INITIAL CAPITAL AGREEMENT
Exhibit (1)
THIS
INITIAL CAPITAL AGREEMENT (the “Agreement”) is entered into
as of November 20, 2006,
by and between Highland Capital Management, L.P., a Delaware limited partnership (the “Purchaser”),
and Highland Funds I, a Delaware statutory trust (the “Trust”), on behalf of its investment
portfolio or series, Highland Equity Opportunities Fund (the “Fund”). The parties to this
Agreement hereby agree as follows:
1. SALE AND ISSUANCE OF SHARES. Subject to the terms and conditions of this Agreement, the
Trust agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the Trust 100 of
each of the Fund’s Class A Shares and Class C Shares and 9,800 of the Fund’s Class Z Shares (the
“Shares”), at a price per Share of $10.00 for an aggregate purchase price of $100,000. The Shares
are the “initial shares” of the Fund.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER. The Purchaser hereby
represents and warrants to, and covenants for the benefit of, the Trust the following:
2.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made by the Trust with the Purchaser
in reliance upon the Purchaser’s representation to the Trust, which by the Purchaser’s execution of
this Agreement the Purchaser hereby confirms, that the Shares are being acquired for investment for
the Purchaser’s own account, and not as a nominee or agent and not with a view to the resale or
distribution by the Purchaser of any of the Shares, and that the Purchaser has no present intention
of selling, granting any participation in, or otherwise distributing the Shares, in either case in
violation of any securities registration requirement under applicable law, but subject
nevertheless, to any requirement of law that the disposition of its property shall at all times be
within its control. By executing this Agreement, the Purchaser further represents that the
Purchaser does not have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or to any third person, with respect to any of
the Shares.
2.2 INVESTMENT EXPERIENCE. The Purchaser acknowledges that it can bear the economic risk of
the investment for an indefinite period of time and has such knowledge and experience in financial
and business matters (and particularly in the business in which the Fund operates) as to be capable
of evaluating the merits and risks of the investment in the Shares. The Purchaser is an
“accredited investor” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933
(the “1933 Act”).
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2.3 RESTRICTED SECURITIES. The Purchaser understands that the Shares are characterized as
“restricted securities” under the United States securities laws inasmuch as they are being acquired
from the Trust in a transaction not involving a public offering and that under such laws and
applicable regulations such Shares may be resold without registration under the 1933 Act only in
certain circumstances. In this connection, the Purchaser represents that it understands the resale
limitations imposed by the 1933 Act and is generally familiar with the existing resale limitations
imposed by Rule 144 promulgated under the 1933 Act.
2.4 FURTHER LIMITATIONS ON DISPOSITION. The Purchaser further agrees not to make any
disposition directly or indirectly of all or any portion of the Shares unless and until:
(a) There is then in effect a registration statement under the 1933 Act covering such proposed
disposition and such disposition is made in accordance with such registration statement; or
(b) The Purchaser shall have furnished the Trust with an opinion of counsel, reasonably
satisfactory to the Board of Trustees of the Trust, that such disposition will not require
registration of such Shares under the 1933 Act.
(c) Notwithstanding the provisions of subsections (a) and (b) above, no such registration
statement or opinion of counsel shall be necessary for a transfer by the Purchaser to any affiliate
of the Purchaser, if the transferee agrees in writing to be subject to the terms hereof to the same
extent as if it were the original Purchaser hereunder.
3. LEGENDS. It is understood that the certificate evidencing the Shares may bear either or
both of the following legends:
(a) “These securities have not been registered under the Securities Act of 1933. They may not
be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in
effect with respect to the Shares under such Act or an opinion of counsel reasonably satisfactory
to the Board of Trustees of Highland Funds I that such registration is not required.”
(b) Any legend required by the laws of any other applicable jurisdiction.
The Purchaser and the Trust agree that the legend or legends described in paragraphs (a) and
(b) above shall be removed at a holder’s request when they are no longer necessary to ensure
compliance with federal securities laws.
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4. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and hereto were upon the
same instrument.
5. SIGNATURE. This Agreement has been executed on behalf of the Trust by the undersigned
officer of the Trust in his or her capacity as an officer of the Trust.
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IN WITNESS WHEREOF, the undersigned have executed this Initial Capital Agreement as of the
date first written above.
| HIGHLAND FUNDS I | ||||||
| By: | /s/ Xxx Xxxxxxxxx | |||||
| Name: | Xxx Xxxxxxxxx | |||||
| Title: | Senior Vice President | |||||
| HIGHLAND CAPITAL
MANAGEMENT, L.P. by Strand Advisors, Inc., its General Partner |
||||||
| By: | /s/ Xxx Xxxxx | |||||
| Name: | ||||||
| Title: | ||||||
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