PROXY
STATEMENT
FOR A SPECIAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 2, 2017
This
Proxy Statement is furnished in connection with the solicitation by the Board of Directors (the “
Board
”) of
Crossroads Capital, Inc., a Maryland corporation (the “
Company
,” “
we
” or “
us
”),
of proxies to be voted at a Special Meeting of Stockholders to be held on June 2, 2017 at 10:30 A.M. Central Time at 128 N. 13
th
Street, #1100, Lincoln, NE 68508, or any adjournment thereof (the “
Special Meeting
”). The date on which
this Proxy Statement and the enclosed form of proxy are first being sent or given to our stockholders is on or about April 24,
2017.
PURPOSES
OF THE MEETING
The
Special Meeting will be held for the purposes of:
|
(1)
|
To
authorize the withdrawal of the Company’s election to be regulated as a business
development company (“
BDC
”) under the Investment Company Act of 1940,
as amended (the “
1940 Act
”) (“
PROPOSAL 1
”);
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|
(2)
|
To
approve any adjournments of the special meeting (i) to permit time to voluntarily delist
the Company from NASDAQ and to begin the process of implementing
PROPOSAL 1
and
(ii) to solicit additional proxies if there are not sufficient votes at the special meeting
to approve
PROPOSAL 1
or
PROPOSAL 3
or the other transactions contemplated
by such proposals (“
PROPOSAL 2
”); and
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|
(3)
|
To
authorize a Plan of Liquidation (the “
Plan
”) to convert the Company
into a liquidating trust for the purpose of liquidating and distributing the Company’s
assets (“
PROPOSAL 3
”), if
PROPOSAL 1
is approved.
|
The
stockholders will also transact such other business as may properly come before the meeting and any adjournment thereof.
The
Board unanimously recommends that the stockholders vote
FOR
each of
PROPOSALS 1, 2 and 3.
VOTING
AT THE MEETING
The
record date for the Company’s stockholders entitled to notice of, and to vote at, the Special Meeting is the close of business
on April 3, 2017 (the “
Record Date
”). As of the Record Date, we had outstanding and entitled to vote at the
Special Meeting 9,563,130 shares of common stock. The presence, in person or by proxy, by the holders of a majority of our common
stock shares entitled to be cast at the Special Meeting is necessary to constitute a quorum. In deciding all questions, a stockholder
shall be entitled to one vote, in person or by proxy, for each share of common stock held in the stockholder’s name at the
close of business on the Record Date.
In
order to be approved,
PROPOSAL 1
requires the affirmative vote of a majority of the outstanding shares of common stock
entitled to vote at the Special Meeting. Pursuant to the 1940 Act, the affirmative vote of “a majority of outstanding shares
entitled to vote” for purposes of
PROPOSAL 1
means the affirmative vote of (i) 67% or more of the shares present
at the Special Meeting, if the holders of 50% or more of our outstanding voting securities are present or represented by proxy
or (ii) more than 50% of our outstanding voting securities, whichever is less. In order to be approved,
PROPOSAL 2
requires
the affirmative vote of a majority of the votes cast at the Special Meeting.
If
PROPOSALS 1
and
2
are approved, the Company intends to adjourn the Special Meeting in order to file a Form 25 with
the SEC in order to voluntarily delist the Company from NASDAQ and to begin the process of the Company withdrawing as a BDC under
the 1940 Act. The Company will reconvene the Special Meeting upon the effectiveness of the Company’s delisting from NASDAQ,
such that the Company’s securities will no longer be deemed “Covered Securities” under Section 18 of the Securities
Act of 1933, as amended, and per the Company’s Articles of Amendment and Restatement (as amended, the “
Articles
”)
PROPOSAL 3
will require the affirmative vote of a majority of the outstanding shares entitled vote at the Special Meeting.
If
PROPOSALS 1
and
2
are not approved and the Company’s delisting from NASDAQ is not effective, per the Articles
PROPOSAL 3
would require the affirmative vote of 80% of the outstanding shares entitled to vote at the Special Meeting.
Moreover, if
PROPOSAL 1
is not approved but
PROPOSAL 3
is approved by the affirmative vote of 80% of the outstanding
shares entitled to vote at the Special Meeting, the Company will postpone implementation of the Plan and seek stockholder approval
of
PROPOSAL 1
again at a later date while proceeding with the orderly sale of its assets pursuant to the Investment Objective.
Effect
of Abstentions
An
abstention is counted as a vote present and entitled to be cast for purposes of quorum, but is not counted as a vote cast at the
Special Meeting. Therefore, an abstention for
PROPOSAL 1
will have the effect of a vote
against
PROPOSAL 1
because the approval of
PROPOSAL 1
requires either the affirmative vote of 67% or more of all shares present at the meeting
(assuming a quorum) or more than 50% of our outstanding voting securities, whichever is less. Similarly, an abstention for
PROPOSAL
3
, which will require either the affirmative vote of a majority or 80% of the outstanding shares entitled to vote, will have
the effect of a vote
against
PROPOSAL 3
.
An
abstention for
PROPOSAL 2
will have no effect because
PROPOSAL 2
requires a majority of votes cast at the Special
Meeting and an abstention is not a vote cast.
Effect
of Broker Non-Votes
Certain
of our shares are held in “street” or nominee name in accounts with banks and broker-dealers. These banks and broker-dealers
are not permitted to vote such shares except (i) with voting instructions from the beneficial owners of such shares or (ii) on
“routine” matters without instructions from the beneficial owners exercising its discretionary authority. A “broker
non-vote” is a vote that is not cast on a non-routine matter because the bank or broker-dealer does not have discretionary
authority and has not received instructions from the beneficial owner. Because there are no routine matters for stockholder approval
at the Special Meeting, we do not expect there to be any broker non-votes and any shares held in street name for which banks or
broker-dealers have not received written instructions will be treated as shares held by a holder of our shares who is not present
at the Special Meeting in person or by proxy.
As a result, if you hold your shares in street name and fail to deliver
written instructions to your bank or broker-dealer, your shares will not be counted for purposes of determining quorum. We urge
you to contact your bank or broker-dealer to ensure that your bank or broker-dealer has received sufficient written instruction
from you to vote your shares at the Special Meeting.
Moreover,
if you hold your shares in street name and fail to deliver written instructions to your bank or broker-dealer at the meeting,
you will also have failed to vote. If the affirmative vote of 67% or more of all shares present at the Special Meeting having
a valid quorum is required for
PROPOSAL 1
, failure to vote will have no effect on
PROPOSAL 1
(because your shares
would not be considered “present” at the meeting). If, however, the affirmative vote of more than 50% of our outstanding
voting securities is required for
PROPOSAL 1
(either because 50% or more of our outstanding voting securities are not present
or represented by proxy at the Special Meeting or because the affirmative vote of 50% of our outstanding voting securities would
be less than 67% of all shares present at the Special Meeting), your failure to vote will count as a vote
against
PROPOSAL
1
. Failure to vote will have no effect on
PROPOSAL 2
and will have the effect of voting
against
PROPOSAL 3
.
Each
proxy delivered to us, unless the stockholder otherwise specifies therein, will be voted FOR each of
PROPOSALS 1-3
. This
Proxy Statement and our Annual Report for the fiscal year ended December 31, 2016 are available at
www.xroadscap.com
for
your viewing. You may access those proxy materials any time beginning April 17, 2017.
In
each case where the stockholder has appropriately specified how the proxy is to be voted, it will be voted in accordance with
this specification. As to any other matter or business which may be brought before the meeting, a vote may be cast pursuant to
the accompanying proxy in accordance with the judgment of the person or persons voting the same, but neither our management nor
the Board knows of any such other matter or business. Any stockholder has the power to revoke his proxy at any time insofar as
it is then not exercised by giving notice of such revocation, either personally at the meeting or in writing, to Secretary, Crossroads
Capital, Inc., 128 N. 13
th
Street, Suite #1100, Lincoln, Nebraska 68508, or by the execution and delivery to us of
a new proxy dated subsequent to the original proxy.
Neither
the U.S. Securities and Exchange Commission nor any state securities commission have approved or disapproved of the Trust Units
(defined below) or determined if this proxy statement is truthful or complete. Any representation to the contrary is a criminal
offense.
Crossroads
Capital, Inc. (the “
Company
”) was incorporated on May 9, 2008, under the laws of the State of Maryland and
is an internally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC
under the 1940 Act, as of November 20, 2008. Effective December 2, 2015, we changed our name from BDCA Venture, Inc. to Crossroads
Capital, Inc. Effective January 1, 2010, we elected to be treated for U.S. Federal income tax purposes as a regulated investment
company (“
RIC
”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “
Code
”).
We also commenced our portfolio company investment activities in January 2010. The shares of our common stock have been listed
on the Nasdaq Capital Market since December 12, 2011.
Recent
Changes in the Company’s Governance and Investment Objective
At
our 2015 Annual Meeting of Stockholders held on July 9, 2015, our stockholders elected Richard Cohen, Andrew Dakos, Gerald Hellerman
and Timothy Keating to serve as our directors until the 2016 Annual Meeting of Stockholders or until their respective successors
are duly elected and qualified. Additionally, at the 2015 Annual Meeting, our stockholders approved a proposal to have our Board
of Directors (the “
Board
”) consider adopting a plan to “maximize shareholder value within a reasonable
period of time.”
On
October 5, 2015, the Board approved the termination of the Investment Advisory and Administrative Services Agreement dated July
1, 2014 (the “
Investment Advisory Agreement
”) between the Company and our then investment adviser, BDCA Venture
Adviser, LLC. The effective date of termination of the Investment Advisory Agreement was December 6, 2015. Also on October 5,
2015, the Board determined that we would no longer make investments in new venture capital-backed or high growth companies and
would shift our focus to the orderly monetization of our holdings.
On
November 13, 2015, the Board approved the engagement of 1100 Capital Consulting, LLC (our “
Administrator
”)
to provide administrative consulting services to us, including the provision of personnel to act as certain of our executive officers,
including the Chief Executive Officer and Chief Financial Officer.
Effective
December 2, 2015, the Board appointed Ben H. Harris to serve as our Chief Executive Officer and President, David M. Hadani to
serve as our Chief Financial Officer, Treasurer and Secretary, both representatives of the Administrator, and Stephanie L. Darling
to serve as our Chief Compliance Officer.
Effective
January 20, 2016, the Board changed our investment objective to preserve capital and maximize stockholder value by pursuing the
sale of our portfolio investments, limiting expenses and deploying surplus cash as appropriate, including into yielding investments
to offset, in part, operating expenses (our “
Investment Objective
”).
On
March 25, 2016, the Board resolved to monetize our portfolio holdings at the earliest practicable date.
On
April 27, 2016, the Board terminated the engagement of US Bancorp Fund Services, LLC and shifted the responsibility for administration
and accounting services to the Administrator.
Effective
June 30, 2016, Mr. Richard Cohen resigned as a director and Mr. Phillip Goldstein was appointed as a director to fill the vacant
board seat.
As
of the Record Date, the Company has successfully liquidated all of its publicly-traded portfolio investments, as well as 1,338,302
shares of Series D preferred stock in Metabolon, Inc. and its entire positions in Centrify Corporation and SilkRoad, Inc.
Determination
to Withdraw from Election to be Regulated as a BDC
On
May 3, 2016, the Board approved, subject to stockholder approval as required under Section 58 of the 1940 Act, voluntarily withdrawing
the Company from its election to be regulated as a BDC under the 1940 Act by filing a Form N-54C with the U.S. Securities and
Exchange Commission (“
SEC
”). The Board determined that the withdrawal from its BDC election furthers the Investment
Objective because of the decrease in operating expenses associated with no longer being subject to certain of the regulations
applicable to BDCs and to being listed on NASDAQ.
Generally,
to be eligible to elect to be regulated as a BDC under the 1940 Act, the Company is subject to a number of requirements under
the 1940 Act, including, among other things, requirements that (i) we not acquire any asset other than assets of the type listed
in Section 55(a) of the 1940 Act (“qualifying assets”), unless at the time the acquisition is made qualifying assets
represent at least 70% of the Company’s total assets; (ii) we offer to extend significant managerial assistance to our portfolio
securities that count as qualifying assets; (iii) the Board consist of a majority of independent directors, (iv) we not engage
in transactions with affiliated parties except under certain circumstances; (v) we not change the nature of our business or our
fundamental investment policy without the approval of a majority of our stockholders; (vi) our assets be held with a qualified
custodian, (vii) we obtain fidelity bond protection, (viii) we maintain a minimum amount of assets compared to our debt, (ix)
limit our ability to issue senior securities, and (x) we not issue stock below NAV without stockholder approval.
As
a BDC, the Company is subject to regulation under the 1940 Act and incurs significant general and administrative expenses in order
to comply with regulations imposed by the 1940 Act on BDCs. The Company utilizes a multi-step valuation process each quarter,
which may include consulting with an independent valuation firm. Management devotes considerable time to issues relating to compliance
with the 1940 Act and the Company bears the cost of compliance, including significant accounting and legal fees. For example,
for the years ending December 31, 2016, and December 31, 2015, the Company incurred $1,541,282 and $1,103,030, respectively, in
professional, administrator and chief compliance officer fees. The Board believes the resources now being utilized on compliance
with the regulations applicable to BDCs under the 1940 Act could better and more efficiently be utilized to pursue the sale of
our assets pursuant to the Investment Objective and to maximize the return of capital to stockholders.
Proposed
Actions
If
PROPOSAL 1
is approved and the Company proceeds to withdraw its election to be regulated as a BDC, the Company will first
voluntarily withdraw from listing on NASDAQ by filing a Form 25 with the SEC. This will require providing NASDAQ with at least
10 days’ notice of the Company’s intent to withdraw from listing and to comply with certain other requirements under
NASDAQ and SEC rules. The withdrawal will be effective 10 days following the Company’s filing of Form 25 with the SEC. The
Company’s listing on NASDAQ provides certain benefits with respect to BDC requirements under the 1940 Act. If the Company
withdraws its election to be regulated as a BDC, the Board believes the benefits offered by being listed on NASDAQ are outweighed
by the operating expenses associated with being a listed company and the risk of future market volatility, particularly given
the Company’s Investment Objective and desire to monetize our portfolio holdings at the earliest practicable date and make
distributions to stockholders.
Moreover,
delisting from NASDAQ will also lower the stockholder approval threshold for certain significant Company actions from 80% to 50%
under the Company’s Articles, which the Board also believes will ensure implementation of the Investment Objective in an
efficient manner. If
PROPOSALS 1
and
2
are approved, the Company intends to adjourn the meeting in order to implement
PROPOSAL 1
as described above by voluntarily delisting its securities from NASDAQ and beginning the process to implement
the Company’s withdrawal as a BDC under the 1940 Act.
Determination
to Enter into the Plan and Convert the Company into the Liquidating Trust
On
May 3, 2016, the Board also approved, subject to stockholder approval, the implementation of the Plan of Liquidation, attached
to this proxy statement as
Appendix A
(hereinafter, the “
Plan
”), and the conversion of the Company into
a liquidating trust for the sole purpose of liquidating and distributing the Company’s assets to its stockholders. The Company’s
portfolio assets are illiquid and realizing the Investment Objective may take several years to accomplish. Even if the Company
is no longer subject to certain of the limitations and compliance costs associated with BDCs, the Company’s common stock
is registered under the 1934 Act. Registration under the 1934 Act imposes costs associated with preparing and filing periodic
reports (which cost is increasing due to enhanced reporting requirements adopted by the SEC), complying with proxy solicitation
regulations, and filing audited financial statements with the SEC annually. The Company has adopted the Plan and recommends it
for approval to the Company’s stockholders at the Special Meeting because it believes that converting the Company into the
Liquidating Trust is the a cost-efficient manner to achieve the Investment Objective.
The
Company believes it can rely on no-action relief granted by the SEC staff in the past to similarly-situated liquidating trusts
(the “
Precedent
”) to file limited reports under the 1934 Act while the Liquidating Trust completes the process
of liquidating the Company’s portfolio assets and realizing the Investment Objective. The Company believes it can rely on
no-action relief granted by the SEC staff in the past to similarly-situated liquidating trusts (the “
Precedent
”)
to file limited reports under the 1934 Act while the Liquidating Trust completes the process of liquidating the Company’s
portfolio assets and realizing the Investment Objective. During this time, the Liquidating Trust will file with the SEC annual
reports showing the assets and liabilities of the Liquidating Trust at the end of each calendar year and its receipts and disbursements
for the period. The annual reports will also describe the changes in the Liquidating Trust’s assets during the reporting
period and the actions taken by the Trustees during the period. The financial statements contained in such reports will be prepared
in accordance with generally accepted accounting principles and will be reviewed by the Liquidating Trust’s independent
registered public accounting firm; however, consistent with the Precedent, it is not contemplated that the financial statements
will be audited by independent registered public accountants. The annual reports will be filed with the SEC under cover of Form
10-K using the Company’s SEC file number. Additionally, consistent with the Precedent, the Liquidating Trust will file with
the SEC a current report under cover of Form 8-K using the Company’s SEC file number whenever an event occurs for which
Form 8-K requires such report to be filed for the Liquidating Trust or whenever, in the opinion of the Trustees, any other material
event relating to the Liquidating Trust’s assets has occurred. You will be able to access such information once it is filed
at the SEC’s website at
www.sec.gov
. It is not presently contemplated that the Liquidating Trust would file quarterly
reports under cover of Form 10-Q.
Proposed
Actions
If
the stockholders approve
PROPOSALS 1
and
2
, the Company intends to reconvene the Special Meeting after the effectiveness
of its delisting from NASDAQ to ask the stockholders to approve
PROPOSAL 3
. If the stockholders approve
PROPOSALS 1
and
3
, the Company shall execute the Articles of Conversion and Certificate of Trust and file them with the State of
Maryland, converting the Company into Crossroads Liquidating Trust, a Maryland statutory trust (the “
Liquidating Trust
”)
and make effective the Company’s withdrawal of its election to be regulated as a BDC under the 1940 Act on Form N-54C. The
Company and the trustees of the Liquidating Trust shall also execute and deliver the Liquidating Trust Agreement, a copy of which
is attached as
Exhibit A
to the Plan (the “
Liquidating Trust Agreement
”) and each stockholder of the
Company will receive one unit of beneficial interest in the Liquidating Trust for each share of common stock held by such stockholder
on the date of conversion. The Liquidating Trust will then proceed with the orderly liquidation and distribution of the Company’s
portfolio assets in order to maximize stockholder value in accordance with the Liquidating Trust Agreement and the Investment
Objective. The Liquidating Trust is described in more detail below under “Liquidating Trust Agreement”.
If
PROPOSALS 1
and
2
are not approved by the stockholders, or if the Company does not receive sufficient votes in favor
of
PROPOSALS 1
and
3
, the Company intends to continue to proceed with the orderly sale of its assets pursuant to
the Investment Objective.
Important
Considerations in Approving PROPOSALS 1 and 3
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●
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The
Liquidating Trust Will Implement a Cash Distribution Following Conversion
|
As
set forth more fully in the Liquidating Trust Agreement, subject to final approval by the trustees, we anticipate the Liquidating
Trust will make a cash distribution to the holders of beneficial interests in the Liquidating Trust shortly after conversion of
the Company into the Liquidating Trust. The Company currently anticipates this distribution will be no less than $1.60 per unit
of beneficial interest in the Liquidating Trust (the “
Special Distribution
”).
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●
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Failure
to Approve PROPOSALS 1 and 3 Will Significantly Impact the Company’s Ability to
Complete the Orderly Sale of its Assets
|
If
PROPOSALS 1
and
3
are not approved by the Company’s stockholders, the Company intends to continue to proceed
with the orderly sale of its assets pursuant to its current Investment Objective. However, because the Company will remain subject
to regulations as a BDC under the 1940 Act, and remain a listed on NASDAQ, it will continue to incur significant expense complying
with such regulatory requirements. The Board believes that the resources utilized for compliance could better, and more efficiently,
be utilized and that the Company could ultimately return more capital to stockholders by withdrawing from election to be regulated
as a BDC, implementing the Plan and converting to the Liquidating Trust.
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●
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The
Company Cannot Provide an Expected Value That Beneficial Holders Under the Liquidating
Trust Will Receive Upon Liquidation of its Assets
|
The
Company cannot currently estimate the expected value the Liquidating Trust will receive for the assets. As of December 31, 2016,
our net asset value per common share was estimated as $2.96 per share; however, 100% of our portfolio investments are in the form
of securities that are not publicly traded, and the final value of these assets may differ materially from the fair values that
compose our net asset value as of December 31, 2016. It is possible that the final liquidation value of our portfolio investments
may be substantially less than the value an investor might receive from pursuing a strategy of holding such investments through
any potential initial public offering. Moreover, as we actively seek to sell our investments, it is possible that the amounts
realized upon the sale of our investments may be less than the determined value of the assets held by the Company upon conversion
into the Liquidating Trust, see “Federal Income Tax Considerations” below. The closing price of our stock on April
13, 2017, was $2.16 and we strongly encourage stockholders to obtain current market quotations for the Company’s shares
of common stock and to consider that the amounts realized on the sale of our portfolio investments may be less than the values
stated in the Company’s most recent financial statements in determining whether to vote in favor of
PROPOSALS 1
and
3
.
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●
|
Withdrawal
of Election to be Regulated as a BDC May Eliminate Certain Requirements Intended to Protect
the Interests of Stockholders of the Company
|
The
provisions of the 1940 Act applicable to BDCs include provisions intended to protect the interests of the stockholders of the
Company and investors in the Company’s portfolio assets, many of which will no longer be applicable if the Company withdraws
its election and proceeds with the Plan. Moreover, if the Company withdraws its election to be regulated as a BDC, the fundamental
nature of the Company’s business will change as the Company moves forward with implementing the Investment Objective. The
Company may also be subject to additional regulatory requirements under the 1940 Act and state blue sky laws if there is a limited
period between when its delisting on NASDAQ becomes effective and the effectiveness of its withdrawal as a BDC and conversion
into the Liquidating Trust. Given that this time period is expected to be very short, the Board believes the impact of these additional
regulations will not be significant, but in the event that this time period is lengthened the Company would have to comply with
any such additional regulatory requirements. Withdrawal as a BDC and the implementation of the Plan will also result in significant
changes in the Company’s methods of accounting and may have other significant tax consequences. The effect of withdrawal
as a BDC and the implementation of the Plan on the Company’s federal income tax status are discussed below under “Federal
Income Tax Considerations”.
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●
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Prior
to the Special Meeting and Obtaining the Approval of the Stockholders, the Board May
Consider Alternative Transactions
|
The
Board reserves the right to consider offers for alternative transactions prior to the Special Meeting and the stockholder vote
on
PROPOSALS 1, 2
and
3
, consistent with our Investment Objective. Although the Board currently believes that the
proposals submitted for stockholder consideration at the Special Meeting are suitable and cost-efficient to achieve the Investment
Objective, the Board may re-evaluate this position in the event a more attractive alternative is presented.
PROPOSAL
3
AUTHORIZE US TO LIQUIDATE AND DISSOLVE PURSUANT TO THE PLAN
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Introduction
As
discussed above under “Background”, the Company has adopted the Investment Objective, pursuant to which the Board
is obligated to pursue the sale of the Company’s portfolio assets, and limit expenses. As a result, the Board has determined
to seek stockholder approval (under
PROPOSAL 1
) to withdraw its election to be regulated as a BDC under the 1940 Act as
a step towards reducing the significant operating expenses associated with compliance with BDC regulatory requirements.
Moreover,
the Company has also identified the Precedent, pursuant to which the Company could further reduce future operating expenses associated
with compliance with SEC regulations while liquidating its remaining portfolio assets in the Liquidating Trust pursuant to the
Plan.
Because
it may take several years to liquidate our portfolio assets at acceptable prices and because of the benefits presented by the
Precedent and the associated additional savings by withdrawing as a BDC regulated under the 1940 Act, the Board has determined
that the conversion of the Company into the Liquidating Trust pursuant to the Plan is the best method to monetize our current
holdings and to maximize stockholder value.
Accordingly,
the Board is now proposing the complete liquidation of the Company through the adoption of the Plan. As discussed above under
“Background”, the Plan contemplates that upon stockholder approval of
PROPOSAL 1
and this
PROPOSAL 3
,
we will convert the Company into the Liquidating Trust, which would be governed by the terms and conditions of the Liquidating
Trust Agreement. The Liquidating Trust will then proceed with the orderly liquidation and distribution of the Company’s
portfolio assets in order to maximize stockholder value in accordance with the Liquidating Trust Agreement and the Investment
Objective.
The
Liquidating Trust
If
we receive stockholder approval of
PROPOSAL 1
and this
PROPOSAL 3
, then we will convert the Company into a liquidating
trust consistent with the terms of the Precedent. The Liquidating Trust will be governed by the Liquidating Trust Agreement, the
material terms of which are summarized in this proxy statement and which is attached to the Plan as
Exhibit A
. You should
review the Liquidating Trust Agreement to understand your rights thereunder.
Consistent
with the Plan, at the time the Articles of Conversion and Certificate of Trust are filed and effective with the State of Maryland
(the “
Conversion Date
”), each Company stockholder (a “
Beneficiary
”) will receive a pro-rata
beneficial interest in the assets of the Liquidating Trust (“
Beneficial Interest
”) equal to the stockholder’s
percentage ownership of the Company’s common stock. For ease of administration, each Beneficial Interest will be represented
in terms of units (“
Trust Units
”) — each Trust Unit equaling one share of Common Stock held by such stockholder
at the time of the conversion. The purpose of the Liquidating Trust would be to preserve the value of and sell our assets, distribute
the proceeds therefrom to the holders of Trust Units and pay any liabilities, costs and expenses.
The
trustees of the Liquidating Trust (the “
Trustees
”) will initially be a Board of Trustees, composed of Andrew
Dakos, Phillip Goldstein, and Gerald Hellerman. The Trustees will be entitled to receive compensation for their services as Trustees
comparable to the fees paid by the Company to its independent directors, consisting of reasonable meeting fees or quarterly or
annual retainer fees or a combination of such fees, as determined by the Trustees. The Company currently pays each independent
director an annual fee of $25,000 payable quarterly in advance, covering any regular or special meeting of the board or any committee
thereof; however, an additional annual fee of $10,000 is paid to the individual serving in each of the following roles: Chairman
of the Company’s Board of Directors, chairman of the Audit Committee, chairman of the Nominating Committee, chairman of
the Compensation Committee and the Company’s lead valuation director. Each Trustee will be reimbursed from the Trust Assets
for all expenses reasonably incurred, and appropriately documented, by such Trustee in the performance of that Trustee’s
duties. We estimate that the Trustees’ fees will total approximately $60,000 in the Liquidating Trust’s first year.
The
Trustees will be authorized to engage the services of other professionals to assist it in managing the Liquidating Trust’s
affairs. Upon the Conversion Date, the current Administrator Consulting Agreement between the Company and 1100 Capital Consulting,
LLC (a Nebraska limited liability company that has provided our CEO and CFO since December 2015) will terminate. It is anticipated
that the Liquidating Trust will engage NBC Trust Company, a Nebraska chartered trust company, controlled by our CEO and CFO, Ben
Harris and David Hadani, and 1100 Capital Consulting, LLC. The fees to be paid to 1100 Capital Consulting, LLC for services following
the conversion into a Liquidating Trust will be no higher than the fees currently paid by the Company for the same or similar
services. Likewise, the fees to be paid to NBC Trust Company will be the same or less than the fees paid to service providers
that provide the same or similar services as will be provided by NBC Trust Company. It is anticipated that as portfolio assets
are disposed of, the total expenses of the Liquidating Trust as a percentage of the Liquidating Trust’s value will likely
increase.
We
project that the Liquidating Trust’s estimated total annual average operating expenses, which include the Trustees’
estimated expenses, accounting, directors’ and officers’ insurance and other expenses, will be $550,000 - $650,000.
The Liquidating Trust’s actual operating expenses may be more or less than such estimate.
Under
the Liquidating Trust Agreement, Trust Units will not be transferable or assignable, except that they may be assigned or transferred
by will, intestate succession, or operation of law; provided that the executor or administrator of the estate of a holder of Trust
Units may mortgage, pledge, grant a security interest in, hypothecate or otherwise encumber the Trust Units held by the estate
of such holder if necessary in order to borrow money to pay estate, succession or inheritance taxes or to pay the expenses of
administering the estate of the holder upon written notice to and upon written consent of the Trustees. The Trust Units will not
be certificated. Trust Units will not be listed on any exchange or quoted on any quotation system, and the Liquidating Trust Agreement
provides that neither the Trustees nor anyone associated with the Liquidating Trust may take any action to facilitate or encourage
any trading in Trust Units.
The
Liquidating Trust’s activities will be specifically limited to conserving, protecting and selling its assets and distributing
the proceeds therefrom, including holding such assets for the benefit of the holders of Trust Units, enforcing the rights of the
holders of Trust Units, temporarily investing such proceeds and collecting income therefrom, providing for the liabilities of
the Liquidating Trust, making liquidating distributions to the holders of Trust Units, and taking such other actions as may be
necessary to conserve and protect the assets of the Liquidating Trust. Liquidating distributions will be made at such times as
determined by the Trustees in their sole discretion, but consideration of potential liquidating distributions shall occur no less
frequently than annually, and in any event within a reasonable period of time following the disposition of the Liquidating Trust’s
assets. The Liquidating Trust will remain subject to the restrictions under the 1940 Act from engaging in transactions with affiliated
parties except under certain circumstances.
The
Trustees will be responsible for conserving the Liquidating Trust’s assets, under duties imposed by applicable law. Since
the portfolio assets are represented by financial instruments, we anticipate that the Liquidating Trust will vault the assets
in NBC Trust Company’s headquarters in Lincoln, NE. In the event the Trustees elect to hold the Liquidating Trust’s
assets with a different institution, the Liquidating Trust will report the same by filing a report on Form 8-K.
To
the extent the Trustees invest income and proceeds prior to distribution or invests cash retained to meet the Liquidating Trust’s
expenses and liabilities, such investments will be made in (i) direct obligations of the United States of America or obligations
of any agency or instrumentality thereof which mature not later than one year from the date of acquisition thereof; (ii) money
market deposit accounts, checking accounts, savings accounts, or certificates of deposit, or other time deposit accounts which
mature not later than one year from the date of acquisition thereof which are issued by a commercial bank or savings institution
organized under the laws of the United States of America or any state thereof; or (iii) other temporary investments not inconsistent
with the Liquidating Trust’s status as a liquidating trust for federal income tax purposes.
The
Liquidating Trust will terminate upon payment to the holders of Trust Units of all of the Liquidating Trust’s assets and
in any event upon the third anniversary of the Conversion Date. The life of the Liquidating Trust may, however, be extended to
more than three years if the Trustees of the Liquidating Trust then determine that an extension is reasonably necessary to fulfill
the purposes of the trust. In summary, purposes of the Liquidating Trust (as detailed in Section 2.2 of the Liquidating Trust
Agreement) are to complete an orderly liquidation and distribution to our stockholders of trust assets. Consistent with past grants
of no-action relief by the SEC staff, the Liquidating Trust may need to apply for no-action relief from the SEC staff if the term
of the Liquidating Trust’s term must be extended. No assurance can be given that the Liquidating Trust would be able to
obtain such extension if needed, and therefore the Liquidating Trust may be required to incur additional expenses (e.g., audit,
compliance costs, insurance, costs associated with additional public filings) if its term is extended.
Under
the terms of the Liquidating Trust Agreement, holders of a majority of Trust Units may require the Trustees to call a meeting
of the holders of the Trust Units. Holders of more than two-thirds of the aggregate Trust Units may vote to remove a Trustee of
the Liquidating Trust. If a Trustee is removed or resigns, holders of a majority of Trust Units shall constitute a quorum at a
meeting of Beneficiaries and a successor Trustee will be appointed by the Beneficiaries holding Trust Units representing a majority
of the total Trust Units present at the meeting, in person or by proxy. Holders of a majority of the Trust Units may also vote
to amend the Liquidating Trust Agreement, provided that no amendment may lower the supermajority voting requirements with respect
to removal of a Trustee, increase the potential liability of the Trustees without the written consent of the Trustees, permit
the Trustees to engage in any prohibited activities, affect the holders of Trust Units’ rights to receive their pro-rata
share of property held by the Liquidating Trust at the time of final distribution, or jeopardize the status of the Liquidating
Trust as a “liquidating trust” for federal, state or local income tax purposes.
Consistent
with the Precedent discussed above, the Liquidating Trust will file with the SEC annual reports showing the assets and liabilities
of the Liquidating Trust at the end of each calendar year and its receipts and disbursements for the period. The annual reports
will also describe the changes in the Liquidating Trust’s assets during the reporting period and the actions taken by the
Trustees during the period. The financial statements contained in such reports will be prepared in accordance with generally accepted
accounting principles and will be reviewed by the Liquidating Trust’s independent registered public accounting firm; however,
consistent with the Precedent discussed above, it is not contemplated that the financial statements will be audited by independent
registered public accountants. The annual reports will be filed with the SEC under cover of Form 10-K using the Company’s
SEC file number. Additionally, consistent with the Precedent discussed above, the Liquidating Trust will file with the SEC a current
report under cover of Form 8-K using the Company’s SEC file number whenever an event occurs for which Form 8-K requires
such report to be filed for the Liquidating Trust or whenever, in the opinion of the Trustees, any other material event relating
to the Liquidating Trust’s assets has occurred. You will be able to access such information once it is filed at the SEC’s
website at
www.sec.gov
. It is not presently contemplated that the Liquidating Trust would file quarterly reports under
cover of Form 10-Q.
Your
Rights as a Trust Unit Holder Compared to Your Rights as a Stockholder
If
the proposals in this proxy statement are adopted and the Company is converted into the Liquidating Trust and Trust Units are
distributed to the Company’s stockholders, Trust Unit holders will have rights that differ from those enjoyed as a the Company’s
stockholder. For example, when the Company is no longer governed by the Maryland General Corporation Law (the “
MGCL
”),
your ability to make claims against the Liquidating Trust will be limited and you will no longer be able to bring claims as a
stockholder. Further, management of the Liquidating Trust will be solely in the hands of the Trustees, which can only be removed
upon the approval of the holders of 2/3 of the Trust Units; and only holders of a majority of Trust Units may take action under
the Liquidating Trust to call a meeting of Beneficiaries, unlike the Company, which must hold a stockholders’ meeting every
year. Finally, the chief differences a Trust Unit holder will have from owning the Company’s stock is that the Trust Units
are not transferrable, they will not be listed, there will be no trading and no market quotations will be available.
With
regard to other rights, Trust Unit holders will enjoy similar rights under the Liquidating Trust Agreement and the Maryland Statutory
Trust Act as are enjoyed as an owner of the Company’s stock. For example, as with the Company’s stock, holders of
each Trust Unit will enjoy one vote per Trust Unit, are entitled to minimum notice before any meeting of Beneficiaries, are entitled
to a pro-rata share of the Liquidating Trust’s assets, and are not liable in tort, contract or otherwise in connection with
the Liquidating Trust’s assets or affairs.
Though
more relevant to the direct question presented in
PROPOSAL 1
, because the Liquidating Trust would be operated so that it
is not an “investment company” under the 1940 Act, holders of Trust Units will not enjoy many of the protections afforded
them as the Company’s stockholders, including the requirements that (i) we not acquire any asset other than assets of the
type listed in Section 55(a) of the 1940 Act (“qualifying assets”), unless at the time the acquisition is made qualifying
assets represent at least 70% of the Company’s total assets; (ii) we offer to extend significant managerial assistance to
our portfolio securities that count as qualifying assets; (iii) the Board consist of a majority of independent directors, (iv)
we not change the nature of our business or our fundamental investment policy without the approval of a majority of our stockholders;
(v) our assets be held with a qualified custodian, (vi) we obtain fidelity bond protection, (vii) we maintain a minimum amount
of assets compared to our debt, (viii) limit our ability to issue senior securities, and (ix) we not issue stock below NAV without
stockholder approval; among other things. The Liquidating Trust will, however, remain subject to the restrictions under the 1940
Act from engaging in transactions with affiliated parties except under certain circumstances.
Federal
Income Tax Considerations
The
following is a summary of certain material United States federal income tax consequences that are generally applicable to our
stockholders and are expected to occur as a result of the conversion of the Company to the Liquidating Trust (the “
Conversion
”)
and related actions following approval of
PROPOSAL 1
,
PROPOSAL 2
and
PROPOSAL 3
. This summary is based on
the provisions of the Code, the Treasury Regulations promulgated thereunder, judicial decisions, administrative rulings and other
legal authorities, all as of the date hereof and all of which are subject to change, possibly with retroactive effect. The Company
has not requested a ruling from the Internal Revenue Service (the “
IRS
”) or opinion of counsel concerning the
United States federal income tax consequences of the Conversion and there can be no assurance that the IRS will not challenge
one or more of the legal conclusions discussed this tax disclosure.
This
discussion is included for general information purposes only, does not address any income tax consequences arising under the laws
of any state, local or foreign jurisdiction or any estate, gift, excise or other non-income tax consequences, and may not address
U.S. federal income tax considerations that may be relevant to holders of shares who, in light of their particular investment
or tax circumstances, may be subject to special tax rules, including stockholders who are not citizens or residents of the United
States or who have tax exempt status for U.S. income tax purposes (such as qualified retirement plans and 501(c)(3)) organizations.
Further, the federal income tax consequences of the Conversion to a specific stockholder will depend upon the circumstances of
the individual stockholder.
For these reasons, you should consult your own tax advisors to determine the United States federal
income tax consequences to you as a result of the Conversion.
Federal
Income Tax Consequences to the Company
The
Company has been taxed as a registered investment company (“
RIC
”) under Subchapter M of the Code due to the
Company’s prior election to be regulated as a BDC. As a result, the Company generally is not taxed on income that it earns
or on net capital gains, provided that appropriate distributions are made to the Stockholders and the Company satisfies certain
other requirements. The Company expects that it will continue to be treated as a RIC through the Conversion, so that it would
not be taxed on income or gains realized during the taxable year of the Conversion, including as a result of the Conversion.
The
Conversion
The
Conversion will constitute a liquidation of the Company for federal income tax purposes. Assuming that the Liquidating Trust is
treated as a grantor trust as described below, the federal income tax treatment of the Conversion will be determined as if the
Company distributed its net assets to the stockholders in exchange for their shares. The Company will recognize gain or loss as
if it had sold its assets at fair market value. Assuming that the Company continues to qualify as a RIC through the Conversion,
the Company does not expect to be taxed on any ordinary income it earns or any net capital gain it realizes from the deemed sale
of its assets resulting from the Conversion. If the IRS were to determine that the Company did not continue to qualify as a RIC
through the Conversion, the Company would recognize gain or loss on the Conversion equal to the difference between the fair market
value of its net assets and the Company’s adjusted basis in those assets. Based upon the Company’s determination of
the value of its assets and the Company’s existing tax loss carryforwards, the Company believes that any federal income
tax liability imposed on the Company as a result of the Conversion would be negligible.
Tax
Treatment of Liquidating Trust
The
Liquidating Trust is intended to qualify as a grantor trust for federal income tax purposes such that the separate existence of
the Liquidating Trust will be ignored and each stockholder will be treated as owning its proportionate share of each asset held
by the Liquidating Trust. To qualify as a grantor trust, the trustees of a trust may have only limited investment powers, and
may not have the power to conduct any business activities. The IRS has established certain requirements that a liquidating trust
must satisfy to obtain a ruling that it qualifies as a grantor trust. The Liquidating Trust Agreement has been prepared in substantial
compliance with the requirements established by the IRS to obtain a ruling, although the Company does not intend to seek a ruling
with respect to the Liquidating Trust. Among these requirements is that the trust does not conduct ongoing business activities.
The Liquidating Trust will own its stock in the portfolio companies in the course of the orderly dissolution of the Liquidating
Trust in a manner that it believes is consistent with the requirement that a liquidating trust not be operated as an ongoing business.
Thus, the Company expects that the Liquidating Trust will be treated as a grantor trust, although the IRS is not bound by any
position taken by the Company or the Liquidating Trust.
Assuming
that the Liquidating Trust qualifies as a grantor trust, the Liquidating Trust will not be a separate taxable entity, and thus
will not recognize income, gain or loss upon the Conversion or upon any future income or gains, including any gains realized on
the sale of its assets. Instead, the stockholders would bear the tax consequences of the Conversion, as described below.
While
the Company believes that the Liquidating Trust will qualify as a grantor trust upon the Conversion, if the Liquidating Trust
does not qualify as a grantor trust, it could be taxed as a corporation for federal income tax purposes, so that the Liquidating
Trust would pay tax on any income or gains it realizes, any transfer of assets or cash distributions by the Liquidating Trust
to the beneficiaries could be taxable to the beneficiaries with no corresponding deduction for the Liquidating Trust. This would
reduce the after-tax value of an interest in the Liquidating Trust.
Federal
Income Tax Consequences to Stockholders
Gain
and Loss Recognized by Stockholders Upon Conversion
Assuming
that the Liquidating Trust qualifies as a grantor trust that is disregarded for federal income tax purposes, each stockholder
will be deemed for federal income tax purposes to receive and become the owner of such stockholder’s proportionate share
of the assets held by the Company immediately prior to Conversion (although a stockholder will not actually hold such assets).
As a result, the Conversion will be treated for federal income tax purposes as if the Company distributed all of its remaining
assets, including the shares in the portfolio companies that the Company owns directly, each subject to the Company’s liabilities,
to the stockholders in exchange for their shares of the Company’s Common Stock. Even though the stockholder does not actually
receive any actual ownership interest in shares in the portfolio companies, a stockholder will recognize taxable gain or loss
on these deemed distributions equal to the difference between (i) the stockholder’s pro rata share of the fair market value,
net of liabilities, of the assets of the Company (including cash balances), measured at the time of the transfer, and (ii) the
stockholder’s adjusted basis in the Company’s Common Stock. A stockholder who recognizes income or gain on the Conversion
could be subject to tax even if the stockholder does not receive the cash necessary to pay the tax on any income or gain. This
gain or loss will be capital gain or loss for the stockholder if the shares of Common Stock were a capital asset in the hands
of the stockholder. Any capital gain or loss will be long-term capital gain or loss if the stockholder held the shares of the
Company’s Common Stock for more than one year. Capital gain is currently subject to favorable tax rates for individuals.
Stockholders
will compute gain or loss on a “per share” basis. The deemed distribution by the Company to a stockholder of the stockholder’s
pro rata share of the Company’s assets as a result of the Conversion will be allocated proportionately to each share of
stock owned by the stockholder. Gain will be recognized by reason of the Conversion only to the extent that the aggregate value
of the deemed distributions to a stockholder (i.e. the fair market value of net assets deemed transferred to the stockholders)
with respect to a share exceeds the stockholder’s adjusted basis in that share. Loss will be recognized to the extent the
aggregate value of the deemed distributions with respect to a share is less than the stockholder’s adjusted basis in that
share.
In
order to assist the stockholders with their income tax reporting obligations, the Company will provide stockholders with Form
1099-B stating the stockholder’s share of the net value of the assets held by the Company upon Conversion. However, there
is no assurance that the IRS will accept the Company’s valuation or that the valuation will not otherwise prove to be incorrect.
If the subsequently determined net value of the assets held by the Company at the time of the Conversion is greater than the Company’s
prior determination of that value, the difference will be treated as additional gain (or reduced loss). Conversely, if the subsequently
determined value of amounts distributed by the Company is less than the Company’s prior determination of that value, then
the amount of gain previously recognized would be reduced (or the prior loss increased).
Basis
and Holding Period
A
stockholder (or Beneficiary) will have an initial tax basis in his or her pro-rata share of each of the assets of the Liquidating
Trust equal to the fair market value of the pro rata share of each Company asset treated as distributed to the stockholder. The
holding period of a stockholder (or Beneficiary) in his or her pro-rata share of the assets of the Liquidating Trust will commence
on the day of the Conversion.
Gain
and Loss from Ongoing Operations of the Liquidating Trust
Assuming
that the Liquidating Trust qualifies as a grantor trust so that each Beneficiary is deemed to own its respective proportionate
share of the assets of the Liquidating Trust, the Liquidating Trust will not be subject to entity level tax. Because the Beneficiaries
will be deemed to directly own a proportionate share of the assets held by the Liquidating Trust (i.e. each Beneficiary will be
treated as owning a proportionate share of the stock in each portfolio company held by the Liquidating Trust), and each Beneficiary
will include the Beneficiary’s proportionate share of any income, expenses, gains or losses recognized with respect to those
assets in the year incurred. These items will have the same character in the hands of the Beneficiaries that they would have had
if recognized directly by the Beneficiary. For example, upon the sale by the Liquidating Trust of any asset for cash, each Beneficiary
will be treated for federal income tax purposes as if it had sold its share of the asset for its share of the cash received by
the Liquidating Trust and any liabilities assumed (without regard to whether the Beneficiary actually receives any cash), and
will calculate its gain or loss based upon its basis in its share of the asset sold, and thereafter be treated as owner of its
share of any cash received. The gain or loss will be capital gain or loss if the Beneficiary’s share of the Liquidating
Trust’s assets are capital assets, and will qualify as long term if the asset sale occurs more than one year after the Conversion.
Because the existence of the Liquidating Trust is disregarded for federal income tax purposes and the Beneficiaries are treated
as owning their respective shares of the Liquidating Trust’s assets, distributions of such assets (including cash) from
the Liquidating Trust will not have separate tax consequences, and the Beneficiaries will not recognize gain or loss upon such
distributions from the Liquidating Trust. In order to assist the Beneficiaries with their income tax reporting obligations on
behalf of the Liquidating Trust, the Liquidating Trust will provide Beneficiaries with an annual Grantor Trust Letter informing
each Beneficiary of its share of the income, gain, or loss with respect to the assets of the Liquidating Trust for the year. The
Trustees are not required to make any distributions to the Beneficiaries to fund the payment of any tax liabilities related to
any such gain.
Cash
Distributions From the Liquidating Trust
Generally,
a Beneficiary will not recognize income or gain upon the receipt of cash distributions from the Liquidating Trust, including the
Special Distribution, because the Beneficiary is already deemed to hold such cash. As stated in “Gain and Loss from Ongoing
Operations of the Liquidating Trust,” cash distributions from the Liquidating Trust will not be a separate taxable event.
In the case of the Special Distribution, the distribution will be funded with cash balances held by the Company at the time of
the Conversion, and for federal income tax purposes each Beneficiary will be treated as receiving its proportionate share of such
cash balances as a result of the Conversion, and such amounts should be taken into account by the Beneficiary in determining the
gain or loss upon the Conversion, so receipt of the Special Distribution should not have further federal income tax consequences.
Information
Reporting and Backup Withholding
In
general, payments of cash made to a stockholder pursuant to the Plan of Liquidation may, under certain circumstances, be subject
to information reporting and backup withholding at the applicable rate (currently, 28%), unless such holder (i) properly establishes
a basis for exemption or (ii) provides a correct taxpayer identification number (“
TIN
”), or certifies that
it is awaiting a TIN, and certifies that the holder is not subject to backup withholding on IRS Form W-9, and otherwise complies
with the backup withholding rules. Backup withholding is not an additional tax; rather, the amount of backup withholding is treated
as an advance payment of a tax liability and a stockholder’s U.S. federal income tax liability will be reduced by the amount
withheld. In order to assist the Beneficiaries with their income tax reporting obligations on behalf of the Liquidating Trust,
the Liquidating Trust will provide Beneficiaries with an annual Grantor Trust Letter informing each Beneficiary of its share of
the income, gain, or loss with respect to the assets of the Liquidating Trust for the year.
The
above discussion is intended to provide only a summary of certain material U.S. federal income tax consequences of the Conversion,
and is not intended to be a complete analysis or description of all such potential United States federal income tax consequences.
This summary is not a substitute for personal tax advice. We strongly urge you to consult your tax advisor to determine your particular
federal, state, local or foreign income or other tax consequences resulting from the merger, in light of your individual circumstances.
Approval
Required
If
PROPOSALS 1
and
2
are approved, the Company intends to adjourn the Special Meeting in order to permit time to voluntarily
delist the Company from NASDAQ and to begin the process of implementing the Company’s withdrawal of its election to be regulated
as a BDC under the 1940 Act. The Company will reconvene the Special Meeting upon the effectiveness of the Company’s delisting
from NASDAQ, such that the Company’s securities will no longer be deemed “Covered Securities” under Section
18 of the Securities Act of 1933, as amended, and per the Articles this
PROPOSAL 3
will require the affirmative vote of
a majority of the outstanding shares entitled vote at the Special Meeting.
If
PROPOSALS 1
and
2
are not approved, per the Articles,
PROPOSAL 3
would require the affirmative vote of 80%
of the outstanding shares entitled to vote at the Special Meeting. Moreover, if
PROPOSAL 1
is not approved but
PROPOSAL
3
is approved by the affirmative vote of 80% of the outstanding shares entitled to vote at the Special Meeting, the Company
will not implement the Plan until it has obtained stockholder approval of
PROPOSAL 1
at a future meeting of the stockholders
to be called and in the interim the Company would proceed with the orderly sale of its assets pursuant to the Investment Objective.
THE
BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE TO AUTHORIZE THE PLAN OF LIQUIDATION TO CONVERT THE COMPANY INTO A LIQUIDATING
TRUST FOR THE PURPOSE OF LIQUIDATING AND DISTRIBUTING THE COMPANY’S ASSETS, AS PROVIDED IN THIS PROPOSAL 3.
Financial
Reports
Our
financial statements and related financial information required by Item 13 of Schedule 14A under the 1934 Act are incorporated
herein by this reference to our Annual Report for the fiscal year ended December 31, 2016 (“
Annual Report
”)
and the financial statements in our subsequent interim periodic reports filed in Forms 10-Q or 8-K through the Conversion Date.
A
copy of our Annual Report for the fiscal year ended December 31, 2016, filed with the SEC on Form 10-K, as may be amended from
time to time, excluding exhibits, and any other interim report containing financial statements we file with the SEC, will be mailed
to stockholders without charge upon written request to Secretary, Crossroads Capital, Inc., 128 N. 13th Street, Suite 1100, Lincoln,
Nebraska 68508 or by calling (402) 261-5345. Such requests must set forth a good faith representation that the requesting party
was either a holder of record or a beneficial owner of our common stock on the Record Date.
Please
date, sign and return the proxy at your earliest convenience in the enclosed envelope
. No postage is required for mailing
in the United States. A prompt return of your proxy will be appreciated as it will save the expense of further mailings and telephone
solicitations.
|
By
Order of the Board
|
|
|
|
David
M. Hadani,
Secretary
|
Lincoln,
Nebraska
April 17, 2017
Appendix
A
PLAN
OF LIQUIDATION
This
Plan of Liquidation (the “
Plan
”), dated as of
[_____]
, 2017, of Crossroads Capital, Inc., a Maryland
corporation (the “
Company
”), is intended to accomplish the complete liquidation and conversion of the Company
in accordance with the Maryland General Corporation Law.
RECITALS
WHEREAS
,
the Company has elected to be treated as a business development company (“
BDC
”) under the Investment Company
Act of 1940, as amended (the “
1940 Act
”);
WHEREAS
,
the Company has sought the approval of its stockholders to withdraw its election as a BDC under the 1940 Act and prior to the
approval of this Plan by the Company’s stockholders will have delisted its securities from NASDAQ in order to preserve capital
and maximize stockholder value by limiting the operating expenses associated with the election to be regulated as a BDC and as
a Company listed on a national securities exchange;
WHEREAS
,
the Board of Directors of the Company (“
Board
”) has determined that it is in the best interest of the Company
to complete the liquidation and conversion of the Company, pursuant to the adoption of this Plan;
WHEREAS
,
in furtherance hereof, assuming the prior approval by the stockholders of the Company’s withdrawal of its election to be
regulated as a BDC, upon the approval of the Plan by the holders of a majority of the outstanding stock of the Company entitled
to vote at a special meeting of the stockholders, the Company shall (1) file Form N-54C with the Securities and Exchange Commission
(the “
SEC
”) to withdraw its election as a BDC; (2) file Articles of Conversion with the State Department of
Assessments and Taxation of the State of Maryland in order to convert the Company into Crossroads Liquidating Trust, a Maryland
statutory trust (the “
Liquidating Trust
”), with Andrew Dakos, Phillip Goldstein, and Gerald Hellerman as trustees
(the “
Trustees
”) to distribute all of the cash and net cash proceeds from the sale of the Company’s portfolio
assets to the stockholders of the Company as beneficiaries under the Liquidating Trust; and (3) pursuant to the terms of the Liquidating
Trust Agreement, attached hereto as
Exhibit A
(the “
Liquidating Trust Agreement
”), record (in the name
of each holder of record) a unit of beneficial interest in the Liquidating Trust for each share of the Company’s common
stock held by such stockholder at the time of conversion;
WHEREAS
,
in furtherance of the liquidation and conversion of the Company as described herein, the Board has approved this Plan; and
WHEREAS
,
upon approval of this Plan by the Board, the Company shall call a special meeting of its stockholders (the “
Special Meeting
”)
to consider the Plan and shall file with the SEC a proxy statement in connection therewith in accordance with the Securities Exchange
Act of 1934, as amended (the “
Exchange Act
”).
NOW
THEREFORE
, upon approval of this Plan by the stockholders of the Company at the Special Meeting, the Board authorizes the
following on behalf of the Company:
1. Simultaneous
with the effectiveness of the filing of Form N-54C with the SEC:
|
i.
|
The
Company and the Liquidating Trust shall execute the Articles of Conversion (in the form
attached to the Liquidating Trust Agreement), and the Trustees will execute the Certificate
of Trust (in the form attached to the Liquidating Trust Agreement), and each shall be
filed with the State Department of Assessments and Taxation of the State of Maryland.
|
|
ii.
|
The
Company and the Trustees shall enter into, execute and deliver the Liquidating Trust
Agreement. The cash and portfolio assets of the Company shall be reserved, liquidated
or distributed by the Trustees in accordance with the terms of the Liquidating Trust
Agreement.
|
2. In
reliance on no-action relief precedent established by the SEC and pursuant to the terms of the Liquidating Trust Agreement, the
Liquidating Trust shall file annual and current reports with the SEC as though the Liquidating Trust were a non-accelerated filer
of reports under the Exchange Act.
3. The
Liquidating Trust shall procure insurance sufficient to indemnify the Board and the Company’s officers, directors, employees
and agents in accordance with the Company’s Articles of Amendment and Restatement, as amended, its Amended and Restated
Bylaws and any contractual arrangements, for actions taken in connection with this Plan and the Company’s conversion into
the Liquidating Trust.
4. If
for any reason the Board determines that such action would be in the best interests of the Company, it may amend or modify the
Plan and the actions contemplated hereunder, subject to the approval of the Stockholders, if required.
5. The
Company may take any and all other actions deemed required, necessary or desirable by the Company to complete the liquidation
and conversion of the Company, including but not limited to, the formation of, and transfer of assets to, one or more subsidiary
entities, and the execution and delivery of any and all agreements, certificates, instruments or other documents deemed required,
necessary or desirable in connection therewith by counsel to the Company.
[The
remainder of this page is left intentionally blank.]
IN
WITNESS WHEREOF
, the Board has unanimously executed this Plan as of the date first set forth above.
|
CROSSROADS
CAPITAL, INC.
|
|
|
|
By:
|
|
|
|
Andrew
Dakos, Chairman of the Board
|
Exhibit A
LIQUIDATING TRUST AGREEMENT
THIS LIQUIDATING TRUST AGREEMENT
(this “Agreement”) is dated as of _________________, 2017 (the “Effective Date”), by and among Crossroads
Capital, Inc. (the “Company”), and Andrew Dakos, Phillip Goldstein and Gerald Hellerman (collectively, and including
any successors thereto, the “Trustees”).
RECITALS
WHEREAS
, the Company
has elected to be treated as a business development company under the Investment Company Act of 1940, as amended;
WHEREAS
, the Board of
Directors of the Company (“Board”) has determined that it is in the best interest of the Company to convert the Company
into a Maryland statutory trust (the “Conversion”) and liquidate the Company’s presently owned assets in a liquidating
trust;
WHEREAS
, the statutory
trust (the “Trust”) to be created by the filing of the Articles of Conversion (as hereinafter defined) and a Certificate
of Trust (as hereinafter defined) with the State Department of Assessments and Taxation of the State of Maryland under Section
12-204 of the Maryland Statutory Trust Act (the “Maryland Act”) is intended to be such liquidating trust, with the
Trustees serving as the initial trustees; and
WHEREAS
, following the
Conversion, the Trustees shall administer the Trust pursuant to the terms of this Agreement in order to liquidate the Trust Assets
and, upon satisfaction of all related liabilities and obligations, to distribute the residue of the proceeds of the liquidation
in accordance with the terms hereof.
NOW, THEREFORE
, in consideration
of the premises and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Article
I
NAMES; DEFINITIONS; PRINCIPAL OFFICE; RESIDENT AGENT
1.1
Name
.
The Trust shall be known as “Crossroads Liquidating Trust”.
1.2
Defined
Terms
. Terms used but not otherwise defined in this Agreement shall be defined as follows unless the context otherwise requires:
(a)
“Administrator”
means 1100 Capital Consulting, LLC, or such other person selected by the Trustees to act as successor to the duties of 1100 Capital
Consulting, LLC.
(b)
“Affiliate”
means an “affiliated person” as defined in the Investment Company Act of 1940, as amended.
(c)
“Agreement”
shall mean this instrument as originally executed or as it may from time to time be amended pursuant to the terms hereof.
(d)
“Articles
of Conversion” shall mean the articles of conversion in form and substance as
Annex A
attached hereto.
(e)
“Beneficial
Interest” shall mean each Beneficiary’s proportionate share of the Trust Assets determined by the ratio of the number
of Units held by such Beneficiary to the total number of Units held by all Beneficiaries.
(f)
“Beneficiary”
shall mean each holder of Units.
(g)
“Certificate
of Trust” shall mean the certificate of trust in form and substance as
Annex B
attached hereto.
(h)
“Code”
shall have the meaning given to such term in
Section 2.2(c)
.
(i)
“Commission”
shall have the meaning given to such term in
Section 5.8(b)
.
(j)
“Conversion
Date” shall mean the date of the effectiveness of the Articles of Conversion and Certificate of Trust when filed with the
State of Maryland under the Maryland Act.
(k)
“Independent
Trustees” means Andrew Dakos, Phillip Goldstein, and Gerald Hellerman, and any successor thereto the Trustees deem in their
good-faith determination to not have a relationship with the Trust that would interfere with the exercise of independent judgement
in carrying out the responsibility of an Independent Trustee.
(l)
“Liabilities”
shall mean all taxes, tax audits and any findings arising from, in connection with or relating thereto, liens, penalties, interest,
costs and expenses, unsatisfied debts, damages, losses, claims, liabilities, commitments, suits and any other obligations, whether
contingent or fixed or otherwise.
(m)
“NBC
Trust Company” shall mean NBC Trust Company, a Nebraska chartered trust company, or such other person selected by the Trustees
to act as successor to the duties of NBC Trust Company.
(n)
“Person”
shall mean an individual, a corporation, a partnership, an association, a joint stock company, a limited liability company, a trust,
a joint venture, any unincorporated organization, or a government or political subdivision thereof.
(o)
“Plan”
shall mean that Plan of Liquidation approved by the Company’s Board of Directors on May 3, 2016.
(p)
“Shares”
shall mean the shares of common stock, $0.0001 par value per share, of the Company.
(q)
“Stockholders”
shall mean the holders of record of the outstanding Shares of the Company immediately prior to the effective time of the Articles
of Conversion and Certificate of Trust when filed with the State of Maryland under the Maryland Act.
(r)
“Trust
Assets” shall mean all the property (real, personal, tangible or intangible) held from time to time by the Trust and administered
by the Trustees under this Agreement.
(s)
“Trust
Subsidiary” means any corporation, partnership, limited liability company, joint venture, business trust, real estate investment
trust or other organization, whether incorporated or unincorporated, or other legal entity directly owned by the Trust.
(t)
“Units”
shall have the meaning given to such term in
Section 3.1(a)
.
1.3
Principal
Office in State of Maryland; Resident Agent; Additional Offices
. The principal office of the Trust in the State of Maryland
shall be located at such place as the Trustees may designate. The address of the principal office of the Trust in the State of
Maryland as of the Conversion Date is 351 West Camden Street, Baltimore, MD 21201. The name and address of the resident agent of
the Trust in the State of Maryland are The Corporation Trust Incorporated, 351 West Camden Street. Baltimore, MD 21201. The resident
agent is a Maryland corporation. The Trust may have additional offices, including a principal executive office, at such places
as the Trustees may from time to time determine or the business of the Trust may require.
1.4
Governing
Instrument
. This Agreement is intended to be a “governing instrument” under 12-207 of the Maryland Act.
Article
II
NATURE OF THE TRUST
2.1
Conversion;
Creation of Trust
. The Trust shall be established upon the Conversion Date, which shall occur upon the effectiveness of the
filing of the Articles of Conversion and the Certificate of Trust with the state of Maryland.
2.2
Purpose
of Trust
.
(a)
The
Trust is organized for the sole purpose of liquidating and distributing the proceeds of Trust Assets and in connection therewith
to own, administer and realize the value of the Trust Assets for the ultimate purpose of liquidating the Trust Assets and distributing
the net proceeds of the Trust Assets, with no objective to continue or engage in the conduct of a trade or business, except as
necessary for the orderly liquidation of, and preservation or realization of the value of, the Trust Assets.
(b)
In
connection with the foregoing, the Trustees will (i) take such actions as they deem necessary or appropriate to carry out the purpose
of the Trust and facilitate such ownership, administration, realization and liquidation of the Trust Assets, (ii) protect, conserve
and manage the Trust Assets in accordance with the terms and conditions hereof, and (iii) distribute the net proceeds of the Trust
Assets in accordance with the terms and conditions hereof.
(c)
It
is intended that, for federal, state and local income tax purposes, the Trust shall be treated as a liquidating trust under Treasury
Regulation Section 301.7701-4(d) and any analogous provision of state or local law, and the Beneficiaries shall be treated as the
owners of their respective share of the Trust pursuant to Sections 671 through 679 of the Internal Revenue Code of 1986, as amended
(the “Code”) and any analogous provision of state or local law, and shall be taxed on their respective share of the
Trust’s taxable income (including both ordinary income and capital gains) pursuant to Section 671 of the Code and any analogous
provision of state or local law. The Trustees shall file all tax returns required to be filed with any governmental agency consistent
with this position, including, but not limited to, any returns required of grantor trusts pursuant to Treasury Regulation Section
1.671-4(a).
2.3
Payment
of Liabilities of the Trustees
. If any Liability is asserted against any Trustee as a result of the Conversion, such Trustee
may use such part of the Trust Assets as may be necessary in contesting any such Liability or in payment thereof, and in no event
shall such Trustee, Beneficiaries, officers of the Trust or any subsidiary of the Trust, manager, the Administrator or agents of
the Trust be personally liable, nor shall resort be had to the private property of such Persons, in the event that the Trust Assets
are not sufficient to satisfy the Liabilities of the Trust.
2.4
Management
of Subsidiaries
.
(a)
Subject
to the terms of any agreements governing the management and operation of any Trust Subsidiary, including without limitation with
respect to obligations of the directors, officers, managers, partners or members of any such entity to act in the best interests
of the Trust Subsidiary and the equity holders, partners or members of such Trust Subsidiary, the Trustees shall take such actions
with respect to the Trust’s direct or indirect interest in each Trust Subsidiary (whether in connection with the Trust’s
position as direct or indirect equity owner, partner, member or manager, or as a director, officer, employee or agent of such Trust
Subsidiary), and shall, subject to any obligations to any other equity owners, partners or members of a Trust Subsidiary, take
all commercially reasonable steps to cause each Trust Subsidiary to take such actions, as are consistent with the purposes and
provisions of the Trust and this Agreement.
(b)
The
Trustees shall, to the extent not done on or prior to the Conversion Date, and to the extent within their reasonable power and
deemed necessary or desirable by the Trustees, amend, or cause to be amended, the operating agreements and other governing documents
of each Trust Subsidiary and take such other action to provide that the purpose of such entity is substantially the same as that
set forth in
Section 2.2
, including no objective to continue or engage in the conduct of a trade or business (other than
as necessary to realize or preserve the value of its assets) and the expeditious but orderly disposition and distribution of its
assets; provided that it shall not be inconsistent with the provisions of this paragraph for any Trust Subsidiary to continue to
engage in a trade or business following such time as the Trust has sold all of its interests in such Trust Subsidiary in furtherance
of the Plan.
(c)
The
Trustees shall do what they can to cause each Trust Subsidiary to distribute to the Trust and to such Trust Subsidiary’s
other equity owners, partners or members, if any, in accordance with the governing documents of such Trust Subsidiary, on or before
each distribution provided for in
Section 5.6
and
Section 5.7
such portion of its cash as is deemed necessary by
the Trustees to make such distribution pursuant to
Section 5.6
or
Section 5.7
.
(d)
The
Trustees may serve as partner, member, director, officer, employee or agent of a Trust Subsidiary.
2.5
Management
Services Agreements
.
(a)
Concurrently
with the Conversion, the Trust will enter into a management services agreement with the Administrator to assist in the sale of
the Trust Assets, to provide oversight, reporting and administrative services, and such other matters as the parties may agree,
in each case on such terms and conditions as may be approved by the Trustees; provided that such services will not overlap with
the services provided by NBC Trust Company.
(b)
Concurrently
with the Conversion, the Trust will enter into a management services agreement with NBC Trust Company to provide oversight, reporting
and administrative services, and such other matters as the parties may agree, in each case on such terms and conditions as may
be approved by the Trustees; provided that such services will not overlap with the services provided by the Administrator.
Article
III
BENEFICIAL INTERESTS
3.1
Beneficial
Interests
.
(a)
Pursuant
to the Plan, effective upon the Conversion, each outstanding Share shall convert into one unit of uncertificated Beneficial Interest
(a “Unit”) in the Trust for each Share then held of record by such Stockholder. Effective upon the Conversion, each
Beneficiary shall have a pro rata undivided beneficial interest in the Trust Assets equal to the number of Units owned by such
Beneficiary divided by the total number of Units owned by all Beneficiaries.
(b)
The
rights of Beneficiaries in, to and under the Trust Assets and the Trust shall not be represented by any form of certificate or
other instrument, and no Beneficiary shall be entitled to such a certificate. The Trustees shall maintain, or cause to be maintained,
a record of the name and address of each Beneficiary and the aggregate number of Units held by such Beneficiary.
(c)
If
any conflicting claims or demands are made or asserted with respect to the ownership of any Units, or if there is any disagreement
between the transferees, assignees, heirs, representatives or legatees succeeding to all or part of the interest of any Beneficiary
resulting in adverse claims or demands being made in connection with such Units, then, in any of such events, the Trustees shall
be entitled, at their sole election, to refuse to comply with any such conflicting claims or demands. In so refusing, the Trustees
may elect to make no payment or distribution with respect to such Units, or to make such payment to a court of competent jurisdiction
or an escrow agent, and in so doing, the Trustees shall not be or become liable to any of such parties for their failure or refusal
to comply with any of such conflicting claims or demands or to take any other action with respect thereto, nor shall the Trustees
be liable for interest on any funds which it may so withhold. Notwithstanding anything to the contrary set forth in this
Section
3.1(c)
, the Trustees shall be entitled to refrain and refuse to act until either (i) the rights of the adverse claimants have
been adjudicated by a final judgment of a court of competent jurisdiction, (ii) all differences have been adjusted by valid written
agreement between all of such parties, and the Trustees shall have been furnished with an executed counterpart of such agreement,
or (iii) there is furnished to the Trustees a surety bond or other security satisfactory to the Trustees, as they shall deem appropriate,
to fully indemnify the Trustees as between all conflicting claims or demands.
3.2
Rights
of Beneficiaries
. Each Beneficiary shall be entitled to participate in the rights and benefits due to such Beneficiary hereunder
according to the Beneficiary’s Beneficial Interest. Each Beneficiary shall take and hold the same subject to all the terms
and provisions of this Agreement. The interest of each Beneficiary hereunder is declared, and shall be in all respects, personal
property and upon the death of an individual Beneficiary, the Beneficiary’s Beneficial Interest shall pass as personal property
to the Beneficiary’s legal representative and such death shall in no way terminate or affect the validity of this Agreement;
provided, however, the Trustees or their agents shall not be obligated to book a transfer of a deceased Beneficiary’s Beneficial
Interest to his or her legal representative until the Trustees shall have received Letters Testamentary or Letters of Administration
and written notice of the death of the deceased Beneficiary. A Beneficiary shall have no title to, right to, possession of, management
of, or control of, any of the Trust Assets except the right to receive distributions of the net proceeds thereof as, when, and
if made as expressly provided herein. No widower, widow, heir or devisee of any person who may be a Beneficiary shall have any
right of dower, homestead, or inheritance, or of partition, or of any other right, statutory or otherwise, in any of the Trust
Assets.
3.3
Limitations
on Transfer
. The beneficial interest of a beneficiary may not be transferred other than by will, intestate succession or operation
of law; provided that the executor or administrator of the estate of a Beneficiary may mortgage, pledge, grant a security interest
in, hypothecate or otherwise encumber, the Beneficial Interest held by the estate of such Beneficiary if necessary in order to
borrow money to pay estate, succession or inheritance taxes or the expenses of administering the estate of the Beneficiary, upon
written notice to and upon written consent of the Trustees, which consent may be withheld in the Trustees’ sole discretion.
Units shall not be listed on any exchange or quoted on any quotation system. Neither the Trustees, any Beneficiary nor any employees
or agents of the Trustees, if any, may take any action to facilitate or encourage the sale or transfer of any Beneficial Interests,
except as permitted in this Section. Furthermore, except as may be otherwise required by law, the Beneficial Interests of the Beneficiaries
hereunder shall not be subject to attachment, execution, sequestration or any order of a court, nor shall such interests be subject
to the contracts, debts, obligations, engagements or liabilities of any Beneficiary. The interest of a Beneficiary shall be paid
by the Trustees to the Beneficiary free and clear of all assignments, attachments, anticipations, levies, executions, decrees and
sequestrations and shall become the property of the Beneficiary only when actually received by such Beneficiary.
3.4
Trustees
as Beneficiary
. Any Trustee, either individually or in a representative or fiduciary capacity, may be a Beneficiary to the
same extent as if it were not a Trustee hereunder and shall have all rights of a Beneficiary, including, without limitation, the
right to vote and to receive distributions, to the same extent as if it were not a Trustee hereunder.
Article
IV
DURATION AND TERMINATION OF THE TRUST
4.1
Duration
.
The existence of the Trust shall terminate upon the earliest of (a) the liquidation and distribution of the net proceeds of all
of the Trust Assets as provided in
Section 5.7
, or (b) the expiration of a period of three years from the Conversion Date.
Notwithstanding the foregoing, the Trustees may continue the existence of the Trust beyond the three-year term if the Trustees
reasonably determine that an extension is necessary to fulfill the purposes of the Trust.
4.2
Other
Obligations of Trustees upon Termination
. Upon termination of the Trust, the Trustees shall provide for the retention of the
books, records, lists of holders of Units, and files which shall have been delivered to or created by the Trustees, the Administrator,
or their respective agents. At the Trustees’ discretion, all of such records and documents may be destroyed at any time after
six years following the final distribution with respect to the Trust Assets. Except as otherwise specifically provided herein,
upon the final distribution with respect to the Trust Assets, the Trustees shall have no further duties or obligations hereunder;
provided, that the Trustees shall execute and deliver such other instruments and agreements as shall be reasonably necessary or
required to effect the termination of the Trust.
Article
V
ADMINISTRATION OF TRUST ASSETS
5.1
Sale
of Trust Assets
. The Trustees shall make continuing efforts to dispose of the Trust Assets and cause each Trust Subsidiary
to dispose of its assets, to make timely distributions and to not unduly prolong the duration of the Trust. Without limiting the
foregoing, and subject to the terms and conditions of this Agreement, the Trustees may, and may cause the Trust, at such times
as it deems appropriate, in their discretion, collect, liquidate, reduce to cash, transfer, assign, or otherwise dispose of all
or any part of the Trust Assets as they deem appropriate at public auction or at private sale for cash, securities or other property,
or upon credit (either secured or unsecured as the Trustees shall determine).
5.2
Efforts
to Resolve Claims and Liabilities
. Subject to the terms and conditions of this Agreement, the Trustees shall make appropriate
efforts to resolve any contingent or unliquidated claims and outstanding contingent Liabilities for which the Trust or any Trust
Subsidiary may be responsible, administer and dispose of the Trust Assets as contemplated by this Agreement, make timely distributions
to the Beneficiaries, and not unduly prolong the duration of the Trust.
5.3
Continued
Collection of Trust Assets
. All property that is determined to be a part of the Trust Assets shall continue to be collected
by the Trustees and held as a part of the Trust. The Trustees shall hold the Trust Assets without being obligated to provide for
or pay any interest thereon to any Beneficiary, except to the extent of such Beneficiary’s share of interest actually earned
by the Trust after payment of the Trust’s liabilities and expenses as provided in
Section 5.5
.
5.4
Restriction
on Trust Assets
. The Trust shall not receive, or permit any Trust Subsidiary to receive, transfers of, and shall cause to be
distributed, any assets prohibited by Revenue Procedure 82-58, 1982-2 C.B. 847 (as amplified by Revenue Procedure 91-15, 1991-1
C.B. 484), as the same may be further amended, supplemented, or modified, including, but not limited to, any listed stocks or securities,
any readily-marketable assets, any operating assets of a going business, any unlisted stock of a single issuer that represents
80% or more of the stock of such issuer, or any general or limited partnership interest, or any interest in a limited liability
that is treated as a partnership for federal income tax purposes, it being understood that the interests in the Trust Subsidiaries
do not constitute any such assets. The Trustees shall not retain (or permit any Trust Subsidiary to retain) cash in excess of a
reasonable amount to meet expenses and Liabilities of the Trust and the Trust Assets (or the Trust Subsidiary and its assets).
5.5
Payment
of Expenses and Liabilities
. The Trustees shall pay from the Trust Assets all expenses and Liabilities of the Trust and of
the Trust Assets, including, but not limited to, interest, penalties, taxes, assessments, and public charges of any kind or nature
and the costs, charges, and expenses connected with or growing out of the execution or administration of the Trust and such other
payments and disbursements as are provided in this Agreement or which may be determined to be a proper charge against the Trust
Assets by the Trustees.
5.6
Interim
Distributions
. At such times as may be determined in their sole discretion, but consideration of potential liquidating distributions
shall occur no less frequently than annually, and in any event within a reasonable period of time following the disposition of
Trust Assets, the Trustees shall distribute, or cause to be distributed, to the Beneficiaries, in proportion to the number of Units
held by each Beneficiary on the record date for such distribution as determined by the Trustees in their sole discretion, the net
proceeds from the disposition of Trust Assets and income from Trust investments, and such other cash or property comprising a portion
the Trust Assets as the Trustees may in their sole discretion determine may be distributed. Notwithstanding the foregoing, promptly
following the Conversion and subject to the Trustees’ final approval at the time of the Trustees’ determination, the
Trustees shall distribute, or cause to be distributed, to the Beneficiaries on the record date for such distribution, an amount
of cash of no less than $1.60 per Unit.
5.7
Final
Distribution
. If the Trustees determine that the Liabilities and all other claims, expenses, charges, and obligations of the
Trust and the Trust Subsidiaries have been paid or discharged, and all Trust Assets have been liquidated, the Trustees shall, as
expeditiously as is consistent with the conservation and protection of the Trust Assets, distribute such share to the Beneficiaries
as of the record date of such distribution, in proportion to the number of Units held by each Beneficiary.
5.8
Reports
to Beneficiaries
.
(a)
As
soon as practicable after the Conversion Date, the Trustees will mail, or will cause to be mailed, to each Beneficiary a notice
indicating how many Units such person beneficially owns and the names of Trustees and their contact information.
(b)
As
soon as practicable after the end of each fiscal year of the Trust on a timeline as though the Trust were a non-accelerated filer
of reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) the Trust shall file an annual
report on Form 10-K with the U.S. Securities and Exchange Commission (the “Commission”) showing the assets and liabilities
of the Trust at the end of the applicable calendar year and the receipts and disbursements of the Trust for such period covered
by the report. The annual report also will describe the changes in the assets of the Trust and the actions taken by the Trustees
during such period covered by the report. The financial statements contained within such annual report need not be audited but
will be prepared on a liquidation basis in accordance with generally accepted accounting principles and will be reviewed by an
independent registered public accounting firm. The Trust also will file current reports on Form 8-K with the Commission whenever
an event occurs for which a Form 8-K is required to be filed for the Trust or whenever, in the opinion of the Trustees, in their
discretion, any other material event relating to the Trust or its assets has occurred.
(c)
The
tax year and the fiscal year of the Trust shall end on December 31 of each year, unless the Trustees deem it advisable to establish
some other date as the date on which the taxable year of the Trust shall end.
5.9
Federal
Income Tax Information
. As soon as practicable after the close of each tax year, the Trustees shall mail, or shall cause to
be mailed, to each Person who was a Beneficiary during such year, a statement showing, on a per Unit basis, the information necessary
to enable a Beneficiary to determine its taxable income, gain, loss or deduction (if any) attributable to the assets held by the
Trust as determined for federal income tax purposes. In addition, after receipt of a request in good faith, the Trustees shall
furnish to any Person who has been a Beneficiary at any time during the preceding year, at the expense of such Person and at no
cost to the Trust, a statement containing such further tax information as is reasonably available to the Trustees and reasonably
requested by such Person.
5.10
Books
and Records
. The Trustees shall maintain in respect of the Trust and the holders of Units books and records relating to the
Trust Assets and the income and liabilities of the Trust in such detail and for such period of time as may be necessary to enable
the Trustees to make full and proper accounting in respect thereof in accordance with this
Article V
and to comply with
applicable law. Such books and records shall be maintained on a basis or bases of accounting necessary to facilitate compliance
with the tax reporting requirements of the Trust and the reporting obligations of the Trustees under
Section 5.8
. Nothing
in this Agreement requires the Trustees to file any accounting or seek approval of any court with respect to the administration
of the Trust or as a condition for making any payment or distribution out of the Trust Assets. Beneficiaries and their agents shall
be entitled, upon 30 days’ prior written notice delivered to the Trustees, to inspect and copy (at their own expense) during
normal business hours the following (and only the following) documents, solely to the extent that such documents are not publicly
available on the website of the Commission: (a) this Agreement and all amendments hereto; (b) minutes of the proceedings (if any)
of the Beneficiaries; (c) an annual statement of affairs (which may be the annual report contemplated by
Section 5.8(a)
);
and (d) any voting trust agreements on file at the Trust’s principal office;
provided
that, if so requested, such
Beneficiaries shall have entered into a confidentiality agreement satisfactory in form and substance to the Trustees.
5.11
Appointment
of Agents, etc.
(a)
The
Trustees shall be responsible for the general policies of the Trust and for the general supervision of the activities of the Trust
and Trust Subsidiaries conducted by all agents, officers, employees, advisors or managers of the Trust or any of the Trust Subsidiaries.
The Trustees shall have the power to appoint, employ or contract with any Person or Persons as the Trustees may deem necessary
or proper for the transaction of all or any portion of the activities of the Trust, including appointment of officers of the Trust
and the Trust Subsidiaries and the retention of the Administrator and NBC Trust Company under management services agreements, as
contemplated by
Section 2.5
. For purposes of this Agreement, the Administrator and NBC Trust Company shall each be deemed
to be an agent of the Trust.
(b)
The
Trustees shall have the power to determine the terms and compensation of any Person with whom they may contract pursuant to
Section
5.11(a)
.
(c)
No
Trustee shall be required to administer the Trust as its sole and exclusive function and a Trustee may have other business interests
and may engage in other activities similar or in addition to those relating to the Trust, including in competitive business interests,
including the rendering of advice or services of any kind to investors or any other Persons and the management of other investments,
subject to such Trustee’s obligations under this Agreement and applicable law.
Article
VI
BOARD OF TRUSTEES
6.1
Board
of Trustees
. The Trust and its affairs shall be governed, managed and administered by a Board of Trustees. References in this
Agreement to the “Trustees” shall constitute references to the Board of Trustees acting as described in this
Article
VI
, unless the context otherwise requires.
6.2
Number
and Qualification of Trustees
.
(a)
Subject
to the provisions of
Section 6.3
relating to the period pending the appointment of a successor Trustee, there shall be three
Trustees of this Trust comprising the Board of Trustees, who shall be citizens and residents of, or a corporation or other entity
which is incorporated or formed under the laws of, a state of the United States and, if a corporation, it shall be authorized to
act as a corporate fiduciary under the laws of the State of Maryland or such other jurisdiction as shall be determined by the Trustees
in their sole discretion. The number of Trustees may be increased or decreased from time to time by the Trustees, provided that
there shall never be fewer than one Trustee.
(b)
If
a corporate Trustee shall ever change its name, or shall reorganize or reincorporate, or shall merge with or into or consolidate
with any other bank or trust company, such corporate trustee shall be deemed to be a continuing entity and shall continue to act
as a trustee hereunder with the same liabilities, duties, powers, titles, discretions, and privileges as are herein specified for
a Trustee.
(c)
A
majority of the Trustees shall qualify as Independent Trustees; provided that, if one or more Independent Trustees shall resign
or be removed, and pending the filling of the vacancy or vacancies created by such resignation or removal less than a majority
of the Trustees are Independent Trustees, the failure of a majority of the Trustees to be Independent Trustees shall not affect
the validity of any action taken by the Trustees.
6.3
Resignation
and Removal
. Any Trustee may resign and be discharged from the Trust by giving written notice to the other Trustees; provided,
that if there is only one Trustee at the time of such Trustee’s resignation, then such resigning Trustee may resign and be
discharged by making a public notice of the Beneficiaries of such resignation, which may take the form of a press release or the
filing with the Commission of a current report on Form 8-K announcing the same. Such resignation shall become effective on the
date specified in such notice. Any Trustee may be removed at any time, with or without cause, by Beneficiaries holding in the aggregate
more than two-thirds of the total Units held by all Beneficiaries at a meeting of the Beneficiaries duly called for such purpose.
6.4
Appointment
of Successor
. If at any time a Trustee resigns or is removed, dies, becomes mentally incompetent or physically incapable of
performing such Trustee’s responsibilities hereunder (as determined by the other Trustees), or is adjudged bankrupt or insolvent,
unless the remaining Trustees (if any) shall decrease the number of Trustees comprising the Board of Trustees pursuant to
Section
6.2
hereof, or in the event the number of Trustees comprising the Board of Trustees shall be increased pursuant to
Section
6.2
hereof, a vacancy shall be deemed to exist and a successor shall be appointed by action of a majority of the remaining
Trustees (if any). If (a) such a vacancy is not filled by the remaining Trustees within ninety (90) days, and the remaining Trustees,
if any, have notified the Beneficiaries of their inability to fill such vacancy or (b) there is no remaining Trustee then, the
Beneficiaries may, pursuant to
Article XII
hereof, call a meeting to appoint a successor Trustee or successor Trustees.
At such meeting, holders of a majority of the outstanding Units shall constitute a quorum and a successor Trustee or successor
Trustees shall be appointed by Beneficiaries holding Units representing a majority of the total Units present at the meeting, in
person or by proxy, with each Unit being entitled to be voted with respect to each vacancy to be filled at such meeting. Pending
the appointment of a successor Trustee, the remaining Trustee or Trustees then serving may continue to take all actions that may
be taken by the Trustees hereunder.
6.5
Acceptance
of Appointment by Successor Trustee
. Any successor Trustee appointed hereunder shall execute an instrument accepting such appointment
hereunder and shall file one counterpart with the books and records of the Trust and, in case of a resignation, deliver one counterpart
to the resigning Trustee. Thereupon such successor Trustee shall, without any further act, become vested with all the estates,
properties, rights, powers, trusts, and duties of its predecessor in the Trust hereunder with like effect as if originally named
therein.
6.6
Required
Approval for Action by Trustees
. At any time there is more than one Trustee, all action required or permitted to be taken by
the Trustees, in their capacity as Trustees, shall be taken by approval, consent, vote or resolution, including by written consent,
authorized by at least a majority of the Trustees.
6.7
Compensation;
Expense Reimbursement
. If serving as a Trustee on the Board of Trustees, the Trustees shall be entitled to receive compensation
for their services as Trustees comparable to that paid by the Company to its independent directors prior to the filing of the Articles
of Conversion and Certificate of Trust under the Maryland Act, consisting of reasonable meeting fees or quarterly or annual retainer
fees or a combination of such fees, as determined by the Trustees. Each Trustee shall be reimbursed from the Trust Assets for all
expenses reasonably incurred, and appropriately documented, by such Trustee in the performance of that Trustee’s duties in
accordance with this Agreement.
Article
VII
POWERS OF AND LIMITATIONS ON THE TRUSTEES
7.1
Limitations
on Trustees
. The Trustees shall not cause the Trust, and shall not cause any Trust Subsidiaries, to enter into or engage in
any trade or business except as necessary to carry out the purposes of the Trust. In no event shall the Trustees take any action
which would jeopardize the status of the Trust as a “liquidating trust” for federal, state or local income tax purposes
within the meaning of Treasury Regulation Section 301.7701-4(d) and any analogous provision of state or local law. The Trustees
shall not invest any of the cash held as Trust Assets in securities of any other Person, except that the Trustees may invest in
(a) direct obligations of the United States of America or obligations of any agency or instrumentality thereof which mature not
later than one year from the date of acquisition thereof, (b) money market deposit accounts, checking accounts, savings accounts,
or certificates of deposit, or other time deposit accounts which mature not later than one year from the date of acquisition thereof
which are issued by a commercial bank or savings institution organized under the laws of the United States of America or any state
thereof, or (c) other temporary investments not inconsistent with the Trust’s status as a liquidating trust for tax purposes.
7.2
Specific
Powers of Trustees
. Subject to the provisions of the terms and conditions of this Agreement, the Trustees shall have the following
specific powers in addition to any and all powers conferred upon them by any other section or provision of this Agreement or any
laws of the State of Maryland; provided that the enumeration of the following powers shall not be considered in any way to limit
or control the power of the Trustees to act as specifically authorized by any other section or provision of this Agreement and
to act in such a manner as the Trustees may deem necessary or appropriate to conserve and protect the Trust Assets or to confer
on the Beneficiaries the benefits intended to be conferred upon them by this Agreement:
(a)
to
determine the nature and amount of the consideration to be received with respect to the sale or other disposition of, or the grant
of interest in, each or all of the Trust Assets;
(b)
to
collect, liquidate, finance or refinance or otherwise convert into cash, or such other property as it deems appropriate, all property,
assets and rights in the Trust Assets, and to pay, discharge, and satisfy all other claims, expenses, charges, Liabilities and
obligations existing with respect to the Trust Assets, the Trust or the Trustees;
(c)
to
elect, appoint, engage, retain or employ any Persons as officers, agents, representatives, employees or independent contractors
(including without limitation investment advisors, accountants, transfer agents, attorneys-at-law, managers, appraisers, brokers,
consultants or otherwise) in one or more capacities to assist in the administration, disposition, liquidation and distribution
of Trust Assets, and to pay reasonable compensation from the Trust Assets for services in as many capacities as such Person may
be so appointed, engaged, employed or retained, to prescribe the titles, powers and duties, terms of service and other terms and
conditions of the election, appointment, engagement, employment or retention of such Persons and, except as prohibited by law,
to delegate any of the powers and duties of the Trustees to officers, agents, representatives, independent contractors, employees
or other Persons, including, without limitation, the retention of the Administrator and NBC Trust Company and their respective
affiliates to provide various services to the Trust and any Trust Subsidiary consistent with the types of services and compensation
terms previously applicable to the Company prior to the formation of the Trust, plus a disposition fee with respect to the sale
or other disposition of the Trust Assets;
(d)
to
retain and set aside such funds out of the Trust Assets as the Trustees shall deem necessary or expedient to pay, or provide for
the payment of (i) unpaid claims, expenses, charges, Liabilities and obligations of the Trust or any Trust Subsidiaries; and (ii)
the expenses of administering the Trust Assets;
(e)
to
do and perform any and all acts necessary or appropriate for the conservation, protection and realization of the value of the Trust
Assets pending sale or disposition thereof or distribution thereof to the Beneficiaries;
(f)
to
institute, defend, settle or otherwise resolve actions, judgments or claims for declaratory relief or other actions, judgments
or claims and to take such other action, in the name of the Trust or any Trust Subsidiary, or as otherwise required, as the Trustees
may deem necessary or desirable to enforce any instruments, contracts, agreements, causes of action, or rights relating to or forming
a part of the Trust Assets;
(g)
to
determine conclusively from time to time the fair value of and to revalue the securities and other property of the Trust, with
the assistance of independent valuation or other experts or other information as it deems necessary or appropriate;
(h)
to
cancel, terminate or amend any instruments, contracts, agreements, obligations, or causes of action relating to or forming a part
of the Trust Assets, and to execute new instruments, contracts, agreements, obligations or causes of action notwithstanding that
the terms of any such instruments, contracts, agreements, obligations, or causes of action may extend beyond the terms of the Trust;
(i)
in
the event any of the assets or property which is or may become a part of the Trust Assets is situated in any state or other jurisdiction
in which any Trustee is not qualified to act as a Trustee, to nominate and appoint an individual or corporate trustee qualified
to act in such state or other jurisdiction in connection with the assets or property situated in that state or other jurisdiction
as a trustee of such assets or property and require from such trustee such security, if any, as may be designated by the Trustees,
which, in the sole discretion of the Trustees may be paid out of the Trust Assets. The trustee so appointed shall have all the
rights, powers, privileges and duties and shall be subject to the conditions and limitations of the Trust, except as limited by
the Trustees and except where the same may be modified by the laws of such state or other jurisdiction (in which case, the laws
of the state or other jurisdiction in which such trustee is acting shall prevail to the extent necessary). Such trustee shall be
answerable to the Trustees herein appointed for all monies, assets and other property which may be received by it in connection
with the administration of such assets or property. The Trustees hereunder may remove such trustee, with or without cause, and
appoint a successor trustee at any time by the execution by the Trustees of a written instrument declaring such trustee removed
from office, and specifying the effective date of removal;
(j)
to
cause any investments of any part of the Trust Assets to be registered and held in its name or in the names of a nominee or nominees
without increase or decrease of liability with respect thereto;
(k)
to
(i) terminate and dissolve any entities owned by the Trust or any Trust Subsidiary and (ii) form any new entities to be owned by
the Trust or any Trust Subsidiary,
provided
that the interests in any such newly formed entities would not constitute assets
prohibited this Agreement and by Revenue Procedure 82-58, 1982-2 C.B. 847 (as amplified by Revenue Procedure 91-15, 1991-1 C.B.
484), as the same may be further amended, supplemented, or modified;
(l)
to
perform any act authorized, permitted, or required under any instrument, contract, agreement, right, obligation, or cause of action
relating to or forming a part of the Trust Assets whether in the nature of an approval, consent, demand, or notice thereunder or
otherwise, unless such act would require the consent of the Beneficiaries in accordance with the express provisions of this Agreement;
and
(m)
adopt
Bylaws not inconsistent with this Agreement providing for the conduct of the business of the Trust and to amend and repeal them.
7.3
Affiliate
Transactions; Other Activities
.
(a)
The
Trustees shall not cause the Trust to enter into or engage in any transaction with an Affiliate except as otherwise would be permitted
under the Investment Company Act of 1940 (including Section 56 thereof).
(b)
Rights
of Trustees, Employees, Independent Contractors and Agents to Own Units or Other Property and to Engage in Other Business
.
Any Trustee, officer, employee, independent contractor or agent of the Trust, including the Administrator and NBC Trust Company,
may own, hold and dispose of Units for its individual account, and may exercise all rights thereof and thereunder to the same extent
and in the same manner as if it were not a Trustee, officer, employee, independent contractor or agent of the Trust. Any Trustee,
officer, employee, independent contractor or agent of the Trust, including the Administrator and NBC Trust Company, may, in its
personal capacity or in the capacity of trustee, manager, officer, director, shareholder, partner, member, advisor, employee of
any Person or otherwise, have business interests and holdings similar to or in addition to those relating to the Trust, including
business interests and holdings that are competitive with the Trust. Any Trustee, officer, employee, independent contractor or
agent of the Trust, including the Administrator and NBC Trust Company, may be a trustee, manager, officer, director, shareholder,
partner, member, advisor, employee or independent contractor of, or otherwise have a direct or indirect interest in, any Person
who may be engaged to render advice or services to the Trust, and may receive compensation from such Person as well as compensation
as a Trustee, employee, independent contractor or agent, including as manager or from the Administrator or NBC Trust Company, or
otherwise hereunder so long as such interest is disclosed to the Trustees. None of these activities in and of themselves shall
be deemed to conflict with its duties as a Trustee, officer, employee, independent contractor or agent of the Trust, including
as the Administrator or as NBC Trust Company. The doctrine of corporate opportunity, or any analogous doctrine, shall not apply
to the Trustees or officers or other agents of the Trust or the Trust Subsidiaries, including the Administrator and NBC Trust Company.
No Trustee or officer who acquires knowledge of a potential transaction, agreement, arrangement or other matter that may be an
opportunity for the Trust shall have any duty to communicate or offer such opportunity to the Trust, and such Trustee shall not
be liable to the Trust or to the Beneficiaries for breach of any fiduciary or other duty by reason of the fact that such Trustee
pursues or acquires for, or directs such opportunity to another Person or does not communicate such opportunity or information
to the Trust. Neither the Trust nor any Beneficiary shall have any rights or obligations by virtue of this Agreement or the trust
relationship created hereby in or to such independent ventures or the income or profits or losses derived therefrom, and the pursuit
of such ventures, even if competitive with the activities of the Trust, shall not be deemed wrongful or improper. Any Trustee may
engage or be interested in any financial or other transaction with the Beneficiaries or any Affiliate of the Trust or the Beneficiaries,
or may act as a depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations
of the Trust or the Beneficiaries or their Affiliates.
Article
VIII
DUTIES AND LIABILITIES OF THE TRUSTEES,
BENEFICIARIES AND AGENTS; INDEMNIFICATION
8.1
Generally
.
The Trustees accept and undertake to discharge the Trust, upon the terms and conditions hereof, on behalf of the Beneficiaries.
Each Trustee shall exercise such rights and powers vested in the Trustees by this Agreement in good faith, and use the same degree
of care and skill in his, her, or its exercise as a prudent man or woman would exercise or use under the circumstances in the conduct
of his or her own affairs, and no Trustee shall have or be deemed to have any fiduciary or other duty to the Trust, any Trust Subsidiary,
any Beneficiary, any Trustee or any other Person, except for such duties as are expressly provided by this Agreement. The provisions
of this Agreement, to the extent that they restrict or otherwise limit the duties and liabilities of the Trustees otherwise existing
at law or in equity are agreed by the parties hereto to replace such other duties and liabilities of the Trustees. To the maximum
extent that Maryland law in effect from time to time permits limitation of the liability of trustees or officers of a Maryland
statutory trust, no present or former Trustee or officer or other agent of the Trust or of any Trust Subsidiary
,
including
the Administrator and NBC Trust Company, shall be subject to any personal liability whatsoever in tort, contract or otherwise,
to the Trust, any Beneficiary or any other Person. Neither the amendment nor repeal of this
Section 8.1
, nor the adoption
or amendment of any other provision of this Agreement inconsistent with this
Section 8.1
, shall apply to or affect in any
respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment,
repeal or adoption. In addition, notwithstanding the foregoing:
(a)
no
successor Trustee shall be responsible for the acts or omissions of a Trustee in office prior to the date on which such successor
becomes a Trustee;
(b)
the
Trustees shall not be required to perform any duties or obligations except for the performance of such duties and obligations as
are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against
the Trustees;
(c)
in
the absence of bad faith on the part of the Trustees, the Trustees may conclusively rely, as to the truth, accuracy and completeness
thereof, on the statements and certificates or opinions furnished to the Trustees and conforming to the requirements of this Agreement;
(d)
no
Trustee shall be liable for any act which such Trustee may do or omit to do hereunder, or for any mistake of fact or law, or for
any error of judgment, or for the misconduct of any employee, agent, representative or attorney appointed by the Trustees, or for
anything that it may do or refrain from doing in connection with this Agreement while acting in good faith; and
(e)
no
Trustee shall be liable with respect to any action taken or omitted to be taken by such Trustee in accordance with (i) a written
opinion of legal counsel addressed to the Trustees or (ii) the direction of Beneficiaries having aggregate Beneficial Interests
of at least a majority of all Beneficial Interests relating to the exercise by the Trustees of any trust or power conferred upon
the Trustees under this Agreement.
8.2
Reliance
by Trustees
.
(a)
The
Trustees may consult with legal counsel, auditors or other experts to be selected by them and the advice or opinion of such counsel,
auditors, or other experts shall be full and complete personal protection to the Trustees and agents of the Trust in respect of
any action taken or suffered by the Trustees in good faith and in the reliance on, or in accordance with, such advice or opinion.
(b)
Persons
dealing with the Trustees shall look only to the Trust Assets to satisfy any liability incurred by the Trustees to such Person
in carrying out the terms of the Trust, and the Trustees shall have no personal or individual obligation to satisfy any such liability.
(c)
As
far as reasonably practicable, the Trustees shall cause any written instrument creating an obligation of the Trust to include a
reference to this Agreement and to provide that neither the Beneficiaries, the Trustees nor their agents shall be liable thereunder,
and that the other parties to such instrument shall look solely to the Trust Assets for the payment of any claim thereunder or
the performance thereof;
provided
that the omission of such provision from any such instrument shall not render the Beneficiaries,
the Trustees or their agents liable, nor shall the Trustees be liable to anyone for such omission.
8.3
Limitation
on Liability to Third Persons
. No Beneficiary shall be subject to any personal liability whatsoever, in tort, contract, or
otherwise, to any Person in connection with the Trust Assets or the affairs of the Trust. To the maximum extent that Maryland law
in effect from time to time permits limitation of the liability of trustees or officers of a Maryland statutory trust, no present
or former Trustee or officer or other agent of the Trust or of any Trust Subsidiary, including the Administrator and NBC Trust
Company, shall be subject to any personal liability whatsoever in tort, contract or otherwise, to the Trust, any Beneficiary or
any other Person. All Persons shall look solely to the Trust Assets for satisfaction of claims of any nature arising in connection
with the affairs of the Trust. The Trustees shall, at all times, at the expense of the Trust, maintain insurance for the protection
of the Trust Assets, its Beneficiaries, the Trustees and agents in such amount as the Trustees shall deem adequate, in the exercise
of their discretion, to cover all foreseeable liability to the extent available at reasonable rates. Neither the amendment nor
repeal of this
Section 8.3
, nor the adoption or amendment of any other provision of this Agreement inconsistent with this
Section 8.3
, shall apply to or affect in any respect the applicability of the preceding sentences with respect to any act
or failure to act which occurred prior to such amendment, repeal or adoption.
8.4
Recitals
.
Any written instrument creating an obligation of the Trust shall be conclusively taken to have been executed or done by a Trustee
or agent of the Trust only in its capacity as a Trustee under this Agreement, or in its capacity as an agent of the Trust.
8.5
Indemnification
.
The Trustees and each Person appointed or employed by the Trustees pursuant to
Section 5.11
, including the Administrator
and NBC Trust Company, and the directors, officers, employees, managers and agents of each Trustee (each such person an “Indemnified
Person” and collectively the “Indemnified Persons”), shall, to the fullest extent permitted by law, be indemnified
out of the Trust Assets against all claims, actions, liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, and counsel fees, reasonably incurred by the Indemnified Persons in connection with the
defense or disposition of any action, suit or other proceeding by the Trust, the Administrator, NBC Trust Company, or any other
Person, whether civil or criminal, in which the Indemnified Person may be involved or with which the Indemnified Person may be
threatened: (a) in the case of a Trustee or a Person appointed by the Trustees pursuant to
Section 5.11
, including the Administrator
and NBC Trust Company, while in office or thereafter, by reason of his being or having been such a Trustee, the Administrator,
NBC Trust Company, employee or agent including, without limitation, in connection with or arising out of any action, suit or other
proceeding based on any alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act of any such
Trustee, the Administrator, NBC Trust Company or Person in such capacity: and (b) in the case of any director, officer, employee,
manager or agent of any such Person, by reason of any such Person exercising or failing to exercise any right or power hereunder.
The rights accruing to any Indemnified Person under these provisions shall not exclude any other right to which the Indemnified
Person may be lawfully entitled;
provided
that no Indemnified Person may satisfy any right of indemnity or reimbursement
granted herein, or to which the Indemnified Person may be otherwise entitled, except out of the Trust Assets, and no Beneficiary
shall be personally liable to any person with respect to any claim for indemnity or reimbursement or otherwise. The Trustees shall
make advance payments in connection with indemnification under this
Section 8.5
, provided that the Indemnified Person shall
have given a written undertaking to repay any amount advanced to the Indemnified Person and to reimburse the Trust in the event
that it is subsequently determined that the Indemnified Person is not entitled to such indemnification. The Trustees shall cause
the Trust to purchase such insurance as they believe, in the exercise of their discretion, adequately insures that each Indemnified
Person shall be indemnified against any such claims, actions, liabilities and expenses pursuant to this
Section 8.5
, which
insurance will be similar in coverage for such Indemnified Person as the Company’s Directors and Officers insurance policy
in place before the Conversion Date. Nothing contained herein shall restrict the right of the Trustees to indemnify or reimburse
such Indemnified Person in any proper case, even though not specifically provided for herein, nor shall anything contained herein
restrict the right of any such Indemnified Person to contribution under applicable law.
8.6
Reliance
on Statements by Trustees
. Any Person dealing with the Trustees shall be fully protected in relying upon a certificate of the
Trustees with respect to the authority that a Trustee, or any officer or agent of the Trust, has to take any action with respect
to the Trust. Any Person dealing with the Trustees shall be fully protected in relying upon a certificate of the Trustees setting
forth the facts concerning any action taken by a Trustee pursuant to this Agreement.
Article
IX
CERTAIN MATTERS CONCERNING THE BENEFICIARIES
9.1
Evidence
of Action by Beneficiaries
. Whenever in this Agreement it is provided that the Beneficiaries may take any action (including
the making of any demand or request, the giving of any notice, consent, or waiver, the removal of a Trustee, the appointment of
a successor Trustee, or the taking of any other action), the fact that at the time of taking any such action such Beneficiaries
have joined therein may be evidenced: (a) by any instrument or any number of instruments of similar tenor executed by the Beneficiaries
in person or by proxy, agent or attorney appointed in writing; or (b) by the record of the Beneficiaries voting in person or by
proxy in favor thereof at any meeting of Beneficiaries duly called and held in accordance with the provisions of
Article X
.
9.2
Limitation
on Suits by Beneficiaries
. No Beneficiary shall have any right by virtue of any provision of this Agreement to institute any
action or proceeding at law or in equity against any party other than the Trustees upon or under or with respect to the Trust Assets
or the agreements relating to or forming part of the Trust Assets, and the Beneficiaries (by their acceptance of any distribution
made to them pursuant to this Agreement) waive any such right.
9.3
Requirement
of Undertaking
. The Trustees may request any court to require, and any court may in its discretion require, in any suit for
the enforcement of any right or remedy under this Agreement, or in any suit against the Trustees for any action taken or omitted
to be taken by them as Trustees, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit,
and such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees, against any party litigant
in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided that
the provisions of this
Section 9.3
shall not apply to any suit by the Trustees.
Article
X
MEETINGS OF BENEFICIARIES
10.1
Purpose
of Meetings
. A meeting of the Beneficiaries may be called at any time and from time to time pursuant to the provisions of this
Article for the purposes of taking any action which the terms of this Agreement expressly permit Beneficiaries to take either acting
alone or with the Trustees.
10.2
Meeting
Called by Trustees
. The Trustees may at any time call a meeting of the Beneficiaries to be held at such time and at such place
as the Trustees shall determine. Written notice of any meeting of the Beneficiaries shall be given by the Trustees (except as provided
in
Section 10.3
), which written notice shall set forth the time and place of such meeting and in general terms the action
proposed to be taken at such meeting, and shall be mailed not more than 60 nor less than 10 days before such meeting is to be held
to all of the Beneficiaries of record not more than 60 days before the date of such meeting. The notice shall be directed to the
Beneficiaries at their respective addresses as they appear in the records of the Trust.
10.3
Meeting
Called on Request of Beneficiaries
. Within 30 days after written request to the Trustees by Beneficiaries holding an aggregate
of at least a majority of the total Units held by all Beneficiaries to call a meeting of all Beneficiaries (but only to transact
business permitted by
Section 10.1
hereof), which written request shall specify in reasonable detail the action proposed
to be taken, the Trustees shall proceed under the provisions of
Section 10.2
to call a meeting of the Beneficiaries.
10.4
Persons
Entitled to Vote at Meeting of Beneficiaries
. Each Beneficiary shall be entitled to vote at a meeting of the Beneficiaries
either in person or by his proxy duly authorized in writing. The signature of the Beneficiary on such written authorization need
not be witnessed or notarized. Each Beneficiary shall be entitled to a number of votes equal to the number of Units held by such
Beneficiary as of the applicable record date.
10.5
Quorum;
Vote Required for Approval
. Except as otherwise required by this Agreement or law, Beneficiaries holding at least the number
of Units in the aggregate sufficient to take action on any matter for which such meeting was called shall be necessary to constitute
a quorum at any meeting of Beneficiaries for the transaction of business. If less than a quorum is present, the Trustees or Beneficiaries
having aggregate Units of at least a majority of the total Units held by all Beneficiaries represented at the meeting may adjourn
such meeting with the same effect and for all intents and purposes as though a quorum had been present. Except to the extent a
different percentage is specified in this Agreement for a particular matter or is required by law, when a quorum is present, any
act requiring the approval of the Beneficiaries shall be approved by the affirmative vote of a majority of all the votes entitled
to be cast on the matter.
10.6
Adjournment
of Meeting
. Subject to
Section 10.5
, meeting of Beneficiaries may be adjourned from time to time and a meeting may be
held at such adjourned time and place without further notice.
10.7
Conduct
of Meetings
. The Trustees shall appoint the Chairman and the Secretary of the meeting and may adopt such rules for the conduct
of such meeting as it shall deem appropriate, provided that such rules shall not be inconsistent with the provisions of this Agreement.
The vote upon any resolution submitted to any meeting of Beneficiaries shall be by written ballot. An Inspector of Votes, appointed
by the Chairman of the meeting, shall count all votes cast at the meeting, in person or by proxy, for or against any resolution
and shall make and file with the Secretary of the meeting their verified written report. In the event that a meeting of the Beneficiaries
is held when there are no Trustees then in office, the Beneficiaries present or represented by proxy may adopt such rules for the
conduct of such meeting as they shall deem appropriate, provided that such rules shall not be inconsistent with the provisions
of this Agreement.
10.8
Record
of Meeting
. A record of the proceedings of each meeting of Beneficiaries shall be prepared by the Secretary of the meeting.
The record shall be signed and verified by the Secretary of the meeting and shall be delivered to the Trustees to be preserved
by them. Any record so signed and verified shall be conclusive evidence of all of the matters therein stated.
Article
XI
AMENDMENTS
11.1
Amendments
Requiring Consent of Beneficiaries
. This Agreement may be amended from time to time by the Trustees, with the approval of Beneficiaries
holding a majority of the total Units outstanding, or such greater or lesser percentage as shall be specified in this Agreement
for the taking of an action by the Beneficiaries under the affected provision of this Agreement, obtained at a meeting of the Beneficiaries
duly called for such purpose;
provided
that no such amendment shall increase the potential liability of the Trustees hereunder
without the written consent of the Trustees;
provided
,
further
, that no such amendment shall permit the Trustees
to engage in any activity prohibited by
Section 7.1
hereof or affect the Beneficiaries’ rights to receive their pro
rata shares of the Trust Assets at the time of any distribution, and no such amendment shall, or cause the Trustees to take any
action that would, jeopardize the status of the Trust as a “liquidating trust” for federal, state, or local income
tax purposes within the meaning of Treasury Regulation Section 301.7701-4(d) and any analogous provision of state or local law
or jeopardize the Beneficiaries treatment as other than the owners of their respective shares of the Trust’s taxable income
pursuant to Section 671 through 679 of the Code and any analogous provision of state or local law.
11.2
Amendments
Not Requiring Consent of Beneficiaries
. This Agreement may be amended from time to time by the Trustees, without the consent
of any of the Beneficiaries, (a) to add to the representations, duties or obligations of the Trustees or surrender any right or
power granted to the Trustees herein; (b) to facilitate the transferability by Beneficiaries of Trust Units, subject to the ability
of the liquidating trust to remain eligible for relief from the registration and reporting requirements under the Exchange Act,
(c) to comply with applicable laws, including tax laws or to satisfy any requirements, conditions, guidelines or opinions contained
in any opinion, directive, order, ruling or regulation of the Commission, the Internal Revenue Service or any other U.S. federal
or state or non-U.S. governmental agency, compliance with which the Trustees deem to be in the best interest of the Beneficiaries
as a whole, (d) to enable the Trust to obtain no-action assurances from the staff of the Commission regarding relief from registration
and reporting requirements under the Exchange Act, which relief the Trustees deem to be in the best interest of the Beneficiaries
as a whole, (e) to enable the Trust to be treated as a liquidating trust under Treasury Regulation Section 301.7701-4(d) and any
analogous provision of state or local law, if the Trustees deem it to be in the best interests of the Beneficiaries as a whole,
or (f) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision
herein, or to add any other provision with respect to matters or questions arising under this Agreement which will not be inconsistent
with the provisions of this Agreement.
11.3
Notice
and Effect of Amendment
. Upon the execution of any such declaration of amendment by the Trustees, this Agreement shall be deemed
to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties, and immunities
of the Trustees and the Beneficiaries under this Agreement shall thereafter be determined, exercised and enforced hereunder subject
in all respects to such modification and amendments, and all the terms and conditions of any such amendment shall thereby be deemed
to be part of the terms and conditions of this Agreement for any and all purposes.
Article
XII
MISCELLANEOUS PROVISIONS
12.1
Filing
Documents
. This Agreement shall be filed or recorded in such office or offices as the Trustees may determine to be necessary
or desirable. A copy of this Agreement and all amendments thereof shall be maintained in the principal executive office of the
Trust and shall be available at all times during regular business hours for inspection by any Beneficiary or such Beneficiary’s
duly authorized representative. The Trustees shall file or record any amendment of this Agreement in the same places where the
original Agreement is filed or recorded to the extent the Trustees may determine such filing to be necessary or desirable. The
Trustees shall file or record any instrument which relates to any change in the name or office of a Trustee in the same places
where the original Agreement is filed or recorded to the extent the Trustees may determine such filing to be necessary or desirable.
12.2
Intention
of Parties to Establish Trust
. This Agreement is not intended to create, and shall not be interpreted as creating, a corporation,
association, partnership, or joint venture of any kind for purposes of federal income taxation or for any other purpose.
12.3
Laws
as to Construction
. This Agreement, the internal affairs of the Trust, and the liability of the Trustees as trustees, and the
Beneficiaries as holders of Beneficial Interests, for any debt, obligation, or other liability of the Trust shall be governed by
and construed in accordance with the internal laws of the State of Maryland, except to the extent that the provisions of any applicable
law are permitted to be varied by the provisions of the Agreement, in which event the provisions of this Agreement shall govern;
provided that the Maryland Act (except as varied hereby), and not the laws applicable to common law trusts, shall govern the Trust,
this Agreement, and the rights and obligations of the Trustees and the Beneficiaries. The Trustees, the Company and the Beneficiaries
(by their acceptance of any distributions made to them pursuant to this Agreement) consent and agree that this Agreement shall
be governed by and construed in accordance with such laws.
12.4
Beneficiaries
Have No Rights or Privileges as Stockholders
. Except as expressly provided in this Agreement or under applicable law, the Beneficiaries
shall have no rights or privileges as Beneficiaries attributable to their former status as Stockholder.
12.5
Exclusive
Forum for Certain Litigation
. Unless the Trustees consent in writing to the selection of an alternative forum, the Circuit
Court for Baltimore City, Maryland, or, if that Court does not have jurisdiction, the United States District Court for the District
of Maryland, Baltimore Division, shall be the sole and exclusive forum for (a) any action asserting a claim of breach of any duty
owed by any Trustee or any officer, employee, independent contractor or agent of the Trust or any Trust Subsidiary, including the
Administrator, to the Trust or any Beneficiary or such Beneficiary’s heirs or devisees or, if applicable, plan participant
or account owner, (b) any action asserting a claim against the Trust or any Trustee or any officer, employee, independent contractor
or agent of the Trust or any Trust Subsidiary, including the Administrator, pursuant to any provision of the Maryland Statutory
Trust Act or this Agreement or (c) any action asserting a claim against the Trust or any Trustee or any officer, employee, independent
contractor or agent of the Trust or any Trust Subsidiary, including the Administrator that is governed by the internal affairs
doctrine.
12.6
Severability
.
In the event any provision of this Agreement or the application thereof to any Person or circumstances shall be finally determined
by a court of proper jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement, or the application
of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each provision of this Agreement shall be valid and enforced to the fullest extent permitted by law.
12.7
Notices
.
(a)
Any
notice or other communication by the Trustees to any Beneficiary shall be in writing and shall be deemed to have been duly given
for all purposes when (i) deposited in the mail, postage prepaid, for delivery to, or deposited with a courier service for delivery
to, such Person, or (ii) delivered personally to such Person, in each case at his address as shown in the records of the Trust.
(b)
All
notices and other communications under this Agreement to any party hereto shall be in writing and shall be deemed to have been
duly given for all purposes when (i) deposited in the mail, postage prepaid, for delivery to, or deposited with a courier service
for delivery to, such party, or (ii) delivered personally, in each case at the following address or at such other addresses as
shall be specified by the parties by like notice.
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(A)
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If to the Trust or the Trustees:
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Crossroads Liquidating Trust
128 N. 13
th
Street, Suite 1100
Lincoln, Nebraska 68508
Crossroads Capital, Inc.
128 N. 13
th
Street, Suite 1100
Lincoln, Nebraska 68508
12.8
Counterparts
.
This Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together
constitute one and the same instrument.
[Signature page follows.]
IN WITNESS WHEREOF, Crossroads
Capital, Inc. has caused this Agreement to be executed by an authorized officer, and the Trustees herein have executed this Agreement,
effective this ______ day of _________________, 2017.
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THE COMPANY
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Crossroads Capital, Inc.
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By:
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Ben H. Harris
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President and Chief Executive Officer
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THE TRUSTEES
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By:
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Andrew Dakos
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By:
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Phillip Goldstein
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By:
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Gerald Hellerman
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Annex A
ARTICLES OF CONVERSION
CONVERTING
CROSSROADS CAPITAL, INC.
TO
CROSSROADS LIQUIDATING TRUST
Pursuant to the provisions of
§3-903 of the Maryland General Corporation law, Crossroads Capital, Inc., a Maryland Corporation, hereby certifies as follows:
Article I
The name of the Maryland Corporation
is Crossroads Capital, Inc. (the “Converting Corporation”). The Converting Corporation’s Articles of Incorporation
were filed on May 9, 2008.
Article II
The Converting Corporation is
converting into Crossroads Liquidating Trust, a statutory trust formed under the general laws of the State of Maryland (the “Converted
Trust”).
Article III
The terms and conditions of the
conversion have been approved by the board of directors and stockholders of the Converting Corporation in accordance with §3-902
of the Maryland General Corporation Law and the Converting Corporation’s Articles of Amendment and Restatement, as amended,
and the Amended and Restated Bylaws, as amended.
Article IV
Each outstanding share of preferred
and common stock of the Converting Corporation, par value $0.001 per share, shall, without any further action on the part of any
stockholder of the Converting Corporation, be converted into and exchanged for one unit of beneficial interest of the Converted
Trust. There has been no preferred stock issued.
Article V
These Articles of Conversion
shall become effective at ____________.
Article VI
The Converting Corporation shall
cease to exist as a Maryland corporation and shall continue to exist as the Converted Trust, and the Converted Trust, for all purposes
of the laws of the State of Maryland, shall be deemed to be the same entity as the Converting Corporation. All the assets of the
Converting Corporation, including any legacies that it would have been capable of taking, shall vest in and devolve on the Converted
Trust without further act or deed and shall be the property of the Converted Trust, and the Converted Trust shall be liable for
all of the debts and obligations of the Converting Corporation.
IN WITNESS WHEREOF
,
these Articles of Conversion are hereby executed for and on behalf of Crossroads Capital, Inc. by its President and Chief Executive
Officer, who does hereby acknowledge that said Articles of Conversion are the act of said corporation, and who does hereby state
under penalties of perjury that the matters and facts set forth therein with respect to authorization and approval of said conversion
are true in all material respects to the best of his knowledge, information and belief.
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CROSSROADS CAPITAL, INC.
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By:
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Name:
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Ben H. Harris
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Title:
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President and Chief Executive Officer
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Attest:
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Name:
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David M. Hadani
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Title:
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Secretary
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I hereby certify that on ______________________________,
2017, before me, the subscriber, a notary public for the state and county aforesaid, personally appeared Ben H. Harris, President
and Chief Executive Officer of Crossroads Capital, Inc., a corporation party to the annexed Articles of Conversion, and, on behalf
of the said corporation, acknowledged the annexed Articles of Conversion to be the act of said corporation.
WITNESS my hand and notarial
seal the date first above written.
[Affix Notarial Seal]
Annex B
CERTIFICATE OF TRUST
THIS IS TO CERTIFY THAT:
The undersigned trustees hereby form a statutory
trust pursuant to the laws of the State of Maryland.
1.
Trust
Name.
The name of the statutory trust is Crossroads Liquidating Trust.
2.
Resident
Agent.
The name and address of the Resident Agent of the Trust are The Corporation Trust Incorporated, 351 West
Camden Street, Baltimore, MD 21201.
3.
Principal
Office.
The address of the Principal Office of the Trust in the state of Maryland is: c/o The Corporation Trust
Incorporated, 351 West Camden Street, Baltimore, MD 21201.
4.
Governance.
The Trust shall be governed by that certain Liquidating Trust Agreement dated as of ______________, 2017 by and among
Crossroads Capital, Inc., and Andrew Dakos, Phillip Goldstein and Gerald Hellerman, as Trustees, as may be amended from time
to time.
The undersigned, being the trustees of the Trust,
acknowledges under the penalties for perjury that, to the best of his knowledge and belief, the facts stated herein are true.
IN WITNESS WHEREOF, the undersigned trustees have
signed this Certificate of Trust as of this ____ day of ____________, 2017.
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TRUSTEES
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By:
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Andrew Dakos
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By:
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Phillip Goldstein
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By:
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Gerald Hellerman
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I hereby consent to my designation as Resident
Agent for:
CROSSROADS LIQUIDATING TRUST
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THE CORPORATION TRUST INCORPORATED
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By:
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Name:
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Title:
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CROSSROADS CAPITAL, INC.
Proxy Solicited on Behalf of the Board of Directors
for a Special Meeting of Stockholders
June 2, 2017
The undersigned hereby appoints
Ben H. Harris and David M. Hadani and each of them, with full power of substitution, and hereby authorizes them to represent the
undersigned and to vote all of the shares of Common Stock of CROSSROADS CAPITAL, INC. (the “
Company
”) held of
record by the undersigned on
April 3, 2017
at the Special Meeting of Stockholders of the Company to be held on
June 2,
2017
and any adjournment(s) thereof.
The proxy when properly executed
will be voted as directed by the undersigned stockholder. If not indicated, the proxy will be voted FOR the proposals described
in items 1, 2, and 3. The proxies, in their discretion, are further authorized to vote (a) on matters which the Board of Directors
did not know would be presented at the Special Meeting within the time period specified in the Company’s Bylaws; and (b)
on other matters which may properly come before the Special Meeting and any adjournments or postponements thereof.
(continued, and to be signed on reverse side)
Address Change/Comments (Mark the corresponding box on the reverse side)
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Please Mark Here for Address Change or Comments SEE REVERSE SIDE
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☐
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FOR
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AGAINST
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ABSTAIN
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1.
To authorize the withdrawal of the Company’s election to be regu
lated
as a business development company under the Investment Company Act of 1940, as amended;
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☐
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☐
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2.
To approve any adjournments of the special meeting (i) to permit time to voluntarily delist the Company from NASDAQ and to
begin the process of implementing Proposal 1 and (ii) to solicit additional proxies if there are not sufficient votes at the
special meeting to approve Proposal 1 or Proposal 3 or the other transactions contemplated by such proposals; and
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☐
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☐
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☐
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3.
To authorize a Plan of Liquidation to convert the Company into a liquidating trust for the purpose of liquidating and distributing
the Company’s assets, if Proposal 1 is approved.
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☐
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☐
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☐
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P
LEASE SIGN, DATE AND RETURN THIS PROXY USING THE ENCLOSED ENVELOPE.
Please sign your name exactly as it appears hereon. If signing for estates,
trusts, corporations or partnerships, title or capacity should be stated. If shares are held jointly, each holder should sign.