template Experienced management team Low capital intensity Large, fragmented industry |
Table of Contents
|
Our Company's Performance: Annual NAV and Dividend Levels We are pleased with the performance of our 11 portfolio companies and expect that liquidity opportunities will begin to present themselves as the portfolio matures. 1996 1997 1998 1999 2000 2001 Ending Net Asset Value 10 11.26 13.12 13.76 13.63 17.85 Annual Dividend 0 0.12 0.01 0.46 0.62 0.19 NAV HAS INCREASED FROM $10.00 TO $17.85, A 78% INCREASE SINCE INCEPTION OF THE COMPANY |
Table of Contents
|
Our Company's Performance: Stock Price 31/03/1999 30/06/1999 30/09/1999 31/12/1999 31/03/2000 30/06/2000 30/09/2000 31/12/2000 31/03/2001 30/06/2001 30/09/2001 31/12/2001 31/03/2002 30/06/2002 15/08/2002 DJIA 0 12.11 5.63 17.48 11.61 6.76 8.84 10.23 0.95 7.32 -9.59 2.4 6.31 -5.55 -10.12 S&P 500 0 6.71 -0.28 14.22 16.5 13.08 11.67 2.64 -9.8 -4.82 -19.08 -10.75 -10.8 -23.05 -27.83 BBDC 0 3.51 4.39 12.28 50.88 22.81 21.05 21.05 12.28 31.23 18.18 52.84 45.12 33.33 15.79 ALD 0 30.61 22.11 -0.34 -5.1 -7.48 12.93 13.61 9.52 25.99 23.81 41.5 49.66 23.27 26.6 ACAS 0 6.57 8.03 32.85 48.18 39.42 38.32 47.08 48.54 63.85 59.94 65.55 80.79 60.41 34.25 Data Ending 08/15/02 |
Table of Contents
|
Brantley Business Strategy To date, provided capital to private companies, including private equity and, to a lesser extent, mezzanine investments. Brantley stock has traded at a discount to net asset value (NAV). Management and Board are committed to reducing this discount. The Company has explored various strategic alternatives to enhance stockholder value. The Board of Directors determined that the best way to enhance stockholder value is to grow our portfolio by investing new capital primarily in mezzanine investments. |
Table of Contents
|
The Rationale for Mezzanine Investments Mezzanine investments provide investors with a component of current income, which tends to be reflected in a higher stock price, and higher returns to stockholders. Due to current market conditions, including more stringent credit standards of commercial banks and more conservative capital structures sought by entrepreneurs and equity sponsors, there is an increased opportunity for companies like Brantley to make mezzanine investments. Yield oriented BDCs tend to have stock prices that exceed NAV. |
Table of Contents
|
Market Environment Stock Performance of Yield-Focused BDCs vs. The Market 31/03/2000 30/06/2000 30/09/2000 31/12/2000 31/03/2001 30/06/2001 30/09/2001 31/12/2001 31/03/2002 30/06/2002 15/08/2002 Average Yield 0 -2.3 4.4 1.6 -4.9 2.4 -1.9 2.5 8.7 -8.3 -17.5 DJIA 0 -4.3 -2.5 -1.2 -9.6 -3.8 -19 -8.2 -4.7 -15.4 -19.5 S&P 500 0 -2.9 -4.1 -11.9 -22.6 -18.3 -30.5 -23.4 -23.4 -33.9 -38.1 Yield BDCs: ACAS, ALD, TAXI, PMC Equity BDCs: BBDC, CSWC, EQS, TINY Data Ending 08/15/02 |
Table of Contents
|
Market Environment Stock Price Performance of Yield vs. Equity-Focused BDCs 31/03/2000 30/06/2000 30/09/2000 31/12/2000 31/03/2001 30/06/2001 30/09/1931 31/12/2001 31/03/2002 30/06/2002 15/08/2002 Average Yield 0 -2.3 4.4 1.6 -4.9 2.4 -1.9 2.5 8.7 -8.3 -17.5 Average Equity 0 -4.3 -6.9 -21.3 -8.8 -7.6 -12.3 -4.9 0.8 -3.7 -8.4 Yield BDCs: ACAS, ALD, TAXI, PMC Equity BDCs: BBDC, CSWC, EQS, TINY Data Ending 08/15/02 |
Table of Contents
|
Historical Trading Multiples 31/03/1999 30/06/1999 30/09/1999 31/12/1999 31/03/2000 30/06/2000 30/09/2000 31/12/2000 31/03/2001 30/06/2001 30/09/2001 31/12/2001 31/03/2002 Yield 1.51 1.78 1.72 1.54 1.48 1.47 1.59 1.51 1.43 1.44 1.37 1.39 1.48 Equity 0.78 0.78 0.88 1.02 1.37 1.06 0.93 0.69 0.73 0.77 0.68 0.74 1.04 Yield BDCs: ACAS, ALD, TAXI, PMC Equity BDCs: BBDC, CSWC, EQS, TINY |
Table of Contents
|
Our Plan To Generate Capital for Mezzanine Investments We have approved a preliminary plan to raise approximately $10 million in new equity through a rights offering, minimizing dilution to stockholders. Each stockholder would receive 1 right for every 3 shares held. Rights will be transferable and can be sold. We intend to file an application with the SBA to become a Small Business Investment Company or SBIC, thereby leveraging the new equity capital to further minimize dilution to stockholders. |
Table of Contents
|
Rights Offering A stockholder friendly plan which allows a stockholder to reduce or minimize its dilution. It only takes a reduction in the discount from 52% to 44% to make up for the possible dilution of stockholders that do not exercise their rights. $30 million mezzanine portfolio should generate dividend yields attractive to institutional investors. Plan has been approved by the Board of Directors. |
Table of Contents
|
Target Mezzanine Investment Revenues greater than $25 million Superior EBITDA margins Predictable and sustainable cash flow from operations Strong tangible assets Reasonable financial leverage relative to cash flow from operations Reasonable prospects to retire at least 50% of their senior indebtedness within 3 years "Growth Capital" focus (i.e., internal revenue growth 10-11% annually) Target "sponsorless" transactions with relationship oriented management teams Investment horizon: 3-5 years |
Table of Contents
|
Target Mezzanine Transaction Structure Subordinated Debt with warrants Current pay coupon of 12 to 18% "Cash/PIK" coupon - additional 3-4% payable every 18 months in lieu of warrant coverage Detachable Warrant Strict financial/operating covenants - governed typically by intercreditor agreement with senior lender Cash flow coverage / leverage test Corporate governance controls / board representation Warrant "Put" at a fixed multiple of EBITDA Disciplined underwriting standards Focus on familiar, basic industries Focus on companies with proven cash flow Prudent level of debt (not an issue in current environment) Due diligence, due diligence, due diligence... |
Table of Contents
|
Annual Deal Flow Identify 40-50 Prospects Identify 100 Prospects Receive 800 Deals Close 4 Equity Investments Close 10 Mezzanine Investments |
Table of Contents
|
Our Goals Management's primary goal is to enhance stockholder value. We are pursuing a strategy that we expect will reduce the discount between NAV and Brantley's stock price and allow us to pay a dividend. We believe our business plan is the best course of action to deliver value to our stockholders. |
Table of Contents
|
Proposals of Dissident Stockholder Philip Goldstein has initiated a proxy contest with the stated goal of liquidating Brantley Mr. Goldstein is a known dissident in the closed-end fund community. He has waged numerous costly and disruptive proxy contests in the past. He is a self-interested dissident who has a track record of looking only after his own interest, usually at the expense of other stockholders. He has specifically expressed a desire to be bought out in a private transaction at a premium to the current market price without any consideration to the rest of the stockholders. The Board has serious concerns about the qualifications of the Dissident Nominees given their lack of experience with BDC's We don't believe Mr. Goldstein understands the consequences of liquidating Brantley. Management and the rest of the Board support a mezzanine investment strategy that they believe is a realistic and market-tested formula for enhancing the value to stockholders of business development companies. Mr. Goldstein, on the contrary, has failed to provide both a substantive rationale for his proposal and data on the effects of his proposal. |
Table of Contents
|
Liquidation Is Not A Viable Option For Brantley Brantley invests primarily in privately issued, illiquid securities. A premature sale of Brantley's investments would likely generate far lower proceeds than could be realized from an orderly exit consistent with long term objectives. Putting a "For Sale" sign on the portfolio companies will harm those companies by seeding doubts among customers and suppliers about their future viability. We believe a premature liquidation could also have an adverse impact on a portfolio company's management and employees that could further diminish a portfolio company's value Management's planned goal is to increase the stock price to a premium of its NAV thereby enhancing a stockholders investment value. We believe Mr. Goldstein's liquidation plan proposal would harm the value of a stockholder's investment. |
Table of Contents
|
Brantley's Advisory Fees Are Fair and Customary Mr. Goldstein also is calling for termination of Brantley's advisory agreement because he believes the fee is too high. The 2.85% fee paid by Brantley creates an expense ratio at the low end of the range when compared to other BDCs. Our expense ratio is more than 20% lower than the average of comparable companies Our expense ratio is more than 33% lower than comparable companies with market cap of less than $100 million Because the management company of Brantley receives fees from other funds, Brantley stockholders benefit from a much larger professional staff than would otherwise be possible. Brantley has co-invested in a number of portfolio companies with other related funds. Without the advisory relationship, Brantley Capital would lose its ability to manage its existing portfolio companies. |
Table of Contents
|
BDC Expense to NAV Comparison EXPENSES TO NAV MARKET CAP (in millions) Brantley Capital 3.46% 34 Allied Capital 3.32% 2,343 American Capital Strategies 3.48% 1,078 Medallion Financial 9.77% 77 Gladstone Capital 2.00% 175 PMC Capital 8.24% 73 MeVC Draper Fisher 2.90% 135 Equus II, Inc. 3.44% 43 Harris & Harris 4.22% 20 Average 4.54% 442 Average of Market Caps < $100 Mil 5.83% Average of Market Caps > $100 Mil 2.93% Of the companies less then $100 million in size, Brantley Capital has one of the lowest expense ratios. |
Table of Contents
|
Brantley's Director Nominees Are Highly Qualified To Help
Ensure The Company's Long-term Success The Board strongly believes that its two director nominees, James P. Oliver and Benjamin F. Bryan, are highly qualified to execute Brantley's strategy and business plan. Our directors have considerable experience with Brantley Capital and are fully committed to actively assisting Brantley to help ensure the Company's long-term success. James P. Oliver Partner with law firm of Squire, Sanders & Dempsey L.L.P. Past member of Squire, Sanders' Management Committee Practice focuses on general corporate and board matters Brantley Director since 1998 30+ years of broad experience with middle market companies Benjamin F. Bryan President of Owl Properties Company, a real estate brokerage and management company Partner in Synergy Capital of Colorado LLC, a real estate investment and development entity Previously served as Executive Vice President and a director of The Tower Properties Company Has held a series of public policy and public administration positions Former Managing Director at Ernst & Young Brantley Director since 1996 |
Table of Contents
|
Summary Management and the Board believe they have developed the best plan to enhance stockholder value Brantley has a disciplined investment approach Brantley has consistently achieved increases in NAV Brantley is pursuing a mezzanine investment strategy that we expect to provide further value to stockholders Goldstein's proposals are short sighted, self-serving and would only harm stockholder value |
Table of Contents
|
Disclosure Regarding Forward-Looking Statements Information contained in this presentation may contain "forward-looking statements" which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "estimate" or "continue" or the negative thereof or other variations or similar words or phrases. These statements are subject to inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results and conditions to differ materially from those projected in these forward-looking statements, and these factors are enumerated in the Company's periodic filings with the Securities and Exchange Commission. |