UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _________________
Commission File Number: 0-20671
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
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(Exact name of registrant as specified in its charter)
Texas 75-2533518
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(State or other jurisdiction(I.R.S. Employer I.D. No.)
of incorporation or organization)
8080 North Central Expressway, Dallas, Texas 75206-1857
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(Address of principal executive offices)(Zip Code)
214/891-8294
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No _____
4,361,617 shares of common stock were outstanding at May 15, 2001.
The Registrant's Registration Statement on Form N-2 was declared effective by
the Securities and Exchange Commission on May 6, 1994.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Assets and Liabilities
(Unaudited)
Assets
December 31, 2000 March 31, 2001
Cash and cash equivalents $18,206,540 $19,017,192
Investments, at fair value, cost of
$39,985,786 and $37,045,211 45,367,138 45,284,310
Accounts receivable 464,110 637,441
Other assets 39,812 33,414
----------- ----------
$64,077,600 $64,972,357
=========== ===========
Liabilities and Net Assets
Liabilities:
Securities sold under agreements
to repurchase $16,482,024 $16,966,529
Accounts payable 14,082 9,407
Accounts payable - affiliate 235,427 250,574
Dividends payable - -
------------ -----------
16,731,533 17,226,510
------------ -----------
Net Assets:
Common stock, $1 par value;
20,000,000 shares authorized;
4,561,617 issued, and 4,361,617
outstanding 4,561,618 4,561,618
Additional paid-in capital 38,799,907 38,799,907
Treasury stock at cost,
200,000 shares at December
31, 2000 and at March 31, 2001 (1,665,220) (1,665,220)
Undistributed net investment income 5,649,762 6,049,542
----------- ----------
Net assets, equivalent to $10.86
and $10.95 per share on the shares
outstanding on December 31, 2000
and March 31, 2001 47,346,067 47,745,847
Commitments and contingencies - -
----------- -----------
$64,077,600 $64,972,357
=========== ===========
Net asset value per share $ 10.86 $ 10.95
=========== ===========
See accompanying notes.
Page 2
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Operations
(Unaudited)
Three Months Ended March 31,
2000 2001
------- -------
Investment Income:
Interest $ 365,529 $ 294,736
Dividends 29,874 23,329
Other investment income 76,250 6,420
----------- -----------
Total investment income 471,653 324,485
----------- -----------
Expenses:
Bank charges 8,734 5,449
Directors' fees 14,000 15,750
Legal and professional 63,893 41,037
Management fees 347,506 209,806
Taxes (878) -
Other 50,292 42,737
----------- -----------
Total expenses 483,547 314,779
----------- -----------
Net investment income (11,894) 9,706
Realized gain on investments 6,444,540 (2,467,658)
Unrealized gain (loss) on investments 25,104,421 2,857,732
----------- -----------
Net increase (decrease) in net assets
resulting from operations $31,537,067 $ 399,780
=========== ===========
See accompanying notes.
Page 3
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Changes in Net Assets
(Unaudited)
Three Months Ended March 31,
2000 2001
------- -------
Increase (decrease) in net assets
resulting from operations
Investment income - net $ (11,894) $ 9,706
Realized gain on investment 6,444,540 (2,467,658)
Unrealized gain (loss) on investments 25,104,421 2,857,732
----------- ----------
Net increase (decrease) in net assets
resulting from operations 31,537,067 399,780
Distributions to shareholders - -
Cost of shares repurchased - -
----------- ----------
Total increase (decrease) 31,537,067 399,780
Net assets
Beginning of period 45,934,306 47,346,067
----------- -----------
End of period $77,471,373 $47,745,847
=========== ===========
See accompanying notes.
Page 4
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
March 31, 2001
1. Organization and Business Purpose
Renaissance Capital Growth & Income Fund III, Inc. (the "Fund"), a Texas
corporation formed in 1994, is a non-diversified closed-end investment
company and has elected to be treated as a business development company
under the Investment Company Act of 1940, as amended ("1940 Act"). The
Fund seeks to achieve current income and capital appreciation by
investing primarily in unregistered convertible securities of emerging
growth size companies.
2. Significant Accounting Policies
A. Federal Income Taxes - The Fund has elected the special income tax
treatment available to a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code in order to be relieved of
federal income tax on that part of its net invest- ment income and
realized capital gains that it pays out to its share- holders. If a RIC
meets certain diversification and distribution requirements under the
Code, it qualifies for pass-through tax treatment. The Fund would cease
to qualify for pass-through tax treat- ment if it were unable to comply
with these requirements. Failure to qualify as a RIC would subject the
Fund to federal income tax as if the Fund were an ordinary corporation,
which could result in a substantial reduction in both the Fund's net
assets and the amount of income available for distribution to
shareholders.
B. Distributions to Shareholders - Dividends paid to shareholders are
recorded on the ex-dividend date. There were no dividends during the
quarter ended March 31, 2001.
C. Management Estimates - The financial statements have been prepared in
conformity with generally accepted accounting principles. The prepa-
ration of the accompanying financial statements requires estimates and
assumptions made by the Investment Adviser as to the valuation of
investments that effect the amounts and disclosures in the financial
statements. Actual results could differ significantly from those
estimates.
D. Financial Instruments - In accordance with the reporting require-
ments of Statement of Financial Accounting Standards No. 107, "Disclo-
sures about Fair Value of Financial Instruments," the Company calculates
the fair value of its financial instruments and includes this additional
information in the notes to the financial statements when the fair value
is different than the carrying value of those financial instruments.
When the fair value reasonably approximates the carrying value, no
additional disclosure is made.
3. Investment Advisory Agreement
The Investment Adviser for the Fund is registered as an investment
adviser under the Investment Advisers Act of 1940. Pursuant to an
Investment Advisory Agreement, the Investment Adviser performs certain
services, including certain management, investment advisory and
administrative services necessary for the operation of the Fund. The
Investment Adviser receives a fee equal to .4375% (1.75% annually) of
the net assets each quarter. The Fund accrued a liability of $209,806
for such operational management fees performed during the quarter ended
March 31, 2001.
Page 5
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 2001
3. Investment Advisory Agreement
In addition to the management fee, the Investment Advisory Agreement
entitles the Investment Adviser to an incentive fee equal to 20% of any
net realized capital gains after allowance for any unrealized capital
depreciation of the Fund. This management incentive fee is calculated on
a quarterly basis. There were no incentive fees earned for the quarterly
period that ended March 31, 2001.
Finally, the Investment Adviser is reimbursed for administrative
expenses paid by the Investment Adviser on behalf of the Fund. Such
reimbursement was $63,802 for the quarter ending March 31, 2001, and is
included in general and administrative expenses in the accompanying
statement of operations.
4. Capital Share Transactions
As of March 31, 2001 there were 20,000,000 shares of $1 par value
capital stock authorized, 4,561,617 shares issued, 4,361,617 shares
outstanding, and additional paid-in capital aggregating $41,696,305.
Year-to-date transactions in capital stock are as follows:
Shares Amount
Balance December 31, 2000 4,361,617 $41,696,306
Shares repurchased - -
--------- -----------
Balance March 31, 2001 4,361,617 $41,696,306
========= ===========
5. Temporary Investments
At March 31, 2001, temporary investments were held in a money market
fund made up of U.S. Treasury obligations and a U.S. Treasury bill. As
additional cash is realized from the liquidation of investments,
temporary investments will also be comprised of U. S. Government and
Agency obligations having slightly higher yields and maturity dates of
three months or less. These investments qualify for investment as
permitted in Section 55(a) (1) through (5) of the 1940 Act.
The Fund invests primarily in convertible securities and equity invest-
ments of companies that qualify as eligible portfolio companies, as
defined in Section 2(a)(46) of the 1940 Act, or in securities that
otherwise qualify for investment as permitted in Section 55(a)(1)
through (5) of the 1940 Act. Under the provisions of the 1940 Act at
least 70% of the Fund's assets, as defined under the 1940 Act, must be
invested in eligible portfolio companies (as defined in the 1940 Act).
In the event the Fund has less than 70% of its assets in eligible
portfolio investments, then it will be prohibited from making non-
eligible investments until such time as the percentage of eligible
investments again exceeds the 70% threshold. At March 31, 2001, the Fund
had more than 70% of its assets in eligible portfolio investments.
Page 6
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 2001
6. Investments
The Fund's investments are carried in the statements of assets and
liabilities as of March 31, 2001, at fair value as determined by the
Investment Advisor. The convertible debt securities held by the Fund
generally have maturities between five and seven years and are
convertible into the common stock of the issuer at a set conversion
price at the discretion of the Fund. The common stock underlying these
securities is generally unregistered and thinly to moderately traded. In
certain instances, the Fund has registration rights. In addition, the
Fund may sell restricted securities pursuant to Rule 144 of the
Securities Act of 1933.
Interest on convertible debentures is generally payable monthly. The
convertible debt securities generally contain embedded call options
giving the issuer the right to call the underlying issue. In these
instances, the Fund has the right of redemption or conversion. The
embedded call option will generally not vest until certain conditions
are achieved by the issuer. Such conditions may require that minimum
thresholds be met relating to underlying market prices, liquidity, and
other factors.
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
Active Link Communications, Inc.
8% Subordinated Convertible
Promissory Note $ 375,000 $ 375,000 $ 375,000
Bentley Pharmaceuticals, Inc.
Common Stock 1,947,140 4,310,840 4,267,730
CaminoSoft Corp.
Common Stock 4,625,000 4,500,000 4,355,000
CareerEngine Network, Inc.
12% Convertible Debenture 250,000 250,000 250,000
Dexterity Surgical, Inc.
9% Convertible Debenture 1,440,894 1,440,894 1,440,894
8% Convertible Preferred Stock 1,000,000 146,154 146,154
Common Stock 635,000 49,400 -0-
Display Technologies, Inc.
8.75% Convertible Debenture 1,750,000 1,750,000 1,750,000
5.25% Convertible Preferred Stock 500,000 24,000 24,000
Common Stock 1,049,741 21,313 21,100
Page 7
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 2001
6. Investments (continued)
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
The Dwyer Group, Inc.
Common Stock 1,966,632 1,687,500 1,670,625
eOriginal, Inc.
5% Convertible Preferred Stock 4,000,030 8,997,250 8,577,418
Fortune Natural Resources Corp.
Common Stock 545,500 454,639 450,093
Grand Adventures Tour & Travel
Publishing Corp.
10% Convertible Debenture 350,000 350,000 350,000
8% Convertible Debenture 1,000,000 1,000,000 1,000,000
Common Stock 130,089 17,063 16,892
Integrated Security Systems, Inc.
9% Promissory Notes 890,000 890,000 890,000
8% Convertible Promissory Note 500,000 500,000 500,000
9% Convertible Debenture 2,084,101 2,084,101 1,453,750
9% Convertible Preferred Stock 150,000 150,000 -0-
Common Stock 215,899 215,899 -0-
JAKKS Pacific, Inc.
Common Stock 3,132,460 5,709,312 5,652,219
Laserscope
8% Convertible Debenture 1,500,000 1,500,000 1,500,000
Medical Action Industries, Inc.
Common Stock 555,392 685,008 678,158
Play by Play Toys & Novelties, Inc.
8% Convertible Debenture 2,425,748 2,425,748 1,925,748
Poore Brothers, Inc.
Common Stock 1,963,170 6,035,491 5,623,362
RailAmerica, Inc.
6% Convertible Debenture 500,000 500,000 500,000
Simtek Corporation
Common Stock 195,000 690,000 598,600
Page 8
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 2001
6. Investments (continued)
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
SiVault, Inc.
Common Stock 350,000 350,000 175,000
ThermoView Industries, Inc.
Common Stock 500,000 -0- -0-
Verso Technologies, Inc.
Common Stock 512,500 134,530 76,459
Miscellaneous Securities 5,915 1,137,779 1,016,108
----------- ----------- -----------
$37,045,211 $48,381,921 $45,284,310
=========== =========== ===========
Pursuant to procedures established by the Investment Adviser, the fair value of
each investment is based upon its cost to the Fund. Costs are the primary factor
used to determine fair value until significant developments affecting the
investee company provide a basis for use in an appraisal valuation. The fair
value of debt securities and preferred securities convertible into common stock
is the sum of (a) the value of such securities without regard to the conversion
feature, and (b) the value, if any, of the conversion feature. The fair value of
debt securities without regard to conversion features is determined on the basis
of the terms of the debt security, the interest yield and the financial
condition of the issuer. The fair value of preferred securities without regard
to conversion features is determined on the basis of the terms of the preferred
security, its dividend, and its liquidation and redemption rights and absent
special circumstances will typically be equal to the lower of cost or 120% of
the value of the underlying common stock. The fair value of the conversion
features of a security, if any, are based on fair values as of the relevant date
less an allowance, as appropriate, for costs of registration, if any, and
selling expenses. Publicly traded securities, or securities that are convertible
into publicly traded securities, are valued at the last sale price, or in the
event an over the counter security has no closing price, then the security is
valued at the average closing bid and asked price, as of the valuation date.
While these valuations are believed to represent fair value, these values do not
necessarily reflect amounts which may be ultimately realized upon disposition of
such securities.
Page 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Material Changes in Portfolio Investments
The following portfolio transactions are noted for the quarter ended
March 31, 2001 (portfolio companies are herein referred to as the
"Company"):
Dexterity Surgical, Inc. (DEXT) In the first quarter ended March 31,
2001, the Company made principal repayments on the Fund's convertible
debentures of $59,106, reducing the outstanding principal balance on the
debentures to $1,440,894.
Renaissance US Growth & Income Trust, PLC ("RUSGIT") also received
$59,106 in principal repayments on its debentures in the first quarter,
reducing the outstanding balance on the RUSGIT debentures to $1,440,894.
Display Technologies, Inc. (DTEK) In the first quarter of 2001, the
Fund, together with RUSGIT and Raymond James Capital Partners, LP ("Raymond
James"), another significant DTEK investor, consummated a transaction with
the Company pursuant to an Agreement to Provide Guarantee ("Guarantee")
January 17, 2001. Pursuant to the Guarantee, Raymond James guaranteed
$1,750,000 of Company debt and RUSGIT agreed to indemnify Raymond James
with respect to any payments made by Raymond James pursuant to the
Guarantee up to $500,000. As consideration for the Guarantee, RUSGIT
received warrants to purchase 857,000 shares of the Company's common stock
at $0.125 per share and the debentures and preferred stock instruments
owned by both RUSGIT and the Fund had their respective conversion prices
reduced to $2.00 per share. Previously, the debentures for RUSGIT and the
Fund were convertible at $4.31 per share and the Series A convertible
preferred stock for both RUSGIT and the Fund had been convertible at $3.33
per share. The Fund did not participate in the Guarantee because the Fund
was fully invested at the time the Guarantee was made.
Integrated Security Systems, Inc. (IZZI) In January 2001, the Fund
advanced the Company $125,000 in senior preferred convertible promissory
notes bearing interest at 8% and maturing on or before May 12, 2001. The
note is convertible at the Fund's option into common stock of the Company
at a rate of $0.20 per share and is secured by that certain security
agreement executed by the Company in favor of the Fund entitling it to be
secured by all the assets of the parent Company and all its operating
subsidiaries. Subsequent to March 31, 2001, the Fund advanced an additional
$150,000 to the Company pursuant to an 8% convertible promissory note
bearing identical terms as the promissory note described above.
RUSGIT also advanced $125,000 to the Company in January 2001, which
advances were made in the same amounts and pursuant to the same terms as
the Fund's investments. RUSGIT also advanced $150,000 to the Company
subsequent to March 31, 2001, which advance was made under identical terms
and conditions and the Fund's subsequent investment.
JAKKS Pacific, Inc. (JAKK) In the first quarter of 2001, the Fund sold
50,000 shares of the Company's common stock in the open market at an
average price of $10.78 per share and netting proceeds to the Fund of
$538,796.92, representing a gain of $347,131.06. After the sale, the Fund
had 537,347 shares remaining having a cost basis of $3,132,460, or $5.83
per share.
Also in the first quarter of 2001, RUSGIT sold 50,000 shares of JAKKS
common stock at the same rate per share as the Fund's sales.
Play by Play Toys and Novelties, Inc. (PBYP) In the first quarter of
2001, the Company defaulted on the Fund's debentures by failing to repay
all outstanding principal and interest in full. All payments were
originally due December 31, 2000. In February 2001, the Fund entered into a
preliminary term sheet with the Company and the other holders of the
debentures in which the parties agreed to restructure the debentures and
extend the maturity for certain items of consideration. Subsequent to the
signing of the term sheet, the Company announced it could not meet the
terms and would be unable to close on the restructuring. The Company is
currently in negotiations with the Fund to restructure the debentures and
it is uncertain at this time whether or not the debentures can be
restructured. Due to the circumstances, the Fund took a $500,000 reserve on
its investment in the Company.
RUSGIT also has taken a reserve Fund's in its investment in the
Company identical to the and is negotiating its position on an equal basis
with the Fund's negotiation.
Page 10
Voice It Worldwide, Inc. (Liquidation) In the first quarter of 2001,
the Fund wrote off its remaining investment in the Company. In total, the
Fund received $681,611 from the liquidation and had a total writeoff of
$2,814,789.
***
Pending investment in portfolio investments, Funds are invested in
temporary cash accounts and in government securities. At March 31, 2001,
all of these Funds were held in a money market Fund made up of U.S.
Treasury obligations. As additional cash is realized from the liquidation
of investments, temporary investments will also be comprised of U. S.
Government and Agency obligations having slightly higher yields and
maturity dates of three months or less. These investments qualify for
investment as permitted in Section 55(a) (1) through (5) of the 1940 Act.
Results of Operations for the Quarter Ended March 31, 2001
For the quarter ended March 31, 2001, the Fund had net investment
income of $9,706 compared to a net investment loss of ($11,894) for the
first quarter of 2000. The increase in net investment income was primarily
attributable to a 35% decrease in operating expenses versus the comparable
quarter of 2000. Management fee expense was reduced from $347,506 in the
first quarter of 2000 to $209,806 in the first quarter of 2001 due to lower
valuations for the Fund's investment portfolio. Additionally, expenses were
down almost across the board as bank charge fees were lower, legal and
professional fees were reduced by 36% to $41,037, and other expenses were
reduced from $50,292 in the first quarter of 2000 to $42,737 in the first
quarter of 2001. For the quarter ended March 31, 2001, investment income
was down 31% to $324,485. The reduction in investment income is primarily
the result of lower interest and dividend income due to the Fund's more
concentrated position in common stock and other non-interest bearing
instruments as a result of conversions of yield-bearing instruments such as
convertible debentures and convertible preferred stock, coupled with the
lack of new investment activity in yield-bearing instruments. During the
first quarter, the Fund experienced a realized loss on investments of
$2,467,658 due to the writeoff of the investment in Voice It Worldwide,
Inc. In addition, the Fund had an unrealized gain on investments of
$2,857,732 compared to an unrealized gain of $25,104,421 at March 31, 2000.
The decrease in unrealized gain is due to lower market values for portfolio
investments.
Page 11
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(1) January 1, 2001, Escrow Agreement among Renaissance
Capital Growth and Income Fund III, Inc., Renaissance
Capital Group, Inc., and The Frost National Bank.
(b) Reports on Form 8-K
(2) None
Page 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Fund
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
May 15, 2001 ___________________________________________________________
Russell Cleveland, Chairman and President
(Principal Executive Officer)
May 15, 2001 ___________________________________________________________
Barbe Butschek, Chief Financial Officer
(Principal Financial Officer)
Page 13
EXHIBIT 1
JANUARY 1, 2001 ESCROW AGREEMENT AMONG RENAISSANCE CAPITAL
GROWTH AND INCOME FUND III, INC.,
RENAISSANCE CAPITAL GROUP, INC.,
AND
THE FROST NATIONAL BANK
Page 14
ESCROW AGREEMENT
This Escrow Agreement is dated to be effective as of January 1, 2001, among
Renaissance Capital Growth and Income Fund III, Inc. (the "Fund"), Renaissance
Capital Group, Inc. ("RCG") and The Frost National Bank, Dallas, Texas, as
Escrow Agent (the "Escrow Agent").
RECITALS
A. The Fund is a closed-end management investment company that has elected to
be regulated as a business development Company under the Investment Company
Act of 1940, as amended (the "1940 Act"), and has not withdrawn such
election.
B. RCG manages the assets of the Fund and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended.
C. By the terms of Rule 17g-1 (the "Rule") promulgated by the Securities and
Exchange Commission under the 1940 Act, the Fund is required to provide and
to maintain in effect a fidelity bond issuing against certain losses,
including larceny and embezzlement, by officers and employees having direct
or indirect access to its funds and securities.
D. The Fund has obtained a fidelity bond (the "Bond") and intends to establish
an escrow fund to provide for the payment of the full amount of the
deductible under the Bond, in the event of any loss insured under the terms
of the Bond.
E. RCG has deposited $50,000 in a money-market account at The Frost National
Bank, Account No. 96-6001890 entitled "Renaissance Capital Group, Inc.
Fidelity Bond Deductible" (the "Deposit").
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereby agree as follows:
1. Escrow Deposit. The Deposit shall be the initial escrow amount (the "Escrow
Amount") and shall be held by the Escrow Agent in an escrow account. The Escrow
Amount may be increased or decreased from time to time upon written instructions
from RCG, but shall never be less than the deductible under the Bond, if any.
The Escrow Amount shall be invested in obligations of, or guaranteed by, the
United States of America, in commercial paper obligations receiving the highest
rating from either Moody's Investors Service, Inc. or Standard & Poor's
Corporation, or in certificates of deposit, bank repurchase agreements or
bankers' acceptances of commercial banks with capital exceeding $100,000,000, or
in money market or savings accounts.
2. Claims and Payments. The Fund shall notify the Escrow Agent in the event of
the payment of a claim under the Bond to which the deductible applies. In the
event of a loss, upon written instructions from RCG, the Escrow Agent shall pay
from time to time all or a portion of the Escrow Amount to the Fund.
3. Rights and Duties of Escrow Agent. The Fund and RCG agree that the
following provisions shall control with respect to the rights, duties,
liabilities and indemnification of the Escrow Agent:
(a) Escrow Agent recognizes and is to give consideration only to the terms,
provisions, and conditions of this Escrow Agreement. Unless otherwise provided
in this Escrow Agreement, Escrow Agent has no duty to determine or inquire into
the happening or occurrence of any event or contingency or the performance or
failure of any of the undersigned with respect to arrangements or contracts with
each other or with others. The Escrow Agent's sole duty hereunder is to
safeguard the Escrow Amount and to dispose of and deliver the same in accordance
with instructions given to it in the form and tenor provided for in this Escrow
Agreement. Other than those duties or obligations expressly set forth herein, no
implied duties or obligations of the Escrow Agent shall be read into this Escrow
Agreement or imposed upon Escrow Agent.
(b) (i) If, however, Escrow Agent is called upon by the terms of this
Escrow Agreement to determine the occurrence of any event or
contingency, Escrow Agent shall be obligated, in making such
determination, only to exercise reasonable care and diligence. In
the event of error in making such determination, Escrow Agent
shall be liable only for its own willful misconduct or its gross
negligence. In determining the occurrence of any such event or
contingency, Escrow Agent may request from any of the undersigned
or any other person and may rely upon, such reasonable additional
evidence as Escrow Agent in its discretion may deem necessary to
determine any fact relating to the occurrence of such event or
contingency, and in this connection may inquire and consult,
among others, with any of the undersigned at any time. Escrow
Agent shall not be liable for any damages resulting from its
delay in acting hereunder pending its examination of the
additional evidence requested by it.
(ii) Whenever under the terms of this Escrow Agreement, Escrow Agent
is required to take certain action upon the occurrence of any
event or contingency, the time prescribed for action by Escrow
Agent shall in all cases be a reasonable time after notice to
Escrow Agent of the happening of such event or contingency,
provided, however, that the inclusion of this sentence shall not
be deemed to limit or reduce the time allowed Escrow Agent for
action as provided in the immediately preceding sentence.
(c) Escrow Agent shall not be responsible or liable to any person in any manner
whatever for the sufficiency of the Escrow Amount. The Escrow Agree- ment is an
agreement among the parties acting in their own behalf. The duty of Escrow Agent
hereunder shall only be to the other parties to this Escrow Agreement.
(d) None of the undersigned shall attempt to assign or transfer his or its
interest hereunder or any part hereof. Any such assignment or attempted
assignment by any one or all of the undersigned shall be in direct conflict with
the Escrow Agreement, and Escrow Agent shall not be bound thereby.
(e) Escrow Agent may rely and act upon, without liability to any party, any
written notice, request, waiver, consent, certificate, receipt, authorization,
instruction or other instrument or document which Escrow Agent in good faith
believes to be genuine and to be what it purports to be.
(f) Whenever under the terms of this Escrow Agreement the performance date of
any provision hereof shall fall on a holiday of the Escrow Agent, the
performance on the next successive business day of Escrow Agent shall be deemed
to be in full compliance.
(g) Any notice, request, waiver, consent, certificate, receipt, authorization,
instruction or other document required or permitted to be delivered hereunder
shall be sufficiently given if in writing and delivered personally or mailed by
registered or certified mail, postage prepaid and return receipt requested, or
transmitted by prepaid telegram, addressed to the parties hereto at the
addresses set forth below opposite their respective signatures, or such other
address as any of the undersigned shall hereafter designate by notice to the
other parties in the manner provided herein. Any notice to the Escrow Agent must
be given to the Escrow Agent's Trust Department during normal business hours and
shall be effective only upon receipt.
(h) In the event of any disagreement between any of the parties to this Escrow
Agreement, or between them or either or any of them and any other person,
resulting in adverse claims or demands being made in connection with the subject
matter of the Escrow Agreement or in the event that the Escrow Agent, in good
faith, be in doubt as to what action it should take hereunder, the Escrow Agent
may, at its option, refuse to comply with any claims or demands on it, or refuse
to take any other action hereunder, so long as such disagreement continues or
such doubt exists and in any event the Escrow Agent shall not be or become
liable for interest or in any other way to any person for its failure or refusal
to act, and the Escrow Agent shall be entitled to continue so to refrain from
acting until:
(i) this disagreement is resolved either through mediation or, at
Escrow Agent's demand, binding arbitration; or
(ii) the rights of all parties shall have been fully and finally
adjudicated by a court of competent jurisdiction; or
(iii) all differences shall have been adjusted and all doubt resolved
by agreement among all of the interested persons, and the Escrow Agent
shall have been notified thereof in writing signed by all such persons.
For purposes of any suit mentioned in this paragraph to which the
Escrow Agent may be a party, the undersigned hereby consent and submit to the
jurisdiction of the appropriate Court, whether Federal or State, sitting at
Dallas, Dallas County, Texas. The rights of the Escrow Agent under this
paragraph are cumulative of all other rights which it may have by law or
otherwise.
(i) Further, in the event of such disagreement or doubt (as described above in
Subsection (h)), Escrow Agent may, at its option, institute mediation by written
notice to each of the parties. Escrow Agent and RCG shall jointly select a
mediator. No earlier than 3 days after receipt of said notice, the designated
representatives of the parties involved in the dispute shall meet to mediate at
a mutually acceptable time and place, and, thereafter, as often as reasonably
deemed necessary, shall exchange relevant information and attempt to resolve the
dispute. The undersigned and Escrow Agent shall seek to resolve such dispute by
first mediating the dispute in good faith. In the event a dispute cannot be
resolved through mediation, upon the written request of any party hereto, such
dispute shall be submitted to binding arbitration to be administered by the
American Arbitration Association in Dallas, Texas, and determined in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
Judgment upon any arbitration award may be entered in any court having
jurisdiction.
(j) In the alternative and not withstanding anything herein to the contrary, at
Escrow Agent's sole discretion, Escrow Agent shall have the right to institute a
Bill of Interpleader or any other appropriate judicial proceeding in any court
of competent jurisdiction to determine the rights of the parties. Should a Bill
of Interpleader or other judicial proceeding be instituted in which the Escrow
Amount is tendered to the Court, or should the Escrow Agent become involved in
litigation in any manner whatsoever on account of this Escrow Agreement, the
Fund and RCG, their successors and assigns shall pay the reason- able expenses
and costs incurred by Escrow Agent in connection with or resulting from such
litigation.
(k) Escrow Agent may from time to time consult with legal counsel of its own
choosing in the event of any disagreement, controversy, question or doubt as to
the construction of any of the provisions hereof or its duties hereunder, and it
shall incur no liability and shall be fully protected in acting in good faith in
accordance with the opinion and instructions of such counsel, as may be reduced
to writing. The undersigned (herein referred to as "Indemnitors"), as additional
consideration of the execution of this Escrow Agreement by the THE FROST
NATIONAL BANK, its officers, employees and agents (herein collectively re-
ferred to as "Indemnitee"), hereby RELEASE, DISCHARGE AND ACQUIT Indemnitee of
any and all claims, demands and causes of action arising or to arise, out of
this Escrow Agreement, except for such claims that arise out of Indemnitee's
gross negligence or willful misconduct. Indemnitors hereby further agree to
INDEMNIFY and HOLD HARMLESS Indemnitee of, from, by, for and against any and all
claims, demands, and causes of action, arising, or to arise, from said Escrow
Agreement, except for such claims that arise out of Indemnitee's gross
negligence or willful misconduct.
In the event a demand is made or an action is filed, whether rightfully
or wrongfully, with respect to the subject of the Indemnity herein, Indemnitors
agree that Indemnitee may employ attorneys of its own selection to appear and to
defend the action, on behalf of Indemnitee, at the expense of Indemnitors and
further, should it become necessary for Indemnitee, its agents or attorneys, to
incur costs or retain the services of any attorney to enforce this Escrow
Agreement, or any portion thereof, Indemnitors agree and promise to pay
Indemnitee's reasonable costs, attorney's fees and any mediation fees thereby
expended, or for liabilities thereby incurred
(l) Escrow Agent is authorized by the undersigned to withhold the release or
distribution of the Escrow Amount until such time as Escrow Agent has received
payment for such services. Such charges, fees and costs shall be paid to said
Escrow Agent at its offices in Dallas, Texas.
(m) Anything in this Escrow Agreement to the contrary notwithstanding, Escrow
Agent shall not be liable to any person for anything which it may do or refrain
from doing in connection with this Escrow Agreement, unless Escrow Agent is
guilty of gross negligence or willful misconduct.
(n) Escrow Agent may resign and be discharged from its duties, hereunder at any
time by giving written notice of its resignation to the parties, specifying the
effective date thereof, which date shall be no sooner than sixty (60)days after
the date such notice is given. Upon the effective date of Escrow Agent's
resignation, Escrow Agent shall distribute the Escrow Account in accordance with
written instructions form RCG. If RCG shall not have provided Escrow Agent with
written instructions concerning the distributionof the Escrow Account, by the
effective date of either Escrow Agent's resignation or the termination of this
Escrow Agreement, Escrow Agent may initiate an interpleader action as provided
in paragraph 3(j) hereof.
(o) Compensation for the services of the Escrow Agent shall be paid by RCG and
shall be $275.00 per year, or any part of a year pro rata. RCG shall also pay
the reasonable attorneys' fees incurred by Escrow Agent in connection with the
negotiation and preparation of this Agreement.
(p) The Escrow Agent is expressly authorized to comply with and obey any orders,
judgments, or decrees of any court with respect to any matter relating to this
Escrow Agreement. In the event the Escrow Agent obeys or complies with any such
order, judgment or decree of any court, the Escrow Agent shall not be liable to
any of the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subse- quently
reversed, modified, annulled, set aside, vacated or found to have been entered
without jurisdiction.
(q) If any portion of this Escrow Agreement shall be held invalid or
unenforceable, then so far as is reasonable and possible, the remainder of this
Escrow Agreement shall be considered valid and operative, and effect shall be
given to the intent manifested by the portion held invalid or unenforceable.
4. Term and Termination. This Escrow Agreement will terminate on December 31,
2001 and shall be automatically renewable for successive one-year terms. The
Escrow Agreement may be terminated upon (i) 15 days prior written notice from
RCG or the Fund to the Escrow Agent or (ii) 60 days prior written notice from
the Escrow Agent to RCG and the Fund. Upon termination of this Escrow Agreement,
the Escrow Amount shall be distributed in accordance with written instructions
from RCG. Upon distribution of the Escrow Amount in accordance with RCG's
written instructions at the termination of this Escrow Agreement or resignation
of Escrow Agent, Escrow Agent shall thereupon and thereafter be released from
any further responsibility or liability in connection therewith, other than
liability resulting from Escrow Agent's gross negligence or intentional
misconduct.
5. Counterparts. This Escrow Agreement may be executed in several counter-
parts, each of which shall be deemed an original, and such counterparts shall
constitute one and the same instrument.
6. Interest Income. Any income earned by the subject matter of the escrow
shall be reportable under tax number of 75-2053968 and be paid to RCG quarterly.
7. Governing Law. This Escrow Agreement shall be governed by and construed
under the applicable laws of the State of Texas.
SIGNATURES APPEAR ON THE NEXT PAGE
RENAISSANCE CAPITAL GROUP, INC.
By: ________/s/______________ 8080 North Central Expressway, Suite 210-LB 59
Dallas, Texas 75207
Attention: Barbe Butschek
Title:_______________________
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
By: ________/s/______________ 8080 North Central Expressway, Suite 210-LB 59
Dallas, Texas 75207
Attention: Barbe Butschek
Title:_______________________
THE FROST NATIONAL BANK
as Escrow Agent
By: ________/s/______________ 8201 Preston Road, Suite 520
Dallas, Texas 75225
Title: ______________________ Attention: Thomas Welch